Audit Committee Charter (April 27, 2004)

         I.            Purpose

The purpose of the Audit Committee (the “Committee”) of the Board of Directors (the “Board”) of Magma Design Automation, Inc. (the “Company”) is to oversee the Company’s accounting and financial reporting processes and the audits of the Company’s financial statements, including oversight of the Company’s systems of internal controls and disclosure controls and procedures, compliance with legal and regulatory requirements, internal audit function, and the selection, evaluation and compensation of the Company’s independent auditors.

        II.            Membership

Members of the Committee will be appointed by, and shall serve at the discretion of, the Board. Unless a chair is elected by the Board, the members of the Committee may designate a chair by majority vote of the Committee membership.

The Committee shall consist of three or more members of the Board, with the exact number being determined by the Board. Each member of the Committee shall be “independent” as defined by applicable law, including the rules and regulations of the SEC and The Nasdaq Stock Market (Nasdaq ), as they may be amended from time to time. Each member of the Committee shall have the ability to read and understand financial statements and at least one member shall have prior experience in accounting, financial management or financial oversight, as required by the rules and regulations of the SEC and Nasdaq.

No member of the Committee shall have participated in the preparation of the financial statements of the Company at any time during the most recent three years.

      III.            Meetings

The Committee shall meet at least once each quarter, and more frequently as determined to be appropriate by the Committee. The Committee shall meet separately with the Company’s independent auditors and members of the Company’s management at such times as the Committee deems appropriate. Meetings may be held telephonically. In lieu of a meeting, the Committee may also act by unanimous written consent.

      IV.            Authority

The Committee shall have unrestricted access to Company personnel and documents and shall have authority to direct and supervise investigations into any matters within the scope of this charter. The Company’s independent auditors shall report directly to the Committee. The Committee shall have authority to retain, at the Company’s expense, such outside counsel (which may but need not be regular outside counsel to the Company), experts and other advisers as it determines to be necessary to carry out its duties. The Company shall provide appropriate funding to the Committee, as determined by the Committee in its capacity as a committee of the Board, for payment of (i) compensation to any registered public accounting firm for preparing or issuing an audit report or performing other audit, review or attest services for the Company, services approved by the Committee, (ii) compensation to any outside advisers retained by the Committee pursuant to this charter and (iii) ordinary administrative expenses of the Committee that are necessary or appropriate in carrying out its duties.

       V.            Responsibilities and Duties

The following shall be the principal recurring processes of the Committee in carrying out its oversight responsibilities. These processes are set forth as a guide with the understanding that the Committee may supplement them as appropriate and may establish policies and procedures from time to time that it deems necessary or advisable in fulfilling its responsibilities.

Committee Governance

1.       Review and reassess the adequacy of the Committee’s charter at least annually. Submit the charter to the Board for review and approval and for inclusion as an appendix to the Company’s proxy statement as required by SEC rules.

2.       Maintain minutes of Committee meetings.

Legal and Regulatory Compliance

1.       Establish procedures to receive and process complaints regarding accounting, internal accounting controls or auditing matters, and for employees to make confidential, anonymous complaints regarding questionable accounting or auditing matters.

2.       Review and approve all transactions between the Company and any related party, as defined by applicable law and the rules of Nasdaq.

Independent Auditors

1.       Select, appoint, determine the compensation of, and oversee the independence and performance of, the independent auditors. The Committee shall have the sole authority to appoint and discharge the independent auditors. The Committee’s oversight of the independent auditors’ performance shall include:

·         Reviewing the independent auditors’ overall audit scope and plan; and

·         Communicating with the independent auditors about the Company’s expectations regarding its relationship with them, including the independent auditors’ ultimate accountability to the Board and the Committee, as representatives of the Company’s stockholder

2.       Review and approve processes and procedures related to maintaining the independence of the independent auditors. These processes shall include:

·         Obtaining and reviewing, on at least an annual basis, a letter from the independent auditors describing all relationships between the independent auditors and the Company required to be disclosed by Independence Standards Board Standard No. 1, actively engaging in a dialogue with the independent auditors with respect to any disclosed relationships or services that may impact the objectivity and independence of the auditors and taking, or recommending to the Board, appropriate action to oversee the independence of the auditors; and

·         Preapproving all auditing services and reviewing and preapproving, as appropriate, any non-audit services permitted by applicable law, and prohibiting any non-audit services not permitted by applicable law to be provided by the independent auditors; provided, however, that the Committee may establish preapproval policies and procedures for the engagement of independent auditors to render auditing services and non-audit services, as permitted by applicable law and SEC rules (including policies that would allow the delegation of preapproval authority to designated members of the Committee).

3.       Resolve any disagreements between management and the independent auditors regarding financial reporting.

4.       Oversee the rotation of the lead audit partner, concurring audit partner and other audit partners of the independent auditors as may be required by the rules and regulations of the SEC in order to maintain the independence of the independent auditors.

Disclosure and Financial Reporting

1.       Review the Company’s annual financial statements, including any report or opinion by the independent auditors, prior to distribution to the public or filing with the SEC.

2.       In connection with the Committee’s review of the Company’s annual financial statements:

·         Discuss with the independent auditors, management and the Company’s internal audit function, if any, the financial statements and the results of the independent auditors’ audit of the financial statements.

·         Discuss any items required to be communicated by the independent auditors in accordance with Statement of Auditing Standards No. 61. These discussions should include (i) the independent auditors’ judgments about the quality and appropriateness of the Company’s accounting principles and the adequacy and effectiveness of its accounting and financial controls, including the Company’s system to monitor and manage business risk, and legal and ethical compliance programs and (ii) the reasonableness of significant judgments, the clarity of the disclosures in the Company’s financial statements and any significant difficulties encountered during the course of the audit, including any restrictions on the scope of work or access to required information.

3.       Recommend to the Board whether the annual financial statements should be included in the Company’s Annual Report on Form 10-K, based on (i) the Committee’s review and discussion with management of the annual financial statements, (ii) the Committee’s discussion with the independent auditors of the matters required to be discussed by SAS 61, and (iii) the Committee’s review and discussion with the independent auditors of the independent auditors’ independence and the written disclosures and letter from the independent auditors required by Independence Standards Board Standard No. 1.

4.       Discuss with the independent auditors and management the results of the independent auditors’ SAS 71 review of the quarterly financial statements

5.       In connection with the Committee’s review of the Company’s annual financial statements, discuss with management and the independent auditors the Company’s selection, application and disclosure of critical accounting policies, any significant changes in the Company’s accounting policies and any proposed changes in accounting or financial reporting that may have a significant impact on the Company.

6.       In connection with the Committee’s review of the annual financial statements, obtain a report from the independent auditors addressing: (i) all critical accounting policies and practices used; (ii) all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management, the ramifications of each alternative and the treatment preferred by the independent auditors; and (iii) other material communications between the independent auditors and management, such as any management letter or schedule of unadjusted differences.

Responsibilities Relating to Financial Reporting Processes and Internal Controls

1.       Discuss with the independent auditors, management and the Company’s internal audit function, if any, their periodic reviews of the adequacy of the Company’s accounting and financial reporting processes and systems of internal control, including the adequacy of the systems of reporting to the Committee by each group.

2.       Discuss any comments or recommendations of the independent auditors outlined in their annual management letter. Approve a schedule for implementing any recommended changes and monitor compliance with the schedule.

3.       Review any disclosures made to the Committee by the Company’s principal executive officer and principal financial officer, or persons performing similar functions, and review, a report, based upon their most recent evaluation of internal control over financial reporting, of: (i) 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 Company’s ability to record, process, summarize and report financial information; and (ii) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting, or such other disclosures as the SEC may require be provided by such officers in connection with certifications to be made by such officers pursuant to Section 302 of The Sarbanes-Oxley Act of 2002 as part of certain reports to be filed by the Company with the SEC.

4.       Establish procedures for the receipt, retention and treatment of complaints from the Company’s employees on accounting, internal accounting controls or auditing matters, as well as for confidential anonymous submissions by the Company’s employees of concerns regarding questionable accounting or auditing matters.

Other

1.       Annually prepare a report to the Company’s stockholders for inclusion in the Company’s annual proxy statement as required by the rules and regulations of the SEC, as they may be amended from time to time.

2.       Perform any other activities required by applicable law, rules or regulations, including the rules of the SEC and any stock exchange or market on which the Company’s common stock is listed, and perform other activities that are consistent with this charter, the Company’s Bylaws and governing laws, as the Committee or the Board deems necessary or appropriate.