10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-K

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

      For the fiscal year ended May 30, 2010.

or

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

     For the transition period from _________ to _________.

Commission File Number: 1-6453

NATIONAL SEMICONDUCTOR CORPORATION

(Exact name of registrant as specified in its charter)

DELAWARE	95-2095071
(State of Incorporation)	(I.R.S. Employer Identification Number)

2900 SEMICONDUCTOR DRIVE, P.O. BOX 58090

SANTA CLARA, CALIFORNIA 95052-8090

(Address of principal executive offices)

Registrant’s telephone number, including area code:  (408) 721-5000

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common stock, par value $0.50 per share	New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

(Title of class)

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes S No £

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes £ No S

Indicate by check mark whether the registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes S No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes £ No £

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. £

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

Large Accelerated filer S	Non-accelerated filer £
Accelerated filer £	Smaller reporting company £

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes £ No S

The aggregate market value of our common stock held by non-affiliates of the registrant as of November 29, 2009, was approximately $2,894,742,461 based on the last reported sale price on the last trading date prior to that date. Shares of common stock held by each officer and director and by each person who owns 5 percent or more of the outstanding common stock have been excluded because these persons may be considered to be affiliates. This determination of affiliate status for purposes of this calculation is not necessarily a conclusive determination for other purposes.

The number of shares outstanding of the registrant’s common stock, $0.50 par value, as of June 27, 2010 was 239,324,550 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Document	Location in Form 10-K
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be held on or about September 24, 2010	Part III

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NATIONAL SEMICONDUCTOR CORPORATION

TABLE OF CONTENTS

PART I		Page No
Item 1.	Business	4
Item 1A.	Risk Factors	12
Item 1B.	Unresolved Staff Comments	18
Item 2.	Properties	19
Item 3.	Legal Proceedings	20
Item 4.	[REMOVED AND RESERVED]	20
Executive Officers of the Registrant		21
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	23
Item 6.	Selected Financial Data	25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 8.	Financial Statements and Supplementary Data	41
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	87
Item 9A.	Controls and Procedures	87
Item 9B.	Other Information	88
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	89
Item 11.	Executive Compensation	89
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	90
Item 13.	Certain Relationships and Related Transactions, and Director Independence	91
Item 14.	Principal Accountant Fees and Services	91
PART IV
Item 15.	Exhibits and Financial Statement Schedules	92
Signatures		94

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PART I

ITEM 1. BUSINESS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part I “Item 1A. Risk Factors” and the “Outlook” section in Part II, “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” of this Form 10-K. These statements relate to, among other things, sales, gross margins, operating expenses, capital expenditures, economic and market conditions, research and development efforts, asset dispositions, and acquisitions of and investments in other companies, and are indicated by words or phrases such as “anticipate,” “expect,” “outlook,” “foresee,” “believe,” “could,” “intend,” “will,” and similar words or phrases. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on risk factors that appears in Part I, Item 1A of this Form 10-K and other risks and uncertainties detailed in this and our other reports and filings with the Securities and Exchange Commission (SEC). We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so.

Overview

We are one of the world's leading semiconductor companies focused on analog and mixed-signal integrated circuits and sub-systems, particularly in the area of power management. Founded in 1959, we design, develop, manufacture and market high-value, high-performance, analog-intensive solutions that improve performance and energy efficiency in electronic systems. We have a diversified product portfolio which includes power management circuits, audio and operational amplifiers, communication interface products and data conversion solutions. Our portfolio of over 13,000 products is sold to a diversified group of end-customers, ranging from smaller customers serviced by an extensive distribution network to large original equipment manufacturers (OEMs). Energy-efficiency is our overarching theme and our PowerWise® products enable systems that consume less power, extend battery life and generate less heat. We target a broad range of markets and applications such as:

·	wireless handsets (including smart phones) and other portable applications	·	automotive applications
		·	factory and office automation
·	wireless basestations	·	medical applications
·	network infrastructure	·	photovoltaic systems
·	industrial and sensing applications

We benefit from an extensive intellectual property portfolio that includes more than 3,000 patents. We are focused on supporting the innovation needed for a strong new product development pipeline.

For fiscal 2010, our net sales were $1.4 billion, our operating income was $325.8 million and our net income was $209.2 million. A large portion of our sales come from analog products that are classified within the general purpose analog categories (as defined by the World Semiconductor Trade Statistics or WSTS). General purpose analog products are defined by WSTS as amplifiers, signal conversion, power management and interface products, representing the fundamental circuits that electronic systems need in order to deal with continuously varying signals of the real world, such as light, sound, pressure, temperature and speed. Within the general purpose analog market, our strengths have historically been in the power management, amplifier and interface areas where higher performance coupled with ease of use typically result in higher gross margins. In addition to general purpose analog products, we also develop application-specific analog sub-systems that typically carry higher values and are often targeted at high-growth markets.

Approximately 94 percent of our revenue in fiscal 2010 was generated from Analog segment products. Our product line operations are organized under one group called the Product Group, which is responsible for designing and developing a wide range of analog integrated circuits, many of which convert and regulate voltages to ensure that electronic systems operate to their fullest potential with the lowest overall power consumption or the highest energy efficiency. It also designs and develops integrated circuits that handle the requisite analog technology for information or data as it travels from the point where it enters the electronic system, is conditioned, converted and processed to the point where it is sent out. In addition to

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providing real world interfaces, these products are used extensively in signal conditioning, signal conversion (from analog to digital and vice versa) and high-speed interfacing applications.

National Semiconductor Corporation was incorporated in the state of Delaware in 1959 and our headquarters have been in Santa Clara, California since 1967. Our common stock is listed on the New York Stock Exchange under the trading symbol "NSM." Our fiscal year ends on the last Sunday of May and references in this document to fiscal 2010 refer to our fiscal year ended May 30, 2010. References to fiscal 2009 refer to our fiscal year ended May 31, 2009 and references to fiscal 2008 refer to our fiscal year ended May 25, 2008. Fiscal 2010 was a 52-week year, while fiscal 2009 was a 53-week year. Operating results for this additional week in fiscal 2009 were considered immaterial to our consolidated results of operations in fiscal 2009. Fiscal 2008 was a 52-week year. Our internet address is www.national.com. We post the following filings in the “Investor Relations” section of our website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC: our annual report on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act. All of the filings on our website are available free of charge. We also maintain certain corporate governance documents on our website, including our Code of Business Conduct and Ethics, Governance Committee Charter, Compensation Committee Charter, Audit Committee Charter and other governance policies. We do not intend for information found on our website to be part of this document or part of any other report or filing with the SEC.

References in this report to “National,” “we”, “us,” “our” and “the company” mean National Semiconductor Corporation and its consolidated subsidiaries.

Recent Highlights

Throughout fiscal 2010, we experienced sequential revenue growth in each quarter from our core analog product areas, consistent with improved business conditions in the industry. As a part of our business focus, we periodically identify opportunities to improve our cost structure or to divest or reduce involvement in product areas that are not in line with our business objectives, as well as pursue acquisitions or business investments to gain access to key technologies that we believe augment our existing technical capability and support our business objectives. Those activities in fiscal 2010 included the realignment of certain product line business units in May 2010, which resulted in a workforce reduction due to the related exit activities (See Note 6 to the Consolidated Financial Statements). We completed the closure of our China assembly and test plant in August 2009 and our Texas wafer fabrication facility in May 2010 (See Note 6 to the Consolidated Financial Statements).

In April 2010, we repaid in full the then outstanding balance of $203.1 million on our unsecured term loan. Subsequent to the fiscal year end, we repaid in full the $250 million principal amount of senior floating rate notes that became due in June 2010. We also issued $250 million principal amount of senior unsecured notes in a public offering in April 2010. We used part of the proceeds from this offering to repay our unsecured term loan prior to its original maturity of June 2012 and we ended fiscal 2010 with a cash balance of $1.0 billion.

Products

Semiconductors are integrated circuits (in which a number of transistors and other elements are combined to form a more complicated circuit) or discrete devices (such as individual transistors). In an integrated circuit, various components are fabricated in a small area or “chip” of silicon, which is then encapsulated in plastic, ceramic or other advanced forms of packaging and can then be connected to a circuit board or substrate.

We manufacture an extensive range of analog intensive and mixed-signal integrated circuits, which are used in numerous applications. While no precise industry definition exists for analog and mixed-signal devices, we consider products which process analog information or convert analog-to-digital or digital-to-analog as analog and mixed-signal devices.

We are a leading supplier of analog and mixed-signal products, serving both broad-based markets such as the consumer, industrial, medical, automotive and communications, and more narrowly defined markets such as wireless handsets (including smart phones) and other portable applications, LED lighting, renewable energy, portable medical and communications infrastructure. Our analog and mixed-signal devices include:

·	operational and audio amplifiers	·	lighting and display circuits
·	power references, regulators and switches	·	adaptive voltage scaling circuits
·	analog-to-digital or digital-to-analog converters	·	radio frequency integrated circuits
·	communication interface circuits

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Other product offerings that are not analog or mixed-signal include microcontrollers and embedded BluetoothTM solutions that collectively serve a wide variety of applications in the wireless, personal computer, industrial, automotive, consumer and communication markets. These products represent our older products that we no longer invest research and development effort in.

Our diverse portfolio of intellectual property enables us to develop building block products, application-specific standard products and custom large-scale integrations for our customers. Our high-performance building blocks and application-specific standard products allow our customers to solve challenging technical problems and to differentiate their systems in a way that is beneficial to the end user.

With our leadership in innovative packaging and analog process technology, we can address growth opportunities that depend upon the critical elements of efficiency, physical size and performance. We directly service top-tier OEMs in a number of markets, and we reach a broader range of customers through our franchised distributors.

Corporate Organization

Our product line operations are organized under one group called the Product Group. Within this group are all of our various product line business units. Many of our products are part of our PowerWise® portfolio of products, which are parts that are deemed to be highly energy efficient relative to the function they are performing.

In addition to our Product Group, our corporate organization in fiscal 2010 included the Worldwide Marketing and Sales Group, Key Market Segments Group, the Technology Development Group and the Manufacturing Operations Group.

Product Group

The Product Group is organized by various product line business units that include custom solutions, high speed products, infrastructure power, mobile devices power, performance power products and precision signal path business units. During fiscal 2010, our former advanced power business unit was merged into the infrastructure power business unit.

We have three different business units that address the power management area: infrastructure power, mobile devices power and performance power products. Power management refers to the conversion and management of power consumption in electronic systems. Integrated circuits such as digital processors, analog-to-digital converters and light emitting diodes each require different power sources to operate efficiently. Power management integrated circuits convert and regulate voltages to ensure that electronic systems operate properly. Our high-performance power management portfolio provides valuable solutions to our customers to solve design problems in space and energy-constrained applications from feature-rich portable devices to large line-powered systems.

The three business units that address power management design, develop and manufacture a wide range of products including:

· high-efficiency switching voltage regulators and controllers

· high-performance low drop-out voltage regulators

· accurate LED drivers

· precision voltage references

· battery management integrated circuits

· photovoltaic power optimizer solutions

We are targeting growth in our power management business by balancing our focus between broad customer needs and specific target markets. We continue to strengthen our broad portfolio of power management integrated circuits which can address customer needs in a variety of end markets such as consumer, industrial, medical, automotive and communications infrastructure. At the same time, we focus on markets, such as personal mobile devices or high-power LEDs, which can provide more rapid growth opportunities from customers that value the performance our products deliver, such as energy efficiency and size or heat reduction.

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We continue to enhance the performance of power management building blocks in terms of providing greater efficiency, increased power density, tighter accuracy and wider voltage ranges. These building block products can also be leveraged into the development of highly integrated application-specific standard products for high volume applications.

There are also two business units that address the signal path area: precision signal path and high speed products.  Signal path refers to the analog technology that is applied to the path that information or data travels along from the point where it enters the electronic equipment and is conditioned, converted and processed to the point where it is sent out. Our signal path products provide a vital technology link that allows the user to connect to digital information and are used to enable and enrich the user experience of sight and sound from many electronic applications. In addition to providing the real-world interfaces, signal path products are used extensively in signal conditioning, signal conversion (from analog-to-digital and vice versa) and high-speed signal interfacing applications.

            The two business units that focus on signal path design, develop and manufacture a wide range of products including:

· high-speed and precision operational amplifiers

· high-fidelity, low-power audio amplifiers

· high-speed and power efficient analog-to-digital converters and digital-to-analog converters

· precision timing products

· high-speed communication interface and signal-conditioning products

· thermal management products

We continually develop more high-performance analog products that can address applications in the portable, consumer, industrial, medical, automotive and communications infrastructure markets. With our growing product portfolio of high-performance building blocks, we continue to improve performance by providing greater precision, higher speed and lower power which our customers value. These building block products can also be leveraged into the development of highly integrated application-specific standard products for high volume applications.

The high speed products business unit also includes Hi-Rel products that supply integrated circuits to the high reliability market, which includes avionics, defense and aerospace customers.

There is also a custom solutions business unit within the Product Group, which supplies user-designed application-specific products in the form of standard cells, gate arrays and full custom devices.  This business unit also supplies key telecommunications components for analog and digital line cards, as well as 8-bit and 16-bit microcontrollers. Although this business unit supplies these products, it no longer develops new products.

The Product Group organization is also responsible for technology infrastructure which provides a range of process libraries, product cores and software, and the selection and support of computer aided design tools used in the design, layout and simulation of our products.

Worldwide Marketing and Sales Group, Key Market Segments Group, Technology Research Group and Manufacturing Operations Group

The Worldwide Marketing and Sales Group is our global sales and marketing organization organized around the four major regions of the world where we operate. We define our four major regions as the Americas, Asia Pacific (which excludes Japan), Europe and Japan. Reference to these regions elsewhere in this document is based on this definition.

As part of our overall marketing and business development effort, we have a separate dedicated group that concentrates solely on key market segments that the company has identified and targeted for future growth. The Key Market Segments organization includes industry experts, technologists and business development staff who work closely with our product lines to accelerate the penetration of our analog solutions in these specific markets with high growth potential.

The Technology Research Group is a centralized worldwide organization primarily responsible for advanced process development.

The Manufacturing Operations Group is a centralized worldwide organization that manages all production, including outsourced manufacturing, global logistics, and is responsible for quality assurance, purchasing and supply chain

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management. The Manufacturing Operations Group is also responsible for incremental process development and packaging technology.

Segment Financial Information and Geographic Information

Under the criteria defined by generally accepted accounting principles (GAAP), Analog is our only reportable segment for fiscal 2010. The remaining business units that are not included in the Analog reportable segment are grouped as “All Others.”

Our business is dependent on the success of our Analog segment, which represented approximately 94 percent of our sales in fiscal 2010. Consequently, the Analog segment faces the same risks as those for the company as a whole, including risks attendant to our foreign operations. For a more complete discussion of those risks, see the discussion that appears in Part I, “Item 1A. Risk Factors,” of this Form 10-K.

For further financial information on the Analog reportable segment, as well as geographic information, refer to the information contained in Note 16, “Segment and Geographic Information,” in the Notes to the Consolidated Financial Statements included in Item 8.

Marketing and Sales

We market our products globally to OEMs and original design manufacturers (ODMs) through a direct sales force. Some of our major OEMs include:

·	Apple	·	Nokia	·	Robert Bosch
·	Continental	·	Nokia Siemens Network	·	Samsung
·	LG Electronics	·	Novero	·	Siemens
·	L.M. Ericsson	·	Panasonic	·	Sony Ericsson Mobile Communications
·	Motorola	·	Research in Motion Ltd	·	Triquint

It is common in the technology industry for OEMs to use contract manufacturers to build their products and ODMs to design and build products. As a result, our design wins with major OEMs, particularly in the computing and cellular phone markets, can ultimately result in sales to a third party contract manufacturer or ODM.

In addition to our direct sales force, we use distributors in our four geographic business regions, and approximately 64 percent of our fiscal 2010 net sales were made to distributors, which includes approximately 9 percent of sales made through dairitens in Japan under local business practices. In line with industry practices, we generally credit distributors for the effect of price reductions on their inventory of our products and, under specific conditions, we repurchase products that we have discontinued. Distributors do not have the right to return product except under customary warranty provisions. The programs we offer to our distributors include the following:

· Allowances involving pricing and volume. We refer to this as the “contract sales debit” program.

· Allowances for inventory scrap. We refer to this as the “scrap allowance” program.

Under the contract sales debit program, products are sold to distributors at standard prices published in price books that are broadly provided to our various distributors. Distributors are required to pay for this product within our standard commercial terms. After the initial purchase of the product, the distributor has the opportunity to request a price allowance for a particular part number depending on the current market conditions for that specific part as well as volume considerations. This request is made prior to the distributor reselling the part. Once we have approved an allowance to the distributor, the distributor proceeds with the resale of the product and credits are issued to the distributor in accordance with the specific allowance that we approved. Periodically, we issue new distributor price books. For those parts for which the standard prices have been reduced, we provide an immediate credit to distributors for inventory quantities they have on hand.

Under the scrap allowance program, certain distributors are given a contractually defined allowance to cover the cost of any scrap they might incur. The amount of the allowance is specifically agreed upon with each distributor.

Our regional facilities in the United States, Europe, Japan and Asia Pacific handle local customer support. These customer support centers respond to inquiries on product pricing and availability, pre-sale customer technical support requests, order entry and scheduling, and post-sale support under our product warranty provisions. The technical support provided to our customers consists of marketing activities that occur prior to sale of product to our customers and for which we have no

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contractual obligation and no fees are charged. Technical support consists primarily of aiding customers in product selection and answering questions about our products.

We augment our sales effort with application engineers based in the field. These engineers are specialists in various aspects of our product portfolio and work with customers to identify and design our integrated circuits into customers’ products and applications. These engineers also help identify emerging markets for new products and are supported by our design centers in the field or at manufacturing sites.

We also provide web-based, on-line tools that allow customers and potential customers to select our devices, create a design using our parts, and simulate performance of that design.

Customers

Our top tencustomers combined represented approximately 58 percent of total accounts receivable at May 30, 2010 and approximately 60 percent at May 31, 2009.

Net sales to major customers as a percentage of total net sales were as follows:

	2010		2009		2008
Distributor:
Avnet		17%		15%		15%
Arrow		15%		13%		12%
OEM:
Nokia		*		*		11%

  * less than 10%

Although we do not have any other customers with sales greater than 10 percent, we do have several other large customers that manufacture and market wireless handsets and other electronic products. All of these customers typically purchase a range of different products from us. If any one of these customers were to cease purchasing products from us within a very short timeframe, such as within one quarter, it could have a negative impact on our financial results for that period.

Backlog

In accordance with industry practice, we frequently revise semiconductor backlog quantities and shipment schedules under outstanding purchase orders to reflect changes in customer needs. We rarely formally enforce binding agreements for the sale of specific quantities at specific prices that are contractually subject to price or quantity revisions, consistent with industry practice. For these reasons, we believe it would not be meaningful to disclose the amount of backlog at any particular date.

Seasonality

We are affected by the seasonal trends in the semiconductor and related industries. We typically experience sequentially lower sales in our first and third fiscal quarters, primarily due to customer vacation and holiday schedules. Sales usually reach a seasonal peak in our fourth fiscal quarter. This seasonal trend did not occur during fiscal 2010 as the global economy has slowly begun to recover from the significant deterioration that was experienced during our fiscal 2009. As a result of this improvement, sales in our first quarter of fiscal 2010 were up 12 percent over sales in the preceding fourth quarter of fiscal 2009 and sales in our third quarter of fiscal 2010 were up 5 percent over sales in the preceding second quarter of fiscal 2010. Consistent with our previous experience, our sales peaked in the fourth quarter of fiscal 2010.

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Manufacturing

The design of semiconductor and integrated circuit products is shaped by general market needs and customer requirements. Following product design and development, we generally produce integrated circuits in the following steps:

· Wafer Fabrication. Product designs are compiled and digitized by state of the art design equipment and then transferred to silicon wafers in a series of complex precision processes that include oxidation, lithography, chemical etching, diffusion, deposition, implantation and metallization.

· Wafer Sort. The silicon wafers are tested and separated into individual circuit devices.

· Product Assembly. Tiny wires are used to connect the electronic circuits on the device to the stronger metal leads of the package in which the device is encapsulated for protection.

· Final Test. The devices are subjected to a series of rigorous tests using computerized circuit testers and, for certain applications, environmental testers such as burn-in ovens, centrifuges, temperature cycle or moisture resistance testers, salt atmosphere testers and thermal shock testers.

· Coating. Certain devices in the analog portfolio are designed to be used without traditional packaging. In this case, the integrated circuit is coated with a protective material to allow mounting directly onto a circuit board.

Our product line business units are supported by our global manufacturing infrastructure. We have developed a number of proprietary manufacturing processes and packaging technologies to support our broad portfolio of analog products. In March 2009, we announced the closure of our wafer fabrication facility in Texas and our assembly and test plant in China. Production activity in these two facilities ceased by the end of fiscal 2010 and their production volume was consolidated into our remaining manufacturing facilities in Maine, Scotland and Malaysia. Substantially all of our products are manufactured in our two wafer fabrication facilities in Maine and Scotland, and our assembly and test facility in Malaysia. However, at times and as needed, we outsource certain manufacturing functions to address capacity, capability or other economic issues.

Our wafer manufacturing processes include Bipolar, Metal Oxide Silicon, Complementary Metal Oxide Silicon and Bipolar Complementary Metal Oxide Silicon technologies, including Silicon Germanium. Our efforts are heavily focused on proprietary processes that support our analog portfolio of products, which address wireless handsets, other personal mobile devices and a broad variety of other electronic applications. The feature size of the individual transistors on a chip is measured in microns; one micron equals one millionth of a meter. As products decrease in size and increase in functionality, our wafer fabrication facilities must be able to manufacture integrated circuits with sub-micron circuit pattern widths. This precision fabrication carries over to assembly and test operations, where advanced packaging technology and comprehensive testing are required to address the ever increasing performance and complexity embedded in integrated circuits.

Raw Materials

Our manufacturing processes use certain key raw materials critical to our products. These include silicon wafers, certain chemicals and gases, ceramic and plastic packaging materials and various precious metals. We also rely on subcontractors to supply finished or semi-finished products which we then market through our sales channels. We obtain raw materials and semi-finished or finished products from various sources, although the number of sources for any particular material or product is relatively limited. We believe our current supply of essential materials is sufficient to meet our needs. However, shortages have occurred from time to time and could occur again. Significant increases in demand, rapid product mix changes or natural disasters could affect our ability to procure materials or goods.

Research and Development

Our research and development efforts consist of research in metallurgical, electro-mechanical and solid-state sciences, manufacturing process development and product design. Total research and development expenses were $272.7 million for fiscal 2010, or 19 percent of net sales, compared to $306.0 million for fiscal 2009, or 21 percent of net sales, and $363.0 million for fiscal 2008, or 19 percent of net sales.

The decrease in research and development expenses in fiscal 2010 compared to fiscal 2009 primarily reflects cost savings associated with the cost reduction actions announced in fiscal 2009, including lower payroll and employee benefit expenses. Share-based compensation expense included in R&D expense for fiscal 2010 was $17.8 million compared to $24.3 million in fiscal 2009. We are continuing to concentrate our research and development spending on analog products and underlying analog capabilities with particular emphasis on circuits that enable greater energy efficiency. We continue to invest in the development of new analog products that can serve applications in a wide variety of end markets such as portable electronics, industrial, communications infrastructure, renewable energy products, medical, and sensing and

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detection applications. Because of our focus on markets that require or involve greater energy efficiency, a significant portion of our research and development is directed at power management technology.

Patents

We own numerous United States and non-U.S. patents and have many patent applications pending. We consider the development of patents and the maintenance of an active patent program advantageous to the conduct of our business. However, we believe that continued success will depend more on engineering, production, marketing, financial and managerial skills than on our patent program. We license certain of our patents to other manufacturers and participate in a number of cross licensing arrangements and agreements with other parties. Each license agreement has unique terms and conditions, with variations as to length of term, royalties payable, permitted uses and scope. The majority of these agreements are cross-licenses in which we grant a broad license to our intellectual property in exchange for receiving a similar corresponding license from the other party, and none are exclusive. The amount of income we have received from licensing agreements has varied in the past, and we cannot precisely forecast the amount and timing of future income from licensing agreements. On an overall basis, we believe that no single license agreement is material to us, either in terms of royalty payments due or payable or intellectual property rights granted or received.

Employees

At May 30, 2010, we employed approximately 5,800 people of whom approximately 2,400 were employed in the United States, 500 in Europe, 2,700 in Southeast Asia, 100 in China and 100 in other areas. We believe that our future success depends fundamentally on our ability to recruit and retain skilled technical and professional personnel. Our employees in the United States are not covered by collective bargaining agreements. We consider our employee relations worldwide to be favorable.

Competition

Competition in the semiconductor industry is intense. With our focus on high-value analog, our major competitors include Analog Devices, Intersil Corporation, Linear Technology, Maxim Integrated Products and Texas Instruments. In some cases, we may also compete with our customers. Competition is based on design and quality of products, product performance, price and service, with the relative importance of these factors varying among products and markets. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased competition.

Environmental Regulations

To date, our compliance with foreign, federal, state and local laws and regulations that have been enacted to regulate the environment has not had a material adverse effect on our capital expenditures, earnings, competitive or financial position. For more information, see Item 3, “Legal Proceedings” and Note 15, “Commitments and Contingencies” to the Consolidated Financial Statements in Item 8. However, we could be subject to fines, suspension of production, alteration of our manufacturing processes or cessation of our operations if we fail to comply with present or future statutes and regulations governing the use, storage, handling, discharge or disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing processes.

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ITEM 1A. RISK FACTORS   

A description of the risk factors associated with our business is set forth below. The risks described below are not the only ones facing us. Additional risks not currently known to us or that we currently believe are immaterial may also impair our business operations, results or financial condition.

You should read the following risk factors in conjunction with the factors discussed elsewhere in this and our other filings with the SEC and in materials incorporated by reference in these filings. These risk factors are intended to highlight certain factors that may affect our financial condition and results of operations and are not meant to be an exhaustive discussion of risks that apply to companies like National with broad international operations. Like other companies, we are susceptible to macroeconomic downturns in the United States or abroad that may affect the general economic climate and our performance and the performance of our customers. Similarly, the price of our stock is subject to volatility due to fluctuations in general market conditions, differences in our results of operations from estimates and projections generated by the investment community, and other factors beyond our control.

RISK FACTORS RELATING TO GENERAL BUSINESS CONDITIONS

Significant deterioration in the global economy has reduced demand for our products, and our business has been and may continue to be adversely affected.

As a result of the credit market crisis (including uncertainties with respect to financial institutions and the global capital markets) and other macro-economic challenges affecting the economy of the United States and other parts of the world, customers have modified, delayed and cancelled plans to purchase our products. During fiscal 2009, we experienced a significant reduction in order rates due to the weak global economy. While near-term market conditions in fiscal 2010 have shown some improvement, it is not clear that this improvement will continue. It is possible that current conditions could remain or worsen.

A large portion of our revenues is dependent on the wireless handset market.

The wireless handset market (including smart phones) is a significant source of our overall sales. Global economic difficulties have resulted in a slowdown in the sales of handsets and have adversely affected our revenues and profitability. This environment may continue even though we continue to develop new products to address new features and functionality in handsets. The worldwide handset market is large and future trends and other variables are difficult to predict. As a consumer-driven market, changes in the economy that adversely affect consumer demand for wireless handsets will impact demand for our products and adversely affect our business and operating results.

Conditions inherent in the semiconductor industry may cause periodic fluctuations in our operating results.

Rapid technological change and frequent introduction of new technology leading to more complex and integrated products characterize the semiconductor industry. The result is a cyclical environment with potentially short product life cycles, characterized by significant and rapid increases and decreases in product demand. Substantial capital and R&D investment are required to support products and manufacturing processes in the semiconductor industry, which amplify the effect of this cyclicality. As a result of this environment, we may experience rapid and significant fluctuations in our operating results.  Market or other shifts in our product mix toward or away from higher margin products, including analog products, or reductions in our product margins may also have a significant impact on our operating results.

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Our business will be harmed if we are unable to compete successfully in our markets.

Competition in the semiconductor industry is intense. Our major competitors include Analog Devices, Intersil Corporation, Linear Technology, Maxim Integrated Products and Texas Instruments. In some cases, we may also compete with our customers. Competition is based on design and quality of products, product performance, price and service, with the relative importance of these factors varying among products, markets and customers. We cannot assure you that we will be able to compete successfully in the future against existing or new competitors or that our operating results will not be adversely affected by increased competition.

RISK FACTORS RELATING TO INTERNATIONAL OPERATIONS

We operate in the global marketplace and face risks associated with worldwide operations.

During fiscal 2010, approximately 76 percent of our sales were derived from customers in international markets. We expect that international sales will continue to account for a significant majority of our total revenue in future years. We have manufacturing facilities outside the United States in Scotland and Malaysia. We are subject to the economic and political risks inherent in international operations, including the risks associated with ongoing uncertainties and political and economic instability in many countries around the world. In addition, the management of global operations subjects us to risks associated with legal and regulatory requirements, trade balance issues, currency controls, differences in local business and cultural factors, fluctuations in interest and currency exchange rates, and difficulties in staffing and managing foreign operations.

Global disruptions and events could adversely affect our financial performance and operating results.

Terrorist activities worldwide and hostilities in and between nation states, including the continuing hostilities and violence in Iraq and Afghanistan and the threat of future hostilities involving the United States and other countries, may cause uncertainty and instability in the overall state of the global economy or in the industries in which we operate. We have no assurance that the consequences from these events will not disrupt our operations in either the United States or other regions of the world. Significant destabilization of relations between the United States and other countries where we operate or between the countries where we operate and other countries could result in restrictions and prohibitions in the countries where we operate. Continued increases in oil prices, as well as spreading subprime mortgage failures, could also affect our operations. Pandemic illnesses that spread globally and/or substantial natural disasters, as well as geopolitical events, may also affect our future costs, operating capabilities and revenues.

We have significant manufacturing operations in Malaysia and, as a result, are subject to risks.

We have significant assembly and test facilities in Melaka, Malaysia. We may be adversely affected by laws and regulations, including those relating to taxation, import and export tariffs, environmental regulations, land use rights, property and other matters.  We cannot assure you that we will be able to maintain compliance with all of these laws and regulations, that new, stricter laws or regulations will not be imposed or that interpretations of existing regulations will not be changed, each of which would require additional expenditures or result in other adverse effects. Changes in the political environment or government policies could result in laws or regulations that impact us adversely. A significant destabilization of relations between the United States and Malaysia or with either of these countries and other countries could result in restrictions or prohibitions on our operations in that country.

We are subject to fluctuations in the exchange rate of the U.S. dollar and foreign currencies.

While we transact business primarily in U.S. dollars, and most of our revenues are denominated in U.S. dollars, a portion of our costs and revenues is denominated in other currencies, such as the euro, the Japanese yen, pound sterling and certain other Asian currencies. As a result, changes in the exchange rates of these or any other applicable currencies to the U.S. dollar will affect our net sales, costs of goods sold and operating margins. We have a program to hedge our exposure to currency rate fluctuations, but our hedging program may not be fully effective in preventing foreign exchange losses.

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We are subject to export restrictions and laws affecting trade and investments.

As a global company headquartered in the United States, we are subject to U.S. laws and regulations that limit and restrict the export of some of our products and related product information. Compliance with these laws has limited our operations and sales in the past and could significantly limit them in the future. We maintain a compliance program but there are risks of noncompliance exposing us to significant legal liabilities. We must also comply with export restrictions and laws imposed by other countries affecting trade and investments which may conflict with the laws and regulations in the United States or other countries in which we do business. There is a risk that these restrictions and laws could significantly restrict our operations in the future.

RISK FACTORS RELATING TO SALES AND OPERATIONS

Our increased focus on revenue growth could adversely impact margins over time.

Our current priority is to grow revenues at a rate greater than the rate of growth we have achieved in recent fiscal years. During those recent fiscal years our rate of revenue growth was consistently below that of our competitors, as we directed more of our efforts on maintaining and increasing our profit margins.  By focusing on our relationship with our customers and delivering exceptional value to our customers we hope to increase sales while retaining our overall profitability.  It is possible, however, that elevating our priority on increasing sales could come at the expense of gross margin. If a decrease in gross margin is not offset by sufficient increased revenue it would adversely affect our overall profitability.

Our performance depends on the availability and cost of raw materials, utilities, critical manufacturing equipment and third-party manufacturing services.

Our manufacturing processes and critical manufacturing equipment require that certain key raw materials and utilities be available. Limited or delayed access to or increases in the cost of these items, or the inability to implement new manufacturing technologies or install manufacturing equipment on a timely basis, could adversely affect our results of operations. We subcontract a portion of our wafer fabrication and assembly and testing of our integrated circuits. We depend on a limited number of third parties, most of whom are located outside of the United States, to perform these subcontracted functions. We do not have long-term contracts with all of these third parties. Reliance on these third parties involves risks, including possible shortages of capacity in periods of high demand. We have had difficulties in the past with supplies and subcontractors and could experience them in the future, including as a result of weak global economic conditions.

A substantial portion of our sales are made to distributors and the termination of an agreement with one or more distributors could result in a negative impact on our business.

In fiscal 2010, our distributors accounted for approximately 64 percent of our sales, which includes approximately 9 percent of sales made through dairitens in Japan under local business practices. Two of our distributors together accounted for 32 percent of total sales. Distributors typically sell products from several of our competitors along with our products. A significant reduction of effort to sell our products, the termination of our relationship with one or more distributors or distributor cash flow problems or other financial difficulties could reduce our access to certain end-customers and adversely impact our ability to sell our products. The termination of the distributor relationship agreement with a specific distributor could also result in the return of our inventory held by the distributor.

Our profit margins may vary over time.

Our profit margins may be adversely affected by a number of factors, including decreases in our shipment volume, reductions in, or obsolescence of our inventory, and shifts in our product mix or strategy. Because we own most of our manufacturing capacity, a significant portion of our operating costs is fixed, including costs associated with depreciation expense. In general, these costs do not decline with reductions in customer demand or utilization of our manufacturing capacity or increase as volume increases. Failure to maintain utilization rates of our manufacturing facilities or maintain the fixed costs associated with these facilities at current levels will result in higher average unit costs and lower gross margins.

We make forecasts of customer demand that may be inaccurate.

Our ability to match inventory and production mix with the product mix needed to fill current orders and orders to be delivered in any given quarter may affect our ability to meet that quarter’s revenue forecast. To be able to accommodate customer requests for shorter shipment lead times, we manufacture product based on customer forecasts. These forecasts are based on multiple assumptions. While we believe our relationships with our customers, combined with our

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understanding of the end markets we serve, provide us with the ability to make reliable forecasts, if we inaccurately forecast customer demand, it could result in inadequate, excess or obsolete inventory that would reduce our profit margins.

We are subject to warranty claims, product recalls and product liability.

We could be subject to warranty or product liability claims that could lead to significant expenses as we defend such claims or pay damage awards. In the event of a warranty claim, we may also incur costs if we compensate the affected customer. We maintain product liability insurance, but there is no guarantee that such insurance will be available or adequate to protect against all such claims. We may incur costs and expenses relating to a recall of one of our customers’ products containing one of our devices. Any future costs or payments made in connection with warranty claims or product recalls could materially affect our results of operations and financial condition in future periods.

We may be harmed by natural disasters and other disruptions.

Our worldwide operations could be subject to natural disasters and other disruptions. Our corporate headquarters are located near major earthquake fault lines in California. In the event of a major earthquake, or other natural or manmade disaster, we could experience loss of life of our employees, destruction of facilities or other business interruptions. The operations of our suppliers could also be subject to natural disasters and other disruptions, which could cause shortages and price increases in various essential materials. We use third party freight firms for nearly all of our shipments from vendors and from our wafer manufacturing facilities to assembly and test sites and for shipments to customers of our final product. This includes ground, sea and air freight. Any significant disruption of our freight shipments globally or in certain parts of the world, particularly where our operations are concentrated, would materially affect our operations. We maintain property and business interruption insurance, but there is no guarantee that such insurance will be available or adequate to protect against all costs associated with such disasters and disruptions.

We may incur losses in connection with the sale of, or we may be unable to sell, our manufacturing facilities in China and Texas.

In March 2009, we announced the eventual closure of our wafer fabrication facility in Texas and our assembly and test plant in China. We have since ceased production activity in these two facilities. We are actively engaged in locating buyers to purchase each of these manufacturing facilities and the machinery and equipment located in these facilities. In selling these properties, we are faced with the inherent volatility in the industrial real estate market, which is a function of the supply and demand for industrial properties in the micro-markets where our facilities are located. Although we believe we will be able to sell these facilities in the next fiscal year, it may take longer than we currently expect. If we must incur additional costs to maintain the facilities over a longer time frame than we currently expect, if we are forced to accept a lower price than we originally estimated, or if we are unable to locate a buyer for either or both of these facilities, our operating results will be negatively affected.

RISK FACTORS RELATING TO R&D, INTELLECTUAL PROPERTY AND LITIGATION

We may experience delays in introducing new products or market acceptance of new products may be below our expectations.

Rapidly changing technologies and industry standards, along with frequent new product introductions, characterize the industries in which our primary customers operate. As our customers evolve and introduce new products, our success depends on our ability to anticipate and adapt to these changes in a timely and cost-effective manner by developing and introducing into the market new products that meet the needs of our customers. We are also directing efforts to develop new and different types of products to serve emerging mega trends such as energy efficiency. We believe that continued focused investment in research and development, especially the timely development, introduction and market acceptance of new products, is a key factor to successful growth and the ability to achieve strong financial performance. Successful development and introduction of these new products are critical to our ability to maintain a competitive position in the marketplace. We cannot assure you, however, that we will be successful in timely developing and introducing successful new products demanded by the market, or in achieving anticipated revenues from new products, and a failure to bring new products to market or achieve market success with them may harm our operating results. We also cannot assure you that products that may be developed in the future by our competitors will not render our products obsolete or non-competitive.

Our products are dependent on the use of intellectual property that we need to protect.

We rely on patents, trade secrets, trademarks, mask works and copyrights to protect our products and technologies, and have a program to file applications for and obtain patents, trademarks, mask works and copyrights in the United States and

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in selected foreign countries where we believe filing for such protection is appropriate. Effective patent, trademark, copyright and trade secret protection may be unavailable, limited or not applied for by us in some countries. Some of our products and technologies are not covered by any patent or patent application. In addition, we cannot assure you that:

·   the patents owned by us or numerous other patents which third parties license to us will not be invalidated, circumvented, challenged or licensed to other companies; or

·   any of our pending or future patent applications will be issued within the scope of the claims sought by us, if at all; or

·   our products will not be held to infringe patents of others.

We also seek to protect our proprietary technologies, including technologies that may not be patented or patentable, in part by confidentiality agreements and, if applicable, inventors’ rights agreements with our collaborators, advisors, employees and consultants. We cannot assure you that these agreements will not be breached, that we will have adequate remedies for any breach or that our collaborators will not assert rights to intellectual property arising out of our research collaborations. In addition, we may not be able to enforce these agreements globally. Some of our technologies have been licensed on a non-exclusive basis from other companies, which may license such technologies to others, including our competitors. If necessary or desirable, we may seek licenses under patents or intellectual property rights claimed by others. However, we cannot assure you that we will obtain such licenses or that the terms of any offered licenses will be acceptable to us. The failure to obtain a license from a third party for technologies we use could cause us to incur substantial liabilities and to suspend the manufacture or shipment of products or our use of processes requiring the technologies.

The protection of our intellectual property is essential in preventing unauthorized third parties from copying or otherwise obtaining and using our technologies. Despite our efforts, we cannot assure you that we will be able to adequately prevent misappropriation or improper use of our protected technologies.

We may be subject to information technology system failures, network disruptions and breaches in data security.

Information technology system failures, network disruptions and breaches of data security could disrupt our operations by causing delays or cancellation of customer orders, impeding the manufacture or shipment of products, preventing the processing of transactions and reporting of financial results. They could also result in the unintentional disclosure of confidential information about the company or with respect to our customers and employees. While management has taken steps to address these concerns by implementing sophisticated network security and internal control measures, there can be no assurance that a system failure or data security breach will not have a material adverse effect on our financial condition and operating results.

We are subject to litigation risks.

All industries, including the semiconductor industry, are subject to legal claims. We are involved in a variety of routine legal matters that arise in the normal course of business. Further discussion of certain specific material legal proceedings in which we are involved is contained in Note 15 to the Consolidated Financial Statements. We believe it is unlikely that the final outcome of these legal claims will have a material adverse effect on our consolidated financial position or results of operations. However, litigation is inherently uncertain and unpredictable. An unfavorable resolution of any particular legal claim or proceeding could have a material adverse effect on our consolidated financial position or results of operations.

RISK FACTORS RELATED TO OUR DEBT

Increased leverage may harm our financial condition and results of operations.

Our total liabilities at the end of fiscal 2010 were $1.8 billion. Of total liabilities, $1.0 billion was debt incurred in connection with the accelerated stock repurchase program announced in June 2007 when we announced that we would incur $1.5 billion of indebtedness under a bridge credit facility to purchase shares of our common stock through an accelerated stock repurchase program. We subsequently issued $1.0 billion in senior unsecured notes and entered into a bank loan in the aggregate principal amount of $0.5 billion to fully repay the indebtedness under the bridge credit facility. We have since repaid in full the outstanding principal on the bank loan prior to its original maturity of June 2012. Subsequent to the fiscal year end, we also repaid in full our senior floating rate notes with an aggregate principal amount of $250 million due in June 2010. We issued $250 million principal amount of senior unsecured notes through a public offering in April 2010. Our long-term debt will have important effects on our future operations, including, without limitation:

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·   we will have additional cash requirements in order to support the payment of principal and interest on our outstanding indebtedness;

·   increases in our outstanding indebtedness and leverage may increase our vulnerability to adverse changes in general economic and industry conditions, as well as to competitive pressure;

·   our ability to obtain additional financing for working capital, capital expenditures, general corporate and other purposes may be limited; and

·   our flexibility in planning for, or reacting to, changes in our business and our industry may be limited.

Our ability to make payments of principal and interest on our indebtedness depends upon our future performance, which is subject to general economic conditions, industry cycles and financial, business and other factors affecting our consolidated operations, many of which are beyond our control. In addition, under our multicurrency credit agreement with a bank, we are required to comply with certain restrictive covenants, conditions, and default provisions that require the maintenance of certain financial ratios. If we are unable to generate sufficient cash flow from operations in the future to service our debt or maintain compliance with the financial covenants of our multicurrency credit agreement due to current economic conditions or otherwise, we may take certain actions which require us to, among other things:

·   seek additional financing in the debt or equity markets;

·   refinance, retire or restructure all or a portion of our indebtedness;

·   sell selected assets;

·   reduce or delay planned capital expenditures; or

·   reduce or delay planned operating expenditures.

Such measures might not be sufficient to enable us to service our debt. In addition, any such financing, refinancing or sale of assets might not be available on economically favorable terms, if at all, particularly if our credit rating is not strong.

Difficulties in the credit markets may limit our ability to refinance our debt as it becomes due.

We cannot assure you that we will be able to refinance our debt as it becomes due. The cost and availability of credit has been and may continue to be adversely affected by illiquid credit markets and wider credit spreads. Continued turbulence in the U.S. and international markets and economies may adversely affect the liquidity and financial conditions of issuers.

Increases in interest rates could adversely affect our financial condition.

Any changes in prevailing interest rates will have an immediate effect on us because we have entered into an interest rate swap arrangement that effectively converts the fixed rate of interest on our $250 million aggregate principal amount of 3.95 percent senior unsecured notes due April 2015 to a floating rate. Any increased interest expense associated with increases in interest rates will adversely affect our cash flow and our ability to service our debt. As a protection against rising interest rates, we may enter into other agreements such as interest rate swaps, caps, floors and other interest rate exchange contracts. However, our existing or any additional agreements may fail to protect or could adversely affect us because, among other things, the other parties to such agreements may fail to perform, or the terms of the agreements may turn out to be unfavorable to us depending on rate movements.

RISK FACTORS RELATING TO PERSONNEL AND MERGER AND ACQUISITION ACTIVITY

We may not be able to attract or retain employees with skills necessary to remain competitive in our industry.

Our continued success depends in part on the recruitment and retention of skilled personnel, including technical, marketing, management and staff personnel. Experienced personnel in the semiconductor industry, particularly in our targeted analog areas, are in high demand and competition for their skills is intense. We cannot assure you that we will be able to successfully recruit and retain the key personnel we require.

We may pursue acquisitions and investments that could harm our operating results and may disrupt our business.

We have made and will continue to consider making strategic business investments, alliances and acquisitions we consider necessary to gain access to key technologies that we believe will augment our existing technical capability and support our business model objectives. Acquisitions and investments involve risks and uncertainties that may unfavorably impact our future financial performance. We may not be able to integrate and develop the technologies we acquire as expected. If the technology is not developed in a timely manner, we may be unsuccessful in penetrating target markets. With any

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acquisition there are risks that future operating results may be unfavorably affected by acquisition related costs, including in-process R&D charges and incremental R&D spending.

RISK FACTORS RELATING TO TAX AND ENVIRONMENTAL REGULATIONS

We may be affected by higher than expected tax rates or exposure to additional income tax liabilities.

As a global company, our effective tax rate is dependent upon the geographic composition of worldwide earnings and tax regulations governing each region. We are subject to income taxes in both the United States and various foreign jurisdictions, and complex analyses and significant judgment are required to determine worldwide tax liabilities. From time to time, we have received notices of tax assessments in various jurisdictions where we operate. We may receive future notices of assessments and the amounts of these assessments or our failure to favorably resolve such assessments may have a material adverse effect on our financial condition or results of operations.

We have significant amounts of deferred tax assets. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits associated with the deferred tax benefits will not be realized. If we are unable to generate sufficient future taxable income in certain jurisdictions, or if there is a significant change in the enacted tax rates or the time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowances against our deferred tax assets, which would cause an increase in our effective tax rate. Proposals and discussions in Congress and the Executive branch for new U.S. tax legislation could, if adopted, adversely affect our effective tax rate. A significant increase in our effective tax rate could have a material adverse effect on our financial condition or results of operations.

We were granted a tax holiday by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010. Such tax holiday is contingent upon meeting certain minimum requirements either on an annual basis or over specified periods of time ranging from 5 to 7 years. These requirements relate to capital expenditures levels, statutory revenue realization and the maintenance of a skilled workforce in Malaysia. If we are unable to meet these requirements, our income in Malaysia would be subject to taxation by the Malaysian government and this would result in increasing our effective tax rate.

We are subject to many environmental laws and regulations.

Increasingly stringent environmental regulations restrict the amount and types of materials that can be released from our operations into the environment. While the cost of compliance with environmental laws has not had a material adverse effect on our results of operations historically, compliance with these and any future regulations could require significant capital investments in pollution control equipment or changes in the way we make our products. In addition, because we use hazardous and other regulated materials in our manufacturing processes, we are subject to risks of liabilities and claims, regardless of fault, resulting from accidental releases, including personal injury claims and civil and criminal fines. The following should also be considered:

·   we currently are remediating past contamination at some of our sites;

·   we have been identified as a potentially responsible party at a number of Superfund sites where we (or our predecessors) disposed of wastes in the past; and

·   significant regulatory and public attention on the impact of semiconductor operations on the environment may result in more stringent regulations, further increasing our costs.

For more information on environmental matters, see Note 15 to the Consolidated Financial Statements.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

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ITEM 2. PROPERTIES

We conduct manufacturing, as well as certain research and development activities, at our wafer fabrication facilities located in South Portland, Maine and Greenock, Scotland. Production activity in our Texas wafer fabrication facility decreased during fiscal 2010 as we consolidated its production volume into our remaining manufacturing facilities in Maine and Scotland. By the end of the fiscal year, we closed the manufacturing operations in Texas. Wafer fabrication capacity utilization (based on wafer starts) was 51 percent for fiscal 2010 compared to 53 percent for fiscal 2009. Our assembly and test functions are performed primarily in our manufacturing facility located in Melaka, Malaysia.

Our principal administrative and research facilities are located in Santa Clara, California. Our regional headquarters for Worldwide Marketing and Sales are located in Santa Clara, California; Munich, Germany; Tokyo, Japan; and Kowloon, Hong Kong. We maintain local sales offices and sales service centers in various locations and countries throughout our four business regions. We also operate small research facilities in various locations in the U.S., including:

·	Federal Way, Washington	·	Norcross, Georgia
·	Fort Collins, Colorado	·	Phoenix, Arizona
·	Grass Valley, California	·	Salem, New Hampshire
·	Indianapolis, Indiana	·	South Portland, Maine
·	Longmont, Colorado	·	Tucson, Arizona

Design facilities are also operated at overseas locations including China, Estonia, Finland, Germany, India, Italy, Japan, Malaysia, the Netherlands, Taiwan and the United Kingdom. We own our manufacturing facilities and our corporate headquarters. In general, we lease most of our research facilities and our sales and administrative offices. As described in the business section under Item 1 of this Form 10-K, our manufacturing operations are centralized and shared among our product line business units, and no individual facility is dedicated to a specific operating segment.

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ITEM 3. LEGAL PROCEEDINGS

We currently are a party to various legal proceedings, including those noted below. While we believe that the ultimate outcome of these various proceedings, individually and in the aggregate, will not have a material adverse effect on our financial position or results of operations, litigation is always subject to inherent uncertainties, and unfavorable rulings could occur. An unfavorable ruling could include money damages or an injunction prohibiting us from selling one or more products. Were an unfavorable ruling to occur, there exists the possibility of a material adverse impact on the net income of the period in which the ruling occurs, and future periods.

Tax Matters

Our federal tax returns for fiscal 2007 through 2009 are currently under examination by the IRS. In addition, the IRS will audit our amended federal tax returns for fiscal 2005 and 2006. Several U.S. state taxing jurisdictions are examining our state tax returns for fiscal 2001 through 2005. During fiscal 2010, the state of California closed its audits of fiscal years up through fiscal 2000, which resulted in an immaterial adjustment. Internationally, tax authorities from several foreign jurisdictions are also examining our foreign tax returns. We believe we have made adequate tax payments and/or accrued adequate amounts such that the outcome of these audits will have no material adverse effect on our financial statements.

Environmental Matters

We have been named to the National Priorities List (Superfund) for our Santa Clara, California site and we have completed a remedial investigation/feasibility study with the Regional Water Quality Control Board (RWQCB), which is acting as agent for the EPA. We have agreed in principle with the RWQCB on a site remediation plan, and we are conducting remediation and cleanup efforts at the site. In addition to the Santa Clara site, we have been designated from time to time as a potentially responsible party by international, federal and state agencies for certain environmental sites with which we may have had direct or indirect involvement. These designations are made regardless of the extent of our involvement. These claims are in various stages of administrative or judicial proceedings and include demands for recovery of past governmental costs and for future investigations and remedial actions. In many cases, the dollar amounts of the claims have not been specified and the claims have been asserted against a number of other entities for the same cost recovery or other relief as is sought from us. We have also retained responsibility for environmental matters connected with businesses we sold in fiscal 1996 and 1997, but we are not currently involved in any legal proceedings relating to those liabilities.

Other

In May 2008, eTool Development, Inc. and eTool Patent Holdings Corporation (collectively eTool) brought suit in the U.S. District Court for the Eastern District of Texas alleging that our WEBENCH® online design tools infringe an eTool patent and seeking an injunction and unspecified amounts of monetary damages (trebled because of the alleged willful infringement), attorneys’ fees and costs. In December 2008, eTool amended the complaint and counterclaims to include our SOLUTIONS online tool in its allegations of infringement of the eTool patent. We filed an answer to the amended complaint and counterclaims for declaratory judgment of non-infringement and invalidity of the patent. On February 27, 2009, the Court held a scheduling conference setting a claim construction hearing for August 2011 and a jury trial for January 2012. eTool served its infringement contentions in March 2009 and we served our invalidity contentions in May 2009. Both parties exchanged initial disclosures on May 29, 2009. The discovery phase of the case is now open and ongoing. In February 2010, we filed our inter partes reexamination petition with the United States Patent and Trademark Office (PTO), seeking a determination that the ‘919 patent is invalid. On March 15, 2010, the PTO issued a communication granting our inter partes reexamination petition. The inter partes proceeding is ongoing. On June 8, 2010, eTool filed its second amended complaint removing the infringement allegations against our SOLUTIONS online tool. We answered eTool’s second amended complaint on June 25, 2010. We intend to contest the case through all available means.

ITEM 4. [REMOVED AND RESERVED]

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EXECUTIVE OFFICERS OF THE REGISTRANT

Fiscal Year 2010

Name	Title, Fiscal Year 2010	Age
Brian L. Halla (1)	Chairman (retired May 30, 2010)	63
Donald Macleod (2)	Chairman, President and Chief Executive Officer (effective May 31, 2010)	61
Lewis Chew (3)	Senior Vice President, Finance and Chief Financial Officer	47
Todd M. DuChene (4)	Senior Vice President, General Counsel and Secretary	46
Detlev J. Kunz (5)	Senior Vice President, Product Group	59
Chue Siak “C.S.” Liu (6)	Senior Vice President, Worldwide Manufacturing	58
Suneil V. Parulekar  (7)	Senior Vice President, Worldwide Marketing and Sales	62
Michael Polacek (8)	Senior Vice President, Key Market Segments and Business Development	46
Jamie E. Samath (9)*	Vice President and Corporate Controller	39
Edward J. Sweeney (10)	Senior Vice President, Human Resources	53
Visamohan “Mohan” Yegnashankaran (11)	Senior Vice President, Worldwide Technology Development	64

Except as otherwise noted, all information is current as of May 30, 2010, the last day of the 2010 fiscal year.

* Mr. Samath was named Vice President and Corporate Controller on May 31, 2010.

Business Experience

(1) Mr. Halla was Chairman of the Board and Chief Executive Officer from May 1996 until his retirement as Chief Executive Officer on November 30, 2009 and as Chairman on May 30, 2010. Mr. Halla is no longer employed with National. Prior to that, Mr. Halla had held positions at LSI Corporation as Executive Vice President, LSI Logic Products; Senior Vice President and General Manager, Microprocessor/DSP Products Group; and Vice President and General Manager, Microprocessor Products Group.

(2) Mr. Macleod is currently Chairman, President and Chief Executive Officer of National. Mr. Macleod served as President and Chief Operating Officer from June 2005 until he was named President and Chief Executive Officer in November 2009. Mr. Macleod also became National’s Chairman on May 31, 2010. Mr. Macleod was Chief Operating Officer from April 2001 to June 2005. From February 1978 to April 2001, Mr. Macleod held positions as Executive Vice President, Finance and Chief Financial Officer; Senior Vice President, Finance and Chief Financial Officer; Vice President and General Manager, Volume Products—Europe and Director of Finance and Management Services—Europe.

(3) Mr. Chew has been National’s Senior Vice President, Finance and Chief Financial Officer since June 2001.  Prior to that, Mr. Chew served as Vice President, Corporate Controller from December 1998 to April 2001.  Mr. Chew joined National in May 1997.

(4) Mr. DuChene has been Senior Vice President, General Counsel and Secretary since he joined National in January 2008. Prior to joining National, Mr. DuChene was Executive Vice President, General Counsel and Secretary of Solectron Corporation, a global electronics manufacturing company, from 2005 to 2007 and as Senior Vice President, Corporate Development, Chief Legal Officer and Secretary of Fisher Scientific International Inc. from 1996 to 2005. Prior to that Mr. DuChene was Senior Vice President, General Counsel and Secretary of OfficeMax, Inc.

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(5) Mr. Kunz has been Senior Vice President, Product Group since October 2008.  Prior to that Mr. Kunz served as Senior Vice President, Power Management Group from May 2005 to October 2008; Senior Vice President, Worldwide Marketing and Sales from July 2001 to May 2005; and Vice President, Europe from January 2000 to July 2001.  Mr. Kunz began his career with National in July 1981.

(6) Mr. Liu has been the Senior Vice President, Worldwide Manufacturing Operations since May 2005.  Prior to that time, Mr. Liu served as Vice President and Managing Director for National’s test and assembly facility in Melaka, Malaysia from August 1996 to May 2005.  Mr. Liu began his career at National in 1976.

(7) Mr. Parulekar has been Senior Vice President, Worldwide Marketing and Sales since October 2008. From April 2001 to October 2008, Mr. Parulekar was Senior Vice President of the Analog Signal Path Group.  Prior to that, Mr. Parulekar served as Vice President of the Amplifier and Audio Products Group.  Mr. Parulekar began his career at National in January 1989.

(8) Mr. Polacek has been Senior Vice President, Key Market Segments and Business Development since October 2008.  Prior to that, Mr. Polacek served as Vice President, Amplifiers Group from December 2006 to October 2008; Vice President, Audio Products from August 2004 to December 2006; Vice President, Imaging from August 2003 to August 2004; and Vice President, Information Appliances from March 1999 to August 2003.  Mr. Polacek joined National in June 1992.

(9) Mr. Samath has been Vice President and Corporate Controller since May 31, 2010. From June 2005 to May 31, 2010, Mr. Samath was Corporate Controller. Prior to that Mr. Samath held the position of Director of Finance, Central Technology and Manufacturing Group, from May 2001 to June 2005. Mr. Samath began his career at National in February 1991.

(10) Mr. Sweeney has been Senior Vice President, Worldwide Human Resources since May 2002.   Prior to that, Mr. Sweeney was Vice President, Human Resources for Vitria Technology from May 2000 to May 2002 and Vice President, Human Resources for Candescent Technologies, Inc. from August 1998 to May 2000.  Previously, from August 1994 to August 1998, Mr. Sweeney held positions with National as Vice President of Human Resources, Central Manufacturing Technology Group and Vice President of Human Resources, Analog Products Group.   Mr. Sweeney first began his career with National in 1983.

 (11) Mr. Yegnashankaran has been Senior Vice President, Technology Research since January 2010. From May 2005 to January 2010, Mr. Yegnashankaran was Senior Vice President, Worldwide Technology Development. Prior to that, from June 1996 to May 2005, Mr. Yegnashankaran served as Vice President, Worldwide Manufacturing Product Development/Engineering. Mr. Yegnashankaran joined National in June 1996.

Our executive officers serve at the pleasure of our Board of Directors. There is no family relationship among any of our directors and executive officers.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND

ISSUER PURCHASES OF EQUITY SECURITIES

See information appearing in Note 13, Shareholders’ Equity; and Note 17, Financial Information by Quarter (Unaudited) in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K. Our common stock is traded on the New York Stock Exchange. During fiscal 2010, we paid total cash dividends of $75.7 million on our common stock, consisting of dividends of $0.08 per share of common stock paid in each of the quarters of the fiscal year. During fiscal 2009, we paid total cash dividends of $64.4 million on our common stock, consisting of dividends of $0.06 per share of common stock paid in each of the first two quarters of the fiscal year and dividends of $0.08 per share of common stock in each of the remaining two quarters of the fiscal year. Market price range data is based on the New York Stock Exchange Composite Tape. Market price per share at the close of business on July 9, 2010 was $14.13. At July 9, 2010, the number of record holders of our common stock was 4,845. For information on our equity compensation plans, see Item 12 of this Form 10-K.

During the past three fiscal years, we did not make any unregistered sales of our securities.

The following graph compares a $100 investment in National stock over the five year period from the beginning of fiscal 2005 through the end of fiscal 2010, with a similar investment in the Standard & Poor’s 500 Stock Index and Standard & Poor’s 500 Semiconductor Industry Index. It shows the cumulative total returns over this five year period, assuming reinvestment of dividends.

Comparison of Five Year Cumulative Total Return* Among National,

S&P 500 Index and S&P 500 Semiconductor Industry Index

	May 29, 2005		May 28, 2006			May 27, 2007		May 25, 2008		May 31, 2009		May 30, 2010
National Semiconductor Corp.	$	100.00	$	127.49	$		130.57	$	103.67	$	71.57	$	74.07
S&P 500 Index		100.00		108.84			131.30		121.55		83.42		100.93
S&P 500 Semiconductor Industry Index		100.00		91.13			99.46		96.83		66.48		90.73

*    Assumes $100 invested on 5/29/05 in stock or index, including reinvestment of dividends.

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Issuer Purchases of Equity Securities

The following table summarizes purchases we made of our common stock during the fourth quarter of fiscal 2010:

Period	Total Number Shares Purchased (1)	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (2)
Month # 1 March 1, 2010 – March 28, 2010	4,828	$14.40	-	$ 127 million
Month # 2 March 29, 2010 – April 28, 2010	30,828	$15.21	-	$ 127 million
Month # 3 April 29, 2010 – May 30, 2010	4,038	$14.13	-	$ 127 million
Total	39,694		-

(1)  Includes 18,158 shares that were acquired through the withholding of shares to pay employee tax obligations upon the vesting of restricted stock and 21,536 shares purchased by the rabbi trust utilized by our Deferred Compensation Plan, which permits participants to direct investment of their accounts in National stock in accordance with their instructions.

(2) During the fourth fiscal quarter, no purchases were made under the $500 million stock repurchase program announced in June 2007. As of May 30, 2010, $127 million of the $500 million stock repurchase program announced in June 2007 remains available for future stock repurchases. We do not have any plans to terminate the program prior to its completion, and there is no expiration date for this repurchase program.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected financial information has been derived from our audited consolidated financial statements. The information set forth below is not necessarily indicative of results of our future operations and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7 of this Form 10-K and the consolidated financial statements and related notes thereto in Item 8 of this Form 10-K.

FIVE-YEAR SELECTED FINANCIAL DATA

Years Ended (In Millions, Except Per Share Amounts and Employee Figures)		May 30, 2010				May 31, 2009			May 25, 2008			May 27, 2007		May 28, 2006
OPERATING RESULTS
Net sales			$	1,419.4		$	1,460.4		$	1,885.9		$	1,929.9	$	2,158.1
Cost of sales				484.2			544.1			671.5			757.7		885.4
Gross margin				935.2			916.3			1,214.4			1,172.2		1,272.7
Operating expenses				609.4			733.1			705.3			682.5		607.2
Operating income				325.8			183.2			509.1			489.7		665.5
Interest (expense) income, net				(58.5	)		(62.3	)		(51.7	)		38.9		31.8
Other non-operating (expense) income, net				1.3			(7.3	)		(6.2	)		2.0		(2.1	)
Income before income taxes				268.6			113.6			451.2			530.6		695.2
Income tax expense				59.4			40.3			118.9			155.3		246.0
Net income			$	209.2		$	73.3		$	332.3		$	375.3	$	449.2
EARNINGS PER SHARE
Net income:
	Basic		$	0.88		$	0.32		$	1.31		$	1.17	$	1.32
	Diluted		$	0.87		$	0.31		$	1.26		$	1.12	$	1.26
Weighted-average common and potential common shares outstanding:
	Basic			236.4			229.1			252.8			319.5		339.8
	Diluted			241.3			235.1			264.3			334.2		357.0
FINANCIAL POSITION AT YEAR-END
Working capital			$	922.5		$	811.6		$	863.0		$	991.5	$	1,143.0
Total assets			$	2,274.8		$	1,963.3		$	2,149.1		$	2,246.8	$	2,552.6
Long-term debt			$	1,001.0		$	1,227.4		$	1,414.8		$	20.6	$	21.1
Total debt			$	1,277.5		$	1,289.9		$	1,477.3		$	20.6	$	21.1
Shareholders’ equity			$	425.9		$	177.0		$	196.9		$	1,768.5	$	1,967.6
OTHER DATA
Research and development			$	272.7		$	306.0		$	363.0		$	363.7	$	326.6
Capital additions			$	43.3		$	83.7		$	111.3		$	106.6	$	163.3
Cash dividends declared and paid			$	75.7		$	64.4		$	50.6		$	45.1	$	34.2
Number of employees (in thousands)				5.8			5.8			7.3			7.6		8.5

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

This MD&A contains a number of forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing and particularly in Part I of Form 10-K “Item 1A. Risk Factors” and the “outlook” section of this MD&A. These statements relate to, among other things, sales, gross margins, operating expenses, capital expenditures, economic and market conditions, research and development efforts, asset dispositions, and acquisitions of and investments in other companies, and are indicated by words or phrases such as “anticipate,” “expect,” “outlook,” “foresee,” “believe,” “could,” “intend,” “will,” and similar words or phrases. These statements involve risks and uncertainties that could cause actual results to differ materially from expectations. These forward-looking statements should not be relied upon as predictions of future events as we cannot assure you that the events or circumstances reflected in these statements will be achieved or will occur. For a discussion of some of the factors that could cause actual results to differ materially from our forward-looking statements, see the discussion on risk factors that appears in Part I, Item 1A. of this Form 10-K and other risks and uncertainties detailed in this and our other reports and filings with the SEC. We undertake no obligation to update forward-looking statements to reflect developments or information obtained after the date hereof and disclaim any obligation to do so.

This discussion should be read in conjunction with the consolidated financial statements and the accompanying notes included in this Annual Report on Form 10-K for the year ended May 30, 2010.

Strategy and Business

We design, develop, manufacture and market a wide range of semiconductor products, most of which are analog and mixed-signal integrated circuits. Our goal is to be the premier provider of high-performance, energy-efficient analog and mixed-signal solutions. Many of these solutions are marketed under our PowerWise® brand.  We are focused on the following:

· growing our core revenues by marketing our extensive portfolio of general purpose analog products to a broad base of customers utilizing our established distribution channels and industry leading design tools;

· identifying and understanding the complex application specific system problems addressable by analog innovation;

· providing energy efficient, analog-intensive solutions that enable customers to differentiate their products while reducing the power consumption of their systems;

· targeting our analog solutions towards emerging areas or applications that can provide further growth on top of our core business (current examples would include LED lighting, renewable energy, portable medical, communications infrastructure and personal mobile devices);

· consistently delivering competitive products with superior quality and supply chain execution to our customers, and

· consistently delivering superior returns on invested capital to our shareholders.

 Approximately 94 percent of our net sales in fiscal 2010 came from Analog segment products. Beyond the general purpose analog categories defined by the World Semiconductor Trade Statistics or WSTS, we also sell analog subsystems specifically targeted at certain particular markets and applications. Energy efficiency is our overarching theme, and our PowerWise® products enable systems that consume less power, extend battery life and generate less heat. Our leading-edge products include power management circuits and sub-systems, audio and operational amplifiers, communication interface products and data conversion solutions. For more information on our business, see Part I, “Item 1. Business,” in this Annual Report on Form 10-K for the fiscal year ended May 30, 2010.

Critical Accounting Policies and Estimates

We believe the following critical accounting policies are those policies that have a significant effect on the determination of our financial position and results of operations. These policies also require us to make our most difficult and subjective judgments:

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a) Revenue Recognition

We recognize revenue from the sale of semiconductor products upon shipment, provided we have persuasive evidence of an arrangement typically in the form of a purchase order, title and risk of loss have passed to the customer, the amount is fixed or determinable and collection of the revenue is reasonably assured. We record a provision for estimated future returns at the time of shipment. Approximately 64 percent of our semiconductor product sales were made to distributors in fiscal 2010, which includes approximately 9 percent of sales made through dairitens in Japan under local business practices. This compares to approximately 53 percent in fiscal 2009 and approximately 54 percent in fiscal 2008, which includes sales made through dairitens in Japan of approximately 8 percent in fiscal 2009 and 11 percent in fiscal 2008. We have agreements with our distributors that cover various programs, including pricing adjustments based on resale pricing and volume, price protection for inventory and scrap allowances. The revenue we record for these distribution sales is net of estimated provisions for these programs. When determining this net distribution revenue, we must make significant judgments and estimates. Our estimates are based upon historical experience rates by geography and product family, inventory levels in the distribution channel, current economic trends and other related factors. We continuously monitor the claimed allowance against the rates assumed in our estimates of the allowances. Actual distributor claims activity has been materially consistent with the provisions we have made based on our estimates. However, because of the inherent nature of estimates, there is always a risk that there could be significant differences between actual amounts and our estimates. Our financial condition and operating results are dependent on our ability to make reliable estimates, and we believe that our estimates are reasonable. However, different judgments or estimates could result in variances that might be significant to our operating results.

Service revenues are recognized as the services are provided or as milestones are achieved, depending on the terms of the arrangement. These revenues are included in net sales and totaled $19.6 million in fiscal 2010, $17.4 million in fiscal 2009 and $25.1 million in fiscal 2008.

Certain intellectual property income is classified as revenue if it meets specified criteria established by company policy that defines whether it is considered a source of income from our primary operations. These revenues are included in net sales and totaled $1.3 million in fiscal 2010, $2.6 million in fiscal 2009 and $1.6 million in fiscal 2008. All other intellectual property income that does not meet the specified criteria is not considered a source of income from primary operations and is therefore classified as a component of other operating income, net, in the consolidated statement of income. Intellectual property income is recognized when the license is delivered, the fee is fixed or determinable, collection of the fee is reasonably assured and remaining obligations are perfunctory or inconsequential to the other party.

b) Valuation of Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The total carrying value of our inventory is reduced for any difference between cost and estimated market value of inventory that is determined to be obsolete or unmarketable, based upon assumptions about future demand and market conditions. Reductions in carrying value are deemed to establish a new cost basis. Inventory is not written up if estimates of market value subsequently improve. We evaluate obsolescence by analyzing the inventory aging, order backlog and future customer demand on an individual product basis. If actual demand were to be substantially lower than what we have estimated, we may be required to write inventory down below the current carrying value. While our estimates require us to make significant judgments and assumptions about future events, we believe our relationships with our customers, combined with our understanding of the end-markets we serve, provide us with the ability to make reasonable estimates. The actual amount of obsolete or unmarketable inventory has been materially consistent with previously estimated write-downs we have recorded. We also evaluate the carrying value of inventory for lower-of-cost-or-market on an individual product basis, and these evaluations are intended to identify any difference between net realizable value and standard cost. Net realizable value is used as a measure of market for purposes of evaluating lower-of-cost-or-market and is determined as the selling price of the product less the estimated cost of disposal. When necessary, we reduce the carrying value of inventory to net realizable value. If actual market conditions and resulting product sales were to be less favorable than what we have projected, additional inventory write-downs may be required.

c) Impairment of Goodwill, Intangible Assets and Other Long-lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and

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eventual disposition. Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets. Amortizable intangible assets subject to this evaluation include developed technology we have acquired, patents and technology licenses. We assess the impairment of goodwill annually in our fourth fiscal quarter and whenever events or changes in circumstances indicate that it is more likely than not that an impairment loss has been incurred. We are required to make judgments and assumptions in identifying those events or changes in circumstances that may trigger impairment. Some of the factors we consider include:

· significant decrease in the market value of an asset;

· significant changes in the extent or manner for which the asset is being used or in its physical condition;

· significant change, delay or departure in our business strategy related to the asset;

· significant negative changes in the business climate, industry or economic conditions; and

· current period operating losses or negative cash flow combined with a history of similar losses or a forecast that indicates continuing losses associated with the use of an asset.  

Our impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their remaining estimated useful lives. If our estimate of future undiscounted net cash flows is insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. We determine fair value based on discounted cash flows using a discount rate commensurate with the risk inherent in our current business model. Major factors that influence our cash flow analysis are our estimates for future revenue and expenses associated with the use of the asset. Different estimates could have a significant impact on the results of our evaluation. If, as a result of our analysis, we determine that our amortizable intangible assets or other long-lived assets have been impaired, we will recognize an impairment loss in the period in which the impairment is determined. Any such impairment charge could be significant and could have a material adverse effect on our financial position and results of operations.

We classify long-lived assets as assets held for sale when the criteria have been met, in accordance with ASC Topic 360, “Property, Plant, and Equipment.” Upon classification of an asset as held for sale, we cease depreciation of the asset and classify the asset in other current assets at the lower of its carrying value or fair value (less cost to sell). If an asset is held for sale as a result of a restructuring of operations, any write down to fair value (less cost to sell) is included as a restructuring expense in the consolidated statement of income. When we commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we revise depreciation estimates to reflect the use of the asset over its shortened useful life. We review depreciation estimates periodically, including both estimated useful lives and estimated salvage values. These reviews may result in changes to historical depreciation rates, which are considered to be changes in accounting estimates and are accounted for on a prospective basis.

Our impairment evaluation of goodwill is based on comparing the fair value to the carrying value of our reporting units containing goodwill. Our reporting units are based on our operating segments as defined under ASC Topic 280, "Segment Reporting."  The fair value of a reporting unit is measured at the business unit level using a discounted cash flow approach that incorporates our estimates of future revenues and costs for those business units. As of May 30, 2010 our reporting units containing goodwill include our high speed products, infrastructure power, mobile devices power, performance power products and precision signal path business units, all of which are operating segments within our Analog reportable segment, and our custom solutions business unit which is included in the category “All Others.” The estimates we use in evaluating goodwill are consistent with the plans and estimates that we use to manage the underlying businesses. If we fail to deliver new products for these business units, if the products fail to gain expected market acceptance, or if market conditions for these business units fail to materialize as anticipated, our revenue and cost forecasts may not be achieved and we may incur charges for goodwill impairment, which could be significant and could have a material adverse effect on our results of operations.

d) Income Taxes

We determine deferred tax assets and liabilities based on the future tax consequences that can be attributed to net operating loss and credit carryovers and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using the enacted tax rate expected to be applied when the taxes are actually paid or recovered. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which the net operating loss and credit carryovers and

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differences between financial statement carrying amounts and their respective tax bases become deductible. In determining a valuation allowance, we consider past performance, expected future taxable income and prudent and feasible tax planning strategies. We currently have a valuation allowance that has been established primarily against the reinvestment and investment tax credits related to our operation in Malaysia, as we have concluded that the deferred tax assets will not be realized in the foreseeable future due to a tax holiday granted by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010 and the uncertainty of sufficient taxable income in Malaysia beyond fiscal 2019.

Our forecast of expected future taxable income is based on historical taxable income and projections of future taxable income over the periods that the deferred tax assets are deductible. Changes in market conditions that differ materially from our current expectations and changes in future tax laws in the United States and international jurisdictions or changes in our tax structure may cause us to change our judgments of future taxable income. These changes, if any, may require us to adjust the existing tax valuation allowance higher or lower than the amount we currently have recorded and such an adjustment could have a material impact on the tax expense for the fiscal year.

The calculation of tax liabilities involves significant judgment in estimating the impact of uncertainties in the application of complex tax laws. Although ASC Topic 740, “Income Taxes,” provides further clarification on the accounting for uncertainty in income taxes recognized in the financial statements, the threshold and measurement attribute prescribed by the FASB guidance will continue to require significant judgment by management. If the ultimate resolution of tax uncertainties is different from what we have currently estimated, this could have a material impact on income tax expense.

e) Share-based Compensation

We measure and record compensation expense for all share-based payment awards based on estimated fair values in accordance with ASC Topic 718, “Compensation-Stock Compensation.” We provide share-based awards to our employees, executive officers and directors through various equity compensation plans including our employee equity, stock option, stock purchase and restricted stock plans. The fair value of stock option and stock purchase equity awards is measured at the date of grant using a Black-Scholes option pricing model, and the fair value of restricted stock awards is based on the market price of our common stock on the date of grant. The cash awards to be paid in connection with retention arrangements with each of our executive officers (approved by the Compensation Committee of our Board of Directors in November 2008) is considered a share-based payment award and measured at fair value since the award is indexed to the price of our common stock. The fair value of these cash awards is measured each reporting period and is calculated using the Monte Carlo valuation method.

In determining fair value using the Black-Scholes option pricing model and the Monte Carlo valuation method, management is required to make certain estimates of the key assumptions such as expected life, expected volatility, dividend yields and risk free interest rates. The estimates of these key assumptions involve judgment regarding subjective future expectations of market price and trends. The assumptions used in determining expected life and expected volatility have the most significant effect on calculating the fair value of share-based awards. For all options granted after December 31, 2007, we determine expected life based on historical stock option exercise experience for the last four years, adjusted for our expectation of future exercise activity. For options granted prior to January 1, 2008, we use the simplified method specified by the SEC’s Staff Accounting Bulletin No. 107 to determine the expected life of stock options. Expected volatility is based on implied volatility, as management has determined that implied volatility better reflects the market’s expectation of future volatility than historical volatility. If we were to determine that another method to estimate these assumptions was more reasonable than our current methods, or if another method for calculating these assumptions were to be prescribed by authoritative guidance, the fair value for our share-based awards could change significantly. If the expected volatility and/or expected life were increased under our assumptions, then the Black-Scholes and Monte Carlo computations of fair value would also increase, thereby resulting in higher compensation costs being recorded.

Under GAAP, we are required to estimate forfeitures at the date of grant. Our estimate of forfeitures is based on our historical activity, which we believe is indicative of expected forfeitures. In subsequent periods if the actual rate of forfeitures differs from our estimate, the forfeiture rates may be revised, as necessary. Changes in the estimated forfeiture rates can have a significant effect on share-based compensation expense since the effect of adjusting the rate is recognized in the period the forfeiture estimate is changed.

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We also grant performance share units to executive officers that require us to estimate expected achievement of performance targets over the performance period. This estimate involves judgment regarding future expectations of various financial performance measures such as those described in the overview section below. If there are changes in our estimate of the level of financial performance measures expected to be achieved, the related share-based compensation expense may be significantly increased or reduced in the period that our estimate changes.

Overview

We focus on providing leading-edge analog solutions with a large portion of our sales classified within the general purpose analog categories as defined by WSTS. In fiscal 2010, approximately 94 percent of our total sales came from our Analog segment. We believe that the success we have achieved in these markets has been driven by our knowledge of the analog markets, our circuit design capabilities and our understanding of electronic systems, especially as they pertain to energy efficiency that is enabled by our products. Our success has also been due to our innovative packaging and proprietary analog process technology, as well as our comprehensive manufacturing and supply chain competence.

Net sales were lower in fiscal 2010 compared to net sales in fiscal 2009 as we were negatively affected throughout the first half of fiscal 2010 by the significant slowdown in the global economy that affected calendar 2009. In contrast, our net sales in the second half of fiscal 2010 grew 33 percent over net sales in the second half of fiscal 2009 as the global economy slowly began to recover. Although factory utilization was slightly lower at 51 percent in fiscal 2010 compared to 53 percent in fiscal 2009 due to lower sales, we achieved a higher gross margin percentage compared to fiscal 2009. Although our performance in gross margin percentage is partly dependent on our sales mix of higher-value analog products, blended-average selling prices were fairly flat in fiscal 2010 compared to fiscal 2009. Lower inventory obsolescence and scrap rates combined with better manufacturing cost efficiencies that included the benefits from factory consolidation activities in fiscal 2010 were the primary contributors to higher gross margin percentage in fiscal 2010. We continue to direct our research and development investments on high-value growth areas in analog markets and applications, with particular focus on power management and energy efficiency where our PowerWise® products enable systems that consume less power, extend battery life and generate less heat.

In reviewing our performance, we consider several key financial measures. When reviewing our net sales performance, we look at sales growth rates (both absolute and relative to competitors), new order rates (including turns orders, which are orders received with delivery requested in the same quarter), blended-average selling prices, sales of new products and market share. We gauge our operating income performance based on gross margin trends, product mix, blended-average selling prices, factory utilization rates and operating expenses relative to sales. Our profitability and earnings per share increased sequentially in each of the quarters in fiscal 2010 and were higher for fiscal 2010 compared to fiscal 2009. We remain focused on growing our revenue and earnings per share over time while generating a consistently high return on invested capital by concentrating on operating income, working capital management, capital expenditures and cash management. We determine return on invested capital based on net operating income after tax divided by invested capital, which generally consists of total assets reduced by goodwill and non-interest bearing liabilities.

Stock repurchase activity is one element of our overall program to deliver a consistently high return on invested capital, which we believe improves shareholder value over time. During fiscal 2010, however, we did not repurchase shares of our common stock as we decided to preserve cash during the uncertain financial environment and also to pay down some of our long-term debt sooner than required. As of May 30, 2010, we had a balance of $127.4 million remaining available for future common stock repurchases under Board authorized programs.

We also continued with the dividend program in fiscal 2010, during which time we paid a total of $75.7 million in cash dividends. On June 10, 2010, our Board of Directors declared a cash dividend of $0.08 per outstanding share of common stock, which was paid on July 12, 2010 to shareholders of record at the close of business on June 21, 2010. On July 12, 2010, in connection with a regularly scheduled meeting, our Board of Directors declared a cash dividend of $0.10 per outstanding share of common stock, which will be paid on October 12, 2010 to shareholders of record at the close of business on September 20, 2010.

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The following table and discussion provide an overview of our operating results for fiscal 2010, 2009 and 2008:

Years Ended: (In Millions)	May 30, 2010			% Change		May 31, 2009			% Change		May 25, 2008
Net sales	$	1,419.4		(2.8%	)	$	1,460.4		(22.6%	)	$	1,885.9
Operating income	$	325.8				$	183.2				$	509.1
As a % of net sales		23.0	%				12.5	%				27.0	%
Net income	$	209.2				$	73.3				$	332.3
As a % of net sales		14.7	%				5.0	%				17.6	%

Net income for fiscal 2010 includes a net charge of $20.1 million for severance and restructuring expenses, of which $1.7 million relates to exit activity associated with the realignment of certain product line business units and $21.5 million relates to the planned closures of our manufacturing facilities in Texas and China announced in March 2009.  These severance and restructuring expenses were partially offset by a $3.1 million reduction of accrued expenses related to prior actions (See Note 6 to the Consolidated Financial Statements). Net income also includes $0.4 million of other operating income (See Note 4 to the Consolidated Financial Statements). These charges and credits are all pre-tax amounts.

Net income for fiscal 2009 included $143.9 million for severance and restructuring expenses related to the actions taken to reduce overall expenses in response to weak economic conditions and related business levels. Those actions included workforce reductions (in November 2008 and March 2009) and the planned closures of our manufacturing facilities in Texas and China announced in March 2009 (See Note 6 to the Consolidated Financial Statements). Net income also included a $2.9 million in-process R&D charge related to the acquisition of ActSolar, Inc. (See Note 7 to the Consolidated Financial Statements) and $2.7 million of other operating income (See Note 4 to the Consolidated Financial Statements). These charges and credits are all pre-tax amounts. Income tax expense for fiscal 2009 included incremental tax expense of $16.7 million related to the write down of foreign deferred tax assets that resulted from a tax holiday granted by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010. The effect of the write down of foreign deferred tax assets was partially offset by $15.0 million of tax benefits associated with R&D tax credits, net of the portion of the tax benefit that did not meet the more-likely-than-not recognition threshold.

Net income for fiscal 2008 included $27.2 million for severance and restructuring expenses related to a factory modernization effort announced in January 2008 and a workforce reduction announced in April 2008 (See Note 6 to the Consolidated Financial Statements). Net income for fiscal 2008 also included $0.4 million of other operating income (See Note 4 to the Consolidated Financial Statements). These charges and credits are all pre-tax amounts. Income tax expense for fiscal 2008 included $31.9 million of tax benefits that arose primarily from the resolution of international tax inquiries, the expiration of statute of limitations associated with international tax matters and activities related to the manufacturing restructure and workforce reduction.

Share-based Compensation Expense

Our operating results include the recognition of share-based compensation expense, which totaled $73.8 million in fiscal 2010, $70.9 million in fiscal 2009 and $89.7 million in fiscal 2008.  The overall increase in our share-based compensation expense in fiscal 2010 compared to fiscal 2009 was primarily due to higher expense related to the share-based awards for our executive officers, as the company underwent a transition of its Chief Executive Officer during fiscal 2010.  The overall decrease in our share-based compensation in fiscal 2009 compared to fiscal 2008 is primarily due to the drop off of higher compensation expense from stock options granted prior to fiscal 2007 that generally had higher computed fair values due mainly to the volatility component of the fair value computation. For further information and a description of our share-based compensation plans, see Note 1 and Note 14 to the Consolidated Financial Statements.

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Net Sales

Years Ended: (In Millions)	May 30, 2010			% Change		May 31, 2009			% Change		May 25, 2008
Analog segment	$	1,329.1		(0.4%	)	$	1,334.9		(21.3%	)	$	1,695.9
As a % of net sales		93.6	%				91.4	%				89.9	%
All others	$	90.3		(28.0%	)	$	125.5		(33.9%	)	$	190.0
As a % of net sales		6.4	%				8.6	%				10.1	%
Total net sales	$	1,419.4				$	1,460.4				$	1,885.9
		100	%				100	%				100	%

The chart above and the following discussion are based on our reportable segments described in Note 16 to the Consolidated Financial Statements. The information for fiscal 2009 and 2008 has been reclassified to present segment information based on the structure of our operating segments in fiscal 2010.

During the first quarter of fiscal 2010, the advanced power business unit was merged into the infrastructure power business unit. As a result, the Analog segment comprises five operating segments which include the high speed products, infrastructure power, mobile devices power, performance power products and precision signal path business units.

Analog segment sales were slightly lower in fiscal 2010 compared to fiscal 2009 due to lower overall demand from customers, particularly from customers in the wireless handset market, who were negatively affected by the downturn in the overall global economy throughout calendar 2009. Despite the effect of the economic downturn in fiscal 2010, analog sales in the second half of fiscal 2010 grew 35 percent over net sales in the second half of fiscal 2009 as the global economy slowly began to recover. Unit shipments in our Analog segment were just slightly down by 1 percent in fiscal 2010 compared to the volume shipped in fiscal 2009 due to higher unit shipments in the second half of fiscal 2010. Blended-average selling prices were essentially flat in fiscal 2010 compared to fiscal 2009.

For purposes of the following discussion, we have combined as one group the business units whose products are targeted for the power management market (infrastructure power, mobile devices power and performance power products). Although net sales from this group in fiscal 2010 compared to fiscal 2009 decreased by 3 percent, their net sales in the second half of fiscal 2010 were higher by 29 percent compared to the second half of fiscal 2009. Net sales from our high speed products and precision signal path business units in fiscal 2010 compared to fiscal 2009 increased by 5 percent and 1 percent, respectively. These increases in net sales for these business units were driven by the growth in their net sales in the second half of fiscal 2010 compared to the second half of fiscal 2009 which was higher by 44 percent and 40 percent, respectively.

For other operating business units included in “All Others,” the decrease in sales for fiscal 2010 compared to fiscal 2009 was primarily due to declining sales from non-analog business units that are no longer a part of our core focus. The sales from these non-analog business units include sales generated from foundry and contract service arrangements.

For fiscal 2010, net sales in our geographic regions increased by 7 percent in Japan and 2 percent in Europe while it decreased by 2 percent in the Americas and 7 percent in the Asia Pacific region compared to fiscal 2009. Regional sales as a percentage of total net sales in fiscal 2010 compared to fiscal 2009 increased to 24 percent in the Americas, 22 percent in Europe and 9 percent in Japan while it declined in the Asia Pacific region to 45 percent. The reported amount of net sales in U.S. dollars related to foreign currency-denominated sales in fiscal 2010 was favorably affected by foreign currency exchange rate fluctuations as the Japanese yen strengthened over the fiscal year against the dollar. Although the euro weakened over the fiscal year against the dollar, it did not have a material effect on foreign currency-denominated sales in fiscal 2010. The overall effect of currency exchange rate fluctuations on net sales reported in U.S. dollars was minimal since only 16 percent of our total net sales were denominated in foreign currency and we have hedging programs intended to minimize the effect of currency exchange rate fluctuations.

Analog segment sales were lower in fiscal 2009 compared to fiscal 2008 due to lower overall demand from customers who were negatively affected by the sharp downturn in the overall global economy. Weak industry conditions also caused a significant decline in new orders from our distributors, who service a number of customers across a broad range of industries and markets. Unit shipments in our Analog segment decreased 25 percent in fiscal 2009 compared to the

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volume shipped in fiscal 2008. Blended-average selling prices increased 5 percent in fiscal 2009 compared to fiscal 2008, which was driven mainly by improved sales mix from higher-value products.

Within the analog segment net sales from our power management business unit decreased by 21 percent in fiscal 2009 compared to fiscal 2008. Net sales from our high speed products and precision signal path business units in fiscal 2009 compared to fiscal 2008 decreased by 15 percent and 26 percent, respectively.

For other operating business units included in “All Others,” the decrease in sales for fiscal 2009 compared to fiscal 2008 was primarily due to declining sales from non-analog business units that are no longer a part of our core focus. The sales from these non-analog business units include sales generated from foundry and contract service arrangements.

For fiscal 2009, net sales in our geographic regions decreased compared to fiscal 2008 by 12 percent in the Americas, 25 percent in Europe, 22 percent in the Asia Pacific region and 43 percent in Japan. Regional sales as a percentage of total net sales in fiscal 2009 compared to fiscal 2008 were higher in the Asia Pacific region at 48 percent and the Americas at 23 percent, but dropped to 21 percent in Europe and 8 percent in Japan. The reported amount of net sales in U.S. dollars related to foreign currency-denominated sales in fiscal 2009 was favorably affected by foreign currency exchange rate fluctuations primarily because the Japanese yen strengthened over the fiscal year against the dollar. Although the euro weakened over the fiscal year against the dollar, its effect on foreign currency-denominated sales in fiscal 2009 was immaterial. The overall effect of currency exchange rate fluctuations on net sales reported in U.S. dollars was minimal since less than 20 percent of our total net sales were denominated in foreign currency and we have hedging programs intended to minimize the effect of currency exchange rate fluctuations.

Gross Margin

Years Ended: (In Millions)	May 30, 2010			% Change		May 31, 2009			% Change		May 25, 2008
Net sales	$	1,419.4		(2.8 %	)	$	1,460.4		(22.6%	)	$	1,885.9
Cost of sales		484.2		(11.0 %	)		544.1		(19.0%	)		671.5
Gross margin	$	935.2				$	916.3				$	1,214.4
As a % of net sales		65.9	%				62.7	%				64.4	%

Our gross margin percentage was higher in fiscal 2010 compared to fiscal 2009, primarily due to the favorable effects of cost control measures, including cost savings from the closures of our manufacturing facilities in both Texas and China where production activity was ceased during fiscal 2010. Although our blended-average analog selling prices were essentially flat compared to fiscal 2009, product mix within our portfolio of analog products continues to have a positive influence on our performance in gross margin percentage. Lower inventory obsolescence and scrap rates also affected our gross margin percentages favorably in fiscal 2010 compared to fiscal 2009. Wafer fabrication capacity utilization (based on wafer starts) was 51 percent in fiscal 2010 compared to 53 percent in fiscal 2009. Gross margin includes share-based compensation expense of $10.3 million in fiscal 2010 compared to $16.0 million in fiscal 2009.

Our gross margin percentage decreased in fiscal 2009 compared to fiscal 2008 due to a decline in factory utilization caused by significantly lower sales. The decrease in gross margin percentage was somewhat offset by a favorable effect from lower expenses resulting from cost control measures. Despite a lower gross margin percentage, improved product mix of higher-margin analog products continued to have a positive influence on our performance in gross margin percentage. As part of that product mix improvement, our blended-average analog selling prices in fiscal 2009 were higher compared to fiscal 2008. Wafer fabrication capacity utilization (based on wafer starts) was 67 percent in fiscal 2008. Share-based compensation expense included in gross margin was $20.1 million in fiscal 2008.

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Research and Development

Years Ended: (In Millions)	May 30, 2010			% Change		May 31, 2009			% Change		May 25, 2008
Research and development	$	272.7		(10.9 %	)	$	306.0		(15.7%	)	$	363.0
As a % of net sales		19.2	%				21.0	%				19.2	%

The decrease in research and development expenses in fiscal 2010 compared to fiscal 2009 primarily reflects cost savings associated with the cost reduction actions announced in fiscal 2009, including lower payroll and employee benefit expenses. Share-based compensation expense included in R&D expense for fiscal 2010 was $17.8 million compared to $24.3 million in fiscal 2009. We are continuing to concentrate our research and development spending on analog products and underlying analog capabilities with particular emphasis on circuits that enable greater energy efficiency. We continue to invest in the development of new analog products that can serve applications in a wide variety of end markets such as portable electronics, industrial, communications infrastructure, renewable energy products, medical, and sensing and detection applications. Because of our focus on markets that require or involve greater energy efficiency, a significant portion of our research and development is directed at power management technology.

The decrease in R&D expenses for fiscal 2009 compared to fiscal 2008 primarily reflects cost savings associated with the cost reduction actions announced in November 2008 and in fiscal 2008 combined with lower annual payroll and employee benefits expenses. Fiscal 2009 expenses also reflect savings from reduced discretionary spending in response to the weakening economic environment during the same time frame. Share-based compensation expense included in R&D expense was $27.3 million in fiscal 2008.

R&D expenses for fiscal 2009 exclude an in-process R&D charge of $2.9 million related to the acquisition of ActSolar, Inc. (See Note 7 to the Consolidated Financial Statements). The in-process R&D charge is included as a separate component of operating expenses in the consolidated statement of income for fiscal 2009.

Selling, General and Administrative

Years Ended: (In Millions)	May 30, 2010			% Change	May 31, 2009			% Change		May 25, 2008
Selling, general and administrative	$	317.0		12.0%	$	283.0		(10.3%	)	$	315.5
As a % of net sales		22.3	%			19.4	%				16.7	%

Selling, general and administrative expenses in fiscal 2010 include a charge of $5.3 million compared to fiscal 2009, which included a credit of $7.7 million.  This charge and credit represent changes in the liability associated with the employee deferred compensation plan due to changes in the market value of the employees’ corresponding investment assets for the plan. See the discussion of the corresponding gain and loss on the employees’ investment asset described in the paragraph, “Other Non-Operating Income (Expense), Net.” Excluding these amounts, SG&A expenses for fiscal 2010 compared to fiscal 2009 increased by $21.0 million, or 7.2 percent. We believe that excluding the charges and credit relating to changes in the liability associated with the employee deferred compensation plan liability provides a better understanding of the changes in our SG&A expenses that are related to our core operating performance during the relevant fiscal years. SG&A expenses in fiscal 2010 compared to fiscal 2009 include higher employee benefit expenses and higher share-based compensation expenses related to executive officers, which are offset by cost savings associated with the cost reduction actions announced in fiscal 2009. Share-based compensation expense for fiscal 2010 included in SG&A expenses was $45.7 million compared to fiscal 2009, which was $30.6 million.

Although SG&A expenses were lower in fiscal 2009 compared to fiscal 2008, SG&A expenses include credits related to reductions in the liability associated with the employee deferred compensation plan due to a decline in the market value of the employees’ corresponding investment assets in the plan ($6.2 million in fiscal 2008). Excluding the effect from the reductions in this liability associated with the deferred compensation plan, the decrease is primarily due to lower share-based compensation expense and lower annual payroll and employee benefit expenses which were partially offset by higher legal expenses related to intellectual property matters. Share-based compensation expense included in SG&A expenses was $42.3 million in fiscal 2008.

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Severance and Restructuring Expenses Related to Cost Reduction Programs

Our fiscal 2010 results include a net charge of $20.1 million for severance and restructuring expenses, of which $1.7 million relates to exit activity associated with the realignment of certain product line business units and $21.5 million relates to the planned closures of our manufacturing facilities in Texas and China announced in March 2009. These severance and restructuring expenses were partially offset by a $3.1 million reduction of accrued expenses related to prior actions. For a more complete discussion of these actions and related charges, see Note 6 to the Consolidated Financial Statements.

Our fiscal 2009 results included a net charge of $143.9 million for severance and restructuring expenses. Of this amount, we recorded a charge of $117.3 million related to the actions announced in March 2009 when we eliminated approximately 850 positions worldwide. In addition, we planned to further reduce headcount by approximately 875 over the next 12-18 months through the eventual closure of our wafer fabrication facility in Arlington, Texas and our assembly and test plant in Suzhou, China. This charge included severance costs of $59.7 million, asset impairment charges of $54.3 million and other exit-related costs of $3.3 million associated with closure and transfer activities. In November 2008, we announced a global workforce reduction that eliminated approximately 330 positions. We also closed two design centers located in the United States. As a result of this action, we recorded severance and restructuring expenses of $26.4 million in fiscal 2009, which includes severance costs of $25.5 million, other exit-related costs of $0.1 million and $0.8 million for the impairment of abandoned equipment. In addition to the actions described above, we recorded a net charge of $0.3 million related to the workforce reduction and manufacturing restructure announced in fiscal 2008. This amount includes a $2.2 million charge for other exit-related costs that was partially offset by a recovery of $1.9 million. For a more complete discussion of these actions and related charges, see Note 6 to the Consolidated Financial Statements.

Our fiscal 2008 results included a net charge of $27.2 million for severance and restructuring expenses. We recorded $19.1 million primarily for severance and equipment impairment as part of an action announced in January 2008 to modernize our facilities and rationalize our capacity. We also recorded a charge of $9.6 million for severance related to a workforce reduction announced in April 2008 as part of our efforts to strategically align resources in connection with our focus on revenue growth in key market areas that require better power management and energy efficiency. In addition, severance and restructuring expenses for fiscal 2008 included a recovery of $1.5 million. See Note 6 to the Consolidated Financial Statements for a more complete discussion of these actions and related charges.

Charge for Acquired In-Process Research and Development

In connection with the acquisition of ActSolar, Inc. in fiscal 2009, we allocated $2.9 million of the total purchase price to the value of in-process R&D. This amount was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed for the technology. See Note 7 to the Consolidated Financial Statements for a more complete discussion of the acquisition.

Interest Income

Years Ended: (In Millions)	May 30, 2010		May 31, 2009		May 25, 2008
Interest income	$	1.8	$	10.4	$	33.8

The decrease in interest income in fiscal 2010, 2009 and 2008 is due to lower interest rates in each of those fiscal years.

Interest Expense

Years Ended: (In Millions)	May 30, 2010		May 31, 2009		May 25, 2008
Interest expense	$	60.3	$	72.7	$	85.5

The decrease in interest expense in fiscal 2010, 2009 and fiscal 2008 is due to lower interest rates related to our debt that has floating interest rates and a lower overall debt balance.

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Other Non-Operating Income (Expense), Net

Years Ended: (In Millions)	May 30, 2010			May 31, 2009			May 25, 2008
Gain (loss) on investments	$	5.6		$	(7.3	)	$	(6.0	)
Loss on extinguishment of debt		(2.1	)		-			-
Net loss on derivative instruments in fair value hedge		(2.2	)		-			-
Charitable contribution		-			-			(0.2	)
Total other non-operating income (expense), net	$	1.3		$	(7.3	)	$	(6.2	)

A primary component of other non-operating income (expense), net is derived from activities or market value fluctuations related to investment assets. The gain on investments in fiscal 2010 reflects an increase in the market value of the investment assets held in a trust for the employee deferred compensation plan while the losses in fiscal 2009 and 2008 reflected a decline in its market value. As described in the paragraph, “Selling, General and Administrative,” SG&A expenses for the same period include the related charge or credit pertaining to the corresponding liability. The gain on investments in fiscal 2010 also includes a $0.3 million gain from the liquidation of a non-marketable investment we previously held. The loss on investments in fiscal 2009 and 2008 included gains of $0.4 million and $0.2 million, respectively, from non-marketable investments that were not associated with the deferred compensation plan. The loss on derivative instruments is a result of our swap agreement for the April 2010 $250 million debt issuance (See Note 3 to the Consolidated Financial Statements).

Income Tax Expense

Years Ended: (In Millions)	May 30, 2010			May 31, 2009			May 25, 2008
Income tax expense	$	59.4		$	40.3		$	118.9
Effective tax rate		22.1	%		35.5	%		26.4	%

The effective tax rate was lower in fiscal 2010 compared to fiscal 2009 due to a tax benefit of $7.4 million primarily arising from the repatriation of previously unremitted Japanese earnings. In addition, a portion of our earnings comes from our Malaysian subsidiary and is not taxable because of a tax holiday granted by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010.

The effective tax rate was higher for fiscal 2009 compared to fiscal 2008, primarily due to the write down of foreign deferred tax assets that resulted from the tax holiday granted by the Malaysian government described above. The effect of the write down of foreign deferred tax assets was partially offset by the tax benefits associated with R&D tax credits, net of the portion of the tax benefit that did not meet the more-likely-than-not recognition threshold (See Note 11 to the Consolidated Financial Statements).

We adopted standards that changed the accounting for uncertain tax positions in accordance with ASC Topic 740, “Income Taxes” at the beginning of fiscal 2008. The cumulative effect of the change in accounting for uncertain tax positions was a $37.1 million increase to retained earnings at the beginning of fiscal 2008. Historically, we had classified unrecognized tax benefits as current income taxes payable. Under the new guidance, we now classify unrecognized tax benefits as long-term income taxes payable except to the extent we anticipate cash payment within the next year. Any prospective adjustments to our unrecognized tax benefits will be recorded as an increase or decrease to income tax expense and cause a corresponding change to our effective tax rate.

Our ability to realize the net deferred tax assets ($315.8 million at May 30, 2010) is primarily dependent on our ability to generate future U.S. taxable income. We believe it is more likely than not that we will generate sufficient taxable income to utilize these tax assets. Our ability to utilize these tax assets is dependent on future results and it is therefore possible that we will be unable to ultimately realize some portion or all of the benefits of these recognized deferred tax assets. This could result in additions to the deferred tax asset valuation allowance and an increase to tax expense.

Foreign Operations

Our foreign operations include manufacturing facilities in the Asia Pacific region and Europe and sales offices throughout the Asia Pacific region, Europe and Japan. A portion of the transactions at these facilities is denominated in local currency,

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which exposes us to risk from exchange rate fluctuations. Our exposure from expenses at foreign manufacturing facilities during fiscal 2010 was concentrated in U.K. pound sterling, Malaysian ringgit and Chinese RMB. Where practical, we hedge net non-U.S. dollar denominated asset and liability positions using forward exchange and purchased option contracts. Our exposure from foreign currency denominated revenue is limited to the Japanese yen and the euro. We hedge up to 100 percent of the notional value of outstanding customer orders denominated in foreign currency using forward exchange contracts and over-the-counter foreign currency options. A portion of anticipated foreign sales commitments is at times hedged using purchased option contracts that have an original maturity of one year or less.

Financial Market Risks

We are exposed to financial market risks, including changes in interest rates and foreign currency exchange rates. To mitigate these risks, we use derivative financial instruments. We do not use derivative financial instruments for speculative or trading purposes.

Although there has been continued deterioration and instability in the financial markets, the credit quality of our investment portfolio (classified as cash and cash equivalents) remains very high. Our investment portfolio is mainly comprised of debt instruments that are with A/A2 or better rated issuers, of which the majority is rated AA-/Aa2 or better. We limit our exposure to any one counterparty by diversifying our investments and continually evaluating each counterparty’s relative credit standing. As of May 30, 2010, the total credit exposure from most single counterparties did not exceed $40 million with the exception of AAA rated government-backed bonds and deposits. Our debt instruments also have very short average maturities that are generally less than a month, and we have not encountered any delays or disruption in their redemptions or maturities nor have we experienced any losses in connection with our cash investments.

Although the $250 million principal amount of senior unsecured notes we issued in a public offering in April 2010 bear interest at a fixed rate, we entered into an interest rate swap agreement that effectively converts the fixed rate of the debt to a floating rate. As a result, an increase in the reference interest rate increases our interest expense and similarly, a decrease in the reference interest rate decreases our interest expense. At our current debt levels, a change in the London Interbank Offered Rate, or LIBOR, of one percentage point would result in a corresponding change in our interest expense of up to $2.5 million annually. Decreases in interest expense would be offset by decreases in interest income earned from our large cash portfolio. Similarly, if interest rates were to increase, it is likely that both our interest expense and our interest income on cash would increase. We repaid in full the $250 million principal amount of senior floating rate notes that became due in June 2010 subsequent to the fiscal year end. The remainder of our long-term debt totaling approximately $1 billion has fixed interest rates and is not affected by changes in interest rates.

A substantial majority of our revenue and capital spending is transacted in U.S. dollars. However, we do enter into transactions in other currencies, primarily the Japanese yen, pound sterling, euro and various other Asian currencies. To protect against reductions in value and the volatility of future cash flows caused by changes in foreign exchange rates, we have established programs to hedge our exposure to these changes in foreign currency exchange rates. Our hedging programs reduce, but do not always eliminate, the impact of foreign currency exchange rate movements. An adverse change (defined as 15 percent in all currencies) in exchange rates would result in a decline in income before taxes of less than $15 million. This calculation assumes that each exchange rate would change in the same direction relative to the U.S. dollar. In addition to the direct effects of changes in exchange rates, these changes typically affect the volume of sales or the foreign currency sales price as competitors’ products become more or less attractive. Our sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels or local currency selling prices. All of these potential changes are based on sensitivity analyses performed as of May 30, 2010.

Liquidity and Capital Resources

Years Ended: (In Millions)	May 30, 2010			May 31, 2009			May 25, 2008
Net cash provided by operating activities	$	402.9		$	360.8		$	644.3
Net cash used in investing activities		(41.7	)		(81.7	)		(102.0	)
Net cash used in financing activities		(34.5	)		(315.6	)		(634.1	)
Net change in cash and cash equivalents	$	326.7		$	(36.5	)	$	(91.8	)

The primary factors contributing to the changes in cash and cash equivalents in fiscal 2010, 2009 and 2008 are described below:

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 In fiscal 2010, cash from operating activities was positively affected by net income, adjusted for non-cash items (primarily depreciation and amortization, and share-based compensation expense), combined with a positive effect from changes in working capital components. The positive changes in working capital were from a decrease in inventory plus increases in accounts payable and accrued expenses, as well as other non-current liabilities. These positive changes were partially offset by the negative change in working capital from an increase in receivables and other current assets. In fiscal 2009, cash from operating activities was generated by net income, adjusted for non-cash items (primarily depreciation and amortization, and share-based compensation expense), combined with a positive effect from changes in working capital components. The positive changes in working capital were mainly attributable to decreases in receivables and inventories. These positive changes were partially offset by the negative change from decreases in accounts payable and accrued expenses, as well as the decrease in other non-current liabilities. In fiscal 2008, cash from operating activities was generated by net income, adjusted for non-cash items (primarily depreciation and amortization, and share-based compensation expense) and a positive effect from changes in working capital components. Changes in working capital that had a positive effect were attributable to an increase in accounts payable and accrued expenses and decreases in inventories and other assets, which were partially offset by a decrease in other non-current liabilities.

The primary use of cash for investing activities in fiscal 2010 was the purchase of property, plant and equipment of $43.3 million, mainly representing the purchase of machinery and equipment, combined with a net payment of $4.8 million associated with the acquisition of ERI.  The primary use of cash for investing activities in fiscal 2009 was the purchase of property, plant and equipment of $83.7 million, mainly representing the purchase of machinery and equipment. The primary use of cash for investing activities in fiscal 2008 was the purchase of property, plant and equipment of $111.3 million, mainly representing the purchase of machinery and equipment, which was partially offset by proceeds from the sale of property, plant and equipment of $16.6 million.

The primary use of cash for financing activities in fiscal 2010 was for payments of $265.6 million of principal payments on the bank term loan, $75.7 million for cash dividends, and $6.3 million for software license obligations. This amount was partially offset by cash proceeds of $244.9 million (net of issuance costs and discount on principal) from our issuance of $250 million principal amount of senior unsecured notes in a public offering in April 2010 and $71.2 million from the issuance of common stock under employee benefit plans. The primary use of cash for financing activities in fiscal 2009 was for the repurchase of 6.2 million shares of our common stock in the open market for $128.4 million and payments of $187.6 million for principal payments on the unsecured bank term loan and $64.4 million for cash dividends. These amounts were partially offset by cash proceeds of $60.2 million from the issuance of common stock under employee benefits plans. The primary use of cash for financing activities in fiscal 2008 was for the repurchase of 85.9 million shares of our common stock for $2.1 billion, which included the delivery of 58.0 million shares of our common stock repurchased under the $1.5 billion accelerated share repurchase program. The remaining shares were repurchased in the open market. We also used cash for financing activities for the payments of $50.6 million for cash dividends, $46.8 million on the unsecured bank term loan and $14.6 million related to tax withholdings paid on behalf of employees for net share settlements. These amounts were partially offset by cash proceeds of $1.5 billion (net of issuance costs) that came from new debt, which included $1.0 billion unsecured senior notes issued in a public offering and a $500.0 million unsecured credit facility with a consortium of banks funded in fiscal 2008. Cash proceeds also included $103.7 million from the issuance of common stock under employee benefit plans. Financing activities in fiscal 2008 also include an additional $1.5 billion of cash received from the unsecured bridge credit facility that was used to finance the accelerated stock repurchase and an additional payment of $1.5 billion for its full repayment after completing the $1.0 billion unsecured senior note offering and the $500 million unsecured credit facility with a consortium of banks.

As described above we issued $250 million principal amount of senior unsecured notes in a public offering in April 2010. The unsecured notes bear interest at a fixed rate of 3.95 percent and are due in April 2015. Interest is payable semi-annually and the notes are redeemable by us at any time. In April 2010, we also repaid in full the remaining outstanding principal on our unsecured term loan with a consortium of banks prior to its original maturity of June 2012. The early repayment resulted in a cash outlay of $203.6 million and the recognition of a $2.1 million loss on extinguishment (see Note 10 to the Consolidated Financial Statements).

On June 10, 2010, our Board of Directors declared a cash dividend of $0.08 per outstanding share of common stock, which was paid on July 12, 2010 to shareholders of record at the close of business on June 21, 2010. On July 12, 2010, in connection with a regularly scheduled meeting, our Board of Directors declared a cash dividend of $0.10 per outstanding share of common stock, which will be paid on October 12, 2010 to shareholders of record at the close of business on September 20, 2010.

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    We anticipate that our fiscal 2011 capital expenditures will be higher than the fiscal 2010 amount. We will continue to manage the level of capital expenditures relative to sales levels, capacity utilization and industry business conditions. By the end of fiscal 2010, we ceased production activity in both China and Texas. Activities associated with the closures of those manufacturing facilities are expected to continue through the end of calendar 2010, as well as activities related to the exit activity associated with the realignment of certain product line business units. In June 2010 after the end of our fiscal year, we repaid in full the $250.0 million principal amount of senior floating rate notes that became due June 2010. Our remaining debt as of May 30, 2010 includes our 6.15 percent fixed rate notes with an aggregate principal amount of $375 million due in June 2012, our 3.95 percent fixed rate notes with an aggregate principal of $250 million due in April 2015 and our 6.6 percent fixed rate notes with an aggregate principal amount of $375 million due in June 2017. We expect that existing cash and investment balances, together with existing lines of credit and cash generated by operations, will be sufficient to finance the capital investments currently planned for fiscal 2011 and payments related to the plant closures and product line business unit realignment. However, we cannot assure that if economic conditions were to substantially further deteriorate within the next year, we would have the appropriate financial resources to meet our business requirements.

Our cash and investment balances are dependent in part on continued collection of customer receivables and the ability to sell inventories. Although we have not experienced major problems with our customer receivables, continual declines in overall economic conditions could lead to deterioration in the quality of customer receivables in the future. Since we no longer hold investments with maturities greater than 90 days, we did not experience any major declines in our cash equivalents or marketable investments as a result of the downturn in the financial markets. However, major declines in financial markets could cause reductions in our cash equivalents and marketable investments in the future.

The following table provides a summary of the effect on liquidity and cash flows from our contractual obligations as of May 30, 2010:

	Payments due by period:
(In Millions)	Total		Less than 1 Year		1 – 3           Years		3 – 5   Years		More than 5 Years
Contractual obligations:
Long-term debt	$	1,277.5	$	276.5	$	375.0	$	251.0	$	375.0
Operating lease obligations:
Non-cancelable operating leases		35.5		15.0		12.8		5.7		2.0
Purchase obligations:
CAD software licensing agreements		7.4		7.4		-		-		-
Other software licensing agreements		1.3		1.3		-		-		-
Industrial gas contracts		6.0		0.5		1.0		1.0		3.5
Other purchase obligations		19.9		7.1		8.4		4.4		-
Total	$	1,347.6	$	307.8	$	397.2	$	262.1	$	380.5
Commercial commitments: Standby letters of credit under bank  multicurrency agreement	$	3.4	$	3.4	$	-	$	-	$	-

In addition, as of May 30, 2010, capital purchase commitments were $15.5 million.

We do not currently have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which might be established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We do not engage in trading activities involving non-exchange traded contracts. As a result, we do not believe we are materially exposed to financing, liquidity, market or credit risks that could arise if we had engaged in these relationships.

Recently Issued Accounting Pronouncements

In April, 2010, the FASB issued FASB Accounting Standards Update (ASU) No. 2010-17, “Revenue Recognition (Topic 605) - Milestone Method of Revenue Recognition - a consensus of the FASB Emerging Issues Task Force.” This ASU provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This ASU will be effective on a prospective basis for

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milestones achieved beginning in our second quarter of fiscal 2011. We do not expect the adoption of this ASU to have a significant effect to our consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Fair Value Measurements and Disclosures (Topic 820) – Improving Disclosures about Fair Value Measurements.” This ASU requires new disclosures regarding significant transfers in and out of Levels 1 and 2, and information about activity in Level 3 fair value measurements. In addition, this ASU clarifies existing disclosures regarding input and valuation techniques, as well as the level of disaggregation for each class of assets and liabilities. This ASU is effective for us beginning in fiscal 2011. We do not expect the adoption of this ASU to have a significant effect on our consolidated financial statements.

In October 2009, the FASB issued ASU No. 2009-13, “Revenue Recognition (Topic 605) – Multiple-Deliverable Revenue Arrangements – a consensus of the FASB Emerging Issues Task Force.” In the absence of vendor-specific objective evidence (VSOE) or other third party evidence (TPE) of the selling price for the deliverables in a multiple-element arrangement, this ASU requires companies to use an estimated selling price (ESP) for the individual deliverables. Companies are to apply the relative-selling price model for allocating an arrangement’s total consideration to its individual elements. Under this model, the ESP is used for both the delivered and undelivered elements that do not have VSOE or TPE of the selling price. This ASU will be applied on a prospective basis for revenue arrangements entered into or materially modified beginning in our fiscal 2012, with earlier application permitted. Since we will apply the requirements of this ASU on a prospective basis, we are currently evaluating its requirements and have not yet determined its effect on our consolidated financial statements.

Outlook

During fiscal 2010, we experienced improvement in our business as the global economy began to recover. New orders increased sequentially in each successive quarter of fiscal 2010. This led to sequential growth in net sales in each quarter of fiscal 2010.

In the fourth quarter of fiscal 2010, new orders increased by 12 percent over the preceding third quarter. This was driven primarily by our distributor channel, although new orders from our direct OEM customer base also increased sequentially. A portion of the improvement in total company new orders was attributable to better-than-expected turns orders, which represent orders received with delivery requested in the same quarter. This increase in turns orders came mainly from increasing levels of demand in the industrial markets, which are served through our distribution channel. As a result of the improvement in order activity, our opening backlog as we entered the first quarter of fiscal 2011 was higher than the level it was when we began the fourth quarter of fiscal 2010.

Considering all factors, including those described above, we provided guidance for net sales in the first quarter of fiscal 2011 to increase approximately 3 percent to 5 percent sequentially from the level achieved in the fourth quarter of fiscal 2010. However, if backlog orders are cancelled or if the currently anticipated level of turns orders is less than expected, we may not be able to achieve this projected level of sales. As a result of the higher net sales outlook, we anticipate that our wafer fabrication utilization will rise in the first quarter of fiscal 2011. Consequently, we anticipate that our gross margin percentage for the first quarter of fiscal 2011 will increase compared to the fourth quarter of fiscal 2010 depending on the sales level that we achieve. However, if there are declines in factory utilization or changes in the expected sales level or product mix, our gross margin percentage could be unfavorably affected.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

See information/discussion appearing under the subcaption “Financial Market Risks” of Management’s Discussion and Analysis of Financial Condition and Results of Operations in Item 7 of this Form 10-K and the information appearing in Note 1, “Summary of Significant Accounting Policies,” and Note 3, “Financial Instruments,” in the Notes to the Consolidated Financial Statements included in Item 8 of this Form 10-K.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Financial Statements of National Semiconductor Corporation and Subsidiaries:
Consolidated Balance Sheets at May 30, 2010 and May 31, 2009	42
Consolidated Statements of Income for each of the years in the three-year period ended May 30, 2010	43
Consolidated Statements of Comprehensive Income for each of the years in the three-year period ended May 30, 2010	44
Consolidated Statements of Shareholders’ Equity for each of the years in the three-year period ended May 30, 2010	45
Consolidated Statements of Cash Flows for each of the years in the three-year period ended May 30, 2010	46
Notes to Consolidated Financial Statements	47
Reports of Independent Registered Public Accounting Firm	85
Financial Statement Schedule:
Schedule II -- Valuation and Qualifying Accounts for each of the years in the three-year period ended May 30, 2010	93

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NATIONAL SEMICONDUCTOR CORPORATION

CONSOLIDATED BALANCE SHEETS

	May 30,			May 31,
(In Millions, Except Share Amounts)	2010			2009
ASSETS
Current assets:
Cash and cash equivalents	$	1,027.0		$	700.3
Receivables, less allowances of $30.0 in 2010 and $18.7 in 2009		98.2			71.7
Inventories		118.6			134.6
Deferred tax assets		70.3			72.6
Other current assets		156.8			108.0
Total current assets		1,470.9			1,087.2
Property, plant and equipment, net		390.1			461.8
Goodwill		66.1			61.5
Deferred tax assets, net		245.5			251.5
Other assets		102.2			101.3
Total assets	$	2,274.8		$	1,963.3
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt	$	276.5		$	62.5
Accounts payable		49.8			40.3
Accrued expenses		204.5			144.6
Income taxes payable		17.6			28.2
Total current liabilities		548.4			275.6
Long-term debt		1,001.0			1,227.4
Long-term income taxes payable		175.3			162.6
Other non-current liabilities		124.2			120.7
Total liabilities		1,848.9			1,786.3
Commitments and contingencies
Shareholders’ equity:
Preferred stock of $0.50 par value. Authorized 1,000,000 shares.		-			-
Common stock of $0.50 par value. Authorized 850,000,000 shares.
Issued and outstanding 239,071,512 in 2010 and 232,605,355 in 2009		119.5			116.3
Additional paid-in-capital		188.3			67.6
Retained earnings		250.3			116.8
Accumulated other comprehensive loss		(132.2	)		(123.7	)
Total shareholders’ equity		425.9			177.0
Total liabilities and shareholders’ equity	$	2,274.8		$	1,963.3

See accompanying Notes to Consolidated Financial Statements

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NATIONAL SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

Years Ended	May 30,			May 31,			May 25,
(In Millions, Except Per Share Amounts)	2010			2009			2008
Net sales	$	1,419.4		$	1,460.4		$	1,885.9
Cost of sales		484.2			544.1			671.5
Gross margin		935.2			916.3			1,214.4
Research and development		272.7			306.0			363.0
Selling, general and administrative		317.0			283.0			315.5
Severance and restructuring expenses		20.1			143.9			27.2
In-process research and development charge		-			2.9			-
Other operating income, net		(0.4	)		(2.7	)		(0.4	)
Operating expenses		609.4			733.1			705.3
Operating income		325.8			183.2			509.1
Interest income		1.8			10.4			33.8
Interest expense		(60.3	)		(72.7	)		(85.5	)
Other non-operating income (expense), net		1.3			(7.3	)		(6.2	)
Income before income taxes		268.6			113.6			451.2
Income tax expense		59.4			40.3			118.9
Net income	$	209.2		$	73.3		$	332.3
Earnings per share:
Basic	$	0.88		$	0.32		$	1.31
Diluted	$	0.87		$	0.31		$	1.26
Weighted-average common and potential common shares outstanding:
Basic		236.4			229.1			252.8
Diluted		241.3			235.1			264.3

See accompanying Notes to Consolidated Financial Statements

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NATIONAL SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended	May 30,			May 31,			May 25,
(In Millions)	2010			2009			2008
Net income	$	209.2		$	73.3		$	332.3
Other comprehensive (loss) income, net of tax:
Defined benefit pension plans:
Reclassification adjustment for the amortization of transition asset included in net periodic pension cost		(0.1	)		(0.2	)		(0.1	)
Recognition of actuarial (loss) gain arising during the period		(8.3	)		(36.5	)		27.4
Plan settlement		-			-			(0.4	)
Retirement health plan:
Recognition of prior service costs upon implementation of new plan					(0.2	)		-
Recognition of actuarial loss arising during the period		(0.1	)		-			-
Derivative instruments:
Unrealized gain on cash flow hedges		-			-			0.1
Other comprehensive (loss) income		(8.5	)		(36.9	)		27.0
Comprehensive income	$	200.7		$	36.4		$	359.3

See accompanying Notes to Consolidated Financial Statements

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NATIONAL SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(((In Millions, Except Per Share Amount)	Common Stock									Retained Earnings			Accumulated Other Comprehensive Loss			Total
	Shares		Par Value				Additional Paid-In Capital
Balance at May 27, 2007	310.3		$	155.1		$		-		$	1,727.2		$	(113.8	)	$	1,768.5
Cumulative effect adjustment upon the adoption of new accounting
standards for uncertain income tax positions	-			-				-			37.1			-			37.1
Net income	-			-				-			332.3			-			332.3
Cash dividend declared and paid ($0.20 per share)	-			-				-			(50.6	)		-			(50.6	)
Issuance of common stock under option and purchase plans	7.6			3.9				99.8			-			-			103.7
Issuance of stock under Executive Officer Equity Plan	1.0			0.5				(0.5	)		-			-			-
Cancellation of restricted stock	(0.4	)		(0.2	)			(14.4	)		-			-			(14.6	)
Share-based compensation cost	-			-				89.4			-			-			89.4
Tax benefit associated with stock options	-			-				27.6			-			-			27.6
Purchase and retirement of treasury stock	(85.9	)		(43.0	)			(201. 9	)		(1,878.6	)		-			(2,123.5	)
Other comprehensive income	-			-				-			-			27.0			27.0
Balance at May 25, 2008	232.6			116.3				-			167.4			(86.8	)		196.9
Effect upon the adoption of new accounting standards for change in
defined benefit plan measurement date, net of tax	-			-				-			(0.6	)		-			(0.6	)
Net income	-			-				-			73.3			-			73.3
Cash dividend declared and paid ($0.28 per share)	-			-				-			(64.4	)		-			(64.4	)
Issuance of common stock under option and purchase plans	6.2			3.1				59.1			-			-			62.2
Cancellation of restricted stock	-			-				(0.4	)		-			-			(0.4	)
Share-based compensation cost	-			-				67.2			-			-			67.2
Tax benefit associated with stock options	-			-				8.1			-			-			8.1
Purchase and retirement of treasury stock	(6.2	)		(3.1	)			(66.4	)		(58.9	)		-			(128.4	)
Other comprehensive income	-			-				-			-			(36.9	)		(36.9	)
Balance at May 31, 2009	232.6			116.3				67.6			116.8			(123.7	)		177.0
Net income	-			-				-			209.2			-			209.2
Cash dividend declared and paid ($0.32 per share)	-			-				-			(75.7	)		-			(75.7	)
Issuance of common stock under option and purchase plans	6.3			3.2				65.9			-			-			69.1
Issuance of stock under Executive Officer Equity Plan	0.3			0.1				(0.1	)		-			-			-
Cancellation of restricted stock	(0.1	)		(0.1	)			(1.9	)		-			-			(2.0	)
Share-based compensation cost	-			-				64.9			-			-			64.9
Tax deficiency associated with stock options	-			-				(6.8	)		-			-			(6.8	)
Stock option exchange program	-			-				(1.3	)		-			-			(1.3	)
Other comprehensive income	-			-				-			-			(8.5	)		(8.5	)
Balance at May 30, 2010	239.1		$	119.5		$		188.3		$	250.3		$	(132.2	)	$	425.9

See accompanying Notes to Consolidated Financial Statements

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NATIONAL SEMICONDUCTOR CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended (In Millions)	May 30,   2010			May 31, 2009			May 25, 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	209.2		$	73.3		$	332.3
Adjustments to reconcile net income with net cash
provided by operating activities:
Depreciation and amortization		94.5			119.8			132.7
Share-based compensation expense		65.4			67.7			89.7
Excess tax benefit from share-based payment arrangements		(0.3	)		(5.0	)		(17.0	)
Tax (deficiency) benefit associated with stock options		(6.8	)		8.1			27.6
Deferred tax provision		12.9			21.2			5.1
(Gain) loss on investments		(5.6	)		7.3			6.0
Loss (gain) on disposal of equipment		0.9			(0.1	)		0.2
(Recovery) impairment of equipment and other assets		(1.2	)		55.1			4.5
Non-cash restructuring recovery		(8.3	)		(1.5	)		(1.5	)
In-process research and development charge		-			2.9			-
Loss on extinguishment of debt		2.1			-			-
Other, net		4.7			0.7			4.0
Changes in certain assets and liabilities, net:
Receivables		(28.2	)		65.2			13.3
Inventories		15.7			13.5			27.1
Other current assets		(23.1	)		2.9			23.3
Accounts payable and accrued expenses		59.9			(35.7	)		46.0
Current and deferred income taxes		1.7			(8.5	)		(18.4	)
Other non-current liabilities		9.4			(26.1	)		(30.6	)
Net cash provided by operating activities		402.9			360.8			644.3
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(43.3	)		(83.7	)		(111.3	)
Sale of equipment		3.1			1.1			16.6
Business acquisition, net of cash acquired		(4.8	)		(4.5	)		-
Funding of benefit plan		(1.6	)		(6.4	)		(5.4	)
Redemption and realized net losses (gains) of benefit plan		7.5			11.6			(0.2	)
Other, net		(2.6	)		0.2			(1.7	)
Net cash used in investing activities		(41.7	)		(81.7	)		(102.0	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from unsecured senior notes, net of issuance costs of $2.4 in fiscal 2010 and $7.1 in fiscal 2008		244.9			-			992.9
Proceeds from bank borrowings, net of issuance costs of $3.5		-			-			1,996.5
Repayment of bank borrowings		(265.6	)		(187.6	)		(1,546.8	)
Payment on software license obligations		(6.3	)		-			(8.7	)
Excess tax benefit from share-based payment arrangements		0.3			5.0			17.0
Issuance of common stock		71.2			60.2			103.7
Payroll taxes paid on behalf of employees		(2.0	)		(0.4	)		(14.6	)
Purchase and retirement of treasury stock		-			(128.4	)		(2,123.5	)
Cash payments in connection with stock option exchange program		(1.3	)		-			-
Cash dividends declared and paid		(75.7	)		(64.4	)		(50.6	)
Net cash used in financing activities		(34.5	)		(315.6	)		(634.1	)
Net change in cash and cash equivalents		326.7			(36.5	)		(91.8	)
Cash and cash equivalents at beginning of year		700.3			736.8			828.6
Cash and cash equivalents at end of year	$	1,027.0		$	700.3		$	736.8

See accompanying Notes to Consolidated Financial Statements

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NATIONAL SEMICONDUCTOR CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Summary of Significant Accounting Policies

Operations

We design, develop, manufacture and market a wide range of semiconductor products, most of which are analog and mixed-signal integrated circuits. Our goal is to be the premier provider of high-performance energy-efficient analog and mixed-signal solutions. These solutions are marketed under our PowerWise® brand. Energy-efficiency is our overarching theme, and our PowerWise® products enable systems that consume less power, extend battery life and generate less heat. Our leading-edge products include power management circuits and sub-systems, audio and operational amplifiers, communication interface products and data conversion solutions.

Basis of Presentation

The consolidated financial statements include National Semiconductor Corporation and our majority-owned subsidiaries. All significant intercompany transactions are eliminated in consolidation.

Our fiscal year ends on the last Sunday of May and for our fiscal year ended May 30, 2010, we had a 52-week year. For our fiscal year ended May 31, 2009, we had a 53-week year. Operating results for the additional week in fiscal 2009 were considered immaterial to our consolidated results of operations for fiscal 2009. Our fiscal year ended May 25, 2008 was a 52-week year.

Revenue Recognition

We recognize revenue from the sale of semiconductor products upon shipment, provided we have persuasive evidence of an arrangement typically in the form of a purchase order, title and risk of loss have passed to the customer, the amount is fixed or determinable and collection of the revenue is reasonably assured. We record a provision for estimated future returns at the time of shipment. Approximately 64 percent of our semiconductor product sales were made to distributors in fiscal 2010, which includes approximately 9 percent of sales made through dairitens in Japan under local business practices. This compares to approximately 53 percent in fiscal 2009 and approximately 54 percent in fiscal 2008, which includes sales made through dairitens in Japan of approximately 8 percent in fiscal 2009 and 11 percent in fiscal 2008. We have agreements with our distributors that cover various programs, including pricing adjustments based on resale pricing and volume, price protection for inventory and scrap allowances.

In line with industry practices, we generally credit distributors for the effect of price reductions on their inventory of our products and, under specific conditions, we repurchase products that we have discontinued. In general, distributors do not have the right to return product, except under customary warranty provisions. The programs we offer to our distributors could include one or both of the following:

· Allowances involving pricing and volume. We refer to this as the “contract sales debit” program.

· Allowance for inventory scrap. We refer to this as the “scrap allowance” program.

Under the contract sales debit program, products are sold to distributors at standard published prices that are contained in price books that are broadly provided to our various distributors. Distributors are required to pay for this product within our standard commercial terms. After the initial purchase of the product, the distributor has the opportunity to request a price allowance for a particular part number depending on the current market conditions for that specific part as well as volume considerations. This request is made prior to the distributor reselling the part. Once we have approved an allowance to the distributor, the distributor proceeds with the resale of the product and credits are issued to the distributor in accordance with the specific allowance that we approved. Periodically, we issue new distributor price books. For those parts for which the standard prices have been reduced, we provide an immediate credit to distributors for inventory quantities they have on hand.

Under the scrap allowance program, certain distributors are given a contractually defined allowance to cover the cost of any scrap they might incur. The amount of the allowance is specifically agreed upon with each distributor.

The revenue we record for these distribution sales is net of estimated provisions for these programs. Our estimates are based upon historical experience rates by geography and product family, inventory levels in the distribution channel, current economic trends and other related factors. We continuously monitor the claimed allowances against the rates assumed

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in our estimates of the allowances. Actual distributor claims activity has been materially consistent with the provisions we have made based on our estimates.

 Service revenues are recognized as the services are provided or as milestones are achieved, depending on the terms of the arrangement. These revenues are included in net sales and totaled $19.6 million in fiscal 2010, $17.4 million in fiscal 2009 and $25.1 million in fiscal 2008.

Certain intellectual property income is classified as revenue if it meets specified criteria established by company policy that defines whether it is considered a source of income from our primary operations. These revenues are included in net sales and totaled $1.3 million in fiscal 2010, $2.6 million in fiscal 2009 and $1.6 million in fiscal 2008. All other intellectual property income that does not meet the specified criteria is not considered a source of income from primary operations and is therefore classified as a component of other operating income, net, in the consolidated statement of income. Intellectual property income is recognized when the license is delivered, the fee is fixed or determinable, collection of the fee is reasonably assured and remaining obligations are perfunctory or inconsequential to the other party.

Inventories

Inventories are stated at the lower of standard cost, which approximates actual cost on a first-in, first-out basis, or market. The total carrying value of our inventory is reduced for any difference between cost and estimated market value of inventory that is determined to be obsolete or unmarketable, based upon assumptions about future demand and market conditions.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost. We use the straight-line method to depreciate machinery and equipment over their estimated useful life (3-9 years). Buildings and improvements are depreciated using both straight-line and declining-balance methods over the assets’ remaining estimated useful life (3-50 years), or, in the case of leasehold improvements, over the lesser of the estimated useful life or lease term.

We capitalize eligible costs to acquire software used internally. We use the straight-line method to amortize software used internally over its estimated useful life (generally 3-5 years). Internal-use software is included in the property, plant and equipment balance.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of identifiable net tangible and intangible assets acquired in a business combination. Goodwill is assigned to reporting units and as of May 30, 2010, we have six reporting units that contain goodwill.

We evaluate goodwill for impairment on an annual basis and whenever events or changes in circumstance indicate that it is more likely than not that an impairment loss has been incurred. We assess the impairment of goodwill annually in our fourth fiscal quarter, which has been selected as the period for our recurring evaluation for all reporting units. Our impairment evaluation of goodwill is based on comparing the fair value to the carrying value of our reporting units containing goodwill. The fair value of a reporting unit is measured at the business unit level using a discounted cash flow approach that incorporates our estimates of future revenues and costs for those business units.

Impairment of Long-lived Assets

We assess the impairment of long-lived assets whenever events or changes in circumstances indicate that their carrying value may not be recoverable from the estimated future cash flows expected to result from their use and eventual disposition. Our long-lived assets subject to this evaluation include property, plant and equipment and amortizable intangible assets. Amortizable intangible assets subject to this evaluation include developed technology we have acquired, patents and technology licenses. Our impairment evaluation of long-lived assets includes an analysis of estimated future undiscounted net cash flows expected to be generated by the assets over their remaining estimated useful lives. If our estimate of future undiscounted net cash flows is insufficient to recover the carrying value of the assets over the remaining estimated useful lives, we record an impairment loss in the amount by which the carrying value of the assets exceeds the fair value. If assets are determined to be recoverable, but the useful lives are shorter than we originally estimated, we depreciate or amortize the net book value of the asset over the newly determined remaining useful lives.

We classify long-lived assets as assets held for sale when the criteria have been met, in accordance with ASC Topic 360, “Property, Plant, and Equipment.” Upon classification of an asset as held for sale, we cease depreciation of the asset and

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classify the asset as a current asset at the lower of its carrying value or fair value (less cost to sell). If an asset is held for sale as a result of a restructuring of operations, any write down to fair value (less cost to sell) is included as a restructuring expense in the consolidated statement of income. When we commit to a plan to abandon a long-lived asset before the end of its previously estimated useful life, we revise depreciation estimates to reflect the use of the asset over its shortened useful life. We review depreciation estimates periodically, including both estimated useful lives and estimated salvage values. These reviews may result in changes to historical depreciation rates, which are considered to be changes in accounting estimates and are accounted for on a prospective basis.

Income Taxes

We determine deferred tax assets and liabilities based on the future tax consequences that can be attributed to net operating loss and credit carryovers and differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, using the enacted tax rates expected to be applied when the taxes are actually paid or realized. The recognition of deferred tax assets is reduced by a valuation allowance if it is more likely than not that the tax benefits will not be realized. The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which the net operating loss and credit carryovers and differences between financial statement carrying amounts and their respective tax bases become deductible.

Earnings per Share

We compute basic earnings per share using the weighted-average number of common shares outstanding. Diluted earnings per share are computed using the weighted-average common shares outstanding after giving effect to potential common shares from stock options, restricted stock and restricted stock units based on the treasury stock method.

For all years presented, the reported net income was used as the numerator in our computation of basic and diluted earnings per share. A reconciliation of the shares used in the computation follows:

(In Millions, Except Exercise Prices)	2010	2009	2008
Weighted-average common shares outstanding used
for basic earnings per share	236.4	229.1	252.8
Effect of dilutive securities:
Stock options, restricted stock and restricted stock units	4.9	6.0	11.5
Weighted-average common and potential common shares
outstanding used for diluted earnings per share	241.3	235.1	264.3
Anti-dilutive common equivalent shares:
Stock options:
Number of shares	34.1	41.9	23.0
Weighted-average exercise price	$21.68	$23.25	$27.26

Anti-dilutive common equivalent shares are not included in the calculation of diluted earnings per share. For fiscal 2010, 2009 and 2008, respectively, the effect of these shares was anti-dilutive because the exercise price of the related stock options exceeded the average market price during the year. Shares related to outstanding stock options at May 30, 2010 that were anti-dilutive could potentially dilute basic earnings per share in the future.

Currencies

The functional currency for all operations worldwide is the U.S. dollar. We include gains and losses arising from remeasurement of foreign currency financial statement balances into U.S. dollars and gains and losses resulting from foreign currency transactions in selling, general and administrative expenses. Included in net income were net foreign currency losses of $3.9 million in fiscal 2010 and $3.4 million in fiscal 2009. Net income in fiscal 2008 included a net foreign currency gain of $2.1 million.

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Financial Instruments

Cash and Cash Equivalents. Cash equivalents are highly liquid instruments with an original maturity of three months or less. We maintain cash equivalents in various currencies and in a variety of financial instruments.

Deferred Compensation Plan Assets. Employee contributions under the deferred compensation plan (See Note 12 to the Consolidated Financial Statements) are maintained in a rabbi trust and are not readily available to us. Participants can direct the investment of their deferred compensation plan accounts in the same investments funds offered by the 401(k) plan. Although participants direct the investment of these funds, they are classified as trading securities and are included in other assets because they remain assets of the company until they are actually paid out to the participants. We had deferred compensation plan assets of $40.3 million at May 30, 2010 and $40.9 million at May 31, 2009, which are included in other assets. In connection with these trading securities, we recorded a net gain of $5.3 million in fiscal 2010, and net losses of $7.7 million in fiscal 2009 and $6.2 million in fiscal 2008. There is an offset for the same amounts included in SG&A expenses in fiscal 2010, 2009 and 2008, respectively, that represents the corresponding change in the liability associated with the employee deferred compensation plan due to the change in market value of these trading securities.

Derivative Financial Instruments. As part of our risk management strategy we use derivative financial instruments, including forwards, swaps and purchased options, to hedge certain foreign currency and interest rate exposures. Our intent is to offset gains and losses that occur from our underlying exposure with gains and losses on the derivative contracts used to hedge them. As a matter of company policy, we do not enter into speculative positions with derivative instruments. The criteria we use for designating an instrument as a hedge include the instrument’s effectiveness in risk reduction and direct matching of the financial instrument to the underlying transaction.

We record all derivative instruments on the balance sheet at fair value. Gains or losses resulting from changes in the values of these derivatives are accounted for based on the use of the derivative and whether it qualifies for hedge accounting. See Note 3 to the Consolidated Financial Statements for a full description of our hedging activities and related accounting policies.

Share-based Compensation

We measure and record compensation expense for all share-based payment awards based on estimated fair values in accordance with ASC Topic 718, “Compensation-Stock Compensation.” We provide share-based awards to our employees, executive officers and directors through various equity compensation plans including our employee equity, stock option, stock purchase and restricted stock plans.

The fair value of stock option and stock purchase equity awards is measured at the date of grant using a Black-Scholes option pricing model and the fair value of restricted stock awards is based on the market price of our common stock on the date of grant. The fair value of these awards is recognized on a straight-line basis over the vesting period. The cash awards to be paid in connection with retention arrangements with each of our executive officers (approved by the Compensation Committee of our Board of Directors in November 2008) is considered a share-based payment award and measured at fair value since the award is indexed to the price of our common stock. The fair value of these cash awards is measured each reporting period and is calculated using the Monte Carlo valuation method.

The compensation expense for share-based awards is based on awards that are expected to vest and is reduced for estimated forfeitures. We apply an annual forfeiture rate that is determined based on historical forfeiture activity. Our estimated forfeiture rate is evaluated each reporting period and, taking into consideration all available evidence both before and after the reporting date, we make appropriate adjustments. This forfeiture rate represents the awards expected to be forfeited each year and results in the recognition of share-based compensation expense over the vesting period for those awards that vest. For fiscal 2010, 2009 and 2008, forfeiture rates of 6.5 percent, 7.7 percent and 6.2 percent, respectively, were applied for share-based compensation expense related to employee stock options (excluding officers).

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Share-based compensation expense included in operating results for fiscal 2010, 2009 and 2008 is presented in the following table:

(In Millions, Except Per Share Amounts)	2010			2009			2008
Cost of sales:
Gross compensation	$	9.8		$	15.5		$	19.8
Capitalized in inventory during the period		(7.8	)		(13.0	)		(16.0	)
Realized from inventory during the period		8.3			13.5			16.3
		10.3			16.0			20.1
Research and development		17.8			24.3			27.3
Selling, general and administrative		45.7			30.6			42.3
Total share-based compensation included in income before taxes		73.8			70.9			89.7
Income tax benefit		(23.5	)		(21.0	)		(26.7	)
Total share-based compensation, net of tax, included in net income	$	50.3		$	49.9		$	63.0
Share-based compensation effects on earnings per share:
Basic	$	0.21		$	0.22		$	0.25
Diluted	$	0.21		$	0.21		$	0.24
Share-based compensation capitalized in inventory	$	1.0		$	1.5		$	2.0
Total gross share-based compensation	$	73.3		$	70.4		$	89.4

The fair value of share-based awards to employees in connection with equity compensation plans was estimated using a Black-Scholes option pricing model that used the following weighted-average assumptions:

	2010		2009		2008
Stock Option Plan:
Expected life (in years)	3.8		3.7		4.1
Expected volatility	45	%	45	%	33	%
Risk-free interest rate	1.9	%	2.4	%	4.6	%
Dividend yield	2.3	%	1.4	%	0.6	%
Stock Purchase Plan:
Expected life (in years)	0.8		0.7		0.7
Expected volatility	42	%	39	%	35	%
Risk-free interest rate	0.3	%	1.8	%	3.5	%
Dividend yield	2.3	%	1.4	%	0.8	%

The weighted-average fair value of stock options granted during fiscal 2010, 2009 and 2008 was $4.01, $5.83 and $8.49 per share, respectively. The weighted-average fair value of rights granted under the stock purchase plans was $4.06, $5.05 and $6.78 per share for fiscal 2010, 2009 and 2008, respectively.

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The fair value of cash awards in connection with the executive officer retention arrangements was estimated using the Monte Carlo valuation method that used the following weighted-average assumptions as of May 30, 2010 and May 31, 2009:

	2010			2009
Executive Officer Retention Awards:
Closing stock price	$	14.05		$	13.88
Remaining term (in years)		0.5			1.5
Expected volatility		32	%		60	%
Risk-free interest rate		0.2	%		0.9	%
Dividend yield		2.3	%		2.0	%

For all options granted after December 31, 2007, we determine expected life based on historical stock option exercise experience for the last four years, adjusted for our expectation of future exercise activity. For options granted prior to January 1, 2008, we use the simplified method specified by SEC’s Staff Accounting Bulletin (SAB) No. 107 to determine the expected life of stock options. The expected volatility is based on implied volatility, as management has determined that implied volatility better reflects the market’s expectation of future volatility than historical volatility, and is determined based on our traded options, which are actively traded on several exchanges. We derive the implied volatility using the closing prices of traded options during a period that closely matches the timing of the option grant for the stock option and stock purchase plans, and on the last day of the quarter for the cash awards under the executive officer retention arrangements. The traded options selected for our measurement for the stock option and stock purchase plans are near-the-money and close to the exercise price of the option grants and have terms ranging from one to two years. The traded options selected for our measurement of the cash awards under the executive officer retention arrangements are near-the-money and at the closing price of our common stock on the last day of the quarter and have similar remaining terms (in years). The risk-free interest rate is based upon interest rates that match the expected life of the outstanding options under our employee stock option plans, the expected life of the purchase rights under our employee stock purchase plan and the retention period under the executive officer retention arrangements, as applicable. The dividend yield is based on recent history and our expectation of dividend payouts.

Under our equity compensation plans, employees who retire from the company and meet certain conditions set forth in the plans and related stock option grant agreements continue to vest in their stock options after retirement. During that post-retirement period of continued vesting, no service is required of the employee. Prior to fiscal 2007, we historically recognized compensation costs of these options using the nominal vesting period approach for pro forma reporting purposes. The FASB guidance specifies that a stock option award is considered to be vested when the employee’s retention of the option is no longer contingent on the obligation to provide continuous service (the “non-substantive vesting period approach”). Under the non-substantive vesting period approach, the compensation cost should be recognized immediately for options granted to employees who are eligible for retirement at the time the option is granted. If an employee is not currently eligible for retirement, but is expected to become eligible during the nominal vesting period, then the compensation expense for the option should be recognized over the period from the grant date to the date retirement eligibility occurs. Beginning in fiscal 2007, we changed the method for recognizing the compensation cost for these options to the non-substantive vesting period approach for those options that were granted beginning in fiscal 2007. If we had used the non-substantive vesting period approach in calculating the amounts for unvested option grants prior to fiscal 2007, the pre-tax share-based compensation expense would have been lower by $1.3 million in fiscal 2010, $6.8 million in fiscal 2009 and $14.2 million in fiscal 2008.

Use of Estimates in Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Reclassifications

Certain amounts in the consolidated financial statements and notes to consolidated financial statements for prior years have been reclassified to conform to the fiscal 2010 presentation. Net operating results have not been affected by these reclassifications.

Note 2. Fair Value Measurements

We measure and report our financial assets and liabilities under the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures,” which we adopted in fiscal 2009. Effective at the beginning of fiscal 2010, we adopted the FASB authoritative guidance for non-financial assets and non-financial liabilities. The adoption for non-financial assets and non-financial liabilities had no significant effect on either our financial position or results of operations. Our non-financial assets subject to fair value measurements include goodwill, amortizable intangible assets, and property, plant and equipment, which are measured and recorded at fair value in the period they are determined to be impaired. As permitted under the FASB guidance, we did not apply its provisions to non-financial assets and non-financial liabilities prior to fiscal 2010.

We measure fair value to record our cash equivalents, derivative financial instruments and the deferred compensation plan assets. The measurement of fair value for our long-term debt is used to provide disclosure and is not used to record the carrying value of our long-term debt.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability.

The FASB guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of the fair value hierarchy are described below:

· Level 1. Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.   Level 1 assets and liabilities include our investments in institutional money-market funds that are classified as cash equivalents and the investment funds of the deferred compensation plan assets, where the respective financial instruments are traded in an active market with sufficient volume and frequency of activity.  

· Level 2. Valuations based on quoted prices for similar assets or liabilities, quoted prices for identical assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.   Level 2 assets and liabilities include our investments in commercial paper that are classified as cash equivalents, derivative financial instruments and our senior notes that represent long-term debt instruments that are less actively traded in the market, but where quoted market prices exist for similar instruments that are actively traded.  

· Level 3. Valuations based on inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.   Level 3 assets and liabilities include goodwill, amortizable intangible assets, and property, plant and equipment, which are measured at fair value using a discounted cash flow approach when they are determined to be impaired, and our unsecured term loan with a bank, where we determine fair value based on unobservable inputs using the best information available in the circumstances and take into consideration assumptions that market participants would use in pricing the liability.  

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Assets measured at fair value on a recurring basis include the following:

(In Millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Total
Balances at May 30, 2010:
Cash and cash equivalents:
Institutional money-market funds	$	216.6	$	-	$	216.6
Commercial paper		-		79.9		79.9
		216.6		79.9		296.5
Other current assets:
Derivative assets - Forward contracts		-		0.6		0.6
Other assets:
Investment funds - Deferred compensation plan assets:
Institutional money-market funds		6.9		-		6.9
Mutual funds		32.6		-		32.6
Marketable equity securities		0.8		-		0.8
		40.3		-		40.3
Derivative assets - Interest rate swap		-		1.6		1.6
Total assets measured at fair value	$	256.9	$	82.1	$	339.0
Balances at May 31, 2009:
Cash and cash equivalents:
Institutional money-market funds	$	368.4	$	-	$	368.4
Other assets:
Investment funds - Deferred compensation plan assets:
Institutional money-market funds		10.2		-		10.2
Mutual funds		30.1		-		30.1
Marketable equity securities		0.6		-		0.6
		40.9		-		40.9
Total assets measured at fair value	$	409.3	$	-	$	409.3

There were no transfers between level 1 and level 2 financial assets in fiscal 2010 and 2009.

The institutional money-market funds and the various investment funds within our deferred compensation plan assets are traded in an active market and the net asset value of each fund on the last day of the quarter is used to determine its fair value. We determine fair value of our commercial paper by obtaining non-binding market prices from our broker on the last day of each quarter. We then corroborate these market prices by comparison to quoted market prices for similar instruments. The fair value of forward foreign currency exchange contracts represents the present value difference between the stated forward contract rate and the current market forward rate at settlement. The fair value of foreign currency option contracts represents the probable weighted net amount we would expect to receive at maturity. The fair value of the interest rate swap is determined using a standard valuation model that includes significant observable inputs, such as interest rate yield curves and discount rates commensurate with the six-month LIBOR interest rates, as well as the creditworthiness of the counterparties and our own nonperformance risk.

The fair value of our long-term debt (including the current portion) at May 30, 2010 was $1,339.2 million and at May 31, 2009 was $1,201.2 million. The fair value measurements for our long-term debt instruments take into consideration credit rating changes, equity price movements, interest rate changes and other economic variables.

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Note 3. Financial Instruments

Cash Equivalents

Our policy is to diversify our investment portfolio to minimize the exposure of our principal to credit, geographic and investment sector risk. At May 30, 2010, investments were placed with a variety of different financial institutions and other issuers. Investments with maturity of one year or less have a rating of A1/P1 or better.

Our cash equivalents consisted of the following as of May 30, 2010 and May 31, 2009:

(In Millions)		2010		2009
CASH EQUIVALENTS
Available-for-sale securities:
Institutional money market funds	$	216.6	$	368.4
Commercial paper		79.9		-
		296.5		368.4
Held-to-maturity securities:
Bank time deposits		530.0		187.6
Total cash equivalents	$	826.5	$	556.0

Although our non-marketable investments had no carrying value at May 30, 2010 and May 31, 2009, we still hold stock in certain non-publicly traded companies. As a result, we recognized gross realized gains of $0.3 million in fiscal 2010, $0.4 million in fiscal 2009 and $0.2 million in fiscal 2008 from certain of our non-marketable investments.

Derivative Financial Instruments

The objective of our foreign exchange risk management policy is to preserve the U.S. dollar value of after-tax cash inflow in relation to non-U.S. dollar currency movements. We are exposed to foreign currency exchange rate risk that is inherent in orders, sales, cost of sales, expenses, and assets and liabilities denominated in currencies other than the U.S. dollar. We enter into foreign exchange contracts, primarily forwards and purchased options, to hedge against exposure to changes in foreign currency exchange rates. These contracts are matched at inception to the related foreign currency exposures that are being hedged. Exposures which are hedged include sales by subsidiaries, and assets and liabilities denominated in currencies other than the U.S. dollar. Our foreign currency hedges typically mature within six months.

Derivative instruments used to hedge exposures to variability in expected future foreign denominated cash flows are not designated as cash flow hedges. Gains or losses on these derivative instruments are immediately recorded in earnings.

In connection with the issuance of the $250 million principal amount of senior unsecured notes in April 2010, we entered into an interest rate swap agreement with a notional principal of $250 million which effectively converts the fixed interest rate of the debt to a floating interest rate. The terms of the swap agreement substantially match the terms of the debt. Under the terms of the swap agreement, we will receive interest payments semi-annually at an annual rate of 3.95 percent on the notional principal and we will pay interest semi-annually at an annual rate of 0.84 percent over the six-month LIBOR on the notional principal. The LIBOR reference rate is set in arrears on each semi-annual date when the interest payments are due. We have designated this swap agreement as a fair value hedge and recognize the changes in the fair value of both the swap and the related debt, which we record as gains or losses on the derivative instrument in fair value hedge included in other non-operating income (expense), net.

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The following table provides information about gains (losses) associated with our derivative financial instruments:

	Location of Gains (Losses) Recognized in Income on Derivative	Amount of Gains (Losses) Recognized in Income on Derivative									Location of Gains (losses) Recognized in Income on Hedged Item	Amount of Gains (Losses) Recognized in Income on Hedged Item
(In Millions)			2010			2009			2008			2010
Fair value hedge:
Interest rate swap	Other non-operating income (expense), net	$	1.6		$	-		$	-		Other non-operating income (expense), net	$	(3.8	)
		$	1.6		$	-		$	-			$	(3.8	)
Instruments without hedge accounting designation:
Forward contracts	Selling, general and administrative	$	0.1		$	2.4		$	-
Purchased options	Selling, general and administrative		(0.1	)		(0.2	)		(0.6	)
		$	-		$	2.2		$	(0.6	)

Fair Value and Notional Principal of Derivative Financial Instruments

The notional principal amounts for derivative financial instruments provide one measure of the transaction volume outstanding as of fiscal year-end and do not represent the amount of the exposure to credit or market loss. The estimates of fair value are based on applicable and commonly used pricing models using prevailing financial market information at May 30, 2010. The table below shows the fair value and notional principal of derivative financial instruments at May 30, 2010.

(In Millions)	Balance Sheet Location		Notional Principal		Fair Value
2010
Fair value hedge:
Interest rate swap		Other assets	$	250.0	$	1.6
Instruments without hedge accounting designation:
Forward contracts		Other current assets		20.0		0.6
Total			$	270.0	$	2.2

All of the foreign exchange contracts that we entered into during fiscal 2009 expired by May 31, 2009.

Concentrations of Credit Risk

Financial instruments that may subject us to concentrations of credit risk are primarily investments and trade receivables. Our investment policy requires cash investments to be placed with high-credit quality counterparties and limits the amount of investments with any one financial institution or direct issuer. We sell our products to distributors and manufacturers involved in a variety of industries including computers and peripherals, wireless communications and automotive. We perform continuing credit evaluations of our customers whenever necessary and we generally do not require collateral. Our top tencustomers combined represented approximately 58 percent of total accounts receivable at May 30, 2010 and approximately 60 percent of total accounts receivable at May 31, 2009.

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Net sales to major customers as a percentage of total net sales were as follows:

	2010		2009		2008
Distributor:
Avnet		17%		15%		15%
Arrow		15%		13%		12%
OEM:
Nokia		*		*		11%

 * less than 10%

Sales to the distributors included above are mostly for our Analog segment products, but also include some sales for our other operating segment products. Historically, we have not experienced significant losses related to receivables from individual customers or groups of customers in any particular industry or geographic area.

Note 4. Consolidated Financial Statement Details

Consolidated Balance Sheets  (In Millions)		2010			2009
RECEIVABLE ALLOWANCES
Doubtful accounts	$	0.4		$	1.1
Returns and allowances		29.6			17.6
Total receivable allowances	$	30.0		$	18.7
INVENTORIES
Raw materials	$	9.5		$	5.0
Work in process		67.8			81.6
Finished goods		41.3			48.0
Total inventories	$	118.6		$	134.6
OTHER CURRENT ASSETS
Prepaid income taxes	$	90.0		$	71.1
Prepaid expenses		19.8			31.2
Assets held for sale		45.8			5.4
Other		1.2			0.3
Total current assets	$	156.8		$	108.0
PROPERTY, PLANT AND EQUIPMENT
Land	$	21.1		$	29.7
Buildings and improvements		398.3			536.4
Machinery and equipment		1,679.4			1,825.4
Internal-use software		81.5			83.1
Construction in progress		18.7			30.7
Total property, plant and equipment		2,199.0			2,505.3
Less accumulated depreciation and amortization		(1,808.9	)		(2,043.5	)
Total property, plant and equipment, net	$	390.1		$	461.8
OTHER ASSETS
Deposits	$	2.4		$	7.1
Debt issuance costs		5.8			8.2
Income tax receivable		41.7			35.2
Deferred compensation plan assets		40.3			40.9
Other		12.0			9.9
Total other assets	$	102.2		$	101.3

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Consolidated Balance Sheets  (In Millions)		2010			2009
ACCRUED EXPENSES
Payroll and employee related	$	127.3		$	39.5
Accrued interest payable		24.6			24.9
Severance and restructuring expenses		15.4			44.4
Other		37.2			35.8
Total accrued expenses	$	204.5		$	144.6
OTHER NON-CURRENT LIABILITIES
Accrued pension cost	$	67.3		$	52.7
Deferred compensation plan liability		40.3			40.9
Other		16.6			27.1
Total other non-current liabilities	$	124.2		$	120.7
ACCUMULATED OTHER COMPREHENSIVE LOSS
Defined benefit pension plans	$	(131.9	)	$	(123.5	)
Other		(0.3	)		(0.2	)
Total accumulated other comprehensive loss	$	(132.2	)	$	(123.7	)

Consolidated Statements of Income
(In Millions)	2010			2009			2008
OTHER OPERATING INCOME, NET
Net intellectual property income	$	(0.3	)	$	(2.7	)	$	(0.6	)
Gain on sale of manufacturing plant assets		-			-			(3.1	)
Litigation settlement		(0.3	)		-			3.3
Other		0.2			-			-
Total other operating income, net	$	(0.4	)	$	(2.7	)	$	(0.4	)
OTHER NON-OPERATING INCOME (EXPENSE), NET
Net (loss) gain on marketable and other investments, net:
Trading securities:
Change in unrealized holding gains/losses, net	$	5.3		$	(7.7	)	$	(6.2	)
Non-marketable investments:
Gain from sale		-			0.4			0.2
Gain from liquidation of investment		0.3			-			-
Total net gain (loss) on marketable and other investments, net		5.6			(7.3	)		(6.0	)
Loss on extinguishment of debt		(2.1	)		-			-
Net loss on derivative instrument in fair value hedge		(2.2	)		-			-
Charitable contribution		-			-			(0.2	)
Total other non-operating income (expense), net	$	1.3		$	(7.3	)	$	(6.2	)

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Note 5. Supplemental Disclosure of Cash Flow Information and Non-Cash Investing and Financing Activities

(In Millions)	2010		2009		2008
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for:
Interest	$	59.3	$	70.8	$	58.5
Income taxes	$	83.3	$	24.3	$	117.3
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Cancellation of shares withheld for taxes on restricted stock and performance share unit awards	$	2.0	$	0.4	$	14.6
Acquisition of software under license obligations, net	$	-	$	3.3	$	-
Reduction in goodwill to recognize acquired tax asset	$	-	$	-	$	3.1
Deposit applied to purchase equipment	$	15.0	$	-	$	-

 Note 6. Cost Reduction Programs and Restructuring of Operations

Fiscal 2010

We recorded a net charge of $20.1 million for severance and restructuring expenses in fiscal 2010. The following table provides additional detail related to these expenses:

(In Millions)		Analog Segment			All Others			Total
	May 2010 business realignment:
	Severance	$	1.1		$	0.6		$	1.7
	March 2009 workforce reduction and plant closures:
	Other exit-related costs		-			28.7		$	28.7
	Severance		-			0.5			0.5
	Gain on sale of equipment		-			(1.3	)		(1.3	)
	Other equipment gain, net		-			(1.2	)		(1.2	)
	Release of reserves:
	Severance		(0.4	)		(4.8	)		(5.2	)
			(0.4	)		21.9			21.5
	November 2008 workforce reduction:
	Release of reserves:
	Severance		(0.2	)		(2.8	)		(3.0	)
	Fiscal 2008 workforce reduction and manufacturing restructure:
	Release of reserves:
	Other exit-related costs		-			(0.1	)		(0.1	)
	Total severance and restructuring expenses, net	$	0.5		$	19.6		$	20.1

We recorded a charge of $1.7 million for severance payments to employees who were terminated in connection with exit activities as part of the realignment of certain product line business units announced in May 2010. These exit activities are expected to be completed by the end of calendar 2010 and total cumulative charges are expected to be approximately $3 million to $4 million.

In connection with the workforce reduction and plant closures announced in March 2009 (See the discussion under fiscal 2009), we recorded a net charge of $21.5 million in fiscal 2010 for additional severance and restructuring expenses that were partially offset by the equipment gains described below. The restructuring expenses include $28.7 million of other exit-related costs associated with closure and transfer activities that occurred at our manufacturing sites in Texas and China during fiscal 2010.

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By the second half of fiscal 2010, the global economy began to slowly recover as revenue prospects have improved significantly. An increasing portion of our revenues has been coming from a portfolio of products that are primarily manufactured in our wafer fabrication facility in Greenock, Scotland. Management believes there is a larger market with a longer life for these products than was previously assumed and has decided to increase its manufacturing capacity in Scotland. Certain equipment previously classified as held for sale, primarily the Texas equipment, will now be used in our manufacturing facility in Scotland. We recognized an impairment charge of $23.0 million related to this equipment in March 2009. The carrying value of this equipment has been adjusted based on the lower of its carrying value before being classified as held for sale (adjusted for any depreciation that would have been recognized had it been continuously classified as held and used), or its fair value at the time management decided the equipment would no longer be sold. Since the date we first classified this equipment as held for sale to the date we reclassified it as held and used, the fair value of this equipment has increased. As a result, we recorded a gain of $1.2 million to restore the carrying value of the equipment to fair value which was lower than what its carrying value would have been had it been continuously classified as held and used. The weighted average remaining life of this equipment at the time we classified it as held for sale was 7.8 years and now that it has been reclassified as held and used, its weighted-average remaining life is 7.3 years. We also recorded a gain of $1.3 million upon completing the sale of some of the equipment in China and Texas during fiscal 2010. In addition, we recorded a recovery of $5.2 million due to adjustments to reduce accrued severance expenses for manufacturing employees who voluntarily terminated prior to their scheduled departure dates and for severance packages that were finalized with certain employees in foreign locations.

Since these net charges relate to actions announced in fiscal 2009, total cumulative net charges (including the net charges incurred in fiscal 2010 and 2009) through May 30, 2010 for these actions are presented in the following table:

(In Millions)	Analog Segment			All Others			Total
March 2009 workforce reduction and plant closures:
Severance	$	14.0		$	46.2		$	60.2
Other exit-related costs		-			32.0			32.0
Impairment of property, plant and equipment		-			54.3			54.3
Gain on sale of equipment		-			(1.3	)		(1.3	)
Other equipment gain, net		-			(1.2	)		(1.2	)
Release of reserves:
Severance		(0.4	)		(4.8	)		(5.2	)
Total cumulative severance and restructuring expenses for the
March 2009 workforce reduction and plant closures	$	13.6		$	125.2		$	138.8

We have ceased production activity in both China (end of August 2009) and Texas (end of fiscal 2010). Remaining activities associated with the closures of the China and Texas manufacturing facilities are expected to continue over the next 2 quarters. We expect to incur approximately $11 million to $16 million over the same period for other exit-related costs associated with these remaining activities. As a result, total charges for all actions announced in March 2009 are expected to be approximately $150 million to $155 million. Most of this amount will be reported within our corporate group, which is not considered an operating segment, and will be included in the category described as “All Others.”

Since production activity ceased in China by the end of August 2009, we have been actively engaged in locating buyers to purchase the manufacturing facility and its existing machinery and equipment in its current condition. In addition, certain equipment that was no longer being used in our Texas manufacturing operations is expected to be sold. As a result, the China plant assets and the Texas equipment, which had a carrying value of $22.4 million after impairment charges, were classified as held for sale at the end of our first quarter of fiscal 2010. As discussed above, some of the equipment in China and Texas, which had a carrying value of $1.6 million, was sold during fiscal 2010. Equipment previously classified as held for sale that will now be used in our manufacturing facility in Scotland had a carrying value of $3.8 million. By the end of the fiscal year, we ceased production activity in Texas and we are also actively engaged in locating buyers to purchase the manufacturing facility and its existing machinery and equipment in its current condition. The Texas facility and its manufacturing machinery and equipment that had been used through the end of production activity have a carrying value of $28.8 million. As a result, all of the China and Texas plant assets, which have a total carrying value of $45.8 million, have been classified as held for sale and are reported in other current assets in the consolidated balance sheet as of

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May 30, 2010. We have ceased depreciation on these assets and now measure the carrying value at the lower of historical net book value or fair value (less cost to sell).

The fiscal 2010 net charge for severance and restructuring expenses described above includes a recovery of $3.0 million for an adjustment to reduce accrued severance expenses upon finalizing severance packages with certain terminated employees in foreign locations in connection with the workforce reduction announced in November 2008. It also includes a recovery of $0.1 million recorded upon the release of a residual accrued balance for other exit-related costs associated with the fiscal 2008 manufacturing restructure.

Fiscal 2009

We recorded a net charge of $143.9 million for severance and restructuring expenses in fiscal 2009. The following table provides additional detail related to these expenses:

(In Millions)	Analog Segment			All Others			Total
March 2009 workforce reduction and plant closures:
Severance	$	14.0		$	45.7		$	59.7
Impairment of equipment and other assets		-			54.3			54.3
Other exit-related costs		-			3.3			3.3
		14.0			103.3			117.3
November 2008 workforce reduction:
Severance		9.8			15.7			25.5
Impairment of equipment		0.7			0.1			0.8
Other exit-related costs		0.1			-			0.1
		10.6			15.8			26.4
Fiscal 2008 workforce reduction and manufacturing restructure:
Other exit-related costs		-			2.2			2.2
Gain on sale of equipment		-			(0.5	)		(0.5	)
Release of reserves:
Severance		(1.1	)		(0.3	)		(1.4	)
		(1.1	)		1.4			0.3
Release of reserves related to other prior actions:
Other exit-related costs		-			(0.1	)		(0.1	)
Total severance and restructuring expenses	$	23.5		$	120.4		$	143.9

In March 2009, we announced that we would take actions to reduce overall expenses in response to weak economic conditions and related business levels. As part of the plan, we eliminated approximately 850 positions worldwide in our product lines, sales and marketing, manufacturing and support functions. The majority of the affected employees departed by the end of fiscal 2009. We also planned to further reduce headcount by approximately 875 through the eventual closure of our wafer fabrication facility in Arlington, Texas and our assembly and test plant in Suzhou, China. The departure of these additional employees coincides with the phased timing of the plant closures. As a result of these actions, we recorded $117.3 million in fiscal 2009, which includes severance costs of $59.7 million, asset impairment charges of $54.3 million and other exit-related costs of $3.3 million associated with closure and transfer activities incurred in fiscal 2009. Included in the asset impairment charges is $9.8 million related to the modification of a CAD software license that reduced the volume of licenses available for use by the company.

In November 2008, we announced a global workforce reduction that eliminated approximately 330 positions in response to the uncertain business climate at that time. These positions were primarily in non-manufacturing functions in our product line, marketing and sales, and general administrative operations. In addition to the workforce reduction, we closed two design centers located in the United States. As a result of this action, we recorded severance and restructuring expenses of $26.4 million in fiscal 2009, which represents the total amount expected to be incurred. This amount includes severance costs of $25.5 million, other exit-related costs of $0.1 million and $0.8 million for the impairment of abandoned equipment.

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In addition to the actions described above, we recorded a net charge of $0.3 million related to the workforce reduction and manufacturing restructure announced in fiscal 2008. All activities related to these actions have now been completed. This amount includes a $2.2 million charge for other exit-related costs primarily incurred in connection with dismantling and removing equipment. This charge was partially offset by a recovery of $1.9 million, which includes $1.4 million primarily due to an adjustment to reduce accrued severance expenses upon finalizing severance packages with certain terminated employees in foreign locations and a gain of $0.5 million from the subsequent sale of some of the equipment that had been previously written down.

Fiscal 2008

We recorded a net charge of $27.2 million for severance and restructuring expenses in fiscal 2008. The following table provides additional detail related to these expenses:

(In Millions)	Analog Segment		All Others			Total
Workforce reduction:
Severance	$	6.5	$	3.1		$	9.6
Manufacturing restructure:
Severance		-		13.2			13.2
Other exit-related costs		-		3.2			3.2
Impairment of equipment		-		4.5			4.5
Gain from sale of equipment		-		(1.8	)		(1.8	)
		-		19.1			19.1
Release of reserves:
Other exit-related costs		-		(1.5	)		(1.5	)
Total severance and restructuring expenses	$	6.5	$	20.7		$	27.2

In April 2008, we announced a workforce reduction that eliminated approximately 128 positions across the company, primarily in product line and support functions as part of our effort to strategically align resources in connection with our focus on accelerating revenue growth in key market areas that require better power management and energy efficiency. As a result of this action, we recorded a charge of $9.6 million for severance.

In January 2008, we announced that we would dispose of certain manufacturing equipment and reduce the workforce at our wafer fabrication facilities as part of an action to modernize our facilities and rationalize our capacity. Substantially all activities related to this action were completed by the end of calendar 2008. In connection with this action, we eliminated approximately 200 positions, primarily at our manufacturing plants located in Arlington, Texas; South Portland, Maine; and Greenock, Scotland. As a result, we recorded a total charge of $19.1 million. Of this amount, $13.2 million was for severance and $3.2 million was other exit-related costs for dismantling and removing equipment. This amount also included $4.5 million for the impairment of equipment. These charges were partially offset by a $1.8 million gain recognized upon the subsequent sale of some of the equipment.

In June 2007, we entered into an agreement with the landlord of a facility we vacated as part of a previous cost reduction action. The agreement terminated the lease and we settled the remaining obligations under the lease agreement for $4.2 million. As a result, we recorded a $1.5 million recovery for the release of the residual accrued balance of the lease obligation.

In June 2007, we completed the sale of our assembly and test plant in Singapore that was closed in fiscal 2007. The facility and its residual equipment were sold for $12.0 million to an unrelated third party. The carrying value of the assets sold was $7.6 million. As a result, we recorded a gain of $3.1 million in fiscal 2008, after deducting final transaction costs of $1.3 million. These assets were part of our manufacturing operation, which is not considered an operating segment, but is a corporate group included in the category described as “All Others.”

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 Summary of Activities

The following table provides a summary of the activities related to our severance and restructuring costs included in accrued expenses during fiscal 2010, 2009 and 2008:

(In Millions)	Fiscal 2010 Business Unit Realignment		Fiscal 2009 Workforce Reduction and Plant Closures						Cost Reduction and Restructuring Actions In Prior Years						Total
	Severance		Severance			Other Exit-Related Costs			Severance			Other Exit-Related Costs
Balance at May 27, 2007									$	0.5		$	6.2		$	6.7
Cost reduction charges										22.8			3.2			26.0
Cash payments										(8.8	)		(7.1	)		(15.9	)
Release of residual reserves										-			(1.5	)		(1.5	)
Balance at May 25, 2008										14.5			0.8			15.3
Cost reduction charges			$	85.2		$	3.4			-			2.2			90.8
Cash payments				(42.3	)		(2.2	)		(13.0	)		(2.7	)		(60.2	)
Release of residual reserves				-			-			(1.4	)		(0.1	)		(1.5	)
Balance at May 31, 2009				42.9			1.2			0.1			0.2			44.4
Cost reduction charges	$	1.7		0.5			28.7			-			-			30.9
Cash payments				(22.7	)		(29.3	)		(0.2	)		(0.1	)		(52.3	)
Exchange rate adjustment				0.6			-			0.1			-			0.7
Release of residual reserves				(8.2	)		-			-			(0.1	)		(8.3	)
Balance at May 30, 2010	$	1.7	$	13.1		$	0.6		$	-		$	-		$	15.4

During fiscal 2010 we paid severance to 564 employees in connection with the workforce reductions announced in fiscal 2009. Payments for other exit-related costs were primarily for expenses associated with closure and transfer activities incurred in connection with the closures of our manufacturing facilities in Texas and China.

The balances at May 30, 2010 primarily represent remaining estimated costs for activities that have occurred, but have yet to be paid, as a result of the workforce reduction and the manufacturing plant closures announced in fiscal 2009. Payments for the remaining $13.1 million of severance balances are expected to be paid over the next 3 quarters as we complete the closures of our two manufacturing facilities and most of those affected employees will depart by the end of our fiscal 2011 first quarter. Severance amounts are generally paid 30-60 days after the employee’s actual departure date or may be deferred until the beginning of the calendar year after their departure date. Other exit-related costs primarily relate to expenses associated with closure and transfer activities occurring in these manufacturing locations.

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Note 7. Acquisition

Fiscal 2010

In October 2009, we acquired Energy Recommerce Inc. (ERI), a privately held solar energy company that provides web-based monitoring of commercial photovoltaic systems performance. The acquisition of ERI expands our portfolio of power management technologies.

Beginning in fiscal 2010, we adopted ASC Topic 805, “Business Combinations,” which changed the accounting for business combinations. The acquisition of ERI was accounted for under the new guidance using the acquisition method of accounting with a purchase price of $6.1 million for all of the outstanding shares of the company’s common stock. The purchase price was allocated as follows:

(In Millions)	Total
Net assets	$	0.2
Acquired developed technology		0.8
Other intangible assets		1.1
Goodwill		4.6
Deferred tax liability		(0.6	)
Total	$	6.1

Goodwill is included in our Analog segment and primarily represents the expected value of future customers and future technologies that have yet to be determined. Future customers and technologies do not meet the criteria for recognition separately from goodwill, because they are part of the future development and growth of the business. No amount of goodwill is expected to be deductible for tax purposes.

Revenue and earnings of ERI since the acquisition date included in our operating results for fiscal 2010 were immaterial. Pro forma results of operations related to this acquisition have not been presented since ERI’s operating results up to the date of acquisition were immaterial to our consolidated financial statements.

Fiscal 2009

In March 2009, we acquired ActSolar, Inc. (“ActSolar”), a privately-held solar energy company that provides power optimization solutions for commercial and utility-scale solar installations. The acquisition of ActSolar was intended to expand our portfolio of power optimization technologies and provide us with new diagnostics and panel monitoring capabilities for solar arrays. The acquisition was accounted for using the purchase method of accounting with a purchase price of $4.8 million for all of the outstanding shares of the company’s common stock. As a result, we recorded a $2.9 million in-process R&D charge in fiscal 2009. In-process R&D was expensed upon acquisition because technological feasibility had not been established and no future alternative uses exist. The remainder of the purchase price was allocated as follows:

(In Millions)	Total
Net liabilities	$	(0.5	)
Other intangible assets		1.4
Goodwill		1.0
Total	$	1.9

Pro forma results of operations related to this acquisition have not been presented since ActSolar’s operating results up to the date of acquisition were immaterial to our consolidated financial statements.

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Note 8. Goodwill and Intangible Assets

Goodwill

The following table presents goodwill by reportable segments:

(In Millions)	Analog Segment			All Others		Total
Balances at May 25, 2008	$	60.5		$	-	$	60.5
Reorganization of reporting units		(7.3	)		7.3		-
Acquisition of ActSolar		1.0			-		1.0
Balances at May 31, 2009		54.2			7.3		61.5
Acquisition of ERI		4.6			-		4.6
Balances at May 30, 2010	$	58.8		$	7.3	$	66.1

In fiscal 2010, we recorded $4.6 million of goodwill in connection with the acquisition of ERI (see Note 7 to the Consolidated Financial Statements).

In fiscal 2009, one of our reporting units containing goodwill that was previously included in the Analog segment was reorganized into a reporting unit that is included in the category of “All Others.” We recorded $1.0 million of goodwill in connection with the acquisition of ActSolar in fiscal 2009 (see Note 7 to the Consolidated Financial Statements).

We have intangible assets of $2.9 million at May 30, 2010 and $1.4 million at May 31, 2009, which are included in other assets in the consolidated balance sheet. These intangible assets primarily include developed technology and other amortizable intangible assets with a weighted-average amortization period of 6.7 years. Amortization expense was $0.4 million in fiscal 2010 and $0.1 million in fiscal 2009. There was no amortization expense in fiscal 2008.

Note 9. Asset Retirement Obligations

Our asset retirement obligations arise primarily from contractual commitments to decontaminate machinery and equipment used at our manufacturing facilities at the time we dispose of or replace them. We also have leased facilities where we have asset retirement obligations from contractual commitments to remove leasehold improvements and return the property to a specified condition when the lease terminates.

We have not recognized any asset retirement obligations associated with the closure or abandonment of the manufacturing facilities we own. Our legal asset retirement obligations for manufacturing facilities arise primarily from local laws and statutes that establish minimum standards or requirements in the event a manufacturing facility is shut down, or otherwise exited or abandoned. As a result, we considered the timing and (or) method of settlement for a conditional asset retirement obligation in the measurement of the related liability and determined that the asset retirement obligations related to these facilities were immaterial to our financial condition and results of operations.

The following table presents the activity for the asset retirement obligations included in other non-current liabilities for the years ended May 30, 2010 and May 31, 2009:

	(In Millions)
Balance at May 25, 2008	$	3.5
Accretion expense		0.4
Balance at May 31, 2009		3.9
Liability settled		(0.5	)
Accretion expense		1.1
Balance at May 30, 2010	$	4.5

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Note 10. Debt

Debt at fiscal year-end consisted of the following:

(In Millions)		2010			2009
Senior floating rate notes due 2010, 0.51% at May 30, 2010	$	250.0		$	250.0
Senior notes due 2012 at 6.15%		375.0			375.0
Senior notes due 2015 at 3.95%		250.0			-
Senior notes due 2017 at 6.60%		375.0			375.0
Bank floating rate unsecured term loan		-			265.6
Unsecured promissory note at 2.50%		26.5			24.3
		1,276.5			1,289.9
Less net unamortized discount		(2.8	)		-
Add fair value adjustment*		3.8			-
		1,277.5			1,289.9
Less current portion of long-term debt		276.5			62.5
Long-term debt	$	1,001.0		$	1,227.4

*The fixed-rate debt obligation that is hedged is reflected in the consolidated balance sheet as an amount equal to the sum of the debt’s carrying value plus a fair value adjustment for the change in the fair value of the hedged debt obligation.

In April 2010, we issued $250.0 million principal amount of senior unsecured notes through a public offering. The unsecured notes bear interest at a fixed rate of 3.95 percent and are due in April 2015. Interest is payable semi-annually and the notes are redeemable by us at any time.

In April 2010, we repaid in full the outstanding principal on our unsecured term loan with a consortium of banks prior to its original maturity of June 2012. There was no prepayment penalty fee associated with the early repayment of the loan. The repayment resulted in a cash outlay of $203.6 million which included the aggregate principal amount outstanding and accrued interest through the repayment date. We recorded a $2.1 million loss on extinguishment of debt to recognize the remaining unamortized issuance costs that were included in other assets.

In June 2007, we issued $1.0 billion principal amount of senior unsecured notes through a public offering. The offering of unsecured notes included $250.0 million aggregate principal amount of senior floating rate notes due June 2010, $375.0 million aggregate principal amount of 6.15 percent senior notes due June 2012 and $375.0 million aggregate principal amount of 6.60 percent senior notes due June 2017. Interest on the senior fixed rate notes is payable semi-annually and the notes are redeemable by us at any time. In June 2010, we repaid in full the $250.0 million principal amount of senior floating rate notes that became due June 2010. The total amount of the repayment was $250.3 million which included the aggregate principal amount outstanding and accrued interest through the repayment date.

The unsecured promissory note, which is denominated in Japanese yen (2,408,750,000), is due November 2010. Interest is payable quarterly at a fixed 2.5 percent annual rate. We are also required to comply with the covenants set forth under our multi-currency agreement.

The aggregate annual maturities of long-term debt at May 30, 2010 are presented in the following table:

Fiscal year:	(In Millions)
2011	$	276.5
2012		-
2013		375.0
2014		-
2015		251.0
2016 and thereafter		375.0
	$	1,277.5

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The estimated fair value of long-term debt was $1,339.2 million at May 30, 2010.

We have a $20 million multicurrency credit agreement with a bank that provides for multicurrency loans, letters of credit and standby letters of credit that was renewed in October 2009. At May 30, 2010, we had committed $3.4 million of the credit available under the agreement. The agreement contains restrictive covenants, conditions and default provisions that require the maintenance of certain financial ratios. As of May 30, 2010, we were in compliance with all financial covenants under the agreement. The agreement expires in October 2010 and we expect to renew it before then.

 Note 11. Income Taxes

Worldwide pretax income from operations and income taxes consist of the following:

(In Millions)		2010			2009			2008
INCOME BEFORE INCOME TAXES
U.S.	$	166.0		$	71.8		$	337.1
Non-U.S.		102.6			41.8			114.1
	$	268.6		$	113.6		$	451.2
INCOME TAX EXPENSE (BENEFIT)
Current:
U.S. federal, state and local	$	41.1		$	17.8		$	103.6
Non-U.S.		5.4			1.3			10.2
		46.5			19.1			113.8
Deferred:
U.S. federal and state		13.9			(3.0	)		16.4
Non-U.S.		(1.0	)		24.2			(11.3	)
		12.9			21.2			5.1
Income tax expense	$	59.4		$	40.3		$	118.9

Although the fiscal 2010 income tax expense of $59.4 million is higher than the fiscal 2009 income tax expense of $40.3 million, our effective tax rate is lower in fiscal 2010 than in fiscal 2009. The fiscal 2010 income tax expense includes a tax benefit of $7.4 million primarily arising from the repatriation of previously unremitted Japanese earnings. In addition, a portion of our earnings comes from our Malaysian subsidiary and is not taxable because of a tax holiday granted by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010.  The fiscal 2009 income tax expense of $40.3 million included incremental tax expense of $16.7 million related to the write down of foreign deferred tax assets that would no longer be realized in the foreseeable future due to the tax holiday granted by the Malaysian government. The effect of the write down of foreign deferred tax assets was partially offset by $15.0 million of tax benefits associated with R&D tax credits, net of the portion of the tax benefit that did not meet the more-likely-than-not recognition threshold. Income tax expense of $118.9 million for fiscal 2008 included $31.9 million in tax benefits recognized during fiscal 2008 that arose primarily from the resolution of international tax inquiries, the expiration of the statute of limitations associated with international tax matters and costs related to the manufacturing restructure and workforce reduction actions.

At the beginning of fiscal 2008, we adopted the provisions of ASC Topic 740, “Income Taxes,” which provided further clarification on the accounting for uncertainty in income taxes recognized in the financial statements. The cumulative effect of applying the new accounting standards was a $37.1 million increase to retained earnings at the beginning of fiscal 2008. Historically, we have classified unrecognized tax benefits as current income taxes payable. We now classify unrecognized tax benefits as long-term income taxes payable except to the extent we anticipate cash payment within the next year.

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The following table provides a summary of the changes in the amount of unrecognized tax benefits that are included in long-term income taxes payable on the consolidated balance sheet at May 30, 2010:

	(In Millions)
Balance at the beginning of fiscal 2009	$	132.6
Settlements and effective settlements with tax authorities		(0.1	)
Lapse of applicable statute of limitations		(5.1	)
Increases for tax positions in the current year		13.5
Other changes in unrecognized tax benefits		5.3
Balance at May 31, 2009		146.2
Settlements and effective settlements with tax authorities		(4.0	)
Lapse of applicable statute of limitations		(3.6	)
Increases for tax positions in the current year		13.8
Other changes in unrecognized tax benefits		4.2
Balance at May 30, 2010	$	156.6

At May 30, 2010, $156.6 million of the unrecognized tax benefit would affect our effective tax rate if it were to be recognized in a future period. Interest and penalties related to unrecognized tax benefits are included within income tax expense. The amount of interest and penalties accrued was $18.7 million at May 30, 2010 and $16.4 million at May 31, 2009.

We are required to file income tax returns in the U.S. federal jurisdiction, various state and local jurisdictions, and many foreign jurisdictions. A number of years may elapse before an uncertain tax position is audited and ultimately resolved. While it is often difficult to predict the final outcome or the exact timing of resolution for any particular uncertain tax position, we believe that the amounts of unrecognized tax benefits we have accrued reflect our best estimate. We adjust these amounts, as well as the related interest and penalties, as actual facts and circumstances change. Upon resolution of an uncertain tax position, we record an adjustment to income taxes in the same period.

We believe that it is reasonably possible that the unrecognized tax benefits mainly related to transfer pricing matters for tax years where the statutes of limitation expire during fiscal 2011 could decrease by as much as $3.9 million within the next year.

Our federal tax returns for fiscal 2007 through 2009 are currently under examination by the IRS. In addition, the IRS will audit our amended federal tax returns for fiscal 2005 and 2006. Several state taxing jurisdictions are examining our state tax returns for fiscal 2001 through 2005. During fiscal 2010, the state of California closed its audits of fiscal years up through fiscal 2000, which resulted in an immaterial adjustment. With a few exceptions, state tax returns for fiscal 2000 and after remain subject to future examination by state tax authorities. Internationally, tax authorities from several foreign jurisdictions are also examining our tax returns. In general, our international tax returns for fiscal 2003 and after remain subject to examination.

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The tax effects of temporary differences that constitute significant portions of the deferred tax assets are presented below:

(In Millions)	2010			2009
DEFERRED TAX ASSETS
Inventories	$	3.2		$	5.0
Equity investments		1.0			0.2
Property, plant and equipment and intangible assets		3.8			9.9
Accrued liabilities		51.4			57.6
Research and development expenditures		73.7			94.6
Deferred compensation		18.3			14.3
Share-based compensation		72.7			59.3
Non-U.S. loss carryovers and other allowances		103.4			93.7
Federal and state credit carryovers		86.2			85.4
Other		0.8			0.9
Gross deferred tax assets		414.5			420.9
Valuation allowance		(98.7	)		(96.8	)
Total deferred tax assets	$	315.8		$	324.1

The decrease in net deferred tax assets for fiscal 2010 of $8.3 million is from continuing operations and from the tax effect on other comprehensive income items.

We record a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized. The valuation allowance has been established primarily against the reinvestment and investment tax allowances related to our operation in Malaysia, as we have concluded that the deferred tax assets will not be realized in the foreseeable future due to a tax holiday granted by the Malaysian government that is effective for a ten-year period that began in our fiscal 2010 and the uncertainty of sufficient taxable income in Malaysia beyond fiscal 2019. We have a deferred tax asset related to the California R&D credits which can be carried forward indefinitely and we have concluded that a valuation allowance is not required against it since our estimate of future taxable income for California purposes in the long term (greater than 15 years) is considered more than sufficient to realize the deferred tax asset during the same time period. The valuation allowance for deferred tax assets increased by $1.9 million in fiscal 2010 compared to an increase of $15.6 million in fiscal 2009.

The ultimate realization of deferred tax assets depends upon the generation of future taxable income during the periods in which those temporary differences become deductible. As of May 30, 2010, based on historical taxable income and projections for future taxable income over the periods that the deferred tax assets are deductible, we believe it is more likely than not that we will realize the benefits of these deductible differences, net of the valuation allowance.

The reconciliation between the income tax rate computed by applying the U.S. federal statutory rate and the reported worldwide tax rate follows:

	2010		2009		2008
U.S. federal statutory tax rate	35.0	%	35.0	%	35.0	%
Non-U.S. income taxed at different rates	(13.8	)	0.6		(3.0	)
U.S. state and local taxes net of federal benefits	1.6		(0.7	)	0.9
Changes in beginning of year valuation allowances	(0.5	)	5.8		(1.9	)
Domestic manufacturing benefit	(1.2	)	(2.8	)	(1.3	)
Tax credits	(2.2	)	(5.7	)	(1.1	)
Other	3.2		3.3		(2.2	)
Effective tax rate	22.1	%	35.5	%	26.4	%

No U.S. income taxes have been provided on the cumulative unremitted earnings of approximately $108.5 million from non-U.S. subsidiaries as of May 30, 2010. It is not practicable to determine the U.S. income tax liability that would be

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payable if such earnings was not reinvested indefinitely. We intend to continue reinvesting certain foreign earnings from non-U.S. subsidiaries indefinitely.

At May 30, 2010, we had $11.9 million of state net operating loss carryovers, which expire between fiscal 2011 and 2022. We also had $125.1 million of state credit carryovers, consisting primarily of California R&D credits of $124.8 million which can be carried forward indefinitely. In addition, we had net operating losses and other tax allowance carryovers of $432.0 million from certain non-U.S. jurisdictions, most of which do not expire.

Note 12. Retirement and Pension Plans

The annual expense for all retirement and pension plans was as follows:

(In Millions)	2010		2009		2008
Salary deferral 401(k) plan	$	13.3	$	16.5	$	17.2
Non-U.S. pension and retirement plans	$	16.5	$	10.1	$	12.7

U.S. Plans

Our retirement and savings program for U.S. employees consists of a salary deferral 401(k) plan. The salary deferral 401(k) plan allows employees to defer up to 30 percent of their salaries, subject to certain limitations, with partially matching company contributions. To encourage employee participation, we make a matching contribution of 150 percent of the employee’s contribution to the 401(k) plan, up to the first 4 percent of the employee’s eligible salary. Contributions are invested in one or more of thirty investment funds at the discretion of the employee. One of the investment funds is a stock fund in which contributions are invested in National common stock at the discretion of the employee. 401(k) investments made by the employee in National common stock may be sold at any time at the employee’s direction. Although we have reserved 10,000,000 shares of common stock for issuance to the stock fund, shares purchased to date with contributions have been purchased on the open market and we have not issued any stock directly to the stock fund.

We also have a deferred compensation plan, which allows highly compensated employees (as defined by IRS regulations) to defer greater percentages of compensation than would otherwise be permitted under the salary deferral 401(k) plan and IRS regulations. The deferred compensation plan is a non-qualified plan of deferred compensation maintained in a rabbi trust. Participants can direct the investment of their deferred compensation plan accounts in the same investment funds offered by the 401(k) plan.

 International Plans

Certain of our international subsidiaries have varying types of defined benefit pension and retirement plans that comply with local statutes and practices.

We maintain defined benefit pension plans in the U.K., Germany and Taiwan that cover all eligible employees within each respective country. Prior to August 2007, we also had a defined benefit pension plan in Japan, which was terminated in full and replaced by a defined contribution plan in August 2007. As a result, we incurred a total charge of $0.2 million for the curtailment and settlement of the defined benefit pension plan.

Pension plan benefits are based primarily on participants’ compensation and years of service credited as specified under the terms of each country’s plan. The funding policy is consistent with the local requirements of each country. We may also voluntarily fund additional annual contributions as determined by management.

Beginning in fiscal 2009, we adopted the provisions of ASC Topic 715, “Compensation-Retirement Benefits,” that requires the measurement date of a plan’s funded status to be the same as the company’s fiscal year-end. As a result, the measurement date of February 28th for one of our plans was changed to May 31st. In lieu of remeasuring plan assets and benefit obligations as of the beginning of fiscal 2009 and using those new measurements to determine the effect of the measurement date change, we used the alternative approach permitted by GAAP. Under the alternative approach, the measurement of plan assets and benefit obligations determined as of February 28, 2008 were used to estimate the effect of the measurement date change. As a result, the net periodic pension cost for the 15-month period from February 28, 2008 to May 31, 2009 was allocated proportionately between amounts to be recognized as an adjustment of retained earnings for the portion of the 15-month period in fiscal 2008 and net periodic pension cost for the remaining portion in fiscal 2009. As

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a result, we recorded an adjustment of $0.6 million to retained earnings representing the effect of the change in measurement date for this plan.

Plan assets of the funded defined benefit pension plans are invested in funds held by third-party fund managers or are deposited into government-managed accounts in which we are not actively involved with and have no control over investment strategy. Two of the plans are self-funded plans. The plan assets held by third-parties consist primarily of U.S. and foreign equity securities, bonds and cash. The fund manager monitors the fund’s asset allocation within the guidelines established by the plan’s Board of Trustees. In line with plan investment objectives and consultation with company management, the Trustees set an allocation benchmark among equity, bond and other assets based on the relative weighting of overall international market indices. The overall investment objectives of the plan are 1) the acquisition of suitable assets of appropriate liquidity which will generate income and capital growth to meet current and future plan benefits, 2) to limit the risk of the assets failing to meet the long term liabilities of the plan and 3) to minimize the long term costs of the plan by maximizing the return on the assets. Performance is regularly evaluated by the Trustees and is based on actual returns achieved by the fund manager relative to its benchmark. The expected long-term rate of return for plan assets is based on analysis of historical data and future expectations relevant to the investments and consistency with the assumed rate of inflation implicit in the market.

The following table presents target allocation percentages and the fiscal year end percentage for each major category of plan assets:

	2010				2009
Asset Category	Target Allocation		Actual Allocation		Target Allocation		Actual Allocation
Equities	68	%	59	%	62	%	42	%
Bonds	23	%	26	%	25	%	25	%
Cash	0	%	8	%	5	%	26	%
Other	9	%	7	%	8	%	7	%
Total	100	%	100	%	100	%	100	%

The following table presents the fair value of plan assets by major categories using the same three-level hierarchy described in Note 2:

(In Millions)	Quoted Prices in Active Markets for Identical Instruments (Level 1)		Significant Other Observable Inputs (Level 2)		Unobservable  Inputs (Level 3)		Total
Cash and cash equivalents	$	16.8	$	-	$	-	$	16.8
Equities:
Global equity securities		0.7		113.9		-		114.6
Insurance contracts		-		-		12.5		12.5
Fixed income bonds		9.6		46.5		-		56.1
Other		1.3		15.3		-		16.6
Total assets measured at fair value	$	28.4	$	175.7	$	12.5	$	216.6

For all of our plans the discount rates represent the rates at which benefits could have been settled at the measurement date and were determined based on an analysis of the investment returns underlying annuity contracts, or alternatively the rates of return currently available on high quality fixed interest investments for liability durations that match the timing and amount of the expected benefit payments. The source data used to determine the discount rates for the U.K. and Germany plans are based on the published iBoxx index of AA bond yields for durations of over 15 years. The yields at the plans’ measurement dates were approximately 5.25 to 5.46 percent. While no formal liability cash flow projections were made for these plans, the mean term of their liabilities was determined for assessing appropriate bond durations. Our plan in Taiwan is not material.

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Net annual periodic pension cost of these non-U.S. defined benefit pension plans is presented in the following table:

(In Millions)		2010			2009			2008
Service cost of benefits earned during the year	$	2.8		$	3.2		$	5.1
Plan participant contributions		(0.8	)		(0.8	)		(1.1	)
Interest cost on projected benefit obligation		15.5			15.0			15.9
Expected return on plan assets		(13.3	)		(16.8	)		(19.7	)
Net amortization and deferral		5.4			2.9			5.5
Net periodic pension cost		9.6			3.5			5.7
Plan settlement		-			-			0.2
Total net periodic pension cost	$	9.6		$	3.5		$	5.9

Changes in the benefit obligations and plans assets are presented in the following table:

(In Millions)	2010			2009
PROJECTED BENEFIT OBLIGATION
Beginning balance	$	252.5		$	291.2
Service cost		2.8			3.6
Interest cost		15.5			18.7
Benefits paid		(6.7	)		(8.5	)
Actuarial gain		53.8			(1.7	)
Exchange rate adjustment		(34.0	)		(50.8	)
Ending balance	$	283.9		$	252.5
PLAN ASSETS AT FAIR VALUE
Beginning balance	$	199.8		$	272.3
Actual return on plan assets		41.9			(39.8	)
Company contributions		6.8			20.5
Plan participant contributions		0.8			0.8
Benefits paid		(6.7	)		(8.0	)
Exchange rate adjustment		(26.0	)		(46.0	)
Ending balance	$	216.6		$	199.8
FUNDED STATUS – BENEFIT OBLIGATION IN EXCESS OF PLAN ASSETS
Fiscal year end balance	$	67.3		$	52.7
ACCUMULATED BENEFIT OBLIGATION
Fiscal year end balance	$	282.8		$	251.8

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Amounts recognized in the consolidated balance sheets:

(In Millions)	2010			2009
Other non-current liabilities	$	67.3		$	52.7
Accumulated other comprehensive loss	$	(131.9	)	$	(123.5	)

Amounts in accumulated other comprehensive loss that have not yet been recognized as components of net periodic pension cost:

(In Millions)	2010			2009
Transition asset	$	1.1		$	1.2
Actuarial loss		(133.0	)		(124.7	)
	$	(131.9	)	$	(123.5	)

The net periodic pension cost and projected benefit obligations were determined using the following assumptions:

	2010	2009	2008
NET PERIODIC PENSION COST
Discount rate	2.3%-6.5%	2.8%-6.2%	2.8%-5.2%
Rate of increase in compensation levels	0.0%-3.0%	1.8%-3.8%	1.8%-3.8%
Expected long-term return on assets	1.5%-7.5%	3.0%-7.5%	3.0%-7.5%
PROJECTED BENEFIT OBLIGATIONS
Discount rate	2.1%-5.5%	2.3%-6.5%	2.8%-6.2%
Rate of increase in compensation levels	1.0%-3.0%	1.0%-3.5%	1.8%-3.8%

Total contributions paid to these plans were $6.8 million in fiscal 2010, $15.4 million in fiscal 2009 and $33.6 million in fiscal 2008. We currently expect contributions to total approximately $5.2 million in fiscal 2011. This amount excludes any voluntary contribution, which is yet to be determined by management.

The following table presents the total expected benefits to be paid to plan participants for the next ten fiscal years as determined based on the same assumptions used to measure the benefit obligation at the end of the fiscal year:

	(In Millions)
2011	$	6.3
2012		6.8
2013		7.0
2014		7.3
2015		7.5
2016-2020		45.0
Total	$	79.9

Amounts in accumulated other comprehensive loss expected to be recognized as components of net periodic pension cost over the next fiscal year:

	(In Millions)
Amortization of net transition asset	$	(0.2	)
Amortization of net loss	$	5.9

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Note 13. Shareholders’ Equity

Stock Repurchase Programs

Fiscal 2010

During fiscal 2010, we did not repurchase any shares of our common stock in connection with the $500 million stock repurchase program we announced in June 2007. Under this program, we have a balance of $127.4 million remaining available for future stock repurchases at May 30, 2010. We do not have any plans to terminate the program prior to its completion, and there is no expiration date for this repurchase program.

Fiscal 2009

We repurchased a total of 6.2 million shares of our common stock during fiscal 2009 for $128.4 million as part of the $500 million stock repurchase program announced in June 2007. All of these shares were repurchased in the open market and have been cancelled as of May 31, 2009.

Fiscal 2008

In June 2007, our Board of Directors approved (i) a $1.5 billion accelerated stock repurchase program; and (ii) an additional $500 million stock repurchase program similar to our existing stock repurchase program announced in March 2007. We entered into two separate agreements with Goldman Sachs to conduct the accelerated stock repurchase program. Under one of the agreements, we repurchased from Goldman Sachs, for $1.0 billion, a number of shares of our common stock determined by the volume-weighted average price of the stock during a six month period, subject to provisions establishing minimum and maximum numbers of shares. Under the other agreement, we repurchased shares of our common stock from Goldman Sachs immediately for an initial amount of $500 million. Goldman Sachs purchased an equivalent number of shares of our common stock in the open market over the next six months, and at the end of that period, the initial price was adjusted down based on the volume-weighted average price during the same period. The price adjustment was settled by us, at our option, in shares of our common stock. The $1.5 billion accelerated stock repurchase program was completed in December 2007 with a total 58.0 million shares repurchased.

In addition to the accelerated stock repurchase program, we repurchased an additional 27.9 million shares of our common stock during fiscal 2008 for $623.5 million as part of two $500 million stock repurchase programs: (i) the $500 million stock repurchase program announced in March 2007, which was completed during the third quarter of fiscal 2008, and (ii) the $500 million stock repurchase program announced in June 2007. All of these shares were repurchased in the open market. For all of fiscal 2008, we repurchased a total of 85.9 million shares of our common stock for $2,123.5 million through both the $1.5 billion accelerated stock repurchase program and the two $500 million stock repurchase programs. All shares of common stock that were repurchased had been cancelled as of the end of fiscal 2008.

Dividends

We paid cash dividends of $75.7 million in fiscal 2010, $64.4 million in fiscal 2009 and $50.6 million in fiscal 2008. In June 2010, the Board of Directors declared a cash dividend of $0.08 per outstanding share of common stock, which was paid on July 12, 2010 to shareholders of record as of the close of business on June 21, 2010. On July 12, 2010, in connection with a regularly scheduled meeting, our Board of Directors declared a cash dividend of $0.10 per outstanding share of common stock, which will be paid on October 12, 2010 to shareholders of record at the close of business on September 20, 2010.

Note 14. Share-based Compensation Plans

In September 2009, the shareholders of National approved the 2009 Incentive Award Plan (the 2009 Plan). The 2009 Plan replaces our four former equity compensation plans that provided share-based awards to employees and officers of the company (the 1977 Stock Option Plan, the 2007 Employees Equity Plan (EEP), the 2005 Executive Officer Equity Plan (EOEP) and the Executive Officer Stock Option Plan) and no further awards will be made to employees and officers under those plans. While new options can no longer be granted, there are options that are still outstanding under those plans. The 2009 Plan authorizes 16,000,000 shares of our common stock for issuance to eligible individuals in the form of stock options, restricted stock, restricted stock units, stock appreciation rights, performance awards, dividend equivalents, stock payments, deferred stock, other stock-based awards and performance-based awards. In addition to employees and officers of the company, members of our Board of Directors and consultants to the company are eligible to participate, as determined by the Compensation Committee of the Board of Directors. As of May 30, 2010, up to 13.2 million shares were available for future issuance of all equity awards under the 2009 Plan.

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Stock Option Plans

The 2009 Plan provides for the grant of both nonqualified stock options and incentive stock options (as defined in the U.S. tax code). The 2009 Plan provides for the grant of stock options at fair market value on the date of grant. The term and vesting period of the stock options are set by the Compensation Committee of our Board of Directors. To date, options granted under the terms of the 2009 Plan expire no later than six years and one day after the date of grant and vest one-fourth of the total grant one year after grant and the rest in equal monthly installments over the next three years. The terms of stock options granted under the former equity compensation plans were similar to the 2009 Plan.

We have a director stock option plan that was approved by shareholders in fiscal 1998 which authorized the grant of up to 2,000,000 shares of common stock to eligible directors who are not employees of the company. Options were granted automatically upon approval of the plan by shareholders and were granted automatically to eligible directors upon their appointment to the board and subsequent election to the board by shareholders. In connection with the approval of amendments to the director stock plan in fiscal 2006, this plan was frozen and no new options can be granted under the plan. Options issued to directors under this plan vested in full after six months. Under this plan, options to purchase 350,000 shares of common stock with a weighted-average per share exercise price of $14.24 and weighted-average remaining contractual life of 2.3 years were outstanding and exercisable as of May 30, 2010. The aggregate intrinsic value of these fully vested shares was $0.7 million at May 30, 2010.

Under the former EOEP, options to purchase 1,280,000 shares of common stock were granted in fiscal 2010, options to purchase 565,000 shares of common stock were granted in fiscal 2009 and options to purchase 520,000 shares of common stock were granted in fiscal 2008. These shares are included in the amounts presented in the table that summarizes stock option activity. Grants will no longer be made under the EOEP.

As of May 30, 2010, under all equity compensation plans for stock options there were 44.4 million shares reserved for issuance. The following table summarizes the activity of common stock shares related to stock options granted during fiscal 2010, 2009 and 2008 under our equity plans (excluding the director stock option plan under which new options can no longer be granted):

	Number of Shares (In Millions)		Weighted-Average Exercise Price
Outstanding at May 27, 2007	55.2		$	18.29
Granted	6.7		$	27.26
Exercised	(5.9	)	$	12.84
Forfeited	(0.7	)	$	25.03
Expired	(0.8	)	$	28.06
Outstanding at May 25, 2008	54.5		$	19.76
Granted	7.9		$	18.35
Exercised	(3.9	)	$	9.82
Forfeited	(2.2	)	$	23.40
Expired	(2.5	)	$	23.64
Outstanding at May 31, 2009	53.8		$	19.95
Granted	6.4		$	13.12
Exercised	(4.4	)	$	11.42
Forfeited	(13.5	)	$	23.60
Expired	(11.4	)	$	26.69
Outstanding at May 30, 2010	30.9		$	15.64

Expiration dates for options outstanding at May 30, 2010 range from June 1, 2010 to May 18, 2016.

The total intrinsic value of options exercised was $7.9 million in fiscal 2010, $27.8 million in fiscal 2009 and $79.2 million in fiscal 2008. Total unrecognized compensation cost related to stock option grants as of May 30, 2010 was $21.2 million, which is expected to be recognized over a weighted-average period of 2.6 years.

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The following table provides additional information about total options outstanding at May 30, 2010 under the stock option plans (excluding the director stock option plan):

	Number of Shares (In Millions)	Weighted-Average Exercise Price	Aggregate Intrinsic Value (In Millions)	Weighted-Average Remaining Contractual Life (In Years)
Fully vested and
expected to vest	30.4	$15.68	$41.7	2.3
Currently exercisable	21.8	$16.13	$33.0	1.4

Stock Purchase Plan

We have an employee stock purchase plan approved by shareholders that authorizes the issuance of up to 16,000,000 shares to eligible employees worldwide. Our stock purchase plan uses a captive broker and we deposit shares purchased by the employee with the captive broker. In addition, for international participants, the National subsidiary that the participant is employed by is responsible for paying to us the difference between the purchase price set by the terms of the plan and the fair market value at the time of the purchase. This plan allows employees to purchase shares of the company’s common stock at 85 percent of the lower of the common stock’s fair market value at the time of enrollment in one of two six-month purchase periods in a one-year offering period or the end of the purchase period.

Under the terms of our stock purchase plan, we issued 1.8 million shares in fiscal 2010, 2.2 million shares in fiscal 2009 and 1.5 million shares in fiscal 2008 to employees for $19.2 million, $24.0 million and $26.0 million, respectively.  As of May 30, 2010 there were 4.8 million shares reserved for future issuance under the stock purchase plan.

Other Forms of Equity Compensation

The 2009 Plan provides for the grant of restricted stock and restricted stock units that are subject to restrictions which may be based exclusively on the passage of time or may also include performance conditions as determined by the Compensation Committee of our Board of Directors. Vesting for both restricted stock and restricted stock units can begin to occur six months after grant and the minimum full vesting period for non-performance contingent restricted shares is three years. The minimum vesting period for any performance contingent restricted shares is one year. Restricted stock and restricted stock units granted under the former EEP and restricted stock plan were also subject to restrictions based exclusively on the passage of time or included performance conditions and have similar vesting requirements. We use restricted stock awards as a retention vehicle for employees with technical skills and expertise that are important to us.

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The following table provides a summary of activity during fiscal 2010 for grants of restricted stock not yet vested and restricted stock units under the restricted stock plan, the EEP and the 2009 Plan (excluding units granted with performance based restrictions):

	Number of Shares (In Millions)		Weighted-Average Grant-Date Fair Value
Outstanding at May 27, 2007	0.4		$	22.62
Granted/Issued	0.2		$	24.04
Vested	(0.1	)	$	21.73
Forfeited	-		$	28.39
Outstanding at May 25, 2008	0.5		$	23.21
Granted/Issued	0.8		$	11.64
Vested	(0.1	)	$	19.46
Forfeited	(0.1	)	$	16.50
Outstanding at May 31, 2009	1.1		$	15.59
Granted/Issued	2.1		$	13.75
Vested	(0.1	)	$	24.24
Forfeited	(0.1	)	$	12.70
Outstanding at May 30, 2010	3.0		$	13.96

The total fair value of restricted shares that vested in fiscal 2010, 2009 and 2008 was $2.1 million, $1.6 million and $2.8 million, respectively. Total unrecognized compensation cost related to non-vested restricted stock shares and restricted stock units outstanding as of May 30, 2010 was $26.0 million, which is expected to be recognized over a weighted-average period of 3.0 years.

We have a director stock plan, which has been approved by shareholders, that authorizes the issuance of up to 900,000 shares of common stock to eligible directors who are not employees of the company. The stock is issued automatically to eligible new directors upon their appointment to the board and to all eligible directors on their subsequent election to the board by shareholders. Directors may also elect to take their annual retainer fees for board membership and committee chairmanship in stock under the plan. The shares issued to the directors under the plan are restricted from transfer for between six and thirty-six months. As of May 30, 2010 we had issued 796,047 shares under the director stock plan and had reserved 103,953 shares for future issuances. Total unrecognized compensation cost related to non-vested shares under the director stock plan as of May 30, 2010 was $0.9 million, which is expected to be recognized over a weighted-average period of 2.3 years. We will continue to grant awards to members of our Board of Directors under the existing director stock plan until all remaining authorized shares have been used. At that time, future awards will then be granted under the 2009 Plan.

With respect to performance share units under the EOEP, 259,374 shares were issued upon completion in July 2009 of the third two-year performance period. Targets for a fifth two-year performance period were established in July 2009 and will be measured after the end of fiscal 2011. In addition, targets for a one-year performance period were established, which will be measured after the end of fiscal 2010, but requires a two-year vesting period. In fiscal 2009, no shares were issued upon completion in July 2008 of the second two-year performance period because minimum performance thresholds were not achieved and in fiscal 2008, 1,005,000 shares were issued upon completion in July 2007 of the first performance period. Total unrecognized compensation cost related to unvested performance share units as of May 30, 2010 was $12.4 million, which is expected to be recognized over a weighted-average period of 1.0 years.

After the end of fiscal 2010, the fourth two-year performance period was measured upon its completion and since minimum performance thresholds were not achieved, no shares were issued in July 2010. Under the 2009 Plan, targets for a sixth two-year performance period were established in June 2010 and will be measured after the end of fiscal 2012.

 In November 2008, the Compensation Committee of our Board of Directors approved retention arrangements for each of our executive officers that cover the ensuing two-year period and provide each executive officer with a cash award to be paid on or about November 30, 2010. The amount of the cash award is based on the average daily closing price of our common stock for the second fiscal quarter ending November 28, 2010, which amount increases depending on five

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specified stock price ranges that fall between a minimum and maximum price as set forth under each arrangement. The cash award is considered a share-based payment award and measured at fair value since the award is indexed to the price of our common stock. We measure compensation expense based on the estimated fair value of the cash award at the end of each reporting period and include that amount in share-based compensation expense. To calculate fair value, we use the Monte Carlo valuation method which estimates the probability of the potential payouts. The fair value of the cash award is amortized over the retention period and recognized as a liability reported in accrued expenses in the consolidated balance sheet as of May 30, 2010. Total unrecognized compensation cost related to the executive officer retention awards at May 30, 2010 was $2.9 million, which is expected to be recognized over a weighted-average period of 0.5 years.

Stock Option Exchange Program

We completed a stock option exchange program in November 2009. Like many companies, we had experienced a significant decline in our stock price during calendar 2008 and 2009 as a result of the global financial and economic crisis. Our employees held stock options with exercise prices significantly above the recent trading prices of our common stock. The stock option exchange program offered our employees the opportunity to surrender certain of those outstanding stock options for cancellation in exchange for a number of restricted stock units to be granted under the 2009 Plan having a value roughly equivalent to the value of the options exchanged. Named executive officers and members of our Board of Directors were not eligible to participate in the option exchange program.

Under the exchange program, eligible stock options with an exercise price of $17.00 and above could be exchanged for restricted stock units at an exchange ratio that ranged between 5 to 1 and 10 to 1 depending on the actual exercise prices of the eligible stock options. The exchange ratios for the option exchange were determined using the Black-Scholes option pricing model with a computation of expected volatility based on a combination of historical and implied volatility. We used this model to enable us to calculate exchange ratios that would result in a fair value of the new restricted stock units to be effectively equal to the fair value of the surrendered eligible stock options and as such, incremental compensation expense was immaterial.

Under the exchange program, eligible stock options to purchase an aggregate of 12,830,732 shares held by 1,713 employees were cancelled. Of this amount, eligible options to purchase 11,988,793 shares were cancelled and exchanged for a total of 1,670,944 new restricted stock units on November 16, 2009. The aggregate fair value of the restricted stock units was $22.7 million based on the closing price of our common stock on the exchange date. These restricted stock units will vest ratably each year for four years unless the exchanged stock options were fully vested, in which case they will vest ratably each year for three years. Under the terms of the exchange program, a cash payment was offered for the surrender of eligible stock options for which application of the exchange ratios would result in the issuance of less than 100 restricted stock units. Eligible options to purchase 841,939 shares were cancelled in exchange for an aggregate $1.3 million cash payment made to employees on November 16, 2009. As a result of the cash payments, share-based compensation expense in fiscal 2010 includes an incremental expense of $1.7 million.

Note 15. Commitments and Contingencies

Commitments

We lease certain facilities and equipment under operating lease arrangements. Rental expenses under operating leases were $24.5 million, $29.8 million and $31.9 million in fiscal 2010, 2009 and 2008, respectively.

Future minimum commitments under non-cancelable operating leases are as follows:

	(In Millions)
2011	$	15.0
2012		7.8
2013		5.0
2014		3.3
2015		2.4
2016 and thereafter		2.0
Total	$	35.5

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     In October 2009, we entered into a five-year warehouse services agreement with a local supplier in Singapore who will provide warehousing and distribution services for our finished products. Under the terms of the agreement, we are committed to purchase services based on the delivery of a minimum volume of our finished products at specified rates (depending on the volume delivered) as determined in the agreement. The minimum purchases under the agreement are $3.1 million in each of the next 4 years (fiscal 2011 through 2014) and a remaining $1.3 million in fiscal 2015. We purchased $3.9 million of warehouse services under this agreement in fiscal 2010.

We have an agreement with a local energy supplier in Maine to purchase electricity for our manufacturing facility located there. The agreement began in January 2006 and is a five-year term full requirement contract with no minimum purchase commitments. The agreement allows for a fixed purchase price if the annual volume purchased falls within a specified range as determined by the terms of the agreement. In fiscal 2010, 2009 and 2008, we purchased $8.9 million, $8.8 million and $9.7 million, respectively, for electricity usage under this agreement. We also had an agreement with a local energy supplier in Texas to purchase electricity for our manufacturing facility located there. The agreement was a three-year bulk contract where service began in June 2006. However, the agreement was terminated prior to its expiration since our level of future electricity usage was expected to be significantly reduced due to the action announced in January 2008 to modernize our facilities and rationalize the capacity in our manufacturing plants. We paid a $1.0 million penalty fee and entered into a separate agreement with the same supplier for the purchase of electricity for the remainder of the service period provided under the former agreement. The new agreement, which expired at the end of fiscal 2009, required us to purchase a minimum level of electricity at a specified price as determined by the terms of the agreement. Under that agreement, we purchased a total of $6.0 million for electricity usage in fiscal 2009 and a total of $5.5 million for electricity usage under both agreements in fiscal 2008.

We have an agreement with a supplier in Malacca, Malaysia to purchase industrial gases for our manufacturing facility located there. The agreement began in May 2007 and runs through May 2022. Under the terms of the agreement we can purchase up to a certain monthly volume of gas products based on specified prices as determined by the terms of the agreement. The agreement permits the review of these prices every five years if such prices vary by more or less than 10 percent of fair market value. Minimum purchases under the agreement are $506 thousand in each of the next 5 years (fiscal 2011 through 2015) and a remaining $3.5 million in fiscal 2016 and thereafter. We purchased $1.0 million of gas products under this agreement in both fiscal 2010 and 2009. In fiscal 2008, we purchased $0.9 million of gas product.  

We are party to a master operating lease agreement for capital equipment under which individual operating lease agreements are executed as the delivery and acceptance of scheduled equipment occurs. The required future minimum lease payments under these operating leases are included in the table above. These individual operating lease agreements under the master lease provide for guarantees of the equipment’s residual value at the end of their lease terms for up to a maximum of $4.1 million. At May 30, 2010, the fair value of the lease guarantees was $0.1 million and is included in other non-current liabilities.

Contingencies - -- Legal Proceedings

Environmental Matters

We have been named to the National Priorities List for our Santa Clara, California, site and we have completed a remedial investigation/feasibility study with the Regional Water Quality Control Board (RWQCB), acting as an agent for the EPA. We have agreed in principle with the RWQCB on a site remediation plan and we are conducting remediation and cleanup efforts at the site. In addition to the Santa Clara site, we have been designated from time to time as a potentially responsible party (PRP) by international, federal and state agencies for certain environmental sites with which we may have had direct or indirect involvement. These designations are made regardless of the extent of our involvement. These claims are in various stages of administrative or judicial proceedings and include demands for recovery of past governmental costs and for future investigations and remedial actions. In many cases, the dollar amounts of the claims have not been specified, and, claims have been asserted against a number of other entities for the same cost recovery or other relief as is sought from us. We accrue costs associated with environmental matters when they become probable and can be reasonably estimated. The amount of all environmental charges to earnings, including charges for the Santa Clara site remediation, (excluding potential reimbursements from insurance coverage), were not material during fiscal 2010, 2009 and 2008.

We have also retained responsibility for environmental matters connected with businesses we sold in fiscal 1996 and 1997. To date, the costs associated with the liabilities we have retained in these dispositions have not been material and there have been no related legal proceedings.

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Tax Matters

Our federal tax returns for fiscal 2007 through 2009 are currently under examination by the IRS. In addition, the IRS will audit our amended federal tax returns for fiscal 2005 and 2006. Several U.S. state taxing jurisdictions are examining our state tax returns for fiscal 2001 through 2005. During fiscal 2010, the state of California closed its audits of fiscal years up through fiscal 2000, which resulted in an immaterial adjustment. Internationally, tax authorities from several foreign jurisdictions are also examining our tax returns. We believe we have made adequate tax payments and/or accrued adequate amounts of reserves such that the outcomes of these audits will have no material adverse effects on our financial statements.

Other Matters

In May 2008, eTool Development, Inc. and eTool Patent Holdings Corporation (collectively eTool) brought suit in the U.S. District Court for the Eastern District of Texas alleging that our WEBENCH® online design tools infringe an eTool patent and seeking an injunction and unspecified amounts of monetary damages (trebled because of the alleged willful infringement), attorneys’ fees and costs. In December 2008, eTool amended the complaint and counterclaims to include our SOLUTIONS online tool in its allegations of infringement of the eTool patent. We filed an answer to the amended complaint and counterclaims for declaratory judgment of non-infringement and invalidity of the patent. On February 27, 2009, the Court held a scheduling conference setting a claim construction hearing for August 2011 and a jury trial for January 2012. eTool served its infringement contentions in March 2009 and we served our invalidity contentions in May 2009. Both parties exchanged initial disclosures on May 29, 2009. The discovery phase of the case is now open and ongoing. In February 2010, we filed our inter partes reexamination petition with the United States Patent and Trademark Office (PTO), seeking a determination that the ‘919 patent is invalid. On March 15, 2010, the PTO issued a communication granting our inter partes reexamination petition. The inter partes proceeding is ongoing. On June 8, 2010, eTool filed its second amended complaint removing the infringement allegations against our SOLUTIONS online tool. We answered eTool’s second amended complaint on June 25, 2010. We intend to contest the case through all available means.

We are currently a party to various claims and legal proceedings, including those noted above. We make provisions for a liability when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. We believe we have made adequate provisions for potential liability in litigation matters. We review these provisions at least quarterly and adjust these provisions to reflect the impact of negotiations, settlements, rulings, advice of legal counsel and other information and events pertaining to a particular case. Based on the information that is currently available to us, we believe that the ultimate outcome of litigation matters, individually and in the aggregate, will not have a material adverse effect on our results of operations or financial position. However, litigation is inherently unpredictable. If an unfavorable ruling or outcome were to occur, there is a possibility of a material adverse effect on results of operations or our financial position.

Contingencies - -- Other

In connection with our past divestitures, we have routinely provided indemnities to cover the indemnified party for matters such as environmental, tax, product and employee liabilities. We also routinely include intellectual property indemnification provisions in our terms of sale, development agreements and technology licenses with third parties. Since maximum obligations are not explicitly stated in these indemnification provisions, the potential amount of future maximum payments cannot be reasonably estimated. To date we have incurred minimal losses associated with these indemnification obligations and as a result, we have not recorded any liabilities in our consolidated financial statements.

Note 16. Segment and Geographic Information

We design, develop, manufacture and market a wide range of semiconductor products, most of which are analog and mixed-signal integrated circuits. We are organized by various product line business units. For segment reporting purposes, each of our product line business units represents an operating segment as defined under ASC Topic 280, “Segment Reporting,” and our Chief Executive Officer is considered the chief operating decision-maker. Business units that have similarities, including economic characteristics, underlying technology, markets and customers, are aggregated into larger segments. For fiscal 2010, our Analog segment, which accounted for 94 percent of net sales, is the only operating segment that meets the criteria of a reportable segment. Operating segments that do not meet the criteria of a reportable segment are combined under “All Others.”

Product line business units that make up the Analog segment include high speed products, precision signal path, and power management which includes three different business units (infrastructure power, mobile devices power and

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performance power products). These business units represent the core analog focus and receive the majority of our research and development investment funds. The Analog segment is focused on utilizing our analog and mixed-signal design expertise to develop high-performance building blocks and integrated solutions aimed at end markets, such as wireless handsets (including smart phones) and other portable devices, and at applications for broader markets, such as industrial and medical, automotive, network infrastructure and photovoltaic systems.

Aside from these operating segments, our corporate structure in fiscal 2010, 2009 and 2008 also included the centralized Worldwide Marketing and Sales Group, the Key Market Segments Group, the Technology Development Group, the Manufacturing Operations Group, and the Corporate Group. Certain expenses of these groups are allocated to the operating segments and are included in their segment operating results.

With the exception of the allocation of certain expenses, the significant accounting policies and practices used to prepare the consolidated financial statements as described in Note 1 to the Consolidated Financial Statements are generally followed in measuring the sales, segment income or loss and determination of assets for each reportable segment. We allocate certain expenses associated with centralized manufacturing, selling, marketing and general administration to operating segments based on either the percentage of net trade sales for each operating segment to total net trade sales or headcount, as appropriate. Certain R&D expenses primarily associated with centralized activities such as process development are allocated to operating segments based on the percentage of dedicated R&D expenses for each operating segment to total dedicated R&D expenses.

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The following table presents specified amounts included in the measure of segment operating results or the determination of segment assets:

(In Millions)	Analog Segment		All Others			Total
2010
Net sales to external customers	$	1,329.1	$	90.3		$	1,419.4
Income (loss) before income taxes	$	321.9	$	(53.3	)	$	268.6
Depreciation and amortization	$	4.9	$	89.6		$	94.5
Share-based compensation expense	$	19.0	$	54.8		$	73.8
Interest income	$	-	$	1.8		$	1.8
Interest expense	$	-	$	60.3		$	60.3
Loss on extinguishment of debt	$	-	$	2.1		$	2.1
Net loss on derivative instrument in fair value hedge	$	-	$	2.2		$	2.2
Total assets	$	177.7	$	2,097.1		$	2,274.8
2009
Net sales to external customers	$	1,334.9	$	125.5		$	1,460.4
Income (loss) before income taxes	$	247.0	$	(133.4	)	$	113.6
Depreciation and amortization	$	6.0	$	113.8		$	119.8
Share-based compensation expense	$	23.5	$	47.4		$	70.9
Interest income	$	-	$	10.4		$	10.4
Interest expense	$	-	$	72.7		$	72.7
In-process research and development charge	$	2.9	$	-		$	2.9
Total assets	$	187.5	$	1,775.8		$	1,963.3
2008
Net sales to external customers	$	1,695.9	$	190.0		$	1,885.9
Income before income taxes	$	450.9	$	0.3		$	451.2
Depreciation and amortization	$	7.1	$	125.6		$	132.7
Share-based compensation expense	$	26.5	$	63.2		$	89.7
Interest income	$	-	$	33.8		$	33.8
Interest expense	$	-	$	85.5		$	85.5
Gain on sale of manufacturing plant assets	$	-	$	3.1		$	3.1
Litigation settlement	$	-	$	3.3		$	3.3
Total assets	$	197.1	$	1,952.0		$	2,149.1

The information in the table above for fiscal 2009 and 2008 has been reclassified to present segment information based on the structure of our operating segments in fiscal 2010. Sales for the category “All Others,” includes sales from non-analog business units that are no longer a part of our core focus, as well as some sales generated from foundry and contract service arrangements.

Total assets for the Analog segment consist only of those assets that are specifically dedicated to an operating segment and include inventories, equipment, equity investments, goodwill and amortizable intangibles assets. Depreciation and amortization presented for each segment include only such charges on dedicated segment assets. Similarly, share-based compensation expense presented for each segment includes only such charges related to employees who directly support the operating segments. The measurement of segment profit and loss includes an allocation of depreciation expense for shared manufacturing facilities and share-based compensation expense associated with direct labor contained in the standard cost of product for each segment.

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    Our revenues from external customers are derived from the sales of semiconductor product and engineering-related services. For fiscal 2010, 2009 and 2008, sales from engineering-related services were immaterial and are included with semiconductor product sales. Our semiconductor product sales consist of integrated circuit components and are considered a group of similar products.

Net sales to major customers as a percentage of total net sales were as follows:

	2010		2009		2008
Distributor:
Avnet		17%		15%		15%
Arrow		15%		13%		12%
OEM:
Nokia		*		*		11%

  * less than 10%

Sales to the distributors included above are mostly for our Analog segment products, but also include some sales for our other operating segment products. Sales to Nokia are primarily for our Analog segment products.

We operate our marketing and sales activities in four main geographic regions that include the Americas, Asia Pacific, Europe and Japan. Total sales by geographical area include sales to unaffiliated customers and inter-geographic transfers, which are based on standard cost. To control costs, a substantial portion of our products are transported between the Americas, Asia Pacific region and Europe while in the process of being manufactured and sold. In the information presented below, we have excluded these inter-geographic transfers.

The following tables provide geographic sales and asset information by major countries within the main geographic areas:

(In Millions)	2010		2009		2008
Net sales:
United States	$	334.9	$	341.1	$	385.5
Foreign locations:
People’s Republic of China		450.5		462.3		573.8
Singapore		192.7		231.5		309.9
Japan		124.0		115.4		200.6
Germany		317.3		310.1		204.4
United Kingdom (1)		-		-		211.7
		1,084.5		1,119.3		1,500.4
Total net sales	$	1,419.4	$	1,460.4	$	1,885.9
Long-lived assets:
United States	$	244.1	$	294.1	$	358.2
Foreign locations:
Malaysia		66.3		69.9		93.8
United Kingdom		77.0		72.9		72.1
Rest of World		2.7		24.9		33.2
		146.0		167.7		199.1
Total long-lived assets	$	390.1	$	461.8	$	557.3

(1) Beginning in fiscal 2009, we no longer report sales in the United Kingdom since our European sales operations were consolidated and are now in Munich, Germany.

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Note 17. Financial Information by Quarter (Unaudited)

The following table presents the unaudited quarterly information for fiscal 2010 and 2009:

	Fourth			Third		Second		First
(In Millions, Except Per Share Amounts)	Quarter			Quarter		Quarter		Quarter
2010
Net sales	$	398.5		$	361.9	$	344.6	$	314.4
Gross margin	$	274.3		$	243.7	$	225.0	$	192.2
Net income	$	79.2		$	53.2	$	47.0	$	29.8
Earnings per share:
Net income:
Basic	$	0.33		$	0.22	$	0.20	$	0.13
Diluted	$	0.33		$	0.22	$	0.20	$	0.13
Weighted-average common and potential common shares outstanding:
Basic		238.0			237.3		236.6		233.6
Diluted		243.6			242.5		241.0		237.9
Common stock price - high	$	16.00		$	15.70	$	16.20	$	15.85
Common stock price - low	$	13.12		$	13.14	$	12.52	$	11.60
2009
Net sales	$	280.8		$	292.4	$	421.6	$	465.6
Gross margin	$	163.6		$	168.1	$	277.4	$	307.2
Net (loss) income	$	(63.7	)	$	21.1	$	36.3	$	79.6
Earnings (loss) per share:
Net (loss) income:
Basic	$	(0.28	)	$	0.09	$	0.16	$	0.35
Diluted	$	(0.28	)	$	0.09	$	0.16	$	0.33
Weighted-average common and potential common shares outstanding:
Basic		230.1			228.4		228.0		229.8
Diluted		230.1			231.3		234.0		241.3
Common stock price - high	$	14.00		$	12.17	$	22.51	$	24.75
Common stock price - low	$	9.31		$	9.06	$	9.02	$	19.48

Our common stock is traded on the New York Stock Exchange. The quoted market prices are as reported on the New York Stock Exchange Composite Tape. At May 30, 2010, there were approximately 4,800 record holders of common stock. The graph showing the performance of our stock over the last five years can be found in Item 5 of this Form 10-K.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

National Semiconductor Corporation:

We have audited the accompanying consolidated balance sheets of National Semiconductor Corporation and subsidiaries (the Company) as of May 30, 2010 and May 31, 2009, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three year period ended May 30, 2010. In connection with our audits of the consolidated financial statements, we also have audited the accompanying financial statement schedule included in Item 15(a)2. These consolidated financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of National Semiconductor Corporation and subsidiaries as of May 30, 2010 and May 31, 2009, and the results of their operations and their cash flows for each of the years in the three year period ended May 30, 2010, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

As discussed in note 2 to the consolidated financial statements, the Company has changed its method of accounting for the valuation of financial assets and liabilities at the beginning of fiscal year 2009 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, and, as discussed in note 12 to the consolidated financial statements, the Company has changed its method of accounting for the measurement date of its defined benefit pension plans in fiscal year 2009 due to the adoption of ASC Topic 715, Compensation–Retirement Benefits. Also, as discussed in note 11 to the consolidated financial statements, the Company changed its method of accounting for uncertain tax positions at the beginning of fiscal year 2008 as a result of the adoption of ASC Topic 740, Income Taxes.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of May 30, 2010, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated July 20, 2010 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

/s/ KPMG LLP

Mountain View, California

July 20, 2010

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

National Semiconductor Corporation:

We have audited National Semiconductor Corporation and subsidiaries’ (the Company) internal control over financial reporting as of May 30, 2010, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting in Item 9A. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

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

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

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

In our opinion, National Semiconductor Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of May 30, 2010, based on criteria established in Internal Control – Integrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of National Semiconductor Corporation and subsidiaries as of May 30, 2010 and May 31, 2009, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three year period ended May 30, 2010, and the related financial statement schedule, and our report dated July 20, 2010 expressed an unqualified opinion on those consolidated financial statements and financial statement schedule.

/s/ KPMG LLP

Mountain View, California

July 20, 2010

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are intended to ensure that the information required to be disclosed in our Exchange Act filings is properly and timely recorded, processed, summarized and reported. In designing and evaluating our disclosure controls and procedures, we recognize that management necessarily is required to apply its judgment in evaluating controls and procedures. Since we have investments in certain unconsolidated entities which we do not control or manage, our disclosure controls and procedures with respect to such entities are necessarily substantially more limited than those we maintain for our consolidated subsidiaries.

We have a disclosure controls committee comprised of key individuals from a variety of disciplines in the company that are involved in the disclosure and reporting process. The committee meets regularly to ensure the timeliness, accuracy and completeness of the information required to be disclosed in our filings containing financial statements. As required by SEC Rule 13a-15(b), the committee reviewed this Form 10-K and also met with the Chief Executive Officer and the Chief Financial Officer to review this Form 10-K and the required disclosures and the effectiveness of the design and operation of our disclosure controls and procedures. The committee performed an evaluation, under the supervision of and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year covered by this report. Based on that evaluation and their supervision of and participation in the process, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective.

Management’s Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external reporting purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that receipts and expenditures of the company are being made only in accordance with authorization of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Management assessed our internal control over financial reporting as of May 30, 2010, the end of our 2010 fiscal year.  Management conducted its evaluation of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included evaluation of such elements as the design and operating effectiveness of key reporting controls, process documentation, accounting policies, and our overall control environment. This assessment is supported by testing and monitoring performed by our internal audit and finance personnel.

Based on our assessment, our management has concluded that our internal control over financial reporting was effective as of the end of our 2010 fiscal year. We reviewed the results of this assessment with the audit committee of our board of directors.

Our independent registered public accounting firm, KPMG LLP, independently assessed the effectiveness of our internal control over financial reporting. KPMG has issued an unqualified attestation report, which is included under Item 8 of this Form 10-K as a separate Report of Independent Registered Public Accounting Firm.

Inherent Limitations on Effectiveness of Controls

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no

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matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree on compliance with policies or procedures.

Changes in Internal Controls

As part of our efforts to ensure compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, we conduct a continual review of our internal control over financial reporting. The review is an ongoing process and it is possible that we may institute additional or new internal controls over financial reporting as a result of the review. During the fourth quarter of fiscal 2010, we did not make any changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

ITEM 9B. OTHER INFORMATION

Not applicable.

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following information appearing in our Proxy Statement for the 2010 annual meeting of shareholders to be held on or about September 24, 2010 and which will be filed in definitive form pursuant to Regulation 14A on or about August 11, 2010 (the “2010 Proxy Statement”), is incorporated herein by reference:

· information concerning our directors appearing in the section on the proposal relating to election of directors;

· information appearing under the subcaptions “Audit Committee,” “Section 16(a) Beneficial Ownership Reporting Compliance,” and “Code of Business Conduct and Ethics” appearing in the section titled “Corporate Governance, Board Meetings and Committees.”

Information concerning our executive officers is set forth in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.”

ITEM 11. EXECUTIVE COMPENSATION

The information appearing in (i) the section titled “Executive Compensation” (including all related subcaptions thereof), (ii) under the subcaptions “Director Compensation” and “Compensation Committee Interlocks and Insider Participation” in the section titled “Corporate Governance, Board Meetings and Committees,” and (iii) in the section titled “Compensation Committee Report” in the 2010 Proxy Statement is incorporated herein by reference.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND

RELATED STOCKHOLDER MATTERS

The information concerning the only known ownership of more than 5 percent of our outstanding common stock appearing in the section titled “Security Ownership of Certain Beneficial Owners” in the 2010 Proxy Statement is incorporated herein by reference. The information concerning the ownership of our equity securities by directors, certain executive officers and directors and officers as a group appearing under the caption “Security Ownership of Management” in the 2010 Proxy Statement is incorporated herein by reference.

Equity Compensation Plans

The following table summarizes share and exercise price information about our equity compensation plans as of May 30, 2010.

Equity Compensation Plan Information

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a)			Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders:
2009 Incentive Award Plan:
Options		743,000		$14.56
Restricted Stock		2,043,430		-
			2,786,430		13,203,570
Stock Option Plan			1,839,300	$15.09	-
Executive Officer Stock Option Plan			7,408,000	$14.11	-
Director Stock Option Plan			350,000	$14.24	-
2007 Employees Equity Plan:
Options			8,029,841	$14.60
Restricted Stock Units:
Time-based RSU		641,750
Performance-based RSU		15,000
			656,750	-	-
Employee Stock Purchase Plan				-	4,769,882
Director Stock Plan				-	103,953
2005 Executive Officer Equity Plan:
Options			1,894,000	$15.90	-
Performance Share Units at Target			1,670,000	-	-
Equity compensation plans not approved by security holders:
1997 Employees Stock Option Plan			10,955,328	$17.59	-
Total			35,589,649		18,077,405

Page 90 of 98

Information about our Equity Compensation Plans not Approved by Stockholders

The 1997 Employees Stock Option Plan provided for the grant of non-qualified stock options to employees who are not executive officers of the company. Options were granted at the closing market price on the date of grant and can expire up to a maximum of six years and one day after grant or three months after termination of employment (up to five years after termination due to death, disability or retirement), whichever occurs first. Options can begin to vest after six months; all options granted in the last three fiscal years begin to vest after one year, with vesting completed on a monthly basis ratably over the next three years.  The plan was terminated in September 2007 and no further options can be granted thereunder.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information appearing under the subcaptions “Certain Relationships and Related Party Transactions” and “Director Independence” in the section titled “Corporate Governance, Board Meetings and Committees” in the 2010 Proxy Statement is incorporated herein by reference.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information presented in the section on the proposal relating to ratification of the appointment of the independent auditor, including the information concerning fees paid to KPMG LLP, appearing in the 2010 Proxy Statement is incorporated herein by reference.

Page 91 of 98

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) 1. Financial Statements	Pages in this document
National Semiconductor Corporation and Subsidiaries
For each of the years in the three-year period ended May 30, 2010 – refer to Index in Item 8	41-86
(a) 2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts	93

All other schedules are omitted since the required information is inapplicable or the information is presented in the Consolidated Financial Statements or notes thereto.

(a) 3. Exhibits

The exhibits listed in the accompanying Index to Exhibits on page 96 to 98 of this report are filed as part of, or incorporated by reference into, this report.

Page 92 of 98

NATIONAL SEMICONDUCTOR CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

(In Millions)

Deducted from Receivables in the Consolidated Balance Sheets

Description	Doubtful Accounts	Returns	Allowances	Total
Balance at May 27, 2007	$ 1.2	$ 2.8	$ 28.4	$ 32.4
Additions charged against revenue	-	2.4	191.8	194.2
Additions charged against cost and expenses	0.1	-	-	0.1
Deductions	-	(3.1)	(198.2)	(201.3)
Balance at May 25, 2008	1.3	2.1	22.0	25.4
Additions charged against revenue	-	5.8	185.4	191.2
Additions charged against cost and expenses	-	-	-	-
Deductions	(0.2) (1)	(3.5)	(194.2)	(197.9)
Balance at May 31, 2009	1.1	4.4	13.2	18.7
Additions charged against revenue	-	2.2	230.1	232.3
Deductions	(0.7) (1)	(3.9)	(216.4)	(221.0)
Balance at May 30, 2010	$0.4	$2.7	$26.9	$30.0

________________________________________________

(1)  Doubtful accounts written off, less recoveries.

Our customers do not have contractual rights to return product to us except under customary warranty provisions. The majority of returns and allowances are related to the price adjustment programs we have with distributors, none of which involve return of product. As discussed in Note 1 to the Consolidated Financial Statements, we have agreements with our distributors that cover various programs, including pricing adjustments based on resale pricing and volume, price protection for inventory and scrap allowances. The revenue we record for these distribution sales is net of estimated provisions for these programs. Our estimates are based upon historical experience rates by geography and product family, inventory levels in the distribution channel, current economic trends, and other related factors. Our history of actual credits granted in connection with the allowance programs has been consistent with the reserves we have recorded.

Page 93 of 98

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	NATIONAL SEMICONDUCTOR CORPORATION
Date:  July 20, 2010	/S/ DONALD MACLEOD
	Donald Macleod
	Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities stated and on the 20th day of July 2010.

Signature		Title
/S/	DONALD MACLEOD	Chairman, President and Chief Executive Officer (Principal Executive Officer)
	Donald Macleod
/S/	LEWIS CHEW	Senior Vice President, Finance and Chief Financial Officer (Principal Financial Officer)
	Lewis Chew
/S/	JAMIE E. SAMATH	Vice President and Corporate Controller (Principal Accounting Officer)
	Jamie E. Samath
/S/	WILLIAM J. AMELIO *	Director
	William J. Amelio
/S/	STEVEN R. APPLETON *	Director
	Steven R. Appleton
/S/	GARY P. ARNOLD *	Director
	Gary P. Arnold
/S/	RICHARD J. DANZIG *	Director
	Richard J. Danzig
/S/	JOHN T. DICKSON *	Director
	John T. Dickson
/S/	ROBERT J. FRANKENBERG *	Director
	Robert J. Frankenberg
/S/	MODESTO A. MAIDIQUE *	Director
	Modesto A. Maidique
/S/	EDWARD R. McCRACKEN *	Director
	Edward R. McCracken
/S/	RODERICK C. McGEARY *	Director
	Roderick C. McGeary
/S/	WILLIAM E. MITCHELL *	Director
	William E. Mitchell

*By		\s\ LEWIS CHEW
	Lewis Chew, Attorney-in-Fact

Page 94 of 98

Consent of Independent Registered Public Accounting Firm

The Board of Directors

National Semiconductor Corporation:

We consent to the incorporation by reference in the registration statements (No. 333-165803) on Form S-3 and (Nos. 33-48943, 33-54931, 33-55715, 33-61377, 333-09957, 333-26625, 333-36733, 333-48424, 333-63614, 333-77195, 333-109348, 333-119963, 333-122652, 333-129585, 333-146600, and 333-162367) on Form S-8 of National Semiconductor Corporation of our reports dated July 20, 2010, with respect to the consolidated balance sheets of National Semiconductor Corporation and subsidiaries (the Company) as of May 30, 2010 and May 31, 2009, and the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the years in the three-year period ended May 30, 2010, and the related financial statement schedule, and the effectiveness of internal control over financial reporting as of May 30, 2010, which reports appear in the 2010 Annual Report on Form 10-K of National Semiconductor Corporation.

 Our report on the consolidated financial statements refers to the change in the Company’s method of accounting for the valuation of financial assets and liabilities at the beginning of fiscal year 2009 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification (ASC) Topic 820, Fair Value Measurements and Disclosures, and to the change in the Company’s method of accounting for the measurement date of its defined benefit pension plans in fiscal year 2009 due to the adoption of ASC Topic 715, Compensation – Retirement Benefits. Our report on the consolidated financial statements also refers to the change in the Company’s method of accounting for uncertain tax positions at the beginning of fiscal year 2008 as a result of the adoption of ASC Topic 740, Income Taxes.

/s/ KPMG LLP

Mountain View, California

July 20, 2010

Page 95 of 98

INDEX TO EXHIBITS

The following documents are filed as, or hereby incorporated by reference, into this report:

3.1	Second Restated Certificate of Incorporation of National Semiconductor Corporation, as amended (incorporated by reference from the Exhibits to our Registration Statement on Form S-3, Registration No. 33-52775, which became effective March 22, 1994); Certificate of Amendment of Certificate of Incorporation dated September 30, 1994 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8, Registration No. 333-09957, which became effective August 12, 1996); Certificate of Amendment of Certificate of Incorporation dated September 22, 2000 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8, Registration No. 333-48424, which became effective October 23, 2000).
3.2	By-Laws of National Semiconductor Corporation, as amended and restated effective January 28, 2009 (incorporated by reference from the Exhibits to our Form 8-K, SEC File No. 001-06453, filed January 29, 2009).
4.1	Form of Common Stock Certificate (incorporated by reference from the Exhibits to our Registration Statement on Form S-3 Registration No. 33-48935, which became effective October 5, 1992).
4.2	Indenture, dated as of June 18, 2007, by and between National Semiconductor Corporation and The Bank of New York Mellon Trust Company, N.A. (incorporated by reference from the Exhibits to our Registration Statement on Form S-3, Registration No. 333-165803, filed on March 31, 2010).
4.3	Supplemental Indenture for 6.150% Senior Notes due 2012 (incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007, SEC File No. 001-06453, filed June 18, 2007); form of Global Note for 6.150% Senior Notes due 2012 (incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007, SEC File No. 001-06453, filed June 18, 2007).
4.4	Supplemental Indenture for 6.60% Senior Notes due 2017 (incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007, SEC File No. 001-06453, filed June 18, 2007); form of Global Note for 6.600% Senior Notes due 2017 (incorporated by reference from the Exhibits to our Form 8-K dated June 13, 2007, SEC File No. 001-06453, filed June 18, 2007).
4.5	Supplemental Indenture for 3.950% Senior Notes due 2015 (incorporated by reference from the Exhibits to our Form 8-K, SEC File No. 001-06453, filed April 6, 2010); form of Global Note for 3.950% Senior Notes due 2015 (incorporated by reference from the Exhibits to our Form 8-K, SEC File No. 001-06453, filed April 6, 2010).
10.1*	Fiscal 2009 Incentive Retention Program (incorporated by reference from our Current Report on Form 8-K, SEC File No. 001-06453, filed on November 26, 2008).
10.2*	Stock Option Plan, as amended effective February 26, 2007; form of stock option agreement used for options granted under the Stock Option Plan (both incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended February 25, 2007, SEC File No. 001-06453, filed April 5, 2007).
10.3*	Executive Officer Stock Option Plan, as amended effective February 26, 2007; form of stock option agreement used for options granted under the Executive Officer Stock Option Plan (both incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended February 25, 2007, SEC File No. 001-06453, filed April 5, 2007).
10.4*	Director Stock Plan as amended and restated effective August 13, 2005 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8, Registration No. 333-129585, filed November 9, 2005).
10.5*	Director Stock Option Plan (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 29, 2005, SEC File No. 001-06453, filed August 9, 2005); form of stock option agreement used for options granted under the Director Stock Option Plan (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended November 28, 2004, SEC File No. 001-06453, filed January 6, 2005).
10.6*	Board Retirement Policy (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 29, 2005, SEC File No. 001-06453, filed August 9, 2005).

Page 96 of 98

10.7*	Preferred Life Insurance Program (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 29, 2005, SEC File No. 001-06453, filed August 9, 2005).
10.8*	Retired Officers and Directors Health Plan (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 28, 2006, SEC File No. 001-06453, filed July 27, 2006).
10.9*	Executive Staff Long Term Disability Plan as amended January 1, 2002 as restated July 2002 (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended November 24, 2002, SEC File No. 001-06453, filed January 6, 2003).
10.10*	Form of Change of Control Employment Agreement entered into with certain executive officers of National Semiconductor Corporation (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended November 25, 2007, SEC File No. 001-06453, filed January 4, 2008); form of Amended and Restated Change of Control Employment Agreement entered into with certain executive officers of National Semiconductor Corporation (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 25, 2008, SEC File No. 001-06453, filed July 23, 2008).
10.11*	National Semiconductor Deferred Compensation Plan as amended and restated effective as of January 1, 2008 (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended November 25, 2007, SEC File No. 001-06453, filed January 4, 2008).
10.12*	Restricted Stock Plan as amended effective July 18, 2007 (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 27, 2007, SEC File No. 001-06453, filed July 26, 2007); form of agreements used for grants of restricted stock, restricted stock units and performance based restricted stock units under the Restricted Stock Plan (incorporated by reference from the Exhibits to our Form 8-K dated July 18, 2006, SEC File No. 001-06453, filed July 20, 2006).
10.13*	1997 Employees Stock Option Plan, as amended effective February 26, 2007; form of stock option agreement used for options granted under the 1997 Employees Stock Option plan (both incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended February 25, 2007, SEC File No. 001-06453, filed April 5, 2007).
10.14*	Retirement and Savings Program (incorporated by reference from the Exhibits to our Form 10-K for the year ended May 26, 2002, SEC File No. 001-06453, filed August 16, 2002); Amendments One to Seven to Retirement and Savings Program (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 30, 2004, SEC File No. 001-06453, filed August 11, 2004); Amendment Eight to Retirement and Savings Program (incorporated by reference from the Exhibits to our Form 8-K dated September 22, 2005, SEC File No. 001-06453, filed September 22, 2005).
10.15*	Executive Physical Exam Plan effective January 1, 2003 (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended November 24, 2002, SEC File No. 001-06453, filed January 6, 2003).
10.16*	Executive Preventive Health Program, January 2003 (incorporated by reference from the Exhibits to our Form 10-Q for the quarter ended February 23, 2003, SEC File No. 001-06453, filed April 2, 2003).
10.17*	2005 Executive Officer Equity Plan as amended effective September 28, 2007 (incorporated by reference from the Exhibits to our Registration Statement on Form S-8, Registration No. 333-122652, filed October 10, 2007); form of option grant agreement under 2005 Executive Officer Equity Plan and form of performance share unit award agreement under 2005 Executive Officer Equity Plan (both incorporated by reference from the Exhibits to our amended Form 8-K, SEC File No. 001-06453, filed October 2, 2007).
10.18*	Director Compensation Arrangements (incorporated by reference from the Exhibits to our Form 8-K, SEC File No. 001-06453, filed September 30, 2005).
10.19*	Executive Financial Counseling Plan (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 29, 2005, SEC File No. 001-06453, filed August 9, 2005).
10.20*	Corporate Aircraft Time Share Policy as amended effective May 26, 2008 (incorporated by reference from the Exhibits to our Form 10-K for the fiscal year ended May 25, 2008, SEC File No. 001-06453, filed July 23, 2008).
10.21*	National Semiconductor Corporation Executive Officer Incentive Plan, as amended effective July 15, 2009 (incorporated by reference from Appendix A to our Definitive Proxy Statement on Schedule 14A, SEC File No. 001-06453, filed August 11, 2009).

Page 97 of 98

10.22*	National Semiconductor Corporation 2009 Incentive Award Plan, as adopted by the Board of Directors on July 15, 2009 and approved by the stockholders on September 25, 2009 (incorporated by reference from the Exhibit to our Form 8-K, SEC File No. 001-06453, filed October 1, 2009).
10.23*	Retirement and Consulting Agreement, dated as of October 21, 2009, by and between Brian L. Halla and National Semiconductor Corporation (incorporated by reference from the Exhibits to our Form 8-K, SEC File No. 001-06453, filed October 26, 2009).
10.24	Eleventh Amendment to Credit Agreement (Multicurrency) dated as of October 26, 2009 by and between National Semiconductor Corporation and Bank of America, N.A.
10.25	Credit Agreement (Multicurrency) dated October 30, 2000 between National Semiconductor Corporation and Bank of America, N.A.
21.1	List of Subsidiaries and Affiliates.
23.1	Consent of Independent Registered Public Accounting Firm (included in Part IV).
24.1	Power of Attorney.
31.1	Rule 13a-14 (a) /15d-14 (a) Certifications.
32.1	Section 1350 Certifications.
* Management contract or compensatory plan or arrangement.

Page 98 of 98

EX-10.24

Exhibit 10.24

EXECUTION VERSION

ELEVENTH AMENDMENT TO CREDIT AGREEMENT

THIS ELEVENTH AMENDMENT TO CREDIT AGREEMENT (this “Amendment”), dated as of October 26, 2009, is entered into by and between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation(the “Company”), and BANK OF AMERICA, N.A. (the “Bank”).

RECITALS

A.The Company and the Bank are parties to a Credit Agreement (Multicurrency), dated as of October 30, 2000, as amended by that certain First Amendment to Credit Agreement dated as of October 29, 2001, that certain Second Amendment to Credit Agreement dated as of October 28, 2002, that certain Third Amendment to Credit Agreement dated as of October 14, 2003, that certain Fourth Amendment to Credit Agreement dated as of March 19, 2004, that certain Fifth Amendment to Credit Agreement dated as of October 20, 2004, that certain Sixth Amendment to Credit Agreement dated as of October 24, 2005, that certain Seventh Amendment to Credit Agreement dated as of October 24, 2006, that certain Eighth Amendment to Credit Agreement dated as of June 26, 2007, that certain Ninth Amendment to Credit Agreement dated as of October 10, 2007 and that certain Tenth Amendment to Credit Agreement dated as of October 2, 2008 (as so amended, the “Credit Agreement”), pursuant to which the Bank has extended certain credit facilities to the Company and the Guaranteed Subsidiaries.

B.The Company has requested that the Bank agree to certain amendments of the Credit Agreement.

C.The Bank is willing to amend the Credit Agreement, subject to the terms and conditions of this Amendment.

NOW, THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto hereby agree as follows:

1.Defined Terms.  Unless otherwise defined herein, capitalized terms used herein shall have the meanings, if any, assigned to them in the Credit Agreement.

2.Amendments to Credit Agreement.

(a)Section 1.01 of the Credit Agreement shall be amended at the following definitions by amending and restating each such definition to read in its entirety as follows:

“Applicable Margin” means (i) with respect to Base Rate Loans, 1.50% per annum, and (ii) with respect to Offshore Rate Loans, 2.50% per annum.

“Revolving Termination Date” means October 26, 2010, or if such date is not a Business Day, the last Business Day prior to such date.

(b)Section 2.03(i) of the Credit Agreement shall be amended by deleting “1.25%” and inserting in its place “2.50%”.

SF:264414.4

(c)Section 2.09(a) of the Credit Agreement shall be amended to read as follows:

(a)Facility Fee.  The Company shall further pay to the Bank an irrevocable facility fee (i) at the rate of 0.375% per annum of the amount of the Commitment, due and payable in arrears in quarterly installments on the last Business Day of each calendar quarter commencing on December 31, 2000 and ending on October 26, 2009 and (ii) at the rate of 0.50% per annum of the amount of the Commitment, due and payable in arrears in quarterly installments on the last Business Day of each calendar quarter commencing on October 27, 2009 provided that the Bank hereby waives collection of such facility fee to the extent accruing from October 27, 2009 through October 26, 2010.  Such fee shall be deemed earned on each day the Commitment is outstanding (regardless of utilization thereof) and shall accrue at all times from and after the Closing Date, except as otherwise provided in this Section, including at any time during which one or more conditions in Article IV are not met. No portion of any amount so paid shall be subject to return or refund for any reason.

(d)Section 5.01(g) of the Credit Agreement shall be amended by deleting the phrase “May 25, 2008” and inserting in its place “May 31, 2009”.

(e)Section 5.01(n) of the Credit Agreement shall be amended (i) by deleting the phrase “May 25, 2008” each time it appears and inserting in its place “May 31, 2009”, and (ii) by deleting the phrase “August 24, 2008” and inserting in its place “August 30, 2009”.

(f)Section 5.01(o) of the Credit Agreement shall be amended by deleting the phrase “August 24, 2008”, and inserting in its place “August 30, 2009”.

(g)The Credit Agreement shall be further amended by deleting Exhibit B thereof and replacing it with the Exhibit B attached hereto as Annex I.

3.Representations and Warranties.  The Company hereby represents and warrants to the Bank as follows:

(a)No Default or Event of Default has occurred and is continuing.

(b)The execution, delivery and performance by the Company of this Amendment have been duly authorized by all necessary corporate and other action and do not and will not require any registration with, consent or approval of, notice to or action by, any Person (including any Governmental Authority) in order to be effective and enforceable.  The Credit Agreement as amended by this Amendment constitutes the legal, valid and binding obligations of the Company, enforceable against it in accordance with its respective terms, without defense, counterclaim or offset.

(c)All representations and warranties of the Company contained in the Credit Agreement are true and correct.

(d)The Company is entering into this Amendment on the basis of its own investigation and for its own reasons, without reliance upon the Bank or any other Person.

4.Effective Date.  This Amendment will become effective on and as of the date (the “Effective Date”) that each of the following conditions precedent is satisfied:

(a)The Bank has received from the Company a duly executed original (or, if elected by the Bank, an executed facsimile copy) of this Amendment.

(b)The Bank has received from the Company a certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver this Amendment and attaching:

(i)(A) the articles or certificate of incorporation of the Company as in effect on the date hereof, certified by the Secretary or Assistant Secretary of the Company as being in full force and effect on the date hereof and (B) the bylaws of the Company as in effect on the date hereof, certified by the Secretary or Assistant Secretary of the Company as being in full force and effect on the date hereof; and

(ii)a copy of resolutions passed by the board of directors of the Company, certified by the Secretary or Assistant Secretary of the Company as being in full force and effect on the date hereof, authorizing the execution, delivery and performance of this Amendment;

(c)The Bank has received from the Company a good standing certificate for the Company from the Secretary of State of its state of incorporation as of a recent date

(d)All representations and warranties contained herein are true and correct as of the Effective Date.

(e)As of the Effective Date, no Default or Event of Default has occurred and is existing.

(f)The Bank has received from the Company such other approvals, opinions or documents as the Bank may reasonably request.

5.Reservation of Rights.  The Company acknowledges and agrees that the execution and delivery by the Bank of this Amendment shall not be deemed to create a course of dealing or otherwise obligate the Bank to execute similar amendments under the same or similar circumstances in the future.

6.Miscellaneous.

(a)Except as herein expressly amended, all terms, covenants and provisions of the Credit Agreement are and shall remain in full force and effect and all references therein to such Credit Agreement shall henceforth refer to the Credit Agreement as amended by this Amendment.  This Amendment shall be deemed incorporated into, and a part of, the Credit Agreement.

(b)This Amendment shall be binding upon and inure to the benefit of the parties hereto and thereto and their respective successors and assigns.  No third party beneficiaries are intended in connection with this Amendment.

(c)This Amendment shall be governed by and construed in accordance with the law of the State of California.

(d)This Amendment may be executed in any number of counterparts, each of which shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument.  Each of the parties hereto understands and agrees that this document (and any other document required herein) may be delivered by any party thereto either in the form of an executed original or an executed original sent by facsimile transmission to be followed promptly by mailing of a hard copy original, and that receipt by the Bank of a facsimile transmitted document purportedly bearing the signature of the Company shall bind the Company with the same force and effect as the delivery of a hard copy original.  Any failure by the Bank to receive the hard copy executed original of such document shall not diminish the binding effect of receipt of the facsimile transmitted executed original of such document of the party whose hard copy page was not received by the Bank, and the Bank is hereby authorized to make sufficient photocopies thereof to assemble complete counterparty documents.

(e)This Amendment, together with the Credit Agreement, contains the entire and exclusive agreement of the parties hereto with reference to the matters discussed herein and therein.  This Amendment supersedes all prior drafts and communications with respect thereto.  This Amendment may not be amended except in accordance with the provisions of Section 8.03 of the Credit Agreement.

(f)If any term or provision of this Amendment shall be deemed prohibited by or invalid under any applicable law, such provision shall be invalidated without affecting the remaining provisions of this Amendment or the Credit Agreement, respectively.

(g)The Company covenants to pay to or reimburse the Bank, upon demand, for all costs and expenses (including allocated costs of in-house counsel) incurred in connection with the development, preparation, negotiation, execution and delivery of this Amendment, including without limitation appraisal, audit, search and filing fees incurred in connection therewith.

(h)The Company acknowledges it has paid the Bank a facility fee at a rate in excess of the rate specified herein, and in consideration of the Bank’s waiver of facility fee at Section 2(c) hereof, hereby forever waives and relinquishes any and all claims and causes of action against the Bank on account of such over-payment.

[Remainder of this page is intentionally left blank.  Signature page to follow.]

IN WITNESS WHEREOF, the parties hereto have executed and delivered this Amendment as of the date first above written.

NATIONAL SEMICONDUCTOR CORPORATION

By:  /s/ Jamie Samath                                                                                   

Name: Jamie Samath

Title:   Corporate Controller

By:  /s/ Robert E. DeBarr                                                                                   

Name: Robert E. DeBarr

Title:   Corporate Controller

BANK OF AMERICA, N.A.

By:  /s/ Christina Felsing                                                                                   

Name: Christina Felsing

Title:   Vice President

Signature Page to

Eleventh Amendment to Credit Agreement

ANNEX I

EXHIBIT B

to the Credit Agreement

FORM OF COMPLIANCE CERTIFICATE

Bank of America, N.A.

600 Montgomery Street

San Francisco, CA 94111

Attn:           Christina Felsing

           Vice President

Re:           National Semiconductor Corporation

Ladies and Gentlemen:

This Compliance Certificate is made and delivered pursuant to the Credit Agreement (Multicurrency) dated as of October 30, 2000 (as amended, modified, renewed or extended from time to time, the "Credit Agreement") between National Semiconductor Corporation (the "Company") and Bank of America, N.A. (the "Bank"), and reference is made thereto for full particulars of the matters described therein.  All capitalized terms used in this Compliance Certificate and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement.  This Compliance Certificate relates to the accounting period ending _____________, ______.

I hereby certify as of the date hereof that I am the [treasurer] of the Company, and that, as such, I am authorized to execute and deliver this Certificate to the Bank on the behalf of the Borrower and its consolidated Subsidiaries, and that:

[Use the following paragraph if this Certificate is delivered in connection with the quarterly

financial statements required by Section 6.01(a)(i) of the Credit Agreement.]

1.           Attached hereto are true and correct copies of the consolidated balance sheet of the Company and its Subsidiaries as of the end of the fiscal quarter ended __________ and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, which are complete and accurate in all material respects and fairly present the financial condition of the Company and the Subsidiaries as at such date and the results of operations of the Company and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal year-end audit adjustments and except for the absence of notes.

or

[Use the following paragraph if this Certificate is delivered in connection with the annual

financial statements required by Section 6.01(a)(ii) of the Credit Agreement.]

B-

1.           Attached hereto are true and correct copies of the consolidated balance sheet of the Company and its Subsidiaries as of the end of the fiscal year ended ___________ and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by the report of __________, which report is not qualified.

2.           I have reviewed the terms of the Credit Agreement and I have made, or caused to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the accounting period covered by the attached financial statements.

3.           The information set forth on Schedule 1 hereto (and any additional schedules hereto setting forth further supporting detail) is true, accurate and complete as of the end of such accounting period.

4.           The Company and its Subsidiaries, during such period, have observed, performed or satisfied all of the covenants and other agreements, and satisfied every condition in the Credit Agreement to be observed, performed or satisfied by the Company and its Subsidiaries.

5.           The representations and warranties of the Company contained in Article V of the Credit Agreement are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they shall be true and correct as of such date).

I hereby further certify that (i) as of the date hereof no Default or Event of Default has occurred and is continuing, and (ii) on and as of the date hereof, there has occurred no Material Adverse Effect since May 31, 2009, except as may be set forth in a separate attachment hereto describing in detail the nature of each condition or event constituting an exception to the foregoing statements, the period during which it has existed and the action which the Company is taking or proposes to take with respect to each such condition or event.

IN WITNESS WHEREOF, the undersigned officer has signed this Compliance Certificate this ______ day of ___________, ____.

[Treasurer]

B-

SCHEDULE 1

TO COMPLIANCE CERTIFICATE

Dated                       ,

For the Fiscal Quarter ended                         ,

	Actual	Required
2.Section 6.02(b) Minimum Quick Ratio.
A.Consolidated Quick Assets	$__________
B.Consolidated Current Liabilities	$__________
Quick Ratio (ratio of A to B)	___ to 1.0	For fiscal quarters ending prior to November 27, 2005, not less than 1.00 to 1.00
		For fiscal quarters ending on or after the November 27, 2005, not less than 1.25 to 1.00

S-

EX-10.24

Exhibit 10.25

EXECUTION COPY

NATIONAL SEMICONDUCTOR CORPORATION

__________________________________

$35,000,000

CREDIT AGREEMENT (MULTICURRENCY)

Dated as of October 30, 2000

__________________________________

BANK OF AMERICA, N.A.

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TABLE OF CONTENTS

 Page

ARTICLE I.                         DEFINITIONS .........................................................................................1

SECTION 1.01                             Defined Terms ...............................................................................1

SECTION 1.02                             Other Definitional Provisions .............................................14

SECTION 1.03                             Terms Generally ....................................................................14

SECTION 1.04                             Accounting Terms; GAAP .................................................15

ARTICLE II.                         THE CREDITS ......................................................................................15

SECTION 2.01                             The Revolving Commitment ...............................................15

SECTION 2.02                             The Loan Facility. .................................................................16

SECTION 2.03                             The Letter of Credit Facility. ...............................................18

SECTION 2.04                             The Acceptance Facility. ....................................................22

SECTION 2.05                             The Other Credits. ................................................................24

SECTION 2.06                             Mandatory Prepayments ....................................................25

SECTION 2.07                             Guaranty ................................................................................25

SECTION 2.08                             Optional Commitment Reduction .......................................25

SECTION 2.09                             Fees. .......................................................................................25

SECTION 2.10                             Computation of Fees and Interest. ....................................25

SECTION 2.11                             Payments by the Borrowers. ..............................................26

ARTICLE III.                         TAXES, ILLEGALITY AND YIELD PROTECTION .....................26

SECTION 3.01                             Taxes. ....................................................................................26

SECTION 3.02                             Illegality. ...............................................................................27

SECTION 3.03                             Increased Costs and Reduction of Return. .....................28

SECTION 3.04                             Funding Losses ...................................................................28

SECTION 3.05                             Inability to Determine Rates ..............................................29

SECTION 3.06                             Certificates of Bank .............................................................29

SECTION 3.07                             Survival .................................................................................29

ARTICLE IV.                         CONDITIONS PRECEDENT ............................................................29

SECTION 4.01                             Conditions to Initial Credits ..............................................29

SECTION 4.02                             Conditions to All Credits ...................................................30

ARTICLE V.                         REPRESENTATIONS AND WARRANTIES .................................31

SECTION 5.01                             Representations and Warranties ......................................31

ARTICLE VI.                         COVENANTS ....................................................................................34

SECTION 6.01                             Reporting Covenants .........................................................34

SECTION 6.02                             Financial Covenants ...........................................................35

SECTION 6.03                             Additional Affirmative Covenants ...................................36

SECTION 6.04                             Negative Covenants ...........................................................38

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 i.

Page

ARTICLE VII.                             EVENTS OF DEFAULT ......................................................40

SECTION 7.01                             Events of Default ................................................................40

SECTION 7.02                             Effect of Event of Default ................................................. 42

ARTICLE VIII.                      MISCELLANEOUS ..........................................................................42

SECTION 8.01                             Obligations of the Bank ....................................................42

SECTION 8.02                             Joint and Several Obligations ..........................................42

SECTION 8.03                             Amendments and Waivers ...............................................42

SECTION 8.04                             Notices. ................................................................................43

SECTION 8.05                             No Waiver; Cumulative Remedies. ..................................44

SECTION 8.06                             Expenses ..............................................................................44

SECTION 8.07                             Indemnity .............................................................................45

SECTION 8.08                             Headings ..............................................................................45

SECTION 8.09                             Successors and Assigns ...................................................45

SECTION 8.10                             Assignments, Participations, Etc. ....................................46

SECTION 8.11                             Confidentiality ....................................................................46

SECTION 8.12                             Set-off ..................................................................................47

SECTION 8.13                             Counterparts .......................................................................47

SECTION 8.14                             Severability .........................................................................47

SECTION 8.15                             Judgment Currency. ..........................................................47

SECTION 8.16                             Governing Law and Jurisdiction. ....................................48

SECTION 8.17                             WAIVER OF JURY TRIAL ..............................................49

SECTION 8.18                             Entire Agreement ..............................................................49

SECTION 8.19                             Inconsistency ....................................................................49

SECTION 8.20                             No Third Parties Benefited ..............................................49

SECTION 8.21                             Effect on Prior Agreement ...............................................50

EXHIBITS

EXHIBIT A                      Form of Guaranty

EXHIBIT B                       Form of Compliance Certificate

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ii.

CREDIT AGREEMENT (MULTICURRENCY)

This CREDIT AGREEMENT (MULTICURRENCY) is entered into as of October 30, 2000, between NATIONAL SEMICONDUCTOR CORPORATION, a Delaware corporation (the “Company”), and BANK OF AMERICA, N.A. (the “Bank”).

WHEREAS, the Bank has agreed to make available to the Company and certain of its subsidiaries a revolving credit facility with letter of credit subfacility upon the terms and conditions set forth in this Agreement;

NOW, THEREFORE, in consideration of the mutual agreements, provisions and covenants contained herein, the parties hereto hereby agree as follows:

ARTICLE I.

DEFINITIONS

SECTION 1.01                           Defined Terms.  As used in this Agreement (including the recitals hereto), the following terms have the following meanings:

“Acceptance Agreement” means a document or agreement in form and substance satisfactory to the Bank pursuant to which the Company or any of its Subsidiaries is obligated to the Bank in connection with any Acceptances.

“Acceptance Obligations” means any and all Obligations arising under any Acceptance Agreement or otherwise in connection with any Acceptance.

“Acceptances” has the meaning specified in Section 2.04(b).

“Affiliate” means any Person which, directly or indirectly, controls, is controlled by or is under common control with another Person. A Person shall be deemed to control another Person if such Person possesses, directly or indirectly, the power (i) to vote 50% or more of the securities having ordinary voting power of the election of directors of such Person, or (ii) to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, membership interests or by contract or otherwise.

“Agreement” means this Credit Agreement (Multicurrency).

“Amendment Application” means a written request by a Borrower to the Bank pursuant to Section 2.03(e).

“Applicable Margin” means (i) with respect to Base Rate Loans, 0% per annum; and (ii) with respect to Offshore Rate Loans, 1.125% per annum.

“Attorney Costs” means and includes all fees and disbursements of any law firm or other external counsel.

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1.

“Availability Period” means the period commencing on the Closing Date to but excluding the Revolving Termination Date.

“Bank” means Bank of America, N.A., a national banking association, and its successors and assigns.

“Bankruptcy Code” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. § 101, et seq.)

“Base Rate” means, for any day, the higher of: (a) 0.50% per annum above the latest Federal Funds Rate; and (b) the rate of interest in effect for such day as publicly announced from time to time by the Bank as its “reference rate.” (The “reference rate” is a rate set by the Bank based upon various factors including the Bank’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.) Any change in the reference rate announced by the Bank shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Loan that bears interest based on the Base Rate.

“Borrower” means, with respect to any Credit, the Company or Guaranteed Subsidiary to or for the account of which such Credit is provided.

“Borrowing” means a borrowing hereunder consisting of Loans made to the Company or any of its Subsidiaries on the same day by the Bank pursuant to Section 2.02 hereof.

“Business Day”, means any day other than a Saturday, Sunday or other day on which commercial banks in New York City or San Francisco are authorized or required by law to close and, if the applicable Business Day relates to any Offshore Rate Loan or Local Currency Loan, means such a day on which dealings are carried on in the offshore interbank market or in the applicable Local Currency market, as the case may be.

“Change of Control” means the occurrence of either of the following: (i) any “person” (as such term is used in subsections 13(d) and 14(d) of the Exchange Act) or group of persons on or after the Closing Date, becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of a corporation representing 50% or more of the combined voting power of the Company’s then-outstanding voting securities, or (ii) the existing directors of the Company for any reason cease to constitute a majority (excluding vacant seats) of the Company’s board of directors. “Existing directors” means (x) individuals constituting the Company’s board of directors on the Closing Date, and (y) any subsequent director whose election or appointment by the board of directors or nomination for election by the Company’s shareholders was approved by the directors then in office, which directors either were directors on the Closing Date or whose election or nomination for election was previously so approved.

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2.

“Closing Date” means the date on which the conditions precedent set forth in Section 4.01 are satisfied or waived by the Bank on such date.

“Code” means the Internal Revenue Code of 1986, as amended.

“Commitment” means Thirty-Five Million Dollars ($35,000,000), or the Equivalent Amount thereof, as such amount may be reduced from time to time pursuant to Section 2.08.

“Company” has the meaning set forth in the recital of parties to this Agreement.

“Compliance Certificate” means a certificate of a Responsible Officer of the Company, in substantially the form of Exhibit B, with such changes thereto as the Bank may from time to time reasonably request.

“Consolidated Current Liabilities” means, as of any date of determination, the current liabilities of the Company and its Subsidiaries on a consolidated basis, as determined in accordance with GAAP.

“Consolidated Net Income” means, for any period, the net income of the Company and its Subsidiaries on a consolidated basis for such period taken as a single accounting period, as determined in accordance with GAAP.

“Consolidated Quick Assets” means, as of any date of determination, the sum of (i) cash, (ii) cash equivalents, (iii) net trade accounts receivable and (iv) marketable securities not classified as long term assets, in each case of the Company and its Subsidiaries on a consolidated basis, determined in accordance with GAAP.

“Consolidated Tangible Net Worth” means, as of any date of determination, for the Company and its Subsidiaries on a consolidated basis, Shareholders’ Equity on that date minus Intangible Assets on that date.

“Core Business” means any business or activity (a) in the semiconductor manufacturing industry, or (b) in which the Company or any of its Subsidiaries are engaged on the date of this Agreement.

“Credit Documents” means this Agreement, together with the Guaranty and any and all Letters of Credit, Letter of Credit Agreements, Acceptances, Acceptance Agreements, Other Credit Documents, and other instruments, certificates, documents and agreements at any time executed or delivered by the Company or any of its Subsidiaries pursuant to this Agreement or any other Credit Document.

“Credits” means any loan, extension of credit, or other financial accommodation extended by the Bank to or for the benefit of the Company or any of its Subsidiaries at any time pursuant to this Agreement or any other Credit Document, including any and all Loans, Letters of Credit, Acceptances and Other Credits from time to time outstanding.

SF:145015.1

3.

“Default” means any event or condition that, with the giving of notice, lapse of time, or both, would (if not cured or otherwise remedied) constitute an Event of Default.

“Dollars,” “dollars” and “$” each mean lawful money of the United States of America.

“Draft” has the meaning specified in Section 2.04(b).

“Eligible Assignee” means all (a) a commercial bank organized under the laws of the United States, or any state thereof, and having a combined capital and surplus of at least $200,000,000; (b) a commercial bank organized under the laws of any other country which is a member of the Organization for Economic Cooperation and Development (the “OECD”), or a political subdivision of any such country, and having a combined capital and surplus of at least $200,000,000, provided that such bank is acting through a branch or agency located in the United States; and (c) a Person that is primarily engaged in the business of commercial banking and that is (i) a subsidiary of the Bank, (ii) a subsidiary of a Person of which the Bank is a subsidiary, or (iii) a Person of which the Bank is a subsidiary.

“Environmental Claims” means all claims, however asserted, by any Governmental Authority or other Person alleging potential liability or responsibility for violation of any Environmental Law, or for release or injury to the environment.

“Environmental Laws” means all (a) laws, rules, regulations, common law duties, codes and ordinances and (b) all orders, decrees, injunctions, requests, licenses, permits or agreements issued, promulgated or entered into by any Governmental Authority and by or affecting the Company or any Subsidiary, in each case relating to or imposing liability or standards of conduct concerning public health, safety and environmental protection matters.

“Equity Securities” of any Person means (a) all common stock, preferred stock, participations, shares, partnership interests or other equity interests in such Person (regardless of how designated and whether or not voting or non-voting) and (b) all warrants, options and other rights to acquire any of the foregoing, other than convertible debt securities which have not been converted into common stock, preferred stock, participations, shares, partnership interests or other equity interests in such Person.

“Equivalent Amount” means the equivalent of dollars in a foreign currency calculated at the spot rate for the purchase of such foreign currency with dollars as quoted by the Bank in San Francisco, California, at approximately 8:00 a.m. two banking days (as such days are determined by the Bank with respect to such currency) prior to the relevant date.

“ERISA” means the Employee Retirement Income Security Act of 1974, including (unless the context otherwise requires) any rules or regulations promulgated thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) which is under common control with the Company within the meaning of Section 414(b) or (c)

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4.

of the Code (and Sections 414(m) and (o) of the Code for the purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations which is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which might reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than PBGC premiums due but not delinquent under Section 4007 of ERISA, upon the Borrower or any ERISA Affiliate.

“Event of Default” has the meaning assigned to such term in Section 7.01.

“Evergreen Letter of Credit” means any Letter of Credit providing for automatic extensions of its expiry date unless the Bank shall have provided some notice or taken other specified action to preclude any such further extension.

“Exchange Act” means the Securities Exchange Act of 1934.

“Financial Officer” means the chief financial officer, Vice President-Finance or treasurer of the Company.

“FRB” means the Board of Governors of the Federal Reserve System, and any Governmental Authority succeeding to any of its principal functions.

“Further Taxes” means any and all present or future taxes, levies, assessments, imposts, duties, deductions, fees, withholdings or similar charges (including, without limitation, net income taxes and franchise taxes), and all liabilities with respect thereto, imposed by any jurisdiction on account of amounts payable or paid pursuant to Section 3.01.

“Governmental Authority” means the government of the United States of America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.

“Guaranteed Subsidiaries” means Subsidiaries of the Company designated from time to time by the Company and acceptable to the Bank, and as to which the Company has delivered to the Bank, or otherwise authorized or consented to, appropriate writings or

SF:145015.1

5.

supplements to the Guaranty such that the Obligations of such Subsidiaries are guaranteed by the Company pursuant to the Guaranty.

“Guaranty” means that Continuing Guaranty (Multicurrency) dated as of October 30, 2000, by the Company in favor of the Bank in the form of Exhibit A.

“Guaranty Obligation” means, as applied to any Person, any direct or indirect obligation of that Person with respect to any Indebtedness, lease, dividend, letter of credit or other obligation (the “primary obligations”) of another Person (the “primary obligor”), including any obligation of such Person, whether or not contingent, (a) to purchase, repurchase or otherwise acquire such primary obligations or any property constituting direct or indirect security therefor; (b) to advance or provide funds (i) for the payment or discharge of any such primary obligation, or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet item, level of income or financial condition of the primary obligor; (c) to purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation; or (d) otherwise to assure or hold harmless the holder of any such primary obligation against loss in respect thereof. The amount of any Guaranty Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Guaranty Obligation is made or, if not stated or if indeterminable, the maximum reasonably anticipated liability in respect thereof as determined by the Company in good faith.

“Hazardous Substances” means any toxic or hazardous substances, materials, wastes, contaminants or pollutants, including asbestos, PCBs, petroleum products and byproducts, and any substances defined or listed as “hazardous substances,” “hazardous materials,” “hazardous wastes” or “toxic substances” (or similarly identified), regulated under or forming the basis for liability under any applicable Environmental Law.

“Hostile Acquisition” means, as to the Company and any Subsidiary, to (a) Purchase or attempt to Purchase any Person by means of a public debt or equity tender offer or other unsolicited takeover (or the equivalent thereof in any jurisdiction) or (b) engage in a proxy contest (or the equivalent thereof in any jurisdiction) for control of the board of directors (or the functional equivalent thereof) of any Person, in either case if such action has not been approved and recommended by the board of directors (or the functional equivalent thereof) of the Person being acquired or proposed to be acquired or which is the subject of such proxy contest.

“Indebtedness” of any Person means, without duplication, (a) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid (excluding deferred compensation obligations owed to current and former directors, officers and employees), (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable, measured in accordance with GAAP, incurred in the ordinary course of business), (f) all Indebtedness of

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6.

others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guaranty Obligations (contingent or otherwise), (h) all capitalized lease obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit, letters of guaranty and similar instruments supporting Indebtedness, (j) all obligations, contingent or otherwise, of such Person in respect of bankers’ acceptances, (k) all net obligations with respect to Rate Contracts, and (1) all obligations, contingent or otherwise, with respect to synthetic leases or securitized assets. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.

“Insolvency Proceeding” means (i) any case, action or proceeding before any court or other Governmental Authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of debtors, or (ii) any general assignment for the benefit of creditors, composition, marshalling of assets for creditors, or other, similar arrangement in respect of its creditors generally or any substantial portion of its creditors, in each case undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code.

“Intangible Assets” means assets that are required to be disclosed as intangible assets in accordance with GAAP on the Company’s balance sheet, including customer lists, goodwill, computer software, copyrights, trade names, trade marks, patents, unamortized deferred charges, unamortized debt discount and capitalized research and development costs.

“Interest Payment Date” means, with respect to any Loan other than a Base Rate Loan or Local Currency Loan, the last day of each Interest Period applicable to such Loan, and with respect to Base Rate Loans, the last day of each calendar month, and with respect to each Local Currency Loan, the last day of each calendar month or such other date agreed to by the Bank in writing in any Credit Document relating to such Local Currency Loan; provided, however, that if any Interest Period for an Offshore Rate Loan exceeds three (3) months, interest shall also be paid on the date which falls three (3) months after the beginning of such Interest Period.

“Interest Period” means, with respect to any Offshore Rate loan, the period commencing on the Business Day such Loan is disbursed and ending on the date one, three or six months thereafter, as selected in the Notice of Borrowing;

provided that:

(i)           the last day of each Interest Period pertaining to an Offshore Rate Loan shall be determined in accordance with the practices of the offshore dollar interbank market as from time to time in effect; and

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7.

(ii)           no Interest Period shall extend beyond the Revolving Termination Date.

“L/C-Related Documents” has the meaning specified in Section 2.03(f).

“Letter of Credit” means any Trade Letter of Credit or Standby Letter of Credit issued by the Bank for the account of the Company or any of its Subsidiaries pursuant to Section 2.03 and any Prior Letter of Credit.

“Letter of Credit Agreement” means any letter of credit application and agreement, reimbursement agreement, or similar document or agreement, in form and substance satisfactory to the Bank, executed by the Company or any of its Subsidiaries in favor of the Bank in connection with the issuance of any Letter of Credit.

“Letter of Credit Application” has the meaning specified in Section 2.03(c)(ii).

“Letter of Credit Obligations” means any Obligations arising out of any Letter of Credit Agreement or otherwise arising pursuant to any Letter of Credit.

“Lien” means, with respect to any property or asset, (a) any mortgage, deed of trust, lien, pledge, hypothecation, assignment, encumbrance or security interest in, on or of such asset, and (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement relating to such asset, or the filing of any financing statement naming the owner of the asset to which such lien relates as debtor (other than protective filings with respect to operating leases ) or any agreement to do any of the foregoing.

“Loan” means any loan made by the Bank to the Company or any of its Subsidiaries pursuant to Section 2.02.

“Local Currency” has the meaning specified in Section 2.02(a).

“Local Currency Loan” has the meaning specified in Section 2.02(a).

“Margin Stock” means “margin stock” as defined in Regulation T, U or X or the FRB.

“Material Adverse Effect” means a material adverse change in, or a material adverse effect on any of (a) the business, assets, operations, prospects or condition, financial or otherwise, of the Company or the Company and its Subsidiaries taken as a whole, (b) the ability of the Company to perform any of its obligations under any Credit Document to which it is party; or (c) the legality, validity, binding effect or enforceability of any Credit Document.

“Multiemployer Plan” means a “multiemployer plan”, within the meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA Affiliate makes, is making, or is obligated to make contributions or, during the preceding three calendar years, has made, or has been obligated to make, contributions.

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8.

“Net Proceeds” means, with respect to any sale or issuance of any Equity Security or other security by any Person, the aggregate consideration received by such Person from such sale or issuance minus the actual amount of fees and commissions payable in connection therewith to Persons other than such Person or any Affiliate of such Person.

“Notice of Borrowing” means a notice given by a Borrower to the Bank pursuant to Section 2.02(b).

“Obligations” means all Loans, and other Indebtedness, advances, debts, liabilities, obligations, covenants and duties owing by the Company or any of its Subsidiaries to the Bank, or any other Person required to be indemnified under any Credit Document, of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, arising under this Agreement, under any other Credit Document or in connection with any Credit, whether or not for the payment of money, whether arising by reason of an extension of credit, loan, letter of credit (whether or not drawn), acceptance (whether or not matured), bond or guaranty (whether or not paid upon), indemnification or in any other manner, whether direct or indirect, absolute or contingent, due or to become due, disputed or undisputed, now existing or hereafter arising and however acquired. The amount of any Obligation in respect of any undrawn letter of credit, unmatured banker’s acceptance, contingent bond or guaranty obligations, or the like, shall be the stated or face amount of such letter of credit, acceptance, bond or guaranty, or, if not stated or without face amount, the maximum potential liability thereunder, as determined by the Bank in good faith.

“OECD” has the meaning specified in the definition of “Eligible Assignee.”

“Offshore Currency” has the meaning specified in Section 2.02(a).

“Offshore Rate” means for each Interest Period the rate of interest (rounded upward to the nearest 1/100th of one percent) determined pursuant to the following formula:

Offered Rate

Offshore Rate =                                _______________________

  1.00 - Reserve Percentage

Where,

(b)           “Offered Rate” means the rate of interest (rounded upward to the nearest 1/16th of one percent) at which Dollar deposits for such Interest Period would be offered by Bank’s Grand Cayman Branch, Grand Cayman, British West Indies, to major banks in the offshore Dollar interbank markets upon request of such banks at approximately 8:00 a.m. San Francisco time two Business Days prior to the first day of such Interest Period; and

(c)           “Reserve Percentage” means for such Interest Period the total (expressed as a decimal rounded upward to the nearest 1/100th of one percent) of the maximum reserve percentages (including, but not limited to, marginal, emergency, supplemental, special, and other reserve percentages) in effect on the first day of such Interest Period as prescribed by the Federal

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9.

Reserve Board for determining the reserves for eurocurrency liabilities to be maintained by member banks which are required to report on a weekly basis.

“Offshore Rate Loan” means a Loan for which interest is based on the Offshore Rate.

“Other Credit Documents” means any instruments, documents and agreements executed or delivered to the Bank by the Company or any of its Subsidiaries in connection with any Other Credit.

“Other Credit Obligations” means any Obligations arising in connection with any Other Credits.

“Other Credits” means extensions of credit or other financial accommodations from time to time extended to the Company or any of the Company’s Subsidiaries by the Bank pursuant to Section 2.05 or pursuant to the Prior Agreement, and evidenced by documentation in form and substance satisfactory to the Bank, other than Loans, Letters of Credit and Acceptances; such other credit accommodations to include shipside bonds, overdrafts, and such other credit facilities or financial accommodations as may be agreed to from time to time between the Bank and the Company or any applicable Subsidiary of the Company.

“Other Taxes” means any present or future stamp, court or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery, performance, enforcement or registration of, or otherwise with respect to, this Agreement or any other Credit Documents.

“Outstanding Amount” has the meaning specified in Section 2.01.

“PBGC” mean the Pension Benefit Guaranty Corporation, or any successor there to.

“Pension Plan” means a pension plan (as defined in Section 3(2) of ERISA) subject to Title IV of ERISA which the Company sponsors, maintains, or to which it makes, is making, or is obligated to make contributions, or in the case of a multiple employer plan (as described in Section 4064(a) of ERISA) has made contributions at any time during the immediately preceding five (5) plan years.

“Permitted Guarantees” means guarantees, surety support or standby letters of credit (including open-ended guarantees for custom duties, VAT deferment, rent, utilities and other offshore regulatory authorities) undertaken or issued by foreign branch offices of the Bank (a) pursuant to documentation in form and substance satisfactory to the Bank guaranteeing or otherwise supporting indebtedness or other obligations of the Company or of a Guaranteed Subsidiary of a specified maximum monetary amount, (b) having an expiration date not later than is reasonably estimated to be required to complete the underlying transaction or having no stated expiration date if so required by applicable Requirements of Law to which the Company

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or such Subsidiary is subject, and (c) in compliance with all applicable Requirements of Law, including Regulation K of the Federal Reserve Board.

“Permitted Liens” means:

(i)           Liens in favor of the Bank;

(ii)           Liens for taxes, fees, assessments or other governmental charges or levies, either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with GAAP;

(iii)           Liens of materialmen, mechanics, warehousemen, carriers or employees or other like Liens arising in the ordinary course of business and securing obligations either not delinquent or being contested in good faith by appropriate proceedings and which are adequately reserved for in accordance with GAAP and which do not in the aggregate materially impair the use or value of the property or risk the loss or forfeiture of title thereto;

(iv)           easements, rights of way, servitudes or zoning or building restrictions and other minor encumbrances on real property and irregularities in the title to such property which do not in the aggregate materially impair the use or value of such property or risk the loss or forfeiture of title thereto;

(v)           Liens arising solely by virtue of any statutory or common law provision relating to banker’s liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution; provided that (a) such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company or any Subsidiary in excess of those set forth by regulations promulgated by the FRB, and (b) such deposit account is not intended by the Company or any Subsidiary to provide collateral to the depository institution;

(vi)           Liens (other than any Lien imposed by ERISA) consisting of pledges or deposits required in the ordinary course of business in compliance with worker’s compensation, unemployment insurance and other social security laws or regulations;

(vii)           Liens securing (A) the non-delinquent performance of bids, trade contracts (other than for Indebtedness), leases (other than capital leases), statutory obligations, surety and appeal bonds, performance bonds and other obligations of like nature incurred in the ordinary course of business, provided that all such Liens in the aggregate would not (even if enforced) cause a Material Adverse Effect;

(viii)           purchase money security interests in real property, improvements thereto or equipment hereafter acquired (or, in the case of improvements, constructed) by the Company or any Subsidiary, provided that (A) any such Lien attaches to such real property, improvements or equipment concurrently with or within 30 days after the acquisition or construction thereof, (B) such Lien attaches solely to the real property, improvements or equipment so acquired or constructed, and (C) the principal amount of the

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Indebtedness secured thereby does not exceed 100% of the cost of such real property, improvements or equipment;

(ix)           Liens on assets of any Person that becomes a Subsidiary after the date of this Agreement; provided that such Liens existed at the time of such acquisition of such Person and were not created in anticipation thereof or for purposes of circumventing this Agreement; and

(x)           Liens not otherwise permitted by paragraphs (i) through (ix) above; provided, that the aggregate amount of all Indebtedness or other obligations secured by such Liens (whether matured or unmatured, contingent or otherwise) shall at no time exceed an amount equal to 20% of the Borrower’s Total Assets.

“Plan” means an employee benefit plan (as defined in Section 3(3) of ERISA) which the Company sponsors or maintains or to which the Company makes, is making, or is obligated to make contributions and includes any Pension Plan.

“Premises” means any and all real property including all buildings and improvements now or hereafter located thereon and all appurtenances thereto, now or hereafter owned, leased, occupied or used by the Company and its Subsidiaries.

“Prior Acceptances” has the meaning specified in Section 2.04(g).

“Prior Agreement” means that Credit Agreement (Multicurrency) dated as of December 19, 1997 by and between the Company and the Bank, as subsequently amended or extended.

“Prior Letters of Credit” has the meaning specified in Section 2.03(d).

“Prior Other Obligations” has the meaning specified in Section 2.05(b).

“Purchase” means any transaction, or any series of related transactions, by which the Company or any of its Subsidiaries (a) acquires any ongoing business or all or substantially all of the assets of any firm, corporation or division thereof, whether through purchase of assets, merger or otherwise, or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of directors (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding partnership or membership interests of a partnership or limited liability company, respectively.

“Rate Contracts” means interest rate swaps, caps, floors and collars, currency swaps, or other similar financial products designed to provide protection against fluctuations in interest, currency or exchange rates.

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“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA or the regulations thereunder, other than any such event for which the 30-day notice requirement under ERISA has been waived in regulations issued by the PBGC.

“Requirement of Law” means, as to any Person, any law (statutory or common), treaty, rule or regulation or determination of an arbitrator or of a Governmental Authority, in each case applicable to or binding upon the Person or any of its property or to which the Person or any of its property is subject.

“Responsible Officer” means, with respect to any Person, the chief executive officer, the president, the chief financial officer or the treasurer of such Person, or any other senior officer of such Person having substantially the same authority and responsibility; or, with respect to compliance with financial covenants, the chief financial officer or the treasurer of any such Person, or any other senior officer of such Person involved principally in the financial administration or controllership function of such Person and having substantially the same authority and responsibility.

“Revolving Termination Date” means October 29, 2001, or, if such date is not a Business Day, the last Business Day prior to such date.

“Shareholders’ Equity” means, as of any date of determination for the Company and its Subsidiaries on a consolidated basis, shareholders’ equity as of that date determined in accordance with GAAP.

“Solvent” means, as to any Person at any time, that (i) the fair value of the property of such Person is greater than the amount of such Person’s liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated for purposes of Section 101(32) of the United States Bankruptcy Code (11 U.S.C. § 101 et seq.); (ii) the present fair saleable value of the property of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured; (iii) such Person is able to realize upon its property and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business; (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay as such debts and liabilities mature; and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute unreasonably small capital.

“Standby Letters of Credit” means (i) any and all “clean” or documentary standby letters of credit from time to time issued by the Bank and outstanding for the account of the Company or any of the Company’s Subsidiaries and (ii) any and all guarantees (including Permitted Guarantees) executed or issued from time to time by the Bank through any foreign branch or office of the Bank with respect to debts or obligations of the Company or any Subsidiary of the Company.

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“Subsidiary” of a Person means any corporation, association, partnership, limited liability company, joint venture or other business entity of which more than 50% of the voting stock, membership interests or other equity interests (in the case of Persons other than corporations), is owned or controlled directly or indirectly by the Person; or one or more of the Subsidiaries of the Person, or a combination thereof. Unless the context otherwise clearly requires, references herein to a “Subsidiary” refer to a Subsidiary of the Company.

“Swap Termination Value” means, in respect of any one or more Rate Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Rate Contracts, (i) for any date on or after the date such Rate Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (ii) for any date prior to the date referenced in clause (i), the amount(s) determined as the mark-to-market value(s) for such Rate Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Rate Contracts (which may include the Bank).

“Taxes” means any and all present or future taxes, levies, assessments, imposts, duties, deductions, deposits, fees, withholdings or similar charges, and all liabilities with respect thereto, excluding, in the case of the Bank, taxes imposed on or measured by its net income by the jurisdiction (or any political subdivision thereof) under the laws of which the Bank is organized or maintains a lending office.

“Total Assets” means with respect to any Person as of any date of determination, the total assets of such Person and its Subsidiaries determined on a consolidated basis in accordance with GAAP.

“Trade Letters of Credit” means any commercial documentary trade letters of credit issued by the Bank pursuant to this Agreement for the account of the Company or any of its Subsidiaries for the purchase of goods in the ordinary course of business.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities, under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

“Wholly-Owned Subsidiary” means any corporation in which (other than directors’ qualifying shares required by law) 100% of the capital stock of each class having ordinary voting power, and 100% of the capital stock of every other class, in each case, at the time as of which any determination is being made, is owned, beneficially and of record, by the Company, or by one or more of the other Wholly-Owned Subsidiaries, or both.

SECTION 1.02                           Other Definitional Provisions.  Unless otherwise specified herein or therein, all terms defined in this Agreement shall have the defined meanings when used in any certificate or other document made or delivered pursuant hereto. Terms (including uncapitalized

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terms) not otherwise defined herein that are defined in the California Uniform Commercial Code shall have the meanings therein described.

SECTION 1.03                           Terms Generally.  The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The word “will” shall be construed to have the same meaning and effect as the word “shall.” Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (c) the words “herein,” “hereof and hereunder,” and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (e) references to any statute or regulation includes all applicable regulations and all amendments or replacements thereto, and (e) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including all securities, accounts and contract rights. This Agreement and other Credit Documents may use several different limitations, tests or measurements to regulate the same or similar matters. All such limitations, tests and measurements are cumulative and shall each be performed in accordance with their terms. Unless otherwise expressly provided, any reference to any action of the Bank by way of consent, approval or waiver shall be deemed modified by the phrase “in its sole discretion.” This Agreement and the other Credit Documents are the result of negotiations among and have been reviewed by counsel to the Bank, the Company and the other parties, and are the products of all parties. Accordingly, they shall not be construed against the Bank merely because of its involvement in their preparation.

SECTION 1.04                           Accounting Terms; GAAP.  Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided that, if the Company notifies the Bank that the Company requests an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or if the Bank requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. References herein to “fiscal year” and “fiscal quarter” refer to such fiscal periods of the Company.

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ARTICLE II.

THE CREDITS

SECTION 2.01                           The Revolving Commitment.  From time to time during the Availability Period, upon the terms and subject to the conditions hereof, the Bank agrees to extend credit to the Company and the Guaranteed Subsidiaries consisting of Loans, Acceptances, Letters of Credit and Other Credits; provided, however, that the aggregate principal amount of Loans and the aggregate amount of Acceptance Obligations, Letter of Credit Obligations, and Other Credit Obligations of the Company and all of its Subsidiaries combined, or the Equivalent Amount thereof (together, the “Outstanding Amount”), shall not at any time exceed the Commitment. The Credits are revolving credits and, subject to the terms and conditions hereof, may be extended, repaid or otherwise retired, and re-extended from time to time.

SECTION 2.02                           The Loan Facility.

(a)           The Loans.  The Bank agrees, on the terms and conditions hereinafter set forth, to make Loans to the Company and the Guaranteed Subsidiaries from time to time, on any Business Day during the Availability Period, provided that the aggregate principal amount of Loans made and outstanding by the Bank from time to time to all Borrowers, together with all other Outstanding Amounts existing at such time, or the Equivalent Amount thereof, shall not exceed the Commitment. Loans may be made in dollars, or in a lawful currency other than dollars that (A) is freely transferable and convertible into dollars and traded in the offshore interbank currency markets at the time of such Loan (“Offshore Currency”) or (B) is available at a branch of the Bank located in a country other than the United States and is the legal tender of that country where the branch is located (“Local Currency”). The interest rate for each dollar Loan will be related to the Base Rate or the Offshore Rate. The interest rate for each Loan denominated in an Offshore Currency will be related to the Offshore Rate. The interest rate for each Loan denominated in a Local Currency (“Local Currency Loan”) will be agreed upon at the time of each Loan and shall be as set forth in the applicable Credit Document. The Bank has no obligation to make any Local Currency Loan unless the Bank and the Borrower have agreed, in their discretion, at the time of the request for any such Loan, as to the currency, amount, principal payment date, interest rate, interest payment dates, prepayment and overdue payment terms, reserve and tax provisions and other applicable terms and provisions with respect to any such Loan. The Borrower shall execute such additional documentation as the Bank may require relating to any Local Currency Loan.

(b)           Procedure for Borrowing.  Each Borrowing shall be made upon the irrevocable written notice (including notice by telecopy confirmed immediately by a telephone call) of the Borrower pursuant to a Notice of Borrowing in form and substance satisfactory to the Bank (a “Notice of Borrowing”), which notice must be received by the Bank prior to 12:00 noon (San Francisco time) (i) three (3) Business Days prior to the requested borrowing date, in the case of Offshore Rate Loans, and (ii) two (2) Business Days prior to the requested borrowing date, in the case of Base Rate Loans, specifying:

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(i)           the amount of the Borrowing, which shall be in an aggregate minimum principal amount of One Million dollars ($1,000,000) or any multiple of Five Hundred Thousand dollars ($500,000) in excess thereof;

(ii)           the requested borrowing date, which shall be a Business Day;

(iii)           whether the Borrowing is to be comprised of Offshore Rate Loans or Base Rate Loans;

(iv)           whether such Loans are to be denominated in U.S. dollars, Offshore Currency or Local Currency; and

(v)           the duration of the Interest Period applicable to such Loans included in such notice. If the Notice of Borrowing shall fail to specify the duration of the Interest Period for any Borrowing comprised of Offshore Rate Loans, such Interest Period shall be three months.

Each Borrowing with respect to any Local Currency Loan shall be undertaken in accordance with the procedures from time to time specified by the applicable branch or office of the Bank.

(c)           Optional Prepayments.  Subject to Section 3.04, the applicable Borrower may, at any time or from time to time, upon at least three (3) Business Days’ notice to the Bank, prepay Loans in whole or in part, in amounts of Five Hundred Thousand dollars ($500,000) (or the Equivalent Amount) or any multiple of Five Hundred Thousand dollars ($500,000) (or the Equivalent Amount). Such notice of prepayment shall specify the date and amount of such prepayment and whether such prepayment is of Base Rate Loans, Offshore Rate Loans, or Local Currency Loans or any combination thereof. Such notice shall not thereafter be revocable by the Borrower. If such notice is given, the Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein, together with accrued interest to each such date on the amount prepaid and the amounts required pursuant to Section 3.04.

(d)           Repayment of Principal.  The Company agrees to repay or cause the applicable Borrower to repay to the Bank the principal amount of the Loans (i) with respect to any Loan other than a Base Rate Loan or a Local Currency Loan, on the earlier of (A) the last day of the applicable Interest Period and (B) the date six months after the Revolving Termination Date; (ii) with respect to any Local Currency Loan, on the earlier of (A) the applicable maturity date and (B) the date six months after the Revolving Termination Date; and (iii) with respect to any Base Rate Loan, on the Revolving Termination Date.

(e)           Interest on Loans.  Unless otherwise provided in applicable Credit Documents with respect to Local Currency Loans:

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(i)           Subject to subsection 2.02(e)(iii), each Loan shall bear interest on the outstanding principal amount thereof from the date when made until it becomes due at a rate per annum equal to the Offshore Rate or the Base Rate, as the case may be, plus the Applicable Margin;

(ii)           Interest on each Loan shall be due and payable by the Company or the Borrower in arrears on each Interest Payment Date. Interest shall also be due and payable by the Company or the Borrower on the date of any prepayment of an Offshore Rate Loan pursuant to Section 2.02(c) and 2.06 for the portion of the Loans so prepaid and upon payment (including prepayment) in full thereof and, after the occurrence and during the continuance of any Event of Default, interest shall be due and payable on demand; and

(iii)           During the continuation of any Event of Default or after acceleration, the Company shall pay or cause any and all applicable Borrowers to pay interest (after as well as before judgment to the extent permitted by law) on the principal amount of all Loans due and unpaid, at a rate per annum that is determined by increasing the Applicable Margin then in effect, or, with respect to any Local Currency Loan, the interest rate then in effect, by two percent (2%) per annum; provided, however, that, on and after the expiration of the Interest Period applicable to any Offshore Rate Loan outstanding on the date of occurrence of such Event of Default or acceleration, the principal amount of such Loan shall, during the continuation of such Event of Default or after acceleration, bear interest at a rate per annum equal to the Base Rate plus two percent (2%).

(f)           Prior Loans. All loans made and outstanding under the Prior Agreement as of the Closing Date (the “Prior Loans”) will constitute Loans outstanding hereunder, will reduce the unused Commitment hereunder pro tanto, and from and after the Closing Date will be evidenced by this Agreement.

SECTION 2.03                           The Letter of Credit Facility.

(a)           Availability.  On the terms and subject to the conditions set forth herein, the Bank agrees that it will, from time to time during the Availability Period, (i) issue Letters of Credit for the account of any Borrower, (ii) amend any Letters of Credit in accordance with Section 2.03(e) and (iii) honor drafts under the Letters of Credit in accordance with the terms thereof; provided, however, that the Bank shall be under no obligation to issue any Letter of Credit if:

(i)           (A) the expiration date of any Trade Letter of Credit is more than one year after the date of issuance thereof or there is no expiration date, (B) the expiration date of any Trade Letter of Credit without title documents is more than 180 days after the date of issuance thereof, (C) the total amount of Letter of Credit Obligations with respect to such Trade Letter of Credit without title documents together with the aggregate amount of Letter of Credit Obligations with respect to all other Trade Letters of Credit (whether or not drawn) without title documents exceeds $3,000,000 (or the Equivalent Amount thereof), or (D) the expiration date of any Standby Letter of Credit is more than one year after the date of issuance thereof or there is no expiration date; provided, however, that the expiration date of any Standby

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Letter of Credit may be in excess of one year after the date of issuance or there may be no expiration date if (x) the total amount of Letter of Credit Obligations with respect to such Standby Letter of Credit together with the aggregate amount of Letter of Credit Obligations with respect to all other Standby Letters of Credit (whether or not drawn) having expiration dates in excess of one year after date of issuance or having no expiration dates, does not exceed $10,000,000 (or the Equivalent Amount thereof), (y) if such Standby Letter of Credit is without an expiration date, it is either a Permitted Guarantee or an Evergreen Letter of Credit, and (z) if such Standby Letter of Credit is an Evergreen Letter of Credit, the total amount of Letter of Credit Obligations with respect to such Evergreen Letter of Credit together with the aggregate amount of Letter of Credit Obligations with respect to all other Evergreen Letters of Credit (whether or not drawn), does not exceed $10,000,000;

(ii)           such Standby Letter of Credit is for the purpose of supporting the issuance of any letter of credit by any other Person;

(iii)           such Letter of Credit does not provide for drafts or is not otherwise in form and substance acceptable to the Bank;

(iv)           the face or stated amount of such Letter of Credit together with the sum of all other Outstanding Amounts, or the Equivalent Amount thereof, exceeds the Commitment;

(v)           any order, judgment or decree of any Governmental Authority or arbitrator shall purport by its terms to enjoin or restrain the Bank from issuing such Letter of Credit or any Requirement of Law applicable to the Bank or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Bank shall prohibit, or request that the Bank refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the Bank with respect to such Letter of Credit any restriction or reserve or capital requirement (for which the Bank is not otherwise compensated) not in effect on the Closing Date and that the Bank in good faith deems material to it;

(vi)           one or more of the applicable conditions contained in Article IV is not then satisfied; or

(vii)           the expiration date of such Letter of Credit or the maturity date of any financial obligation to be supported by such Letter of Credit is more than one year after the Revolving Termination Date.

(b)           Letter of Credit Agreement.  Each Letter of Credit shall be issued pursuant to a Letter of Credit Agreement or other agreement in form and substance satisfactory to the Bank.

(c)           Issuance Procedures.

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(i)           Each Letter of Credit (other than a Letter of Credit issued prior to the Closing Date) shall be issued upon the irrevocable written request of the Borrower, received by the Bank, in appropriate form, together with all other documents requested by the Bank, at least five (5) Business Days (or such shorter time as the Bank may agree in a particular instance) prior to the proposed date of issuance.

(ii)           Each request for issuance of a Letter of Credit shall be in writing (including by telecopy, confirmed immediately in writing delivered by overnight or hand courier), in form and substance satisfactory to the Bank (the “Letter of Credit Application”), and shall specify: (i) the proposed date of issuance (which shall be a Business Day); (ii) the face amount of the Letter of Credit; (iii) the date of expiration of the Letter of Credit; (iv) the name and address of the Borrower and the beneficiary thereof; (v) the documents to be presented by the beneficiary of the Letter of Credit in case of any drawing thereunder; (vi) the full text of any certificate to be presented by the beneficiary in case of any drawing thereunder; and (vii) such other matters as the Bank may request.

(iii)           Each Letter of Credit consisting of guarantees described at clause (ii) of the definition of Standby Letters of Credit shall be issued pursuant to such procedures and documentation as may from time to time be required by the issuing office or branch of the Bank.

(d)           Prior Letters of Credit.  All letters of credit and guarantees issued or made by the Bank for the account of the Company or any of its Subsidiaries pursuant to the Prior Agreement and that are outstanding as of the Closing Date or as to which the Bank has not received as of such date reimbursement in full with respect to any drawings or payments made thereunder (the “Prior Letters of Credit”), shall constitute additional Letters of Credit under this Agreement, shall reduce pro tanto the unused Commitment hereunder accordingly and will be governed by the terms and provisions of this Agreement from and after the Closing Date, together with any letter of credit application and agreement or guarantee document or agreement previously executed and delivered in connection therewith.

(e)           Amendment of Letters of Credit.  From time to time during the term of any Letter of Credit, the Bank shall, upon the written request of the applicable Borrower, in form and substance satisfactory to the Bank (an “Amendment Application”), accompanied by payment of an amendment fee as specified from time to time by the Bank, amend any Letter of Credit; provided that the Bank shall be under no obligation to amend any Letter of Credit if:

(i)           the face amount thereof is to be increased pursuant to a request received by the Bank after the Revolving Termination Date;

(ii)           the Bank would have no obligation at such time to issue such Letter of Credit in its amended form under the terms of this Agreement; or

(iii)           the beneficiary does not accept the Letter of Credit as amended.

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(f)           Obligation Absolute.  The obligations of the Company and each other Borrower under this Agreement and any other agreements or instrument relating to any Letter of Credit to reimburse the Bank or cause each other Borrower to reimburse the Bank shall be unconditional and irrevocable and shall be paid and performed strictly in accordance with the terms of this Agreement and such other agreement or instrument under all circumstances, including the following circumstances:

(i)           any lack of validity or enforceability of this Agreement, any Letter of Credit, any Letter of Credit Agreement or any other agreement or instrument relating thereto (collectively, the “L/C-Related Documents”);

(ii)           any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the Company or of any Borrower in respect of any Letter of Credit or any other amendment or waiver of or any consent to departure from all or any of the L/C-Related Documents;

(iii)           the existence of any claim, set-off, defense or other right that either the Company or any Borrower may have at any time against any beneficiary or any transferee of any Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the Bank or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by the L/C-Related Documents or any unrelated transaction;

(iv)           any draft, demand, certificate or other document presented under any Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;

(v)           any payment by the Bank under any Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of any Letter of Credit, or any payment by the Bank under any Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of any Letter of Credit, including any arising in connection with any Insolvency Proceeding;

(vi)           any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any other guarantee, for all or any of the obligations of the Company or a Borrower in respect of any Letter of Credit; or

(vii)           any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, the Company, any Borrower or a guarantor.

(g)           Limitation of Liability of the Bank.  The Company and each of the Borrowers assume all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption with respect to the Bank is not intended to, and shall not, preclude the Company or any Borrower pursuing such

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rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement. Neither the Bank, nor any of its affiliates, correspondents, participants or assignees, or any of their respective officers, directors or employees, shall be liable or responsible for any of the matters described in clauses (i) through (vii) of Section 2.03(f); provided, however, anything in such preceding clauses to the contrary notwithstanding, that the Company shall have a claim against the Bank, and the Bank shall be liable to the Company, to the extent, but only to the extent, of any direct, as opposed to consequential, damages suffered by the Company that the Company proves were caused by (i) the Bank’s willful misconduct or gross negligence or (ii) the Bank’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate both strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Bank (i) may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary, and (ii) shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(h)           Cancellation of Certain Standby Letters of Credit.  At any time, upon the request of the Bank, the Company shall cancel, or cause the applicable Borrower to cancel, and obtain the surrender of, any Standby Letter of Credit (including any guaranty described in clause (ii) of the definition of such term) issued by the Bank that is without an expiry date, such cancellation and surrender to occur by no later than sixty (60) days after the initial request of the Bank. The Company acknowledges and agrees that the Bank may, in connection with any Evergreen Letter of Credit, at its election deliver any notices of termination or other communications to any Letter of Credit beneficiary or transferee, or take any other action as necessary or appropriate in order to cause the expiry date of such Letter of Credit to be a date not later than one year after the Revolving Termination Date.

(i)           Fees; Interest on Drawn Amounts.  The Company shall pay or cause the applicable Borrower to pay the Bank (A) an issuance fee of 1.125% of the face amount (or guaranteed amount with respect to Permitted Guarantees) of each Standby Letter of Credit, Evergreen Letter of Credit and Permitted Guarantee; and (B) an issuance fee, negotiation fee and other fees at the times and in the amount as the Bank may advise the Company or the Borrower as being applicable, for each Trade Letter of Credit issued. Unless a different rate is otherwise expressly provided in the applicable Letter of Credit Agreement, the Company shall pay or cause the applicable Borrower to pay on demand interest on the amount of all drawings honored or payments made by the Bank under any Letter of Credit and not reimbursed by the Company or such Borrower, from the date of such drawing or payment, at the per annum rate of the Base Rate plus two percent (2%).

(j)           Cash Collateral.  In addition to any other rights or remedies which the Bank may have under this Agreement or otherwise, upon the occurrence of an Event of Default or the Revolving Termination Date, the Bank may require the Company or the Borrower to provide cash collateral in the amount of the outstanding amount of all Letters of Credit and Permitted Guarantees.

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SECTION 2.04                                The Acceptance Facility.

(a)           Availability.  On the terms and conditions contained herein and in the applicable Acceptance Agreement, the Company or any other Borrower may, during the Availability Period, present drafts for acceptance by the Bank to finance specified shipments of goods, whether import, export or domestic shipments; provided that the Bank shall not be obligated to accept any draft if the face amount of the draft to be accepted plus the sum of all other Outstanding Amounts, or the Equivalent Amount, together would exceed the Commitment.

(b)           Acceptance Procedures.  The Company or any other Borrower may request an acceptance pursuant to subsection (a) of this Section 2.04 of any draft drawn by such Person on the Bank to finance a specific shipment of goods (as presented, a “Draft,” and as accepted by the Bank, and including any Prior Acceptance, an “Acceptance”) by: (i) giving the Bank at least two (2) Business Days’ prior notice of the requested Acceptance, which notice shall be in writing or shall be by telephone or telecopy and confirmed promptly in writing, and which notice shall specify (A) the date on which the acceptance of the Draft is desired (the proposed “Acceptance Date”), (B) the aggregate principal amount of the presented Draft, and (C) whether the Bank should complete and deliver a pre-signed blank draft in its possession for the proposed Acceptance, and if so, specifying the proposed amount, issuance date and maturity date; (ii) delivering to the Bank (unless already done so) a duly executed Acceptance Agreement and such other documents and agreements as may be referenced therein; and (iii) delivering to the Bank the specified Draft and an eligibility certificate describing the underlying goods and indicating their origin and destination or other evidence of the underlying transaction, each in such form and substance as may be acceptable to the Bank. Each Draft shall be for an integral multiple of $100,000 in an amount that is not less than $1,000,000 (or the Equivalent Amount). No Draft shall be dated or accepted more than thirty (30) days before or more than thirty (30) days after the date of the shipment of goods to which it relates. Each Draft shall mature on a Business Day, which shall be at least thirty (30) days after the Acceptance Date. No Draft shall mature (x) more than 180 days after the Acceptance Date, or (y) later than is reasonably estimated to be required to complete the underlying transaction.

(c)           Eligible Acceptances.  Each Draft shall relate to one or more specific transactions involving the importation or exportation of goods or the domestic shipment of goods within the United States. The goods relating to each Draft shall have a c.i.f. value equaling or exceeding the amount of the Draft, shall be of good and merchantable quality, shall be fully insured in accordance with prudent industry practice and shall not be the subject of any security interest granted by the Borrower. No other source shall have financed the transaction underlying the Draft. The Borrower shall have procured all import, export and other licenses essential to the underlying transaction and shall have complied with all applicable laws pertaining to the underlying goods and transaction. Each Draft shall qualify (upon acceptance) in all respects with the requirements for eligibility for discount of the Federal Reserve Banks of the United States. With regard to each Draft presented by itself or any other Borrower, the Company represents and warrants to the Bank that, as of the date of presentment, the Draft and underlying goods and transaction conform to the requirements of this subsection, and the Company covenants and agrees that it will continue to conform or cause the applicable Borrower to conform to those requirements for so long as the Acceptance is outstanding. In the event that any Acceptance

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hereunder is created and is not eligible for discount by Federal Reserve Banks, the Company shall indemnify the Bank for all costs and expenses resulting from such determination (including costs under Regulation D of the Federal Reserve Board).

(d)           Limitation of Liability of the Bank.  Neither the Bank nor any of its affiliates, correspondents, participants or designees, or any of their respective officers, directors or employees, shall be responsible or have any liability for: (i) the existence, character, quantity, quality, condition, packing, value or delivery of any goods or other property relating to any Draft or Acceptance; (ii) the validity, sufficiency or genuineness of any documents or endorsements or other notations thereon; (iii) the time, place, manner or order in which shipment is made; (iv) any insurance or insurer; or (v) any act or omission of any shipper, warehouseman, carrier, correspondent or other party involved in any transaction related to any Draft or Acceptance.

(e)           Changed Circumstances.  If, on or before the date of acceptance of any Draft, the Bank shall have determined (which determination shall be final, conclusive and binding on the Company and any Borrower) that (i) it is impermissible for the Bank to accept any Draft due to any circumstances described in Section 3.02, (ii) acceptances in amounts or for durations corresponding to the proposed Acceptance(s) are not being readily traded in the applicable market, or (iii) by reason of changes affecting the applicable market, the discount rate to be in effect for that period will not adequately and fairly reflect the cost to the Bank of accepting or discounting the Draft, then the Bank shall be under no obligation to accept the requested Draft, notwithstanding anything to the contrary in this Section 2.04. The Bank shall notify the Company in the event the Bank makes such a determination; provided, however, that the failure to give such notice shall not affect the validity of that determination or the rejection of any Draft submitted for acceptance. No determination made under this subsection, however, shall in and of itself reduce the unused portion of the Commitment or limit any Borrower’s ability to request Other Credits hereunder in accordance with the terms and provisions of this Agreement.

(f)           Repayment; Discount and Commissions.  The Company shall pay or cause the applicable Borrower to pay to the Bank the face amount and the related discount and commissions of each Acceptance created hereunder on the maturity date of the Draft related to such Acceptance. The discount and commissions payable by the Company or any Borrower to the Bank for each Draft shall be as specified by the Bank from time to time and will be based upon the Bank’s “all-in-rate” for acceptances in effect on the dates of acceptance and discount. Unless a different rate is otherwise expressly provided in any Acceptance Agreement, any amount not paid by the Company or the applicable Borrower to the Bank on the maturity date of any Acceptance, including the face amount of any Acceptance and any charges and expenses relating thereto, shall bear interest at the per annum rate equal to the Base Rate plus two percent (2.0%).

(g)           Prior Acceptances.  All drafts accepted by the Bank pursuant to the Prior Agreement for the account of the Company or any of the Company’s Subsidiaries, and which are outstanding as of the Closing Date or as to which the Bank has not received as of such date reimbursement or payment in full with respect to any payments made thereunder (the “prior Acceptances”), shall constitute additional Acceptances under this Agreement, will reduce pro

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tanto the unused Commitment hereunder accordingly and will be governed by the terms and provisions of this Agreement from and after the Closing Date, together with any Acceptance Agreements previously executed and delivered in connection therewith.

SECTION 2.05                           The Other Credits.

(a)           Availability.  Upon the written or telephonic request of any Borrower from time to time, subject to the terms and conditions hereof, the Bank may agree to extend Other Credits to or for the benefit of such Borrower, on such terms and conditions as may be agreed in writing between the Bank and such Person, provided that the Bank shall not be obligated to extend any such Other Credit if the face, stated or maximum amount of such Other Credit plus the sum of all other Outstanding Amounts, or the Equivalent Amount thereof, would exceed the Commitment.  The Company shall execute and deliver, or cause such Borrower to execute and deliver, such additional instruments, documents and agreements as the Bank may require in connection with the provision by the Bank of any Other Credit and shall pay or cause to be paid to the Bank all applicable fees, commissions and other charges arising therefrom as specified by the Bank.

(b)           Prior Other Credits.  All Other Credits issued or extended to or for the benefit of the Company or any of its Subsidiaries pursuant to the Prior Agreement and that are outstanding as of the Closing Date, or as to which the Bank has not received reimbursement or payment in full with respect thereto (the “Prior Other Credits”), shall constitute additional Other Credits under this Agreement, will reduce pro tanto the unused Commitment hereunder accordingly, and will be governed by the terms and provisions of this Agreement from and after the Closing Date, together with any other applicable agreements and documentation previously executed and delivered in connection therewith, other than the Prior Agreement.

SECTION 2.06                           Mandatory Prepayments.  If at any time the total Outstanding Amount, or the Equivalent Amount thereof, exceeds the Commitment, the Company shall immediately, and without notice or demand, prepay the Credits that are no longer contingent by an amount equal to such excess, subject to Section 3.04, such prepayment to be applied as the Bank may determine in its discretion. If after prepayment of such Credits, the total Outstanding Amount of the Credits exceeds the Commitment, an Event of Default shall immediately exist hereunder.

SECTION 2.07                           Guaranty.  Any and all Obligations of Subsidiaries of the Company shall be unconditionally guaranteed by the Company pursuant to the terms of the Guaranty.

SECTION 2.08                           Optional Commitment Reduction.  The Company may upon not less than five (5) Business Days’ prior notice to the Bank, permanently reduce the Commitment by an aggregate minimum amount of $5,000,000 or any multiple of $1,000,000 in excess thereof; provided that no such reduction shall be permitted if, after giving effect thereto, the then Outstanding Amount would exceed the amount of the Commitment then in effect and, provided further, that once reduced in accordance with this Section, the Commitment may not thereafter be increased.

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SECTION 2.09                           Fees.

(a)           Facility Fee.  The Company shall further pay to the Bank an irrevocable facility fee at the rate of 0.375% per annum of the amount of the Commitment, due and payable in arrears in quarterly installments on the last Business Day of each calendar quarter commencing on December 31, 2000.  Such fee shall be deemed earned on each day the Commitment is outstanding (regardless of utilization thereof) and shall accrue at all times from and after the Closing Date, including at any time during which one or more conditions in Article IV are not met. No portion of any amount so paid shall be subject to return or refund for any reason.

(b)           Other Fees.  The Company shall further pay or cause the applicable Borrower to pay to the Bank such other fees and charges in connection with the respective Credits as the Bank shall from time to time require in connection with such Credits.

SECTION 2.10                           Computation of Fees and Interest.

(a)           All computations of interest payable in respect of Base Rate Loans shall be made on the basis of a year of three hundred sixty-five (365) or three hundred sixty-six (366) days, as the case may be, and actual days elapsed.  All other computations of fees and interest under this Agreement shall be made on the basis of a three hundred sixty (360) day year and actual days elapsed, which results in more interest being paid than if computed on the basis of a 365-day year. Interest and fees shall accrue during each period during which interest or such fees are computed from the first day thereof to the last day thereof.

(b)           Any change in the interest rate on a Loan resulting from a change in the Applicable Margin, Reserve Percentage or the Assessment Rate shall become effective as of the opening of business on the day on which such change in the Applicable Margin, Reserve Percentage or the Assessment Rate shall become effective.

(c)           Each determination of an interest rate by the Bank pursuant to any provision of this Agreement shall be conclusive and binding on the Company and each Borrower in the absence of manifest error. The Bank will, at the request of the Company or any Borrower deliver to the Company a statement showing the quotations used by the Bank in determining any Offshore Rate.

SECTION 2.11                           Payments by the Borrowers.

(a)           All payments (including prepayments and pledges of cash collateral) to be made by the Company or any Borrower in connection with any Credit on account of principal, interest, fees or other amounts shall be made without set-off or counterclaim and shall be made to the Bank, at the Bank’s office set forth in Section 8.04, in dollars and in immediately available funds no later than 12:00 noon (San Francisco time), or at such other office or branch of the Bank as may be set forth in any other Credit Document governing any specific Credit. Any payment which is received by the Bank later than 12:00 noon (San Francisco time) shall be deemed to have been received on the immediately succeeding Business Day.

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(b)           Whenever any payment or other performance hereunder shall be stated to be due on a day other than a Business Day, such payment or other performance shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or fees, as the case may be.

ARTICLE III.

TAXES, ILLEGALITY AND YIELD PROTECTION

SECTION 3.01                           Taxes.

(a)           Any and all payments by the Company and any of its Subsidiaries to the Bank under this Agreement and any other Credit Document shall be made free and clear of, and without deduction or withholding for, any and all present or future Taxes.

(b)           In addition, the Company agrees to pay or cause any applicable Borrower to pay all Other Taxes.

(c)           The Company shall indemnify and hold harmless .(or cause any applicable Borrower to do so) the Bank for the full amount of Taxes, Other Taxes and Further Taxes in the amount that the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed, and any liability (including penalties, interest, additions to tax and expenses) arising therefrom or with respect thereto, whether or not such Taxes, Other Taxes or Further Taxes were correctly or legally asserted. Payment under this indemnification shall be made within thirty (30) days from the date the Bank makes written demand therefor.

(d)           If the Company or any of the Subsidiaries is required by law to deduct or withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum payable hereunder to the Bank, then:

(i)           the sum payable shall be increased as may be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 3.01) the Bank receives an amount equal to the sum it would have received had no such deductions been made,

(ii)           the Company or such Subsidiary shall make such deductions,

(iii)           the Company or such Subsidiary shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law, and

(iv)           the Company or such Subsidiary shall pay to the Bank at the time interest is paid, all additional amounts which the Bank specifies as necessary to preserve the after-tax yield the Bank would have received if such Taxes, Other Taxes or Further Taxes had not been imposed.

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(e)           Within thirty (30) days after the date of any payment by the Company or any Subsidiary of Taxes, Other Taxes or Further Taxes, the Company shall furnish to the Bank the original or a certified copy of a receipt evidencing payment thereof, or other evidence of payment satisfactory to the Bank.

(f)           The agreements and obligations of the Company contained in this Section 3.01 shall survive the termination of this Agreement and the other Credit Documents and repayment of the Credits.

SECTION 3.02                           Illegality.

(a)           If the Bank shall determine that (i) the introduction of any Requirement of Law or any change in or in the interpretation or administration thereof has made it unlawful, or that any central bank or other Governmental Authority has asserted that it is unlawful, for the Bank to make or extend any Credit, or (ii) any order, judgment or decree of any Governmental Authority or arbitrator purports by its terms to enjoin or restrain the Bank from making or extending any Credit, then, on notice thereof by the Bank to the Company, the obligation of the Bank to make or extend such Credit shall be suspended until the Bank shall have notified the Company that the circumstances giving rise to such determination no longer exists.

(b)           If the Bank shall determine that it is unlawful to maintain any Offshore Rate Loan or Local Currency Loan, the Company shall prepay or cause the applicable Borrowers to prepay in full all Offshore Rate Loans or Loans of such Local Currency, as the case may be, then outstanding, together with interest accrued thereon, either on the last day of the Interest Period thereof if the Bank may lawfully continue to maintain such Offshore Rate Loans to such day and such Loans have an Interest Period, or immediately, if the Bank may not lawfully continue to maintain such Offshore Rate Loans or such Loans have no Interest Period, together with any amounts required to be paid in connection therewith pursuant to Section 3.04.

SECTION 3.03                           Increased Costs and Reduction of Return.

(a)           If the Bank shall determine that, due to either (i) the introduction of or any change (including any change by way of imposition of or increase in reserve requirements included in the Reserve Percentage) in or in the interpretation of any law or regulation or (ii) the compliance with any guideline or request from any central bank or other Governmental Authority (whether or not having the force of law), there shall be any increase in the cost to the Bank of agreeing to make or making, funding or maintaining any Credits, then the Company shall be liable for, and shall from time to time, upon demand therefor by the Bank, pay to the Bank, additional amounts as are sufficient to compensate it for such increased costs.

(b)           If the Bank shall have determined that the introduction of any applicable law, rule, regulation or guideline regarding capital adequacy, or any change therein or any change in the interpretation or administration thereof by any central bank or other Governmental Authority charged with the interpretation or administration thereof, or compliance by the Bank or any corporation controlling the Bank, with any request, guideline or directive regarding capital adequacy (whether or not having the force of law) of any such central bank or other authority,

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affects or would affect the amount of capital required or expected to be maintained by the Bank or any corporation controlling the Bank, and the Bank (taking into consideration the Bank’s or such corporation’s policies with respect to capital adequacy and the Bank’s desired return on capital) determines that the amount of such capital is increased as a consequence of the Bank’s obligation under this Agreement, then, upon demand of the Bank, the Company shall immediately pay to the Bank, from time to time as specified by the Bank, additional amounts sufficient to compensate the Bank for such increase.

SECTION 3.04                           Funding Losses.  The Company agrees to reimburse or cause the applicable Borrower to reimburse the Bank and to hold the Bank harmless from any loss or expense that the Bank may sustain or incur as a consequence of:

(a)           any failure of the Company or such Borrower to make any payment or prepayment of principal with respect to any Offshore Rate Loan or Local Currency Loan (including payments made after any acceleration thereof);

(b)           any failure of the Company or such Borrower to borrow a Loan after the Company or such Borrower has given (or is deemed to have given) a Notice of Borrowing;

(c)           any failure of the Company or such Borrower to make any prepayment after the Company or such Borrower has given a notice in accordance with Section 2.02(c); or

(d)           any prepayment of an Offshore Rate Loan on a day that is not the last day of the Interest Period with respect thereto;

including any such loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain its Offshore Rate Loans hereunder or from fees payable to terminate the deposits from which such funds were obtained.

SECTION 3.05                           Inability to Determine Rates.  If the Bank shall have determined that (a) for any reason adequate and reasonable means do not exist for ascertaining the Offshore Rate for any requested Interest Period with respect to a proposed Offshore Rate Loan, or (b) the Offshore Rate applicable for any requested Interest Period with respect to a proposed Offshore Rate Loan does not adequately and fairly reflect the cost to the Bank of funding such Loan, or (c) deposits in the currency, the principal amount and for periods equal to the applicable Interest Periods are not available in the offshore currency interbank markets, the Bank will give notice of such determination to the Company. Thereafter, the obligation of the Bank to make or maintain Offshore Rate Loans hereunder shall be suspended until the Bank revokes such notice in writing. Upon receipt of such notice, the Company or applicable Subsidiary may revoke any Notice of Borrowing then submitted by it. If the Company or other Borrower does not revoke such notice, the Bank shall make the Loans, as proposed by the Company or such Borrower, in the amount specified in the applicable notice submitted by the Company or such Borrower, but such Loans shall be made as Base Rate Loans instead of Offshore Rate Loans.

SECTION 3.06                           Certificates of Bank.  In connection with any claim for reimbursement or compensation pursuant to this Article III, the Bank will deliver to the Company a certificate setting forth in reasonable detail the amount owing to the Bank hereunder and such certificate

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shall be conclusive and binding on the Company and each Borrower in the absence of manifest error.

SECTION 3.07                           Survival.  The agreements and obligations of the Company in this Article III shall survive the payment of all other Obligations.

ARTICLE IV.

CONDITIONS PRECEDENT

SECTION 4.01                           Conditions to Initial Credits.  The obligation of the Bank to extend the initial Credit hereunder is subject to the condition that the Bank shall have received on or before the Closing Date all of the following, in form and substance satisfactory to the Bank and its counsel:

(a)           Credit Agreement.  This Agreement executed by the Company;

(b)           Resolutions; Incumbency.

(i)           Copies of the resolutions of the board of directors of the Company approving and authorizing the execution, delivery and performance by the Company of this Agreement, the other Credit Documents to be delivered hereunder and authorizing the incurring of Indebtedness under the Credits, certified as of the Closing Date by the Secretary or an Assistant Secretary of the Company; and

(ii)           A certificate of the Secretary or Assistant Secretary of the Company certifying the names and true signatures of the officers of the Company authorized to execute and deliver, as applicable, this Agreement and all other Credit Documents to be delivered hereunder;

(c)           Articles of Incorporation; Bylaws and Good Standing.  Each of the following documents:

(i)           the articles or certificate of incorporation of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date and the bylaws of the Company as in effect on the Closing Date, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date; and

(ii)           a good standing certificate for the Company from the Secretary of State of its state of incorporation as of a recent date;

(d)           Legal Opinion.  Opinion of the Company’s General Counsel, addressed to the Bank;

(e)           Payment of Fees.  The Company shall have paid all costs, accrued and unpaid fees and expenses (including Attorney Costs) referred to herein to the extent then due and payable on the Closing Date.

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(f)           Certificate.  A certificate signed by the chief financial officer of the Company, dated as of the Closing Date, stating that:

(i)           the representations and warranties contained in Article V are true and correct on and as of such date, as though made on and as of such date;

(ii)           no Default or Event of Default exists or would result from the extension of the initial Credit; and

(iii)           there has occurred since May 28, 2000 no Material Adverse Effect;

(g)           Termination of Prior Commitment.  Evidence satisfactory to the Bank (i) of the termination by the Company of the commitment of the Bank under the Prior Agreement, and (ii) of the repayment in full of all principal, interest, fees, expenses and other amounts due or outstanding under the Prior Agreement other than the Prior Loans, Prior Letters of Credit, Prior Acceptances and Prior Other Obligations, which are deemed issued hereunder as provided in subsections 2.02(f), 2.03(d), 2.04(g) and 2.05(b), respectively; and

(h)           Other Documents.  Such other approvals, opinions or documents as the Bank may reasonably request.

SECTION 4.02                           Conditions to All Credits.  In addition to satisfaction of the other conditions set forth elsewhere herein, the obligation of the Bank to extend any Credit hereunder (including the amendment of any Letter of Credit and including the initial Credit) is subject to the satisfaction of each of the following conditions precedent as of the date of such Credit extension:

(a)           Documentation.  The Bank shall have received, (i) with respect to any proposed Loan other than a Local Currency Loan, a Notice of Borrowing; (ii) with respect to any proposed Acceptance, an Acceptance Agreement and such other documentation as is described in Section 2.04; (iii) with respect to any proposed Letter of Credit, a Letter of Credit Agreement and such other documentation as may be referenced therein; (iv) with respect to any Other Credit or any Local Currency Loan, such documentation as the Bank shall request; and (v) with respect to any Credit for the benefit of any Subsidiary, such additional documentation as the Bank may require, including an appropriate supplement to the Guaranty; in each case in form and substance satisfactory to the Bank and duly executed by the Company or the applicable Borrower, as the case may be;

(b)           Continuation of Representations and Warranties.  The representations and warranties made by the Company contained in Article V shall be true and correct on and as of such borrowing or Credit extension date with the same effect as if made on and as of such date;

(c)           No Existing Default.  No Default or Event of Default shall exist or shall result from such Borrowing or other extension of Credit; and

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(d)           Payment of Fees.  Any and all fees, charges, expenses and other amounts payable by the Company or any Borrower in connection with the extension of such Credit shall have been paid to the Bank.

Each Borrowing by, and receipt of any other extension of Credit hereunder by, the Company or any Subsidiary of the Company shall constitute a representation and warranty by the Company hereunder as of the date of each such Borrowing or extension of Credit that the conditions in this Section 4.02 have been and remain satisfied.

ARTICLE V.

REPRESENTATIONS AND WARRANTIES

SECTION 5.01                           Representations and Warranties.  The Company represents and warrants to the Bank that:

(a)           Organization and Powers.  Each of the Company and its Subsidiaries is a corporation or partnership duly organized or formed, as the case may be, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, is qualified to do business and is in good standing in each jurisdiction in which the failure so to qualify or be in good standing would result in a Material Adverse Effect and has all requisite power and authority and all material governmental licenses, authorizations, consents and approvals to own its assets and carry on its business and to execute, deliver and perform its obligations under the Credit Documents.

(b)           Authorization; No Conflict.  The execution, delivery and performance by the Company of the Credit Documents to which it is a party have been duly authorized by all necessary corporate action of the Company and do not (i) contravene the terms of the certificate or articles, as the case may be, of incorporation and the bylaws (or other organizational documents) of the Company or result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Company is a party or by which it or its properties may be bound or affected; (ii) violate any provision of any law, rule, regulation, order, writ, judgment, injunction, decree or the like binding on or affecting the Company; or (iii) except as contemplated by this Agreement, result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties of the Company or its Subsidiaries.

(c)           Binding Obligation.  The Credit Documents constitute, or when delivered under this Agreement will constitute, legal, valid and binding obligations of the Company (to the extent it is a party thereto), enforceable against the Company in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally or equitable principles relating to enforceability.

(d)           Consents.  No authorization, consent, approval, license, exemption of, or filing or registration with, any Governmental Authority, or approval or consent of any other

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Person, is required for the due execution, delivery or performance by the Company, or enforcement against the Company, of any of the Credit Documents to which it is a party.

(e)           No Defaults.  Neither the Company nor any of its Subsidiaries is in default under any law, regulation, license, contract, lease, agreement, judgment, decree or order to which it is a party or by which it or its material properties may be bound, which default could reasonably be expected to have a Material Adverse Effect or result in an Event of Default if such default had occurred after the Closing Date. No Default or Event of Default exists or would result from the incurring of the Obligations by the Company.

(f)           Title to Properties; Liens.  The Company and its Subsidiaries have good and marketable title to, or valid and subsisting leasehold interests in, those properties and assets which are material to the conduct of their business, except for minor defects in title that do not interfere with their ability to conduct their business as currently conducted or to utilize such properties and assets for their intended purposes and there is no Lien upon or with respect to any of such properties or assets, except for Permitted Liens.

(g)           Litigation.  Except as set forth in the Company’s Form 10-K for the fiscal year ended May 28, 2000 filed with the Securities and Exchange Commission, there are no actions, suits or proceedings pending or, to the best of the Company’s knowledge, threatened against or affecting the Company or any of its Subsidiaries or the properties of the Company or any of its Subsidiaries before any Governmental Authority, court or arbitrator which if determined adversely to the Company or any such Subsidiary would result in a Material Adverse Effect.

(h)           Compliance with Environmental Laws.  The Company conducts in the ordinary course of business a review of the effect of existing Environmental Laws and existing Environmental Claims on its business, operations and properties, and as a result thereof the Company has reasonably concluded that such Environmental Laws and Environmental Claims could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(i)           Governmental Regulation.  Neither the Company nor any of its Subsidiaries is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940, the Interstate Commerce Act, any state public utilities code or any other federal or state statute or regulation limiting its ability to incur Indebtedness.

(j)           Use of Proceeds; Margin Regulations.  The proceeds of the Loans are to be used solely for the purposes set forth in and permitted by Section 6,03(j). Neither the Company nor any Subsidiary is generally engaged in the business of purchasing or selling Margin Stock or extending credit for the purpose of purchasing or carrying Margin Stock.

(k)           Taxes.  Each of the Company and its Subsidiaries has duly filed all tax and information returns required to be filed, and has paid all taxes, fees, assessments and other

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governmental charges or levies that have become due and payable, except to the extent such taxes or other charges are being contested in good faith and are adequately reserved against in accordance with GAAP.

(l)           Patents and Other Rights.  Each of the Company and its Subsidiaries possesses all material permits, franchises, licenses, patents, trademarks, trade names, service marks, copyrights and all rights with respect thereto, free from burdensome restrictions, that are reasonably necessary for the ownership, maintenance and operation of its business, without any known conflict with the rights of any other Person that individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.

(m)           Insurance.                      The properties of each of the Company and its Subsidiaries are either (i) insured, with financially sound and reputable insurance companies, in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in similar businesses and owning similar properties in the localities where the Company or such Subsidiary operates or (ii) self-insured to such extent and covering such risks as is usual for companies of similar size engaged in the same or similar businesses and owning similar properties.

(n)           Financial Statements.  The audited consolidated balance sheet of the Company and its Subsidiaries as at May 28, 2000, and the related consolidated statements of income, shareholders’ equity and cash flows for the fiscal year then ended, and the unaudited consolidated balance sheet of the Company and its Subsidiaries as at August 27, 2000, and the related consolidated statements of income, shareholders’ equity and cash flows, for the quarter then ended and the three month period then ended, are complete and correct and fairly present the financial condition of the Company and its Subsidiaries as at such dates and the results of operations of the Company and its Subsidiaries for the periods covered by such statements, in each case in accordance with GAAP consistently applied, subject, in the case of the financial statements other than year end financial statements, to normal year-end adjustments and the absence of notes. Since May 28, 2000, there has been no Material Adverse Effect.

(o)           Liabilities.  Neither the Company nor any of its Subsidiaries has any material liabilities, fixed or contingent, that are not reflected in the financial statements referred to in subsection (n), in the notes thereto or otherwise disclosed in writing to the Bank, other than liabilities arising in the ordinary course of business since May 28, 2000.

(p)           Solvency.  The Company is Solvent.

(q)           Disclosure.  None of the representations and warranties made by the Company or any of its Subsidiaries in the Credit Documents as of the date of such representations and warranties, contains any untrue statement of a material fact or omits any material fact required to be stated therein or necessary to make the statements made therein, in the light of the circumstances under which they are made, not misleading, as of the time made or delivered.

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ARTICLE VI.

COVENANTS

SECTION 6.01                           Reporting Covenants.  So long as any of the Obligations shall remain unpaid or the Bank shall have any Commitment, the Company agrees that:

(a)           Financial Statements and Other Reports.  The Company shall furnish to the Bank:

(i)           as soon as available and in any event within 60 days after the end of the first three fiscal quarters of each fiscal year or 120 days (in the case of the fourth fiscal quarter), a consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter, and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the corresponding period in the preceding fiscal year;

(ii)           as soon as available and in any event within 120 days after the end of each fiscal year, a consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year, and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by a report thereon of a firm of independent certified public accountants of recognized national standing reasonably acceptable to the Bank, which report shall not be qualified;

(iii)           together with the financial statements required pursuant to clauses (i) and (ii), a Compliance Certificate of a Responsible Officer of the Company as of the end of the applicable accounting period; and

(iv)           promptly after the giving, sending or filing thereof, copies of all reports, if any, which the Company or any of its Subsidiaries sends to the holders of its respective capital stock or other securities and of all reports and filings, if any, by the Company or any of its Subsidiaries with the SEC or any national securities exchange.

As to any information contained in materials furnished pursuant to clause (iv), the Company shall not be separately required to furnish such information under clause (i) or (ii), but the foregoing shall not be in derogation of the obligation of the Company to furnish the information and materials described in clauses (i) and (ii) at the times specified therein.

(b)           Additional Information.  The Company will furnish to the Bank:

(i)           promptly after the Company has knowledge or becomes aware thereof, notice of the occurrence of any Default;

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(ii)           prompt written notice of any condition or event which has resulted, or that the Company reasonably believes could result, in a Material Adverse Effect; and

(iii)           such other information respecting the operations, properties, business or condition (financial or otherwise) of the Company or its Subsidiaries as the Bank may from time to time reasonably request.

Each notice pursuant to subsection (b)(i) or (ii) shall be accompanied by a written statement by a Responsible Officer of the Company setting forth details of the occurrence referred to therein, and stating what action the Company proposes to take with respect thereto.

SECTION 6.02                           Financial Covenants.  So long as any of the Obligations shall remain unpaid or the Bank shall have any Commitment, the Company agrees that:

(a)           Consolidated Tangible Net Worth.  The Company shall not permit Consolidated Tangible Net Worth on the last day of any fiscal quarter from and after October 30, 2000 (such quarterly date to be referred to herein as a “determination date”) to be less than an amount equal to 90% of Consolidated Tangible Net Worth as of August 27, 2000, plus (A) an amount equal to 50% of the sum of positive Consolidated Net Income (ignoring any quarterly losses) for each fiscal quarter after August 27, 2000, through and including the quarter ending on the determination date, plus (B) an amount equal to 50% of the Net Proceeds of all Equity Securities issued by the Company during the period commencing on August 28, 2000 and ending on the determination date, minus (C) an amount equal to the amount paid, not to exceed $400,000,000 in the aggregate, in respect of repurchases of common stock of the Company from and after August 27, 2000.

(b)           Quick Ratio.  The Company shall maintain as of the end of each fiscal quarter from and after October 30, 2000, a ratio of Consolidated Quick Assets to Consolidated Current Liabilities of not less than 1.0 to 1.0.

SECTION 6.03                           Additional Affirmative Covenants.  So long as any of the Obligations shall remain unpaid or the Bank shall have any Commitment, the Company agrees that:

(a)           Preservation of Existence, Etc.  The Company shall, and shall cause each of its Subsidiaries to, maintain and preserve its legal existence, its rights to transact business and all other rights, franchises and privileges necessary or desirable in the normal course of its business and operations and the ownership of its properties, except in connection with any transactions permitted by Section 6.04(c).

(b)           Payment of Obligations.  The Company shall, and shall cause each of its Subsidiaries to, pay and discharge (i) all material taxes, fees, assessments and governmental charges or levies imposed upon it or upon its properties or assets prior to the date on which penalties attach thereto, and all lawful claims for labor, materials and supplies which, if unpaid, might become a Lien upon any properties or assets of the Company or any Subsidiary, except to the extent such taxes, fees, assessments or governmental charges or levies, or such claims, are being contested in good faith by appropriate proceedings and are adequately reserved against in

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accordance with GAAP; and (ii) all lawful claims which, if unpaid, would by law become a Lien upon its property not constituting a Permitted Lien.

(c)           Maintenance of Insurance.  The Company shall, and shall cause each of its Subsidiaries to, carry and maintain in full force and effect, at its own expense and with financially sound and reputable insurance companies, insurance in such amounts, with such deductibles and covering such risks as is customarily carried by companies engaged in the same or similar businesses and owning similar properties in the localities where the Company or such Subsidiary operates, including fire, extended coverage, business interruption, public liability, property damage and worker’s compensation. Notwithstanding the foregoing, the Company and its Subsidiaries may maintain a plan or plans of self-insurance to such extent and covering such risks as is usual for companies of similar size engaged in the same or similar businesses and owning similar properties.

(d)           Keeping of Records and Books of Account.  The Company shall, and shall cause each of its Subsidiaries to, keep proper records and books of account, in which complete entries shall be made in accordance with GAAP, reflecting all financial transactions of the Company and its Subsidiaries.

(e)           Inspection Rights.  The Company shall at any reasonable time and from time to time permit the Bank or any of its agents or representatives to visit and inspect any of the properties of the Company and its Subsidiaries and to examine and make copies of and abstracts from the records and books of account of the Company and its Subsidiaries, and to discuss the business affairs, finances and accounts of the Company and any such Subsidiary with any of the officers, employees or accountants of the Borrower or such Subsidiary.

(f)           Compliance with Laws, Etc.  The Company shall, and shall cause each of its Subsidiaries to, comply in all respects with the requirements of all applicable laws, rules, regulations and orders of any Governmental Authority (including all Environmental Laws) and the terms of any indenture, contract or other instrument to which it may be a party or under which it or its properties may be bound, except to the extent that such non-compliance could not reasonably be expected to result in a Material Adverse Effect.

(g)           Maintenance of Properties, Etc.  The Company shall, and shall cause each of its Subsidiaries to, maintain and preserve all of its properties necessary or useful in the proper conduct of its business in good working order and condition in accordance with the general practice of other corporations of similar character and size, ordinary wear and tear excepted, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

(h)           Licenses.  The Company shall, and shall cause each of its Subsidiaries to, obtain and maintain all licenses, authorizations, consents, filings, exemptions, registrations and other governmental approvals necessary or useful in connection with the execution, delivery and performance of the Credit Documents, the consummation of the transactions therein contemplated or the operation and conduct of its business and ownership of its properties, except

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where the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

(i)           Action Under Environmental Laws.  The Company shall, and shall cause each of its Subsidiaries to, upon becoming aware of the presence of any Hazardous Substance or the existence of any environmental liability under applicable Environmental Laws with respect to the Premises, take all actions, at their cost and expense, as shall be necessary or advisable to investigate and clean up the condition of the Premises, including all removal, containment and remedial actions, and restore the Premises to a condition in compliance with applicable Environmental Laws except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect.

(j)           Use of Proceeds.  The Company shall use the proceeds of the Loans (and Letters of Credit) solely for general working capital purposes and shall not use the proceeds to purchase or extend credit for the purchase of Margin Stock or for the purpose of financing any Hostile Acquisition.

(k)           Further Assurances and Additional Acts.  The Company shall execute, acknowledge, deliver, file, notarize and register at its own expense all such further agreements, instruments, certificates, documents and assurances and perform such acts as the Bank shall reasonably deem necessary or appropriate to effectuate the purposes of the Credit Documents, and promptly provide the Bank with evidence of the foregoing satisfactory in form and substance to the Bank.

(l)           Compliance with ERISA.  The Company shall, and shall cause each of its ERISA Affiliates to: (i) maintain each Plan in compliance in all material respects with the applicable provisions of ERISA, the Code and other federal or state law; (ii) cause each Plan which is qualified under Section 401(a) of the Code to maintain such qualification; and (iii) make all required contributions to any Plan subject to Section 412 of the Code.

(m)           Guaranty.  Prior to or contemporaneously with the delivery to the Bank of any request that a Credit be made available to any Subsidiary of the Company, the Company shall have executed and delivered to the Agent the Guaranty with respect to such Subsidiary, and shall have executed and delivered such amendments or supplements thereto and such other agreements, documents and certifications as the Bank may request, to establish and confirm (a) that such Subsidiary is a Guaranteed Subsidiary and (b) the unconditional Guarantee by the Company with respect to Obligations of such Guaranteed Subsidiary.

SECTION 6.04                           Negative Covenants.  So long as any of the Obligations shall remain unpaid or the Bank shall have any Commitment, the Company agrees that:

(a)           Liens; Negative Pledges.  The Company shall not, and shall not permit any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with respect to any of its properties, revenues or assets, whether now owned or hereafter acquired, other than Permitted Liens.

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(b)           Change in Nature of Business.  The Company shall not, and shall not permit any of its Subsidiaries to, engage in any material line of business substantially different from a Core Business or a related, associated or integrated activity with a Core Business.

(c)           Restrictions on Fundamental Changes.  The Company will not, and will not permit any of its Subsidiaries to, merge with or consolidate into, or acquire all or substantially all of the assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets, except that:

(i)           any of the Company’s Subsidiaries may (A) merge with, consolidate into or transfer all or substantially all of its assets to another of the Company’s Wholly-Owned Subsidiaries and in connection therewith such Subsidiary may be liquidated or dissolved, or (B) merge with, consolidate into or transfer all or substantially all of its assets to the Company and in connection therewith such Subsidiary may be liquidated or dissolved; and

(ii)           the Company may merge with, acquire or consolidate into any other Person, provided that (A) the Company is the surviving corporation, (B) that the surviving entity will comply with the covenants in Section 6.02 on a pro forma basis (as if the entity acquired had been acquired as of the date on which such covenants are calculated), and (C) no such merger, acquisition or consolidation shall be made while there exists a Default or Event of Default or if a Default or Event of Default would occur as a result thereof.

(d)           Transactions with Related Parties.  The Company shall not, and shall not permit any of its Subsidiaries to, enter into any transaction, including the purchase, sale or exchange of property or the rendering of any services, with any Affiliate, any officer or director thereof or any Person which beneficially owns or holds 5% or more of the equity securities, or 5% or more of the equity interest, thereof (a “Related Party”), or enter into, assume or suffer to exist, or permit any Subsidiary to enter into, assume or suffer to exist, any employment or consulting contract with any Related Party, in each case, that results in, or could reasonably be expected to result in, a Material Adverse Effect or except as contemplated by this Agreement or in the ordinary course of business and pursuant to the reasonable requirements of the business of the Company or such Subsidiary and upon fair and reasonable terms no less favorable to the Company or such Subsidiary than would obtain in a comparable arm’s-length transaction with a Person who is not a Related Party.

(e)           Hazardous Substances.  The Company shall not, and shall not permit any of its Subsidiaries to, use, generate, manufacture, install, treat, release, store or dispose of any Hazardous Substances, except in material compliance with all applicable Environmental Laws.

(f)           Accounting Changes.  The Company shall not, and shall not suffer or permit any of its Subsidiaries to, make any significant change in accounting treatment or reporting practices, except as required or permitted by GAAP.

(g)           Disposition of Assets.  The Company shall not, and shall not suffer or permit any Subsidiary to, directly or indirectly, sell, assign, lease, convey, transfer or otherwise

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dispose of (whether in one or a series of transactions) any property (including accounts and notes receivable, with or without recourse) or enter into any agreement to do any of the foregoing, except:

(i)           dispositions of inventory, or used, worn-out or surplus equipment, all in the ordinary course of business;

(ii)           the sale of equipment to the extent that such equipment is exchanged for credit against the purchase price of similar replacement equipment, or the proceeds of such sale are reasonably promptly applied to the purchase price of such replacement equipment;

(iii)           dispositions by the Company or any Subsidiary to the Company or any Wholly-Owned Subsidiary of the Company pursuant to reasonable business requirements and in the ordinary course of business;

(iv)           the sale of cash equivalents and other short term money market investments in the ordinary course of business pursuant to the Company’s usual and customary cash management policies and procedures;

(v)           the sale of equity investments in Persons not Subsidiaries of the Company which sales are made for fair market value; and

(vi)           dispositions not otherwise permitted hereunder which are made for fair market value; provided that (i) at the time of any disposition, no Event of Default shall exist or shall result from such disposition, (ii) the aggregate sales price from such disposition shall be paid in cash, and (iii) the aggregate book value of all such assets or property so sold by the Company and its Subsidiaries shall at no time exceed an amount equal to 25% of the Company’s Total Assets (determined as of the date of any such disposition).

(h)           ERISA.  The Company shall not, and shall not suffer or permit any of its ERISA Affiliates to: (a) engage in a prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan which has resulted or could reasonably be expected to result in liability of the Company in an aggregate amount in excess of $50,000,000; or (b) engage in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

ARTICLE VII.

EVENTS OF DEFAULT

SECTION 7.01                           Events of Default.  Any of the following events which shall occur shall constitute an “Event of Default”:

(a)           Payments.  The Company shall fail to pay (i) when due any amount of principal of, or interest on, any Loan, or (ii) within five Business Days any fee or other amount payable under any Credit Document.

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(b)           Representations and Warranties.  Any representation or warranty by the Company under or in connection with the Credit Documents shall prove to have been incorrect in any material respect when made or deemed made.

(c)           Failure by the Company to Perform Certain Covenants.  The Company shall fail to perform or observe any term, covenant or agreement contained in Section 6.01(b)(i), 6.0l(b)(ii), 6.02, subsections (a) or (j) of Section 6.03 or Section 6.04.

(d)           Failure by the Company to Perform Other Covenants.  The Company shall fail to perform or observe any other term, covenant or agreement contained in this Agreement or any other Credit Document on its part to be performed or observed and any such failure shall remain unremedied for a period of 30 days from the occurrence thereof.

(e)           Insolvency; Voluntary Proceedings.  The Company or any Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any, whether at stated maturity or otherwise; (ii) voluntarily ceases to conduct its business in the ordinary course; (iii) commences any Insolvency Proceeding with respect to itself; or (iv) takes any action to effectuate or authorize any of the foregoing.

(f)           Involuntary Proceedings.  (i) Any involuntary Insolvency Proceeding is commenced or filed against the Company or any Subsidiary, or any writ, judgment, warrant of attachment, execution or similar process, is issued or levied against a substantial part of the Company’s or any Subsidiary’s properties, and any such proceeding or petition shall not be dismissed, or such writ, judgment, warrant of attachment, execution or similar process shall not be released, vacated or fully bonded within 60 days after commencement, filing or levy; (ii) the Company or any Subsidiary admits the material allegations of a petition against it in any Insolvency Proceeding, or an order for relief (or similar order under non-U.S. 1aw) is ordered in any Insolvency Proceeding; or (iii) the Company or any Subsidiary acquiesces in the appointment of a receiver, trustee, custodian, conservator, liquidator, mortgagee in possession (or agent therefor), or other similar Person for itself or a substantial portion of its property or business.

(g)           Default Under Other Indebtedness.  (i) The Company or any of its Subsidiaries shall fail (A) to make any payment of any principal of, or interest or premium on, any Indebtedness (other than in respect of the Loans or any Rate Contract) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than $25,000,000 (or its equivalent in another currency) when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Indebtedness as of the date of such failure; or (B) to perform or observe any term, covenant or condition on its part to be performed or observed under any agreement or instrument relating to any such Indebtedness, when required to be performed or observed, and such failure shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such failure to perform or observe is to accelerate, or to permit the acceleration of,

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the maturity of such Indebtedness; or (ii) any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof; or (iii) any facility or commitment available to the Company or any Subsidiary relating to Indebtedness in an aggregate amount at any one time of not less than $25,000,000 (or its equivalent in any other currency) is withdrawn, suspended or cancelled by reason of any default (however described) of the Company or such Subsidiary; or (iv) there occurs under any Rate Contract an Early Termination Date (as defined in the master agreement governing such Rate Contract) resulting from (A) any event of default under such Rate Contract as to which the Company or any Subsidiary is the Defaulting Party (as defined in the master agreement governing such Rate Contract) or (B) any Termination Event (as so defined) as to which the Company or any Subsidiary is an Affected Party (as so defined), and, in either event, the Swap Termination Value owed by the Company or such Subsidiary as a result thereof is greater than $25,000,000 (or its equivalent in another currency).

(h)           Judgments.  (i) A final judgment or order for the payment of money in excess of $25,000,000 (or its equivalent in another currency) which is not fully covered by third-party insurance shall be rendered against the Company or any of its Subsidiaries; or (ii) any non-monetary judgment or order shall be rendered against the Company, or any such Subsidiary which has or would reasonably be expected to have a Material Adverse Effect; and in each case there shall be any period of 10 consecutive days during which such judgment continues unsatisfied or during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.

(i)           ERISA.  (i) An ERISA Event shall occur with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of the Company under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of $50,000,000; (ii) the aggregate amount of Unfunded Pension Liability among all Pension Plans at any time exceeds $50,000,000; or (iii) the Company or any ERISA Affiliate shall fail to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of $50,000,000.

(j)           Dissolution, Etc.  The Company or any of its Subsidiaries shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or dissolution), except to the extent expressly permitted by Section 6.04, (ii) suspend its operations other than in the ordinary course of business, or (iii) take any corporate action to authorize any of the actions or events set forth above in this subsection (j).

(k)           Material Adverse Effect.  A Material Adverse Effect shall occur.

(l)           Change of Control.  There occurs any Change of Control.

SECTION 7.02                           Effect of Event of Default.  If any Event of Default shall occur and be continuing, the Bank may (i) by notice to the Company, (A) declare the Commitment and any obligation of the Bank to make Loans or issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and (B) declare the entire unpaid principal amount of the Loans,

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all interest accrued and unpaid thereon and all other Obligations to be forthwith due and payable, and declare an amount equal to the maximum aggregate amount that is or at any time thereafter may become available for drawing under any outstanding Letters of Credit (whether or not any beneficiary shall have presented, or shall be entitled at such time to present, the drafts or other documents required to draw under such Letters of Credit) to be immediately due and payable, whereupon such amount with respect to the Loans, the Letters of Credit, all such accrued interest and all such other Obligations shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower, provided that if an event described in Sections 7.01(e) or 7.01(f) shall occur, the result which would otherwise occur only upon giving of notice by the Bank to the Company as specified in this clause (i) shall occur automatically, without the giving of any such notice; and (ii) whether or not the actions referred to in clause (i) have been taken, proceed to enforce all other rights and remedies available to the Bank under the Credit Documents and applicable law.

ARTICLE VIII.

MISCELLANEOUS

SECTION 8.01                           Obligations of the Bank.  The Bank shall not be obligated to issue any further credits, or in any other manner to extend any other financial accommodation to the Company or any of its Subsidiaries, other than as set forth in a writing signed by the Bank.

SECTION 8.02                           Joint and Several Obligations.  All liabilities and obligations of any Subsidiary of the Company to the Bank hereunder or under any other Credit Document shall be the joint and several liability and obligation of the Company and such Subsidiary.

SECTION 8.03                           Amendments and Waivers.  No amendment or waiver of any provision of this Agreement or any other Credit Document and no consent with respect to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank and the Company, and such waiver shall be effective only in the specific instance and for the specific purpose for which given. .

SECTION 8.04                           Notices.

(a)           All notices, requests, consents, approvals, waivers and other communications shall be in writing (including, unless the context expressly otherwise provided, by facsimiles transmission, provided that any matter transmitted by the Company by facsimile (i) shall be immediately confirmed by a telephone call to the recipient at the number specified below with respect to such Person, and (ii) shall be followed promptly by delivery of a hard copy original thereof) and mailed, telecopied or delivered to the Company and the Bank as follows:

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If to the Company:

National Semiconductor Corporation (or any of its Subsidiaries)

1120 Kifer Road

MS 10-330 (Treasury)

Sunnyvale, CA 94086-3737

Attn: Treasurer

Facsimile: (408) 736-1857

With a copy to:

National Semiconductor Corporation

1090 Kifer Road

MS 16-135

Sunnyvale, CA 94086-3737

Attn: General Counsel

Facsimile: (408) 733-0293

If to the Bank:

Bank of America, N.A.

CPG - High Technology 3697

Mail Code: CA5-705-12-08

555 California Street, 12th Floor

San Francisco, CA 94104

Attention: Kevin McMahon, Managing Director

Facsimile: (415) 622-4057

or, as to each party at such other address as shall be designated by such party in a written notice to the other parties.

(b)           All such notices, requests and communications shall, when transmitted by overnight delivery, or faxed, be effective when delivered for overnight (next-day) delivery, or transmitted in legible form by facsimile machine, respectively, or if mailed, upon the third Business Day after the date deposited into the U.S. mail, or if delivered, upon delivery; except that notices to the Bank shall not be effective until actually received by the Bank.

(c)           Any agreement of the Bank herein to receive certain notices by telephone or facsimile is solely for the convenience and at the request of the Company. The Bank shall be entitled to rely on the authority of any Person purporting to be a Person authorized by the Company to give such notice and the Bank shall not have any liability to the Company or other Person on account of any action taken or not taken by the Bank in reliance upon such telephonic or facsimile notice. The obligation of the Company to repay any of the Credits shall not be affected in any way or to any extent by any failure by the bank to receive written confirmation of any telephonic or facsimile notice or the receipt by the Bank of a confirmation which is at

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variance with the terms understood by the Bank to be contained in the telephonic or facsimile notice.

SECTION 8.05                           No Waiver; Cumulative Remedies.

(a)           No failure or delay by the Bank in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Bank hereunder are cumulative and are not exclusive of any rights or remedies that it would otherwise have. No waiver of any provision of this Agreement or consent to any departure by the Company therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit or making available any other Credit shall not be construed as a waiver of any Default, regardless of whether the Bank may have had notice or knowledge of such Default at the time.

(b)           Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Bank.

SECTION 8.06                           Expenses.  The Company agrees:

(a)           to pay or reimburse the Bank on demand for all its costs and expenses incurred in connection with the development, preparation, delivery, administration and execution of, and any amendment, supplement or modification to, this Agreement, any other Credit Documents and any other documents prepared in connection herewith or therewith, and the consummation of the transactions contemplated hereby or thereby, including Attorney Costs with respect there to;

(b)           to pay or reimburse the Bank for all its costs and expenses incurred in connection with the enforcement or preservation of any rights under this Agreement and any other Credit Document, and any such other documents, including Attorney Costs; and

(c)           to pay or reimburse the Bank on demand for all appraisal, audit, search and filing fees, incurred or sustained by the Bank in connection with the matters referred to under paragraphs (a) and (b) above.

The agreements in this Section shall survive payment of all other Obligations.

SECTION 8.07                           Indemnity.  The Company agrees:

(a)           to pay, indemnify, and hold the Bank harmless from, any and all recording and filing fees and any and all liabilities with respect to, or resulting from any delay in paying, stamp, excise and other taxes, if any, which may be payable or determined to be payable in

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connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, this Agreement and any other Credit Documents; and

(b)           to indemnify and hold harmless the Bank and its Affiliates and their respective officers, directors, agents and employees (each, an “Indemnified Person”) from and against any and all claims, damages, liabilities, costs and expenses (including reasonable Attorney Costs) which may be incurred by or asserted against such Indemnified Person in connection with or arising out of any investigation, litigation or proceeding related to this Agreement, any other Credit Documents, or the transactions contemplated hereby or thereby, and the preparation of documentation in connection therewith, whether or not the Bank is a party thereto; provided, however, that the Company shall not be required to indemnify any such Indemnified Person from or against any portion of such claims, damages, liabilities or expenses arising out of gross negligence or willful misconduct of such Indemnified Person. Each Indemnified Person will use its reasonable efforts to provide the Company with prompt notice of material information with respect to any claim under clause (a) or (b) above asserted against such Indemnified Person (so long as giving such notice or information does not otherwise violate any applicable Requirement of Law or cause the waiver of any evidentiary privilege); provided that any failure or delay in giving any such notice or information shall not give rise to any defense, right of setoff or counterclaim with respect to any indemnification obligation of the Company hereunder.

The agreements in this Section shall survive payment of all other Obligations.

SECTION 8.08                           Headings.  Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement.

SECTION 8.09                           Successors and Assigns.  This Agreement and the other Credit Documents shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and the Guaranteed Subsidiaries, except that neither the Company nor any of the Guaranteed Subsidiaries may assign or transfer any of its rights under this Agreement or any other Credit Document without the prior written consent of the Bank.

SECTION 8.10                           Assignments, Participations, Etc.

(a)           The Bank may at any time and from time to time, with the written consent of the Company at all times other than during the existence of an Event of Default, which consent shall not be unreasonably withheld, assign and delegate to one (1) or more Eligible Assignees and may, without the consent of the Company, assign to any of its 100% owned Affiliates (each an “Assignee”) all, or any part of all, of the Credits, the Commitment and the other rights and obligations of the Bank hereunder and under the other Credit Documents.

(b)           The Bank may at any time sell to one (1) or more banks or other Persons (a “Participant”) participating interests in any Credit, the Commitment or any other interest of the Bank in this Agreement or any other Credit Document, provided, however, that, unless

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otherwise consented to by the Company in writing (which consent shall not be required if an Event of Default shall then exist and shall not be unreasonably withheld), (i) the Bank’s obligations under this Agreement and the other Credit Documents shall remain unchanged, (ii) the Bank shall remain solely responsible for the performance of such obligations, and (iii) the Company and the Guaranteed Subsidiaries, as the case may be, shall continue to deal directly with the Bank in connection with the Bank’s rights and obligations under this Agreement and the other Credit Documents. In the case of any such participation, the Participant shall not have any rights under this Agreement, or any of the other documents in connection herewith, and all amounts payable by the Company or any Guaranteed Subsidiary hereunder shall be determined as if the Bank had not sold such participation, except that the Company and each Guaranteed Subsidiary agrees that if amounts outstanding under this Agreement are due and unpaid, or shall have been declared or shall have become due and payable upon the occurrence of an Event of Default, each Participant shall be deemed to have the right of set-off in respect of its participating interest in amounts owing under this Agreement to the same extent as if the amount of its participating interest were owing directly to it as a lender or other creditor under this Agreement or other Credit Document.

(c)           Notwithstanding any other provision in this agreement, the Bank may at any time create a security interest in, or pledge, all or any portion of its rights under and interest in this agreement in favor of any Federal Reserve Bank in accordance with Regulation A of the Federal Reserve Board or 31 U.S. Treasury Regulation CFR Section 203.14, and such Federal Reserve Bank may enforce such pledge or security interest in any manner permitted under applicable law.

SECTION 8.11                           Confidentiality.  The Bank agrees to take and to cause its Affiliates to take normal and reasonable precautions and exercise due care to maintain the confidentiality of all information identified as “confidential” or “secret” by the Company and provided to it by any of the Company or any of its Subsidiaries under this Agreement or any other Credit Document, and neither it nor any of its Affiliates shall use any such information other than in connection with or in enforcement of this Agreement and the other Credit Documents or in connection with any other business now or hereafter existing or contemplated with any of the Company or any of its Subsidiaries; except to the extent such information (i) was or becomes generally available to the public other than as a result of disclosure by the Bank, or (ii) was or becomes available on a nonconfidential basis from a source other than the Company, provided that such source is not bound by a confidentiality agreement with the Company known to the Bank; provided, however, that the Bank may disclose such information (A) at the request or pursuant to any requirement of any Governmental Authority to which the Bank is subject or in connection with an examination of the Bank by any such authority; (B) pursuant to subpoena or other court process; (C) when required to do so in accordance with the provisions of any applicable Requirement of Law; (D) to the extent reasonably required in connection with any litigation or proceeding to which the Bank or its Affiliates may be party; (E) to the extent reasonably required in connection with the exercise of any remedy hereunder or under any other Credit Document; (F) to the Bank’s independent auditors and other professional advisors; (G) to any Participant or Assignee, actual or potential, provided that such Person agrees in writing to keep such information confidential to the same extent required of the Bank hereunder; (H) as expressly permitted under the terms of

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any other document or agreement regarding confidentiality to which the Company or any of its Subsidiaries is party to or is deemed party with the Bank or such Affiliate; and (I) to its Affiliates. If reasonable to do so under the circumstances, prior to disclosing pursuant to clause (ii)(B) or clause (ii)(D) any information identified by the Company as “confidential” or “secret,” the Bank subject to such process, proceeding or litigation shall provide the Company with notice thereof (so long as such notice does not otherwise violate any applicable Requirement of Law).

SECTION 8.12                           Set-off.  Upon the occurrence and during the continuance of any Event of Default, the Bank shall have the right, without prior notice to the Company or any of its Subsidiaries, any such notice being expressly waived by the Company on behalf of itself and each Subsidiary to the fullest extent permitted by applicable law, to set-off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by the Bank to or for the credit or the account of the Company or any such Subsidiary against any and all obligations of the Company now or hereafter existing under this Agreement or any other Credit Document, irrespective of whether or not the Bank shall have made demand under this Agreement or any other Credit Document and although such obligations may be unmatured. The Bank agrees promptly to notify the Company after any such set-off and application made by the Bank, provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Bank under this Section 8.12 are in addition to the other rights and remedies (including other rights of set-off and security interests) which the Bank may have.

SECTION 8.13                           Counterparts.  This Agreement may be executed by one or more of the parties to this Agreement in any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument.

SECTION 8.14                           Severability.  The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

SECTION 8.15                           Judgment Currency.

(a)           If any claim arising under or related to this Agreement or the other Credit Documents or the Obligations or any part thereof is reduced to judgment denominated in a Judgment Currency other than the Obligation Currency, the judgment shall be for the greater of (i) the Equivalent Amount of the Judgment Currency of the amount of the claim denominated in the Obligation Currency including in the judgment, determined as of the date or dates the Indebtedness related to such claim was loaned to or incurred by the Company, or (ii) such Equivalent Amount determined as of the date of judgment. The Equivalent Amount of any Obligation Currency amount in any Judgment Currency shall be calculated at the spot rate for the purchase of the Obligation Currency with the Judgment Currency quoted by the Bank in San Francisco, California, at approximately 8:00 a.m. on the date for determination specified above. For purposes of this Section:

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(i)           “Judgment Currency” means the currency in which any judgment on any claim arising under or related to this agreement is denominated.

(ii)           “Obligation Currency” means the currency in which the claim is denominated.

(b)           The Company shall indemnify the Bank against and hold the Bank harmless from all loss and damage resulting from any change in exchange rates between the date any claim is reduced to judgment and the date of payment (or, in the case of partial payments, the date of each partial payment) thereof by the Company. This indemnity shall constitute an obligation separate and independent from the other obligations contained in this agreement, shall give rise to a separate and independent cause of action, and shall continue in full force and effect notwithstanding any judgment or order of a liquidated sum in respect of an amount due hereunder or under any judgment or order.

SECTION 8.16                           Governing Law and Jurisdiction.

(a)           THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA. THE LETTERS OF CREDIT SHALL (SUBJECT TO EXCEPTIONS NOTED IN SUCH LETTERS OF CREDIT) BE ISSUED UNDER AND GOVERNED BY THE UNIFORM CUSTOMS AND PRACTICE FOR DOCUMENTARY CREDITS AS MOST RECENTLY PUBLISHED BY THE INTERNATIONAL CHAMBER OF COMMERCE.

(b)           ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES OF AMERICA FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY AND THE BANK HEREBY CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE JURISDICTION OF THE AFORESAID COURTS. EACH OF THE COMPANY AND THE BANK HEREBY IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH .JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY AND THE BANK HEREBY WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.

(c)           EACH PARTY TO THIS AGREEMENT IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 8.04.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.

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SECTION 8.17                                WAIVER OF JURY TRIAL.  THE COMPANY, ON BEHALF OF ITSELF AND EACH GUARANTEED SUBSIDIARY, AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR BANK AFFILIATE, PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, EACH GUARANTEED SUBSIDIARY AND THE BANK EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION. AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER CREDIT DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS.

SECTION 8.18                           Entire Agreement.  This Agreement, together with the other Credit Documents, embodies the entire agreement and understanding between the Company and the Bank and supersedes all prior or contemporaneous agreements and understandings of such persons, verbal or written, relating to the subject matter hereof and thereof.

SECTION 8.19                           Inconsistency.  In the event that any term or provision of this Agreement may conflict with any term or provision of any other Credit Document, unless otherwise expressly provided in such other Credit Document, the term or provision of this Agreement shall prevail.

SECTION 8.20                           No Third Parties Benefited.  This Agreement is made and entered into for the sole protection and legal benefit of the Company, the Guaranteed Subsidiaries, the Bank and the Indemnified Persons, and their permitted successors and assigns, and no other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Credit Documents.

SECTION 8.21                           Effect on Prior Agreement.  This Agreement is intended to amend, restate and replace, without novation, the Prior Agreement. As of the Closing Date, all obligations outstanding under the Prior Agreement, including all Prior Loans, Prior Letters of Credit, Prior Acceptances and Prior Other Obligations, shall be deemed Obligations owing hereunder.

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.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered in San Francisco, California by their proper and duly authorized officers as of the day and year first above written.

THE BORROWER

NATIONAL SEMICONDUCTOR

CORPORATION

By: /s/ David S. Dahmen_______________

Name: David S. Dahmen

Title: Vice President and Treasurer

By: /s/ Lieh K. Oung                                                                

Name: Lieh K. Oung

Title: Asst. Treasurer

THE BANK

BANK OF AMERICA, N.A.

By: /s/ Kevin McMahon­_______________

Name:  Kevin McMahon

Title:  Managing Director

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EXHIBIT A

to the Credit Agreement

FORM OF GUARANTY

[see attached form of Guaranty]

A-1

SF:145015.1

BORROWERS: See Exhibit A of this Guaranty

GUARANTOR: National Semiconductor Corporation

CONTINUING GUARANTY (MULTICURRENCY)

To:    BANK OF AMERICA, N.A.

1.           Definitions

“Bank” means Bank of America, N.A.

“Borrowers” means the entities identified as such in Exhibit A of this Guaranty (individually, each a “Borrower”).

“Credit Agreement” means that certain Credit Agreement dated as of October 30, 2000, by and among Guarantor and Bank, as the same may from time to time be amended, restated, supplemented or otherwise modified in accordance with its terms.

“Guaranteed Indebtedness” means the indebtedness, liabilities and other obligations of the Borrowers to the Bank under or in connection with the Credit Agreement and the other Credit Documents, including all unpaid principal of the Loans, all interest accrued thereon, all fees due under the Credit Agreement and all other amounts payable by any Borrower to the Bank thereunder or in connection therewith. The terms “indebtedness,” “liabilities” and “obligations” are used herein in their most comprehensive sense and include any and all advances, debts, obligations and liabilities, now existing or hereafter arising, whether voluntary or involuntary and whether due or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether recovery upon such indebtedness, liabilities and obligations may be or hereafter become unenforceable or shall be an allowed or disallowed claim under the Bankruptcy Code or other applicable law.

“Guarantor” means National Semiconductor Corporation.

“Obligation Currencies” means the currencies in which the Guaranteed Indebtedness of the Borrowers is denominated.

“Taxes” means all taxes, levies, imposts, duties, fees, or other charges of whatsoever nature however imposed by any country or any subdivision or authority of or in that country in connection with this Guaranty or the Guaranteed Indebtedness or payment thereof, and all interest, penalties or similar liabilities with respect thereto, except such taxes as are imposed on or measured by Bank’s assets or net income by the country or any subdivision or authority of or in that country in which such Bank’s principal office or actual lending office is located.

The “U.S. Dollar Equivalent” of any amount denominated in any currency other than U.S. Dollars shall be calculated at the spot rate for the purchase of the other currency with

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US. Dollars quoted by Bank in San Francisco, California, or Los Angeles, California, at approximately 8:00 a.m., on the date for determination specified in this Guaranty.

Unless otherwise defined herein, all capitalized terms used in this Guaranty shall have the meanings given to such terms in the Credit Agreement.

2.           For valuable consideration, Guarantor unconditionally guarantees and promises to pay to Bank or order, on demand, at the place for payment of the Guaranteed Indebtedness or at such other location as Bank may designate, any and all Guaranteed Indebtedness of all Borrowers to Bank, in the Obligation Currency.

3.           This is a continuing guaranty relating to any Guaranteed Indebtedness, including that arising under successive transactions which shall either continue the Guaranteed Indebtedness or from time to time renew it after it has been satisfied.

4.           All payments or reimbursements under this Guaranty shall be made without setoff or counterclaim and free and clear of and without deduction for any and all present and future Taxes. Guarantor agrees to cause all Taxes to be paid on behalf of Bank directly to the appropriate governmental authority. If Guarantor is legally prohibited from complying with this Paragraph, payments due to Bank under this Guaranty shall be increased so that, after provisions for Taxes and all Taxes on such increase, the amounts received by Bank will be equal to the amounts required under this Guaranty if no Taxes were due on such payments, and Bank shall pay such Taxes. Guarantor shall indemnify Bank for the full amount of Taxes payable by Bank and any liabilities (including penalties, interest and expenses) arising from such Taxes within thirty (30) days’ after any written demand by Bank. Guarantor shall upon request of Bank provide evidence that all applicable Taxes have been paid to the appropriate taxing authorities by delivering to Bank official tax receipts or notarized copies thereof within thirty (30) days after the due date for such Tax payment. The obligations of Guarantor contained in this Paragraph shall survive the payment in full of all the Guaranteed Indebtedness and Guarantor’s other obligations under this Guaranty.

5.           The obligations hereunder are independent of the obligations of Borrowers, and shall not be affected by any acts of any governmental authority affecting Borrowers, including but not limited to any restrictions on the conversion of currency or repatriation or control of funds or any total or partial expropriation of Borrowers’ property, or by economic, political, regulatory or other events in the countries where Borrowers are located.  A separate action or actions may be brought and prosecuted against Guarantor whether action is brought against Borrowers or whether Borrowers be joined in any such action or actions; and Guarantor waives the benefit of any statute of limitations applicable to Borrowers.

6.           Guarantor authorizes Bank, without notice or demand and without affecting its liability hereunder, from time to time, either before or after revocation hereof, to (a) renew, compromise, extend, accelerate or otherwise change the time for payment of, or otherwise change the terms of the Guaranteed Indebtedness, or any part thereof, including increase or decrease of the rate of interest thereon; (b) take and hold security for the payment of this Guaranty or any of the Guaranteed Indebtedness, and exchange, enforce, waive, release, fail

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to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Bank in its discretion may determine; and (d) release or substitute any one or more of the endorsers or guarantors. These provisions apply as between Bank and Guarantor, but shall not affect any agreements between Bank and any Borrower.

7.           Guarantor waives any right to require Bank to (a) proceed against Borrowers; (b) proceed against or exhaust any security held from Borrowers; or (c) pursue any other remedy in Bank’s power whatsoever. Guarantor waives any defense arising by reason of any disability or other defense of Borrowers or by reason of the cessation from any cause whatsoever of the liability of Borrowers (other than cessation by reason of repayment in full), other than any defense arising out of the gross negligence or willful misconduct of Bank. Until all Guaranteed Indebtedness of Borrowers to Bank shall have been paid in full, Guarantor shall have no right of subrogation, and waives any right to enforce any remedy which Bank now has or may hereafter have against Borrowers, and waives any benefit of and any right to participate in any security now or hereafter held by Bank. Bank may foreclose, either by judicial foreclosures or by exercise of power of sale, any deed of trust securing the Guaranteed Indebtedness, and, even though the foreclosure may destroy or diminish Guarantor’s rights against Borrowers, Guarantor shall be liable to Bank for any part of the Guaranteed Indebtedness remaining unpaid after the foreclosure. Guarantor waives all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and of the existence, creation, or incurring of new or additional indebtedness of the Borrowers to the Bank.

8.           Guarantor waives any rights and defenses that are or may become available to Guarantor by reason of Sections 2787 to 2855, inclusive, of the California Civil Code.

9.           No provision or waiver in this Guaranty shall be construed as limiting the generality of any other waiver contained in this Guaranty.

10.           Guarantor acknowledges and agrees that it shall have the sole responsibility for obtaining from Borrowers such information concerning Borrowers’ financial conditions or business operations as Guarantor may require, and that Bank has no duty at any time to disclose to Guarantor any information relating to the business operations or financial conditions of Borrowers.

11.           Any obligations of Borrowers to Guarantor, now or hereafter existing, including but not limited to any obligations to Guarantor as subrogee of Bank or resulting from Guarantor’s performance under this Guaranty, are hereby subordinated to the Guaranteed Indebtedness of Borrowers. Such obligations of Borrowers to Guarantor if Bank so requests shall be enforced and performance received by Guarantor as trustee for Bank and the proceeds thereof shall be paid over to Bank on account of the Guaranteed Indebtedness of Borrowers to Bank, but without reducing or affecting in any manner the liability of Guarantor under the other provisions of this Guaranty.

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12.           This Guaranty may be revoked at any time by Guarantor in respect to future transactions, unless there is a continuing consideration as to such transactions which Guarantor does not renounce. Such revocation shall be effective upon actual receipt by Bank, at the address shown below or at such other address as may have been provided to Guarantor for Bank, of written notice of revocation. Revocation shall not affect any of Guarantor’s obligations or Bank’s rights with respect to transactions which precede Bank’s receipt of such notice, regardless of whether or not the Guaranteed Indebtedness related to such transactions, before or after revocation, has been renewed, compromised, extended, accelerated, or otherwise changed as to any of its terms, including time for payment or increase or decrease of the rate of interest thereon, and regardless of any other act or omission of Bank authorized hereunder. If this Guaranty is revoked, returned, or canceled, and subsequently any payment or transfer of any interest in property by Borrowers to Bank is rescinded or must be returned by Bank to Borrowers, this Guaranty shall be reinstated with respect to any such payment or transfer, regardless of any such prior revocation, return, or cancellation.

13.           Where any one or more of Borrowers are corporations or partnerships, it is not necessary for Bank to inquire into the powers of Borrowers or the powers of officers, directors, partners or agents (collectively referred to as “authorized signatories”) acting or purporting to act on Borrowers’ behalf (provided that, if documents concerning the powers of such authorized signatories are provided to Bank by Borrowers, such authorized signatories shall be listed and/or identified in such documents), and any Guaranteed Indebtedness made or created in reliance upon the professed exercise of such powers shall be guaranteed hereunder.

14.           Bank may, without notice to Guarantor and without affecting Guarantor’s obligations hereunder, assign the Guaranteed Indebtedness, and this Guaranty, in whole or in part. Guarantor agrees that Bank may disclose to any prospective purchaser and any purchaser of all or part of the Guaranteed Indebtedness any and all information in Bank’s possession concerning Guarantor, this Guaranty and any security for this Guaranty,

15.           Guarantor agrees to pay all reasonable attorney’s fees, the reasonable allocated costs of Bank’s in-house counsel, and all other reasonable costs and expenses which may be incurred by Bank in the enforcement of this Guaranty.

16.           Where there is but a single Borrower, then all words used herein in the plural shall be deemed to have been used in the singular where the context and construction so require; and when there is more than one Borrower named herein, the word “Borrowers” shall mean all and any one or more of them.

17.           This Guaranty shall be governed by and construed according to the laws of the State of California, United States of America.

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IN WITNESS WHEREOF, Guarantor has executed this Guaranty by its duly authorized officers as of October 30, 2000.

NATIONAL SEMICONDUCTOR

CORPORATION

By: /s/ David S. Dahmen______________

Name: David S. Dahmen

Title: Vice President and Treasurer

By: /s/ Lieh K. Oung__________________

Name: Lieh K. Oung

Title: Asst. Treasurer

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5. 

EXHIBIT A

GUARANTEED SUBSIDIARIES

Borrowers:

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EXHIBIT B

to the Credit Agreement

FORM OF COMPLIANCE CERTIFICATE

Bank of America, N.A.

CPG - High Technology 3697

Mail Code: CA5-705-12-08

555 California Street, 12th Floor

San Francisco, CA 94104

Attn: Kevin McMahon

Re: National Semiconductor Corporation

Ladies and Gentlemen:

This Compliance Certificate is made and delivered pursuant to the Credit Agreement (Multicurrency) dated as of October 30, 2000 (as amended, modified, renewed or extended from time to time, the “Credit Agreement”) between National Semiconductor Corporation (the “Company”) and Bank of America, N.A. (the “Bank”), and reference is made thereto for full particulars of the matters described therein. All capitalized terms used in this Compliance Certificate and not otherwise defined herein shall have the meanings assigned to them in the Credit Agreement. This Compliance Certificate relates to the accounting period ending ________________, ____

I hereby certify as of the date hereof that I am the [treasurer] of the Company, and that, as such, I am authorized to execute and deliver this Certificate to the Bank on the behalf of the Borrower and its consolidated Subsidiaries, and that:

[Use the following paragraph if this Certificate is delivered in connection with the quarterly

financial statements required by Section 6.01(a)(i) of the Credit Agreement.]

1.           Attached hereto are true and correct copies of the consolidated balance sheet of the Company and its Subsidiaries as of the end of the fiscal quarter ended ___________ and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such quarter and the portion of the fiscal year through the end of such quarter, which are complete and accurate in all material respects and fairly present the financial condition of the Company and the Subsidiaries as at such date and the results of operations of the Company and its Subsidiaries for the period ended on such date and have been prepared in accordance with GAAP consistently applied, subject to changes resulting from normal year-end audit adjustments and except for the absence of notes.

or

[Use the following paragraph if this certificate is delivered in connection with the annual

financial statements required by Section 6.01(a)(ii) of the Credit Agreement.]

B-1

SF:145015.1

1.           Attached hereto are true and correct copies of the consolidated balance sheet of the Company and its Subsidiaries as of the end of the fiscal year ended ____________ and the related consolidated statements of income, shareholders’ equity and cash flows of the Company and its Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently applied, all in reasonable detail and setting forth in comparative form the figures for the previous fiscal year, accompanied by the report of ______________, which report is not qualified.

2.           I have reviewed the terms of the Credit Agreement and I have made, or caused to be made under my supervision, a detailed review of the transactions and conditions of the Company and its Subsidiaries during the accounting period covered by the attached financial statements.

3.           The information set forth on Schedule 1 hereto (and any additional schedules hereto setting forth further supporting detail) is true, accurate and complete as of the end of such accounting period.

4.           The Company and its subsidiaries, during such period, have observed, performed or satisfied all of the covenants and other agreements, and satisfied every condition in the Credit Agreement to be observed, performed or satisfied by the Company and its Subsidiaries.

5.           The representations and warranties of the Company contained in Article V of the Credit Agreement are true and correct as though made on and as of the date hereof (except to the extent such representations and warranties relate to an earlier date, in which case they shall be true and correct as of such date).

I hereby further certify that (i) as of the date hereof no Default or Event of Default has occurred and is continuing, and (ii) on and as of the date hereof, there has occurred no Material Adverse Effect since May 28, 2000, except as may be set forth in a separate attachment hereto describing in detail the nature of each condition or event constituting an exception to the foregoing statements, the period during which it has existed and the action which the Company is taking or proposes to take with respect to each such condition or event.

IN WITNESS WHEREOF, the undersigned officer has signed this Compliance Certificate this ______ day of ___________, ____.

[Treasurer]

B-2

SF:145015.1

SCHEDULE 1

TO COMPLIANCE CERTIFICATE

Dated                       ,             

For the Fiscal Quarter ended                         ,          

	Actual	Required
1.Section 6.02 (a) Minimum Consolidated Tangible Net Worth
Consolidated Tangible Net Worth Calculation
A.Consolidated Shareholders’ Equity	$__________
B.Consolidated Intangible Assets	$__________
C.Positive Consolidated Net Income since August 27, 2000	$__________
D.0.50 times the amount set forth in C	$__________
E.Net Proceeds of all Equity Securities issued by the Company since the Closing Date	$__________
F.0.50 times the amount set forth in E	$__________
G.Amount paid in respect of repurchases of common stock of the Company from and after August 27, 2000 (not to exceed $400,000,000 in the aggregate)	$__________
Consolidated Tangible Net Worth (A minus B)	$__________	Not less than an amount equal to 90% of Consolidated Tangible Net Worth as of August 27, 2000, plus (i) the amount set forth in D, plus (ii) the amount set forth in F, minus (iii) the amount set forth in G
2.      Section 6.02 (b) Minimum Quick Ratio.
A.      Consolidated Quick Assets
B.      Consolidated Current Liabilities
Quick Ratio (ratio of A to B)	___ to 1.0	Not less than 1.0 to 1.0

B-3

3SF:145015.1

EX-21.1

Exhibit 21.1

NATIONAL SEMICONDUCTOR CORPORATION

SUBSIDIARIES AND AFFILIATES OF THE REGISTRANT

The following table shows certain information with respect to our active subsidiaries and affiliates as of May 30, 2010, all of which are included in our consolidated financial statements.

SUBSIDIARIES AND AFFILIATES OF NATIONAL SEMICONDUCTOR CORPORATION

Name	State or Other  Jurisdiction of Incorporation	Other Country In  Which Subsidiary is Registered	Percent of Voting Securities Owned  by National
ActSolar, Inc.	Delaware		100%
Algorex Inc.	California		100%
Energy Recommerce, Inc.	California		100%
innoCOMM Wireless	California		100%
Mediamatics, Inc.	California		100%
National Semiconductor International, Inc.	Delaware		100%
National Semiconductor (Maine), Inc.	Delaware		100%
National Semiconductor Malaysia LLC	Delaware		100%
ASIC II Limited	Hawaii		100%
National Semiconductor Estonia Ou	Estonia		100%
National Semiconductor Finland Oy	Finland		100%
National Semiconductor France S.A.R.L.	France		100%
National Semiconductor GmbH	Germany		100%
National Semiconductor Germany AG	Germany		100%
Solar Magic GmbH	Germany		100%
National Semiconductor (I.C.) Ltd.	Israel		100%
National Semiconductor S.r.l.	Italy		100%
National Semiconductor Aktiebolag	Sweden		100%
National Semiconductor Sweden Aktiebolag	Sweden		100%
National Semiconductor (U.K.) Holdings Ltd.	Great Britain		100%
National Semiconductor (U.K.)      Pension Trust Company Ltd.	Great Britain		100%
National Semiconductor Benelux B.V.	Netherlands		100%
National Semiconductor B.V.	Netherlands		100%
National Semiconductor International B.V.	Netherlands		100%
Natsem India Designs Pvt. Ltd.	India		100%
National Semiconductor Hong Kong Limited	Hong Kong	People’s Republic of China	100%
National Semiconductor (Far East) Limited	Hong Kong	Taiwan	100%
National Semiconductor      Hong Kong Sales Limited	Hong Kong		100%
National Semiconductor      Manufacturing Hong Kong Limited	Hong Kong		100%
National Semiconductor      International Hong Kong Limited	Hong Kong		100%
National Semiconductor Japan Ltd.	Japan		100%
National Semiconductor Korea Limited	Korea		100%

Name	State or Other  Jurisdiction of Incorporation	Other Country In  Which Subsidiary is Registered	Percent of Voting  Securities Owned by National
National Semiconductor Labuan Ltd.	Malaysia		100%
National Semiconductor SDN. BHD.	Malaysia		100%
National Semiconductor Technology SDN. BHD.	Malaysia		100%
National Semiconductor      Services Malaysia SDN BHD	Malaysia		100%
National Semiconductor Holding SDN BHD	Malaysia		100%
National Semiconductor Pte. Ltd.	Singapore		100%
National Semiconductor Asia Pacific Pte. Ltd.	Singapore		100%
National Semiconductor      Manufacturer Singapore Pte. Ltd.	Singapore		100%
National Semiconductor      Management Shanghai Ltd.	People’s Republic of China		100%
National Semiconductor (Suzhou) Ltd.	People’s Republic of China		100%
National Semiconductor      Manufacturing China Trust	People’s Republic of China		100%
National Semiconductor Canada, Inc.	Canada		100%
National Semicondutores do Brasil Ltda.	Brazil		100%
National Semicondutores da America do Sul Ltd.	Brazil		100%
Electronica NSC de Mexico, S.A. de C.V.	Mexico		100%
National Semiconductor Investments, Ltd.	British Virgin Islands		100%
National Semiconductor Investments II, Ltd	British Virgin Islands		100%

EX-24.1

Exhibit 24.1

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned persons hereby constitutes and appoints Donald Macleod, Lewis Chew, and Todd M. DuChene, and each of them singly, his true and lawful attorney-in-fact and in his name, place, and stead, and in any and all of his offices and capacities with National Semiconductor Corporation (the "Company"), to sign the Annual Report on Form 10-K for the Company's 2010 fiscal year, and any and all amendments to said Annual Report on Form 10-K, and generally to do and perform all things and acts necessary or advisable in connection therewith, and each of the undersigned hereby ratifies and confirms all that each of said attorneys-in-fact may lawfully do or cause to be done by virtue hereof.

IN WITNESS WHEREOF, each of the undersigned has hereunto executed this Power of Attorney as of the date set forth opposite his signature.

SIGNATURE	DATE
\s\ William J. Amelio	July 12, 2010
William J. Amelio
\s\ Steven R. Appleton	July 12, 2010
Steven R. Appleton
\s\ Gary P. Arnold	July 12, 2010
Gary P. Arnold
\s\ Richard J. Danzig	July 12, 2010
Richard J. Danzig
\s\ John T. Dickson	July 12, 2010
John T. Dickson
\s\ Robert J. Frankenberg	July 10, 2010
Robert J. Frankenberg
\s\  Donald Macleod	July 12, 2010
Donald Macleod
\s\ Modesto A. Maidique	July 13, 2010
Modesto A. Maidique
\s\ Edward R. McCracken	July 12, 2010
Edward R. McCracken
\s\ Roderick C. McGeary	July 12, 2010
Roderick C. McGeary
\s\ William E. Mitchell	July 12, 2010
William E. Mitchell

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Donald Macleod, certify that:

1.   I have reviewed this annual report on Form 10-K of National Semiconductor Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  July 20, 2010	\s\ Donald Macleod
	Donald Macleod
	Chairman, President and Chief Executive Officer

CERTIFICATION

I, Lewis Chew, certify that:

1.   I have reviewed this annual report on Form 10-K of National Semiconductor Corporation;

2.   Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.   Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.   The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervisions, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)   Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.   The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  July 20, 2010	\s\ Lewis Chew
	Lewis Chew
	Senior Vice President, Finance and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of National Semiconductor Corporation (the “Company”) on Form 10-K for the fiscal year ended May 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Donald Macleod, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  July 20, 2010	\s\ Donald Macleod
	Donald Macleod
	Chairman, President and Chief Executive Officer

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of National Semiconductor Corporation (the “Company”) on Form 10-K for the fiscal year ended May 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lewis Chew, Senior Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)   The Report fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, and

(2)   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:  July 20, 2010	\s\ Lewis Chew
	Lewis Chew
	Senior Vice President, Finance and Chief Financial Officer