4. Veloce

The Company and Veloce are parties to a development agreement, dated as of May 17, 2009, as amended on November 8, 2010 and July 18, 2011 (the "Development Agreement") pursuant to which Veloce has agreed to perform product development work for the Company on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of the Company's common stock which was scheduled to vest in quarterly increments through December 2012. A portion of the vested warrant has been committed to be distributed to the employees of Veloce and will be settled in cash instead of common stock. Therefore, the Company has recognized stock-based compensation expense in R&D expense and recorded a corresponding liability for this distribution in the Company's consolidated financial statements. The warrant was 69% vested as of March 31, 2012.

Pursuant to the Development Agreement, the Company is paying Veloce $2.3 million per quarter for up to twelve consecutive quarters in order to assist Veloce in meeting its expenses to perform its obligations under the agreement. In July 2011, the Company agreed to pay Veloce an additional $2.0 million over four quarters to cover certain increased expenses under the Development Agreement. These additional payments started in July 2011 and will end in the quarter ending June 30, 2012, or earlier in the event the Company acquires Veloce. The Company recognizes the payments as research and development expenses when such operating costs have been incurred by Veloce. During the fiscal years ended March 31, 2012, 2011 and 2010, the Company recognized $13.1 million, $11.2 million and $6.2 million of costs incurred by Veloce as research and development expense, respectively.

The Company proposes to acquire Veloce in accordance with the terms and conditions of the Agreement and Plan of Merger, entered into as of May 17, 2009, as amended by Amendment No. 1 to Agreement and Plan of Merger, entered into as of November 8, 2010 (the "First Amendment"), and collectively referred to as "Original Merger Agreement". Under the Original Merger Agreement, the Company agreed to acquire Veloce if certain performance milestones and delivery schedules set forth therein are achieved. Should the Company acquire Veloce pursuant to the Original Merger Agreement, the purchase price payable by the Company was estimated to be in the range of approximately $7 million up to approximately $135 million. The final price would be based upon the achievement and timing of multiple product development milestones, as adjusted based upon actual technical performance results.

Upon entering into the Development Agreement and the Original Merger Agreement, the consolidated financial statements of the Company have included all of the accounts of Veloce for all fiscal years presented. For accounting purposes, the consideration payable for the acquisition of Veloce will be considered compensatory and will be recognized as research and development expense when the payment is deemed probable, estimable and earned. Recognition of these costs will occur when certain development and performance milestones become probable of achievement and earned. As of March 31, 2012, one significant performance and development milestone set forth under the Original Merger Agreement was considered probable of achievement. No other product development milestones included in the Original Merger Agreement were considered probable of achievement as of March 31, 2012.

On April 5, 2012 the Original Merger Agreement was amended ("Second Amendment"). Pursuant to the Second Amendment, the closing of the Company's acquisition of Veloce was set to occur upon achievement of a specified FPGA product development milestone by Veloce (the "FPGA II Milestone") and the satisfaction or waiver of certain closing conditions and consummation of certain other transactions contemplated by the Second Amendment (the "Closing"). The Closing currently is expected to occur during the first quarter of fiscal 2013.

Upon the Closing, each authorized share of Veloce's capital stock or share equivalent will convert into the right to receive, subject to the satisfaction of any vesting requirements, if applicable, a portion of the total consideration which consists of the following:

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$60.4 million upon the Closing; and

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Additional amounts ranging from 0 to $75 million, in the event that certain post-Closing product development milestones are achieved. These post-Closing product development milestones are generally consistent with the product development milestones that were established in connection with the Original Merger Agreement.

At the election of the Company, the consideration to be paid will be in cash, common stock of the Company or a combination of the two. The Company anticipates that a portion of the $60.4 million will be paid out at the Closing to the holders of Veloce common stock or stock equivalents and the remaining portion of the $60.4 million will be payable over a period that is expected to be in excess of twelve months, upon the satisfaction of additional vesting requirements.

One significant product development milestone included in both the First Amendment and Second Amendment was considered probable of achievement as of March 31, 2012. The Company estimated the amount earned by Veloce in connection with this product development milestone was equal to the consideration of $60.4 million that the Company has committed to pay upon the Closing. Accordingly, the Company has recognized $60.4 million of research and development expense for the fiscal year ended March 31, 2012. The total payment associated with this product development milestone may be greater than $60.4 million upon completion. The estimated total consideration to be paid in excess of the $60.4 million will be recognized ratably over the remaining estimated period to complete this product development milestone. As of March 31, 2012, the additional performance milestones included in the First Amendment were not considered probable of being achieved. Expense recognition in connection with additional consideration to be paid in future periods will begin when the product development milestones included in the Second Amendment become probable of achievement.

In connection with the Second Amendment, the Company and Veloce have also modified the warrant to purchase shares of the Company's common stock, previously granted to Veloce in May 2009 and amended in November 2010, by accelerating the vesting schedule to be fully vested as of April 5, 2012.