##### Table of Contents





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

FORM 10-K/A

Amendment No. 1

(Mark One)



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

For the fiscal year ended December 31, 2009

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:

000-50838





NETLOGIC
MICROSYSTEMS, INC.

(Exact name of registrant as specified in its charter)



|                                                |  |                                     
|----------------------------------------------- |  | ------------------------------------
|Delaware                                        |  | 77-0455244                          
|(State or Other Jurisdiction of Incorporation)  |  | (I.R.S. Employer Identification No.)
|                                                | 
|1875 Charleston Road, Mountain View, California |  | 94043                               
|(Address of principal executive office)         |  | (Zip Code)                          

(650)
961-6676

(Registrants telephone number, including area code)

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



|                                        |  |                                          
|--------------------------------------- |  | -----------------------------------------
|Title of each class                     |  | Name of each exchange on which registered
|Common Stock, $0.01 par value per share |  | The NASDAQ Stock Market LLC              

Securities registered pursuant to Section 12(g) of the Act: None



|                                                                         |  |                                          
|------------------------------------------------------------------------ |  | -----------------------------------------
|Title of each class                                                      |  | Name of each exchange on which registered
|Series AA Junior Participating Preferred Stock,$0.01 par value per share |  | None                                     

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§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 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, or a non-accelerated
filer. See definition of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one.)

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

Smaller reporting company   ̈

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

The aggregate market value of the voting stock held by non-affiliates of the registrant as of June 30, 2009, the last business day of
the registrants most recently completed second fiscal quarter, was approximately $679,787,184 (based on the last reported sale price of $18.23 on June 30, 2009).

58,301,027 shares of the Registrants common stock, par value $0.01 per share, were outstanding as of March 15, 2010.

DOCUMENTS INCORPORATED BY REFERENCE

None.









---

##### Table of Contents

EXPLANATORY NOTE

This amendment to NetLogic Microsystems, Inc.s (the Company) Form 10-K for the fiscal year ended December 31, 2009
amends and modifies the Form 10-K primarily to include the following:



| |  |  | Correction to our status as a well-known seasoned issuer on the cover page.
| | - |  | ---------------------------------------------------------------------------



| |  |  | Updates for a 2-for-1 stock split of the Companys common stock, effected through the issuance of additional shares as a stock dividend paid on
March 19, 2010. All share and per share amounts in this document have been retroactively adjusted to reflect the stock split.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Information required in Part III of Form 10-K not previously filed.
| | - |  | -------------------------------------------------------------------



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

FISCAL 2009 FORM 10-K/A

TABLE OF
CONTENTS



|           |  |                                                                                                              |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                              |  | Page
|PART I     |  |                                                                                                              |  |     
|Item 1.    |  | Business                                                                                                     |  | 1   
|Item 1A.   |  | Risk Factors                                                                                                 |  | 13  
|Item 1B.   |  | Unresolved Staff Comments                                                                                    |  | 32  
|Item 2.    |  | Properties                                                                                                   |  | 32  
|Item 3.    |  | Legal Proceedings                                                                                            |  | 32  
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                          |  | 32  
|           |  |                                                                                                             
|PART II    |  |                                                                                                              |  |     
|Item 5.    |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 33  
|Item 6.    |  | Selected Consolidated Financial Data                                                                         |  | 35  
|Item 7.    |  | Managements Discussion and Analysis of Financial Condition and Results of
Operations                        |  | 36  
|Item 7A.   |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 50  
|Item 8.    |  | Financial Statements and Supplementary Data                                                                  |  | 51  
|Item 9.    |  | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 91  
|Item 9A.   |  | Controls and Procedures                                                                                      |  | 91  
|Item 9B.   |  | Other Information                                                                                            |  | 91  
|           |  |                                                                                                             
|PART III   |  |                                                                                                              |  |     
|Item 10.   |  | Directors, Executive Officers and Corporate Governance                                                       |  | 92  
|Item 11.   |  | Executive Compensation                                                                                       |  | 96  
|Item 12.   |  | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters               |  | 119 
|Item 13.   |  | Certain Relationships and Related Transactions and Director Independence                                     |  | 121 
|Item 14.   |  | Principal Accounting Fees and Services                                                                       |  | 122 
|           |  |                                                                                                             
|PART IV    |  |                                                                                                              |  |     
|Item 15.   |  | Exhibits and Financial Statement Schedules                                                                   |  | 123 
|           | 
|Signatures |  | 127                                                                                                         



---

##### Table of Contents

PART I

Forward-looking Statements

This report contains forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which include, without limitation, statements about our future business operations
and results, the market for our technology, our strategy and competition. Such statements are based upon current expectations that involve risks and uncertainties. Any statements contained herein that are not statements of historical fact may be
deemed forward-looking statements. For example, the words believes, anticipates, plans, expects, intends and similar expressions are intended to identify forward-looking statements. Our
actual results and the timing of certain events may differ significantly from the results discussed in the forward-looking statements. Factors that might cause such a discrepancy include, but are not limited to, those discussed in
Business, Risks Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Quantitative and Qualitative Disclosures About Market Risk below. All
forward-looking statements in this report are based on information available to us as of the date of this report, and we assume no obligation to update any such forward-looking statements. The information contained in this report should be read in
conjunction with our condensed financial statements and the accompanying notes contained in this report. Unless expressly stated or the context otherwise requires, the terms we, our, us and NetLogic
Microsystems refer to NetLogic Microsystems, Inc.



|ITEM 1. | BUSINESS.
|------- | ---------

Overview

We are a leading fabless semiconductor company that designs, develops and sells proprietary high-performance processors and high-speed
integrated circuits that are used to enhance the performance and functionality of advanced 3G/4G mobile wireless infrastructure, data center, enterprise, metro Ethernet, edge and core infrastructure networks. Our market-leading product
portfolio includes high-performance multi-core processors, knowledge-based processors, high-speed 10/40/100 Gigabit Ethernet (GE) physical layer (PHY) devices, network search engines, and ultra low-power embedded processors. These products are
designed into high-performance systems such as switches, routers, wireless base stations, radio network controllers, security appliances, networked storage appliances, service gateways and connected media devices offered by leading original
equipment manufacturers (OEMs) such as AlaxalA Networks Corporation, Alcatel-Lucent, ARRIS Group, Inc., Brocade Communications Systems, Inc., Cisco Systems, Inc., Dell Inc., Ericsson, Fortinet, Inc., Fujitsu Limited, Hangzhou H3C Technologies
Co. Ltd., Hitachi, Ltd., Huawei Technologies Co., Ltd., Huawei Symantec Technologies Co., Ltd, IBM Corporation, Juniper Networks, Inc., LG Electronics, Inc., Motorola, Inc., NEC Corporation, Samsung Electronics, Sun Microsystems, Inc., Tellabs, and
ZTE Corporation.

The products and technologies we have developed and acquired are targeted to enable our customers to develop
systems that support the increasing speeds and complexity of the Internet infrastructure. We believe there is a growing need to include multi-core processors, knowledge-based processors, and high speed physical layer devices in a larger number of
such systems as networks transition to all Internet Protocol (IP) packet processing at increasing speeds and complexity.

In
2009 we continued to broaden our customer base and our product portfolio, as well as strengthen our competitive positioning and research and development capabilities, by entering into strategic acquisitions, including:



| |  |  | The acquisition of the network search engine business from Integrated Devices Technology, Inc. (the IDT NSE Acquisition) in July 2009. The
acquisition was accounted for as a business combination during the third quarter of fiscal 2009. As purchase consideration we paid $98.2 million in cash, net of a price adjustment based on a determination of the actual amount of inventory received.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



1



---

##### Table of Contents

| |  |  | The acquisition of RMI Corporation, or RMI, a provider of high-performance and low-power multi-core, multi-threaded processors. Pursuant to the
Agreement and Plan of Merger Reorganization by and among us, Roadster Merger Corporation, RMI Corporation and WP VIII Representative LLC dated as of May 31, 2009, or the merger agreement, on October 30, 2009, Roadster Merger Corporation
was merged with and into RMI, and we delivered merger consideration of approximately 9.9 million shares of our common stock and $12.6 million cash to the paying agent for distribution to the holders of RMI capital stock. Approximately 10% of
the shares of our common stock are being held in escrow as security for claims and expenses that might arise during the first 12 months following the closing date. We may be required to pay up to an additional 3.1 million shares of common stock and
$15.9 million cash to the former holders of RMI capital stock as earn-out consideration based upon achieving specified percentages of revenue targets for either the 12-month period from October 1, 2009 through September 30, 2010, or the
12-month period from November 1, 2009 through October 31, 2010, whichever period results in the higher percentage of the revenue target. The additional earn-out consideration, if any, net of applicable indemnity claims, will be paid on or
before December 31, 2010.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our Markets

We sell our products primarily to OEMs that supply networking equipment for the Internet infrastructure, which consists of various networking
systems that process packets of information to enable communication between the networking systems. This networking equipment includes routers, switches, application acceleration equipment, network security appliances, network access equipment and
networked storage devices that are utilized by networking systems such as:



| |  |  | core networks, for long-distance city-to-city communications which may span hundreds or thousands of miles;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | enterprise networks, for internal corporate communications, including access to storage environments;
| | - |  | -----------------------------------------------------------------------------------------------------



| |  |  | datacenter networks, for high-density server farms;
| | - |  | ---------------------------------------------------



| |  |  | metro networks, for intra-city communications which may span several miles;
| | - |  | ---------------------------------------------------------------------------



| |  |  | edge networks, which link core, metro, enterprise and access networks; and
| | - |  | --------------------------------------------------------------------------



| |  |  | access networks, which connect individual users to the edge network.
| | - |  | --------------------------------------------------------------------

Sales of IP based networking equipment have increased overall during the past five years, as the Internet has continued to grow and evolve
to accommodate the continued growth in the amount of digital media content available and provide converged support for the quad-play applications of voice, data, video and mobility over a single unified IP infrastructure. These applications include:



| |  |  | mobile Internet services (delivery of data, voice and video to mobile devices);
| | - |  | -------------------------------------------------------------------------------



| |  |  | cloud computing and data center virtualization;
| | - |  | -----------------------------------------------



| |  |  | Internet Protocol television, or IPTV;
| | - |  | --------------------------------------



| |  |  | video on demand, or VoD;
| | - |  | ------------------------



| |  |  | voice transmission over the Internet, or VoIP;
| | - |  | ----------------------------------------------



| |  |  | on-line gaming;
| | - |  | ---------------



| |  |  | filtering of malware (e.g., virus, spyware and spam) and intrusion attempts;
| | - |  | ----------------------------------------------------------------------------



| |  |  | email communications;
| | - |  | ---------------------



| |  |  | e-commerce;
| | - |  | -----------



| |  |  | music, picture and video file downloading and sharing to mobile devices such as cell phones and portable music/video devices; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------



2



---

##### Table of Contents

| |  |  | Internet browsing and video portal viewing delivered over the IP infrastructure to cell phones and other mobile devices.
| | - |  | ------------------------------------------------------------------------------------------------------------------------

Due to the increased usage of the Internet, as well as the greater complexity of the Internet-based infrastructure to support quad-play
applications, OEM systems must increasingly make complex decisions about individual packets of information using knowledge about the overall network, which includes the method and manner in which networking systems are interconnected, as well
as traffic patterns and congestion points, connection availability, user-based privileges, priorities and other attributes. These OEM systems also need knowledge about the content carried by the network and the applications that use the
network. Using this knowledge of the network to make complex decisions about individual packets of information involves network awareness, while using knowledge of packet content to make complex decisions about individual packets of information
involves content awareness, also known as deep-packet inspection. Network awareness and content awareness include the following:



| |  |  | preferential transmission of packets based upon assigned priority;
| | - |  | ------------------------------------------------------------------



| |  |  | restrictions on access based upon security designations;
| | - |  | --------------------------------------------------------



| |  |  | changes to packet forwarding destinations based upon traffic patterns and bandwidth availability, or packet content; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | addition or deletion of information about networks and users and applications.
| | - |  | ------------------------------------------------------------------------------

Moreover, network and content awareness in advanced systems require multiple classes of packet processing, in addition to forwarding packets
in the network. These additional classes of processing include access control for network security, prioritization of packets to maintain quality of service (QoS) and statistical measurement of internet traffic for transaction billing. Compared to
the basic processing task of forwarding, these additional classes of packet processing require a significantly higher degree of processing of IP packets to enable network and content awareness, or network-aware and content-aware processing.

Further, in designing high performance systems, networking OEMs need to address other performance issues, such as power
dissipation. Minimizing the power dissipated by integrated circuits is becoming more important for networking systems such as routers and switches, which are increasingly designed in smaller form factors. As a result, networking OEMs increasingly
seek third party providers of advanced processing solutions that complement their core competencies to enable network and content awareness within their systems and meet their escalating performance requirements for rapid processing speeds, complex
decision-processing capabilities, low power dissipation, small form factor and rapid time-to-market.

Our Strategy

Our objectives are to be the leading provider of network-aware and content-aware processing solutions, high-speed multi-core, multi-threaded
processors, as well as 10 to 100 Gigabit PHY layer solutions, to networking OEMs and to expand into new markets and applications. To achieve these goals, we are pursuing the following strategies:

Maintain and Extend our Market and Technology Leadership Positions. We were the first supplier: (i) to
offer a knowledge-based processor with a high-speed serial interface; (ii) to offer a hybrid architecture that integrates our advanced Sahasra algorithmic technology with knowledge-based processing engines; (iii) to offer a knowledge-based processor capable of delivering 1.6 billion decisions per
second of deterministic performance; (iv) to offer 225Gbps of interconnect bandwidth, 256 thousand IPv6 database entries and 1 million Internet Protocol Version 4 (IPv4) data entries; (v) the first supplier to achieve 1.0 Volt
operation of knowledge-based processors for lower power dissipation; and (vi) to achieve operating frequencies of up to 500 MHz. We were also the first supplier of knowledge-based processors that are capable of processing application
networking



3



---

##### Table of Contents

and security functions with a single 10 Gigabit-per-second engine. In addition, we were the first supplier of quad-port 10 Gigabit and 100 Gigabit PHY solutions targeted at next-generation
carrier optical transport networks and advanced data-center networks. We intend to expand our market and technology leadership positions by continuing to invest in the development of successive generations of our knowledge-based processors,
multi-core processors, 10/40/100 Gigabit PHYs and our other products to meet the increasingly high performance needs of networking OEMs, and as well as potentially acquire such capabilities through strategic partnerships and purchases of other
businesses when we encounter favorable opportunities. We intend to leverage our engineering capabilities and continue to invest significant resources in recruiting and developing additional expertise in the area of high performance circuit design,
custom circuit layout, high performance Input/Output interfaces, and applications engineering. By utilizing our proprietary design methodologies, we intend to continue to target the most demanding, advanced applications for our products.

Focus on Long-Term Relationships with Industry-Leading OEM Customers. The design and product life cycles of our OEM
customers products have traditionally been lengthy, and we work with our OEM customers at the pre-design and design stages. As a result, our sales process typically requires us to maintain a long-term commitment and close working relationship
with our existing and potential OEM customers. This process involves significant collaboration between our engineering teams and the engineering teams of our OEM customers, and typically involves the concurrent development of our processors and the
internally-designed packet processors of our OEM customers. We intend to continue to focus on building long-term relationships with industry-leading networking OEMs to facilitate the adoption of our products and to gain greater insight into the
needs of our OEM customers.

Leverage Technologies to Create New Products and Pursue New Market Opportunities. We
intend to leverage our core design expertise to develop our products for a broader range of applications to further expand our market opportunities. We plan to address new market segments that are increasingly adopting network-aware processing, such
as corporate storage networks that use IP-based packet-switching networking protocols. By utilizing our proprietary design methodologies, we intend to continue to target the most demanding, advanced applications for our products.

Capitalize on Highly Focused Business Model. We are a fabless semiconductor company, utilizing third parties to manufacture,
assemble and test our products. This approach reduces our capital and operating requirements and enables us to focus greater resources on product development. We work closely with our wafer foundries to incorporate advanced process technologies
in our solutions to achieve higher levels of performance and to reduce costs. These technologies include advanced 130, 110, 80, 55 and 40 nanometer complementary metal oxide semiconductor (CMOS) processing nodes with up to eight layers of copper
interconnect and 300 millimeter wafer sizes. Our business model allows us to benefit from the large manufacturing investment of our wafer foundries which are able to leverage their investment across many markets.

Expand International Presence. We sell our products on a worldwide basis and utilize a network of direct sales, independent
sales representatives and distributors in the U.S., Europe and Asia. We intend to continue to expand our sales and technical support organization to broaden our customer reach in new markets. We believe that Asia, in particular China and Europe,
where we have already established customer relationships, provides the potential for significant additional long-term growth for our products. Given the continued globalization of OEM supply chains, particularly with respect to design and
manufacturing, we believe that having a global presence will become increasingly important for securing new customers and design wins and to support OEMs in bringing their products to markets.

Our Products

Our products include high-performance knowledge-based processors, multi-core processors, NETLite
processors, network search engines, 10/40/100 GE PHY products, and ultra low-power Alchemy® processors.



4



---

##### Table of Contents

Knowledge-based Processors

Knowledge-based processors are integrated circuits that employ an advanced processor architecture and a large knowledge or signature database
containing information on the network, as well as applications and content that run on the network, to make complex decisions about individual packets of information traveling through the network. Our knowledge-based processors significantly
enhance the ability of networking OEMs to supply network service providers with systems offering more advanced functionality for the Internet, such as support for IPTV, VoIP, unified threat management (UTM), virtual private networks (VPNs), rich
content delivery over mobile wireless networks, and streaming video and audio.

Our knowledge-based processors incorporate
advanced technologies that enable rapid processing, such as a superscalar architecture, which uses parallel-processing techniques, and deep pipelining, which segments processing tasks into smaller sub-tasks, for higher decision throughput. These
technologies enable wireline and wireless networking systems to perform a broad range of network-aware and content-aware processing functions, such as application-based routing, UTM network security, intrusion detection and prevention, virus
inspection, access control for network security, prioritization of traffic flow to maintain quality of service and statistical measurement of Internet traffic for transaction billing.

Layer 3-4 Knowledge-based Processors. Layers 3 and 4 refer to the data and transport layers, respectively, of the OSI reference
model. For networking infrastructure that supports Layer 3-4 routing, decisions on how to handle IP packets are made using the data that is contained in the packet header. The packet header information consists of key data regarding the packet,
including the IP address of the system that generated the packet, referred to as the source IP address, and the IP address of the device to which the packet is to be transmitted, referred to as the destination IP address. Our proprietary
NL5000, NL6000, NL7000, NL8000 and NL9000 and NL11000 families of knowledge-based processors operate in conjunction with an OEM-developed custom integrated circuits, programmable logic devices, and one or more network processing units (NPUs), and
feature a proprietary interface that provides advanced interface technology to enable networking OEMs to meet their system performance requirements for Layer 3-4 processing. We also provide versions of our proprietary interface knowledge-based
processors that work with proprietary custom integrated circuits and application software developed by or in collaboration with Cisco Systems. We offer knowledge-based processors with a range of knowledge database sizes, and all of our
knowledge-based processors are designed to be connected in groups to increase the knowledge database available for processing.

We offer knowledge-based processors with a range of knowledge database sizes, and all of our knowledge-based processors are designed to be connected in groups to increase the knowledge database available for processing.

In 2009, we collaborated with one of our long-time foundry partners Taiwan Semiconductor Manufacturing Company (TSMC) to complete the
migration of our knowledge-based processor family to the 55 nanometer (nm) process node. Additionally, we recently announced our NL111024 knowledge-based processor fabricated on TSMCs 40 nm process node. The NL111024 processor includes an
enhanced knowledge-based processing core capable of achieving 1.6 billion decisions per second (BDPS) and integrates our serializer-deserializer (SerDes) technology from our physical layer products to provide a serial interface that delivers 225
Gigabits per second (Gbps) of chip-to-chip interconnect bandwidth. This high performance input/output (I/O) bandwidth is particularly useful in processing Internet Protocol Version 6 (IPv6) traffic.

We also offer our Sahasra family of knowledge-based processors which use advanced algorithms to achieve low power dissipation and are
particularly well suited for applications using exact match or longest-prefix match functions. This family of devices scales up to 1.5 million IPv4 entries in a single device.

NETL7 Layer 7 Knowledge-based Processors. For networking infrastructure that supports Layer 7 routing, decisions on how to handle IP packets are made using the
information that is contained in the packet payload or packet content. The packet content contains the actual data being transmitted between applications



5



---

##### Table of Contents

using the network. Layer 7 of the OSI reference model, known as the application layer, facilitates communication between software applications and lower-layer network services. Our NETL7 knowledge-based processors are designed to accelerate Layer 7 content processing and signature recognition tasks
for enterprise and carrier-class networks.

In April 2009 we announced the NLS2008 processor, which is the newest member of
our NETL7 knowledge-based processor family. The NLS2008 is the first processor capable of deterministically performing Layer 7 content aware processing functions at 120 Gbps.

NETLite Processors

Our
NETLite processor family is specifically designed for cost-sensitive, high-volume applications such as
entry-level switches, routers and access equipment. The NETLite processor family leverages circuit techniques developed and refined during the design of our knowledge-based processor families, and benefits from die size optimization, lower power
dissipation and redundant computing techniques. In addition, the NETLite processors utilize a simplified pipeline architecture, as compared to our knowledge based processors, that allows for lower cost manufacturing and assembly in less expensive
packages, and allows for lower cost system designs. As such, the NETLite processors are ideal for entry-level systems that do not require the advanced parallel processing and deep pipelining performance of our high-end knowledge-based
processors.

Our NETLite processors also include the Ayama10000 and Ayama 20000 processors. We offer these processors in densities ranging from 128K to 512K IPv4 entries, and they include differentiated
features such as Mini-Key power management. The Ayama 20000 processors incorporate all the features of the
Ayama 10000 processors and work seamlessly with industry-leading network processors and Ethernet switchers. To help reduce development time and cost, we also offer the Ayama processors with our Cynapse software platform for customers to more easily integrate these processors into their systems.

Network Search Engines

We continue to provide network search engine products including those we acquired from IDT in July 2009, the TCAM2 products we purchase from Cypress Semiconductor Corporation in August 2009, and our
legacy network search engines, which include the NSE1000 through NSE4000, the NSE70000 network search engine families and the NSE3128GLM network search engines, a device that interfaces directly to certain NPUs from Applied Micro Circuits
Corporation. We introduced our network search engine products between 1998 and 2001. These products are fabricated by UMC or TSMC using a range of process technologies from 0.35 micron to 0.15 micron.

High Performance Multi-Core ProcessorsRMI Acquisition

We offer a range of high performance, highly integrated, feature-rich XLR®, XLS® and
XLP multi-core processor solutions that provide high throughput, power efficiency, application and content
awareness and security for the evolving global network. These processors serve infrastructure equipment, enterprise systems and connected media markets within the global network with a wide range of features and performance configurations. Our
multi-core solutions can replace a number of single function semiconductors through a highly integrated processing solution which provides customers with greater ease of design and faster time-to-market for their products.

Our multi-core processors offer up to four-way multi-threading cores that allow each thread to act as a virtual central
processing unit, or vCPU, thereby making each processor core capable of much higher throughput than a
non-threaded core. The proprietary processor architecture also implements a high-speed Memory Distributed Interconnect® network, consisting of a Fast Messaging Network® and point-to-point interconnects, enabling high-speed
communication between cores, accelerators and network interfaces and more efficient memory access. The processors also include Autonomous Acceleration Engines® that enable them to



6



---

##### Table of Contents

offload computationally intensive software code from the processing cores to an on-chip hardware component for faster and more power-efficient execution. As a result, our processors can perform
multiple complex and specialized tasks such as network traffic prioritization and application and content inspection without utilizing processor core resources. In addition, all of our processors incorporate security processing engines or algorithms
for secure connectivity and communications.

In the communications equipment market, our processor architecture integrates
network accelerators, memory access accelerators, compression and decompression engines, and high performance network interconnects. This allows our customers to develop systems with fewer semiconductor components as well as systems that perform a
broader range of functions. This level of integration eliminates the need for separate co-processors, digital signal processors and the associated complexity of software for each additional processing component.

XLR® Processor Family. Our multi-core, multi-threaded XLR processor family is a high throughput, feature-rich processor solution for a wide variety of high-performance
infrastructure equipment, enterprise networking, security and storage systems. The XLR processors enable applications, such as integrated security, convergence of voice, data and video applications (i.e., triple play applications),
virtualized storage, load balancing and server offload, as well as content and application aware, multi-service routing and switching. All XLR processors are software- and pin- compatible and available in a variety of power options, enabling
scalable system designs within a single platform.

XLS® Processor Family. Our XLS processor family offers mid- to entry- level derivative versions of our XLRs multi-core, multi-threaded
architecture. The XLS processors leverage the XLRs performance, scalability and technology and incorporate additional advanced innovations. XLS processors address applications that demand smaller form factors and lower power consumption. Our
XLS processors are pin compatible within each series and software compatible across all XLS and XLR processor families.

XLP Processor Family. Our latest generation XLP processor
family is based on the XLR processor multi-core, multi-threaded architecture, and features a multi-issue design and up to three times higher throughput per Watt than the XLR processors with memory cache systems, and internal and peripheral
interconnects expanded to match the higher throughput. The XLP processors are expected to enable applications, such as integrated security, quad-play applications, virtualized storage, load balancing and server offload, as well as content and
application aware, multi-service routing and switching. The XLP processors are designed on an advanced 40 nm process and are expected to be available for sampling to customers in 2010.

Ultra Low-Power Processor FamilyRMI Acquisition

Alchemy® Ultra-Low Power Embedded Processors. Our industry-leading Alchemy®processor family comprises our industry leading embedded processors that deliver the powerful processing performance, ultra low-power functionality and
market specific integration required for next-generation products like enterprise thin clients, automotive infotainment, telematics, and other media-rich embedded applications. Our ultra low-power embedded Alchemy processor cores are based on the
standard MIPS® processor instruction set. We utilize very low power microprocessor design techniques and
utilize low voltage and low leakage cell libraries, which allow us to incorporate high power efficient cores in our chips.

Physical Layer Products

Our PHY family of products provides high-performance, single, dual and quad-channel
low-power interface technology for high-density data communication and storage systems, and offers comprehensive support for multiple 10/40/100 GE standards. The PHY products also integrate advanced electronic dispersion compensation technology. We
expect our PHY family of products to benefit from the same market drivers as our knowledge-based processors and multi-core processors, including growth in 10 GE ports in switches and routers, data center servers, upgrades of the telecom
infrastructure to support IPTV, and the deployment of the 10/40/100 GE IP-backbone for advanced mobile wireless networks.



7



---

##### Table of Contents

In July 2009, we announced our NLP2040 and NLP3040 PHY products, which are the first
single-die, quad-port 10 GE PHY devices on the market, and which are manufactured using TSMCs 40 nm process node. Additionally, we announced our NLP10000 PHY solution which is the first 100 GE PHY solution on the market. These technology
advances in our PHY solutions have enabled us to offer our customers scalability for data-center, metro and long haul applications that require the highest performance while maximizing energy efficiency. Also, in November 2009, we announced
production availability of our NLP1220 dual-port 8.5 Gbps FibreChannel PHY repeater device with an integrated low-power equalization engine targeted at data center switches and enterprise storage markets.

Customers

The markets for
networking, communication infrastructure, security and storage systems utilizing our products and services are mainly served by large OEMs, such as AlaxalA Networks Corporation, Alcatel-Lucent, ARRIS Group, Inc., Brocade Communications Systems,
Inc., Cisco Systems, Inc., Dell Inc., Ericsson, Fortinet, Inc., Fujitsu Limited, Hangzhou H3C Technologies Co. Ltd,Hitachi, Ltd., Huawei Technologies Co., Ltd., Huawei Symantec Technologies Co.,Ltd , IBM Corporation, Juniper Networks, Inc., LG
Electronics, Inc., Motorola, Inc., NEC Corporation, Samsung Electronics, Sun Microsystems, Inc., Tellabs, and ZTE Corporation.

We work with these and other OEMs to understand their requirements, and provide them with solutions that they then qualify and, in some cases, specify for use within their systems. While we sell directly to some OEMs, we also provide our
products and services indirectly to other OEMs through their contract manufacturers, who in turn assemble our products into systems for delivery to our OEM customers. Sales to contract manufacturers accounted for 43%, 41%, and 65% of total revenue
in 2009, 2008, and 2007, respectively. Sales of our products are generally made under short-term, cancelable purchase orders. As a result, our ability to predict future sales in any given period is limited and subject to change based on demand for
our OEM customers systems and their supply chain decisions.

We also provide our products and services indirectly to our
OEM customers through our international stocking sales representatives. Our stocking sales representatives are independent entities that assist us in identifying and servicing foreign networking OEMs and generally purchase our products directly from
us for resale to OEMs or contract manufacturers located outside the U.S. These international stocking sales representatives generally exclusively service a particular foreign region or customer base, and purchase our products pursuant to cancelable
and re-schedulable purchase orders containing our standard warranty provisions for defects in materials, workmanship and product performance. At our option, defective products may be returned for their purchase price or for replacement. To date, our
international stocking sales representatives have returned a small number of defective products to us. Our international stocking sales representatives may also act as a sales representative and receive commissions on sales of our products. Our
international stocking sales representatives include Bussan Microelectronics Corporation/Mitsui Comtek Corporation and Lestina International Limited. Sales through our international stocking sales representatives accounted for 6%, 10%, and 11% of
total revenue in 2009, 2008, and 2007, respectively. While we have purchase agreements with our international stocking sales representatives, they do not have long-term contracts with any of our OEM customers that use our products and services.

We also use distributors to provide valuable assistance to end-users in delivery of our products and related services. While
we have purchase agreements with our distributors, they do not commit the distributors to purchase specific quantities of our products. We believe that distributors do not have long-term contracts with any of their OEM or contract manufacture
customers. In accordance with standard market practice, our distributor agreements limit the distributors ability to return product up to a portion of purchases in the preceding quarter and limit price protection for inventory on-hand if it
subsequently lowers prices on our products. We recognize sales through distributors at the time of shipment to end customers.

On November 7, 2005, we entered into master purchase agreements with each of Cisco Systems, Inc. and Cisco Systems International B.V. Cisco, who together with their contract manufacturers, are our largest



8



---

##### Table of Contents

customers. Pursuant to these agreements, we agreed to supply to Cisco (including its subsidiaries and contract manufacturers) certain of our products for incorporation into Ciscos products.
These agreements set forth the general business terms and conditions applicable to our sales to Cisco, including,



| |  |  | our obligation to accept all purchase orders from Cisco, unless we are unable to meet Ciscos schedule;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | our obligation to ensure that we have the capacity to increase or decrease production of our knowledge-based processors based upon Ciscos demand
forecasts;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our obligation to use our best efforts to meet Ciscos stated cost reduction targets and to provide to Cisco all price decreases that we achieve;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | most favored nation pricing and related audit rights in favor of Cisco, providing that, in any quarter, the prices paid by Cisco for our
products (including progeny and replacements), will be the lowest prices paid for those products by any of our other customers who purchase as much or less than Cisco;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our obligation to provide Cisco, in the event of any short supply of products or components, an allocation that is no less favorable than that provided
to our other customers purchasing similar quantities of similar products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ciscos cancellation rights for standard and custom products;
| | - |  | -------------------------------------------------------------



| |  |  | Ciscos approval and related rights with respect to any proposed changes to, or discontinuation of, our products purchased by Cisco;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ciscos right to purchase our knowledge-based processors directly from our manufacturers under the following circumstances;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------



| |  |  | product discontinuation;
| | - |  | ------------------------



| |  |  | bankruptcy, insolvency and similar situations;
| | - |  | ----------------------------------------------



| |  |  | transfer of at least 50% of our voting control to a Cisco competitor that generates less than 50% of its annual sales from integrated circuit products;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | in all cases, subject, among other things, to Ciscos continuing obligation to pay us for the product and our obligation to disclose the costs
charged to us by our manufacturers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | perpetual, royalty-free, non-exclusive, worldwide license grant to Cisco to use binary code versions of our software in connection with Ciscos
manufacture, sale, license, loan or distribution of its products; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Ciscos extended product warranties, generally for three years and, in the case of epidemic failures, for five years and our indemnification
obligation for epidemic failures which will not exceed the greater of (on a per claim basis) 25% of all amounts paid to us by Cisco during the preceding 12 months (approximately $15.4 million at December 31, 2009) or $9.0 million, plus
replacement costs. The initial term of these agreements was three years and they were automatically renewed through November 2010.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In 2007, at Ciscos request we transitioned into a just-in-time inventory model covering substantially all of our product shipments to Cisco and its contract manufacturers. In conjunction with this
transition, we entered into a purchase agreement with Wintec Industries who became the primary purchaser of our products on a consignment basis for resale to Cisco and Ciscos contract manufacturers. We generally have provided to Wintec
the same terms and conditions that we provide to Cisco under the master purchase agreement between us and Cisco, including: our obligations to accept all purchase orders from Wintec (unless we are unable to meet Wintecs schedule), ensure
that we have the capacity to increase or decrease production of our products based upon Wintecs demand forecasts, use our best efforts to meet Wintecs stated cost reduction targets and provide to Wintec all price decreases that we
achieve, cancellation rights for standard and custom products, and extended product warranties. We also have extended to Wintec a credit limit sufficient to cover our anticipated annual business with Cisco and Ciscos contract manufacturers.
Sales through Wintec accounted for 33% and 35% of total revenue in 2009 and 2008, respectively.



9



---

##### Table of Contents

In 2009, 2008 and 2007, Cisco, including its contract manufacturers, accounted for 35%, 38%,
and 50% of our total revenue, respectively. Cisco accounted for a smaller portion of our total sales in 2009 as we increased our customer diversification. Alcatel-Lucent was a 13% customer and Huawei Technologies Co., Ltd. became a 10% customer, by
revenue, in 2009. We intend to continue to further diversify our customer account base in 2010.

Sales, Marketing and Distribution

Our sales and marketing strategy is to achieve design wins with leaders and emerging participants in the networking,
communications infrastructure, storage and security systems market and to maintain these design wins primarily through leading-edge products and superior customer service. We focus our marketing and sales efforts at a high organizational level of
our potential customers to access key decision makers. In addition, as many targeted OEMs design custom integrated circuits to interface to our products, we believe that applications support at the early stages of design is critical to reducing
time-to-market and minimizing costly redesigns for our customers.

Our product sales cycles can take over 24 months to
complete, requiring a significant investment in time, resources and engineering before realization of income from product sales, if at all. Such long sales cycles mean that OEM customers vendor selections, once made, are normally difficult to
change. As a result, a design loss to the competition can negatively impact our financial results for several years. Similarly, design wins can result in an extended period of revenue opportunities with that customer.

We market and sell our products through our direct sales force, distributors, and through independent sales representatives throughout the
world. Our direct sales force is dedicated to enhancing relationships with our customers. We supplement our direct sales force with independent sales representatives, who have been selected based on their understanding of our targeted
customers systems market and their level of penetration at our target OEM customers. We also use application engineers to provide technical support and design assistance to existing and potential customers.

Our marketing group is responsible for market and competitive analyses and defining our product roadmaps and specifications to take
advantage of market opportunities. This group works closely with our research and development group to align development programs and product launches with our OEM customers schedules. Additionally, this group develops and maintains marketing
materials, training programs and our web site to convey our benefits to our targeted OEMs.

We operate in one business segment
and primarily sell our products directly to customers in the United States, Asia and Europe. Sales for the geographic regions reported below are based upon the bill-to customer headquarter locations. Following is a summary of the geographic
information related to revenues for the years ended December 31, 2009, 2008, and 2007 (in thousands):



|              |  |                         |         |      |   |         |  |   |        
|------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Year Ended December 31,
|              |  | 2009                    |         | 2008 |   | 2007   
|Revenue:      |  |                         |         |      |   |         |  |   |        
|United States |  | $                       | 43,920  |      | $ | 46,287  |  | $ | 48,221 
|Malaysia      |  |                         | 54,379  |      |   | 42,435  |  |   | 34,017 
|China         |  |                         | 47,620  |      |   | 30,378  |  |   | 14,126 
|Other         |  |                         | 28,770  |      |   | 20,827  |  |   | 12,699 
|              |  |                         |         |      |   |         |  |   |        
|Total         |  | $                       | 174,689 |      | $ | 139,927 |  | $ | 109,063
|              |  |                         |         |      |   |         |  |   |        

Research and Development

We devote substantial resources to the development of new products, improvement of existing products and support of the emerging requirements
of our targeted customers. We have assembled a team of product designers



10



---

##### Table of Contents

possessing extensive experience in system architecture, analog and digital circuit design, hardware reference board design, software architecture and driver design and advanced fabrication
process technologies. Our engineering design teams are located in Mountain View and Cupertino, California, Austin, Texas, Beijing, China and Bangalore and Mumbai, India. As of December 31, 2009, we had approximately 319 full-time employees
engaged in research and development worldwide. Our research and development expenses were $73.6 million, $51.6 million, and $45.2 million for the years ended December 31, 2009, 2008, and 2007, respectively.

We use a number of standard design tools in the design, manufacture and verification of our products. Due to the highly complex design
requirements of our products, we typically supplement these standard tools with our own tools to create a proprietary design method that allows us to optimize the performance of our products at the circuit-level.

Manufacturing and Materials

We design and develop all of our products and electronically transfer our proprietary designs to third party wafer foundries to manufacture our products. Wafers processed by these foundries are shipped to our subcontractors, where they are
assembled into finished products and electronically tested before delivery to our customers. We believe that this manufacturing model significantly reduces our capital requirements and allows us to focus our resources on the design, development and
marketing of our products.

Our principal wafer foundry is TSMC in Taiwan. We are actively involved with product development
on next-generation processes, and are designing products on TSMCs most advanced logic processes. The latest generation of our products employs up to eight layers of copper interconnect and 300 millimeter wafer sizes.

Our products are designed to use industry standard packages and be tested using widely available automatic test equipment. We develop and
control product test programs used by our subcontractors based on our product specifications. We currently rely on Amkor Technology, Inc. in Korea, Philippines, and Taiwan, Advanced Semiconductor Engineering, Inc. in Korea and Taiwan, King Yuan
Electronics Co., Ltd. in Taiwan, Signetics Corporation in Korea, and ISE Labs, Inc. in the U.S. to assemble and test our products. We also rely on JSI Shipping to provide supply chain management services. We also have an office in Taiwan that
employs local personnel to work directly with our Asian wafer manufacturers and assembly and test houses to facilitate manufacturing operations.

We have designed and implemented an ISO9001-certified quality management system that provides the framework for continual improvement of our products, processes and customer service. We apply
well-established design rules and practices for CMOS devices through standard design, layout and test processes. We also rely on in-depth simulation studies, testing and practical application testing to validate and verify our products. We emphasize
a strong supplier quality management practice in which our manufacturing suppliers are pre-qualified by our operations and quality teams. To ensure consistent product quality, reliability and yield, we closely monitor the production cycle by
reviewing electrical, parametric and manufacturing process data from each of our wafer foundries and assembly subcontractors.

We currently do not have long-term supply contracts with any of our significant third party manufacturing service providers. We generally place purchase orders with these providers according to terms and conditions of sales which specify
price and 30-day payment terms and which limit the providers liability.

Competition

The markets for our products are highly competitive. We believe that the principal bases of competition are:



| |  |  | processing speed;
| | - |  | -----------------



| |  |  | power dissipation;
| | - |  | ------------------



11



---

##### Table of Contents

| |  |  | capacity of the knowledge or signature database that can be processed;
| | - |  | ----------------------------------------------------------------------



| |  |  | advanced product features allowing OEM and system customer product differentiation;
| | - |  | -----------------------------------------------------------------------------------



| |  |  | price;
| | - |  | ------



| |  |  | product availability and reliability;
| | - |  | -------------------------------------



| |  |  | customer support and responsiveness;
| | - |  | ------------------------------------



| |  |  | timeliness of new product introductions; and
| | - |  | --------------------------------------------



| |  |  | credibility in designing and manufacturing products.
| | - |  | ----------------------------------------------------

We believe that we compete favorably on each of the bases identified above. However, some of our competitors have greater financial resources and a longer track record as a semiconductor supplier than we
do. We anticipate that the market for our products will be subject to rapid technological change. As we enter new markets and pursue additional applications for our products, we expect to face competition from a larger number of competitors. Within
our Layer 2-4 knowledge-based processor, NetLite and network search engine markets, we primarily compete with Renesas Technology, Corp. In the Layer 7 market, we primarily compete with certain divisions of LSI Corporation. In the 10-Gigabit Ethernet
physical layer market, we primarily compete with certain divisions of Applied Micro Circuits Corporation, Broadcom Corporation, Marvell Technology Group Ltd., Cortina Systems, Inc. and Vitesse Semiconductor Corporation. In the multi-core processor
market, we primarily compete with Applied Micro Circuits Corporation, Advanced Micro Devices, Inc., Broadcom Corporation, Cavium Networks, Inc., Freescale Semiconductor, Inc., Intel Corporation, Marvell Technology Group Ltd., and PMC-Sierra, Inc. We
expect to face competition in the future from our current competitors, other manufacturers and designers of semiconductors, including large integrated device manufacturers, and innovative start-up semiconductor design companies.

Intellectual Property

Our
success and future growth will depend, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws to protect our intellectual property. We also attempt to protect our trade
secrets and other proprietary information through agreements with our customers, suppliers, employees and consultants and through security protection of our computer network and physical premises. However, these measures may not provide meaningful
protection for our intellectual property. While our patents and other intellectual property rights are important, we believe that our technical expertise and ability to introduce new products in a timely manner will also be important factors in
maintaining our competitive position.

As of January 31, 2010, we held 422 issued U.S. patents and
15 issued foreign patents with expiration dates ranging from 2011 to 2027. We also have numerous patent applications pending in the U.S. and abroad. We may not receive any additional patents as a result of these applications or future
applications. Nonetheless, we continue to pursue the filing of additional patent applications. Any rights granted under any of our existing or future patents may not provide meaningful protection or any commercial advantage to us.

Many participants in the semiconductor industry have a significant number of patents and have frequently demonstrated a willingness to
commence litigation based on allegations of patent and other intellectual property infringement. From time to time, we have received, and expect to continue to receive, notices of claims of infringement or misappropriation of other parties
proprietary rights. In the event any such claims result in legal actions, we cannot assure you that we will prevail in these actions, or that other actions alleging infringement by us of third party intellectual property rights, misappropriation or
misuse by us of third party trade secrets, or invalidity or unenforceability of our patents will not be asserted against us or that any assertions of infringement, misappropriation, misuse, invalidity or unenforceability will not materially and
adversely affect our business, financial condition and results of operations.



12



---

##### Table of Contents

We intend to protect our rights vigorously, but there can be no assurance that our efforts
will be successful. Thus, despite our precautions, a third party may copy or otherwise obtain and use our products, services or technology without authorization, develop similar technology independently or design around our patents. In addition,
effective patent, copyright, trademark and trade secret protection may be unavailable or limited in certain foreign countries. Moreover, we often incorporate the intellectual property of third parties into our designs, which is subject to
certain obligations with respect to the non-use and non-disclosure of such intellectual property. We cannot assure you that the steps we have taken to prevent infringement, misappropriation or misuse of our intellectual property or the intellectual
property of third parties will be successful. Furthermore, enforcement of our intellectual property rights may divert the efforts and attention of our management team and may be costly to us.

In addition to our own intellectual property, we also rely on third-party technologies for the development of our products. We license
certain technology from MIPS Technologies, Inc., pursuant to a license agreement entered into in July 2003 wherein RMI was granted a non-exclusive, worldwide license to MIPS Technologies micro-processor core technology to develop, implement
and use in its products. The term of the agreement will expire in July 2017. The agreement permits us to continue selling in perpetuity products developed during the term of the agreement containing the licensed technology.

Employees

As of
December 31, 2009, we had 550 full-time employees worldwide, including 319 in research and development, 69 in operations, 114 in sales and marketing and 48 in general and administrative. None of our employees are covered by
collective bargaining agreements. We believe our relations with our employees are good.

Available Information

We organized our business in 1995 as a California limited liability company and incorporated in Delaware in 2000. Our Web site address
is www.netlogicmicro.com. The information in our Web site is not incorporated by reference into this report. Through a link on the Investor Relations section of our Web site, we make available our annual report on Form 10-K, quarterly reports
on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after they are filed with, or
furnished to, the Securities and Exchange Commission.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

If any
of the following risks actually occur, our business, results of operations, financial condition or stock price could suffer significantly.

We have grown rapidly, and a failure to manage any continued growth could reduce our potential revenue and could negatively impact our future operating results.

In 2009, we completed two major acquisitions. In order to successfully implement our overall growth strategies, we will need to carefully and
efficiently manage our planned expansion. Among other things, this will require us to continue to:



| |  |  | improve our products and technology and develop new technologies;
| | - |  | -----------------------------------------------------------------



| |  |  | manage new distribution channels;
| | - |  | ---------------------------------



| |  |  | manage an increasing number of complex relationships with our customers, wafer foundries and other third parties;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | monitor and improve our operating systems, procedures and financial controls on a timely basis;
| | - |  | -----------------------------------------------------------------------------------------------



13



---

##### Table of Contents

| |  |  | retain existing, and hire additional, key management and technical personnel;
| | - |  | -----------------------------------------------------------------------------



| |  |  | expand, train and manage our workforce and, in particular, our research and development, sales, marketing and support organizations;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------



| |  |  | retain and expand the customer base for the IDT NSE Business and the RMI product offerings;
| | - |  | -------------------------------------------------------------------------------------------



| |  |  | integrate and improve the IDT and RMI manufacturing operations; and
| | - |  | -------------------------------------------------------------------



| |  |  | integrate and manage the foreign entities acquired in the RMI acquisition.
| | - |  | --------------------------------------------------------------------------

We may not be able to adequately manage our growth or meet the foregoing objectives. A failure to do so could jeopardize our future revenue
and cause our stock price to decline. Also, our ability to execute our business plan and grow our business will be heavily dependent on our management teams ability to work effectively together.

Our operating cash needs have increased substantially as a result of our acquisition of RMI in October 2009 and other recent acquisitions, and if we are
unable to generate adequate cash flow from our operations to meet these needs, our liquidity may be impaired.

Although in
recent years we have generated sufficient net cash from operations to meet our capital requirements, we have become substantially larger with greater operating cash needs as a result of the RMI and other recent acquisitions. We may be required to
pay up to $15.9 million cash to the former holders of RMI capital stock as earn-out consideration based upon achieving specified percentages of revenue targets for either the 12-month period from October 1, 2009 through September 30, 2010,
or the 12-month period from November 1, 2009 through October 31, 2010, whichever period results in the higher percentage of the revenue target. The earn-out consideration, if any, net of applicable indemnity claims, will be paid on or
before December 31, 2010.

Our future cash needs will depend on many factors, including the amount of revenue we
generate, the timing and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the
continuing market acceptance of our products, and any future business acquisitions that we might undertake. These factors, in turn, depend in large part on the success of our efforts to integrate the RMI and IDT NSE businesses we acquired with our
own business as it existed prior to the acquisitions. In the event that we do not achieve the synergies and realize other benefits we anticipated achieving from these acquisitions, our future cash needs may be greater than we currently anticipate.
We have also incurred and may continue to incur significant transaction expenses in connection with these acquisitions and other transactions.

We may seek additional funding through public or private equity or debt financing, and we have a shelf registration statement that would allow us to sell up to an additional amount of approximately $120
million of our securities from time to time during the next three years. However, additional funding could be constrained by the terms and covenants under our senior secured credit facility and may not be available on terms acceptable to us or at
all. We also might decide to raise additional capital at such times and upon such terms as management considers favorable and in our interests, including, but not limited to, from the sale of our debt and/or equity securities under our shelf
registration statement, but we cannot be certain that we will be able to complete offerings of our securities at such times and on such terms as we may consider desirable for us. Any such financings may be upon terms that are potentially
dilutive to existing stockholders.

We derive most of our revenue from sales of our knowledge-based processors, and, if the demand for
these products and other products does not grow, we may not achieve our growth and strategic objectives.

Our
knowledge-based processors are used primarily in networking systems, including routers, switches, network access equipment and networked storage devices. Although our recent acquisition of RMI has expanded our product portfolio, we have historically
derived a substantial portion of our total revenue from sales of our



14



---

##### Table of Contents

knowledge-based processors and expect to continue to derive a significant portion of our total revenues from these products for the foreseeable future. We believe our future business and
financial success depends on continued market acceptance and increasing sales of our knowledge-based processors. In order to meet our growth and strategic objectives, networking and communications infrastructure OEMs must continue to incorporate,
and increase the incorporation of, our products into their systems as their preferred means of enabling network-aware processing of IP packets, and the demand for their systems must grow as well. We cannot provide assurance that sales of our
knowledge-based processors will increase substantially in the future or that the demand for our customers systems will increase as well. Our future revenues from these products may not increase in accordance with our growth and strategic
objectives if the OEM customers modify their current product designs or select products sold by our competitors instead. Thus, the future success of this part of our business depends in large part on factors outside our control, and sales of our
knowledge-based processors and other products may not meet our revenue growth and strategic objectives. Additionally, due to the high concentration of our sales with a small number of OEMs, we cannot guarantee that the demand for the systems offered
by these customers will increase or that our sales will increase outside this core customer base, and, accordingly, prior quarterly or annual results may not be an indication of our future revenue growth or financial results.

Because we rely on a small number of customers for a significant portion of our total revenue, the loss of, or a significant reduction in, orders for our
products from these customers would negatively affect our total revenue and business.

To date, we have been dependent upon
orders for sales our products to a limited number of customers, and, in particular, Cisco, for most of our total revenue. During the years ended December 31, 2009, 2008 and 2007, Cisco and its contract manufacturers accounted for 35%, 38% and
50% of our total revenue, respectively. In addition, because the market segments served by us and RMI prior to the acquisition were complementary and some of our significant customer bases overlapped, the combination of our companies has not reduced
our dependency on sales to some of our significant customers that we share. We expect that our future financial performance will continue to depend in large part upon our relationship with Cisco and several other large OEMs.

We cannot assure you that existing or potential customers will not develop their own solutions, purchase competitive products or acquire
companies that use alternative methods in their systems. We do not have long-term purchase commitments from any of our OEM customers or their contract manufacturers. Although we entered into master purchase agreements with certain significant
customers including Cisco, one of Ciscos foreign affiliates and a Cisco purchasing agent, these agreements do not include any long-term purchase commitments. Cisco and our other customers do business with us currently only on the basis of
short-term purchase orders (subject, in the case of Cisco, to the terms of the master purchase agreements), which often are cancelable prior to shipment. The loss of orders for our products from Cisco or other major users of our products would have
a significant negative impact on our business.

We face additional risks to our business success and financial condition because of our
dependence on a small number of customers for sales of our products.

Our dependence on a small number of customers,
especially Cisco and its contract manufacturers, for most of our revenue in the foreseeable future creates additional risks for our business, including the following:



| |  |  | we may face increased pressure to reduce the average selling prices of our products;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | we may find it difficult to pass through increases in our manufacturing and other direct costs;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the reputation of our products in the marketplace may be affected adversely if Cisco or other OEMs that represent a significant percentage of our sales
of products reduce or cease their use of our products; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

##### Table of Contents

| |  |  | we may face problems in collecting a substantial portion of our accounts receivable if any of these companies faces financial difficulties or dispute
payments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

While we achieved profitability in recent years, we had a net loss in 2009 and a history of net losses prior
to 2005. We may incur significant net losses in the future and may not be able to sustain profitability.

We reported a net
loss of $47.2 million during the year ended December 31, 2009. We reported net income of $3.6 million and $2.6 million during the years ended 2008 and 2007, and we have reported net losses in years prior to fiscal 2005. At
December 31, 2009, we had an accumulated deficit of approximately $123.1 million. To regain profitability, we will have to continue to generate greater total revenue and control costs and expenses. We cannot assure you that we will be able
to generate greater total revenue, or limit our costs and expenses, sufficiently to sustain profitability on a quarterly or annual basis. Moreover, if we continue to make acquisitions and other transactions that generate substantial expenses for
acquired intangible assets and similar items as well acquisition costs, we may not become profitable in the near term even though we otherwise meet our growth and operating objectives. For example, for the year ended December 31, 2009 we
recorded $62.4 million of non-cash operating expenses. See Cash Flows during the Year ended December 31, 2009 in Item 7, Managements Discussion and Analysis of Financial Conditions and Results of Operations, and Note 2,
Business Combinations and Asset Purchase in the Notes to Consolidated Financial Statement.

Because we sell our products on a
purchase order basis and rely on estimated forecasts of our customers needs, inaccurate forecasts could adversely affect our business.

We sell our products pursuant to individual purchase orders (subject, in the case of Cisco and certain key customers, to the terms of a master purchase agreement), and not pursuant to long-term purchase
commitments. Therefore, we rely on estimated demand forecasts, based upon input from our customers, to determine how much product to manufacture. Because our sales are based on purchase orders, our customers may cancel, delay or otherwise modify
their purchase commitments with little or no consequence to them and with little or no notice to us. For these reasons, we generally have limited visibility regarding our customers product needs. We cannot provide assurance as to the
quantities or timing required by our customers for our products. We cannot assure you that we will not experience subsequent substantial warranty claims or that warranty claims will not result in cancellation of existing orders or reluctance of
customers to place future orders. In addition, the product design cycle for networking OEMs is lengthy, and it may be difficult for us to accurately anticipate when they will commence commercial shipments of products that include our
knowledge-based processors. Whether in response to changes affecting the industry or a customers specific business pressures, any cancellation, delay or other modification in our customers orders could significantly reduce our revenue,
cause our operating results to fluctuate from period to period and make it more difficult for us to predict our revenue. In the event of a cancellation or reduction of an order, we may not have enough time to reduce operating expenses to minimize
the effect of the lost revenue on our business, and we may purchase too much inventory and spend more capital than expected.

Additionally, if we overestimate customer demand for our products, we may purchase products from manufacturers that we may not be able to sell. Conversely, if we underestimate customer demand or if sufficient manufacturing capacity were
unavailable, we would forego revenue opportunities and could lose market share in the markets served by our products. In addition, our inability to meet customer requirements for our products could lead to delays in product shipments, force
customers to identify alternative sources and otherwise adversely affect our ongoing relationships with our customers.

We are dependent on
contract manufacturers for a significant portion of our revenue.

Many of our OEM customers, including Cisco, use third
party contract manufacturers to manufacture their systems. These contract manufacturers represented 43%, 41% and 65% of our total revenue for the year ended December 31, 2009, 2008 and 2007, respectively. Contract manufacturers purchase our
products directly from us on behalf of OEMs. Although we work with our OEM customers in the design and development phases of their



16



---

##### Table of Contents

systems, these OEM customers are gradually giving contract manufacturers more authority in product purchasing decisions. As a result, we depend on a concentrated group of contract manufacturers
for a substantial portion of our revenue. If we cannot compete effectively for the business of these contract manufacturers or if any of the contract manufacturers, which work with our OEM customers, experience financial or other difficulties in
their businesses, our revenue and our business could be adversely affected. In particular, if one of our OEM customers contract manufacturers becomes subject to bankruptcy proceedings, neither we nor our OEM customer may be able to obtain any
of our products held by the contract manufacturer. In addition, we may not be able to recover any payments owed to us by the contract manufacturer for products already delivered or recover the products held in the contract manufacturers
inventory when the bankruptcy proceeding is initiated. If we are unable to deliver our products to our OEM customers in a timely manner, our business would be adversely affected.

The average selling prices of our products may decline, which could reduce our revenue and gross margin.

In our experience the average selling prices of our products and the RMI products sold by RMI have declined over the course of their commercial lives, principally due to the supply of competing products,
reduction in demand from customers, pressure from customers to reduce prices and product cycle changes; we expect these trends to continue. In addition, under our master purchase agreements with Cisco, we agreed to provide to Cisco all price
decreases that we achieve, and granted to Cisco the right (under limited circumstances) to purchase our products directly from our manufacturers (subject to payments to us, net of specified costs). Declining average selling prices can adversely
affect our future operating results. To maintain acceptable operating results, we will need to develop and introduce new products and product enhancements on a timely basis and continue to reduce our costs. If we are unable to offset any reductions
in our average selling prices by increasing our sales volumes and achieving corresponding production cost reductions, or if we fail to develop and introduce new products and enhancements on a timely basis, our revenue and operating results will
suffer.

We rely on third parties for the manufacture of our products, and a significant increase in wafer pricing or our failure to secure
sufficient capacity could limit our growth and adversely affect our operating results.

As a fabless semiconductor company,
we rely on third-party wafer foundries to manufacture our products. We currently do not have long-term supply contracts with any of the wafer foundries, including TSMC, and United Microelectronics Corporation, or UMC. Neither TSMC nor UMC is
obligated to perform services or supply products to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. As a result, there are numerous risks associated with our
reliance on these wafer foundries, including the possibilities that TSMC or UMC may give higher priority to their other customers or that our relationships with either wafer foundry may deteriorate. We cannot assure you that TSMC and UMC will
continue to provide us with our products at acceptable yields or in sufficient quantities, for reasonable costs and on a timely basis to meet our customers needs. A failure to ensure the timely fabrication of our products could cause us
to lose customers and could have a material adverse effect on our operating results.

If either wafer foundry, and in
particular TSMC, ceases to provide us with required production capacity with respect to our products, we cannot assure you that we will be able to obtain manufacturing capacity from other wafer foundries on commercially reasonable terms or that
these arrangements, if established, will result in the successful manufacturing of our products. These arrangements might require us to share our technology and might be subject to unilateral termination by the wafer foundries. Even if such capacity
is available from another manufacturer, we would need to convert the production of our integrated circuits to a new fabrication process and qualify the other manufacturer, which process could take nine months or longer. Furthermore, we may not be
able to identify or qualify manufacturing sources that would be able to produce wafers with acceptable manufacturing yields.

Additionally, some of the network search engine products we acquired from IDT are manufactured for us by IDT at their wafer fabrication facilities. While IDT is contractually obligated to manufacture for us certain



17



---

##### Table of Contents

quantities of these products, we cannot assure you that IDT will continue to honor these commitments, that IDTs fabrication facility will remain in business or that IDT will be able to
always meet our production demands which may adversely impact our operating results.

We also rely on third parties for other products and
services, including the assembly, testing and packing of our products, and engineering services, and any failure by third parties to provide the tools and services we require could limit our growth and adversely affect our future operating results.

Our products are assembled and tested by third-party vendors that require the use of high performance assembly and test
equipment. In addition, in connection with the design of our products, we use software tools, which we obtain from third party software vendors, for simulation, layout and other design purposes. Our reliance on independent assembly, testing,
software and other vendors involves a number of risks, including reduced control over delivery schedules, quality assurance and costs. We currently do not have long-term supply contracts with any of these third party vendors. As a result, most of
these third party vendors are not obligated to provide products or perform services to us for any specific period, in any specific quantities or at any specific price, except as may be provided in a particular purchase order. The inability of these
third party vendors to deliver high performance products or services of acceptable quality and in a timely manner, could lengthen our design cycle, result in the loss of our customers and reduce our revenue.

We also rely on third party component suppliers to provide custom designed integrated circuit packages for our products. In some instances,
these package designs are provided by a single supplier. Our reliance on these suppliers involves a number of risks, including reduced control over delivery schedules, quality assurance and costs. We currently do not have long-term supply
contracts with any of these package vendors. As a result, most of these third party vendors are not obligated to provide products or perform services to us for any specific period, in any specific quantities or at any specific price, except as
may be provided in a particular purchase order. The inability of these third party vendors to deliver packages of acceptable quality and in a timely manner, particularly the sole source vendors, could adversely affect our delivery commitments and
adversely affect our operating results or cause them to fluctuate more than anticipated. Additionally, these packages may require specialized or high-performance component parts that may not be available in quantities or in time frames that meet our
requirements or the anticipated requirement of our customers.

In connection with the design of our products, we have and may
license third party intellectual property, and use third party engineering services. Our reliance on these third party intellectual property and engineering services providers involves a number of risks, including reduced control over and quality of
the intellectual property and service deliverables, quality and costs. The inability of these third party providers to deliver high performance products or services of acceptable quality and in a timely manner, could lengthen our design cycle,
result in the loss of our customers and reduce our revenue.

Our costs may increase substantially if the wafer foundries, assembly and test
vendors that supply and test our products do not achieve satisfactory product yields, reliability or quality.

The wafer
fabrication process is an extremely complicated process where the slightest changes in the design, specifications or materials can result in material decreases in manufacturing yields or even the suspension of production. From time to time, we and
our wafer foundries have experienced, and are likely to continue to experience manufacturing defects and reduced manufacturing yields related to errors or problems in our wafer foundries manufacturing processes or the interrelationship of
their processes with our designs. In some cases, our wafer foundries may not be able to detect these defects early in the fabrication process or determine the cause of such defects in a timely manner, which may affect the quality or reliability of
our products. We may incur substantial research and development expense for prototype or development stage products as we qualify the products for production.

Generally, in pricing our products, we assume that manufacturing, assembly and test yields will continue to increase, even as the complexity of our products increases. Once our products are initially
qualified with our



18



---

##### Table of Contents

wafer foundries, minimum acceptable yields are established. We are responsible for the costs of the wafers if the actual yield is above the minimum. If actual yields are below the minimum, we are
not required to purchase the wafers. The minimum acceptable yields for our new products are generally lower at first and increase as we achieve full production. Whether as a result of a design defect or manufacturing, assembly or test error,
unacceptably low product yields or other product manufacturing, assembly or test problems could substantially increase the overall production time and costs and adversely impact our operating results on sales of our products. Product yield losses
will increase our costs and reduce our gross margin. In addition to significantly harming our operating results and cash flow, poor yields may delay shipment of our products and harm our relationships with existing and potential customers.

To be successful we must continue to develop and have manufactured for us, innovative products to meet the evolving requirements of
networking OEMs.

To remain competitive, we devote substantial resources to research and development, both to improve our
existing technology and to develop new technology. We also seek to improve the manufacturing processes for our products, including the use of smaller process geometries, which we believe is important for our products to serve our OEM customers
requirements for enhanced processing. Our failure to migrate our products to processes at smaller process geometries could substantially reduce the future competitiveness of our products. In addition, from time to time, we may have to redesign some
of our products or modify the manufacturing process for them. We cannot give you any assurance that we will be able to improve our existing technology or develop and integrate new technology into our products. Even if we design better products, we
may encounter problems during the manufacturing or assembly process, including reduced manufacturing yields, production delays and increased expenses, all of which could adversely affect our business and results of operations.

In addition, given the highly complex nature of these products, even the slightest change or adjustment to our integrated circuit designs
could require substantial resources to implement them. We may not be able to make these changes or adjustments to our products or correct any errors or defects arising from their implementation. Failure to make these changes or adjustments or
correct these errors or defects during the product development stages, or any resulting delays, could severely harm our existing and potential customer relationships and could likely increase our development costs, adversely affecting our operating
results. If these changes, adjustments, errors or defects are not identified or requested until after commercial production has begun or after products have been delivered to customers, we may be required to re-test existing inventory, replace
products already shipped or re-design the products, all of which would likely result in significant time delays and additional costs and expenses.

We have sustained substantial losses from low production yields in the past and may incur such losses in the future.

Designing and manufacturing integrated circuits is a difficult, complex and costly process. Once research and development has been completed and the foundry begins to produce commercial volumes of the new integrated circuit, products still
may contain errors or defects that could adversely affect product quality and reliability. We have experienced low yields and have incurred substantial research and development expenses in the design and initial production phases of all of our
products, and similar problems have historically been experienced in the production of the RMI products by RMI. We cannot assure you that we will not experience low yields, substantial research and development expenses, product quality, reliability
or design problems, or other material problems with our products that we have shipped or may ship in the future.

If we fail to retain key
personnel and hire additional personnel, our business and growth could be negatively affected.

Our business has been
dependent to a significant degree upon the services of a small number of executive officers and technical employees. We generally do not have non-competition agreements or term employment



19



---

##### Table of Contents

agreements with any of our executive officers, whom we generally employ at will. We do not maintain key-man life insurance on the lives of any of our key personnel. The loss of any of these
individuals could negatively impact our technology development efforts and our ability to service our existing customers and obtain new customers.

Our future growth will also depend, in part, upon our ability to recruit and retain other qualified managers, engineers and sales and marketing personnel. There is intense competition for these
individuals in our industry, and we cannot assure you that we will be successful in recruiting and retaining these individuals. If we are unable to recruit and retain these individuals, our technology development and sales and marketing efforts
could be negatively impacted.

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

In todays competitive technology industry, employment decisions of highly skilled personnel are influenced by equity compensation packages, which offer incentives above traditional compensation only
where there is a consistent, long-term upward trend over time of a companys stock price. If our stock price declines due to market conditions, investors perceptions of the technology industry or managerial or performance problems we
have, our equity compensation incentives, especially stock options may lose value to key employees, and we may lose these employees or be forced to grant additional equity compensation incentives to retain them. This in turn could result in:



| |  |  | immediate and substantial dilution to investors resulting from the grant of additional equity awards necessary to retain employees; and
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------



| |  |  | potential compensation charges against the company, which could negatively impact our operating results.
| | - |  | --------------------------------------------------------------------------------------------------------

Additionally, if we fail to provide an adequate amount of equity consideration to new and existing employees we may be unable to compete for
new talent and retain our existing talent. The number of shares available for grant under our 2004 Equity Incentive Plan (the Plan) may not be adequate enough to continue to enable us to competitively compensate our employees, and if we
are unable to obtain from our stockholders an increase in the number of shares authorized under the Plan either in fiscal year 2010 or fiscal year 2011, we may not be able to retain our employees which could significantly impact our operating
results.

A failure to successfully address the potential difficulties associated with international business could reduce our growth,
increase our operating costs and negatively impact our business.

We conduct a significant amount of our business with
companies that operate primarily outside of the United States, and intend to increase sales to companies operating outside of the United States. For example, our customers based outside the United States accounted for 75%, 67% and 56% of our
total revenue during the years ended December 31, 2009, 2008 and 2007, respectively. Not only are many of our customers located abroad, but our two wafer foundries are based in Taiwan, and we outsource the assembly and some of the testing of
our products to companies based in Taiwan and Hong Kong. We face a variety of challenges in doing business internationally, including:



| |  |  | foreign currency exchange fluctuations;
| | - |  | ---------------------------------------



| |  |  | compliance with local laws and regulations that we not be familiar with;
| | - |  | ------------------------------------------------------------------------



| |  |  | unanticipated changes in local regulations;
| | - |  | -------------------------------------------



| |  |  | potentially adverse tax consequences, such as withholding taxes;
| | - |  | ----------------------------------------------------------------



| |  |  | timing and availability of export and import licenses;
| | - |  | ------------------------------------------------------



20



---

##### Table of Contents

| |  |  | political and economic instability;
| | - |  | -----------------------------------



| |  |  | reduced or limited protection of our intellectual property;
| | - |  | -----------------------------------------------------------



| |  |  | protectionist laws and business practices that favor local competition; and
| | - |  | ---------------------------------------------------------------------------



| |  |  | additional financial risks, such as potentially longer and more difficult collection periods.
| | - |  | ---------------------------------------------------------------------------------------------

Because we anticipate that we will continue to rely heavily on foreign based customers for our future growth, the occurrence of any of the
circumstances identified above could significantly increase our operating costs, delay the timing of our revenue and harm our business and financial condition.

We must design our products to meet the needs of our OEM customers and convince them to use our products, or our revenue will be adversely affected.

In general, our OEM customers design our products into their equipment during the early stages of their development after an in-depth
technical evaluation of both our and our competitors products. These design wins are critical to the success of our business. In competing for design wins, if a competitors product is already designed into the product offering of a
potential customer, it becomes very difficult for us to sell our products to that customer. Changing suppliers involves additional cost, time, effort and risk for the customer. In addition, our products must comply with the continually evolving
specifications of our OEMs. Our ability to compete in the future will depend, in large part, on our ability to comply with these specifications. As a result, we expect to invest significant time and effort and to incur significant expense to design
our products to ensure compliance with relevant specifications. Even if an OEM designs our products into its systems, we cannot assure you that its systems will be commercially successful or that we will receive significant revenue from sales our
products for those systems.

Factors that negatively affect the businesses of our targeted OEMs that use or could use our products could
negatively impact our total revenue.

The timing and amount of our revenue depend on the ability of our targeted OEMs who
use our products to market, produce and ship systems incorporating our technology. Factors that negatively affect a significant customer or group of customers could negatively affect our results of operations and financial condition. Many issues
beyond our control influence the success of our targeted OEMs that use our products, including, for example, the highly competitive environment in which they operate, the strength of the markets for their products, their engineering capabilities,
their ability or inability to obtain other components from other suppliers, the compatibility of any of their other components with our products, the impact of a worldwide recession on their capital spending and sales of their equipment, and their
financial and other resources. Likewise, we have no control over their product development or pricing strategies, which directly affect sales of their products and, in turn, our revenue. A decline in sales of our OEM customers systems that use
our products would reduce our revenue. In addition, seasonal and other fluctuations in demand for their products could cause our operating results to fluctuate, which could cause our stock price to fall.

We have a lengthy sales cycle, which may result in significant expenses that do not generate significant revenue or delayed revenue generation from our
selling efforts and limits our ability to forecast our revenue.

We expect that our product sales cycle, which results in
our products being designed into our customers products, could take over 24 months. It can take an additional nine months to reach volume production of these products. A number of factors can contribute to the length of the sales cycle,
including technical evaluations of our products by our OEMs, the design process required to integrate our products into our OEM customers products and the timing of our OEMs new product announcements. In anticipation of product orders,
we may incur substantial costs before the sales cycle is complete and before we receive any customer payments. As a



21



---

##### Table of Contents

result, in the event that a sale is not completed or is cancelled or delayed, we may have incurred substantial expenses, making it more difficult for us to become profitable or otherwise
negatively impacting our financial results. Furthermore, because of our lengthy sales cycle, our receipt of revenue from our selling efforts may be substantially delayed, our ability to forecast our future revenue may be more limited and our revenue
may fluctuate significantly from quarter to quarter.

Our operating results could be adversely affected if we have to satisfy product
warranty or liability claims.

If our products are defective or malfunction, we could be subject to product warranty or
product liability claims that could have significant related warranty charges or warranty reserves in our financial statements. Further, we may spend significant resources investigating potential product design, quality and reliability claims, which
could result in additional charges in our financial statements until such claims are resolved. We cannot guarantee that warranty reserves will either increase or decrease in future periods. Further, in connection with the master purchase agreements
that we entered into with Cisco in 2005, we agreed to extended product warranties for the benefit of Cisco. Specifically, we agreed to general three-year warranties and, in the case of epidemic failures, to five-year warranties. In addition, under
the Cisco agreements, we have agreed to indemnify Cisco for costs incurred in rectifying epidemic failures, up to the greater of (on a per claim basis) 25% of all amounts paid to us by Cisco during the preceding 12 months (approximately, $15.4
million at December 31, 2009) or $9.0 million, plus replacement costs. If we are required to make payments under this indemnity, our operating results may be adversely affected. Moreover, these claims in the future, regardless of their outcome,
could adversely affect our business.

Our revenue and operating results may fluctuate significantly from period to period, on a quarterly
or annual basis, causing volatility in our stock price.

Our total revenue and operating results have fluctuated from
quarter to quarter in the past and are expected to continue to do so in the future. As a result, you should not rely on quarter-to-quarter comparisons of our operating results as an indication of our future performance. Fluctuations in our total
revenue and operating results could negatively affect the trading price of our stock. In addition, our total revenue and results of operations may, in the future, be below the expectations set by us or of analysts and investors, which could cause
our stock price to decline. Factors that are likely to cause our revenue and operating results to fluctuate include, for example, the periodic costs associated with the generation of mask sets for new products and product improvements and the risk
factors discussed throughout this section. Additional factors that could cause our revenue and operating results to fluctuate from period to period include:



| |  |  | foreign currency exchange fluctuations;
| | - |  | ---------------------------------------



| |  |  | the timing and volume of orders received from our customers;
| | - |  | ------------------------------------------------------------



| |  |  | market demand for, and changes in the average selling prices of, our products;
| | - |  | ------------------------------------------------------------------------------



| |  |  | the rate of qualification and adoption of our products by networking OEMs;
| | - |  | --------------------------------------------------------------------------



| |  |  | fluctuating demand for, and lengthy life cycles of, the products and systems that incorporate our products;
| | - |  | -----------------------------------------------------------------------------------------------------------



| |  |  | the market success of the OEMs systems that incorporate our products;
| | - |  | ----------------------------------------------------------------------



| |  |  | the ability of our wafer foundries to supply us with production capacity and finished products to sell to our OEM customers;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the level of our costs and operating expenses;
| | - |  | ---------------------------------------------------------



| |  |  | our ability to receive our manufactured products from our wafer foundries and ship them within a particular reporting period;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------



| |  |  | deferrals or cancellations of customer orders in anticipation of the development and commercialization of new technologies or for other reasons;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------



22



---

##### Table of Contents

| |  |  | changes in our product lines and revenue mix;
| | - |  | ---------------------------------------------



| |  |  | the timing of the introduction by others of competing, replacement or substitute products technologies;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | our ability or the ability of our OEM customers that use our products to procure required components or fluctuations in the cost of such components;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | cyclical fluctuations in semiconductor or networking markets; and
| | - |  | -----------------------------------------------------------------



| |  |  | general economic conditions that may affect end-user demand for products that use our products.
| | - |  | -----------------------------------------------------------------------------------------------

In addition, RMIs business has historically been subject to seasonality, which may cause us to experience greater fluctuation of our
revenues following the acquisition.

The cyclical nature of the semiconductor industry and the networking markets could adversely affect
our operating results and our business.

We expect our business to be subject to the cyclicality of the semiconductor
industry, especially the market for communications integrated circuits. Historically, there have been significant downturns in this industry segment, characterized by reduced demand for integrated circuits and accelerated erosion of average selling
prices. At times, these downturns have lasted for prolonged periods of time. Furthermore, from time to time, the semiconductor industry also has experienced periods of increased demand and production constraints, in which event we may not be able to
have our products produced in sufficient quantities, if at all, to satisfy our customers needs. It is likely that the communications integrated circuit business will experience similar downturns in the future and that, during such times, our
business could be affected adversely. It is also likely that the semiconductor industry will experience periods of strong demand. We may have difficulty in obtaining enough products to sell to our customers or may face substantial increases in
the wafer prices charged by our foundries.

In addition, the networking industry from time to time has experienced and may
experience a pronounced downturn. To respond to a downturn, many networking service providers may be required to slow their research and development activities, cancel or delay new product developments, reduce their workforces and inventories and
take a cautious approach to acquiring new equipment and technologies from networking OEMs, which would have a significant negative impact on our business. In the future, a downturn in the networking industry may cause our operating results to
fluctuate significantly from year to year, which also may tend to increase the volatility of the price of our common stock.

We may not be
able to protect and enforce our intellectual property rights, which could impair our ability to compete and reduce the value of our technology.

Our success and future revenue growth depend, in part, on our ability to protect our intellectual property. We rely primarily on patent, copyright, trademark and trade secret laws, as well as
confidentiality procedures, to protect our proprietary technologies and processes. However, these measures may not provide meaningful protection for our intellectual property.

We cannot assure you that any patents will issue from any of our pending applications. Any rights granted under any of our existing or
future patents may not provide meaningful protection or any commercial advantage to us. For example, such patents could be challenged or circumvented by our competitors or declared invalid or unenforceable in judicial or administrative proceedings.
The failure of any patents to adequately protect our technology would make it easier for our competitors to offer similar products. We do not have foreign patents or pending applications corresponding to many of our U.S. patents and patent
applications, including in some foreign countries where our products are sold or may be sold in the future. Even if foreign patents are granted, effective enforcement in foreign countries may not be available.

With respect to our other proprietary rights, it may be possible for third parties to copy or otherwise obtain and use our proprietary
technology or marks without authorization or to develop similar technology



23



---

##### Table of Contents

independently. Monitoring unauthorized use of our proprietary technology or marks is difficult and costly, and we cannot be certain that the steps we have taken will prevent misappropriation or
unauthorized use of our technology or marks. In addition, effective patent, copyright, trademark and trade secret protection may not be available or may be limited in certain foreign countries. Many companies based in the U.S. have encountered
substantial infringement problems in foreign countries, including countries in which we sell products. Our failure to effectively protect our intellectual property could reduce the value of our technology and could harm our business, financial
condition and operating results.

Furthermore, we have in the past and may in the future initiate claims or litigation against
third parties to determine the validity and scope of proprietary rights of others. In addition, we may in the future initiate litigation to enforce our intellectual property rights or the rights of our customers or to protect our trade secrets.
Litigation by us could result in significant expense and divert the efforts of our technical and management personnel and could materially and adversely affect our business, whether or not such litigation results in a determination favorable to us.

Any claim that our products or our proprietary technology infringe third party intellectual property rights could increase our costs of
operation and distract management and could result in expensive settlement costs.

The semiconductor industry is
characterized by vigorous protection and pursuit of intellectual property rights or positions, which have resulted in often protracted and expensive litigation. From time to time, we are involved in litigation relating to intellectual property
rights. In addition, we have received notices from time to time that claim we have infringed upon or misappropriated intellectual property rights owned by others. We typically respond when appropriate and as advised by legal counsel. We cannot
assure you that parties will not pursue litigation with respect to those allegations. We may, in the future, receive similar notices, any of which could lead to litigation against us. For example, parties may initiate litigation based on
allegations that we have infringed their intellectual property rights or misappropriated or misused their trade secrets or may seek to invalidate or otherwise render unenforceable one or more of our patents. Litigation against us can result in
significant expense and divert the efforts of our management, technical, marketing and other personnel, whether or not the litigation results in a determination adverse to us. We cannot assure you that we will be able to prevail or settle any such
claims or that we will be able to do so at a reasonable cost. In the event of an adverse result in any such litigation, we could be required to pay substantial damages for past infringement and royalties for any future use of the technology. In
addition, we may be required to cease the sale of certain products, recall certain products from the market, redesign certain products offered for sale or under development or cease the use of certain marks or names. We cannot assure you that we
will be able to successfully redesign our products or do so at a reasonable cost. Additionally, we have in the past sought and may in the future seek to obtain a license to a third partys intellectual rights and have granted and may in the
future grant a license to certain of our intellectual property rights to a third party in connection with a cross-license agreement or a settlement of claims or actions asserted against us. However, we cannot assure you that we would be able to
obtain a license on commercially reasonable terms, or at all

Our customers could also become the target of litigation
relating to the patent and other intellectual property rights of others. This could trigger technical support and indemnification obligations in some of our license or customer agreements. These obligations could result in substantial expenses,
including the payment by us of costs and damages related to claims of patent infringement. In addition to the time and expense required for us to provide support or indemnification to our customers, any such litigation could disrupt the businesses
of our customers, which in turn could hurt our relations with our customers and cause the sale of our products to decrease. We cannot assure you that claims for indemnification will not be made or that if made, such claims would not have a material
adverse effect on our business, operating results or financial condition. We do not have any insurance coverage for intellectual property infringement claims for which we may be obligated to provide indemnification. If we are obligated to pay
damages in excess of, or otherwise outside of, our insurance coverage, or if we have to settle these claims, our operating results could be adversely affected.



24



---

##### Table of Contents

If we are unable to compete effectively, our revenue and market share may be reduced.

Our business is extremely competitive, especially during the design-in phase of our customers design cycles. We compete with large
semiconductor manufacturers, many of which have more established reputations, more diverse customer bases and greater financial and other resources than we do. In addition, our OEM customers may design their own integrated circuits to address
their system needs. As we develop new applications for our products and expand into new markets, we expect to face even greater competition. Our present and future competitors may be able to better anticipate customer and industry demands and
to respond more quickly and efficiently to those demands, such as with product offerings, financial discounts or other incentives. Furthermore, our OEM customers may be able develop or acquire integrated circuits that satisfy their needs faster or
most cost effectively than we can. We cannot assure you that we will be able to compete effectively against these and our other competitors. If we do not compete effectively, our revenue and market share may decline.

Our success may depend on our ability to comply with new or evolving industry standards applicable to our products or our business.

Our ability to compete in the future may depend on our ability to ensure that our products comply with evolving industry standards affecting
our customers equipment and other markets in which we compete. In addition, from time to time, new industry standards may emerge which could render our products incompatible with the products of our customers or suppliers. In order to ensure
compliance with the relevant standards, we may be required to devote significant time, capital and other resources to modify or redesign our existing products or to develop new products. We cannot assure you that we will be able to develop products
which comply with prevailing standards. If we are unable to develop these products in a timely manner, we may miss significant business opportunities, and our revenue and operating results could suffer.

If an earthquake or other natural disaster disrupts the operations of our third party wafer foundries or other vendors located in high risk regions, we
could experience significant delays in the production or shipment of our products.

TSMC and UMC, which manufacture our
products, along with most of our vendors who handle the assembly and testing of our products, are located in Asia. The risk of an earthquake in the Pacific Rim region is significant due to the proximity of major earthquake fault lines. In September
1999, a major earthquake in Taiwan affected the facilities of several of these third party vendors, as well as other providers of these services. As a result of this earthquake, these vendors suffered power outages and disruptions that impaired
their production capacity. In March 2002 and September 2003, additional earthquakes occurred in Taiwan. The occurrence of additional earthquakes or other natural disasters could result in the disruption of the wafer foundry or assembly and test
capacity of the third parties that supply these services to us. We may not be able to obtain alternate capacity on favorable terms, if at all.

Any future acquisitions we make could disrupt our business, and harm our financial condition and dilute our stockholders.

In the future, we may consider additional opportunities to acquire other businesses or technologies that would complement our current offerings, expand the breadth of our markets or enhance our technical
capabilities. Acquisitions present a significant number of potential challenges that could, if not met, disrupt our business operations, increase our operating costs, reduce the value to us of the acquired company or business, including:



| |  |  | integration of the acquired employees, operations, technologies and products with our existing business and products;
| | - |  | ---------------------------------------------------------------------------------------------------------------------



| |  |  | focusing managements time and attention on our existing core business;
| | - |  | -----------------------------------------------------------------------



25



---

##### Table of Contents

| |  |  | retention of business relationships with suppliers and customers of the acquired company;
| | - |  | -----------------------------------------------------------------------------------------



| |  |  | entering markets in which we may lack prior experience;
| | - |  | -------------------------------------------------------



| |  |  | retention of key employees of the acquired company or business;
| | - |  | ---------------------------------------------------------------



| |  |  | amortization of intangible assets, write-offs, stock-based compensation and other charges relating to the acquired business and our acquisition costs;
and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | dilution to our existing stockholders from the issuance of additional shares of common stock or reduction of earnings per outstanding share in
connection with an acquisition that fails to increase the value of our company.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We cannot provide
assurances, however, that this acquisition or future acquisitions that we might make will achieve our business objectives or increase our value or the price of our common stock.

RISKS RELATING TO OUR RECENT ACQUISITION OF RMI CORPORATION

The integration of RMI may
not be completed successfully, cost-effectively or on a timely basis.

As a result of our acquisition of RMI in October
2009, we have significantly more assets, operations and employees to manage than we did prior to the acquisition. The integration process has required us to significantly expand the scope of our operations and financial systems, and there is a
significant degree of difficulty and management involvement inherent in that process. These difficulties include, among others:



| |  |  | the diversion of managements attention from the day-to-day operations of the combined company;
| | - |  | -----------------------------------------------------------------------------------------------



| |  |  | the assimilation of RMI employees and the integration of two business cultures;
| | - |  | -------------------------------------------------------------------------------



| |  |  | challenges in attracting and retaining key personnel;
| | - |  | -----------------------------------------------------



| |  |  | the integration of information, accounting, finance, sales, billing, payroll and regulatory compliance systems;
| | - |  | ---------------------------------------------------------------------------------------------------------------



| |  |  | challenges in keeping existing customers and obtaining new customers; and
| | - |  | -------------------------------------------------------------------------



| |  |  | challenges in combining product offerings and sales and marketing activities.
| | - |  | -----------------------------------------------------------------------------

There is no assurance that we will successfully or cost-effectively integrate RMIs operations with our own. For example, the costs of
achieving systems integration may substantially exceed our current estimates. As a non-public company, RMI did not have to comply with the requirements of the Sarbanes-Oxley Act of 2002 for internal control and other procedures. Integrating its
systems and activities with ours in order to ensure our continued compliance with those requirements may continue to cause us to incur substantial additional expense. In addition, the integration process may cause an interruption of, or loss of
momentum in, the activities of our business. If our management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, our business could suffer and
our results of operations and financial condition may be harmed.

We may not be able to realize the anticipated synergies and other
benefits we expect to achieve from the acquisition of RMI within the timeframe that is currently expected, or at all.

Strategic transactions like our acquisition of RMI create numerous uncertainties and risks. As a result, the combined company may not be able to realize the expected revenue growth and other benefits and synergies that we sought to achieve
from the acquisition. We believe that the businesses conducted by us and RMI prior to the merger were complementary in a number of respects and that the combined company can take advantage of synergies, economies of scale and other benefits in the
following areas, among others:



| |  |  | market expansion;
| | - |  | -----------------



| |  |  | increased sales to existing customers;
| | - |  | --------------------------------------



26



---

##### Table of Contents

| |  |  | product and technology synergies;
| | - |  | ---------------------------------



| |  |  | operational and manufacturing synergies;
| | - |  | ----------------------------------------



| |  |  | research and development synergies;
| | - |  | -----------------------------------



| |  |  | expansion of intellectual property and patent portfolio;
| | - |  | --------------------------------------------------------



| |  |  | geographic synergies; and
| | - |  | -------------------------



| |  |  | cultural synergies.
| | - |  | -------------------

However, these anticipated benefits and synergies are based on projections and assumptions, not actual experience, and actual results may deviate from our expectations for a variety of reasons, including
those discussed in this section.

We may not be successful in our expansion into the current markets for RMI products and in addressing the
new opportunities we expect to arise out of the combination.

RMI historically designed and developed high performance,
power-optimized processor solutions for several target markets: infrastructure equipment, enterprise systems, security and storage appliances, data center systems and industrial and connected media devices. Because the RMI products serve some
different markets than our products historically did, we did not have experience competing in these prior to the acquisition. The success of our expansion into these new markets will depend on a number of factors, including:



| |  |  | our ability to leverage each companys successes to provide synergistic solutions to key customers and applications;
| | - |  | --------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to assimilate and retain key RMI personnel who have expertise in conducting RMIs business;
| | - |  | -------------------------------------------------------------------------------------------------------



| |  |  | our ability to preserve and grow RMIs existing customer, distributor and ecosystem partner relationships;
| | - |  | ----------------------------------------------------------------------------------------------------------



| |  |  | our ability to design and develop innovative products and solutions in these new markets and to continue RMIs success in achieving design
wins with key customers;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to provide high quality customer services and support; and
| | - |  | ----------------------------------------------------------------------



| |  |  | our ability to compete effectively against a larger number and broader range of competitors resulting from our entry into new markets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------

In addition to the current markets for RMI products, we believe that the combined company is poised to
address new opportunities in areas such as high-performance switching and routing control plane processing and the high-volume, ultra low-power embedded processing market for enterprise, industrial and connected media applications. If we are
unsuccessful in expanding into these new market opportunities, we may not achieve the sales and revenue growth we had expected from the acquisition.

There is no assurance that we will be able to continue or expand upon RMIs past success with customer design wins following the acquisition.

RMI achieved strategic design wins at a wide range of leading customers such as Alcatel-Lucent, Aruba, CheckPoint, Cisco, Datang Mobile, Dell, Fujitsu, HP, Huawei, Huawei-Symantec, Hangzhou H3C
Technologies Co. Ltd, IBM, Juniper, LG, McAfee, Motorola, NEC, Samsung, Sun and ZTE, among others. There is no assurance that we will be able to replicate or improve upon RMIs success in obtaining design wins from these and other customers
following the acquisition. This uncertainty is compounded by the fact that RMI does not have long-term commitments from any of its existing customers. These product design processes can be lengthy, as the customers of RMI products usually require a
comprehensive technical evaluation of its products before



27



---

##### Table of Contents

they incorporate them into their designs. If a customers system designer initially chooses a competitors product, it becomes significantly more difficult to sell RMIs products
for use in that system because changing suppliers can involve significant cost, time, effort and risk for RMIs customers. Our failure to win a competitive design opportunity can result in foregoing revenues from a given customers product
line for the life of that product. In addition, design opportunities may be infrequent or may be delayed. We expect to invest significant time and resources and to incur significant expenses to design RMI products to ensure compliance with relevant
specifications, but even with these efforts we may have limited success in securing customer design wins for a number of reasons, including our managements lack of experience with the markets served by RMIs products, our failure to
retain key RMI personnel involved in the customer design process and our failure to establish employee incentives and otherwise operate the RMI business in a manner that continues to place high priority on customer design wins. Our ability to
compete in the markets in which RMI competed will depend, in large part, on our ability to continue to design products to ensure compliance with RMI customers and potential customers specifications and to secure design wins.

Even if we are successful in achieving customer design wins for RMI products, we may not realize the revenue growth and other benefits we expect to
achieve from the acquisition.

The nature of the design process for RMI products requires that significant expenses be
incurred prior to recognizing revenues associated with those expenses, which may harm our financial results. Even if a customer designs one of RMIs products into its product offering, we cannot be assured that its product will be commercially
successful, that we will receive any revenues from that manufacturer or that a successor design will include an RMI product. As a result, we may be unable to accurately forecast the volume and timing of orders and revenues associated with any new
product introductions, which could adversely affect our results of operations. If we are unable to realize the revenue growth we expect to achieve from customer design wins for RMI products, we may not achieve the operational results we anticipate
following the acquisition and our business may be adversely impacted.

We may experience difficulties in transitioning to smaller geometry
process technologies or in achieving higher levels of design integration for the semiconductor solutions provided by RMI products, which may result in reduced manufacturing yields, delays in product deliveries, increased expenses and loss of design
wins and sales.

We have substantial experience in transitioning the manufacturing processes for our products to each new
generation of smaller geometry process technologies and believes that it will be necessary to migrate RMIs products to such smaller geometries as well. Any transition would require us to redesign the applicable product and require us and our
foundry partners to use new or modified manufacturing processes for the product. The smallest geometry process that RMI used for any semiconductors is 80 nanometer, but we expect the next generation semiconductors to be based on a 40 nanometer
process. Because of our lack of experience with the RMI products and technology, we may not be as successful in migrating these products to smaller geometry process technologies as we have been with our own products. We will also depend on our
relationships with foundry subcontractors to transition to smaller geometry processes successfully. If we experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration for RMI
products, we may experience reduced manufacturing yields, delays in product deliveries, increased expenses and loss of design wins and sales, any of which could prevent us from realizing the anticipated benefits from the acquisition.

We expect to rely on third-party technologies for the development of the RMI products, and our inability to use these technologies in the future could
harm our ability to compete in the markets for these products.

We rely on third parties for technologies that are
integrated into the RMI products, such as wafer fabrication and assembly and test technologies used by its contract manufacturers, as well as licensed MIPS architecture technologies. If we are unable to continue to use or license these technologies
on reasonable terms, or if these technologies fail to operate properly following the acquisition, we may not be able to secure alternatives in a



28



---

##### Table of Contents

timely manner, and our ability to remain competitive in the markets served by these products would be harmed. In addition, the MIPS license requires that certain improvements be made available to
the community of all of MIPS licensees, which could conceivably reduce the proprietary advantage that we will have with this architecture. If we are unable to license technology from third parties on commercially reasonable terms in order to
continue to develop current products or to develop future products for the markets served by the RMI products, we may not be able to develop these products in a timely manner or at all.

Our operating results will depend in part on the growth of developing sectors of the connected media market historically served by RMI.

The RMI business has been highly dependent on developing sectors of the connected media market, including portable media players, personal
navigation devices, automobile infotainment devices and home media players. The connected media market is highly competitive and is characterized by, among other things, frequent introductions of new products and short product life cycles. If the
target markets for the RMI products within these markets do not grow as rapidly or to the extent anticipated, the combined companys business could suffer. RMI derived a significant portion of its revenues from the sale of its semiconductor
solutions for use in emerging connected media applications. Our ability to sustain and increase revenue is in large part dependent on the continued growth of these rapidly evolving market sectors, whose future is largely uncertain. Many factors
could impede or interfere with the expansion of these connected media market sectors, including a slowdown in overall consumer spending, consumer demand in these sectors, general economic conditions, other competing consumer electronic products and
insufficient interest in new technology innovations. Any of these dynamics in the consumer electronics market could harm future sales of the RMI products and prevent us from realizing the anticipated benefits of our acquisition of RMI.

We are subject to governmental export and import controls that could subject us to liability or impair our ability to compete in foreign markets.

Because we incorporate encryption technology into our multi-core products, some of these products are subject
to United States export controls and may be exported outside the United States only with the required level of export license or through an export license exception. In addition, various countries regulate the import of certain encryption technology
and have enacted laws that could limit our ability to introduce products or could limit our customers ability to implement our products in those countries. Changes in our products or changes in export and import regulations may create delays
in the introduction of our products in international markets, prevent our customers with international operations from deploying our products throughout their global systems or, in some cases, prevent the export or import of our products to certain
countries altogether. Any change in export or import regulations or related legislation, shift in approach to the enforcement or scope of existing regulations, or change in the countries, persons or technologies targeted by such regulations, could
result in decreased use of our products by, or an inability to export or sell our products to, existing or prospective customers with international operations and harm our business.

RISKS RELATING TO OUR COMMON STOCK

In connection with our acquisition of RMI in October
2009, we issued a substantial number of shares of common stock around the time of closing and we may be required to additional shares before December 31, 2010, which would further dilute the ownership interests of our other stockholders.

In connection with the acquisition of RMI, we issued or reserved for issuance 9.9 million shares of our common stock at
closing as merger consideration to RMI stockholders and as incentive stock awards to RMI employees. We may be required issue up to 3.1 million additional shares to former RMI stockholders as earn-out consideration before December 31, 2010,
if the maximum earn-out is achieved. Our issuance of additional shares of common stock as earn-out consideration may result in substantial percentage dilution of the ownership interests of our other stockholders at that time. Our issuance of shares
in connection with the RMI acquisition



29



---

##### Table of Contents

also may have an adverse impact on our net earnings per share in fiscal periods that include (or follow) the date of the acquisition, as we anticipate that the transaction will be dilutive on the
basis of net earnings per common share for the foreseeable future following the acquisition.

The price of our stock could decrease as a
result of shares being sold in the market, including sales by former RMI stockholders who received shares in connection with our acquisition of RMI.

Sales of a substantial number of shares of common stock in the public market could adversely affect the prevailing market price of our common stock from time to time. Substantially all the shares of our
common stock currently outstanding are eligible for sale in the public market but sales by our affiliates will be subject to conditions of Rule 144 (other than holding period requirements) including the volume restrictions set forth in SEC Rule
144(e).

Additionally, as the shares of common stock we issued in our acquisition of RMI become eligible for resale, the sale
of those shares could adversely impact our stock price. All of the shares of our common stock issued as merger consideration on the closing date are subject to a complete trading lock-up through April 30, 2010, and 50% of those shares will be
subject to a complete trading lock-up through October 30, 2010. In addition, 50% of the restricted stock units that we issued to certain RMI employees at closing will vest on April 30, 2010 and the remaining 50% will vest on
October 30, 2010. These equity incentive shares will be registered and will therefore generally not be subject to resale restrictions under federal securities laws. Accordingly, a substantial number of shares of our common stock will become
eligible for resale on April 30 and October 30, 2010. Our stock price may suffer a significant decline as a result of the sudden increase in the number of shares sold in the public market or market perception that the increased number of
shares available for sale will exceed the demand for our common stock.

Our stock price could drop, and there could be significantly less
trading activity in our stock, if securities or industry analysts downgrade our stock or do not publish research or reports about our business.

Our stock price and the trading market for our stock are likely to be affected significantly by the research and reports concerning our company and our business which are published by industry and
securities analysts. We do not have any influence or control over these analysts, their reports or their recommendations. Our stock price and the trading market for our stock could be negatively affected if any analyst downgrades our stock,
publishes a report which is critical of our business, or discontinues coverage of us.

Our common stock has experienced substantial price
volatility.

Our common stock has experienced substantial price volatility. Such volatility may occur in the future,
particularly because of quarter-to-quarter variations in our actual or anticipated financial results, or the reported financial results of other semiconductor companies or our customers. Stock price volatility may also result from product
announcements by us or our competitors, or from changes in perceptions about the various types of products we manufacture and sell. In addition, our stock price may fluctuate due to price and volume fluctuations in the stock market, especially
in the technology sector.

Provisions of our certificate of incorporation and bylaws, Delaware law and customer agreements might delay or
prevent a change of control transaction and depress the market price of our stock.

Various provisions of our certificate
of incorporation and bylaws might have the effect of making it more difficult for a third party to acquire, or discouraging a third party from attempting to acquire, control of us. These provisions could limit the price that certain investors might
be willing to pay in the future for shares of our common stock. Certain of these provisions eliminate cumulative voting in the election of directors, limit the right of stockholders to call special meetings and establish specific procedures for
director nominations by stockholders and the submission of other proposals for consideration at stockholder meetings.



30



---

##### Table of Contents

We are also subject to provisions of Delaware law which could delay or make more difficult a
merger, tender offer or proxy contest involving us. In particular, Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period
of three years unless specific conditions are met. Any of these provisions could have the effect of delaying, deferring or preventing a change in control, including, without limitation, discouraging a proxy contest or making more difficult the
acquisition of a substantial block of our common stock.

Our board of directors might issue up to 50,000,000 shares of
preferred stock without stockholder approval on such terms as the board might determine. The rights of the holders of common stock will be subject to, and might be adversely affected by, the rights of the holders of any preferred stock that might be
issued in the future.

Under our master purchase agreements with Cisco, in the event of, among other things, the transfer of
at least 50% of our voting control to a Cisco competitor that generates less than 50% of its annual sales from integrated circuit products, Cisco may exercise rights to purchase our knowledge-based processors directly from our manufacturers, subject
to payments to us. This provision may discourage or complicate attempts by some third parties to acquire us.

Our stockholder rights plan
could prevent stockholders from receiving a premium over the market price for their shares from a potential acquirer.

We
adopted a stockholder rights plan that generally entitles our stockholders to rights to acquire additional shares of our common stock when a third party acquires 15.0% of our common stock or commences or announces its intent to commence a tender
offer for at least 15.0% of our common stock, other than for certain stockholders that were stockholders prior to our initial public offering as to whom this threshold is 20.0%. This plan could delay, deter or prevent an investor from acquiring us
in a transaction that could otherwise result in stockholders receiving a premium over the market price for their shares of common stock.

We may need to obtain financing in order to fund our growth strategy.

We believe that we have or will have
access to capital sufficient to satisfy our working capital requirements for at least the next 12 months. However, it may become necessary for us to raise additional funds to support our growth. We cannot assure you that we will be able to obtain
financing when needed or that, if available to us, the terms will be acceptable to us. If we issue equity securities in any financing, the new securities may have rights and preferences senior to our shares of common stock, and the ownership
interest in us of our current stockholders will be proportionately reduced. If we issued debt securities, they will rank senior to all equity securities. If we are unable to raise additional capital, we may not be able to implement our growth
strategy, and our business could be harmed significantly. Our future capital requirements will depend on many factors, including the amount of revenue we generate, the timing and extent of spending to support product development efforts, the
expansion of sales and marketing activities, the timing of introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the continuing market acceptance of our products, and any future business acquisitions that
we might undertake. However, if we do not meet our plan, we could be required, or might elect, to seek additional funding through public or private equity or debt financing and additional funds may not be available on terms acceptable to us or at
all. We also might decide to raise additional capital at such times and upon such terms as management considers favorable and in the interests of the Company. We may sell up to approximately an additional $120 million of our debt and/or equity
securities (before reductions for expenses, underwriting discounts and commissions) under our existing shelf registration statement on Form S-3 which may result in an increase in the number of shares and decline in earnings per share. We may sell
these securities from time-to-time without prior announcement.



31



---

##### Table of Contents



|ITEM 1B. | UNRESOLVED STAFF COMMENTS.
|-------- | --------------------------

Not applicable.



|ITEM 2. | PROPERTIES.
|------- | -----------

The
following table sets forth the location, and approximate square footage of each of the principal properties used by us during 2009. All properties are leased under operating leases which expire at various times through 2015.



|                               |  |                          
|------------------------------ |  | -------------------------
|Location                       |  | ApproximateSquare Footage
|Mountain View, California, USA |  | 42,000                   
|Cupertino, California, USA     |  | 51,597                   
|Austin, Texas, USA             |  | 15,630                   
|Banglore, India                |  | 20,860                   

In addition, we
lease office spaces in Toulouse, France, Beijing, Shanghai, Nanjing, and Shenzhen, China, Taipei and Hsinchu, Taiwan, Seoul, Korea, Tokyo, Japan, and Mumbai, India. We believe that these facilities are adequate for our current needs and that
suitable additional or substitute space will be available as needed to accommodate foreseeable expansion of our operations.



|ITEM 3. | LEGAL PROCEEDINGS.
|------- | ------------------

We
are not involved in any legal proceedings that management believes will have a material adverse effect our business, results of operations, financial position or cash flows.



|ITEM 4. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|------- | ----------------------------------------------------

On October 23, 2009, we held an special meeting of our stockholders. The stockholders approved the issuance of a maximum of 13,080,000 shares of our common stock as merger consideration and to new
employees in connection with the proposed acquisition of RMI by the votes set forth below:



|           |  |         |  |             |  |                 
|---------- |  | ------- |  | ----------- |  | ----------------
|For        |  | Against |  | Abstentions |  | Broker Non-Votes
|19,783,613 |  | 32,964  |  | 16,462      |  | 0               



32



---

##### Table of Contents

PART II



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

Market Information for Common Stock

Our common stock is traded on the Global Select Market of the NASDAQ Stock Market under the symbol NETL. The following table sets forth, for the periods indicated, the intra-day high and low per share sale prices of our common
stock, as reported on the Global Select Market.



|               |  |                       |       |     |   |      
|-------------- |  | --------------------- | ----- | --- | - | -----
|               |  | Price Range Per Share
|               |  | High                  |       | Low
|Fiscal 2009    |  |                       |      
|Fourth quarter |  | $                     | 24.00 |     | $ | 18.44
|Third quarter  |  | $                     | 23.40 |     | $ | 16.18
|Second quarter |  | $                     | 19.25 |     | $ | 13.39
|First quarter  |  | $                     | 14.29 |     | $ | 9.84 
|               | 
|Fiscal 2008    |  |                       |      
|Fourth quarter |  | $                     | 15.23 |     | $ | 7.21 
|Third quarter  |  | $                     | 19.55 |     | $ | 13.49
|Second quarter |  | $                     | 20.13 |     | $ | 11.72
|First quarter  |  | $                     | 16.45 |     | $ | 10.08

Holders

As of March 15, 2010, there were approximately 152 holders of record (not including beneficial holders of stock held in street names) of
our common stock.

Dividend Policy

We have not declared or paid cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the
development and growth of our business. Our board of directors will determine future dividends, if any. Under a credit agreement dated June 19, 2009 with a syndication of banks, we are prohibited from the declaration and payment of cash
dividends.

On February 16, 2010, the Board of Directors approved a two-for-one stock split of our common stock, to be
effected pursuant to the issuance of additional shares as a stock dividend. The stock dividend was paid on March 19, 2010 to stockholders of record as of March 5, 2010. All share and per share amounts in this Form 10-K/A have been
retroactively adjusted to reflect the stock split for all periods presented.

Securities Authorized for Issuance Under Equity Compensation
Plans

See Item 12 of Part III of this Report regarding information about securities authorized for issuance under our
equity compensation plans.



33



---

##### Table of Contents

Performance Graph

The following graph shows the 5 years cumulative total stockholder return (change in stock price plus reinvested dividends) assuming the investment of $100 on December 31, 2004 in each of the
Companys common stock, the S&P 500 Index and the Philadelphia Semiconductor Index. The comparisons in the table are required by the SEC and are not intended to forecast or be indicative of possible future performance of the
Companys common stock.

COMPARISON OF 5 YEARS CUMULATIVE TOTAL RETURN

Among NetLogic Microsystems, Inc., the S&P 500 Index

and the Philadelphia Semiconductor Index

LOGO



|                                 |  |                          |        |            |   |            |  |            |        |            |   |            |  |   |        |  |   |       
|-------------------------------- |  | ------------------------ | ------ | ---------- | - | ---------- |  | ---------- | ------ | ---------- | - | ---------- |  | - | ------ |  | - | ------
|                                 |  | Cumulative Total Returns
|                                 |  | 12/31/2004               |        | 12/31/2005 |   | 12/31/2006 |  | 12/31/2007 |        | 12/31/2008 |   | 12/31/2009
|NetLogic Microsystems, Inc.      |  | $                        | 100.00 |            | $ | 272.40     |  | $          | 216.90 |            | $ | 322.00     |  | $ | 220.10 |  | $ | 462.60
|S&P 500 Index                    |  | $                        | 100.00 |            | $ | 103.00     |  | $          | 117.03 |            | $ | 121.16     |  | $ | 74.53  |  | $ | 92.01 
|Philadelphia Semiconductor Index |  | $                        | 100.00 |            | $ | 110.66     |  | $          | 107.78 |            | $ | 94.17      |  | $ | 48.96  |  | $ | 83.06 

Recent Sales of Unregistered
Securities

On October 30, 2009, we completed the acquisition of RMI and issued a total of
9.9 million shares of common stock to the holders of preferred stock of RMI, including shares withheld for escrow as security for RMIs indemnity obligations and for estimated expenses of escrow. Pursuant to the terms of the
merger agreement for the RMI acquisition we also became obligated for the contingent issuance of a maximum of approximately 3.1 million additional shares of common stock subject to the achievement of earn-out milestones for revenues
generated from the products acquired from RMI during a 12-month period following the closing date of the acquisition. No underwriters were involved in the transaction. We issued and agreed to issue these shares in a merger exchange
transaction exempt from the registration requirements under section 5 of the Securities Act of 1933 pursuant to Section 4(2) and Rule 506 under Regulation D.



34



---

##### Table of Contents

|ITEM 6. | SELECTED CONSOLIDATED FINANCIAL DATA.
|------- | -------------------------------------

The following selected consolidated financial data are qualified by reference to, and should be read in conjunction with, Managements Discussion and Analysis of Financial Condition and Results
of Operations and the Financial Statements and related Notes included in Item 8 of this report, which discusses factors affecting the comparability of such financial data.

The selected balance sheet data as of December 31, 2009 and 2008 and selected statements of operations data for the years ended
December 31, 2009, 2008 and 2007 are derived from our audited financial statements included elsewhere in this report. The selected balance sheet data as of December 31, 2007, 2006 and 2005 and the selected statements of operations data for
the years ended December 31, 2006 and 2005 were derived from financial statements not included in this report. Our historical results are not necessarily indicative of our future results. All share and per share amounts presented below have
been retroactively adjusted to reflect the 2-for-1 stock split of our common stock that was effected on March 19, 2010 to stockholders of record as of March 5, 2010.



|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|---------------------------------------------------- |  | ------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | ------ | -
|                                                     |  | Year Ended December 31,               |        
|                                                     |  | 2009                                  |         |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |        
|                                                     |  | (in thousands, except per share data) |        
|Statements of Operations Data:                       |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Revenue                                              |  | $                                     | 174,689 |   |      | $ | 139,927 |      |  | $ | 109,033 |   |  | $    | 96,806  |   |  | $ | 81,759 |  
|Cost of revenue                                      |  |                                       | 99,251  |   |      |   | 61,616  |      |  |   | 44,732  |   |  |      | 36,762  |   |  |   | 33,415 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Gross profit                                         |  |                                       | 75,438  |   |      |   | 78,311  |      |  |   | 64,301  |   |  |      | 60,044  |   |  |   | 48,344 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Operating expenses:                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Research and development                             |  |                                       | 73,631  |   |      |   | 51,607  |      |  |   | 45,175  |   |  |      | 36,578  |   |  |   | 21,939 |  
|Selling, general and administrative                  |  |                                       | 43,931  |   |      |   | 26,567  |      |  |   | 19,672  |   |  |      | 15,455  |   |  |   | 10,936 |  
|Change in contingent earn-out liability              |  |                                       | 2,008   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       |  
|Acquisition-related costs                            |  |                                       | 5,412   |   |      |   |        |      |  |   |        |   |  |      |        |   |  |   |       |  
|In-process research and development                  |  |                                       |        |   |      |   |        |      |  |   | 1,610   |   |  |      | 10,700  |   |  |   |       |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Total operating expenses                             |  |                                       | 124,982 |   |      |   | 78,174  |      |  |   | 66,457  |   |  |      | 62,733  |   |  |   | 32,875 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Income (loss) from operations                        |  |                                       | (49,544 | ) |      |   | 137     |      |  |   | (2,156  | ) |  |      | (2,689  | ) |  |   | 15,469 |  
|Interest income                                      |  |                                       | 992     |   |      |   | 1,595   |      |  |   | 4,431   |   |  |      | 3,737   |   |  |   | 1,568  |  
|Interest expense                                     |  |                                       | (1,666  | ) |      |   | (33     | )    |  |   |        |   |  |      |         |   |  |   | (203   | )
|Other income and expense, net                        |  |                                       | (4      | ) |      |   | (59     | )    |  |   | 32      |   |  |      | 3       |   |  |   | (16    | )
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Income (loss) before income taxes                    |  |                                       | (50,222 | ) |      |   | 1,640   |      |  |   | 2,307   |   |  |      | 1,051   |   |  |   | 16,818 |  
|Provision for (benefit from) income taxes            |  |                                       | (3,060  | ) |      |   | (1,937  | )    |  |   | (288    | ) |  |      | 459     |   |  |   | 379    |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss)                                    |  | $                                     | (47,162 | ) |      | $ | 3,577   |      |  | $ | 2,595   |   |  | $    | 592     |   |  | $ | 16,439 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) per sharebasic                    |  | $                                     | (1.02   | ) |      | $ | 0.08    |      |  | $ | 0.06    |   |  | $    | 0.01    |   |  | $ | 0.46   |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Net income (loss) per sharediluted                  |  | $                                     | (1.02   | ) |      | $ | 0.08    |      |  | $ | 0.06    |   |  | $    | 0.01    |   |  | $ | 0.43   |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Shares used in calculationbasic                     |  |                                       | 46,182  |   |      |   | 42,944  |      |  |   | 41,494  |   |  |      | 39,516  |   |  |   | 35,450 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Shares used in calculationdiluted                   |  |                                       | 46,182  |   |      |   | 44,628  |      |  |   | 43,876  |   |  |      | 42,214  |   |  |   | 37,984 |  
|                                                     |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|                                                     | 
|                                                     |  | December 31,                          |        
|                                                     |  | 2009                                  |         |   | 2008 |   |         | 2007 |  |   | 2006    |   |  | 2005 |        
|                                                     |  | (in thousands)                        |        
|Balance Sheet Data:                                  |  |                                       |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        |  
|Cash and cash equivalents and short-term investments |  | $                                     | 44,278  |   |      | $ | 96,541  |      |  | $ | 50,689  |   |  | $    | 89,879  |   |  | $ | 65,788 |  
|Working capital                                      |  |                                       | 66,790  |   |      |   | 87,853  |      |  |   | 63,956  |   |  |      | 95,986  |   |  |   | 65,162 |  
|Total assets                                         |  |                                       | 532,111 |   |      |   | 245,771 |      |  |   | 203,151 |   |  |      | 157,769 |   |  |   | 85,529 |  
|Software licenses and other obligations              |  |                                       | 5,446   |   |      |   | 1,219   |      |  |   | 2,528   |   |  |      | 2,625   |   |  |   | 687    |  
|Stockholders equity                                 |  |                                       | 425,955 |   |      |   | 200,267 |      |  |   | 171,888 |   |  |      | 142,524 |   |  |   | 68,656 |  



The selected consolidated financial data presents financial information in the relevant periods for the acquisition of the IDT NSE business in mid-July 2009,
the acquisition of RMI Corp. completed in late October 2009, the acquisition of the TCAM2 and TCAM-CR network search engine products and certain related assets from Cypress Semiconductor Corp. in August 2007, the acquisition of Aeluros, Inc.
completed in late October 2007, and the acquisition of NSE Business from Cypress Semiconductor Corp. completed in February 2006. See Note 2 of Notes to Consolidated Financial Statements under Item 8 of this Annual Report on Form 10-K/A for
further discussion of these acquisitions. The comparability of the data in the table above is affected by our adoption of various new accounting guidance in the periods presents, specifically, those related to business combinations, stock
compensation and income taxes.



35



---

##### Table of Contents

|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

Overview

We are a leading
fabless semiconductor company that designs, develops and sells proprietary high-performance processors and high speed integrated circuits that are used to enhance the performance and functionality of advanced 3G/4G mobile wireless infrastructure,
data center, enterprise, metro Ethernet, edge and core infrastructure networks. Our market-leading product portfolio includes high-performance multi-core processors, knowledge-based processors, high-speed 10/40/100 Gigabit Ethernet physical
layer devices, network search engines, and ultra low-power embedded processors. These products are designed into high-performance systems such as switches, routers, wireless base stations, radio network controllers, security appliances,
networked storage appliances, service gateways and connected media devices offered by leading original equipment manufacturers (OEMs) such as AlaxalA Networks Corporation, Alcatel-Lucent, ARRIS Group, Inc., Brocade Communications Systems,
Inc., Cisco Systems, Inc., Dell Inc., Ericsson, Fortinet, Inc., Fujitsu Limited, Hangzhou H3C Technologies Co. Ltd, Hitachi, Ltd., Huawei Technologies Co., Ltd., Huawei Symantec Technologies Co., Ltd, IBM Corporation, Juniper Networks, Inc., LG
Electronics, Inc., Motorola, Inc., NEC Corporation, Samsung Electronics, Sun Microsystems, Inc., Tellabs, and ZTE Corporation.

The products and technologies we have developed and acquired are targeted to enable our customers to develop systems that support the increasing speeds and complexity of the Internet infrastructure. We believe there is a growing need to
include multi-core processors, knowledge-based processors, and high speed physical layer devices in a larger number of such systems as networks transition to all Internet Protocol (IP) packet processing at increasing speeds and complexity.

The equipment and systems that use our products are technically complex. As a result, the time from our initial customer
engagement design activity to volume production can be lengthy and may require considerable support from our design engineering, research and development, sales, and marketing personnel in order to secure the engagement and commence product sales to
the customer. Once the customers equipment is in volume production, however, it generally has a life cycle of three to five years and requires less ongoing support.

We derive revenue primarily from sales of semiconductor products to OEMs, their contract manufacturers and distributors. Usually, we sell the initial shipments of a product for a new design engagement
directly to the OEM customer. Once the design enters volume production, the OEM frequently outsources its manufacturing to contract manufacturers who purchase the products directly from us.

We also use distributors to provide valuable assistance to end-users in delivery of our products and related services. In accordance with
standard market practice, our distributor agreements limit the distributors ability to return product up to a portion of purchases in the preceding quarter and limit price protection for inventory on-hand if it subsequently lowers prices on
our products. We recognize sales through distributors at the time of shipment to end customers.

As a fabless
semiconductor company, our business is less capital intensive than others because we rely on third parties to manufacture, assemble, and test our products. In general, we do not anticipate making significant capital expenditures aside from business
acquisitions that we might make from time to time. In the future, as we launch new products or expand our operations, however, we may require additional funds to procure product mask sets, order elevated quantities of wafers from our foundry
partners, perform qualification testing and assemble and test those products.

Because we purchase all wafers from suppliers
with fabrication facilities and outsource the assembly and testing to third party vendors, a significant portion of our costs of revenue consists of payments to third party vendors.



36



---

##### Table of Contents

Recent Acquisitions

On October 30, 2009, we completed the acquisition of RMI, a provider of high-performance and low-power multi-core, multi-threaded processors. Pursuant to the Agreement and Plan of Merger
Reorganization by and among us, Roadster Merger Corporation, RMI Corporation and WP VIII Representative LLC dated as of May 31, 2009, or the merger agreement, on October 30, 2009, Roadster Merger Corporation was merged with and into RMI,
and we delivered merger consideration of approximately 9.9 million shares of our common stock and $12.6 million cash to the paying agent for distribution to the holders of RMI capital stock. Approximately 10% of the shares of our common stock
are being held in escrow as security for claims and expenses that might arise during the first 12 months following the closing date. The closing price of a share of our common stock on October 30, 2009 was $19.01.

We may be required to issue and deliver up to an additional 3.1 million shares of common stock and pay an additional $15.9 million cash
to the former holders of RMI capital stock as earn-out consideration based upon achieving specified percentages of revenue targets for either the 12-month period from October 1, 2009 through September 30, 2010, or the 12-month period from
November 1, 2009 through October 31, 2010, whichever period results in the higher percentage of the revenue target. The additional earn-out consideration, if any, net of applicable indemnity claims, will be paid on or before
December 31, 2010.

On July 17, 2009, we completed the IDT NSE acquisition. The acquisition was accounted for as a
business combination during the third quarter of fiscal 2009. As purchase consideration we paid $98.2 million in cash, net of a price adjustment based on a determination of the actual amount of inventory received.

On October 24, 2007, we completed the merger and acquisition of Aeluros, Inc. which we refer to as the Aeluros Acquisition.
The acquisition was accounted for as a business combination during the fourth quarter of fiscal 2007. We paid $57.1 million in cash upon the closing of the transaction in exchange for all of the outstanding equity securities of Aeluros. We reserved
208,000 shares of common stock for future issuance upon the exercise of unvested employee stock options of Aeluros that we assumed and are subject to continued employment vesting requirements. In addition, under the terms of the definitive
agreement, we paid $15.5 million cash in February 2009 based on the attainment of revenue performance milestones for the acquired business during the one year period following the close of the transaction.

Our results of operations for 2009 reflect two months of revenues subsequent to the RMI acquisition and five and one-half months of
revenue subsequent to the IDT NSE acquisition. Revenues in the second half of 2009, included $16.3 million attributable to the IDT NSE acquisition and $14.5 million of revenue attributable to the RMI acquisition. The last quarter of
2009 also included operating costs associated with an additional 269 employees from the RMI acquisition. Results of operations in 2010 will reflect a full year of revenues and costs attributable to both acquisitions and consequently will be
substantially higher than comparable period results in 2009.

Outlook and Challenges

Our year-over-year revenue increased from $139.9 million for the year ended December 31, 2008 to $174.7 million for the year ended
December 31, 2009. In early 2009, in light of a volatile macro-economic environment and a decrease in demand, we focused on operating efficiencies and containing our cash operating expense growth During the second half of 2009 we
experienced an increase in sequential quarterly revenue growth. Our quarterly revenues grew from $32.5 million in the second quarter of 2009 to $42.3 million in the third quarter of 2009 to $69.5 million in the fourth quarter of 2009. The
sequential increase in our quarterly revenues was due to a combination of an improvement in the macroeconomic environment as well as increased demand for our products as result of new customer programs being introduced into the market utilizing our
products and new revenues from our acquisitions. Given the resumption of our revenue growth, for 2010 we have shifted from focusing on containing our cash operating expenses to strategically investing in our product development and



37



---

##### Table of Contents

scaling our business operations to support our growth as well as the continued successful integration of the IDT NSE business and RMI. Our continued integration efforts include, the
assimilation of employees; retaining key personnel; process and system rationalization related to our management information and enterprise resource planning systems to keep in pace with our breadth and scale of business, while maintaining
regulatory compliance; and keeping existing customers and obtaining new customers.

For the years ended December 31,
2009, 2008, and 2007, our top five customers in terms of revenue accounted for approximately 68%, 68%, and 79% of total product revenue, respectively. Although we believe our revenues will continue to be concentrated with our significant customers,
we expect continued favorable market trends, such as the increasing number of 10 Gigabit ports as enterprises and datacenters upgrade their legacy networks to better accommodate the proliferation of video and virtualization applications, and the
growing mobile wireless infrastructure and IPTV markets, will enable us to broaden our customer base. Additionally, our expanding product portfolio will also help us further diversify our customer and product revenues as well as expanding our
product portfolio with our existing customers.

Cisco Business

Cisco and its contract manufacturers have accounted for a large percentage of our historical revenue. At Ciscos request, in 2007, we
transitioned into a just-in-time inventory arrangement covering substantially all of our product shipments to Cisco and its contract manufacturers. Pursuant to this arrangement we deliver products to Wintec Industries (Wintec) based on
orders they place with us, but we do not recognize product revenue unless and until Wintec reports that it has delivered the product to Cisco or its contract manufacturer to incorporate into its end products. Given this arrangement, unless Cisco or
its contract manufacturers take possession of our products from Wintec in accordance with the schedules provided to us, our predicted future revenue stream could vary substantially from our forecasts, and our results of operations could be
materially and adversely affected. Additionally, because we own the inventory physically located at Wintec until it is shipped to Cisco and its contract manufacturers, our ability to effectively manage inventory levels may be impaired, causing our
total inventory levels to increase. This, in turn, could increase our expenses associated with excess and obsolete product and negatively impact our cash flows. For the years ended December 31, 2009, 2008 and 2007, our revenues from Cisco
and Ciscos contract manufactures were $61.7 million, $52.7 million and $55.1 million or approximately 35%, 38%, and 50% of total revenue.

Critical Accounting Policies and Estimates

The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the U.S. requires management to make fair and reasonable estimates and assumptions that affect reported amounts of assets, liabilities and operating expenses during the period
reported. The following accounting policies require management to make estimates and assumptions. These estimates and assumptions are reviewed periodically and the effects of revisions are reflected in the period they are determined to be necessary.
If actual results differ significantly from managements estimates, our financial statements could be materially impacted. Our estimates are guided by observing the following critical accounting policies.

Revenue Recognition. We derive our revenue primarily from sales of semiconductor products. We recognize revenue when all of the
following criteria have been met: (i) persuasive evidence of a binding arrangement exists, (ii) delivery has occurred, (iii) the price is deemed fixed or determinable and free of contingencies and significant uncertainties, and
(iv) collection is probable. The price is considered fixed or determinable at the execution of an agreement, based on specific products and quantities to be delivered at specified prices, which is often memorialized with a customer purchase
order. We assess the ability to collect from our customers based on a number of factors, including credit worthiness and any past transaction history of the customer.

Shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of revenue. We recognize revenue at the time of shipment to OEM customers, their
contract manufacturers and our international sales representatives. Revenue consists primarily of sales of the Companys



38



---

##### Table of Contents

products to OEMs, their contract manufacturers or distributors. Initial sales of the Companys products for a new design are usually made directly to OEMs as they design and develop their
product. Once their design enters production, they often outsource their manufacturing to contract manufacturers that purchase the Companys products directly from the Company or from the Companys distributors

Product revenue and costs relating to sales made through distributors with rights of return and price credits are deferred until the
distributors sell the product to end customers because the selling price is not fixed and determinable and we are not able to estimate future returns. Revenue recognition depends on notification from the distributor that product has been sold to an
end customers. On each reporting date the Company records a reduction in accounts receivable and deferred revenue based on the Companys estimate of the margin to be ultimately recognized upon sale of the product to an end customer

We entered into a purchase agreement with Wintec who has become the primary purchaser of our products on a consignment basis
for resale to Cisco and its contract manufacturers. We generally recognize revenue when Wintec ships our product to Cisco or its contract manufacturers.

Inventory Valuation and Adverse Purchase Commitments. We value our inventories at the lower of cost or market. We record inventory reserves for estimated obsolescence or unmarketable
inventories based upon assumptions about future demand and market conditions. These estimates are generally based on a 12-month forecast prepared by management. Once a reserve is established, it is maintained until the product to which it relates is
sold or otherwise disposed of. If actual market conditions are less favorable than those expected by management, additional adjustment to inventory valuation may be required. The carrying value of inventory and the determination of possible adverse
purchase commitments are dependent on our estimate of the yield that will be achieved, or the percent of good products identified when the product is tested.

Warranty Accrual. Our products are subject to warranty for a period ranging from one to five years from the date of sale and we provide for the estimated future costs of replacement upon
shipment of the product in the accompanying statements of operations. We estimate our warranty accrual based on historical claims compared to historical revenue and assume that we will have to replace products subject to a claim.

Allowance for Doubtful Accounts. In order to determine the collectability of our accounts receivable, we continually assess
factors such as previous customer transactions and the credit-worthiness of the customer. To date, our accounts receivable write-offs have been immaterial. We maintain allowances for doubtful accounts for estimated losses resulting from the
inability of certain customers to make required payments. In general, we establish such allowances for accounts aged over 90 days from the invoice date, unless specific circumstances indicate that the balance is collectible.

Accounting for Income Taxes. We account for income taxes under the provisions of Accounting Standards Codification (ASC) 740, Income
Taxes. In applying ASC740, we are required to estimate our current tax exposure together with assessing temporary differences resulting from differing treatments of items for tax and accounting purposes. These differences result in deferred tax
assets and liabilities. Significant management judgment is required to assess the likelihood that our deferred tax assets will be recovered from future taxable income. During the third fiscal quarter of 2007, we reassessed the valuation
allowance previously recorded against our net deferred tax assets which consisted primarily of net operating loss carryforwards and research and development tax credits. Based on our earnings history and projected future taxable income, management
determined that it was more likely than not that the deferred tax assets would be realized.

In the first quarter of fiscal
2007, we adopted ASC 740-10 Income Taxes. As a result, we recognize liabilities for uncertain tax positions based on the two-step process prescribed in the interpretation. The first step is to evaluate the tax position for recognition by
determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires us to estimate
and measure the tax benefit as the largest



39



---

##### Table of Contents

amount that is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as we have to determine the probability of various
possible outcomes. We reevaluate these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit,
and new audit activity. Such a change in recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision. Refer to Note 7Income Taxes, of the Notes to Consolidated
Financial Statements in Item 8 for further information.

Long-lived Assets and Intangible Assets. We
assess the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Whenever events or changes in circumstances suggest that the
carrying amount of long-lived assets may not be recoverable, we estimate the future cash flows expected to be generated by the asset from its use or eventual disposition. If the sum of the expected future cash flows, which includes revenue, is less
than the carrying amount of those assets, we recognize an impairment loss based on the excess of the carrying amount over the fair value of the assets. Significant management judgment is required in the forecasts of future operating results that are
used in the discounted cash flow method of valuation.

Goodwill. We evaluate goodwill for impairment at least on an
annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flow. We perform goodwill impairment test for our single and sole reporting unit. If the fair
value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired. We perform the goodwill impairment assessment at the Company level, which is the sole reporting unit. We performed our annual goodwill impairment
test in the fourth quarter and concluded there was no impairment of goodwill during the years ended December 31, 2009, 2008 and 2007.

Stock-based Compensation. We estimate the fair value of stock options using the Black-Scholes-Merton valuation model (the Black-Scholes Model), consistent with the provisions of
ASC 718 CompensationStock Compensation. The Black-Scholes Model requires the input of highly subjective assumptions, including the options expected life, the price volatility of the underlying stock and future forfeitures and
related tax effects. The expected stock price volatility assumption was determined using a combination of the historical and implied volatility of the Companys common stock. Changes in the subjective assumptions required in the valuation
models may significantly affect the estimated value of the awards, the related stock-based compensation expense and, consequently, our results of operations.

Results of Operations

Comparison of Year Ended December 31, 2009 to Year Ended
December 31, 2008

Revenue, cost of revenue and gross profit

The table below sets forth the fluctuations in revenue, cost of revenue and gross profit data for the years ended December 31, 2009 and
2008 (in thousands, except percentage data):



|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |   |                  |   |  |      |  
|--------------- |  | -------------------------- | ------- | ------------------- | ----- | - | -------------------------- | - | ------------------- |  | ----- | ------------------ |  | - | ---------------- | - |  | ---- | -
|                |  | Year endedDecember 31,2009 |         | PercentageofRevenue |       |   | Year endedDecember 31,2008 |   | PercentageofRevenue |  |       | Year-to-YearChange |  |   | PercentageChange |  
|Revenue         |  | $                          | 174,689 |                     | 100.0 | % |                            | $ | 139,927             |  | 100.0 | %                  |  | $ | 34,762           |   |  | 24.8 | %
|Cost of revenue |  |                            | 99,251  |                     | 56.8  | % |                            |   | 61,616              |  | 44.0  | %                  |  |   | 37,635           |   |  | 61.1 | %
|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |   |                  |   |  |      |  
|Gross profit    |  | $                          | 75,438  |                     | 43.2  | % |                            | $ | 78,311              |  | 56.0  | %                  |  | $ | (2,873           | ) |  | -3.7 | %
|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |   |                  |   |  |      |  

Revenue. Revenue for the year ended December 31, 2009 increased by $34.8 million
compared with that of the year ended December 31, 2008. Revenue from sales to Wintec, Cisco and Ciscos contract manufacturers (collectively Cisco) represented $61.7 million of our total revenue for the year ended
December 31, 2009,



40



---

##### Table of Contents

compared to $52.7 million during the year ended December 31, 2008. The increase in sales to Cisco was primarily due to an increase of $8.5 million in revenue from products from our IDT NSE
acquisition, $1.1 million from products from our RMI acquisition, and $9.0 million in revenue from sales of our new products to Cisco, including the NL7000 and NL8000. The increase was partially offset by a decrease of $10.4 million in sales of
our NL5000 and network search engine products. Revenue from non-Cisco customers represented $113.0 million of total revenue for the year ended December 31, 2009 compared with $87.2 million during the year end December 31,
2008. The increase in sales to non-Cisco customers was primarily due to an increase of $7.8 million in revenue from products we acquired in the IDT NSE acquisition, $13.3 million from products we acquired in the RMI acquisition, and $16.2
million in revenue from sales of our new products, including the NL7000 and NL9000. This increase was partially offset by a decrease of $13.3 million in sales of our NL5000, network search engine products and physical layer products. During the
year ended December 31, 2009 and 2008, Alcatel-Lucent accounted for 13% of our total revenue compared with 12% in 2008, and Huawei accounted for 10% of our total revenue and was below 10% in 2008.

Cost of Revenue/Gross Profit/Gross Margin. Cost of revenue for the year ended December 31, 2009 increased by $37.6 million
compared with that of the year ended December 31, 2008. Cost of revenue increased primarily due to the increase in product sales, amortization of intangible assets, and fair value adjustments related to acquired inventory. The
increases in amortization of intangible assets and fair value adjustments related to acquired inventory were attributable to the IDT NSE and RMI acquisitions. Cost of revenue for the years ended December 31, 2009 and 2008, respectively,
included $18.9 million and $11.9 million of amortization of intangible assets expense, $1.9 million and $2.4 million of a provision for excess and obsolete inventory, and $20.4 million and $1.5 million of a fair value adjustment related to acquired
inventory. Gross margin for the year ended December 31, 2009 decreased by 12.8% compared with 2008, primarily due to increases in amortization of intangible assets and fair value adjustments related to acquired inventory.

Operating expenses

The table below sets forth operating expense data for the years ended December 31, 2009 and 2008 (in thousands, except percentage data):



|                                        |  |                            |         |                     |      |   |                            |   |                     |  |      |                    |  |                  |        |  |      |  
|--------------------------------------- |  | -------------------------- | ------- | ------------------- | ---- | - | -------------------------- | - | ------------------- |  | ---- | ------------------ |  | ---------------- | ------ |  | ---- | -
|                                        |  | Year endedDecember 31,2009 |         | PercentageofRevenue |      |   | Year endedDecember 31,2008 |   | PercentageofRevenue |  |      | Year-to-YearChange |  | PercentageChange |       
|Operating expenses:                     |  |                            |         |                     |      |   |                            |   |                     |  |      |                    |  |                  |        |  |      |  
|Research and development                |  | $                          | 73,631  |                     | 42.1 | % |                            | $ | 51,607              |  | 36.9 | %                  |  | $                | 22,024 |  | 42.7 | %
|Selling, general and administrative     |  |                            | 43,931  |                     | 25.1 | % |                            |   | 26,567              |  | 19.0 | %                  |  |                  | 17,364 |  | 65.4 | %
|Change in contingent earn-out liability |  |                            | 2,008   |                     | 1.1  | % |                            |   |                    |  |     |                    |  |                  | 2,008  |  |     |  
|Acquisition-related costs               |  |                            | 5,412   |                     | 3.1  | % |                            |   |                    |  |     |                    |  |                  | 5,412  |  |     |  
|                                        |  |                            |         |                     |      |   |                            |   |                     |  |      |                    |  |                  |        |  |      |  
|Total operating expenses                |  | $                          | 124,982 |                     | 71.5 | % |                            | $ | 78,174              |  | 55.9 | %                  |  | $                | 46,808 |  | 59.9 | %
|                                        |  |                            |         |                     |      |   |                            |   |                     |  |      |                    |  |                  |        |  |      |  

Research and Development Expenses. Research and development expenses increased during the
year ended December 31, 2009, as compared to fiscal 2008, primarily due to increases in payroll and payroll related expenses of $6.3 million, stock-based compensation expenses of $12.1 million, product development and qualification expenses of
$2.8 million, and software licenses expenses of $2.1 million. The increases were partially offset by decreases in consulting and outside vendor expenses of $1.6 million. The increase in payroll and payroll related expenses and stock-based
compensation expenses were primarily due to increases in engineering headcount to support our new product development efforts, and as a result of the RMI acquisition. The increase in product development and qualification expense was primarily due to
the production qualification and characterization of our processors. Product development and qualification expenses vary from period to



41



---

##### Table of Contents

period depending on the timing of development and tape-out of various products. The increase in software licenses expenses was primarily due to amortization of software licenses used for our
internal research and development projects. The remainder of the increase in research and development expenses was caused by individually minor items. We expect that research and development expenses will increase in dollar amount and may
increase as a percentage of revenues in 2010 and future periods because we expect to continue to invest in hiring and training the necessary employees and building systems infrastructures required to support the development of new
products, and improve existing products.

Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased during the year ended December 31, 2009, as compared with fiscal 2008, primarily due to increases in payroll and payroll related expenses of $4.5 million, stock-based compensation expenses of $12.6 million,
legal expenses of $0.7 million. The increases were offset partially by decreases in commission expense of $0.3 million, consulting and outside vendor services expenses of $0.4 million, and other professional services expenses of $0.1
million. The increase in payroll and payroll related expenses and stock-based compensation expenses resulted primarily from increases in headcount to support our growing operations in the sales and marketing areas, and as a result of the RMI
acquisition. Selling, general and administrative expenses also included $1.8 million of amortization expense for the customer contracts and relationships, tradenames and trademarks, and non-competition agreements intangible assets for the year
ended December 31, 2009. The remainder of the fluctuation in selling, general and administrative expenses was caused by individually minor items We expect that selling, general and administrative expenses will increase in dollar amount and
may increase as a percentage of revenues in 2010 and future periods because we expect to continue to invest in hiring and training additional employees and making other additional investments required to support our growing operations in the sales
and marketing areas due our expanded product portfolio as result of our acquisitions.

Change in contingent earn-out
liability. The change in contingent earn-out liability was $2.0 million for the year ended December 31, 2009. The change in the estimated fair value of the contingent earn-out liability to be paid out to the former holders of RMI
capital stock was due to an increase in the market price of our common stock.

Acquisition-Related Costs.
Acquisition-related costs were $5.4 million for the year ended December 31, 2009 primarily due to legal expenses of $3.1 million, severance expenses of $0.9 million, consulting and outside vendor services of $0.7 million, and other professional
service of $0.5 million, related to the IDT NSE and RMI acquisitions. We expect that acquisition-related costs will decrease in dollar amount and may decrease as a percentage of revenues in 2010.

Other items

The tables
below set forth other items for the years ended December 31, 2009 and 2008 (in thousands, except percentage data):



|                |  |                            |     |                     |     |   |                            |   |                     |  |     |                    |  |   |                  |   |  |       |  
|--------------- |  | -------------------------- | --- | ------------------- | --- | - | -------------------------- | - | ------------------- |  | --- | ------------------ |  | - | ---------------- | - |  | ----- | -
|                |  | Year endedDecember 31,2009 |     | PercentageofRevenue |     |   | Year endedDecember 31,2008 |   | PercentageofRevenue |  |     | Year-to-YearChange |  |   | PercentageChange |  
|Interest income |  | $                          | 992 |                     | 0.6 | % |                            | $ | 1,595               |  | 1.1 | %                  |  | $ | (603             | ) |  | -37.8 | %

Interest
Income. Interest income decreased during the year ended December 31, 2009, as compared with fiscal 2008, primarily due to decreased interest income on cash and cash equivalents, and short-term investment balances as a result of lower
yields on our investments and lower invested balances due to the financing of IDT NSE and RMI acquisitions.



|                 |  |                            |        |   |                     |      |   |                            |   |     |                     |  |     |                    |  |   |                  |   |  |        |  
|---------------- |  | -------------------------- | ------ | - | ------------------- | ---- | - | -------------------------- | - | --- | ------------------- |  | --- | ------------------ |  | - | ---------------- | - |  | ------ | -
|                 |  | Year endedDecember 31,2009 |        |   | PercentageofRevenue |      |   | Year endedDecember 31,2008 |   |     | PercentageofRevenue |  |     | Year-to-YearChange |  |   | PercentageChange |  
|Interest expense |  | $                          | (1,666 | ) |                     | -1.0 | % |                            | $ | (33 | )                   |  | 0.0 | %                  |  | $ | (1,633           | ) |  | 4948.5 | %



42



---

##### Table of Contents

Interest Expense. Interest expense increased during the year ended
December 31, 2009, as compared with fiscal 2008, primarily due to increased interest expense of $1.5 million incurred on the line of credit and term notes which were obtained to finance a portion of the IDT NSE and RMI acquisitions.



|                              |  |                            |    |   |                     |     |   |                            |   |     |                     |  |     |                    |  |                  |    |  |       |  
|----------------------------- |  | -------------------------- | -- | - | ------------------- | --- | - | -------------------------- | - | --- | ------------------- |  | --- | ------------------ |  | ---------------- | -- |  | ----- | -
|                              |  | Year endedDecember 31,2009 |    |   | PercentageofRevenue |     |   | Year endedDecember 31,2008 |   |     | PercentageofRevenue |  |     | Year-to-YearChange |  | PercentageChange |   
|Other income and expense, net |  | $                          | (4 | ) |                     | 0.0 | % |                            | $ | (59 | )                   |  | 0.0 | %                  |  | $                | 55 |  | -93.2 | %

Other
Income and Expense, net. Other income and expense, net increased during the year ended December 31, 2009, as compared with fiscal 2008, primarily due to a decrease in software license write-offs incurred in 2008.



|                          |  |                            |        |   |                            |     |   |                            |   |        |                            |  |        |                    |  |   |                  |   |  |      |  
|------------------------- |  | -------------------------- | ------ | - | -------------------------- | --- | - | -------------------------- | - | ------ | -------------------------- |  | ------ | ------------------ |  | - | ---------------- | - |  | ---- | -
|                          |  | Year endedDecember 31,2009 |        |   | PercentageofPre-Tax Income |     |   | Year endedDecember 31,2008 |   |        | PercentageofPre-Tax Income |  |        | Year-to-YearChange |  |   | PercentageChange |  
|Benefit from income taxes |  | $                          | (3,060 | ) |                            | 6.1 | % |                            | $ | (1,937 | )                          |  | -118.1 | %                  |  | $ | (1,123           | ) |  | 58.0 | %

Benefit
from income taxes. During the year ended December 31, 2009, we recorded an income tax benefit of $3.1 million. Our effective tax rate of 6.1% for the year ended December 31, 2009 was primarily driven by a rate
differential for book income generated in foreign jurisdictions, the tax impact of non-deductible expenses such as stock-based compensation expenses and acquisition related expenses and adjustments to certain tax reserves relating to an intercompany
license agreement.

Stock-Based Compensation Expense

On January 1, 2006, we adopted ASC 718, on the modified prospective application method, which requires the measurement and recognition
of compensation expense for all share-based awards made to our employees and directors including employee stock options and employee stock purchases outstanding as of and awarded after January 1, 2006. The total stock-based compensation expense
recognized for the years ended December 31, 2009, 2008 and 2007 was as follows (in thousands):



|                                       |  |                         |        |      |   |        |  |   |       
|-------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                       |  | Year ended December 31,
|                                       |  | 2009                    |        | 2008 |   | 2007  
|Cost of revenue                        |  | $                       | 672    |      | $ | 1,030  |  | $ | 747   
|Research and development               |  |                         | 21,527 |      |   | 9,474  |  |   | 9,933 
|Selling, general and administrative    |  |                         | 18,556 |      |   | 5,988  |  |   | 5,366 
|                                       |  |                         |        |      |   |        |  |   |       
|Total stock-based compensation expense |  | $                       | 40,755 |      | $ | 16,492 |  | $ | 16,046
|                                       |  |                         |        |      |   |        |  |   |       

In addition, we capitalized approximately $0.1 million
and $0.2 million of stock-based compensation in inventory as of December 31, 2009 and 2008 which represented indirect manufacturing costs related to our inventory.

Results of Operations

Comparison of Year Ended December 31, 2008 to Year Ended
December 31, 2007

Revenue, cost of revenue and gross profit

The table below sets forth the fluctuations in revenue, cost of revenue and gross profit data for the years ended December 31, 2008 and
2007 (in thousands, except percentage data):



|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |                  |        |  |      |  
|--------------- |  | -------------------------- | ------- | ------------------- | ----- | - | -------------------------- | - | ------------------- |  | ----- | ------------------ |  | ---------------- | ------ |  | ---- | -
|                |  | Year endedDecember 31,2008 |         | PercentageofRevenue |       |   | Year endedDecember 31,2007 |   | PercentageofRevenue |  |       | Year-to-YearChange |  | PercentageChange |       
|Revenue         |  | $                          | 139,927 |                     | 100.0 | % |                            | $ | 109,033             |  | 100.0 | %                  |  | $                | 30,894 |  | 28.3 | %
|Cost of revenue |  |                            | 61,616  |                     | 44.0  | % |                            |   | 44,732              |  | 41.0  | %                  |  |                  | 16,884 |  | 37.7 | %
|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |                  |        |  |      |  
|Gross profit    |  | $                          | 78,311  |                     | 56.0  | % |                            | $ | 64,301              |  | 59.0  | %                  |  | $                | 14,010 |  | 21.8 | %
|                |  |                            |         |                     |       |   |                            |   |                     |  |       |                    |  |                  |        |  |      |  



43



---

##### Table of Contents

Revenue. Revenue for the year ended December 31, 2008 increased by $30.9 million
compared with that of the year ended December 31, 2007. Revenue from sales to Wintec, Cisco and Ciscos contract manufacturers (collectively Cisco) represented $52.7 million of our total revenue for the year ended
December 31, 2008, compared to $55.1 million during the year ended December 31, 2007. The decrease in sales to Cisco was primarily due to a decrease of $22.4 million from 2007 in revenue from sales of NL5000 products, although this decline
was largely offset by increased revenue of our new and additional products for Cisco, including NL7000, NL8000, and TCAM2 products which increased $20.7 million. Revenue from non-Cisco customers represented $87.2 million of total revenue
for the year ended December 31, 2008 compared with $53.9 million during the year end December 31, 2007. The increase in sales to non-Cisco customers was driven primarily by increased demand for our products in several emerging
new markets, such as 10 Gigabit Ethernet, which we address with the PLPs that we acquired in the Aeluros acquisition, and IPTV. During the year ended December 31, 2008, Alcatel-Lucent accounted for 12% of our total revenue compared with
11% in 2007.

Cost of Revenue/Gross Profit/Gross Margin. Cost of revenue for the year ended December 31, 2008
increased by $16.9 million compared with that of the year ended December 31, 2007. Cost of revenue increased primarily due to the increase in product sales. Cost of revenue in 2008 also included amortization of intangible assets, and
a provision for excess and obsolete inventory and product scrap charges. Cost of revenue for the years ended December 31, 2008 and 2007, respectively, included $11.9 million and $5.0 million of amortization of intangible assets expense,
and $2.4 million and $1.0 million of a provision for excess and obsolete inventory.

Operating expenses

The table below sets forth operating expense data for the years ended December 31, 2008 and 2007 (in thousands, except percentage data):



|                                    |  |                            |        |                     |      |   |                            |   |                     |  |      |                    |  |   |                  |   |  |        |  
|----------------------------------- |  | -------------------------- | ------ | ------------------- | ---- | - | -------------------------- | - | ------------------- |  | ---- | ------------------ |  | - | ---------------- | - |  | ------ | -
|                                    |  | Year endedDecember 31,2008 |        | PercentageofRevenue |      |   | Year endedDecember 31,2007 |   | PercentageofRevenue |  |      | Year-to-YearChange |  |   | PercentageChange |  
|Operating expenses:                 |  |                            |        |                     |      |   |                            |   |                     |  |      |                    |  |   |                  |   |  |        |  
|Research and development            |  | $                          | 51,607 |                     | 36.9 | % |                            | $ | 45,175              |  | 41.4 | %                  |  | $ | 6,432            |   |  | 14.2   | %
|In-process research and development |  |                            |       |                     | 0.0  | % |                            |   | 1,610               |  | 1.5  | %                  |  |   | (1,610           | ) |  | -100.0 | %
|Selling, general and administrative |  |                            | 26,567 |                     | 19.0 | % |                            |   | 19,672              |  | 18.0 | %                  |  |   | 6,895            |   |  | 35.0   | %
|                                    |  |                            |        |                     |      |   |                            |   |                     |  |      |                    |  |   |                  |   |  |        |  
|Total operating expenses            |  | $                          | 78,174 |                     | 55.9 | % |                            | $ | 66,457              |  | 60.9 | %                  |  | $ | 11,717           |   |  | 17.6   | %
|                                    |  |                            |        |                     |      |   |                            |   |                     |  |      |                    |  |   |                  |   |  |        |  

Research and Development Expenses. Research and development expenses increased during the
year ended December 31, 2008, as compared to fiscal 2007, primarily due to increases in payroll related expenses of $3.8 million, product development and qualification expenses of $2.1 million, and consulting and outside vendor expenses of $1.0
million, which were partially offset by a decrease of stock-based compensation expense of $0.5 million. The increase in payroll related expenses resulted primarily from increases in engineering headcount in India to support our new product
development efforts, and in the U.S. as a result of the Aeluros Acquisition. The increase in product development and qualification expense was primarily due to the production qualification and characterization of our newly introduced knowledge-based
processors. The remainder of the increase in research and development expenses was caused by individually minor items.

In-Process Research and Development.During the year ended December 31, 2007, we recorded $1.6 million of in-process research and development charge related to the Aeluros Acquisition at the close of the acquisition.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased during the year
ended December 31, 2008, as compared with fiscal 2007, primarily due to increased commission



44



---

##### Table of Contents

expenses of $1.7 million, payroll related expenses of $1.7 million, amortization expense of intangible assetscustomer relationships of $1.1 million, consulting and outside vendor expense of
$1.0 million, other professional services fess of $0.4 million, stock-based compensation expense of $0.6 million, and travel expense of $0.1 million. The increase in commission expenses was primarily a result of our increase in revenue. The increase
in payroll related expenses and stock-based compensation expense resulted primarily from increased headcount to support our growing operations in the sales and marketing areas. The remainder of the fluctuation in selling, general and administrative
expenses was caused by individually minor items.

Other items

The tables below set forth other items for the years ended December 31, 2008 and 2007 (in thousands, except percentage data):



|                |  |                            |       |                     |     |   |                            |   |                     |  |     |                    |  |   |                  |   |  |       |  
|--------------- |  | -------------------------- | ----- | ------------------- | --- | - | -------------------------- | - | ------------------- |  | --- | ------------------ |  | - | ---------------- | - |  | ----- | -
|                |  | Year endedDecember 31,2008 |       | PercentageofRevenue |     |   | Year endedDecember 31,2007 |   | PercentageofRevenue |  |     | Year-to-YearChange |  |   | PercentageChange |  
|Interest income |  | $                          | 1,595 |                     | 1.1 | % |                            | $ | 4,431               |  | 4.1 | %                  |  | $ | (2,836           | ) |  | -64.0 | %

Interest
Income. Interest income decreased during the year ended December 31, 2008, as compared with fiscal 2007, primarily due to decreased interest income on cash and cash equivalents, and short-term investment balances as a result of lower
yields on our investments and lower invested balances after paying approximately $71.7 million in connection with the acquisitions of the TCAM2 Products from Cypress and the Aeluros Acquisition.



|                 |  |                            |     |   |                     |     |   |                            |   |                     |  |                    |  |   |                  |   |  |        |  
|---------------- |  | -------------------------- | --- | - | ------------------- | --- | - | -------------------------- | - | ------------------- |  | ------------------ |  | - | ---------------- | - |  | ------ | -
|                 |  | Year endedDecember 31,2008 |     |   | PercentageofRevenue |     |   | Year endedDecember 31,2007 |   | PercentageofRevenue |  | Year-to-YearChange |  |   | PercentageChange |  
|Interest expense |  | $                          | (33 | ) |                     | 0.0 | % |                            | $ |                    |  |                   |  | $ | (33              | ) |  | -100.0 | %

Interest
Expense. Interest expense increased during the year ended December 31, 2008, as compared with fiscal 2007, primarily due to increased interest expense incurred on our software licenses.



|                              |  |                            |     |   |                     |     |   |                            |   |                     |  |     |                    |  |   |                  |   |  |        |  
|----------------------------- |  | -------------------------- | --- | - | ------------------- | --- | - | -------------------------- | - | ------------------- |  | --- | ------------------ |  | - | ---------------- | - |  | ------ | -
|                              |  | Year endedDecember 31,2008 |     |   | PercentageofRevenue |     |   | Year endedDecember 31,2007 |   | PercentageofRevenue |  |     | Year-to-YearChange |  |   | PercentageChange |  
|Other income and expense, net |  | $                          | (59 | ) |                     | 0.0 | % |                            | $ | 32                  |  | 0.0 | %                  |  | $ | (91              | ) |  | -284.4 | %

Other
Income and Expense, net. Other income and expense, net decreased during the year ended December 31, 2008, as compared with fiscal 2007, primarily due to software license write-offs incurred in 2008.



|                                          |  |                            |        |   |                            |      |   |                            |   |      |                            |  |      |                    |  |   |                  |   |  |       |  
|----------------------------------------- |  | -------------------------- | ------ | - | -------------------------- | ---- | - | -------------------------- | - | ---- | -------------------------- |  | ---- | ------------------ |  | - | ---------------- | - |  | ----- | -
|                                          |  | Year endedDecember 31,2008 |        |   | PercentageofPre-Tax Income |      |   | Year endedDecember 31,2007 |   |      | PercentageofPre-Tax Income |  |      | Year-to-YearChange |  |   | PercentageChange |  
|Provision for (benefit from) income taxes |  | $                          | (1,937 | ) |                            | -1.4 | % |                            | $ | (288 | )                          |  | -0.3 | %                  |  | $ | (1,649           | ) |  | 572.6 | %

Provision
for income taxes. During the year ended December 31, 2008, we recorded an income tax benefit of $1.9 million. Our effective tax rate of 35% for the year ended December 31, 2008 was primarily driven by a rate
differential for book income generated in foreign jurisdictions and the tax impact of non-deductible stock options.

Liquidity and Capital
Resources

Financial Condition

Our principal sources of liquidity are our cash and cash equivalents and our available senior secured revolving credit facility of $25 million with a group of banks executed in June 2009. As of
December 31, 2009 our cash balance was $44.3 million. As of December 31, 2009 there were no amounts outstanding related to our senior secured term notes and our senior secured credit facility.



45



---

##### Table of Contents

Our cash and cash equivalents are invested with financial institutions in deposits that, at
times, may exceed federally insured limits. To date, we have not experienced any losses on our deposits of cash and cash equivalents. However, we believe that the capital and credit markets have been experiencing unprecedented levels of
volatility and disruption and that recent U.S. sub-prime mortgage defaults have had a significant impact across various sectors of the financial markets, causing global credit and liquidity issues. We can provide no assurance that our cash and cash
equivalents will not be adversely affected by these matters in the future.

Under our revolving senior secured credit
facility, we are required to satisfy certain financial ratio and other covenants, as described in Note 14 of the Notes to our Consolidated Financial Statements. We were in compliance with the debt covenants under the credit agreements
applicable to this facility as of December 31, 2009.

The table below (in thousands) sets forth the key components
of cash flow for the years ended December 31, 2009, 2008 and 2007:



|                                          |  |                         |          |   |      |   |         |      |  |   |         |  
|----------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                          |  | Year ended December 31, |         
|                                          |  | 2009                    |          |   | 2008 |   |         | 2007 | 
|Net cash provided by operating activities |  | $                       | 48,251   |   |      | $ | 41,856  |      |  | $ | 24,907  |  
|Net cash used in investing activities     |  | $                       | (128,019 | ) |      | $ | (14,252 | )    |  | $ | (32,629 | )
|Net cash provided by financing activities |  | $                       | 40,572   |   |      | $ | 5,226   |      |  | $ | 7,674   |  

Cash Flows during the Year
ended December 31, 2009

Net cash provided by operating activities was $48.3 million for the year ended
December 31, 2009, which primarily consisted of $47.2 million of net loss, $62.4 million of non-cash operating expenses and $33.1 million in benefits from changes in operating assets and liabilities. Non-cash operating expenses for
the year ended December 31, 2009, included depreciation and amortization of $25.4 million, write-off of debt issuance costs related to senior secured term notes of $0.5 million, stock-based compensation of $40.7 million, provision for inventory
reserve of $1.9 million, offset by deferred income taxes, net of $4.6 million, and tax benefit from stock-based awards of $1.5 million. Changes in operating assets and liabilities were primarily driven by increases in accounts receivables of
$7.5 million, prepaid expenses and other assets of $1.1 millions, accounts payable and accrued liabilities of $20.1 million, contingent earn-out liability of $2.0 million, and deferred margin of $1.6 million, offset by a decrease in inventories
of $17.9 million.

Net cash used in investing activities was $128.0 million during the year ended December 31, 2009,
of which we used $107.4 million in cash paid in connection with the IDT NSE and RMI acquisitions, $15.0 million for the loan to RMI, $0.4 million for the purchase of non-competition agreements in connection with the RMI acquisition, $15.5 million
for the payment of Aeluros post-acquisition revenue milestone, $14.6 million for the purchase of short-term investments, $1.5 million of the purchase of long-term investment and $1.2 million to purchase property and equipment. Cash used in
investing activities was offset by $27.7 million of sales and maturities of short-term investments. We expect to make capital expenditures of approximately $6.8 million during fiscal 2010. These capital expenditures will be used primarily to support
product development activities. We will use our cash and cash equivalents to fund these purchases.

Net cash provided by
financing activities was $40.6 million for the year ended December 31, 2009, primarily from proceeds from our credit facility totaling $48.0 million, proceeds from the issuance of common stock in connection with a registered shelf offering, net
of issuance costs, of $29.7 million, proceeds of $17.2 million from the issuance of common stock under our stock compensation plans, and tax benefit from stock-based awards of $1.5 million. Cash was used for financing activities for repayment
of the entire $48.0 million of outstanding debt under our credit facility, payment of debt issuance costs of $1.2 million, tax payments related to vested restricted stock awards and common stock of $4.3 million, and repayment of software license and
other obligations of $2.3 million.



46



---

##### Table of Contents

Cash Flows during the Year ended December 31, 2008

Net cash provided by operating activities was $41.9 million for the year ended December 31, 2008, which primarily consisted of $3.6
million of net income, $31.7 million of non-cash operating expenses and $6.6 million in changes in operating assets and liabilities. Non-cash operating expenses for the year ended December 31, 2008, included depreciation and
amortization of $17.2 million, stock-based compensation of $16.5 million, and provision for inventory reserve of $2.4 million, offset by deferred income taxes, net of $3.9 million, and tax benefit from stock-based awards of $0.7 million.
Changes in operating assets and liabilities were primarily driven by an increase in deferred margin of $1.3 million, inventory of $1.4 million, other liabilities of $1.1 million and accounts payable of $0.5 million on higher product sales,
offset by a decrease in accounts receivables of $6.6 million, accrued liabilities of $2.1 million, which includes the $15.5 million Aeluros post-acquisition revenue milestone, and prepaid expenses and other assets of $0.6 million.

Net cash used in investing activities was $14.3 million during the year ended December 31, 2008, of which we used $13.0 million
for the purchase of short-term investments, and $1.4 million to purchase computer equipment and research and development design tools to support our growing operations

Net cash provided by financing activities was $5.2 million for the year ended December 31, 2008, primarily from proceeds of stock option exercises of $7.9 million, and tax benefit from stock-based
awards of $0.7 million. Cash provided by financing activities was offset by repayment of software license and other obligations of $3.4 million.

Cash Flows during the Year ended December 31, 2007

During the year ended December 31, 2007,
our operating activities generated net cash of $24.9 million. During the period, we recorded non-cash items of $22.5 million primarily consisting of stock-based compensation of $16.0 million, depreciation and amortization of $9.1 million, in-process
research and development charge of $1.6 million related to the Aeluros Acquisition, provision for inventory reserve of $1.0 million, offset by net impact of deferred tax asset valuation allowance release of $0.5 million, tax benefit from
stock-based awards of $2.5 million, deferred income taxes, net of $1.7 million, and accretion of discount on debt securities of $0.7 million. We also generated cash from a decrease of inventory of $1.5 million, and an increase in accounts payable
and accrued liabilities of $2.9 million, and other long-term liabilities of $1.0 million. The cash generated was partially offset by the increase in accounts receivable of $4.5 million on higher sales of our products during the period, increase
in prepaid expenses and other assets of $1.3 million.

Our investing activities used cash of $32.6 million during the
year ended December 31, 2007, of which we obtained $53.8 million in proceeds from sales and maturities of short-term investments, and used $13.9 million for the purchase of short-term investments. We used $2.2 million to purchase computer
equipment and research and development design tools to support our growing operations. We used $70.2 million to purchase the TCAM2 products and certain related assets from Cypress Semiconductor and for the Aeluros Acquisition.

Our financing activities provided net cash of $7.7 million for the year ended December 31, 2007, primarily from proceeds of stock
option exercises of $8.3 million, and tax benefit from stock-based awards of $2.5 million. Cash provided by financing activities was offset by repayment of software license and other obligations of $3.1 million.

Capital Resources

We
believe that our existing cash balance of $44.3 million as of December 31, 2009 and our available senior secured revolving credit facility of $25 million will be sufficient to meet our anticipated cash needs for at least the next twelve
months. Our anticipated cash needs in the next twelve months include the potential payments of up to $15.9 million under the earn-out provisions of the RMI merger agreement to the holders of RMI common stock. Of the estimated
acquisition-related contingent consideration liability recorded as of December 31, 2009 of $11.7 million, approximately $0.4 million would be payable in cash and $11.3 million payable in stock.



47



---

##### Table of Contents

Although in recent years we have generated sufficient net cash from operations to meet our
capital requirements, we will be substantially larger with greater operating cash needs as a result of the acquisitions of IDT NSE and RMI. Our future cash needs will depend on many factors, including the amount of revenue we generate, the timing
and extent of spending to support product development efforts, the expansion of sales and marketing activities, the timing of introductions of new products, the costs to ensure access to adequate manufacturing capacity, and the continuing market
acceptance of our products, and any future business acquisitions that we might undertake. We may seek additional funding through public or private equity or debt financing, and have a shelf registration allowing us to sell up to approximately
$120 million of our securities from time to time during the next three years. However, additional funding could be constrained by the terms and covenants under our senior secured credit facility and may not be available on terms acceptable to
us or at all. We also might decide to raise additional capital at such times and upon such terms as management considers favorable and in our interests, including, but not limited to, from the sale of our debt and/or equity securities (before
reductions for expenses, underwriting discounts and commissions) under our shelf registration statement, but we cannot be certain that we will be able to complete offerings of our securities at such times and on such terms as we may consider
desirable for us.

Contractual Obligations

Our principal commitments as of December 31, 2009 are summarized below (in thousands):



|                                             |  |       |        |                 |   |            |  |            |       |              |   |     |  |   |  
|-------------------------------------------- |  | ----- | ------ | --------------- | - | ---------- |  | ---------- | ----- | ------------ | - | --- |  | - | -
|                                             |  | Total |        | Less than1 year |   | 1 - 3years |  | 4 - 5years |       | After5 years
|Operating lease obligations                  |  | $     | 4,519  |                 | $ | 3,253      |  | $          | 952   |              | $ | 314 |  | $ | 
|Software license obligations                 |  |       | 5,446  |                 |   | 3,037      |  |            | 2,409 |              |   |    |  |   | 
|Wafer purchases                              |  |       | 20,684 |                 |   | 20,684     |  |            |      |              |   |    |  |   | 
|Acquisition-related contingent consideration |  |       | 11,687 |                 |   | 11,687     |  |            |       |              |   |     |  |   |  
|                                             |  |       |        |                 |   |            |  |            |       |              |   |     |  |   |  
|Total                                        |  | $     | 42,336 |                 | $ | 38,661     |  | $          | 3,361 |              | $ | 314 |  | $ | 
|                                             |  |       |        |                 |   |            |  |            |       |              |   |     |  |   |  

In addition to the enforceable and legally binding
obligations quantified in the table above, we have other obligations for goods and services entered into in the normal course of business. These obligations, however, either are not enforceable or legally binding or are subject to change based on
our business decisions.

In addition, due to uncertainty with respect to timing of future cash flows associated with our
unrecognized tax benefits at December 31, 2009, we are unable to make a reasonably reliable estimate of the period of cash settlement with the respective taxing authority. Therefore, $44.1 million of unrecognized tax benefits have been excluded
from the contractual obligations table above. See Note 7Income Taxes or a discussion on Income Taxes.

Off-Balance Sheet Arrangements

As of December 31, 2009, we had no off-balance sheet arrangements as defined in SEC regulations.

Indemnities, Commitments and Guarantees

In the normal course of business, we have made certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include agreements
to indemnify our customers with respect to liabilities associated with the infringement of other parties technology based upon our products, obligations to indemnify our lessors under facility lease agreements, and obligations to indemnify our
directors and officers to the maximum extent permitted under the laws of the state of Delaware. The duration of such indemnification obligations, commitments and guarantees varies and, in certain cases, is indefinite. We have not recorded any
liability for any such indemnification obligations, commitments and guarantees in the accompanying balance sheets. We do, however, accrue for losses for any known contingent liability, including those that may arise from indemnification provisions,
when future payment is estimable and probable.



48



---

##### Table of Contents

Under master purchase agreements signed with Cisco in November 2005, we have agreed to
indemnify Cisco for costs incurred in rectifying epidemic failures, up to the greater of (on a per claim basis) 25% of all amounts paid to us by Cisco during the preceding 12 months (approximately, $15.4 million at December 31, 2009) or $9.0
million, plus replacement costs. If we are required to make payments under the indemnity, our operating results may be adversely affected.

Significant Accounting Pronouncements

In September 2009, the FASB issued Update No. 2009-13 or ASU
2009-13, which updates the guidance currently included under topic ASC 605-25, Multiple Element Arrangements. ASU 2009-13 relates to the final consensus reached by FASB on a new revenue recognition guidance regarding revenue arrangements with
multiple deliverables. The new accounting guidance addresses how to determine whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the
separate units of accounting. The new accounting guidance is effective for fiscal years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption
is permitted. The Company is currently evaluating the potential impact, if any, of the new accounting guidance on its consolidated financial statements.

Effective July 1, 2009, we adopted the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 105-10,Generally Accepted Accounting
PrinciplesOverall (ASC 105-10). ASC 105-10 establishes theFASB Accounting Standards Codification (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied
by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC
registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included
in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs). The FASB
will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References
made to FASB guidance throughout this document have been updated for the Codification.

Effective April 1, 2009, we
adopted FASB ASC 855-10,Subsequent EventsOverall (ASC 855-10). ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are
issued or are available to be issued. It requires the disclosure of the date through which an entity has evaluated subsequent events and the basis for that datethat is, whether that date represents the date the financial statements were
issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855-10
did not have a material impact on our consolidated results of operations or financial condition.

Effective January 1,
2009, we adopted the FASB ASC 805,Business Combinations (ASC 805). ASC 805 updated guidance related to business combinations. The updated guidance establishes principles and requirements for how the acquirer of a business
recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The updated standard also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The updated standard also provides guidance for
recognizing changes in an acquirers existing income tax valuation allowances and tax uncertainty accruals that result from a business combination transaction as adjustments to income tax expense. The updated guidance had a material impact on
our consolidated financial statements during the year ended December 31, 2009. In fiscal



49



---

##### Table of Contents

2009, we completed the IDT NSE and RMI acquisitions. Under the updated guidance we expensed the transaction costs associated with the IDT NSE and RMI acquisitions, while under the
prior accounting standards such costs would have been capitalized. In addition, we recognized the fair value of a contingent earn-out liability in connection with the RMI acquisition of $9.7 million, and subsequently recognized an
expense of $2.0 million related to the change in the estimated fair value of contingent earn-out liability, while under the prior accounting standards the earn-out would not have been recognized as part of the consideration
transferred until the contingency was resolved. Further, we acquired in-process research and development of $46.5 million in connection with the RMI acquisition which has been capitalized in accordance with the updated guidance, whereas
under prior authoritative guidance the amount would have been expensed immediately. Therefore, the adoption of the updated guidance related to business combinations has had and likely will continue to have a material impact on our future
consolidated financial statements.



|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
|-------- | -----------------------------------------------------------

The primary objective of our investment activities is to preserve principal while maximizing the income we receive from our investments without significantly increasing the risk of loss. Some of the
investment securities permitted under our cash management policy may be subject to market risk for changes in interest rates. To mitigate this risk, we maintain a portfolio of cash equivalent and short-term investments in a variety of securities
which may include money market funds, government debt issued by the United States of America, state debt, certificates of deposit and investment grade corporate debt. Presently, we are exposed to minimal market risks associated with interest rate
changes. We manage the sensitivity of our results of operations to these risks by maintaining investment grade short-term investments. Our cash management policy does not allow us to purchase or hold derivative or commodity instruments or other
financial instruments for trading purposes. Additionally, our policy stipulates that we periodically monitor our investments for adverse material holdings related to the underlying financial solvency of the issuer. As of December 31, 2009, our
investments consisted of money market funds. Our results of operations and financial condition would not be significantly impacted by either a 10% increase or decrease in interest rates due mainly to the short-term nature of our investment
portfolio.

Our sales outside the United States are transacted in U.S. dollars; accordingly our sales are not generally
impacted by foreign currency rate changes. Our operating expenses are denominated primarily in U.S. Dollars, except for expenses incurred by our wholly owned subsidiaries which are denominated in the local currency. To date, fluctuations in foreign
currency exchange rates have not had a material impact on our results of operations.



50



---

##### Table of Contents

|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|------- | --------------------------------------------

NETLOGIC MICROSYSTEMS, INC.

Index to Financial
Statements



|                                                                                                                              |  |     
|----------------------------------------------------------------------------------------------------------------------------- |  | ----
|                                                                                                                              |  | Page
|Report of Independent Registered Public Accounting Firm                                                                       |  | 52  
|Consolidated Balance Sheets as of December 31, 2009 and 2008                                                                  |  | 53  
|Consolidated Statements of Operations for the years ended December 31, 2009, 2008 and
2007                                    |  | 54  
|Consolidated Statement of Stockholders Equity and Comprehensive Income for the years ended December 31,
 2009, 2008 and 2007 |  | 55  
|Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008 and
2007                                    |  | 56  
|Notes to Consolidated Financial Statements                                                                                    |  | 57  



51



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

NetLogic Microsystems, Inc.:

In our opinion, the consolidated financial statements listed in the index appearing under Item 15(a)(1) present fairly, in all material respects, the financial position of NetLogic Microsystems, Inc.
and its subsidiaries at December 31, 2009 and December 31, 2008 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based
on criteria established inInternal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and
financial statement schedule, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in Managements Report on Internal Control over
Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our
integrated 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 audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of
internal control over financial reporting 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 audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As discussed in Note 1 of the Notes to Consolidated Financial Statements, in 2009 the Company changed the manner in which it accounts for
business combinations.

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 (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 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 (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.

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.

/s/ PricewaterhouseCoopers LLP

San Jose, California

February 24, 2010, except as to Note 15, which is as of March 19, 2010



52



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS)



|                                                                                                                                                     |  |              |          |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -------- | - | ---- | - | ------- | -
|                                                                                                                                                     |  | December 31, |         
|                                                                                                                                                     |  | 2009         |          |   | 2008 |  
|ASSETS                                                                                                                                               |  |              |          |   |      |   |         |  
|Current assets:                                                                                                                                      |  |              |          |   |      |   |         |  
|Cash and cash equivalents                                                                                                                            |  | $            | 44,278   |   |      | $ | 83,474  |  
|Short-term investments                                                                                                                               |  |              |         |   |      |   | 13,067  |  
|Accounts receivables, net                                                                                                                            |  |              | 25,137   |   |      |   | 8,382   |  
|Inventories                                                                                                                                          |  |              | 45,113   |   |      |   | 13,707  |  
|Deferred income taxes                                                                                                                                |  |              | 13,157   |   |      |   | 3,217   |  
|Prepaid expenses and other current assets                                                                                                            |  |              | 8,638    |   |      |   | 1,937   |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total current assets                                                                                                                                 |  |              | 136,323  |   |      |   | 123,784 |  
|Property and equipment, net                                                                                                                          |  |              | 13,278   |   |      |   | 5,513   |  
|Goodwill                                                                                                                                             |  |              | 112,918  |   |      |   | 68,712  |  
|Intangible assets, net                                                                                                                               |  |              | 223,345  |   |      |   | 39,538  |  
|Other assets                                                                                                                                         |  |              | 46,247   |   |      |   | 8,224   |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total assets                                                                                                                                         |  | $            | 532,111  |   |      | $ | 245,771 |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                 |  |              |          |   |      |   |         |  
|Current liabilities                                                                                                                                  |  |              |          |   |      |   |         |  
|Accounts payable                                                                                                                                     |  | $            | 17,937   |   |      | $ | 7,618   |  
|Accrued liabilities                                                                                                                                  |  |              | 34,205   |   |      |   | 25,920  |  
|Contingent earn-out liability                                                                                                                        |  |              | 11,687   |   |      |   |        |  
|Deferred margin                                                                                                                                      |  |              | 2,667    |   |      |   | 1,638   |  
|Software licenses and other obligations, current                                                                                                     |  |              | 3,037    |   |      |   | 755     |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total current liabilities                                                                                                                            |  |              | 69,533   |   |      |   | 35,931  |  
|Software licenses and other obligations, long-term                                                                                                   |  |              | 2,409    |   |      |   | 464     |  
|Other liabilities                                                                                                                                    |  |              | 34,214   |   |      |   | 9,109   |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total liabilities                                                                                                                                    |  |              | 106,156  |   |      |   | 45,504  |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Stockholders equity                                                                                                                                 |  |              |          |   |      |   |         |  
|Preferred stock; 50,000 shares authorized at December 31, 2009 and 2008; none issued and outstanding at December 31,
2009 and 2008                   |  |              |         |   |      |   |        |  
|Common stock; 200,000 shares authorized at December 31, 2009 and 2008; 57,484 and 43,816 shares issued and outstanding at
December 31, 2009 and 2008 |  |              | 287      |   |      |   | 219     |  
|Additional paid-in capital                                                                                                                           |  |              | 548,811  |   |      |   | 276,042 |  
|Accumulated other comprehensive loss                                                                                                                 |  |              |         |   |      |   | (13     | )
|Accumulated deficit                                                                                                                                  |  |              | (123,143 | ) |      |   | (75,981 | )
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total stockholders equity                                                                                                                           |  |              | 425,955  |   |      |   | 200,267 |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                           |  | $            | 532,111  |   |      | $ | 245,771 |  
|                                                                                                                                                     |  |              |          |   |      |   |         |  

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



53



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)



|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|--------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                        |  | Year ended December 31, |        
|                                        |  | 2009                    |         |   | 2008 |   |         | 2007 | 
|Revenue                                 |  | $                       | 174,689 |   |      | $ | 139,927 |      |  | $ | 109,033 |  
|Cost of revenue                         |  |                         | 99,251  |   |      |   | 61,616  |      |  |   | 44,732  |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Gross profit                            |  |                         | 75,438  |   |      |   | 78,311  |      |  |   | 64,301  |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Operating expenses:                     |  |                         |         |   |      |   |         |      |  |   |         |  
|Research and development                |  |                         | 73,631  |   |      |   | 51,607  |      |  |   | 45,175  |  
|Selling, general and administrative     |  |                         | 43,931  |   |      |   | 26,567  |      |  |   | 19,672  |  
|Change in contingent earn-out liability |  |                         | 2,008   |   |      |   |        |      |  |   |        |  
|Acquisition-related costs               |  |                         | 5,412   |   |      |   |        |      |  |   |        |  
|In-process research and development     |  |                         |        |   |      |   |        |      |  |   | 1,610   |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Total operating expenses                |  |                         | 124,982 |   |      |   | 78,174  |      |  |   | 66,457  |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) from operations           |  |                         | (49,544 | ) |      |   | 137     |      |  |   | (2,156  | )
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Interest income                         |  |                         | 992     |   |      |   | 1,595   |      |  |   | 4,431   |  
|Interest expense                        |  |                         | (1,666  | ) |      |   | (33     | )    |  |   |        |  
|Other income and expense, net           |  |                         | (4      | ) |      |   | (59     | )    |  |   | 32      |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Income (loss) before income taxes       |  |                         | (50,222 | ) |      |   | 1,640   |      |  |   | 2,307   |  
|Benefit from income taxes               |  |                         | (3,060  | ) |      |   | (1,937  | )    |  |   | (288    | )
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss)                       |  | $                       | (47,162 | ) |      | $ | 3,577   |      |  | $ | 2,595   |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss) per sharebasic       |  | $                       | (1.02   | ) |      | $ | 0.08    |      |  | $ | 0.06    |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Net income (loss) per sharediluted     |  | $                       | (1.02   | ) |      | $ | 0.08    |      |  | $ | 0.06    |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Shares used in calculationbasic        |  |                         | 46,182  |   |      |   | 42,944  |      |  |   | 41,494  |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  
|Shares used in calculationdiluted      |  |                         | 46,182  |   |      |   | 44,628  |      |  |   | 43,876  |  
|                                        |  |                         |         |   |      |   |         |      |  |   |         |  

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



54



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME (LOSS)

(IN THOUSANDS)



|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|---------------------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- |  | ------------------------------- | ------- | - | ------------------------------------------ | - | ---- | ------------------ |  | - | ------------------------ | - |  | - | -------- | - |  | - | ------- | -
|                                                                                               |  | Common Stock |  | AdditionalPaid-InCapital |     |  | DeferredStock-basedCompensation |         |   | AccumulatedOtherComprehensiveIncome (Loss) |   |      | AccumulatedDeficit |  |   | TotalStockholdersEquity |  
|                                                                                               |  | Shares       |  | Amount                   |     |  |                                 |         |  
|Balance at December 31, 2006                                                                   |  | 40,878       |  | $                        | 204 |  | $                               | 224,647 |   |                                            | $ | (182 | )                  |  | $ | 8                        |   |  | $ | (82,153  | ) |  | $ | 142,524 |  
|Issuance of stock under stock compensation plans                                               |  | 1,750        |  |                          | 9   |  |                                 | 8,339   |   |                                            |   |      |                    |  |   |                         |   |  |   |         |   |  |   | 8,348   |  
|Amortization of deferred stock-based compensation                                              |  |             |  |                          |    |  |                                 |        |   |                                            |   | 179  |                    |  |   |                         |   |  |   |         |   |  |   | 179     |  
|Reversal of deferred stock-based compensation due to terminations                              |  |             |  |                          |    |  |                                 | (3      | ) |                                            |   | 3    |                    |  |   |                         |   |  |   |         |   |  |   |        |  
|Recording of stock-based compensation expense                                                  |  |             |  |                          |    |  |                                 | 15,793  |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 15,793  |  
|Tax benefits of stock options                                                                  |  |             |  |                          |    |  |                                 | 2,465   |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 2,465   |  
|Currency translation adjustments                                                               |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   | (16                      | ) |  |   |         |   |  |   | (16     | )
|Net income                                                                                     |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   |                         |   |  |   | 2,595    |   |  |   | 2,595   |  
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                     |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   | 2,579   |  
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2007                                                                   |  | 42,628       |  |                          | 213 |  |                                 | 251,241 |   |                                            |   |     |                    |  |   | (8                       | ) |  |   | (79,558  | ) |  |   | 171,888 |  
|Issuance of stock under stock compensation plans                                               |  | 1,188        |  |                          | 6   |  |                                 | 7,879   |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 7,885   |  
|Recording of stock-based compensation expense                                                  |  |             |  |                          |    |  |                                 | 16,354  |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 16,354  |  
|Tax benefits of stock options                                                                  |  |             |  |                          |    |  |                                 | 568     |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 568     |  
|Currency translation adjustments                                                               |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   | (45                      | ) |  |   |         |   |  |   | (45     | )
|Unrealized gain (loss) on short-term investments                                               |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   | 40                       |   |  |   |         |   |  |   | 40      |  
|Net income                                                                                     |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   |                         |   |  |   | 3,577    |   |  |   | 3,577   |  
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                     |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   | 3,572   |  
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2008                                                                   |  | 43,816       |  |                          | 219 |  |                                 | 276,042 |   |                                            |   |     |                    |  |   | (13                      | ) |  |   | (75,981  | ) |  |   | 200,267 |  
|Issuance of common stock in connection with the acquisition of RMI                             |  | 9,920        |  |                          | 50  |  |                                 | 188,477 |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 188,527 |  
|Issuance of common stock in connection with stock offering, net of share issuance costs of $71 |  | 1,400        |  |                          | 7   |  |                                 | 29,653  |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 29,660  |  
|Issuance of stock under stock compensation plans                                               |  | 2,348        |  |                          | 12  |  |                                 | 12,890  |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 12,902  |  
|Recording of stock-based compensation expense                                                  |  |             |  |                          |    |  |                                 | 40,660  |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 40,660  |  
|Tax benefits of stock options                                                                  |  |             |  |                          |    |  |                                 | 1,089   |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   | 1,089   |  
|Currency translation adjustments                                                               |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   |                         |   |  |   |         |   |  |   |        |  
|Unrealized gain on short-term investments                                                      |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   | 13                       |   |  |   |         |   |  |   | 13      |  
|Net loss                                                                                       |  |             |  |                          |    |  |                                 |        |   |                                            |   |     |                    |  |   |                         |   |  |   | (47,162  | ) |  |   | (47,162 | )
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Total comprehensive income                                                                     |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   | (47,149 | )
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  
|Balance at December 31, 2009                                                                   |  | 57,484       |  | $                        | 287 |  | $                               | 548,811 |   |                                            | $ |     |                    |  | $ |                         |   |  | $ | (123,143 | ) |  | $ | 425,955 |  
|                                                                                               |  |              |  |                          |     |  |                                 |         |   |                                            |   |      |                    |  |   |                          |   |  |   |          |   |  |   |         |  

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



55



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ----------------------- | -------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | Year ended December 31, |         
|                                                                                                              |  | 2009                    |          |   | 2008 |   |         | 2007 | 
|Cash flows from operating activities:                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Net (loss) income                                                                                             |  | $                       | (47,162  | ) |      | $ | 3,577   |      |  | $ | 2,595   |  
|Adjustments to reconcile net income to net cash provided by operating activities                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Depreciation and amortization                                                                                 |  |                         | 25,361   |   |      |   | 17,213  |      |  |   | 9,134   |  
|Loss on disposal of property and equipment                                                                    |  |                         | 6        |   |      |   | 106     |      |  |   | 38      |  
|Write-off debt issuance costs related to secured term notes                                                   |  |                         | 524      |   |      |   |        |      |  |   |        |  
|Accretion of discount relating to debt securities                                                             |  |                         |         |   |      |   | (13     | )    |  |   | (709    | )
|Stock-based compensation                                                                                      |  |                         | 40,755   |   |      |   | 16,492  |      |  |   | 16,046  |  
|Provision for (recovery of) doubtful accounts                                                                 |  |                         | 4        |   |      |   | 49      |      |  |   | (25     | )
|Provision for inventory reserves                                                                              |  |                         | 1,861    |   |      |   | 2,441   |      |  |   | 1,022   |  
|In-process research and development                                                                           |  |                         |         |   |      |   |        |      |  |   | 1,610   |  
|Deferred income taxes, net                                                                                    |  |                         | (4,601   | ) |      |   | (3,893  | )    |  |   | (1,688  | )
|Excess tax benefit from stock-based awards                                                                    |  |                         | (1,506   | ) |      |   | (717    | )    |  |   | (2,465  | )
|Net impact of deferred tax asset valuation allowance release and tax effect of intercompany license agreement |  |                         |         |   |      |   |        |      |  |   | (504    | )
|Changes in current assets and liabilities, net of effects of acquisitions:                                    |  |                         |          |   |      |   |         |      |  |   |         |  
|Accounts receivables                                                                                          |  |                         | (7,544   | ) |      |   | 6,571   |      |  |   | (4,471  | )
|Inventories                                                                                                   |  |                         | 17,926   |   |      |   | (1,448  | )    |  |   | 1,479   |  
|Prepaid expenses and other assets                                                                             |  |                         | (1,054   | ) |      |   | 646     |      |  |   | (1,312  | )
|Accounts payable                                                                                              |  |                         | 6,379    |   |      |   | 524     |      |  |   | 971     |  
|Accrued liabilities                                                                                           |  |                         | 13,755   |   |      |   | (2,084  | )    |  |   | 1,947   |  
|Contingent earn-out liability                                                                                 |  |                         | 2,008    |   |      |   |        |      |  |   |        |  
|Deferred margin                                                                                               |  |                         | 1,567    |   |      |   | 1,321   |      |  |   | 263     |  
|Other long-term liabilities                                                                                   |  |                         | (28      | ) |      |   | 1,071   |      |  |   | 976     |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                                     |  |                         | 48,251   |   |      |   | 41,856  |      |  |   | 24,907  |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Purchase of property and equipment                                                                            |  |                         | (1,237   | ) |      |   | (1,438  | )    |  |   | (2,220  | )
|Purchase of short-term investments                                                                            |  |                         | (14,633  | ) |      |   | (13,014 | )    |  |   | (13,935 | )
|Sales and maturities of short-term investments                                                                |  |                         | 27,700   |   |      |   |        |      |  |   | 53,771  |  
|Purchase of long term investment                                                                              |  |                         | (1,500   | ) |      |   |        |      |  |   |        |  
|Purchase of intangible assets                                                                                 |  |                         | (400     | ) |      |   |        |      |  |   |        |  
|Loan to RMI                                                                                                   |  |                         | (15,000  | ) |      |   |        |      |  |   |        |  
|Cash received from (paid for) acquisitions                                                                    |  |                         | (107,448 | ) |      |   | 200     |      |  |   | (70,245 | )
|Cash paid for Aeluros earn out                                                                                |  |                         | (15,501  | ) |      |   |        |      |  |   |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                         |  |                         | (128,019 | ) |      |   | (14,252 | )    |  |   | (32,629 | )
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                                         |  |                         |          |   |      |   |         |      |  |   |         |  
|Proceeds from line of credit and term notes                                                                   |  |                         | 48,000   |   |      |   |        |      |  |   |        |  
|Payment of principal of line of credit and term notes                                                         |  |                         | (48,000  | ) |      |   |        |      |  |   |        |  
|Proceeds from issuance of common stock                                                                        |  |                         | 17,183   |   |      |   | 8,774   |      |  |   | 9,843   |  
|Proceeds from issuance of common stock in connection with a stock offering                                    |  |                         | 29,660   |   |      |   |        |      |  |   |        |  
|Payments of software license and other obligations                                                            |  |                         | (2,338   | ) |      |   | (3,376  | )    |  |   | (3,139  | )
|Payments of debt issuance costs                                                                               |  |                         | (1,158   | ) |      |   |        |      |  |   |        |  
|Tax payments related to vested awards                                                                         |  |                         | (4,281   | ) |      |   | (889    | )    |  |   | (1,495  | )
|Excess tax benefit from stock-based awards                                                                    |  |                         | 1,506    |   |      |   | 717     |      |  |   | 2,465   |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                                     |  |                         | 40,572   |   |      |   | 5,226   |      |  |   | 7,674   |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Effects of exchange rate on cash and cash equivalents                                                         |  |                         |         |   |      |   | (45     | )    |  |   | (15     | )
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash and cash equivalents                                                          |  |                         | (39,196  | ) |      |   | 32,785  |      |  |   | (63     | )
|Cash and cash equivalents at beginning of year                                                                |  |                         | 83,474   |   |      |   | 50,689  |      |  |   | 50,752  |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of year                                                                      |  | $                       | 44,278   |   |      | $ | 83,474  |      |  | $ | 50,689  |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Supplemental disclosures of cash flow information:                                                            |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash paid for interest                                                                                        |  | $                       | 916      |   |      | $ | 19      |      |  | $ |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Cash paid for income taxes                                                                                    |  | $                       | 391      |   |      | $ | 562     |      |  | $ | 4,665   |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Supplemental disclosures of non-cash investing and financing activities:                                      |  |                         |          |   |      |   |         |      |  |   |         |  
|Acquisition of property and equipment under capital leases and software licenses obligations                  |  | $                       | 7,189    |   |      | $ | 2,350   |      |  | $ | 1,697   |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Accrual for Aeluros earn-out payment                                                                          |  | $                       |         |   |      | $ | 15,501  |      |  | $ |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Issuance of common stock in connection with the acquisition of RMI                                            |  | $                       | 188,527  |   |      | $ |        |      |  | $ |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Issuance of common stock to RMI employees                                                                     |  | $                       | 9,285    |   |      | $ |        |      |  | $ |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  
|Initial contingent earn-out liability                                                                         |  | $                       | 9,679    |   |      | $ |        |      |  | $ |        |  
|                                                                                                              |  |                         |          |   |      |   |         |      |  |   |         |  

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



56



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2009

NOTE 1THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:

The Company

Netlogic Microsystems, Inc. is a leading fabless semiconductor company that designs, develops and sells proprietary high-performance processors and high speed integrated circuits that are used to enhance
the performance and functionality of advanced 3G/4G mobile wireless infrastructure, data center, enterprise, metro Ethernet, edge and core infrastructure networks. The Companys market-leading product portfolio includes high-performance
multi-core processors, knowledge-based processors, high-speed 10/40/100 Gigabit Ethernet physical layer devices, network search engines, and ultra low-power embedded processors. These products are designed into high-performance systems such as
switches, routers, wireless base stations, radio network controllers, security appliances, networked storage appliances, service gateways and connected media devices offered by leading original equipment manufacturers.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Use of estimates

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

Revenue recognition

The Company derives its revenue primarily from its sales of semiconductor products. The Company recognizes revenue when all of the following criteria have been met: (i) persuasive evidence of a
binding arrangement exists, (ii) delivery has occurred, (iii) the price is deemed fixed or determinable and free of contingencies and significant uncertainties, and (iv) collection is probable. The price is considered fixed or
determinable at the execution of an agreement, based on specific products and quantities to be delivered at specified prices, which is often memorialized with a customer purchase order. The Company assesses the ability to collect from the
Companys customers based on a number of factors, including credit worthiness and any past transaction history of the customer.

Shipping charges billed to customers are included in product revenue and the related shipping costs are included in cost of revenue. The Company recognizes revenue at the time of shipment to OEM customers their contract manufacturers and
the Companys international sales representatives. Revenue consists primarily of sales of the Companys products to OEMs, its contract manufacturers or its distributors. Initial sales of the Companys products for a new design
are usually made directly to OEMs as it designs and develops its product. Once the design enters production, the Company often outsources its manufacturing to contract manufacturers that purchase the Companys
products directly from the Company or from the Companys distributors.

Product revenue and costs relating to sales made
through distributors with rights of return and price credits are deferred until the distributors sell the product to end customers because the selling price is not fixed and determinable and the Company is not able to estimate future returns.
Revenue recognition depends on



57



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



notification from the distributor that product has been sold to an end customers. On each reporting date the Company records a reduction in accounts receivables and deferred revenue
based on the Companys estimate of the margin to be ultimately recognized upon sale of the product to an end customer.

The Company has entered into a purchase agreement with Wintec who has become the primary purchaser of its products on a consignment basis for resale to Cisco and its contract manufacturers. The Company recognizes revenue when Wintec
ships its product to Cisco or its contract manufacturers.

Warranty

The Company provides a limited warranty on its products for a period ranging from one to five years from the date of sale. The
Company provides for the estimated future costs of repair or replacement upon shipment of the product. The warranty accrual is estimated based on historical claims compared to actual revenue and assumes that the Company has to replace products
subject to a claim.

Cash, cash equivalents, short-term investments, and long-term investments

The Company considers all highly liquid investments purchased with a remaining maturity of three months or less at the date of purchase to be
cash equivalents. These investments consist of money-market funds, which are readily convertible to cash and are stated at cost, which approximates market value. The Company deposits cash and cash equivalents with high credit quality financial
institutions.

Short-term investments as of December 31, 2008 consisted of government agency debt securities with
remaining contractual maturities on the date of purchase greater than 90 days but less than one year. Investments in debt securities are classified as available-for-sale and carried at fair value. The cost of securities sold is based on
the specific identification method. Investments are monitored for impairment periodically and reductions in carrying value are recorded when the declines are determined to be other-than-temporary.

From time to time the Company makes equity investments in non-publicly traded companies. These investments are included in Other
assets on the accompanying Consolidated Balance Sheets and are accounted for under the cost method as the Company does not have the ability to exercise significant influence over the respective investees operating and financial policies.
The Company monitors its investments in non-publicly traded companies for impairment on a quarterly basis and make appropriate reductions in carrying values when such impairments are determined to be other-than-temporary. Factors considered in
determining an impairment include, but are not limited to, the current business environment including competition and uncertainty of financial condition, going concern considerations such as the rate at which the investee company utilizes cash and
the investee companys ability to obtain additional private financing to fulfill its stated business plan, the need for changes to the investee companys existing business model due to changing business environments and its ability to
successfully implement necessary changes, and comparable valuations. If an investment is determined to be impaired, a determination is made as to whether such impairment is other-than-temporary.

As of December 31, 2009, Other Assets included $1.5 million of an equity holding in a non-publicly traded company that was recorded
using the cost method.

Risks and uncertainties and concentration of credit risk

While the Company has achieved profitability in recent years, it has reported a net loss for 2009 and has a history of net losses
prior to 2005. The Companys ability to remain profitable is dependent, among other factors,



58



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



upon the rate of growth of the target markets, continued customer acceptance of its products, continued end-user acceptance of its customers products, the strategic position
of its products related to current or future competitors, its ability to develop new products that fulfill customers specifications, its ability to lower cost of goods sold through yield improvements and its ability to manage
expenses. If the Company is unable to achieve profitability, it could be required, or could elect, to seek additional funding through public or private equity or debt financing. Such funds may not be available on terms acceptable to the Company
or at all.

The Company depends on a few key customers for a substantial majority of it sales and the loss of, or a
significant reduction in orders from any of them would likely significantly reduce revenues. For the years ended December 31, 2009, 2008, and 2007, the Companys top five customers in terms of revenue accounted for approximately 68%, 68%,
and 79% of total product revenue, respectively. Because of the substantial market share owned by its top five customers, the Companys revenue in the foreseeable future will likely continue to depend on sales to a relatively small number of
customers, as well as the ability of these customers to sell products that use the Companys products. The Companys revenue would likely decline if one or more of these customers were to significantly reduce, delay or cancel their orders
for any reason. In addition, any difficulty associated with collecting outstanding accounts receivable amounts due from its customers, particularly for the top five customers, would harm the Companys financial performance. Because the
Companys sales are based upon standard purchase orders and not on long-term contracts, it cannot assure you that its customers will continue to purchase its products at current levels, or at all.

The Company purchases all of its semiconductor products from third party foundries. Because future foundry capacity may be limited and
because the Company does not have long-term supply agreements with its foundries, it may not be able to secure adequate manufacturing capacity to satisfy the demand for its products. Although the Company presently utilizes
multiple foundries for wafers, it relies primarily on one foundry for current generation products. The Company provides the foundries with monthly rolling forecasts of its production requirements. The ability of each foundry to
provide wafers to the Company could become limited in the future, by the foundrys available capacity. Moreover, the price of the Companys wafers may fluctuate based on changes in available industry capacity. Because the Company does not
have long-term supply contracts with any of its foundries, they could choose to prioritize capacity for other customers, particularly larger customers, reduce or eliminate deliveries to them on short notice or increase the prices they charge
them. Accordingly, the Company cannot be certain that its foundries will allocate sufficient capacity to satisfy its requirements. If the Company is not able to obtain foundry capacity as required, its relationships with present and
future customers would be harmed and its revenue, gross margin and operating results would be materially impacted.

Financial instruments that potentially subject the Company to a concentration of credit risk as of December 31, 2009 consist of cash and accounts receivables. Deposits held with financial institutions may exceed the amount of insurance
provided on such deposits. To date the Company has not experienced any losses on its deposits of cash, cash equivalents, and short-term investments. The Companys accounts receivables are derived from revenue earned from customers
primarily located in North America and Asia. The Company performs ongoing credit evaluations of its customers financial condition and, generally, does not require collateral. In general, such allowances are established for accounts
aged over 90 days from the invoice date, unless specific circumstances indicate that the balance is collectible.



59



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The following table summarizes revenue from bill-to customers comprising 10% or more of
the Companys net revenue for the periods indicated:



|                      |  |              |   |  |      |   |  |      |  
|--------------------- |  | ------------ | - |  | ---- | - |  | ---- | -
|                      |  | December 31, |  
|                      |  | 2009         |   |  | 2008 |   |  | 2007 |  
|Wintec Industries Inc |  | 33           | % |  | 35   | % |  | 17   | %
|Celestica Corporation |  |              | * |  | 12   | % |  |      | *
|Solectron Corporation |  |              | * |  |      | * |  | 28   | %
|Sanmina Corporation   |  | 14           | % |  |      | * |  | 11   | %



|* | Less than 10% of net revenue
|- | ----------------------------

The following table summarizes customers comprising 10% or more of the Companys gross account receivable for the periods indicated:



|                                                        |  |              |   |  |      |  
|------------------------------------------------------- |  | ------------ | - |  | ---- | -
|                                                        |  | December 31, |  
|                                                        |  | 2009         |   |  | 2008 |  
|Wintec Industries Inc (Supplier to Cisco Systems, Inc.) |  | 26           | % |  | 48   | %
|Huawei                                                  |  | 14           | % |  |      | *
|Flextronics                                             |  | 12           | % |  |      | *
|Celestica Corporation                                   |  |              | * |  | 15   | %
|Sanmina Corporation                                     |  |              | * |  | 12   | %
|Jabil Circuit Incorporated                              |  |              | * |  | 11   | %



|* | Less than 10% of gross accounts receivable
|- | ------------------------------------------

Inventory Valuation and Adverse Purchase Commitments

The Company
values its inventories at the lower of cost or market. The Company records inventory reserves for estimated obsolescence or unmarketable inventories based upon assumptions about future demand and market conditions. These estimates are generally
based on a 12-month forecast prepared by management. Once a reserve is established, it is maintained until the product to which it relates is sold or otherwise disposed of. If actual market conditions are less favorable than those expected by
management, additional adjustment to inventory valuation may be required. The carrying value of inventory and the determination of possible adverse purchase commitments are dependent on the Companys estimate of the yield that will be
achieved, or the percent of good products identified when the product is tested.

Property and equipment

Property and equipment are stated at cost. Depreciation is computed using the straight-line method over the estimated useful lives of the
assets. Leased assets and leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the asset or the term of the lease.

The depreciation and amortization periods for property and equipment categories are as follows:



|                        |  |        
|----------------------- |  | -------
|Machinery and equipment |  | 3 years
|Software                |  | 3 years
|Furniture and fixtures  |  | 5 years



60



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Long-lived Assets and Intangible Assets

The Company assesses the impairment of long-lived assets and intangible assets whenever events or changes in circumstances indicate that the
carrying value of such assets may not be recoverable. Whenever events or changes in circumstances suggest that the carrying amount of long-lived assets may not be recoverable, the Company estimates the future cash flows expected to be generated
by the asset from its use or eventual disposition. If the sum of the expected future cash flows, which includes revenue, is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying
amount over the fair value of the assets. Significant management judgment is required in the forecasts of future operating results that are used in the discounted cash flow method of valuation.

Goodwill

Goodwill is recorded as the difference, if any, between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired and liabilities assumed. The Company evaluates goodwill for
impairment at least on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable from its estimated future cash flow. The Company performs the goodwill impairment test for each reporting
unit. If the fair value of the reporting unit exceeds the carrying value of the reporting unit, goodwill is not impaired. The Company performs its goodwill impairment assessment at the Company level, which is the sole reporting unit. The
Company performed its annual goodwill impairment test in the fourth quarter and concluded there was no impairment charge relating to goodwill during the years ended December 31, 2009, 2008, and 2007.

Fair value of financial instruments

Carrying amounts of certain of the Companys financial instruments including cash and cash equivalents, short-term investments, accounts receivable, accounts payable and software license and other
obligations approximate fair value due to the short maturities and interest rates currently available to the Company.

Foreign currency

The functional currency for all of the Companys foreign subsidiaries is the United
States dollar. Assets and liabilities denominated in non-U.S. dollars are re-measured into U.S. dollars at end-of-period exchange rates for monetary assets and liabilities, and historical exchange rates for nonmonetary assets and liabilities.
Revenue and expenses are re-measured at average exchange rates in effect during the period, except for those revenue and expenses related to the nonmonetary assets and liabilities, which are measured at historical exchange rates. The gains or losses
from foreign currency re-measurement are included in other income and expense, net. Such gains or losses were not material for the years ended December 31, 2009 and 2008.

Segment Reporting

ASC 280,Segment Reporting, establishes standards for the reporting of information about operating segments, including related disclosures about products and services, geographic areas and major customers. The standard for
determining what information to report is based on available financial information that is regularly reviewed and used by the Companys chief executive officer, or CEO, who is the chief operating decision maker in evaluating its financial
performance and resource allocation. Based on the criteria stated in ASC 280 for determining separately reportable operating segments and the financial information available to and reviewed by the CEO, the Company has determined that it operates as
a single operating and reportable segment.



61



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Income taxes

The Company accounts for income taxes under an asset and liability approach that requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of timing differences between the carrying amounts and the tax bases of assets and liabilities. Valuation allowances are established when necessary to reduce deferred tax assets to amounts expected to
be realized.

In the first quarter of fiscal 2007, the Company adopted ASC 740-10 Income Taxes. As a result the Company
recognizes liabilities for uncertain tax positions based on the two-step process prescribed in the accounting guidance. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that
it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount that
is more than 50% likely to be realized upon ultimate settlement. It is inherently difficult and subjective to estimate such amounts, as the Company has to determine the probability of various possible outcomes. The Company reevaluates these
uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in
recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision.

Computation of net income (loss) per share

The Company has computed net income (loss) per share under two
methods, basic and diluted. Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per share is computed by dividing
net income (loss) by the sum of the weighted average number of common shares outstanding and potential common shares (when dilutive).

The following table sets forth the computation of basic and diluted net income (loss) attributable to common stockholders per share (in thousands):



|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|----------------------------------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                      |  | Year ended December 31, |        
|                                                      |  | 2009                    |         |   | 2008 |   |        | 2007 | 
|Numerator:                                            |  |                         |         |   |      |   |        |      |  |   |        |  
|Net income (loss): basic and diluted                  |  | $                       | (47,162 | ) |      | $ | 3,577  |      |  | $ | 2,595  |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Denominator:                                          |  |                         |         |   |      |   |        |      |  |   |        |  
|Add: common shares outstanding                        |  |                         | 46,182  |   |      |   | 43,012 |      |  |   | 41,562 |  
|Less: unvested common shares subject to repurchase    |  |                         |        |   |      |   | (68    | )    |  |   | (68    | )
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Total shares: basic                                   |  |                         | 46,182  |   |      |   | 42,944 |      |  |   | 41,494 |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Add: impact of stock options and warrants outstanding |  |                         |        |   |      |   | 1,616  |      |  |   | 2,314  |  
|Add: shares subject to repurchase                     |  |                         |        |   |      |   | 68     |      |  |   | 68     |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Total shares: diluted                                 |  |                         | 46,182  |   |      |   | 44,628 |      |  |   | 43,876 |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Net income (loss) per sharebasic                     |  | $                       | (1.02   | ) |      | $ | 0.08   |      |  | $ | 0.06   |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  
|Net income (loss) per sharediluted                   |  | $                       | (1.02   | ) |      | $ | 0.08   |      |  | $ | 0.06   |  
|                                                      |  |                         |         |   |      |   |        |      |  |   |        |  



62



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The following numbers of shares underlying outstanding common stock options were
excluded from the computation of diluted net income (loss) per share as they had an anti-dilutive effect (in thousands):



|              |  |                         |  |       |  |      
|------------- |  | ----------------------- |  | ----- |  | -----
|              |  | Year ended December 31,
|              |  | 2009                    |  | 2008  |  | 2007 
|Stock options |  | 4,256                   |  | 4,478 |  | 3,330
|              |  |                         |  |       |  |      

Advertising costs

Advertising costs are expensed as incurred. Advertising costs were not significant in the years ended December 31, 2009, 2008 and
2007.

Research and development

Research and development costs are expensed as incurred.

Stock-based
compensation

The Company estimates the fair value of stock options using the Black-Scholes Model. The Black-Scholes
Model requires the input of highly subjective assumptions, including the options expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using both the historical and
implied volatility of the Companys common stock. Changes in the subjective assumptions required in the valuation models may significantly affect the estimated value of the awards, the related stock-based compensation expense and, consequently,
the Companys results of operations.

Stock-based compensation expense recognized for the years ended December 31,
2009, 2008 and 2007 was $40.8 million, $16.5 million and $16.0 million, respectively and related to employee stock grants.

ASC 718 requires companies to estimate the fair value of option and ESPP awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense over the
requisite service periods in the Companys Consolidated Statement of Operations. Prior to the adoption of ASC 718 in January 1, 2006, the Company accounted for stock-based awards using the intrinsic value method. Under the intrinsic value
method, no stock-based compensation expense for options had been recognized in the Companys Consolidated Statement of Operations if the exercise price of its stock options granted to employees and directors equaled the fair market
value of the underlying stock at the date of grant.

Stock-based compensation expense recognized during the period is based on
the value of the portion of share-based payment awards that is ultimately expected to vest. Stock-based compensation expense recognized in the Companys Consolidated Statement of Operations for the years ended December 31, 2009, 2008
and 2007 included (i) compensation expense for share-based payment awards granted prior to, but not yet vested as of, December 31, 2005 based on the grant date fair value estimated in accordance with the pro forma provisions of ASC
718 prior to its revision, and (ii) compensation expense for the share-based payment awards granted subsequent to December 31, 2005 based on the grant date fair value estimated in accordance with the provisions of ASC 718. The Company
attributes the value of stock-based compensation to expense on a straight-line method for the awards granted subsequent to December 31, 2005, while the accelerated method is used for awards granted on or prior to December 31, 2005. As
stock-based compensation expense recognized in the Consolidated Statement of Operations for the years ended December 31, 2009, 2008 and 2007 is based on awards ultimately



63



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



expected to vest, it has been reduced for estimated forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

Recent accounting pronouncements

In September 2009, the FASB issued Update No. 2009-13 or ASU 2009-13, which updates the guidance currently included under topic ASC
605-25, Multiple Element Arrangements. ASU 2009-13 relates to the final consensus reached by FASB on a new revenue recognition guidance regarding revenue arrangements with multiple deliverables. The new accounting guidance addresses how to determine
whether an arrangement involving multiple deliverables contains more than one unit of accounting, and how the arrangement consideration should be allocated among the separate units of accounting. The new accounting guidance is effective for fiscal
years beginning after June 15, 2010 and may be applied retrospectively or prospectively for new or materially modified arrangements. In addition, early adoption is permitted. The Company is currently evaluating the potential impact, if any, of
the new accounting guidance on its consolidated financial statements.

Effective July 1, 2009, the Company adopted the
Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 105-10,Generally Accepted Accounting Principles Overall (ASC 105-10). ASC 105-10 establishes theFASB Accounting
Standards Codification (the Codification) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP.
Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification
superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements,
FASB Staff Positions or Emerging Issues Task Force Abstracts. Instead, it will issue Accounting Standards Updates (ASUs). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the
Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this Form 10-K have been updated for the Codification.

Effective April 1, 2009, the Company adopted FASB ASC 855-10,Subsequent EventsOverall (ASC
855-10). ASC 855-10 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires the disclosure of
the date through which an entity has evaluated subsequent events and the basis for that datethat is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert
all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855-10 did not have a material impact on the Companys consolidated results
of operations or financial condition.

Effective January 1, 2009, the Company adopted the FASB ASC 805,Business
Combinations (ASC 805). ASC 805 updated guidance related to business combinations. The updated guidance establishes principles and requirements for how the acquirer of a business recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, and any non-controlling interest in the acquiree. The updated standard also provides guidance for recognizing and measuring the goodwill acquired in the business combination and
determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The updated standard also provides guidance for recognizing changes in an acquirers
existing income tax valuation allowances and tax uncertainty accruals that



64



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



result from a business combination transaction as adjustments to income tax expense. The updated guidance had a material impact on the Companys consolidated financial statements during the
year ended December 31, 2009. In fiscal 2009, the Company completed the IDT NSE and RMI acquisitions. Under the updated guidance the Company expensed the transaction costs associated with the IDT NSE and RMI
acquisitions, while under the prior accounting standards such costs would have been capitalized. In addition, the Company recognized the fair value of a contingent earn-out liability in connection with the RMI acquisition of $9.7 million,
and subsequently recognized an expense of $2.0 million related to the change in the estimated fair value of contingent earn-out liability, while under the prior accounting standards the earn-out would not have been recognized as
part of the consideration transferred until the contingency was resolved. Further, the Company acquired in-process research and development of $46.5 million in connection with the RMI acquisition which has been capitalized in
accordance with the updated guidance, whereas under prior authoritative guidance the amount would have been expensed immediately. Therefore, the adoption of the updated guidance related to business combinations has had and likely will continue to
have a material impact on our future consolidated financial statements.

NOTE 2BUSINESS COMBINATIONS AND ASSET PURCHASE

Business Combinations:

Fiscal 2009:

RMI Corporation

On October 30, 2009, the Company completed the acquisition of RMI Corporation (RMI), a provider of high-performance and low-power
multi-core, multi-threaded processors. Pursuant to the Agreement and Plan of Merger Reorganization by and among NetLogic Microsystems, Inc., Roadster Merger Corporation, RMI and WP VIII Representative LLC dated as of May 31, 2009, or the merger
agreement, on October 30, 2009, Roadster Merger Corporation was merged with and into RMI, and the Company delivered merger consideration of approximately 9.9 million shares of the Companys common stock and $12.6 million cash to the
paying agent for distribution to the holders of RMI capital stock. Approximately 10% of the shares of merger consideration common stock are being held in escrow as security for claims and expenses that might arise during the first 12 months
following the closing date. The closing price of a share of the Companys common stock on October 30, 2009 was $38.01.

The Company may be required to issue up to an additional 3.1 million shares of common stock and pay up to an additional $15.9 million cash to the former holders of RMI capital stock as earn-out consideration based upon achieving
specified percentages of revenue targets for either the 12-month period from October 1, 2009 through September 30, 2010, or the 12-month period from November 1, 2009 through October 31, 2010, whichever period results in the
higher percentage of the revenue target. The additional earn-out consideration, if any, net of applicable indemnity claims, will be paid on or before December 31, 2010.

Fair Value of Consideration Transferred



|                                                                |  |   |         |  
|--------------------------------------------------------------- |  | - | ------- | -
|Issuance of Netlogic common stock to RMI preferred shareholders |  | $ | 188,527 |  
|Payments to RMI common shareholders in cash                     |  |   | 12,582  |  
|Acquisition-related contingent consideration                    |  |   | 9,679   |  
|Other adjustments                                               |  |   | (837    | )
|                                                                |  |   |         |  
|Total                                                           |  | $ | 209,951 |  
|                                                                |  |   |         |  



65



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



In accordance with ASC 805 Business Combinations, a liability was recognized for the
estimated merger date fair value of the acquisition-related contingent consideration based on the probability of the achievement of the revenue target. Any change in the fair value of the acquisition-related contingent consideration subsequent to
the merger date, including changes from events after the acquisition date, such as changes in the Companys estimate of the revenue expected to be achieved and changes in their stock price, will be recognized in earnings in the period the
estimated fair value changes. The fair value estimate assumes probability-weighted revenues are achieved over the earn-out period. Actual achievement of revenues at or below 75% of the revenue range for this assumed earn-out period would reduce the
liability to zero. If actual achievement of revenues is at or above 100% of the revenue target, the RMI stockholders will receive the maximum consideration of 3.1 million shares and $15.9 million in cash. If the amount of revenue recognized is
greater than 75% but less than 100% of the revenue target, the RMI stockholders will receive an earn-out consideration that increases as the percentage gets closer to 100%. A change in the fair value of the acquisition-related contingent
consideration could have a material impact on the Companys statement of operations and financial position in the period of the change in estimate.

The estimated initial earn-out liability was based on the Companys probability assessment of RMIs revenue achievements during the earn-out period. In developing these estimates, the Company
considered the revenue projections of RMI management, RMIs historical results, and general macro-economic environment and industry trends. This fair value measurement is based on significant revenue inputs not observed in the market and thus
represents a Level 3 measurement as defined by ASC 820 Fair Value Measurements and Disclosures. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and reflect the Companys own
assumptions in measuring fair value. The Company assumed a probability-weighted revenue achievement of approximately 80% of target. The Company determined that the resulting earn-out consideration would be 489,000 shares of its common stock and cash
payment of approximately $0.4 million. The Company then applied its closing stock price of $19.01 as of October 30, 2009 to the 489,000 shares and added $0.4 million to arrive at an initial earn-out liability of $9.7 million.

As retention incentive awards, under the definitive agreement the Company (i) issued 488,536 fully vested shares of its common
stock to specified former RMI employees at the closing date for services through the consummation of the merger, (ii) granted restricted stock units representing the rights to acquire a total of 573,746 shares of common stock to
employees of RMI that will vest over the first 12 months of post-closing employment with us, and (iii) granted restricted stock units representing the rights to acquire a total of 1,898,416 shares of common stock and stock
options for the purchase of a total of 1,365,046 shares of common stock options to former employees of RMI, subject to vesting and other standard terms determined. The Company did not assume any outstanding stock options or warrants to purchase
capital stock of RMI in the merger. The Company recorded the estimated stock-based compensation expense of approximately $9.3 million relating to the 488,536 fully vested shares of common stock in the fourth quarter of 2009.



66



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Preliminary Allocation of Consideration Transferred

The acquisition was accounted for as a business combination under ASC 805 Business Combinations. The estimated total preliminary purchase
price of $210.0 million was allocated to the net tangible and intangible assets acquired and liabilities assumed based on their fair values as of the date of the completion of the acquisition as follows (in thousands):



|                                             |  |   |        
|-------------------------------------------- |  | - | -------
|Net tangible assets                          |  | $ | 49,829 
|Amortizable intangible assets:               |  |   |        
|Existing and core technology                 |  |   | 71,800 
|Customer contracts and related relationships |  |   | 13,800 
|Composite intangible assets                  |  |   | 2,700  
|Tradenames and trademarks                    |  |   | 2,200  
|Backlog                                      |  |   | 200    
|Indefinite-lived intangible asset:           |  |   |        
|In-process research and development          |  |   | 46,500 
|Goodwill                                     |  |   | 22,922 
|                                             |  |   |        
|Total                                        |  | $ | 209,951
|                                             |  |   |        

As of the effective date of the merger, inventories
are required to be measured at fair value. The preliminary fair value of inventory of $37.7 million was based on assumptions applied to the RMI acquired inventory balance. In estimating the fair value of finished goods and work-in-progress
inventory, the Company made assumptions about the selling prices and selling cost associated with the inventory. The Company assumed that estimated selling prices would yield gross margins consistent with actual margins earned by RMI during the
first half of 2009. The Company assumed that selling cost as a percentage of revenue would be consistent with actual rates experienced by RMI during the first half of 2009.

Existing and core technology consisted of products which have reached technological feasibility and relate to the multi-core, multi-threaded
processing products (XLR and XLS) and the ultra low-power processing products (Au 1xxx). The value of the developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing the existing
and core technology on a straight-line basis over estimated lives of 4 to 7 years.

Customer relationships relate to the
Companys ability to sell existing and future versions of products to existing RMI customers. The fair value of the customer relationships was determined by discounting estimated net future cash flows from the customer contracts. The Company is
amortizing customer relationships on a straight-line basis over an estimated life of 10 years.

Composite intangible assets
relate to matured legacy products. The fair value of the developed technology was determined by discounting estimated net future cash flows of these products. The Company is amortizing the composite intangible assets on a straight-line basis over an
estimated life of 2 years.

Tradename and trademarks represents various RMI brands, registered product names and marks. The
fair value of tradename and trademarks was determined by estimating a benefit from owning the asset rather than paying a royalty to a third party for the use of the asset. The Company is amortizing the asset on a straight-line basis over an
estimated life of 3 years.



67



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The backlog fair value relates to the estimated selling cost to generate backlog at
October 30, 2009. The fair value of backlog at closing is being amortized over an estimated life of 6 months.

In-process
research and development, or IPRD, consisted of the in-process project to complete development of the XLP product. The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan,
estimating costs to develop the purchased IPRD into commercially viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. This methodology is referred to as
the income approach, which discounts expected future cash flows to present value. The discount rate used in the present value calculations was derived from a weighted-average cost of capital analysis, adjusted to reflect additional risks related to
the products development and success as well as the products stage of completion. Acquired IPRD assets are initially recognized at fair value and are classified as indefinite-lived assets until the successful completion or abandonment of
the associated research and development efforts. Accordingly, during the development period after the acquisition date, these assets will not be amortized as charges to earnings; instead this asset will be subject to periodic impairment testing.
Upon successful completion of the development process for the acquired IPRD project, the asset would then be considered a finite-lived intangible asset and amortization of the asset will commence. Development of the XLP technology is currently
estimated to be approximately 75% complete and expected to be completed in the fourth quarter of 2010. Validation, testing and further re-work may be required prior to achieving volume production which is anticipated to occur in 2011. The estimated
incremental cost to complete the XLP technology is approximately $5.6 million.

Deferred tax asset and liability associated
with the estimated fair value adjustments of assets acquired and liabilities assumed was recorded using the estimated weighted average statutory tax rate in the jurisdictions where the fair value adjustments occurred.

Of the total estimated purchase price paid at the time of acquisition, approximately $22.9 million has been allocated to goodwill. Goodwill
represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible assets and is not deductible for tax purposes. Among the factors that contributed to a purchase price in excess of
the fair value of the net tangible and intangible assets was the acquisition of an assembled workforce of experienced semiconductor engineers, synergies in products, technologies, skillsets, operations, customer base and organizational cultures that
can be leveraged to enable the Company to build an enterprise greater than the sum of its parts. In accordance with ASC 350 IntangiblesGoodwill and Other, goodwill will not be amortized but instead will be tested for impairment at least
annually and more frequently if certain indicators of impairment are present. In the event that management determines that the value of goodwill has become impaired, the Company will record an expense for the amount impaired during the fiscal
quarter in which the determination is made.

In connection with the acquisition of RMI, the Company entered into
non-competition agreements with certain employees of RMI with a value of approximately $0.4 million. These non-competition agreements were negotiated as part of the acquisition, and as such, the fair value of these agreements is accounted for
as a transaction separate from the business combination. Non-competition agreements are valued by determining the difference in net future cash flows with and without the covenant not to compete. The Company is amortizing the assets on a
straight-line basis over an estimated life of 2.5 years.

Prior to the close of the acquisition, RMI initiated a restructuring
plan where the employment of some RMI employees were terminated upon the close of the merger. The Company has determined that the restructuring plan was a separate plan from the business combination because the plan to
terminate the employment of certain



68



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



employees was in contemplation of the merger. Therefore, the full severance cost of $0.9 million was recognized by the Company as an expense on the acquisition date. The severance
costs were comprised of $0.4 million, which was paid by RMI to the terminated employees prior to the close, and $0.5 million which was paid after the merger by the Company.

Integrated Device Technology, Inc., Network Search Engine Business

On
July 17, 2009, the Company purchased intellectual property and other assets relating to the network search engine business of IDT, which is referred to as the IDT NSE Acquisition, for $98.2 million in cash, net of a price
adjustment based on a determination of the actual amount of inventory received, pursuant to an Asset Purchase Agreement dated April 30, 2009. The Company acquired the IDT NSE Assets to further expand its existing portfolio of
knowledge-based processors and, NETLite processors and network search engines, and to further strengthen the relationships with its customer base.

Allocation of Consideration Transferred

The acquisition was accounted for as a
business combination under ASC 805 Business Combinations. The estimated total purchase price of $98.2 million was allocated to the net tangible and intangible assets based on their fair values as of the date of the completion of the acquisition as
follows (in thousands):



|                            |  |   |       
|--------------------------- |  | - | ------
|Inventory                   |  | $ | 13,256
|Composite intangible assets |  |   | 62,800
|Supply agreement            |  |   | 872   
|Goodwill                    |  |   | 21,253
|                            |  |   |       
|Total                       |  | $ | 98,181
|                            |  |   |       

As of the effective date of the acquisition,
inventories are required to be measured at fair value. The fair value of inventory of $13.3 million was based on assumptions applied to the IDT NSE inventory acquired. In estimating the fair value of inventory, the Company made assumptions about
projected selling prices and the remaining selling and manufacturing efforts associated with the inventory.

In conjunction
with the IDT NSE Acquisition, the Company entered into a supply agreement with IDT. The supply agreement allows the Company to source certain finished products from IDT generally at its cost for a contracted period of time. IDTs pricing to the
Company was considered to be below market price in most cases. Accordingly, the Company recorded an asset upon the signing of the agreement representing the difference between IDT prices and estimated market prices for those products based on
quantities they currently estimate they will purchase under the supply agreement. The Company will amortize the asset associated with the supply agreement and increase its inventory carrying value as products are purchased under the supply
agreement.

Composite intangible assets consist of products which have reached technological feasibility and include search
accelerator, network search engine and route accelerator product families. The value of the developed technology was determined by discounting estimated net future cash flows of these products. Composite intangible assets consisted of acquired IDT
existing technology and customer relationships. Because no future products were planned in the business acquired, and market participants would continue to sell products solely under existing relationships until the products are obsolete, both
components of the asset are deemed to have the same useful lives and are treated as a composite asset. There are six composite assets, each represented by a product line with its own fair value supported by an underlying cashflow projection. Their
respective useful lives



69



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



of two to nine years are based on the period of remaining significant cashflow streams by product. The Company is amortizing these composite intangible assets on a straight-line basis over the
respective estimated lives. Amortization of composite intangible assets has been included in cost of revenue.

Of the total
estimated purchase price paid at the time of acquisition, approximately $21.3 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and
intangible assets and which is deductible for tax purposes in tax jurisdictions which the Company pays taxes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets were
expected benefits from economies of scale by combining the IDT NSE assets with the Companys business. In accordance with ASC 350 IntangiblesGoodwill and Other, goodwill will not be amortized but instead will be tested for impairment
at least annually and more frequently if certain indicators of impairment are present. In the event that management determines that the value of goodwill has become impaired, the Company will record an impairment charge during the fiscal quarter in
which the determination is made.

The amount of revenue included in the Companys condensed consolidated statement of
operations from the IDT NSE and RMI acquisition dates to December 31, 2009 was approximately $30.7 million.

Pro Forma Data for IDT NSE and RMI Acquisitions

The following table presents the unaudited pro forma results of the
Company as though the IDT NSE and RMI acquisitions described above occurred at the beginning of the periods indicated. The data below includes the historical results of the Company and each of these acquisitions on a standalone basis through its
respective closing date of acquisitions. Such historical results included acquisition-related costs totaling $2.0 million recorded by RMI in 2009, as well as restructuring and impairment charges totaling $3.1 million during the fiscal year
ended March 29, 2009 and $2.4 million during the six months ended June 28, 2009 recorded by IDT prior to the Companys acquisition of the NSE business. Adjustments have been made for the estimated fair value adjustment related to
acquired inventory, amortization of intangible assets, and the related income tax impact of the pro forma adjustments. No adjustments were made to interest and related expenses associated with debt financing of these acquisitions or the change in
contingent earn-out liability recorded by the Company in 2009. The pro forma information presented does not purport to be indicative of the results that would have been achieved had both acquisitions been made as of those dates nor of the
results which may occur in the future.



|                                     |  |                         |          |   |      |   |         |  
|------------------------------------ |  | ----------------------- | -------- | - | ---- | - | ------- | -
|                                     |  | Year ended December 31, |         
|                                     |  | 2009                    |          |   | 2008 |  
|                                     |  | (in thousands)          |         
|Revenue                              |  | $                       | 257,990  |   |      | $ | 282,464 |  
|Net loss                             |  |                         | (105,378 | ) |      |   | (81,278 | )
|Net loss per sharebasic and diluted |  |                         | (1.92    | ) |      |   | (1.52   | )

Fiscal 2007:

Aeluros, Inc.

In
October 2007, the Company acquired all outstanding equity securities of Aeluros, Inc. (Aeluros) a privately-held, fabless provider of industry-leading 10-Gigabit Ethernet physical layer products (PLPs). The PLP family
extended the Companys product offerings to the physical layer, or Layer 1, of the Open Systems Interconnection (OSI) reference model, which is a layered abstract description for communications and computer network protocol design
developed as part of the Open Systems Interconnection initiative. The physical



70



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



layer provides the physical and electrical means for transmitting data between different nodes on a network. At the closing date, the Company paid $57.1 million in cash. During the fourth quarter
of fiscal 2008, the Company became obligated to pay an additional $15.5 million in cash to the former Aeluros stockholders due to our attainment of post-acquisition revenue milestones, subject to certain adjustments as provided in the Aeluros
acquisition agreement. The results of operations relating to Aeluros have been included in the Companys results of operations since the acquisition date.

The purchase price of Aeluros, including the additional $15.5 million earn-out based on the attainment of post-acquisition revenue milestones, was determined as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Cash                     |  | $ | 71,903
|Direct transaction costs |  |   | 697   
|                         |  |   |       
|Total purchase price     |  | $ | 72,600
|                         |  |   |       

Under the purchase method of accounting, the total
purchase price (including the additional purchase price allocation adjustments recorded during the year ended December 31, 2008) was allocated to net tangible and intangible assets acquired based on their estimated fair values as follows (in
thousands):



|                                    |  |   |         |  
|----------------------------------- |  | - | ------- | -
|Net tangible assets                 |  | $ | 5,181   |  
|Developed technology                |  |   | 27,680  |  
|Patents and core technology         |  |   | 5,590   |  
|Customer relationships              |  |   | 6,900   |  
|Backlog                             |  |   | 970     |  
|In-process research and development |  |   | 1,610   |  
|Goodwill                            |  |   | 31,645  |  
|Deferred tax asset                  |  |   | 10,076  |  
|Deferred tax liabilities            |  |   | (17,052 | )
|                                    |  |   |         |  
|Total purchase price                |  | $ | 72,600  |  
|                                    |  |   |         |  

Developed technology consisted of products which have reached technological feasibility and shipped in
volume to customers. The value of the developed technology was determined by discounting estimated net future cash flows of the products. The Company is amortizing the existing technology for the chip technology on a straight-line basis
over estimated lives of four to five years.

Patents and core technology represent a combination of processes, patents and
trade secrets developed though years of experience in design and development of the products. The value of the patents and core technology was determined by estimating a benefit from owning the intangible asset rather than paying a royalty to a
third party for the use of the asset. The Company are amortizing the core technology on a straight-line basis over an estimated life of five years.

Customer relationships relate to the Companys ability to sell existing, in process and future versions of its products to the existing customers of Aeluros. The value of the customer relationships
was determined by discounting estimated net future cash flows from the customer contracts. The Company is amortizing customer relationships on a straight-line basis over an estimated life of five years.



71



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The backlog intangible asset represents the value of the sales and marketing costs
required to establish the order backlog and was valued using the cost savings approach. The Company estimated these orders to be delivered and billed within three months, over which the asset was amortized. As of December 31, 2007,
the orders had been delivered and billed and the backlog intangible asset had been fully amortized.

Of the total estimated
purchase price, approximately $1.6 million has been allocated to IPRD based upon managements estimate of the fair values of assets acquired and was charged to expense in the three months ended December 31, 2007. Projects that qualify as
IPRD represent those that have not reached technological feasibility and which have no alternative use and therefore were written-off immediately.

The value assigned to IPRD was determined by considering the importance of products under development to the overall development plan, estimating costs to develop the purchased IPRD into commercially
viable products, estimating the resulting net cash flows from the projects when completed and discounting the net cash flows to their present value. The fair values of IPRD were determined using the income approach, which discounts expected
future cash flows to present value. The discount rate of 24% used in the present value calculations was derived from a weighted-average cost of capital analysis, adjusted to reflect additional risks related to the products development and
success as well as the products stage of completion. At the time of the acquisition, the Company estimated that the aggregate costs to complete the projects would be $0.3 million. The projects were completed during the year ended
December 31, 2008.

Of the total estimated purchase price paid, including the $15.5 million due to the attainment of
post-acquisition revenue milestones, approximately $31.6 million has been allocated to goodwill. Goodwill represents the excess of the purchase price of an acquired business over the fair value of the underlying net tangible and intangible
assets, and is not deductible for tax purposes. Among the factors that contributed to a purchase price in excess of the fair value of the net tangible and intangible assets was the acquisition of an assembled workforce of experienced semiconductor
engineers. The Company expects these experienced engineers to provide the capability of developing and integrating advanced interface technology into its next generation products.

TCAM2 Assets Purchase

In August 2007, the Company purchased the TCAM2 and TCAM2-CR network search engine products (collectively, the TCAM2 Products) and certain related assets from Cypress for a total cash
purchase price of approximately $14.6 million, which was determined as follows (in thousands):



|                         |  |   |       
|------------------------ |  | - | ------
|Cash                     |  | $ | 14,448
|Direct transaction costs |  |   | 188   
|                         |  |   |       
|Total purchase price     |  | $ | 14,636
|                         |  |   |       

The acquisition was accounted for as an asset purchase
transaction and the total purchase price was allocated to the TCAM2 Products net tangible and intangible assets based on their fair values as of the date of the completion of the acquisition. Based on the Companys management
estimates of the fair values, the estimated purchase price was allocated as follows (in thousands):



|                           |  |   |       
|-------------------------- |  | - | ------
|Inventory                  |  | $ | 3,090 
|Backlog                    |  |   | 300   
|Composite intangible asset |  |   | 11,246
|                           |  |   |       
|Total                      |  | $ | 14,636
|                           |  |   |       



72



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The composite intangible asset consisted of the existing technology related to the TCAM2
Products and a customer relationship with Cisco, who is the sole customer for the TCAM2 Products. On the acquisition date, there was no active research and development in process on the TCAM2 Products and therefore, no IPRD was identified. The value
assigned to the composite intangible asset was based upon future discounted cash flows related to the TCAM2 Products projected income streams. Factors considered in estimating the discounted cash flows to be derived from the existing
technology included risks related to the characteristics and applications of the technology, existing and future markets and an assessment of the age of the technology within its life span. The Company is amortizing the composite intangible asset on
a straight-line basis over an estimated life of four years.

The backlog intangible asset represented the value of the sales
and marketing costs required to establish the order backlog and was valued using the discounted cash flow method. The Company estimated those orders would be delivered and billed within four months from the acquisition date, which is the period over
which the asset was amortized. As of December 31, 2007, the orders had been delivered and billed and the backlog intangible asset had been fully amortized.

NOTE 3GOODWILL AND OTHER INTANGIBLE ASSETS

The following table
summarizes the activity related to the carrying value of our goodwill during the years ended December 31, 2009 and 2008 (in thousands):



|                             |  |              |         |      |   |        |  
|---------------------------- |  | ------------ | ------- | ---- | - | ------ | -
|                             |  | December 31, |        
|                             |  | 2009         |         | 2008 |  
|Beginning balance            |  | $            | 68,712  |      | $ | 55,422 |  
|Aeluros acquisition earn-out |  |              |        |      |   | 15,501 |  
|IDT NSE acquisition          |  |              | 21,253  |      |   |       |  
|RMI Corp acquisition         |  |              | 22,922  |      |   |       |  
|Other adjustments            |  |              | 31      |      |   | (2,211 | )
|                             |  |              |         |      |   |        |  
|Ending balance               |  | $            | 112,918 |      | $ | 68,712 |  
|                             |  |              |         |      |   |        |  

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



|                                    |  |                     |         |                         |   |         |                   |  |                     |         |                         |   |        |                   |   |         |   |  |   |       
|----------------------------------- |  | ------------------- | ------- | ----------------------- | - | ------- | ----------------- |  | ------------------- | ------- | ----------------------- | - | ------ | ----------------- | - | ------- | - |  | - | ------
|                                    |  | December 31, 2009   |         | December 31, 2008      
|                                    |  | GrossCarryingAmount |         | AccumulatedAmortization |   |         | NetCarryingAmount |  | GrossCarryingAmount |         | AccumulatedAmortization |   |        | NetCarryingAmount
|Other intangible assets:            |  |                     |         |                         |   |         |                   |  |                     |         |                         |   |        |                   |   |         |   |  |   |       
|Developed technology                |  | $                   | 36,880  |                         | $ | (19,821 | )                 |  | $                   | 17,059  |                         | $ | 34,180 |                   | $ | (11,668 | ) |  | $ | 22,512
|Composite intangible asset          |  |                     | 74,046  |                         |   | (10,560 | )                 |  |                     | 63,486  |                         |   | 11,246 |                   |   | (3,749  | ) |  |   | 7,497 
|Patents and core technology         |  |                     | 77,390  |                         |   | (5,159  | )                 |  |                     | 72,231  |                         |   | 5,590  |                   |   | (1,325  | ) |  |   | 4,265 
|Customer relationships              |  |                     | 20,700  |                         |   | (3,246  | )                 |  |                     | 17,454  |                         |   | 6,900  |                   |   | (1,636  | ) |  |   | 5,264 
|Tradenames and trademarks           |  |                     | 2,200   |                         |   | (122    | )                 |  |                     | 2,078   |                         |   |       |                   |   |        |   |  |   |      
|Non-competition agreements          |  |                     | 400     |                         |   | (27     | )                 |  |                     | 373     |                         |   |       |                   |   |        |   |  |   |      
|Intellectual property licenses      |  |                     | 3,472   |                         |   | (88     | )                 |  |                     | 3,384   |                         |   |       |                   |   |        |   |  |   |      
|Other intangible assets             |  |                     | 256     |                         |   | (103    | )                 |  |                     | 153     |                         |   |       |                   |   |        |   |  |   |      
|Supply agreement                    |  |                     | 872     |                         |   | (245    | )                 |  |                     | 627     |                         |   |       |                   |   |        |   |  |   |      
|In-process research and development |  |                     | 46,500  |                         |   |        |                   |  |                     | 46,500  |                         |   |       |                   |   |        |   |  |   |      
|                                    |  |                     |         |                         |   |         |                   |  |                     |         |                         |   |        |                   |   |         |   |  |   |       
|Total                               |  | $                   | 262,716 |                         | $ | (39,371 | )                 |  | $                   | 223,345 |                         | $ | 57,916 |                   | $ | (18,378 | ) |  | $ | 39,538
|                                    |  |                     |         |                         |   |         |                   |  |                     |         |                         |   |        |                   |   |         |   |  |   |       



73



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The following table presents details of the amortization of intangible assets included
in the cost of revenue and operating expenses categories for the years ended December 31, 2009, 2008 and 2007 (thousands):



|                                    |  |              |        |      |   |        |  |   |      
|----------------------------------- |  | ------------ | ------ | ---- | - | ------ |  | - | -----
|                                    |  | December 31,
|                                    |  | 2009         |        | 2008 |   | 2007  
|Cost of revenue                     |  | $            | 18,865 |      | $ | 11,919 |  | $ | 4,955
|Operating expenses:                 |  |              |        |      |   |        |  |   |      
|Selling, general and administrative |  |              | 1,759  |      |   | 1,380  |  |   | 256  

As of December 31,
2009, the estimated future amortization expense of intangible assets in the table above is as follows, excluding in-process research and development intangible asset (in thousands):



|                   |  |                       |        
|------------------ |  | --------------------- | -------
|Fiscal Year Ending |  | EstimatedAmortization
|2010               |  | $                     | 42,960 
|2011               |  |                       | 38,835 
|2012               |  |                       | 30,715 
|2013               |  |                       | 24,273 
|2014               |  |                       | 11,330 
|Thereafter         |  |                       | 28,732 
|                   |  |                       |        
|Total              |  | $                     | 176,845
|                   |  |                       |        

NOTE 4BALANCE SHEET COMPONENTS:



|                                                           |  |                |         |   |      |   |         |  
|---------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | -
|                                                           |  | December 31,   |        
|                                                           |  | 2009           |         |   | 2008 |  
|                                                           |  | (in thousands) |        
|Accounts receivables:                                      |  |                |         |   |      |   |         |  
|Trade accounts receivables                                 |  | $              | 25,396  |   |      | $ | 8,450   |  
|Less: Allowance for doubtful accounts and customer returns |  |                | (259    | ) |      |   | (68     | )
|                                                           |  |                |         |   |      |   |         |  
|                                                           |  | $              | 25,137  |   |      | $ | 8,382   |  
|                                                           |  |                |         |   |      |   |         |  
|Inventories:                                               |  |                |         |   |      |   |         |  
|Finished goods                                             |  | $              | 18,147  |   |      | $ | 8,170   |  
|Work-in-progress                                           |  |                | 26,966  |   |      |   | 5,537   |  
|                                                           |  |                |         |   |      |   |         |  
|                                                           |  | $              | 45,113  |   |      | $ | 13,707  |  
|                                                           |  |                |         |   |      |   |         |  
|Property and equipment, net:                               |  |                |         |   |      |   |         |  
|Machinery and equipment                                    |  | $              | 9,352   |   |      | $ | 6,097   |  
|Software                                                   |  |                | 19,779  |   |      |   | 11,249  |  
|Furniture and fixtures                                     |  |                | 393     |   |      |   | 270     |  
|Leasehold improvements                                     |  |                | 292     |   |      |   | 199     |  
|                                                           |  |                |         |   |      |   |         |  
|                                                           |  |                | 29,816  |   |      |   | 17,815  |  
|Less: Accumulated depreciation and amortization            |  |                | (16,538 | ) |      |   | (12,302 | )
|                                                           |  |                |         |   |      |   |         |  
|                                                           |  | $              | 13,278  |   |      | $ | 5,513   |  
|                                                           |  |                |         |   |      |   |         |  
|Other assets:                                              |  |                |         |   |      |   |         |  
|Deferred tax assets, noncurrent                            |  | $              | 44,014  |   |      | $ | 8,047   |  
|Long-term investments                                      |  |                | 1,500   |   |      |   |        |  
|Other assets                                               |  |                | 733     |   |      |   | 177     |  
|                                                           |  |                |         |   |      |   |         |  
|                                                           |  | $              | 46,247  |   |      | $ | 8,224   |  
|                                                           |  |                |         |   |      |   |         |  



74



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Depreciation and amortization expense related to property and equipment for the years
ended December 31, 2009, 2008 and 2007 was $4.3 million, $3.9 million, and $3.8 million, respectively.

The
following table summarizes the activity related to accrued liabilities during the years ended December 31, 2009 and 2008 (in thousands):



|                                                                                                                                     |  |              |        |      |   |       
|------------------------------------------------------------------------------------------------------------------------------------ |  | ------------ | ------ | ---- | - | ------
|                                                                                                                                     |  | December 31,
|                                                                                                                                     |  | 2009         |        | 2008
|Accrued Liabilities:                                                                                                                 |  |              |        |      |   |       
|Accrued payroll and related expenses                                                                                                 |  | $            | 11,335 |      | $ | 4,784 
|Accrued inventory purchases                                                                                                          |  |              | 10,148 |      |   | 729   
|Accrued warranty                                                                                                                     |  |              | 1,534  |      |   | 1,445 
|Accrual for Aeluros earn-out based on post-acquisition revenue milestone (refer to Note 2, Business Combinations and Asset
Purchase) |  |              |       |      |   | 15,501
|Other accrued expenses                                                                                                               |  |              | 11,188 |      |   | 3,461 
|                                                                                                                                     |  |              |        |      |   |       
|                                                                                                                                     |  | $            | 34,205 |      | $ | 25,920
|                                                                                                                                     |  |              |        |      |   |       

The following table summarizes the activity related to
the product warranty liability during the years ended December 31, 2009 and 2008 (in thousands):



|                                   |  |              |       |   |      |   |        |  
|---------------------------------- |  | ------------ | ----- | - | ---- | - | ------ | -
|                                   |  | December 31, |      
|                                   |  | 2009         |       |   | 2008 |  
|Warranty accrual:                  |  |              |       |   |      |   |        |  
|Beginning balance                  |  | $            | 1,445 |   |      | $ | 1,512  |  
|Provision for warranty             |  |              | 294   |   |      |   | 946    |  
|Settlements made during the period |  |              | (205  | ) |      |   | (1,013 | )
|                                   |  |              |       |   |      |   |        |  
|Ending balance                     |  | $            | 1,534 |   |      | $ | 1,445  |  
|                                   |  |              |       |   |      |   |        |  

NOTE 5COMMON STOCK:

The Companys restated certificate of incorporation authorizes it to issue 200,000,000 shares of $0.01 par value Common Stock. A portion of the shares sold are subject to a right of repurchase
by the Company subject to vesting, which is generally over a four year period from the earlier of grant date or employee hire date, as applicable, until vesting is complete. At December 31, 2009 there were no shares subject to such a right to
repurchase.

Warrants for common stock

At December 31, 2009, there were no outstanding warrants.

Stockholder
rights plan

The Company adopted a stockholder rights plan that generally entitles its stockholders to rights to acquire
additional shares of the common stock when a third party acquires 15.0% of the Companys common stock or commences or announces its intent to commence a tender offer for at least 15.0% of the common stock, other than for certain
stockholders that were stockholders prior to the Companys initial public offering as to whom this threshold is 20.0%. This plan could delay, deter or prevent an investor from acquiring the Company in a transaction that could
otherwise result in its stockholders receiving a premium over the market price for their shares of common stock.



75



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Significant Equity Transactions

In December 2009, the Company entered into a Purchase Agreement with an asset management firm, providing for the sale and issuance of a total
of 1,400,800 shares of its common stock. Pursuant to the Purchase Agreement, the asset management firm agreed on behalf of a group of customers for which it acted as investment manager to purchase, and the Company agreed to sell and issue, the
shares at a purchase price per share of $21.13 according to the allocation specified in the Purchase Agreement. The sale closed on December 23, 2009, and the Company received net proceeds of $29.7 million, after deducting offering expenses
of approximately $0.1 million.

In connection with the acquisition of RMI, the Company delivered merger consideration of
approximately 9.9 million shares of it common stock to the paying agent for distribution to the holders of RMI capital stock. Approximately 10% of the shares of the Companys common stock are being held in escrow as security for claims and
expenses that might arise during the first 12 months following the closing date. The closing price of a share of the Companys common stock on October 30, 2009 was $19.01. The Company may be required to issue up to an additional
3.1 million shares of its common stock (plus cash, refer to Note 2 Business Combinations and Asset Purchase) to the former holders of RMI capital stock as earn-out consideration based upon achievement of specified percentages of revenue targets
for either the 12-month period from October 1, 2009 through September 30, 2010, or the 12-month period from November 1, 2009 through October 31, 2010, whichever period results in the higher percentage of the revenue target. The
additional earn-out consideration, if any, net of applicable indemnity claims, will be paid on or before December 31, 2010. Additionally, in connection with the merger, and pursuant to NASDAQ Listing Rule 5635(a), the Company granted from
its total authorized shares, and not pursuant to a pre-existing stock plan, restricted stock units representing the right to acquire a total of 2,472,162 shares of common stock and stock options for the purchase of a total of 1,365,046 shares of
common stock options to those employees of RMI who continued as employees of the Company or one of its subsidiaries.

Registration Statements

The Company has an effective shelf registration statement on SEC Form S-3 that will
not expire until 2012. This registration statement on Form S-3 permits the Company to sell, in one or more public offerings, shares of its common stock, shares of preferred stock or debt securities, or any combination of such
securities, for proceeds in an aggregate amount of up to $120 million. To date no securities have been issued pursuant to this registration statement.

NOTE 6STOCK OPTION PLANS:

The Companys 2004 Equity Incentive Plan and the 2000 Stock Plan
(collectively, the Plans) provide for the granting of stock options to employees, directors and consultants. Options granted under the Plans may be either incentive stock options or nonqualified stock options. Incentive stock
options (ISO) may be granted only to the Companys employees (including officers and directors who are also employees). Nonqualified stock options (NSO) may be granted to our employees, non-employee directors and
consultants. The Company no longer grants options under the 2000 Stock Plan. A total of 12,546,382 shares of common stock have been reserved for awards issuable under the 2004 Equity Incentive Plan, which further provides for an annual increase
of 300,000 shares on each January 1. At December 31, 2009, 932,196 shares were available for grant.

Options
under the Plans may be granted for periods of up to ten years. Under the Plans, the exercise price of (i) an ISO shall not be less than 100% of the estimated fair value of the shares on the date of grant, and (ii) an ISO granted to a 10%
stockholder shall not be less than 110% of the estimated fair value of the shares on the date



76



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



of grant. The exercise price of an NSO under the 2004 Plan may be any price as determined by the board of directors. Options granted under the 2000 Stock Plan were exercisable immediately subject
to repurchase options held by the Company which lapse over a maximum period of five years at such times and under such conditions as determined by the board of directors.

The 2004 Plan also allows for the grant of restricted common stock. During 2007 and 2006, the Board of Directors granted 950,000 and 434,000 shares of restricted common stock to certain employees. No
shares of restricted common stock were granted in 2009 and 2008. The Company measured compensation expense for restricted stock granted during the year ended December 31, 2007 based on the fair value of the common stock on the date of grant.
The Company recognizes such compensation expense over the vesting period of 2 to 4 years.

In conjunction with the Aeluros
acquisition in October 2007, the Company assumed Aeluros 2001 Stock Option/Stock Issuance Plan (the Aeluros Plan), and reserved 208,000 shares of common stock under the Aeluros Plan for issuance upon exercise of assumed outstanding
options. The related options are included in the table below. The options vest over four to five years and have eight to ten year terms. The Company no longer grants options under the Aeluros Plan.

In January 2008 the Company adopted the 2008 New Employee Inducement Incentive Plan (the 2008 Plan) and reserved 500,000 shares
of common stock under the 2008 Plan for the granting of non-statutory stock options and restricted units to retain the services of new employees and directors, or following a bona fide period of non-employment, as an inducement material to the
individuals entering employment with the Company within the meaning of Rule 5635(c)(4) (formerly Rule 4350(i)(l)(A)(iv)) of the Nasdaq Marketplace Rules. In July 2009, the Company increased the reserve of shares issuable under the
2008 Plan by 500,000 shares. At December 31, 2009, 385,598 shares were available for grant.

A summary of all options
activity under the Plans is presented below (number of shares in thousands):



|                                                        |  |                            |   |  |                              |      
|------------------------------------------------------- |  | -------------------------- | - |  | ---------------------------- | -----
|                                                        |  | Options Outstanding       
|                                                        |  | Number ofSharesOutstanding |   |  | WeightedAverageExercisePrice
|Balance at December 31, 2006                            |  | 7,608                      |   |  | $                            | 8.85 
|Options granted and acquisition-related assumed options |  | 3,902                      |   |  |                              | 13.92
|Options exercised                                       |  | (1,524                     | ) |  |                              | 5.97 
|Options forfeited or expired                            |  | (702                       | ) |  |                              | 12.19
|                                                        |  |                            |   |  |                              |      
|Balance at December 31, 2007                            |  | 9,284                      |   |  |                              | 11.20
|                                                        |  |                            |   |  |                              |      
|Options granted                                         |  | 834                        |   |  |                              | 14.32
|Options exercised                                       |  | (994                       | ) |  |                              | 7.32 
|Options forfeited or expired                            |  | (778                       | ) |  |                              | 14.17
|                                                        |  |                            |   |  |                              |      
|Balance at December 31, 2008                            |  | 8,346                      |   |  |                              | 11.69
|                                                        |  |                            |   |  |                              |      
|Options granted                                         |  | 622                        |   |  |                              | 12.46
|Options grantedRMI                                     |  | 1,366                      |   |  |                              | 19.16
|Options exercised                                       |  | (1,564                     | ) |  |                              | 9.92 
|Options forfeited or expired                            |  | (98                        | ) |  |                              | 14.77
|                                                        |  |                            |   |  |                              |      
|Balance at December 31, 2009                            |  | 8,672                      |   |  | $                            | 13.21
|                                                        |  |                            |   |  |                              |      



77



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The following table summarizes information about options granted and outstanding under
the Plans at December 31, 2009 (number of shares in thousands):



|                        |  |                     |  |                                                     |  |                                |       |                          |   |             |  |                                |  |                          |       |  |   |       
|----------------------- |  | ------------------- |  | --------------------------------------------------- |  | ------------------------------ | ----- | ------------------------ | - | ----------- |  | ------------------------------ |  | ------------------------ | ----- |  | - | ------
|                        |  | Options Outstanding |  | Options Exercisable                                
|Range ofExercise Prices |  | Outstanding         |  | Weighted AverageRemainingContractual Life(in years) |  | Weighted AverageExercise Price |       | AggregateIntrinsic Value |   | Exercisable |  | Weighted AverageExercise Price |  | AggregateIntrinsic Value
|$  0.40$  6.50         |  | 1,234               |  | 4.49                                                |  | $                              | 4.48  |                          | $ | 23,015      |  | 1,210                          |  | $                        | 4.54  |  | $ | 22,494
|$  6.63$10.71          |  | 1,142               |  | 6.22                                                |  | $                              | 9.88  |                          |   | 15,129      |  | 990                            |  | $                        | 9.86  |  |   | 13,137
|$10.71$11.97           |  | 1,292               |  | 7.75                                                |  | $                              | 11.50 |                          |   | 15,027      |  | 586                            |  | $                        | 11.80 |  |   | 6,642 
|$12.23$14.75           |  | 1,092               |  | 7.28                                                |  | $                              | 13.70 |                          |   | 10,300      |  | 586                            |  | $                        | 13.55 |  |   | 5,614 
|$14.80$15.73           |  | 1,316               |  | 7.62                                                |  | $                              | 15.37 |                          |   | 10,214      |  | 530                            |  | $                        | 15.36 |  |   | 4,118 
|$15.75$18.91           |  | 1,108               |  | 7.04                                                |  | $                              | 17.23 |                          |   | 6,537       |  | 862                            |  | $                        | 17.27 |  |   | 5,056 
|$19.16$19.16           |  | 1,366               |  | 9.84                                                |  | $                              | 19.16 |                          |   | 5,423       |  |                               |  | $                        |      |  |   |      
|$19.67$20.48           |  | 122                 |  | 9.11                                                |  | $                              | 19.77 |                          |   | 409         |  | 64                             |  | $                        | 19.78 |  |   | 214   
|                        |  |                     |  |                                                     |  |                                |       |                          |   |             |  |                                |  |                          |       |  |   |       
|$  0.40$20.48          |  | 8,672               |  | 7.27                                                |  | $                              | 13.21 |                          | $ | 86,054      |  | 4,828                          |  | $                        | 11.27 |  | $ | 57,276
|                        |  |                     |  |                                                     |  |                                |       |                          |   |             |  |                                |  |                          |       |  |   |       

The aggregate intrinsic value in the table above is
based on the Companys closing stock price of $23.13 as of December 31, 2009, which would have been received by the option holders had all option holders exercised their in the money options as of that date. The weighted average remaining
contractual term of options exercisable at December 31, 2009 was approximately 7.27 years.

As of December 31, 2009,
there was approximately $24.9 million of total unrecognized compensation cost related to unvested stock options granted and outstanding with a weighted average remaining vesting period of 2.9 years.

The total intrinsic value of options exercised during the years ended December 31, 2009, 2008 and 2007 were as follows (in thousands):



|                                           |  |                         |        |      |   |       |  |   |       
|------------------------------------------ |  | ----------------------- | ------ | ---- | - | ----- |  | - | ------
|                                           |  | Year ended December 31,
|                                           |  | 2009                    |        | 2008 |   | 2007 
|Total intrinsic value of options exercised |  | $                       | 15,560 |      | $ | 9,023 |  | $ | 13,209



78



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



The Companys non-vested stock awards consists of restricted stock awards,
restricted stock units, and performance-based restricted stock units. A summary of non-vested stock awards activity during the year ended December 31, 2009 is presented below (number of shares in thousands):



|                                             |  |        |   |  |                                     |      
|-------------------------------------------- |  | ------ | - |  | ----------------------------------- | -----
|                                             |  | Shares |   |  | Weighted-AverageGrantDateFair Value
|Non-vested stock awards at December 31, 2006 |  | 384    |   |  | $                                   | 17.69
|Granted                                      |  | 950    |   |  |                                     | 15.76
|Vested                                       |  | (318   | ) |  |                                     | 16.98
|Forfeited                                    |  | (22    | ) |  |                                     | 16.80
|                                             |  |        |   |  |                                     |      
|Non-vested stock awards at December 31, 2007 |  | 994    |   |  |                                     | 17.11
|Granted                                      |  | 1,170  |   |  |                                     | 13.47
|Vested                                       |  | (278   | ) |  |                                     | 12.10
|Forfeited                                    |  | (230   | ) |  |                                     | 14.10
|                                             |  |        |   |  |                                     |      
|Non-vested stock awards at December 31, 2008 |  | 1,656  |   |  |                                     | 13.83
|Granted                                      |  | 1,498  |   |  |                                     | 17.94
|GrantedRMI                                  |  | 2,472  |   |  |                                     | 20.04
|Vested                                       |  | (458   | ) |  |                                     | 15.41
|Forfeited                                    |  | (68    | ) |  |                                     | 16.52
|                                             |  |        |   |  |                                     |      
|Nonvested stock awards at December 31, 2009  |  | 5,100  |   |  | $                                   | 17.87
|                                             |  |        |   |  |                                     |      

The fair value of the Companys non-vested stock awards is calculated based upon the fair
market value of the Companys stock at the date of grant. As of December 31, 2009, there was $61.7 million of total unrecognized compensation cost related to nonvested stock awards granted, which is expected to be recognized over a
weighted average period 2.2 years. The total fair value of stock awards that vested during the years ended December 31, 2009, 2008, and 2007, was $7.1 million, $3.4 million, and $2.4 million, respectively.

Performance-Based Restricted Stock Units.During the fourth quarter of 2007, in connection with the Aeluros acquisition
the Company entered into performance-based restricted stock unit award agreements with certain former Aeluros employees. During the year ended December 31, 2008, the Company modified the vesting conditions of 31,000 shares of performance-based
restricted stock units and reversed $199,000 of stock-based compensation that had been recognized previously.

2004
Employee Stock Purchase Plan

In July 2004, the Company adopted the 2004 employee stock purchase plan, or ESPP, which
complies with the requirements of Section 423 of the Internal Revenue Code. The shares reserved under the 2004 ESPP are subject to an automatic increase on January 1 of each year equal to the lesser of 150,000 shares or 0.5% of the
outstanding shares of the Companys common stock at the end of the preceding fiscal year. The 2004 ESPP permits eligible employees (as defined in the plan) to purchase up to $25,000 worth of the Companys common stock annually over the
course of two six-month offering periods, other than the initial two-year offering period which commenced on July 8, 2004. The purchase price to be paid by participants is 85% of the price per share of the Companys common stock either at
the beginning or the end of each six-month offering period, whichever is less. At the Companys 2006 Annual Meeting of Stockholders held on May 18, 2006, its stockholders approved the reduction in the number of shares reserved under the
2004 ESPP by 1,400,000 shares, and the transfer of



79



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



those reserved shares to their 2004 Equity Incentive Plan. During the year ended December 31, 2009, 2008 and 2007, approximately 132,000 shares, 106,000 shares, 88,000 shares, respectively,
were issued under the Purchase Plan, and approximately 322,000 shares remain available for future issuance at December 31, 2009. The 2004 ESPP terminates in May 2014.

Stock-Based Compensation Expense

On January 1, 2006, the Company adopted ASC 718, on the modified prospective application method, which requires the measurement and recognition of compensation expense for all share-based awards made
to its employees and directors including employee stock options and employee stock purchases outstanding as of and awarded after January 1, 2006. The total stock-based compensation expense recognized for the years ended December 31, 2009,
2008 and 2007 was allocated as follows (in thousands):



|                                       |  |                         |        |      |   |        |  |   |       
|-------------------------------------- |  | ----------------------- | ------ | ---- | - | ------ |  | - | ------
|                                       |  | Year ended December 31,
|                                       |  | 2009                    |        | 2008 |   | 2007  
|Cost of revenue                        |  | $                       | 672    |      | $ | 1,030  |  | $ | 747   
|Research and development               |  |                         | 21,527 |      |   | 9,474  |  |   | 9,933 
|Selling, general and administrative    |  |                         | 18,556 |      |   | 5,988  |  |   | 5,366 
|                                       |  |                         |        |      |   |        |  |   |       
|Total stock-based compensation expense |  | $                       | 40,755 |      | $ | 16,492 |  | $ | 16,046
|                                       |  |                         |        |      |   |        |  |   |       

In addition, the Company capitalized approximately
$0.1 million and $0.2 million of stock-based compensation in inventory as of December 31, 2009 and 2008, respectively, which represented indirect manufacturing costs related to its inventory.

Valuation Assumptions

For the years ended December 31, 2009, 2008, and 2007 the fair value of stock options including options assumed in connection with the Aeluros acquisition, and granted under the Plans, were estimated
at the date of grant (or date of acquisition for options assumed) with the following weighted-average assumptions:



|                                    |  |                         |      |   |      |   |      |      |  |   |      |  
|----------------------------------- |  | ----------------------- | ---- | - | ---- | - | ---- | ---- |  | - | ---- | -
|                                    |  | Year ended December 31, |     
|                                    |  | 2009                    |      |   | 2008 |   |      | 2007 | 
|Stock Option Plans:                 |  |                         |      |   |      |   |      |      |  |   |      |  
|Risk-free interest rate             |  |                         | 2.22 | % |      |   | 3.12 | %    |  |   | 4.58 | %
|Expected life of options (in years) |  |                         | 5.65 |   |      |   | 5.43 |      |  |   | 4.90 |  
|Expected dividend yield             |  |                         | 0.00 | % |      |   | 0.00 | %    |  |   | 0.00 | %
|Volatility                          |  |                         | 55   | % |      |   | 58   | %    |  |   | 57   | %
|Weighted average fair value         |  | $                       | 8.80 |   |      | $ | 7.73 |      |  | $ | 7.73 |  
|                                    |  |                         |     
|Employee Stock Purchase Plan:       |  |                         |      |   |      |   |      |      |  |   |      |  
|Risk-free interest rate             |  |                         | 0.30 | % |      |   | 2.74 | %    |  |   | 5.06 | %
|Expected life of options (in years) |  |                         | 0.50 |   |      |   | 0.50 |      |  |   | 0.50 |  
|Expected dividend yield             |  |                         | 0.00 | % |      |   | 0.00 | %    |  |   | 0.00 | %
|Volatility                          |  |                         | 67   | % |      |   | 53   | %    |  |   | 57   | %
|Weighted average fair value         |  | $                       | 4.57 |   |      | $ | 4.95 |      |  | $ | 4.19 |  



80



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



NOTE 7INCOME TAXES:

The components of income before income (loss) taxes consisted of the following (in thousands):



|                           |  |                         |         |   |      |   |        |      |  |   |        |  
|-------------------------- |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------ | -
|                           |  | Year ended December 31, |        
|                           |  | 2009                    |         |   | 2008 |   |        | 2007 | 
|Domestic                   |  | $                       | (40,104 | ) |      | $ | (8,343 | )    |  | $ | (4,255 | )
|Foreign                    |  |                         | (10,118 | ) |      |   | 9,983  |      |  |   | 6,562  |  
|                           |  |                         |         |   |      |   |        |      |  |   |        |  
|Income before income taxes |  | $                       | (50,222 | ) |      | $ | 1,640  |      |  | $ | 2,307  |  
|                           |  |                         |         |   |      |   |        |      |  |   |        |  

The components of the benefit from income taxes are as follows (in thousands):



|                          |  |                         |        |   |      |   |        |      |  |   |         |  
|------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------- | -
|                          |  | Year ended December 31, |       
|                          |  | 2009                    |        |   | 2008 |   |        | 2007 | 
|Current:                  |  |                         |        |   |      |   |        |      |  |   |         |  
|Federal                   |  | $                       | 3,484  |   |      | $ | 1,573  |      |  | $ | 13,511  |  
|State                     |  |                         | (31    | ) |      |   | 559    |      |  |   | 17      |  
|Foreign                   |  |                         | 190    |   |      |   | (176   | )    |  |   | 173     |  
|                          |  |                         |        |   |      |   |        |      |  |   |         |  
|Total current             |  |                         | 3,643  |   |      |   | 1,956  |      |  |   | 13,701  |  
|                          |  |                         |        |   |      |   |        |      |  |   |         |  
|Deferred:                 |  |                         |        |   |      |   |        |      |  |   |         |  
|Federal                   |  |                         | (9,574 | ) |      |   | (2,895 | )    |  |   | (9,437  | )
|State                     |  |                         | 2,871  |   |      |   | (998   | )    |  |   | (4,552  | )
|Foreign                   |  |                         |       |   |      |   |       |      |  |   |        |  
|                          |  |                         |        |   |      |   |        |      |  |   |         |  
|Total deferred            |  |                         | (6,703 | ) |      |   | (3,893 | )    |  |   | (13,989 | )
|                          |  |                         |        |   |      |   |        |      |  |   |         |  
|Benefit from income taxes |  | $                       | (3,060 | ) |      | $ | (1,937 | )    |  | $ | (288    | )
|                          |  |                         |        |   |      |   |        |      |  |   |         |  

The benefit from income taxes differs from the amount computed by applying the U.S. statutory federal rate
to income (loss) before income tax provision as a result of the following (in thousands):



|                                           |  |                         |         |   |      |   |        |      |  |   |         |  
|------------------------------------------ |  | ----------------------- | ------- | - | ---- | - | ------ | ---- |  | - | ------- | -
|                                           |  | Year ended December 31, |        
|                                           |  | 2009                    |         |   | 2008 |   |        | 2007 | 
|Tax at statutory rate                      |  | $                       | (17,577 | ) |      | $ | 574    |      |  | $ | 807     |  
|State taxes, net of federal benefit        |  |                         | 2,772   |   |      |   | (635   | )    |  |   | 17      |  
|Nondeductible stock based compensation     |  |                         | 3,268   |   |      |   | 1,673  |      |  |   | 1,837   |  
|Change in valuation allowance              |  |                         |        |   |      |   |       |      |  |   | (29,898 | )
|Foreign rate differential                  |  |                         | 3,731   |   |      |   | (3,832 | )    |  |   | (2,111  | )
|Research and development credits           |  |                         | (1,289  | ) |      |   | (697   | )    |  |   | (746    | )
|Intercompany license agreement             |  |                         | 3,932   |   |      |   |       |      |  |   | 28,140  |  
|Nondeductible acquisition related expenses |  |                         | 1,887   |   |      |   |       |      |  |   |        |  
|Other                                      |  |                         | 216     |   |      |   | 980    |      |  |   | 1,666   |  
|                                           |  |                         |         |   |      |   |        |      |  |   |         |  
|Total benefit for income taxes             |  | $                       | (3,060  | ) |      | $ | (1,937 | )    |  | $ | (288    | )
|                                           |  |                         |         |   |      |   |        |      |  |   |         |  



81



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Deferred income taxes reflect the net tax effect of temporary differences between the
carrying amounts of assets and liabilities for financial reporting and the amount used for income tax purposes. Significant components of the Companys deferred tax assets and liabilities consist of the following (in thousands):



|                                     |  |              |         |   |      |   |        |  
|------------------------------------ |  | ------------ | ------- | - | ---- | - | ------ | -
|                                     |  | December 31, |        
|                                     |  | 2009         |         |   | 2008 |  
|Deferred tax assets:                 |  |              |         |   |      |   |        |  
|Net operating loss carryforwards     |  | $            | 36,087  |   |      | $ | 1,195  |  
|Accrued liabilities and other        |  |              | 6,196   |   |      |   | 2,796  |  
|Deferred stock-based compensation    |  |              | 8,560   |   |      |   | 5,585  |  
|Depreciation and amortization        |  |              | 11,255  |   |      |   | 4,120  |  
|Research and development tax credits |  |              | 17,123  |   |      |   | 2,938  |  
|                                     |  |              |         |   |      |   |        |  
|                                     |  |              | 79,221  |   |      |   | 16,634 |  
|Valuation allowance                  |  |              | (7,043  | ) |      |   |       |  
|                                     |  |              |         |   |      |   |        |  
|Total deferred tax assets            |  |              | 72,178  |   |      |   | 16,634 |  
|Deferred tax liabilities:            |  |              |         |   |      |   |        |  
|Acquired intangible assets and other |  |              | (15,007 | ) |      |   | (5,371 | )
|                                     |  |              |         |   |      |   |        |  
|Net deferred tax assets              |  | $            | 57,171  |   |      | $ | 11,263 |  
|                                     |  |              |         |   |      |   |        |  

The following table presents the breakdown between current and non-current net deferred tax assets and
liabilities (in thousands):



|                                     |  |              |         |   |      |   |        |  
|------------------------------------ |  | ------------ | ------- | - | ---- | - | ------ | -
|                                     |  | December 31, |        
|                                     |  | 2009         |         |   | 2008 |  
|Current deferred tax assets          |  | $            | 19,864  |   |      | $ | 3,217  |  
|Current deferred tax liabilities     |  |              | (6,708  | ) |      |   |       |  
|Non-current deferred tax assets      |  |              | 64,470  |   |      |   | 13,417 |  
|Non-current deferred tax liabilities |  |              | (20,455 | ) |      |   | (5,371 | )
|                                     |  |              |         |   |      |   |        |  
|Net deferred tax assets              |  | $            | 57,171  |   |      | $ | 11,263 |  
|                                     |  |              |         |   |      |   |        |  

As of December 31, 2009 and 2008, the Company had a valuation allowance of approximately $7.0 million
and zero, respectively. In February 2009, the California 2009-2010 budget legislature was enacted into law, allowing companies to elect, for income tax purposes, to apply a single sales factor apportionment for years beginning after
January 1, 2011. Based upon its anticipated election, the Company determined a need to establish a valuation allowance on the deferred tax assets associated with its California research and development tax credits, totaling $7.0 million at
December 31, 2009, of which $3.4 million was established during the first quarter of fiscal 2009 to record a valuation allowance on the balance of deferred tax assets at the beginning of the year.

The deferred tax assets at December 31, 2009 exclude $4.1 million ($2.8 million at December 31, 2008) related to benefits of stock
option deductions which, when recognized, will be allocated directly to contributed capital.

At December 31, 2009, the
Company had federal and state net operating loss carryforwards of approximately $42.1 million and $117.6 million, respectively. These federal and state net operating loss carryforwards will expire commencing 2019 and 2011, respectively. The Company
also has federal and state



82



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



research and development tax credit carryforwards of approximately $12.4 million and $15.4 million, respectively. The federal tax credits carryforwards will expire commencing in 2019 and
California tax credits have no expiration date.

For federal and state purposes, a portion of the Companys net operating
loss carryforwards and research and development credits will be subject to certain limitation on annual utilization due to a change in ownership, as defined by federal and state tax law.

Undistributed earnings of the Companys foreign subsidiaries of approximately $12.3 million at December 31, 2009 are considered to
be indefinitely reinvested and, accordingly, no provisions for federal and state income taxes have been provided thereon. The Company has calculated its indefinitely reinvested earnings on an entity by entity basis, excluding entities with
negative earnings. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to various foreign
countries. Determination of the amount of unrecognized deferred income tax liability related to these earnings is not practicable.

The Company adopted the accounting for uncertainty in tax positions provisions of ASC 740 effective on January 1, 2007. As a result of the implementation ASC 740, the Company recognized no material
adjustment to the liability for unrecognized income tax benefits.

The following table summarizes the activity related to the
Companys unrecognized tax benefits (in thousands):



|                                                 |  |              |        |      |   |       
|------------------------------------------------ |  | ------------ | ------ | ---- | - | ------
|                                                 |  | December 31,
|                                                 |  | 2009         |        | 2008
|Beginning balance                                |  | $            | 16,492 |      | $ | 14,763
|Increase related to current year tax positions   |  |              | 7,893  |      |   | 1,519 
|Increase related to tax positions of prior years |  |              | 24,900 |      |   | 210   
|                                                 |  |              |        |      |   |       
|Ending balance                                   |  | $            | 49,285 |      | $ | 16,492
|                                                 |  |              |        |      |   |       

As of December 31, 2009 and 2008, a total of
$44.1 million and $15.2 million, respectively, of the unrecognized tax benefits would affect the Companys effective tax rate if recognized.

The Company recognizes interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2009, 2008, and 2007, the Company had $0.4 million, $0.5 million, and zero
of accrued interest and zero penalties related to uncertain tax positions. The Company recognized a net interest benefit of $0.1 million, $0.5 million, and zero during the years ended December 31, 2009, 2008, and 2007. The tax years
1997-2009 remain open to examination by one or more of the major taxing jurisdictions to which the Company is subject to tax on its taxable income. The Company does not anticipate that total unrecognized tax benefits will significantly change within
the next twelve months.

NOTE 8COMMITMENTS AND CONTINGENCIES:

Leases

The
Company leases office space under non-cancelable operating leases with various expiration dates through 2015. Rent expense for the years ended December 31, 2009, 2008 and 2007 was $1.5 million, $1.1



83



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



million and, $1.0 million, respectively. The terms of certain facility lease provide for rental payments on a graduated scale. The Company recognizes rent expense on a straight-line basis
over the lease period and accrues for rent expense incurred but not paid.

Future minimum lease payments under noncancelable
operating leases, which include common area maintenance charges, are as follows (in thousands):



|                                       |  |                                      |        |   |                 |   |       |  |   |       
|-------------------------------------- |  | ------------------------------------ | ------ | - | --------------- | - | ----- |  | - | ------
|Year Ending December 31,               |  | Softwarelicensesand otherobligations |        |   | OperatingLeases |   | Total
|2010                                   |  |                                      | 3,146  |   |                 |   | 3,253 |  |   | 6,399 
|2011                                   |  |                                      | 2,472  |   |                 |   | 653   |  |   | 3,125 
|2012                                   |  |                                      |       |   |                 |   | 149   |  |   | 149   
|2013                                   |  |                                      |       |   |                 |   | 150   |  |   | 150   
|2014                                   |  |                                      |       |   |                 |   | 164   |  |   | 164   
|2015 and thereafter                    |  |                                      |       |   |                 |   | 150   |  |   | 150   
|                                       |  |                                      |        |   |                 |   |       |  |   |       
|                                       |  | $                                    | 5,618  |   |                 | $ | 4,519 |  | $ | 10,137
|                                       |  |                                      |        |   |                 |   |       |  |   |       
|Less: Interest component               |  |                                      | (172   | ) |                 |   |       |  |   |       
|                                       |  |                                      |        |   |                 |   |       |  |   |       
|Present value of minimum lease payment |  |                                      | 5,446  |   |                 |   |       |  |   |       
|Less: Current portion                  |  |                                      | (3,037 | ) |                 |   |       |  |   |       
|                                       |  |                                      |        |   |                 |   |       |  |   |       
|Long-term portion of obligations       |  | $                                    | 2,409  |   |                 |   |       |  |   |       
|                                       |  |                                      |        |   |                 |   |       |  |   |       

The Company has software license obligations that are paid over the license periods, which range
from one to three years. These software licenses are used for the Companys internal research and development projects. At December 31, 2009 and 2008, the Company had $5.4 million and $1.2 million of software license obligations,
respectively.

Purchase Commitments

At December 31, 2009, the Company had approximately $20.7 million in non-cancelable purchase commitments with suppliers. The Company has recorded a liability of $0.5 million for adverse purchase
commitments related to a portion of these commitments for which the inventory is considered unsalable.

Contingencies

From time to time the Company is party to claims and litigation proceedings arising in the normal course of business.
Currently, the Company does not believe that there are any claims or litigation proceeds involving matters that will result in the payment of monetary damages, net of any applicable insurance proceeds, that, in the aggregate, would be material in
relation to its business, financial position, results of operations or cash flows. There can be no assurance, however, that any such matters will be resolved without costly litigation, in a manner that is not adverse to its business,
financial position, results of operations or cash flows, or without requiring royalty payments in the future that may adversely impact gross margins.

Indemnities, Commitments and Guarantees

In the normal course of business,
the Company has made certain indemnities, commitments and guarantees under which they may be required to make payments in relation to certain transactions. These include agreements



84



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



to indemnify the Companys customers with respect to liabilities associated with the infringement of other parties technology based upon its products, obligation to indemnify its
lessors under facility lease agreements, and obligation to indemnify its directors and officers to the maximum extent permitted under the laws of the state of Delaware. The duration of such indemnification obligations, commitments and guarantees
varies and, in certain cases, is indefinite. The Company has not recorded any liability for any such indemnification obligations, commitments and guarantees in the accompanying balance sheets. The Company does, however, accrue for losses for
any known contingent liability, including those that may arise from indemnification provisions, when future payment is estimable and probable.

Under master purchase agreements signed with Cisco in November 2005, the Company has agreed to indemnify Cisco for costs incurred in rectifying epidemic failures, up to the greater of (on a per claim
basis) 25% of all amounts paid to the Company by Cisco during the preceding 12 months (approximately $15.4 million at December 31, 2009) or $9.0 million, plus replacement costs. If the Company is required to make payments under the indemnity,
its operating results may be adversely affected.

NOTE 9SEGMENT INFORMATION:

The Company operates as one operating and reportable segment and sells its products directly to customers in North America, Asia and Europe.
Sales for the geographic regions reported below are based upon the bill-to customer headquarter locations. Following is a summary of the geographic information related to revenues for the years ended December 31, 2009, 2008 and 2007 (in
thousands):



|              |  |                         |         |      |   |         |  |   |        
|------------- |  | ----------------------- | ------- | ---- | - | ------- |  | - | -------
|              |  | Year Ended December 31,
|              |  | 2009                    |         | 2008 |   | 2007   
|Revenue:      |  |                         |        
|United States |  | $                       | 43,920  |      | $ | 46,287  |  | $ | 48,221 
|Malaysia      |  |                         | 54,379  |      |   | 42,435  |  |   | 34,017 
|China         |  |                         | 47,620  |      |   | 30,378  |  |   | 14,126 
|Other         |  |                         | 28,770  |      |   | 20,827  |  |   | 12,699 
|              |  |                         |         |      |   |         |  |   |        
|Total         |  | $                       | 174,689 |      | $ | 139,927 |  | $ | 109,063
|              |  |                         |         |      |   |         |  |   |        

Substantially all of the Companys tangible
assets are located in the United States of America.

NOTE 10EMPLOYEE BENEFIT PLAN:

The Company sponsors a 401(k) defined contribution plan covering all employees. Contributions made by the Company are determined
annually by the Board of Directors. To date the Company has not made any contributions to the plan.

NOTE 11RELATED
PARTY:

The Company leases its headquarters facility in Mountain View, California from an affiliate of Berg & Berg
Enterprises, LLC, which it believes holds shares of the Companys common stock. During the year ended December 31, 2009, 2008 and 2007, the Company made lease payments of approximately $1,029,000, $1,089,000, and $853,000,
respectively, under this lease arrangement.



85



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



NOTE 12 CASH, CASH EQUIVALENTS, INVESTMENTS:

At December 31, 2009 the Companys cash balance was $44.3 million and it did not have any available-for-sale investments.

The following is a summary of available-for-sale investments as of December 31, 2008 (in thousands):



|                                  |  |                   |        |                     |   |                     |  |                    |   |  |   |       
|--------------------------------- |  | ----------------- | ------ | ------------------- | - | ------------------- |  | ------------------ | - |  | - | ------
|                                  |  | December 31, 2008
|                                  |  | AmortizedCost     |        | GrossUnrealizedGain |   | GrossUnrealizedLoss |  | EstimatedFairValue
|U.S. government agency securities |  | $                 | 16,413 |                     | $ | 40                  |  | $                  |  |  | $ | 16,453
|Corporate commercial paper        |  |                   | 2,944  |                     |   | 4                   |  |                    |  |  |   | 2,948 
|Money market funds                |  |                   | 61,717 |                     |   |                    |  |                    |  |  |   | 61,717
|                                  |  |                   |        |                     |   |                     |  |                    |   |  |   |       
|Total                             |  | $                 | 81,074 |                     | $ | 44                  |  | $                  |  |  | $ | 81,118
|                                  |  |                   |        |                     |   |                     |  |                    |   |  |   |       
|Reported as:                      |  |                   |        |                     |   |                     |  |                    |   |  |   |       
|Cash and cash equivalents         |  | $                 | 68,047 |                     | $ | 4                   |  | $                  |  |  | $ | 68,051
|Short-term investments            |  |                   | 13,027 |                     |   | 40                  |  |                    |  |  |   | 13,067
|                                  |  |                   |        |                     |   |                     |  |                    |   |  |   |       
|Total                             |  | $                 | 81,074 |                     | $ | 44                  |  | $                  |  |  | $ | 81,118
|                                  |  |                   |        |                     |   |                     |  |                    |   |  |   |       

The fair value of the Companys investments at
December 31, 2009 and 2008, by contractual maturity, was as follows (in thousands):



|                      |  |              |   |      |   |       
|--------------------- |  | ------------ | - | ---- | - | ------
|                      |  | December 31,
|                      |  | 2009         |   | 2008
|Due in 1 year or less |  | $            |  |      | $ | 19,401
|                      |  |              |   |      |   |       
|Total                 |  | $            |  |      | $ | 19,401
|                      |  |              |   |      |   |       

Net unrealized holding gains and losses on
available-for-sale investments are included as a separate component of stockholders equity at December 31, 2008.

NOTE
13FAIR VALUE MEASUREMENTS:

ASC 820 defines fair value as the price that would be received from selling an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact and consider assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of
nonperformance.

Fair Value Hierarchy

ASC 820 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial
instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 establishes three levels of inputs that may be used to measure fair value:

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



86



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2009



Level 2Observable inputs other than Level 1 prices such as quoted prices
for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or
corroborated by observable market data for substantially the full term of the assets or liabilities.

Level
3Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The Company measures its financial
assets and financial liabilities, specifically cash equivalents, short-term investments and contingent earn-out liability, at fair value on a recurring basis. As of December 31, 2009, the Companys cash balance was $44.3 million,
and it did not have cash equivalents or short-term investments. The fair value of these financial assets and liabilities was determined using the following inputs as of December 31, 2009 (in thousands):



|                              |  |       |                                                         |                                                   |                                           |   |                                             |   |   |  |   |       
|----------------------------- |  | ----- | ------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | - | ------------------------------------------- | - | - |  | - | ------
|                              |  | Total |                                                         | Fair Value Measurements atDecember 31, 2009 Using
|                              |  |       | QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) |                                                   | SignificantOtherObservableInputs(Level 2) |   | SignificantOtherUnobservableInputs(Level 3)
|Liabilities:                  |  |       |                                                         |                                                   |                                           |   |                                             |   |   |  |   |       
|Contingent earn-out liability |  | $     | 11,687                                                  |                                                   | $                                         |  |                                             | $ |  |  | $ | 11,687
|                              |  |       |                                                         |                                                   |                                           |   |                                             |   |   |  |   |       

The fair value of these financial assets was
determined using the following inputs as of December 31, 2008 (in thousands):



|                                      |  |       |                                                         |                                                   |                                           |        |                                             |   |        |  |   |  
|------------------------------------- |  | ----- | ------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ------ | ------------------------------------------- | - | ------ |  | - | -
|                                      |  | Total |                                                         | Fair Value Measurements atDecember 31, 2008 Using
|                                      |  |       | QuotedPrices inActiveMarketsforIdenticalAssets(Level 1) |                                                   | SignificantOtherObservableInputs(Level 2) |        | SignificantOtherUnobservableInputs(Level 3)
|Assets:                               |  |       |                                                         |                                                   |                                           |        |                                             |   |        |  |   |  
|Money market funds (1)                |  | $     | 61,717                                                  |                                                   | $                                         | 61,717 |                                             | $ |       |  | $ | 
|U.S. government agency securities (2) |  |       | 16,453                                                  |                                                   |                                           |       |                                             |   | 16,453 |  |   | 
|Corporate commercial paper (3)        |  |       | 2,948                                                   |                                                   |                                           |       |                                             |   | 2,948  |  |   | 
|                                      |  |       |                                                         |                                                   |                                           |        |                                             |   |        |  |   |  
|Total                                 |  | $     | 81,118                                                  |                                                   | $                                         | 61,717 |                                             | $ | 19,401 |  | $ | 
|                                      |  |       |                                                         |                                                   |                                           |        |                                             |   |        |  |   |  



|(1) | Included in cash and cash equivalents on the Companys consolidated balance sheet.
|--- | ----------------------------------------------------------------------------------



|(2) | $6.3 million of which is included in cash and cash equivalents and $10.1 million of which is included in short-term investments on the Companys consolidated
balance sheet.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Included in short-term investments on the Companys consolidated balance sheet.
|--- | -------------------------------------------------------------------------------



87



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2008



Contingent earn-out liability

The Company estimated the fair value of the contingent earn-out liability based on its probability assessment of RMIs revenue
achievements during the earn-out period. In developing these estimates, the Company considered the revenue projections of RMI management, RMIs historical results, and general macro-economic environment and industry trends. This fair value
measurement is based on significant revenue inputs not observed in the market and thus represents a Level 3 measurement. Level 3 instruments are valued based on unobservable inputs that are supported by little or no market activity and
reflect our own assumptions in measuring fair value. Any change in the fair value of the contingent earn-out liability subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimate of
the bookings targets, will be recognized in earnings in the period the estimated fair value change. Therefore, the increase in the Companys fair value estimate described above in Note 2 resulted in an adjustment to fair value measurement of
$2.0 million for the year ended December 31, 2009.

The following table represents a reconciliation of the change in the
fair value measurement of the contingent earn-out liability for the year ended December 31, 2009 and 2008:



|                                        |  |              |        |      |   |  
|--------------------------------------- |  | ------------ | ------ | ---- | - | -
|                                        |  | December 31,
|                                        |  | 2009         |        | 2008
|Beginning balance                       |  | $            |       |      | $ | 
|Acquisition date fair value measurement |  |              | 9,679  |      |   | 
|Adjustment to fair value measurement    |  |              | 2,008  |      |   | 
|                                        |  |              |        |      |   |  
|Ending balance                          |  | $            | 11,687 |      | $ | 
|                                        |  |              |        |      |   |  

NOTE 14CREDIT FACILITY:

On June 19, 2009, the Company and its material subsidiaries entered into a credit agreement with a group of lenders led by Silicon
Valley Bank to provide $55 million of new credit facilities for a term of three years. The credit facilities consist of a $25.0 million senior secured revolving credit facility and $30.0 million of senior secured term loans. The credit
agreement is secured by substantially all of the Companys assets and the assets of its material subsidiaries. The credit facilities can be prepaid (in whole or in part) and terminated at any time without premium or penalty.

The net proceeds of the senior secured term loans were used to finance a portion of the IDT NSE Acquisition. In addition to the senior
secured term loans, during the year ended December 31, 2009, the Company drew $18.0 million from the $25.0 million senior secured revolving credit facility to finance a portion of the IDT NSE and RMI acquisitions. The Company may draw
additional proceeds from the senior secured revolving credit facility in the future for ongoing working capital and other general corporate purposes. In December 2009, the Company repaid the entire $30.0 million borrowed under the senior
secured term loans prior to maturity and repaid the $18.0 million borrowed under the senior secured revolving credit facility. No amounts were outstanding under the senior secured term loans and senior secured revolving credit facility as of
December 31, 2009. The Company no longer has credit available under the senior secured term loans facility.

Any
borrowings under the credit facility will, at the Companys option, bear interest either at an annual rate equal to (a) the higher of the Silicon Valley Bank announced prime rate or the Federal Funds Effective Rate plus 0.50% plus a margin
ranging from 0.50% to 1.75% based on the ratio of the Companys reported total consolidated debt to their consolidated EBITDA, or (b) Eurodollar borrowings based on the applicable LIBOR interest period (with a LIBOR floor of 1.50%), plus a
margin ranging from 3.00% to 4.00% based on the ratio of



88



---

##### Table of Contents

NETLOGIC MICROSYSTEMS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)

December 31, 2008



their reported total consolidated debt to their consolidated EBITDA. The revolving credit facility has an unused line fee payable on the undrawn revolving credit facility amount set at a
rate per annum ranging from 0.30% to 0.50% determined based on the ratio of the Companys total consolidated debt to their consolidated EBITDA.

Direct fees and expenses totaling $1.1 million associated with the credit facility were capitalized, and consisted of debt issuance costs of $0.8 million and debt discount related to the senior
secured term loans of $0.3 million. The Company wrote-off debt issuance costs of $0.5 million in conjunction with the early repayment of the principal of the senior secured term loans, and amortized $0.2 million as of December 31,
2009. As of December 31, 2009, the long-term portion of the debt issuance costs was $0.4 million, and is reported within Other assets on the Consolidated Balance Sheet. The remaining debt issuance costs related to the
senior secured revolving credit facility are being amortized using the straight line method over the three-year term of the credit facility.

The senior secured credit facility includes several financial covenants and customary operating covenants, including the following:



| |  |  | a covenant requiring the Company to maintain the ratio of their total consolidated debt to their consolidated EBITDA within specified limits,
specifically (for the four trailing quarters ended on the applicable date) 2.25:1 (through March 31, 2010), 2.00:1 (from June 30, 2010 through September 30, 2010) and 1.75:1 (thereafter);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a minimum fixed charge covenant regarding the ratio of the Companys consolidated EBITDA less their capital expenditures to their consolidated
interest expense and other fixed charges to be no less than 1.25:1 at quarter end;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a minimum consolidated quick ratio covenant regarding the Companys consolidated cash and cash equivalents plus accounts receivable to their
consolidated current liabilities to be no less than 1:1 at quarter end; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a covenant requiring the Company and their subsidiaries to maintain at all times at least $20 million of unencumbered cash and cash equivalents.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------

The Company was in compliance with the debt covenants and had no outstanding liability under the credit
agreement as of December 31, 2009.

NOTE 15SUBSEQUENT EVENT:

On February 16, 2010, the Board of Directors approved a two-for-one stock split of the Companys common stock, to be effected
pursuant to the issuance of additional shares as a stock dividend. The stock dividend was paid on March 19, 2010 to stockholders of record as of March 5, 2010. All share and per share amounts in these consolidated financial statements and
related notes have been retroactively adjusted to reflect the stock split for all periods presented.



89



---

##### Table of Contents

SUPPLEMENTARY FINANCIAL DATA

Selected Quarterly Financial Data (unaudited)

The
following table presents selected unaudited consolidated financial data for each of the eight quarters in the two-year period ended December 31, 2009. In the Companys opinion, this unaudited information has been prepared on the same basis
as the audited information and includes all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the financial information for the period presented. Net income (loss) per sharebasic and diluted,
for the four quarters of each fiscal year may not sum to the total for the fiscal year because of the different number of shares outstanding during each period. All share and per share amounts presented below have been retroactively adjusted to
reflect the 2-for-1 stock split of our common stock that was effected on March 19, 2010 to stockholders of record as of March 5, 2010.



|                                    |  |                                       |        |   |        |   |        |       |  |   |        |   |  |   |         |  
|----------------------------------- |  | ------------------------------------- | ------ | - | ------ | - | ------ | ----- |  | - | ------ | - |  | - | ------- | -
|                                    |  | Quarter                               |       
|                                    |  | First                                 |        |   | Second |   |        | Third |  |   | Fourth |  
|                                    |  | (in thousands, except per share data) |       
|Year Ended December 31, 2009        |  |                                       |        |   |        |   |        |       |  |   |        |   |  |   |         |  
|                                    |  |                                       |        |  
|Total revenue                       |  | $                                     | 30,366 |   |        | $ | 32,485 |       |  | $ | 42,314 |   |  | $ | 69,524  |  
|Gross profit                        |  | $                                     | 16,822 |   |        | $ | 18,498 |       |  | $ | 20,816 |   |  | $ | 19,302  |  
|Net loss                            |  | $                                     | (3,917 | ) |        | $ | (2,156 | )     |  | $ | (3,853 | ) |  | $ | (37,236 | )
|Net loss per sharebasic            |  | $                                     | (0.09  | ) |        | $ | (0.05  | )     |  | $ | (0.09  | ) |  | $ | (0.71   | )
|Net loss per sharediluted          |  | $                                     | (0.09  | ) |        | $ | (0.05  | )     |  | $ | (0.09  | ) |  | $ | (0.71   | )
|Shares used in calculationbasic    |  |                                       | 43,676 |   |        |   | 43,922 |       |  |   | 44,494 |   |  |   | 52,248  |  
|Shares used in calculationdiluted  |  |                                       | 43,676 |   |        |   | 43,922 |       |  |   | 44,494 |   |  |   | 52,248  |  
|                                    |  |                                       |        |  
|Year Ended December 31, 2008        |  |                                       |        |   |        |   |        |       |  |   |        |   |  |   |         |  
|                                    |  |                                       |        |  
|Total revenue                       |  | $                                     | 34,180 |   |        | $ | 36,543 |       |  | $ | 38,311 |   |  | $ | 30,893  |  
|Gross profit                        |  | $                                     | 18,797 |   |        | $ | 20,561 |       |  | $ | 21,509 |   |  | $ | 17,444  |  
|Net income (loss)                   |  | $                                     | 1,127  |   |        | $ | 2,332  |       |  | $ | 1,256  |   |  | $ | (1,138  | )
|Net income (loss) per sharebasic   |  | $                                     | 0.03   |   |        | $ | 0.05   |       |  | $ | 0.03   |   |  | $ | 0.03    |  
|Net income (loss) per sharediluted |  | $                                     | 0.03   |   |        | $ | 0.05   |       |  | $ | 0.03   |   |  | $ | 0.03    |  
|Shares used in calculationbasic    |  |                                       | 42,478 |   |        |   | 42,780 |       |  |   | 43,260 |   |  |   | 43,406  |  
|Shares used in calculationdiluted  |  |                                       | 44,128 |   |        |   | 45,058 |       |  |   | 45,520 |   |  |   | 43,406  |  



90



---

##### Table of Contents

|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

Our management evaluated, with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of December 31, 2009. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and
procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported within the time periods
specified in Securities and Exchange Commission rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures as of December 31, 2009.

Managements Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of such limitations, there is
a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible
to design into the process safeguards to reduce, though not eliminate, this risk.

Our management assessed the effectiveness
of the companys internal control over financial reporting as of December 31, 2009. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in
Internal ControlIntegrated Framework.Based on this assessment using those criteria, management concluded that, as of December 31, 2009, our internal control over financial reporting was effective.

The effectiveness of the companys internal control over financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.

Changes in
Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that
occurred during the fourth fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



|ITEM 9B. | OTHER INFORMATION.
|-------- | ------------------

Not
Applicable.



91



---

##### Table of Contents

PART III



|ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|-------- | ------------------------------------------------------

Code of Business Conduct and Ethics

We have adopted a Code of
Business Conduct and Ethics for Employees, Executive Officers and Directors that applies to all of our employees and directors. We have posted this Code of Business Conduct and Ethics on the Companys website atwww.netlogicmicro.com.

Executive Officers of the Registrant

The following table provides the names, ages and offices of each of our current executive officers:



|                       |  |     |  |                                                                  
|---------------------- |  | --- |  | -----------------------------------------------------------------
|Title                  |  | Age |  | Position                                                         
|Ronald Jankov          |  | 51  |  | Director, Chief Executive Officer and President                  
|Behrooz Abdi           |  | 48  |  | Executive Vice President and General Manager                     
|Michael Tate           |  | 44  |  | Vice President and Chief Financial Officer                       
|Marcia Zander          |  | 46  |  | Senior Vice President of Worldwide Sales                         
|Varadarajan Sirnivasan |  | 58  |  | Vice President of Product Development and Chief Technical Officer
|Dimitrios Dimitrelis   |  | 52  |  | Vice President of Engineering                                    
|Mozfar Maghsoudnia     |  | 43  |  | Vice President of Worldwide Manufacturing                        
|Ibrahim Korgav         |  | 61  |  | Senior Vice President of Worldwide Business Operations           
|Chris OReilly         |  | 36  |  | Vice President of Marketing                                      
|Roland Cortes          |  | 44  |  | Vice President, General Counsel and Secretary                    

Ronald Jankov has served as our President, Chief Executive Officer and as a member of our board of directors since April 2000.

Behrooz Abdi has served as our Executive Vice President and General Manager in charge of our MPS/CPS business since November 2009. From November 2007 to October 2009, Mr. Abdi was President
and Chief Executive Officer of RMI Corporation, a provider of multi-threaded, multi-core processors. From March 2004 to November 2007, Mr. Abdi was Senior Vice President and General Manager of Qualcomm CDMA Technologies in charge of the
day-to-day operations of semiconductor products at Qualcomm, Inc., a provider of integrated circuit products. Prior to Qualcomm, Mr. Abdi held leadership and engineering positions at Motorola in its Semiconductor Products Sector, now Freescale
Semiconductor, Inc. His last role at Motorola was Vice President and General Manager for the Radio Products Division from July 1985 to December 2003.

Michael Tate has served as our Vice President of Finance and Chief Financial Officer since July 2007. Prior to joining us, Mr. Tate was interim chief financial officer, vice president,
corporate controller, and treasurer at Marvell Technology Group Ltd., a semiconductor integrated circuit company. He joined Marvell in January 2001 as part of Marvells acquisition of Galileo Technology Ltd.

Marcia Zander has served as our Senior Vice President of Worldwide Sales since January 2006 and Vice President of Sales since July
1999.

Varadarajan Srinivasan has served as our Vice President of Product Development since March 1996, as our Chief
Technical Officer since August 2000.

Dimitrios Dimitrelis has served as our Vice President of Engineering since July
2002. From July 1999 to March 2002, Mr. Dimitrelis was Director of Engineering for Vitesse Semiconductor Corp., a communications integrated circuit company, where he was primarily responsible for the development of a 10G network processor.



92



---

##### Table of Contents

Mozafar Maghsoudnia has served as our Vice President of Worldwide Manufacturing since
January 2007, as Vice President of Manufacturing since August 2006, and Director of Technology since June 2003. From June 1988 to June 2003, Mr. Maghsoudnia was employed by Analog Devices, Inc., where he was responsible for wafer fabrication
and technology in his last assignment.

Ibrahim Korgav has served as our Senior Vice President of Worldwide Business
Operations since January 2007 and as our Senior Vice President of Manufacturing and Business Operations from March 2002 to January 2007.

Chris OReilly has served as our Vice President of Marketing since August 2007. Prior to August 2007, Mr. OReilly served as our senior director of marketing, director of sales for
the Asia Pacific region and senior marketing manager since 1999.

Roland Cortes has served as our Vice President,
General Counsel and Secretary since April 2007. Prior to April 2007, Mr. Cortes served as our Secretary since May 2004, as our Senior Director of Legal Affairs and IP Management since July 2002, and as our Director of Legal Affairs and IP
Management since April 1999.

Board of Directors

Members of the Board of Directors

The names of each of our current
directors and certain information about them are set forth below:



|                          |  |     |  |                                                
|------------------------- |  | --- |  | -----------------------------------------------
|Name                      |  | Age |  | Position                                       
|Leonard Perham (1)(2)     |  | 66  |  | Director, Chairman of the Board                
|Douglas Broyles (3)       |  | 68  |  | Director                                       
|Stephen Domenik (1)(2)(3) |  | 58  |  | Director                                       
|Norman Godinho            |  | 69  |  | Director                                       
|Ronald Jankov             |  | 51  |  | Director, Chief Executive Officer and President
|Alan Krock (1)            |  | 49  |  | Director                                       



|(1) | Member of the audit committee.
|--- | ------------------------------



|(2) | Member of the compensation committee.
|--- | -------------------------------------



|(3) | Member of the governance and nominating committee.
|--- | --------------------------------------------------

Board Diversity and Board Member Qualifications

Our Governance and
Nominating Committee is responsible for identifying prospective board candidates, recommending nominees for election to our board of directors, developing and recommending board member selection criteria, considering committee member qualifications,
recommending corporate governance principles to our board of directors, and providing oversight in the evaluation of our board of directors and each committee. The responsibilities of our Governance and Nominating Committee are described in the
Governance and Nominating Committee Charter approved by our board of directors, a current copy of which is available on the Companys website atwww.netlogicmicro.com.

When there is a need to identify or evaluate a prospective nominee, our Governance and Nominating Committee undertakes a careful review
process which may involve, among other things, candidate interviews, inquiries of the person or persons recommending the candidate, engagement of an outside firm to gather additional information and discussions with management and incumbent
directors. In evaluating candidates, including current directors eligible for re-election, our Governance and Nominating Committee considers various factors, including the size and composition of our board of directors and our committees, the needs
of our board



93



---

##### Table of Contents

of directors and committees, the candidates expertise and experience, the candidates independence and potential conflicts of interest, the candidates character and integrity,
and the candidates existing commitments. Upon completion of its review and evaluation, our Governance and Nominating Committee makes its recommendations to our board of directors regarding the candidate(s). All nominations are approved by the
entire board of directors, including all of the independent directors. After considering our Governance and Nominating Committees recommendations, our board of directors determines and approves which candidate(s) shall be nominated for
election to our board of directors, subject to stockholder approval.

Our board prefers a variety of professional backgrounds
and experiences among its members, and does not follow any prescribed process or formula; rather, it uses its judgment to review the professional background and experiences of each candidate and board member such that the board, as a whole, will be
able to successfully perform its duties to the highest standards. In particular, the board has sought to include members that have experience in establishing and growing integrated circuit companies, leading integrated circuit companies in chief
executive officer, chief financial officer or other senior management positions, working with the investment community, serving on the board of directors of other companies, both public and private and have experience in the development and
oversight of high technology companies, and familiarity with the capital markets environment for such companies.

In
determining that each of the members of the board is qualified to be a director, the board has relied on the attributes listed below and on the direct personal knowledge of each of the members prior service on the board. There are no family
relationships among any of our directors or executive officers.

Leonard Perham has served as a member of or chairman
of our board of directors since March 2000. Mr. Perham has a lengthy history of managing high-technology integrated circuit companies as a chief executive officer and board member. Mr. Perham has been the President and Chief Executive
Officer of Mosys, Inc. (a provider of intellectual property cores and integrated circuit products) since November, 2007, and from April 1991 to January 2000, Mr. Perham was the Chief Executive Officer of Integrated Device Technology, Inc.

Douglas Broyles has served as a member of our board of directors since December 1999. Mr. Broyles has been a
General Partner with Huntington Ventures (a private investment firm) since September 2000. For the past 25 years as an investor and board member, Mr. Broyles has gained first-hand experience in helping oversee the strategic direction and growth
strategies of several Silicon Valley technology companies and has current experience in the areas of wireless communications and leading edge semiconductor fabrication technologies. From 1982 to 1986, Mr. Broyles was a member of the board of
directors of Sun Microsystems, Inc. Mr. Broyles also currently serves on the board of Peak International Ltd.

Stephen
Domenik has served as a member of our board of directors since January 2001. Since 1995, Mr. Domenik has been with Sevin Rosen Funds, a venture capital firm, where he is a General Partner and has developed considerable relevant experience
in investments in and the strategic development of high-technology companies. During his tenure at Sevin Rosen Funds he has led numerous investments in private companies. Mr. Domenik also sits on the boards of directors of various private
companies.

Norman Godinho is one of our founders and has served as a member of our board of directors since the
Companys inception. Mr. Godinho has gained first hand experience through a long career in managing research and development and training engineers at high technology companies through his own engineering career. Mr. Godinho co-founded
Integrated Device Technology, Inc. in August 1980 and Paradigm Technology Limited in 1987, where he also served as a director and Vice President. Mr. Godinho also gained significant management experience as our Chief Executive Officer from
December 1997 to April 2000.

Ronald Jankov has served as our President, Chief Executive Officer and as a member of our
board of directors since April 2000. As Vice President of Sales and then Vice President and General Manager for the Multimedia Division of NeoMagic Corporation from September 1995 to September 1999, and as Vice President



94



---

##### Table of Contents

of Cyrix Corporation prior to joining NeoMagic, Mr. Jankov gained first hand experience in the management of engineering, sales and product development of growing integrated circuit
providers.

Alan Krock has served as a member of our board of directors since August 2005. As the Chief Financial
Officer of Beceem Communications, Inc. (a provider of integrated circuit products) since January 2010, Vice President and Chief Financial Officer of PMC-Sierra, Inc. (a provider of integrated circuit products) from November 2002 until
March 2007, Vice President of Corporate Affairs for PMC-Sierra, Inc. from March 2007 until March 2008, and Vice President and Chief Financial Officer of Integrated Device Technology, Inc. from January 1998 until November 2002.
Mr. Krock has gained extensive experience in financial and audit control related matters.

Board Classification

Our board of directors is divided into three classes, as follows:



| |  |  | Class I consists of Norman Godinho and Ronald Jankov whose terms will expire at our annual meeting of stockholders to be held in 2011;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Class II consists of Douglas Broyles and Stephen Domenik whose terms will expire at our annual meeting of stockholders to be held in 2012; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Class III consists of Leonard Perham and Alan Krock whose terms will expire at our annual meeting of stockholders to be held in 2010.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

Upon expiration of the term of a class of directors, directors for that class will be elected for
three-year terms at the annual meeting of stockholders in the year in which such term expires. Each directors term is subject to the election and qualification of his successor, or his earlier death, resignation or removal. The authorized
number of directors may be changed by resolution of our board of directors or a majority vote of the stockholders. Any increase or decrease in the number of directors will be distributed among the three classes so that, as nearly as possible, each
class will consist of one-third of the directors. Because no more than two directors may be elected at each annual meeting, this classification of our board of directors may have the effect of delaying or preventing changes in control or management.

Board Leadership Structure

We have chosen to separate the positions of our chief executive officer and board chairman as we believe that this separation provides the opportunity for our chairman to better represent the independent
directors in the boards oversight of management.

As chairman of the board of directors, Mr. Perham is the lead
independent director. Mr. Perham also serves on our Audit and Compensation Committees and allocates a considerable amount of additional time outside of board and committee meetings to spend with our chief executive officer and chief financial
officer to facilitate the boards oversight of management and ensure that the independent members of the board are involved in setting the strategic direction of the company.

Audit Committee

Directors Krock, Perham and Domenik are the current
members of our Audit Committee. All are independent, within the meaning of Marketplace Rule 5605(a)(2) of the NASDAQ listing rules. Mr. Krock serves as the chairman of the committee. The Audit Committee held nine meetings in 2009.
Our board of directors has determined that Mr. Krock is the audit committee financial expert, as defined under Item 407(d)(5) of Regulation S-K under the Securities Act of 1933 and the Securities Exchange Act of 1934, but that
status does not impose on him duties, liabilities or obligations that are greater than the duties, liabilities or



95



---

##### Table of Contents

obligations otherwise imposed on him as a member of our audit committee and our board of directors. Our Audit Committee oversees, reviews and evaluates our financial statements, accounting and
financial reporting processes, internal control functions and the audits of our financial statements, including the appointment, compensation, retention and oversight of our independent auditor. Our Audit Committee also is charged with reviewing
reports or complaints with respect to the accounting, auditing and/or internal controls of the Company, including possible violations under our whistleblower policy. The responsibilities of our audit committee are described in the Audit
Committee Charter adopted by our board of directors, a current copy of which is available on the Companys website atwww.netlogicmicro.com.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors, executive officers and persons who own more than 10% of a registered class of the Companys equity securities to file with the SEC initial
reports of ownership and reports of changes in ownership of common stock and other equity securities of ours. Directors, executive officers and greater than 10% holders are required by SEC regulation to furnish us with copies of all
Section 16(a) reports they file. Based solely on our review of Forms 3 and 4 received during 2009 and Forms 5 (or any written representations) received with respect to fiscal year 2009, we believe that all directors, executive officers and
10% stockholders complied with all applicable Section 16(a) filing requirements during 2009; however, we also believe that the following Forms 4 were filed late: (i) Form 4 for Mozafar Maghsoudnia filed one day late on March 2,
2009, and (ii) Forms 4 for each of our directors Perham, Jankov, Krock, Domenik, Godinho and Broyles filed two days late on July 28, 2009. In none of these circumstances were any of the late filings intentional; rather, the delay was
either due to oversight or administrative error.



|ITEM 11. | EXECUTIVE COMPENSATION
|-------- | ----------------------

All share amount and share price information under this Item 11 reflects the 2-for-1 stock dividend paid on March 19, 2010.

NON-EMPLOYEE DIRECTOR COMPENSATION

Director Compensation Table

The following Director Compensation Table sets forth summary information concerning the compensation paid to our non-employee directors in
2009 for their services as directors.



|                |  |                               |  |                      |  |                          |     |  |          
|--------------- |  | ----------------------------- |  | -------------------- |  | ------------------------ | --- |  | ---------
|Name            |  | Fees Earned orPaid in Cash($) |  | Option Awards($) (1) |  | All OtherCompensation($) |     |  | Total($) 
|Leonard Perham  |  | 32,500                        |  | 204,537              |  |                         |     |  | 237,037  
|Stephen Domenik |  | 31,000                        |  | 204,537              |  |                         |     |  | 235,537  
|Norman Godinho  |  | 15,000                        |  | 204,537              |  |                         |     |  | 219,537  
|Douglas Broyles |  | 22,500                        |  | 204,537              |  | 14,402                   | (2) |  | 241,439  
|Alan Krock      |  | 30,000                        |  | 204,537              |  | 20,546                   | (2) |  | 255,083  
|                |  |                               |  |                      |  |                          |     |  |          
|Total           |  | 131,000                       |  | 1,022,685            |  | 34,948                   |     |  | 1,188,633
|                |  |                               |  |                      |  |                          |     |  |          



|(1) | Reflects the aggregate grant date fair value of option awards granted in 2009 computed in accordance with the Financial Accounting Standards Board
Accounting Standard Codification Topic 718, CompensationStock Compensation, but excluding any estimate of future forfeitures (FASB ASC Topic 718). See Note 6 of the consolidated financial statements under Item
8Financial Statements and Supplementary Data of this report regarding the assumptions underlying the valuation of equity grants. Each director was granted an option to purchase 20,000 shares on July 22, 2009 at an exercise
price of $19.67 per share. The options vest as to 1/12thof the shares subject to the option at the end of each calendar month following the date of grant.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



96



---

##### Table of Contents

|(2) | Reflects the aggregate incremental cost of medical, dental and vision insurance premiums paid by us on behalf of the individual director.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------

We reimburse our non-employee directors for all reasonable out-of-pocket expenses incurred in the performance of their duties as directors.
Employee directors are not compensated for board services in addition to their compensation as employees. Consequently, during fiscal year 2009, Mr. Jankov did not receive compensation for his role as a director.

Cash Compensation

For fiscal year 2009, the Compensation Committee retained Radford Surveys and Consulting, a business unit of AON Consulting, Inc. (Radford), as an independent, third-party consulting firm to review non-employee director
compensation. Based on the results of the review by Radford, and the Committees goal of retaining and motivating highly qualified non-employee directors, the Compensation Committee recommended to the board of directors that the annual equity
and cash compensation granted to each non-employee director remain unchanged for fiscal 2009. The board of directors accepted the recommendation of the Compensation Committee, and on July 22, 2009 approved cash compensation to our non-employee
directors as follows:



| |  |  | $15,000 to each of our non-employee directors for service on our board of directors;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | An additional $15,000 to Mr. Krock for service as the chairman of the Audit Committee, and $5,000 to each of Mr. Perham and Mr. Domenik
for services as members of our Audit Committee;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An additional $10,000 to Mr. Domenik for service as the chairman of the Compensation Committee, and $2,500 to Mr. Perham for service as a
member of our Compensation Committee;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An additional $7,500 to Mr. Broyles for service as the chairman of our Governance and Nominating Committee, and $1,000 to Mr. Domenik for
service as a member of our Governance and Nominating Committee; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | An additional $10,000 to Mr. Perham for service as the lead independent director.
| | - |  | ---------------------------------------------------------------------------------

Equity Compensation

In connection with their board service, non-employee directors are eligible to receive, and have received, stock options under our 2004 Equity Incentive Plan (the 2004 Plan). Under the terms of the 2004 Plan, each non-employee
director receives an initial option grant to purchase 80,000 shares of our common stock upon first becoming a member of our board of directors. The initial option vests and becomes exercisable over three years from the date of grant, with the first
25% of the shares subject to the initial option vested on the date of grant, and the remainder vesting monthly thereafter.

In
addition, at the first regularly scheduled meeting of our board of directors following each annual meeting of stockholders, each non-employee director is automatically granted a non-statutory option to purchase 20,000 shares of our common stock,
provided the director has served on our board or directors for at least six months. These options vest on a monthly basis and become exercisable in full on the first anniversary of the date of grant. The exercise price of stock options granted to
directors is equal to the fair market value of a share of our common stock on the date of grant, which under the 2004 Plan is the closing price per share of our common stock on the principal public market on which it is listed for trading, which was
the NASDAQ Global Select Market, or Nasdaq GS, in 2009. The accounting value of stock option grants to directors is calculated using the same methodology that we use to determine the accounting charge associated with similar equity-based awards for
the fiscal period immediately preceding the grant date. We measure the fair value of option awards using the Black-Scholes option pricing model which requires a number of complex and subjective assumptions including our stock price volatility,
option exercise patterns (expected life of options), future forfeiture rates and related tax effects.



97



---

##### Table of Contents

During fiscal 2009, all option grants to board members were to continuing board members,
each of whom received options to purchase 20,000 shares of our common stock. The grants were made on July 22, 2009 at an exercise price of $19.67 per share, which was the closing price of our common stock on the Nasdaq GS on the same date.

Other Compensation

Beginning in April 2008, the members of our board of directors became eligible to participate in our health care insurance plans, including medical, dental and vision coverage, to the same extent that our
non-director employees are eligible to participate in such plans. In 2009, non-employee directors Broyles and Krock enrolled in our medical, dental and vision plans, and we paid the medical insurance premiums on their behalf.



98



---

##### Table of Contents

EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS

Compensation Committee

Our Compensation Committee is composed of directors Domenik and Perham, who are independent, non-employee directors. The Compensation
Committee reviews and makes recommendations to our board of directors concerning the compensation and benefits of our executive officers (including our chief executive officer) and directors, reviews and approves performance objectives for our
officers and evaluates their performance in light of these objectives, administers our stock option and employee benefits plans, reviews and approves our general policies relating to compensation and benefits, and reviews and approves this
Compensation Discussion and Analysis report for inclusion in this report.

Compensation Philosophy and Objectives

Our compensation philosophy and the objective of our compensation program is to align the interests of our stockholders and management by
integrating executive compensation with our annual and long-term corporate strategic and financial objectives. We believe that the overall compensation for our executive officers should be fair, reasonable and competitive to attract, retain,
motivate and reward well-qualified executives who contribute to our long-term success. Accordingly, our compensation program is designed to reward the performance of each executive officer and recognize the officers contribution to our overall
performance in a particular fiscal year, as well as to our long-term strategic and financial objectives.

Consistent with our
compensation philosophy and objectives, we consider many factors in determining appropriate compensation for our executive officers, including:



| |  |  | the experience and career potential of each officer;
| | - |  | ----------------------------------------------------



| |  |  | the competitive market for both short-term and long-term compensation;
| | - |  | ----------------------------------------------------------------------



| |  |  | the prior compensation earned and awarded to each officer;
| | - |  | ----------------------------------------------------------



| |  |  | our success in achieving its strategic and financial goals; and
| | - |  | ---------------------------------------------------------------



| |  |  | our need to obtain, retain and motivate highly qualified individuals.
| | - |  | ---------------------------------------------------------------------

To guide in the implementation of our compensation philosophy, our compensation program is designed to:



| |  |  | include equity grants that typically vest over multiple years to align long-term employee interests with the interests of our stockholders;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide a meaningful link between the Companys goals and execution by the executive management team to support achievement of such goals; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | provide a competitive blend of short-term and long-term compensation to provide meaningful incentives for individual achievement.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------

Our total compensation packages may include base salary, annual cash bonuses and commissions, all paid in
cash, as well as long-term compensation in the form of equity compensation including stock options, restricted stock and restricted stock units. Additionally, our compensation packages include a 401(k) plan, medical and other benefits, and severance
and change-in-control and other post-termination benefits.

Competitive Market Data

Determining the competitive landscape is an essential step in implementing our compensation objectives. We and the Compensation Committee
annually review competitive market information for executive officers, including short-term incentives, such as base salaries, cash bonuses and commissions, and long-term incentives,



99



---

##### Table of Contents

in the form of equity compensation, including stock options, performance shares, restricted stock and restricted stock units. As a part of this annual assessment, we and the Compensation
Committee engage an independent compensation consultant to assist us in collecting and analyzing relevant market data for a selected peer group of companies.

For fiscal year 2009, the Compensation Committee retained Radford as an independent, third-party consulting firm, in connection with its review of executive compensation. Working with Radford and our CEO,
CFO and Corporate Secretary, the Compensation Committee selected a peer group of the following companies included in the 2008 Radford Executive Survey and 2008 Radford Benchmark Surveys (collectively the Surveys): Actel Corporation,
Anadigics, Inc., Applied Micro Circuit Corporation, Applied Signal Technology, Inc., Blue Coat Systems, Inc., Cirrus Logic, Inc., Integrated Device Technology, Inc., Lattice Semiconductor Corporation, Micrel, Inc., Microsemi Corporation, Mindspeed
Technologies, Inc., Monolithic Power Systems, Inc., PMC-Sierra, Inc., Power Integrations, Inc., Rambus, Inc., Riverbed Technology, Inc., Semtech Corporation, Silicon Image, Inc., Silicon Storage Technology, Inc., SonicWALL, Inc., Synaptics, Inc.,
and Tessera Technologies.

This peer group was selected based on many factors, including each companys industry segment,
revenue, number of employees, geographical location, age, growth rate, market capitalization and whether we believe we compete for the same or similar personnel. The comparative information from the selected peer group included total cash
compensation (i.e., base salary, bonuses and commissions) and total long-term incentive compensation (i.e., equity in the form of stock options and other forms of stock compensation) for executive officers.

Compensation Elements

Based on comparative market information, our compensation philosophy and objectives, and our CEOs evaluation of the performance of our executives, toward the end of the fiscal year the CEO submits his recommendations for executive
compensation for the upcoming fiscal year to the Compensation Committee. The Compensation Committee reviews these recommendations and comparative market data from the Surveys, and together with the Committees own general knowledge of the
competitive market place and the Committees desire to retain, motivate and reward the executive officers, the Committee subjectively determines a compensation package for each executive officer. The Committee submits its recommended proposal
to the full board of directors for approval at the first meeting in the new fiscal year.

In general, our executive officer
compensation packages combine and allocate cash and equity-based compensation taking into account the role of each executive officer of ours, market practices, and the total value of all forms of compensation including benefits and perquisites
available to the individual. Our total compensation packages include base salary, annual cash bonuses and, in some cases, sales commission, which are all paid in cash, as well as long-term compensation in the form of equity compensation including
stock options and restricted stock. The rationale, design, reward process, and related information regarding the components of compensation are described generally below. Other than the annual bonus program described below, we have no profit-sharing
or deferred compensation programs.

We do not currently have any equity or other security ownership policy that mandates
ownership of amounts of our common stock by our executive officers, but we consider equity awards to be a key component of executive compensation packages. We have change-of-control arrangements with each of our executive officers that provide for
specific payments and benefits if their employment with us is terminated in connection with a change of control. These arrangements are discussed in detail below. Our board of directors considers such payments and benefits to be an integral part of
a competitive compensation package for our executive officers.

Cash Compensation

Base Salary. We review executive salaries annually. For fiscal year 2009, the Compensation Committee reviewed salaries recommended by
our CEO for the executive officers, and recommended to our board of



100



---

##### Table of Contents

directors the base salary of each executive officer on a case-by-case basis taking into account the individual officers responsibilities and performance, as well as targeting the
50thpercentile of base salaries of executives having
similar responsibilities to our executive officers from the peer group. The Compensation Committee believes that we can retain, motivate and align the interests of management with those of our stockholders by targeting executive base salaries at the
50thpercentile of the selected peer group, and
emphasizing stock appreciation by targeting long-term equity incentives at greater than the 50thpercentile of the peer group. Consistent with this belief, on January 28, 2009, the Compensation Committee approved and recommended to the board of directors the following base salary increases for
fiscal 2009 for our named executive officers effective January 1, 2009:



| |  |  | Mr. Jankovs base salary was increased by 2% from 2008 to $383,700;
| | - |  | -------------------------------------------------------------------



| |  |  | Mr. Tates base salary was increased by 2% from 2008 to $278,500;
| | - |  | -----------------------------------------------------------------



| |  |  | Mr. Srinivasans base salary was increased by 2% from 2008 to $238,400;
| | - |  | -----------------------------------------------------------------------



| |  |  | Ms. Zanders base salary was increased by 2% from 2008 to $255,300.
| | - |  | -------------------------------------------------------------------

Also with respect to Ms. Zander, in January 2009, the board of directors approved a commission of 0.1% on all product sales in each of
fiscal years 2009, 2010 and 2011. For fiscal year 2009, we paid Ms. Zander $174,688 in commissions. The Compensation Committee considers payment of a sales commission to be a material component of Ms. Zanders cash compensation as
head of our sales organization.

On October 30, 2009, Mr. Abdi joined the company as our Executive Vice President
and General Manager in charge of our MPS/CPS processor products as a result of our acquisition of RMI Corporation, where he was RMIs president and chief executive officer. Our Compensation Committee reviewed Mr. Abdis base salary as
president and chief executive officer of RMI and, based on a recommendation by our chief executive officer, determined that Mr. Abdis base salary be an annualized rate of $350,000 for each of 2009 and 2010.

After reviewing competitive market compensation information and the performance by us and the executive management team as a whole in fiscal
2009, and based on the CEOs recommendations, the Compensation Committee approved the following base salary increases for our named executive officers for fiscal 2010 on February 19, 2010:



| |  |  | Mr. Jankovs base salary was increased by 2.5% from 2009 to $393,293;
| | - |  | ---------------------------------------------------------------------



| |  |  | Mr. Tates base salary was increased by 2.5% from 2009 to $285,463;
| | - |  | -------------------------------------------------------------------



| |  |  | Mr. Srinivasans base salary was increased by 2.5% from 2009 to $244,360; and
| | - |  | -----------------------------------------------------------------------------



| |  |  | Ms. Zanders base salary was increased by 2.5% from 2009 to $261,683.
| | - |  | ---------------------------------------------------------------------

In addition, the Compensation Committee recognized that Ms. Zander will receive a commission of 0.1% on all product sales in each of
fiscal years 2009, 2010 and 2011.

Bonuses. Our annual cash bonus plan is designed to reward our executive officers and
other key contributors based on our overall strategic and financial performance during a fiscal year. The determination of our and individual executives performance is subjective in nature and is made with an emphasis on the performance of the
entire executive management team and their respective departments in relation to our overall strategic and financial performance. Generally, if we perform well during the year, the named executive officers will receive their entire target bonuses,
although the Compensation Committee has the discretion to waive or modify award bonuses above or below the target levels.

The
primary corporate strategic accomplishments taken into account by the Compensation Committee in determining the amount of bonuses payable with respect to fiscal year 2009 were



| |  |  | We successfully identified, closed and integrated the purchase of the network search engine business of Integrated Device Technology, Inc.;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------



101



---

##### Table of Contents

| |  |  | We successfully identified and closed the purchase of the RMI Corporation;
| | - |  | --------------------------------------------------------------------------



| |  |  | We successfully transitioned all of our knowledge-based processor products to 55 nanometer technology;
| | - |  | ------------------------------------------------------------------------------------------------------



| |  |  | We successfully taped out the companys first product in 40 nanometer technology;
| | - |  | ---------------------------------------------------------------------------------



| |  |  | We achieved a record number of design wins;
| | - |  | -------------------------------------------



| |  |  | We grew our patent portfolio by over 170 issued U.S. patents; and
| | - |  | -----------------------------------------------------------------



| |  |  | We delivered the industrys first quad 10 Gigabit Ethernet physical layer product.
| | - |  | ----------------------------------------------------------------------------------

The primary corporate financial accomplishments taken into account by the Compensation Committee in determining the amount of bonuses
payable with respect to fiscal year 2009 were



| |  |  | We achieved 25% year-over-year revenue growth;
| | - |  | ----------------------------------------------



| |  |  | We achieved 25% non-GAPP operating income in a challenging macro economic backdrop; and
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | We achieved greater than 65% non-GAAP gross product margins.
| | - |  | ------------------------------------------------------------

In January 2009, based on the CEOs recommendation and relevant market data from the peer group, the Compensation Committee and board
of directors had set the following target bonus pay-outs for the named executive officer as a percentage of his or her respective 2009 base salary: 100% for Mr. Jankov; 40% for Mr. Tate; 38% for Ms. Zander; and 40% for
Mr. Srinivasan.

Also in January 2009, the Compensation Committee and board of directors approved a cash bonus pool of up
to 5.5% of our non-GAAP net income for fiscal 2009 to distribute at the Compensation Committees discretion to the named executive officers and our other executives and key employees based on an overall assessment of the achievement of our
strategic and financial goals as outlined above. Non-GAAP net income was calculated for this purpose by removing the following expenses from GAAP net income for the year ended December 31, 2009: (1) stock-based compensation and related
payroll tax expense of $41.2 million, (2) changes in contingent earn-out liability of $2.0 million, (3) charges totaling $20.6 million associated with the amortization of intangible assets, (4) fair value adjustments related to
acquired inventory of $20.4 million, (5) acquisition-related costs of $5.4 million, (6) debt issuance cost written-off of $0.5 million, (7) interest income on RMI bridge note of $0.6 million, (8) tax benefit of inventory fair
value adjustment of $5.3 million, (9) adjustments to certain tax reserves related to an intercompany license agreement of $3.6 million, and (10) establishment of deferred tax asset valuation allowance on a portion of the state of
California research and development credit carryforward of $3.0 million.

For the purposes of determining the established
financial goals, non-GAAP gross margin, non-GAAP operating margin and non-GAAP earnings per share were determined as follows:



| |  |  | Non-GAAP gross margin was calculated by removing the following expenses from GAAP gross profit for the year ended December 31, 2009:
(1) stock-based compensation expense of $0.7 million, and (2) charges totaling $18.9 million associated with the amortization of intangible assets, and fair value adjustments to acquired inventory of $20.4 million.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-GAAP operating margin was calculated by removing the following expenses from GAAP net loss from operations for the year ended December 31,
2009: (1) stock-based compensation and related payroll tax expense of $41.2 million, (2) changes in contingent earn-out liability of $2.0 million, (3) charges totaling $20.6 million associated with the amortization of intangible
assets, (4) fair value adjustments related to acquired inventory of $20.4 million, and (5) acquisition-related costs of $5.4million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Non-GAAP earnings per share was calculated by dividing non-GAAP net income by the number of shares outstanding for computing diluted earnings per share
under GAAP, as adjusted for: (1) the benefits of SFAS 123R compensation costs attributable to future services and not yet recognized in the
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



102



---

##### Table of Contents

| | financial statements that are treated as proceeds assumed to be used to repurchase shares under the GAAP treasury stock method, and (2) the effect of dilutive potential common shares due to
reporting non-GAAP net income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

In January 2010, the Compensation Committee, with input
from our CEO, assessed our performance and achievements in 2009, and based on this review, recommendations by the CEO and market information concerning the peer group, the Compensation Committee recommended to the board of directors that 135% of the
target bonuses be paid to the named executive officers which as a percentage of their respective 2009 annual base salaries were: 135% for Mr. Jankov; 54% for Mr. Tate; 51% for Ms. Zander; and 54% for Mr. Srinivasan. Each of these
percentages exceeded the target bonus level for the named executive officer. Mr. Jankov received the largest target bonus increase in recognition of his leadership of the executive management team, and to bring his 2009 total cash compensation
up to approximately the 50thpercentile of the average
cash compensation for chief executive officers in the peer group companies. Our board of directors approved these recommendations at its first meeting in January 2010. These bonus amounts were reasonably consistent with bonuses for the comparable
executive positions at the peer group companies and were paid from the 2009 cash bonus pool in January 2010.

With respect to
Mr. Abdi, RMI Corporation had determined that he was eligible for a bonus of $88,000 for their fiscal year 2009. On the basis of a recommendation of our chief executive officer, our Compensation Committee approved the payment of the $88,000 bonus
for fiscal year 2009 to Mr. Abdi in January 2010.

Long-Term Incentive Compensation

Based on our compensation philosophy and objectives, we seek to pay a substantial portion of the total compensation for our executive
officers in the form of long-term equity incentives. Historically, this has been in the form of stock options and restricted stock units that vest over a defined period of employment, which we believe best encourages employee retention and long-term
performance, and aligns employee and stockholder interests. Stock options and restricted stock units typically have been granted to executive officers when the executive first joins us, and annually as part of each executives annual
performance review.

In general, options are granted with an exercise price equal to the fair market value of a share of our
common stock on the grant date. As defined in our stock option plans, fair market value is the closing price of our common stock as quoted on the applicable trading market on the grant date. Typically, the Compensation Committee awards stock options
and restricted stock units that vest and become exercisable solely on the basis of continued employment, or other service, and usually in the case of initial hiring grants, with respect to 25% of the total shares within one year after the date of
grant and 1/48th of the total shares per month of service thereafter. For grants made after the initial hiring grant, the Compensation Committee establishes a target number of awards that will vest in each calendar year, and makes grants
accordingly.

Our board of directors has delegated to the Compensation Committee the authority to grant stock and other equity
awards, including awards to our executive officers. The Compensation Committee generally grants stock awards to executive officers and other employees of the Company on the fifth day of each calendar month, or the next trading day if the NASDAQ
Stock Market is closed on that date. The Compensation Committee believes that having pre-determined grant dates throughout the year reduces the degree of subjectivity of award grant date selection, provides greater transparency to its award granting
practices, and offers potential grantees more predictability as to grant dates. In all circumstances, however, awards will be considered granted only on the date the Compensation Committee meets and approves the grants, or the date on which all
members of the Compensation Committee sign a unanimous written consent approving the grants.

The Compensation Committee
annually reviews the long-term equity compensation provided to the Companys executive officers to further the Companys compensation philosophy and objectives to attract, retain and motivate its executive officers. Toward the end of each
year the CEO submits his recommendations for target equity awards for the executive officers as a group and for each executive officer for the following fiscal year to



103



---

##### Table of Contents

the Compensation Committee, which may accept or modify his recommendations. The Committee then recommends target annual equity awards to the board of directors for approval at the first meeting
of the board in the new fiscal year.

In determining the size of option awards for fiscal year 2009, the
Compensation Committee and board of directors referenced a blend of the 50thand the 75thpercentile of the long-term equity compensation of executives in the Radford compiled comparative peer group identified above having similar responsibilities to our executive officers, along with other relevant information, including the
Companys size, industry and growth rate relative to the peer group, the competitive market for highly skilled talent, and volatility of our stock price. They also considered the size of the existing stock option pool and that the awards to
named executive officers would have to be structured to fit within the net target stock option pool for the entire work force in 2009 of approximately 3% to 5% of the common shares outstanding. In determining the net target stock option pool, the
Compensation Committee referenced the range represented by the gross equity burn rate, as determined by Radford, of the peer group of companies, as well as our past and anticipated growth in work force.

Moreover, based on competitive market data provided by Radford and other sources, the Compensation Committee, CEO and CFO observed at the
end of fiscal year 2007 that an increasing number of other companies had been granting a higher percentage of shares of restricted stock relative to stock option shares. This enables the grant of a smaller number of shares due to the higher economic
value of shares of restricted stock to the recipient on grant date. Thus, a company can preserve its stock option pool for a longer period of time, and reduce the number of shares outstanding, by granting restricted stock as a portion of long-term
equity incentives to its employees. For these reasons, our CEO, CFO and Compensation Committee determined that beginning in 2008 they would recommend the granting of restricted stock units representing the right to acquire common stock at no cost to
the employee, in addition to stock option grants, as part of annual performance reviews. The CEO, CFO and Compensation Committee recommended to the board of directors that executive officers and other employees of the Company be targeted to vest in
each of fiscal years 2008, 2009, 2010 and 2011 restricted stock units equal to approximately 33% of the target stock option grant for fiscal year 2007, and stock options also equal to approximately 33% of the target stock option grant for fiscal
year 2007. The target stock options for fiscal year 2007 for the named executive officers were 190,000 shares for Mr. Jankov, 79,200 shares for Ms. Zander, 79,200 shares for Mr. Tate, and 70,000 shares for Mr. Srinivasan.
Accordingly, the Compensation Committee set the following targets for stock options and restricted stock unit grants for the named executive officers:



| |  |  | stock options for 62,700 shares and restricted stock units for 62,700 shares for Mr. Jankov;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | stock options for 26,400 shares and restricted stock units for 26,400 shares for Mr. Tate;
| | - |  | ------------------------------------------------------------------------------------------



| |  |  | stock options for 26,400 shares and restricted stock units for 26,400 shares for Ms. Zander; and
| | - |  | ------------------------------------------------------------------------------------------------



| |  |  | stock options for 23,100 shares and restricted stock units for 23,100 shares for Mr. Srinivasan.
| | - |  | ------------------------------------------------------------------------------------------------

Each of the named executive officers had previously been granted equity awards to satisfy the targets in each of fiscal years 2008, 2009,
2010 and 2011. The Compensation Committee granted the number of stock options in fiscal 2009 noted above to Mr. Jankov, Mr. Tate, Ms. Zander and Mr. Srinivasan on January 5, 2009. The Compensation Committee chose to grant
the stock option awards in January 2009 to enhance the incentive and retention benefits of the awards. Each option award granted in 2009 vests and becomes exercisable solely on the basis of continued employment, or other service, with respect to
one-twelfth of the total shares subject to the option at the end of each calendar month of fiscal year 2012.

The Compensation
Committee granted one-half of the targeted restricted stock units noted above to Mr. Tate, Ms. Zander and Mr. Srinivasan on each of May 5, 2009 and November 5, 2009. The restricted stock unit awards granted on May 5,
2009 vest in full on May 5, 2012 based solely on the basis of continued employment, or other service. The restricted stock unit awards granted on November 5, 2009 vest in full on November 5, 2012 based solely on continued employment,
or other service.



104



---

##### Table of Contents

Due to the exceptional strategic and financial results of the Company over the past several
years, the Compensation Committee also determined in January 2009 to increase Mr. Jankovs annual targeted restricted stock units to 72,700 shares. As such, the Compensation Committee granted Mr. Jankov half of the new annual targeted
restricted stock units, or 36,350 shares, on each of May 5, 2009 and November 5, 2009 to vest in full on May 5, 2012 and November 5, 2012, respectively, based solely on Mr. Jankovs continued employment or other
service. Additionally, the Compensation Committee granted Mr. Jankov restricted stock units for 20,000 shares on May 5, 2009 that vest with respect to 5,000 shares subject to the award on May 5 and November 5, 2010 and May 5
and November 5, 2011, respectively, to bring the total number of restricted stock units that vest in each of these years to the new annual target of 36,350 shares. These additional restricted stock units vest solely on Mr. Jankovs
continued employment or other service with the Company.

In connection with the acquisition of RMI, and based on a
recommendation by Mr. Jankov, the Compensation Committee granted Mr. Abdi: (i) 91,690 shares of the Companys common shares on November 2, 2009, of which Mr. Abdi received on the same day a net issuance of 54,602 shares from
the Company after applicable withholding taxes; (ii) stock options for 567,334 shares that vest as to one-fifth of the shares subject to the award on October 31, 2010, and as to one forty-eighth of the remaining shares subject to the award
each month thereafter based solely on Mr. Abdis continued employment or other service; (iii) restricted stock units for 137,534 shares that vest as to 50% of the shares subject to the award on each of April 30, 2010 and
October 31, 2010 based solely on Mr. Abdis continued employment or other service; and (iv) restricted stock units for 189,110 that vest as to one-sixth of the shares subject to the award on April 30, 2011 and with respect
to one-fifth of the remaining shares subject to the award each six months thereafter based solely on Mr. Abdis continued employment or other service.

Other Benefits

Employee Stock Purchase Plan. In order to provide
employees at all levels with greater incentive to contribute to our success, we provide employees, including executive officers, with the opportunity to purchase discounted shares of common stock under the 2004 Employee Stock Purchase Plan, which is
intended to be a qualified plan under Section 423 of the Internal Revenue Code. Offerings under this plan commence on the first business day on or after January 1 and July 1 of each year, unless otherwise specified by the board of
directors. The offering period is open for six months. The price at which shares may be purchased during the offering period is the lower of 85% of the fair market value of a share of our common stock at either the beginning or end of each six-month
period. The price of the total number of shares purchased by each employee is accumulated by payroll deductions over each offering period. An employees total purchases in any year can not exceed $25,000 in value or 10% of the total of his/her
salary, whichever is less.

Additional Benefits. We offer additional benefits designed to be competitive with overall
market practices, and to attract, retain and motivate the talent needed by us to achieve its strategic and financial goals. All United States salaried employees, including officers, are eligible to participate in our Section 401(k) plan, health
care coverage, life insurance, disability, paid time-off and paid holidays. Certain named executive officers are entitled to receive additional benefits upon an acquisition as described below under Potential Payments Upon Termination Or
Change-Of-Control.

Tax Considerations

Our Compensation Committee has reviewed the impact of tax and accounting treatment on the various components of our executive compensation program. We believe that achieving the compensation objectives
discussed above is more important than the benefit of tax deductibility and our executive compensation programs may, from time to time, limit the tax deductibility of compensation. Nevertheless, when not inconsistent with these objectives, we
endeavor to award compensation that will be deductible for income tax purposes. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly-held companies for compensation paid to covered executive
officers, to the extent that compensation paid to such an officer



105



---

##### Table of Contents

exceeds $1 million during the taxable year. Our employee stock option plans and option grants to executives have been structured so that any compensation deemed paid to an executive officer in
connection with the exercise of options with an exercise price equal to the fair market value of the shares on the grant date will qualify as performance-based compensation that will not be subject to the $1 million limitation. However, we have not
structured grants of restricted stock and restricted stock units to qualify as performance-based compensation. Thus, those awards are likely to cause the compensation of individual covered executive officers to exceed the $1 million limit in the
future with a resulting loss of tax deduction to us. The Compensation Committee does not expect to take any action at this time to modify cash compensation payable to the executive officers that would result in the application of
Section 162(m).



106



---

##### Table of Contents

COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis included in this Annual
Report on Form 10-K/A. Based on this review and discussion, the Compensation Committee recommended to the board of directors that the Compensation Discussion and Analysis be included in this Annual Report on Form 10-K/A for the fiscal year
ended December 31, 2009.

COMPENSATION COMMITTEE

Stephen Domenik, Chairman

Leonard Perham



107



---

##### Table of Contents

SUMMARY COMPENSATION TABLE

The following table sets forth compensation information for fiscal years 2009, 2008 and 2007 for: (i) our principal executive officer;
(ii) our principal financial officer; and (iii) three other of our executive officers, who, based on their total compensation, were the most highly compensated in 2009. We refer to them in this collectively as the named executive
officers.



|                                                                         |  |          |  |                |        |  |                |        |  |                  |        |  |                  |        |  |                          |        |  |                   
|------------------------------------------------------------------------ |  | -------- |  | -------------- | ------ |  | -------------- | ------ |  | ---------------- | ------ |  | ---------------- | ------ |  | ------------------------ | ------ |  | ------------------
|Name and Principal Position                                              |  | Year     |  | Salary($)      |        |  | Bonus($)       |        |  | StockAwards($)   |        |  | OptionAwards($)  |        |  | All OtherCompensation($) |        |  | Total($)          
|Ronald Jankov                                                            |  | 2009     |  | 383,700        |        |  | 518,927        | (2)    |  | 1,811,953        | (5)    |  | 384,627          | (5)    |  |                         |        |  | 3,099,207         
|Chief Executive Officer and President (Principal Executive Officer)      |  | 20082007 |  | 376,200313,500 |        |  | 352,688249,949 | (3)(4) |  | 868,552         | (6)(7) |  | 476,3412,544,545 | (6)(7) |  |                        |        |  | 2,073,7813,107,994
|                                                                         |  |          |  |                |        |  |               
|Michael Tate                                                             |  | 2009     |  | 278,500        |        |  | 150,661        | (2)    |  | 520,938          | (5)    |  | 161,948          | (5)    |  |                         |        |  | 1,112,047         
|Vice President and Chief Financial Officer (Principal Financial Officer) |  | 20082007 |  | 273,000118,333 |        |  | 120,38659,083  | (3)(4) |  | 383,3801,695,500 | (6)(7) |  | 57,4501,922,349  | (6)(7) |  |                        |        |  | 834,2163,795,265  
|                                                                         |  |          |  |                |        |  |               
|Marcia Zander                                                            |  | 2009     |  | 429,988        | (1)    |  | 131,205        | (2)    |  | 520,938          | (5)    |  | 161,948          | (5)    |  | 10,026                   | (8)    |  | 1,254,105         
|Senior Vice President, Worldwide Sales                                   |  | 20082007 |  | 394,098376,607 | (1)(1) |  | 104,62595,918  | (3)(4) |  | 365,706         | (6)(7) |  | 200,5651,071,026 | (6)(7) |  | 16,88014,306             | (8)(8) |  | 1,081,8741,557,857
|                                                                         |  |          |  |                |        |  |               
|Varadarajan Srinivasan                                                   |  | 2009     |  | 238,400        |        |  | 132,022        | (2)    |  | 455,821          | (5)    |  | 141,705          | (5)    |  |                         |        |  | 967,948           
|Vice President of Product Development and Chief Technical Officer        |  | 20082007 |  | 233,700222,600 |        |  | 102,82894,275  | (3)(4) |  | 319,993         | (6)(7) |  | 175,494913,970   | (6)(7) |  |                        |        |  | 832,0151,230,845  
|                                                                         |  |          |  |                |        |  |               
|Behrooz Abdi                                                             |  | 2009     |  | 58,333         |        |  | 88,000         | (2)    |  | 8,001,067        | (5)    |  | 5,495,538        | (5)    |  | 15,833                   | (9)    |  | 13,658,771        
|Executive Vice President and General Manager                             |  |          |  |                |        |  |                |        |  |                  |        |  |                  |        |  |                          |        |  |                   



|(1) | Includes $174,688 in sales commissions earned in fiscal 2009, $143,798 in sales commissions earned in fiscal 2008, and $138,207 in sales commissions earned in fiscal
2007.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Reflects annual bonus earned in fiscal 2009 and paid in fiscal 2010.
|--- | --------------------------------------------------------------------



|(3) | Reflects annual bonus earned in fiscal 2008 and paid in fiscal 2009.
|--- | --------------------------------------------------------------------



|(4) | Reflects annual bonus earned in fiscal 2007 and paid in fiscal 2008.
|--- | --------------------------------------------------------------------



|(5) | Reflects the aggregate grant date fair value of option awards granted in 2009 computed in accordance with FASB ASC Topic 718. See Note 6 of the notes to our
consolidated financial statements under Item 8Financial Statements and Supplementary Data of this report regarding the assumptions underlying the valuation of equity grants.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Reflects the aggregate grant date fair value of option awards granted in 2008 computed in accordance with FASB ASC Topic 718. See Note 6 of the notes to our
consolidated financial statements under Item 8Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2008 regarding the assumptions underlying the valuation of equity grants.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Reflects the aggregate grant date fair value of option awards granted in 2007 computed in accordance with FASB ASC Topic 718. See Note 7 of the notes to our
consolidated financial statements under Item 8Financial Statements and Supplementary Data of our Annual Report on Form 10-K for the year ended December 31, 2007 regarding the assumptions underlying the valuation of equity
grants.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Represents reimbursement of car expenses.
|--- | -----------------------------------------



|(9) | Represents the gross-up value of housing rental payments made by the Company for the benefit of the named executive officer.
|--- | ----------------------------------------------------------------------------------------------------------------------------



108



---

##### Table of Contents

GRANTS OF PLAN-BASED AWARDS

For Fiscal Year Ended December 31, 2009

The
following table sets forth certain information regarding plan-based awards granted to the named executive officers during the fiscal year ended December 31, 2009.



|                       |  |            |  |                                                                          |  |                                                           |     |  |                                                                |     |  |                                                    |  |                                                     
|---------------------- |  | ---------- |  | ------------------------------------------------------------------------ |  | --------------------------------------------------------- | --- |  | -------------------------------------------------------------- | --- |  | -------------------------------------------------- |  | ----------------------------------------------------
|Name                   |  | GrantDate  |  | EstimatedFuture PayoutsUnderNon-EquityIncentive PlanAwards Target($) (1) |  | All OtherStock Awards:Number ofShares ofStock or Units(#) |     |  | All OtherOption Awards:Number ofSecuritiesUnderlyingOptions(#) |     |  | Exercise orBase Priceof OptionAwards($/Share) (10) |  | Grant DateFair Valueof Stockand OptionAwards($) (11)
|Ronald Jankov          |  | 1/5/2009   |  |                                                                         |  |                                                          |     |  | 62,700                                                         | (8) |  | 10.95                                              |  | 384,627                                             
|                       |  | 5/5/2009   |  |                                                                         |  | 25,000                                                    | (2) |  |                                                               |     |  |                                                   |  | 471,750                                             
|                       |  | 5/5/2009   |  |                                                                         |  | 31,350                                                    | (3) |  |                                                               |     |  |                                                   |  | 591,575                                             
|                       |  | 11/5/2009  |  |                                                                         |  | 36,350                                                    | (4) |  |                                                               |     |  |                                                   |  | 748,628                                             
|                       |  | 1/28/2010  |  | 518,927                                                                  |  |                                                          |     |  |                                                               |     |  |                                                   |  |                                                    
|                       |  |            |  |                                                                          |  |                                                          
|Michael Tate           |  | 1/5/2009   |  |                                                                         |  |                                                          |     |  | 26,400                                                         | (8) |  | 10.95                                              |  | 161,948                                             
|                       |  | 5/5/2009   |  |                                                                         |  | 13,200                                                    | (3) |  |                                                               |     |  |                                                   |  | 249,084                                             
|                       |  | 11/5/2009  |  |                                                                         |  | 13,200                                                    | (4) |  |                                                               |     |  |                                                   |  | 271,854                                             
|                       |  | 1/28/2010  |  | 150,661                                                                  |  |                                                          |     |  |                                                               |     |  |                                                   |  |                                                    
|                       |  |            |  |                                                                          |  |                                                          
|Marcia Zander          |  | 1/5/2009   |  |                                                                         |  |                                                          |     |  | 26,400                                                         | (8) |  | 10.95                                              |  | 161,948                                             
|                       |  | 5/5/2009   |  |                                                                         |  | 13,200                                                    | (3) |  |                                                               |     |  |                                                   |  | 249,084                                             
|                       |  | 11/5/2009  |  |                                                                         |  | 13,200                                                    | (4) |  |                                                               |     |  |                                                   |  | 271,854                                             
|                       |  | 1/28/2010  |  | 131,205                                                                  |  |                                                          |     |  |                                                               |     |  |                                                   |  |                                                    
|                       |  |            |  |                                                                          |  |                                                          
|Varadarajan Srinivasan |  | 1/5/2009   |  |                                                                         |  |                                                          |     |  | 23,100                                                         | (8) |  | 10.95                                              |  | 141,705                                             
|                       |  | 5/5/2009   |  |                                                                         |  | 11,550                                                    | (3) |  |                                                               |     |  |                                                   |  | 217,949                                             
|                       |  | 11/5/2009  |  |                                                                         |  | 11,550                                                    | (4) |  |                                                               |     |  |                                                   |  | 237,872                                             
|                       |  | 1/28/2010  |  | 128,968                                                                  |  |                                                          |     |  |                                                               |     |  |                                                   |  |                                                    
|                       |  |            |  |                                                                          |  |                                                          
|Behrooz Abdi           |  | 10/30/2009 |  |                                                                         |  | 91,690                                                    | (5) |  |                                                               |     |  |                                                   |  | 1,742,568                                           
|                       |  | 11/2/2009  |  |                                                                         |  |                                                          |     |  | 567,334                                                        | (9) |  | 19.16                                              |  | 5,495,538                                           
|                       |  | 11/2/2009  |  |                                                                         |  | 137,534                                                   | (6) |  |                                                               |     |  |                                                   |  | 2,635,151                                           
|                       |  | 11/2/2009  |  | 88,000                                                                   |  | 189,110                                                   | (7) |  |                                                               |     |  |                                                   |  | 3,623,348                                           



|(1) | The amounts refer to the actual payouts under our annual bonus plan for services performed in fiscal 2009. The payout amount for each named executive officer was
reviewed and approved by the Compensation Committee on February 19, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This restricted stock unit award was granted under our 2004 Plan and vests with respect to one-fifth of the shares subject to the award on each of May 5,
2010, November 5, 2010, May 5, 2011, November 5, 2011 and May 5, 2012, subject to continued employment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | These grants were granted under our 2004 Plan and vest in full on May 5, 2012, subject to continued employment.
|--- | ---------------------------------------------------------------------------------------------------------------



|(4) | These grants were granted under our 2004 Plan and vest in full on November 5, 2012, subject to continued employment.
|--- | --------------------------------------------------------------------------------------------------------------------



|(5) | This reflects the number of common shares issued by the Company in connection with the RMI acquisition, which pursuant to Nasdaq Listing Rule 5635(a) was granted from
the Companys total authorized shares and not pursuant to a pre-existing stock plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



109



---

##### Table of Contents

|(6) | This restricted stock unit award vests with respect to 50% of the shares subject to the award on April 30, 2010, and as to the remainder of the shares subject to
the award on October 31, 2010, subject to continuous employment. The award was issued by the Company in connection with the RMI acquisition, which pursuant to Nasdaq Listing Rule 5635(a) was granted from the Companys total authorized
shares and not pursuant to a pre-existing stock plan.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | This restricted stock unit award vests with respect to one-fifth of the shares subject to the award on April 30, 2011, and with respect to one-sixth of the
remaining shares subject to the award each six months thereafter, subject to continued employment. The award was issued by the Company in connection with the RMI acquisition, which pursuant to Nasdaq Listing Rule 5635(a), was granted from the
Companys total authorized shares and not pursuant to a pre-existing stock plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | The option awards have a 10 year term and vest with respect to one-twelfth of the shares subject to the grant on the last day of each calendar month in 2012, subject to
continued employment.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | This option award has a 10 year term and vests with respect to one-fifth of the shares subject to the option on October 31, 2010, and with respect to one
forty-eighth of the remaining shares subject to the option each calendar month thereafter, subject to continuous employment. The award was issued by the Company in connection with the RMI acquisition, which pursuant to Nasdaq Listing Rule 5635(a),
was granted from the Companys total authorized shares and not pursuant to a pre-existing stock plan.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | The exercise prices for the option awards are equal to the closing prices of our common stock on the Nasdaq GS on the respective grant dates.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------



|(11) | The grant date fair value for each award is computed in accordance with ASC 718 as of the grant date.
|---- | -----------------------------------------------------------------------------------------------------



110



---

##### Table of Contents

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2009

The following table sets forth certain information concerning outstanding equity awards held by the named executive officers at
December 31, 2009:



|              |  |                                                                         |  |                                                                         |      |  |                            |       |                         |            |                                                            |        |      |                                                                      |          
|------------- |  | ----------------------------------------------------------------------- |  | ----------------------------------------------------------------------- | ---- |  | -------------------------- | ----- | ----------------------- | ---------- | ---------------------------------------------------------- | ------ | ---- | -------------------------------------------------------------------- | ---------
|              |  | Option Awards                                                           |  | Stock Awards                                                           
|Name (a)      |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) Exercisable(1)(2)(b) |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) Unexercisable (1)(c) |      |  | OptionExercisePrice ($)(e) |       | OptionExpirationDate(f) |            | Number ofShares orUnits of StockThat HaveNot Vested (#)(g) |        |      | Market Value ofShares or Unitsof Stock ThatHave Not Vested($) (3)(h)
|Ronald Jankov |  | 35,416                                                                  |  |                                                                        |      |  | $                          | 6.50  |                         | 5/31/2014  |                                                            |       |      |                                                                      |         
|              |  | 37,502                                                                  |  |                                                                        |      |  | $                          | 6.00  |                         | 7/8/2014   |                                                            |       |      |                                                                      |         
|              |  | 21,874                                                                  |  |                                                                        |      |  | $                          | 3.02  |                         | 10/26/2014 |                                                            |       |      |                                                                      |         
|              |  | 24,610                                                                  |  |                                                                        |      |  | $                          | 6.33  |                         | 4/19/2015  |                                                            |       |      |                                                                      |         
|              |  | 24,610                                                                  |  |                                                                        |      |  | $                          | 6.25  |                         | 4/25/2015  |                                                            |       |      |                                                                      |         
|              |  | 29,170                                                                  |  |                                                                        |      |  | $                          | 10.71 |                         | 9/14/2015  |                                                            |       |      |                                                                      |         
|              |  | 30,080                                                                  |  |                                                                        |      |  | $                          | 9.05  |                         | 10/9/2015  |                                                            |       |      |                                                                      |         
|              |  | 47,518                                                                  |  | 2,066                                                                   | (4)  |  | $                          | 16.86 |                         | 2/22/2016  |                                                            |       |      |                                                                      |         
|              |  | 41,324                                                                  |  | 8,260                                                                   | (5)  |  | $                          | 11.70 |                         | 7/31/2016  |                                                            |       |      |                                                                      |         
|              |  | 55,086                                                                  |  | 14,496                                                                  | (6)  |  | $                          | 9.92  |                         | 10/30/2016 |                                                            |       |      |                                                                      |         
|              |  | 82,628                                                                  |  | 30,706                                                                  | (7)  |  | $                          | 11.97 |                         | 1/29/2017  |                                                            |       |      |                                                                      |         
|              |  | 94,868                                                                  |  |                                                                        |      |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  | 136,844                                                                 | (8)  |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  | 62,700                                                                  | (10) |  | $                          | 13.93 |                         | 1/6/2018   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  | 62,700                                                                  | (11) |  | $                          | 10.95 |                         | 1/4/2019   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 31,350 | (13) |                                                                      | 725,126  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 31,350 | (14) |                                                                      | 725,126  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 25,000 | (15) |                                                                      | 578,250  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 31,350 | (16) |                                                                      | 725,126  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 36,350 | (17) |                                                                      | 840,776  
|              |  |                                                                         |  |                                                                         |      | 
|Michael Tate  |  | 132,917                                                                 |  | 87,083                                                                  | (9)  |  | $                          | 16.96 |                         | 7/17/2017  |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  | 7,562                                                                   | (10) |  | $                          | 13.93 |                         | 1/6/2018   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  | 26,400                                                                  | (11) |  | $                          | 10.95 |                         | 1/4/2019   |                                                            |       |      |                                                                      |         
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 50,000 | (18) |                                                                      | 1,156,500
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 10,000 | (19) |                                                                      | 231,300  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 3,782  | (13) |                                                                      | 87,478   
|              |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 3,782  | (14) |                                                                      | 87,478   
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200 | (16) |                                                                      | 305,316  
|              |  |                                                                        |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200 | (17) |                                                                      | 305,316  



111



---

##### Table of Contents

|                       |  |                                                                          |  |                                                                         |      |  |                            |       |                         |            |                                                            |         |      |                                                                      |          
|---------------------- |  | ------------------------------------------------------------------------ |  | ----------------------------------------------------------------------- | ---- |  | -------------------------- | ----- | ----------------------- | ---------- | ---------------------------------------------------------- | ------- | ---- | -------------------------------------------------------------------- | ---------
|                       |  | Option Awards                                                            |  | Stock Awards                                                           
|Name (a)               |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) Exercisable (1)(2)(b) |  | Number ofSecuritiesUnderlyingUnexercisedOptions(#) Unexercisable (1)(c) |      |  | OptionExercisePrice ($)(e) |       | OptionExpirationDate(f) |            | Number ofShares orUnits of StockThat HaveNot Vested (#)(g) |         |      | Market Value ofShares or Unitsof Stock ThatHave Not Vested($) (3)(h)
|Marcia Zander          |  | 20,000                                                                   |  |                                                                        |      |  | $                          | 1.00  |                         | 1/19/2014  |                                                            |        |      |                                                                      |         
|                       |  | 19,500                                                                   |  |                                                                        |      |  | $                          | 6.50  |                         | 5/31/2014  |                                                            |        |      |                                                                      |         
|                       |  | 16,874                                                                   |  |                                                                        |      |  | $                          | 6.00  |                         | 7/8/2014   |                                                            |        |      |                                                                      |         
|                       |  | 13,126                                                                   |  |                                                                        |      |  | $                          | 6.33  |                         | 4/19/2015  |                                                            |        |      |                                                                      |         
|                       |  | 13,126                                                                   |  |                                                                        |      |  | $                          | 6.25  |                         | 4/25/2015  |                                                            |        |      |                                                                      |         
|                       |  | 17,500                                                                   |  |                                                                        |      |  | $                          | 10.71 |                         | 9/14/2015  |                                                            |        |      |                                                                      |         
|                       |  | 17,500                                                                   |  |                                                                        |      |  | $                          | 9.05  |                         | 10/9/2015  |                                                            |        |      |                                                                      |         
|                       |  | 19,010                                                                   |  | 824                                                                     | (4)  |  | $                          | 16.86 |                         | 2/22/2016  |                                                            |        |      |                                                                      |         
|                       |  | 16,534                                                                   |  | 3,300                                                                   | (5)  |  | $                          | 11.70 |                         | 7/31/2016  |                                                            |        |      |                                                                      |         
|                       |  | 23,617                                                                   |  | 6,215                                                                   | (6)  |  | $                          | 9.92  |                         | 10/30/2016 |                                                            |        |      |                                                                      |         
|                       |  | 30,567                                                                   |  | 12,099                                                                  | (7)  |  | $                          | 11.97 |                         | 1/29/2017  |                                                            |        |      |                                                                      |         
|                       |  | 42,414                                                                   |  |                                                                        |      |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 59,290                                                                  | (8)  |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 26,400                                                                  | (10) |  | $                          | 13.93 |                         | 1/6/2018   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 26,400                                                                  | (11) |  | $                          | 10.95 |                         | 1/4/2019   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200  | (13) |                                                                      | 305,316  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200  | (14) |                                                                      | 305,316  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200  | (16) |                                                                      | 305,316  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 13,200  | (17) |                                                                      | 305,316  
|                       |  |                                                                          |  |                                                                         |      | 
|Varadarajan Srinivasan |  | 18,370                                                                   |  | 824                                                                     | (4)  |  | $                          | 16.86 |                         | 2/22/2016  |                                                            |        |      |                                                                      |         
|                       |  | 826                                                                      |  | 3,300                                                                   | (5)  |  | $                          | 11.70 |                         | 7/31/2016  |                                                            |        |      |                                                                      |         
|                       |  | 1,243                                                                    |  | 6,215                                                                   | (6)  |  | $                          | 9.92  |                         | 10/30/2016 |                                                            |        |      |                                                                      |         
|                       |  | 1,729                                                                    |  | 12,099                                                                  | (7)  |  | $                          | 11.97 |                         | 1/29/2017  |                                                            |        |      |                                                                      |         
|                       |  | 32,316                                                                   |  |                                                                        |      |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 49,290                                                                  | (8)  |  | $                          | 15.15 |                         | 6/4/2017   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 23,100                                                                  | (10) |  | $                          | 13.93 |                         | 1/6/2018   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  | 23,100                                                                  | (11) |  | $                          | 10.95 |                         | 1/4/2019   |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 11,550  | (13) |                                                                      | 267,152  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 11,550  | (14) |                                                                      | 267,152  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 11,550  | (16) |                                                                      | 267,152  
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 11,550  | (17) |                                                                      | 267,152  
|Behrooz Abdi           |  |                                                                         |  | 567,334                                                                 | (12) |  | $                          | 19.16 |                         | 11/1/2019  |                                                            |        |      |                                                                      |         
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 137,534 | (20) |                                                                      | 3,181,161
|                       |  |                                                                         |  |                                                                        |      |  |                            |      |                         |           |                                                            | 189,110 | (21) |                                                                      | 4,374,114



|(1) | Each grant has a 10 year term. The vesting of any unvested shares subject to each of the listed awards is subject to the recipients continuous employment.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | All option awards that were exercisable at fiscal year end were vested as of December 31, 2009.
|--- | -----------------------------------------------------------------------------------------------



|(3) | Market value determined by multiplying the number of restricted shares in column (g) by $23.13 per share, which was the closing price of our common stock on the
Nasdaq GS on December 31, 2009 (as adjusted to reflect the 2-for-1 stock dividend paid on March 19, 2010).
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Remaining unvested options subject to these grants vest in equal monthly installments on the last day of each calendar month from January 31, 2010 through and
including February 28, 2010.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



112



---

##### Table of Contents

|(5) | Remaining unvested options subject to these grants vest in equal monthly installments on the last day of each calendar month from January 31, 2010 through and
including August 31, 2010.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Remaining unvested options subject to these grants vest in equal monthly installments on the last day of each calendar month from January 31, 2010 through and
including October 31, 2010.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Remaining unvested options subject to these grants vest in equal monthly installments on the last day of each calendar month from January 31, 2010 through and
including January 31, 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Stock options vest with respect to one-twelfth of the shares subject to the grant on the last day of each calendar month in 2010.
|--- | ---------------------------------------------------------------------------------------------------------------------------------



|(9) | Remaining unvested options subject to this grant vests in equal monthly installments on the last day of each calendar month from January 31, 2010 through and
including July 31, 2011.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Stock options vest with respect to one-twelfth of the shares subject to the grant on the last day of each calendar month in 2011.
|---- | ---------------------------------------------------------------------------------------------------------------------------------



|(11) | Stock options vest with respect to one-twelfth of the shares subject to the grant on the last day of each calendar month in 2012.
|---- | ---------------------------------------------------------------------------------------------------------------------------------



|(12) | Stock option vests with respect to one-fifth of the total number of shares subject to the option on October 31, 2010, and with respect to one forty-eighth of the
remaining number of shares subject to the grant each calendar month thereafter.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | These restricted stock unit awards vest in full on May 5, 2011.
|---- | ---------------------------------------------------------------



|(14) | These restricted stock unit awards vest in full on November 5, 2011.
|---- | --------------------------------------------------------------------



|(15) | This restricted stock award vests with respect to one-fifth of the total number of shares subject to the award on each of May 5, 2010, November 5,
2010, May 5, 2011, November 5, 2011 and May 5, 2012.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(16) | These restricted stock unit awards vest in full on May 5, 2012.
|---- | ---------------------------------------------------------------



|(17) | These restricted stock unit awards vest in full on November 5, 2012.
|---- | --------------------------------------------------------------------



|(18) | Remaining unvested number of shares subject to this restricted stock award vests in equal installments on each of July 18, 2010 and July 18, 2011.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------



|(19) | Remaining unvested number of shares subject to this restricted stock unit award vests in equal installments on each of August 5, 2010 and August 5, 2011.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(20) | Restricted stock unit award that vests with respect to one-half of the total number of share subject to the award on each of April 30, 2010 and October 31,
2010.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(21) | Restricted stock unit award that vests with respect to one-sixth of the total number of shares subject to the award on April 30, 2011, and with respect to
one-fifth of the remaining shares subject to the award each six months thereafter.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



113



---

##### Table of Contents

OPTION EXERCISES AND STOCK VESTED

The following table summarizes the options exercised by our named executive officers during the year ended December 31, 2009 and the
values realized upon exercise:



|                       |  |                                        |  |                                  |  |                                       |  |                                
|---------------------- |  | -------------------------------------- |  | -------------------------------- |  | ------------------------------------- |  | -------------------------------
|                       |  | Option Awards                          |  | Stock Awards                    
|Name                   |  | Number of SharesAcquired onExercise(#) |  | Value Realizedon Exercise($) (1) |  | Number of SharesAcquired onVesting(#) |  | Value Realizedon Vesting($) (2)
|Michael Tate           |  |                                       |  |                                 |  | 30,000                                |  | 574,275                        
|Marcia Zander          |  | 24,624                                 |  | 434,227                          |  |                                      |  |                               
|Varadarajan Srinivasan |  | 219,378                                |  | 2,818,332                        |  |                                      |  |                               
|Behrooz Abdi           |  |                                       |  |                                 |  | 91,690                                |  | 1,742,568                      



|(1) | Value is the excess of the closing price of a share of common stock on the Nasdaq GS on the date of exercise over the exercise price multiplied by the number of shares
purchased upon exercise of the option.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Value is the closing price of a share of common stock on the Nasdaq GS on the date of vesting multiplied by the number of shares that vested on that date.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

EQUITY COMPENSATION PLAN SUMMARY

The following table sets forth certain information as of December 31, 2009 with respect to compensation plans (including individual
compensation arrangements) under which equity securities of the Company are authorized for issuance, aggregated as follows:



| |  |  | All compensation plans previously approved by security holders; and
| | - |  | -------------------------------------------------------------------



| |  |  | All compensation plans not previously approved by security holders.
| | - |  | -------------------------------------------------------------------



|                                                           |  |                                                                                                                   |        |  |                                                                             |       |     |                                                                                                                 |           |    
|---------------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------- | ------ |  | --------------------------------------------------------------------------- | ----- | --- | --------------------------------------------------------------------------------------------------------------- | --------- | ---
|Plan Category                                              |  | Number ofSecurities to beIssued upon Exerciseof OutstandingOptions, Warrantsand Rights as ofDecember 31, 2009 (3) |        |  | Weighted AverageExercise Price ofOutstanding Options,Warrants andRights (4) |       |     | Number ofSecurities RemainingAvailable for FutureIssuance under EquityCompensation Plans as ofDecember 31, 2009 |          
|Equity compensation plans approved by stockholders         |  | 8,238,110                                                                                                         | (1)(5) |  | $                                                                           | 11.72 | (1) |                                                                                                                 | 1,253,371 | (7)
|Equity compensation plans not approved by stockholders (2) |  | 1,602,456                                                                                                         | (6)    |  | $                                                                           | 15.56 |     |                                                                                                                 | 385,598   |    



|(1) | This reflects our 2000 Plan, 2004 Plan and 2004 Employee Stock Purchase Plan. The 2004 Plan provides for an annual increase of 300,000 shares in the number of shares
reserved thereunder on January 1 of each year. The 2004 Employee Stock Purchase Plan provides for an annual increase of 150,000 shares in the number of shares reserved thereunder on January 1 of each year.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This reflects stock options granted in 2009 in accordance with Marketplace Rule 5635(c)(4) (formerly Rule 4350(i)(l)(A)(iv)) of the NASDAQ listing rules to new
employees as inducements material to their entering into employment with us. All such stock options have an exercise price equal to the fair market value on their grant dates. The options have a 10-year term and vest over four years as follows:
one-fourth of the shares subject to the option vest on the first anniversary of the vesting commencement date, and one thirty-sixth of the remaining shares subject to such option at the end of each calendar month thereafter, subject to the
optionees continued service with the Company.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | In connection with the Aeluros Acquisition in October 2007, we assumed options held by former employees and consultants of Aeluros under the Aeluros
2001 Stock Option/Stock Issuance Plan exercisable
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



114



---

##### Table of Contents

| | for 208,000 shares of common stock (after giving effect to the exchange ratio provided in the acquisition agreement). Of these assumed options, options to purchase 119,600 shares of common stock
were outstanding as of December 31, 2009. These remaining outstanding options have a weighted average exercise price of $2.23 per share. No further awards will be made under this plan. Statistics regarding the assumed options are not included
in the above table.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | The weighted average exercise prices reflect solely the shares that will be issued upon exercise of outstanding options.
|--- | ------------------------------------------------------------------------------------------------------------------------



|(5) | This number includes 1,910,085 shares subject to outstanding restricted stock units granted under the 2004 Plan.
|--- | ----------------------------------------------------------------------------------------------------------------



|(6) | This number includes 699,500 shares subject to outstanding restricted stock units granted.
|--- | ------------------------------------------------------------------------------------------



|(7) | This number includes 932,197 shares available for future grant under our 2004 Plan, and 321,174 shares available for future issuance under our 2004 Employee Stock
Purchase Plan.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL

Our employment offer letter with Varadarajan Srinivasan, our vice president of product development and chief technology officer, provides
that if we terminate Mr. Srinivasans employment for any reason, we are obligated to pay him three months salary as a severance payment.

Ms. Zander has entered into a change of control agreement with us. Pursuant to this agreement Ms. Zander will be entitled to receive a severance payment equal to 50% of her annual salary at that
time, in addition to any other amounts and benefits to which she may be entitled, if her employment is terminated for any of the following reasons within one year following our change in control (as defined below):



| |  |  | a material diminution in Ms. Zanders base compensation;
| | - |  | --------------------------------------------------------



| |  |  | a material diminution in Ms. Zanders authority, duties or responsibilities;
| | - |  | ----------------------------------------------------------------------------



| |  |  | a material diminution in the authority, duties, or responsibilities of the supervisor to whom Ms. Zander is required to report, including a
requirement that Ms. Zander report to a corporate officer or employee instead of reporting directly to the board of directors;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | a material diminution in the budget over which Ms. Zander retains authority;
| | - |  | ----------------------------------------------------------------------------



| |  |  | a material change in the geographic location at which Ms. Zander must perform the services; or
| | - |  | ----------------------------------------------------------------------------------------------



| |  |  | any other action or inaction that constitutes a material breach by us of the agreement.
| | - |  | ---------------------------------------------------------------------------------------

Under this agreement, a change of control results when there is an acquisition of 45% or more of our outstanding voting securities by one
individual or entity or a group of stockholders or an acquisition of the company which results in a change in the majority of the directors on the board of directors, a new stockholder or group receiving at least 45% of the outstanding voting
securities, or our former stockholders retaining less than 50% of our outstanding voting securities. Ms. Zander is not entitled to receive the severance payment, however, unless she has given us notice of the occurrence of the change within 90
days of its occurrence and we fail to remedy the occurrence within 30 days of its receipt of notice.

Since July 2002, all
option agreements for option grants to our named executive officers and other members of our senior management (as well as certain grants to other employees) provide that in the event of our change of control, and if the options are not assumed by
the successor corporation, the vesting of the options will accelerate in full, measured from the date of the change of control. If the options are assumed by the successor corporation but a named executive officer is involuntarily terminated (as
defined in the agreement) within 24



115



---

##### Table of Contents

months after the effective date of the change of control, the vesting of the named executive officers options will accelerate with respect to such additional number of shares as the officer
would have received if he or she had remained employed for the 24-month period. Under the agreement a change of control is defined generally as the sale of all or substantially all of our assets or the merger or consolidation of our company with or
into another corporation (except where existing holders of our voting securities retain more than 50% of their voting power). Similarly, since July 2007, all agreements for restricted stock awards and grants of restricted stock units to our named
executive officers and other members of our senior management provide that in the event of our change of control, and if the awards and grants are not assumed by the successor corporation, the vesting of the restricted stock awards and units will
accelerate in full, measured from the date of the change of control. If the restricted stock awards and units are assumed by the successor corporation but a named executive officer is involuntarily terminated (as defined in the agreement) within 24
months after the effective date of the change of control, the vesting of the named executive officers restricted stock awards and units will accelerate with respect to such additional number of shares as the officer would have received if he
or she had remained employed for the 24-month period. Under the agreement a change of control is defined generally as the sale of all or substantially all of our assets or the merger or consolidation of us with or into another corporation (except
where existing holders of our voting securities retain more than 50% of their voting power).

Our employment offer letter with
Mr. Abdi, our executive vice president and general manager, provides that if Mr. Abdis employment is involuntarily terminated (as defined in the offer letter) not in connection with a change in control (as defined in the offer
letter), we are obligated to pay Mr. Abdi a separation package of: (i) one year of salary, (ii) monthly payments of COBRA health care premiums and (iii) the lesser of 24 months of vesting or the remaining months of vesting of
Mr. Abdis stock options and restricted stock units granted on November 2, 2009. The sum of (i) and (ii) shall not exceed $400,000.

Under the change-in-control arrangements described above, if (a) a change of control had occurred on December 31, 2009 and (b)(1) the employment of the named executive officers had been
terminated or (2) the acquiring entity did not assume their options outstanding on that date, the following payments would have been required to the named executive officers:



|                       |  |           |     |  |          |  |                     |  |                    |  |                   |  |                                      |  |                   
|---------------------- |  | --------- | --- |  | -------- |  | ------------------- |  | ------------------ |  | ----------------- |  | ------------------------------------ |  | ------------------
|Name                   |  | Salary($) |     |  | Bonus($) |  | StockOptions($) (2) |  | StockAwards($) (2) |  | HealthBenefits($) |  | Accrued andUnusedPersonalTime Off($) |  | TotalPayout($) (3)
|Ronald Jankov          |  |          |     |  |         |  | 3,075,148           |  | 3,594,402          |  |                  |  | 58,798                               |  | 6,728,348         
|Michael Tate           |  |          |     |  |         |  | 928,992             |  | 2,173,387          |  |                  |  | 23,966                               |  | 3,126,339         
|Marcia Zander          |  | 214,994   | (1) |  | 65,603   |  | 1,298,036           |  | 1,221,264          |  |                  |  | 43,203                               |  | 2,843,098         
|Varadarajan Srinivasan |  | 59,600    |     |  |         |  | 1,147,616           |  | 1,068,606          |  |                  |  | 44,011                               |  | 2,319,831         
|Behrooz Abdi           |  |          |     |  |         |  | 2,252,316           |  | 7,555,276          |  |                  |  | 40,383                               |  | 9,847,975         



|(1) | Includes commissions earned of $87,344.
|--- | ---------------------------------------



|(2) | The following numbers of option shares and restricted stock or restricted stock unit award shares would have vested immediately as a result of acceleration on
December 31, 2009 for each of the named executive officers. The value is calculated as the intrinsic value per share, multiplied by the number of shares that would become fully vested upon the change in control. For an option, intrinsic value
per share is calculated as the excess of the closing price of the common stock on the Nasdaq GS of $23.13 on December 31, 2009 over the exercise price of the option. If the value is less than zero, it is deemed to be zero for the purpose of
this calculation. For an award of restricted stock or restricted stock units, the intrinsic value per share is equal to the closing price of the common stock on December 31, 2009. The amount stated in the table equals the aggregate intrinsic
value of all of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



116



---

##### Table of Contents

|                       |  |                                   |  |                                            
|---------------------- |  | --------------------------------- |  | -------------------------------------------
|Name                   |  | Number ofAcceleratedOption Shares |  | Number ofAcceleratedSharesUnder StockAwards
|Ronald Jankov          |  | 317,772                           |  | 155,400                                    
|Michael Tate           |  | 121,045                           |  | 93,964                                     
|Marcia Zander          |  | 134,528                           |  | 52,800                                     
|Varadarajan Srinivasan |  | 117,928                           |  | 46,200                                     
|Behrooz Abdi           |  | 567,334                           |  | 326,644                                    



|(3) | In determining the amounts in this column each named executive officer is presumed to receive the maximum amount payable under his or her change-in-control arrangement.
The time value of money has not been taken into account in determining these amounts.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Under the executive
employment agreement provisions described above, if (a) a change of control had occurred on December 31, 2009 and (b)(1) the employment of the named executive officers had been terminated and (2) the acquiring entity had assumed their
outstanding options on that date, the following payments to the named executive officers would have been required:



|                       |  |           |     |  |          |  |                     |  |                    |  |                   |  |                                      |  |                  
|---------------------- |  | --------- | --- |  | -------- |  | ------------------- |  | ------------------ |  | ----------------- |  | ------------------------------------ |  | -----------------
|Name                   |  | Salary($) |     |  | Bonus($) |  | StockOptions($) (2) |  | StockAwards($) (2) |  | HealthBenefits($) |  | Accrued andUnusedPersonalTime Off($) |  | TotalPayout($)(3)
|Ronald Jankov          |  |          |     |  |         |  | 2,311,149           |  | 1,912,851          |  |                  |  | 58,798                               |  | 4,282,798        
|Michael Tate           |  |          |     |  |         |  | 607,308             |  | 1,562,755          |  |                  |  | 23,966                               |  | 2,194,023        
|Marcia Zander          |  | 214,994   | (1) |  | 65,603   |  | 976,352             |  | 610,632            |  |                  |  | 43,203                               |  | 1,910,782        
|Varadarajan Srinivasan |  | 59,600    |     |  |         |  | 866,142             |  | 534,303            |  |                  |  | 44,011                               |  | 1,504,054        
|Behrooz Abdi           |  |          |     |  |         |  | 976,001             |  | 4,639,230          |  |                  |  | 40,383                               |  | 5,655,568        



|(1) | Includes commissions earned of $87,344.
|--- | ---------------------------------------



|(2) | The following numbers of option shares and restricted stock or restricted stock unit award shares would have vested immediately as a result of acceleration on
December 31, 2009 for each of the named executive officers. The value is calculated as the intrinsic value per share, multiplied by the number of shares that would become fully vested upon the change in control. For an option, intrinsic value
per share is calculated as the excess of the closing price of the common stock on the Nasdaq GS of $23.13 on December 31, 2009 over the exercise price of the option. If the value is less than zero, it is deemed to be zero for the purpose of
this calculation. For an award of restricted stock or restricted stock units, the intrinsic value per share is equal to the closing price of the common stock on December 31, 2009. The amount stated in the table equals the aggregate intrinsic
value of all of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                       |  |                                   |  |                                             
|---------------------- |  | --------------------------------- |  | --------------------------------------------
|Name                   |  | Number ofAcceleratedOption Shares |  | Number ofAcceleratedShares UnderStock Awards
|Ronald Jankov          |  | 255,072                           |  | 82,700                                      
|Michael Tate           |  | 94,645                            |  | 67,564                                      
|Marcia Zander          |  | 108,128                           |  | 26,400                                      
|Varadarajan Srinivasan |  | 94,828                            |  | 23,100                                      
|Behrooz Abdi           |  | 245,844                           |  | 200,572                                     



|(3) | In determining the amounts in this column each named executive officer is presumed to receive the maximum amount payable under his or her employment agreement. The time
value of money has not been taken into account in determining these amounts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



117



---

##### Table of Contents

If involuntary termination of employment had occurred on December 31, 2009 other than
in connection with a change of control, the following severance payments to the named executive officers listed below would have been required under their respective employment offer letters:



|                       |  |              |  |                    |  |                    |  |                   |  |                                      |  |                   
|---------------------- |  | ------------ |  | ------------------ |  | ------------------ |  | ----------------- |  | ------------------------------------ |  | ------------------
|Name                   |  | Salary($)(1) |  | StockOptions($)(2) |  | StockAwards($) (2) |  | HealthBenefits($) |  | Accrued andUnusedPersonalTime Off($) |  | TotalPayout($) (1)
|Behrooz Abdi           |  | 350,000      |  | 976,001            |  | 4,639,184          |  |                  |  | 40,383                               |  | 6,005,568         
|Varadarajan Srinivasan |  | 59,600       |  |                   |  |                   |  |                  |  | 44,011                               |  | 103,611           



|(1) | In determining this amount, Mr. Abdi and Mr. Srinivasan are presumed to each receive the maximum amounts payable under their employment agreements. The time
value of money has not been taken into account in determining these amounts.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | The following numbers of option shares and restricted stock or restricted stock unit award shares would have vested immediately as a result of acceleration on
December 31, 2009 for each of the named executive officers. The value is calculated as the intrinsic value per share, multiplied by the number of shares that would become fully vested upon the change in control. For an option, intrinsic value
per share is calculated as the excess of the closing price of the common stock on the Nasdaq GS of $23.13 on December 31, 2009 over the exercise price of the option. If the value is less than zero, it is deemed to be zero for the purpose of
this calculation. For an award of restricted stock or restricted stock units, the intrinsic value per share is equal to the closing price of the common stock on December 31, 2009. The amount stated in the table equals the aggregate intrinsic
value of all of such shares.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|             |  |                                   |  |                                             
|------------ |  | --------------------------------- |  | --------------------------------------------
|Name         |  | Number ofAcceleratedOption Shares |  | Number ofAcceleratedShares UnderStock Awards
|Behrooz Abdi |  | 245,844                           |  | 200,570                                     

Employment Agreements

In addition to the change-in-control arrangements summarized above, we have entered into employment offer letters with
each of our named executive officers. Each letter specifies the named executive officers initial base salary amount, bonus arrangement, if any, both of which are subject to adjustment over time, and initial stock option grant. None of the
letters indicate a specific term of employment, and each officers employment may be terminated by either party at any time.

We also have entered into agreements to indemnify our current and former directors and executive officers, in addition to the indemnification provided for in our certificate of incorporation and bylaws. These agreements, among other things,
provide for indemnification of our directors and executive officers for many expenses, including attorneys fees, judgments, fines and settlement amounts incurred by any such person in any action or proceeding, including any action by or in the
right of us, arising out of such persons services as our director or executive officer, or a director or executive officer of any subsidiary of ours or of any other company or enterprise to which the person provided services at our request.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee serves on or has served on the board of directors or compensation committee of another entity that
has one or more members serving on our board of directors or Compensation Committee. None of our executive officers served on the board of directors or compensation committee of another entity during the past fiscal year.



118



---

##### Table of Contents

|ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
|-------- | ----------------------------------------------------------------------------------------------

Security Ownership of Certain Beneficial Owners

The following table shows the number of shares of our common stock owned by each person or entity we know to be the beneficial owner of more than 5% of our common stock as of March 15, 2010, and by
our current directors, by the nominees for election as directors, by each of our named executive officers and by all of our directors and executive officers as of March 15, 2010 as a group. Ownership information is based upon information
provided by the individuals.

Beneficial ownership is determined in accordance with Rule 13d-3 of the Securities Exchange Act
of 1934 and includes all shares over which the beneficial owner exercises voting or investment power. Options, restricted stock units and other rights to acquire our common stock that are presently exercisable or exercisable within 60 days after
March 15, 2010 are included in the total number of shares beneficially owned for the person holding those options, restricted stock units or other rights and are considered outstanding for the purpose of calculating percentage ownership of the
particular holder Except as otherwise indicated, and subject to community property laws where applicable, we believe, based on information provided by these persons, that the persons named in the table have sole voting and investment power with
respect to all shares of our common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on approximately 58,301,027 shares outstanding as of March 15, 2010. Unless otherwise stated, the business address of
each of our executive officers and directors is 1875 Charleston Road, Mountain View, California 94043.

All share numbers in
this Item 12 have been retroactively adjusted to reflect the 2-for-1 stock dividend paid on March 19, 2010.





|                                                                                                                                               |  |                                        |  |                 |  
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------------------- |  | --------------- | -
|Name and Address of Beneficial Owner                                                                                                           |  | Amountand Nature ofBeneficialOwnership |  | Percentof Class |  
|The Godinho Family Revocable Living Trust dated April 21, 1995 (1) c/o NetLogic Microsystems, Inc. 1875 Charleston Rd. Mountain View, CA 94043 |  | 4,019,976                              |  | 6.9             | %
|Wells Fargo and Company (2) 420 Montgomery Street San Francisco, California 94104                                                              |  | 3,359,836                              |  | 5.8             | %
|Warburg Pincus Private Equity VIII, L.P. (3) c/o Warburg Pincus & Co. 450 Lexington Avenue New York, New York 10017                            |  | 3,265,962                              |  | 5.6             | %
|Turner Investment Partners, Inc. (4) 1205 Westlakes Drive, Suite 100 Berwyn, PA 19312                                                          |  | 2,957,190                              |  | 5.1             | %
|Norman Godinho (1)                                                                                                                             |  | 4,019,976                              |  | 6.9             | %
|Ronald Jankov (5)                                                                                                                              |  | 1,631,346                              |  | 2.8             | %
|Michael Tate (6)                                                                                                                               |  | 194,768                                |  | *               |  
|Stephen Domenik (7)                                                                                                                            |  | 26,712                                 |  | *               |  
|Varadarajan Srinivasan (8)                                                                                                                     |  | 106,906                                |  | *               |  
|Leonard Perham (9)                                                                                                                             |  | 307,636                                |  | *               |  
|Douglas Broyles (10)                                                                                                                           |  | 218,806                                |  | *               |  
|Behrooz Abdi (11)                                                                                                                              |  | 115,368                                |  | *               |  
|Marcia Zander (12)                                                                                                                             |  | 265,920                                |  | *               |  
|Alan Krock (13)                                                                                                                                |  | 16,666                                 |  | *               |  
|All directors and executive officers as a group (15 persons) (14)                                                                              |  | 7,343,202                              |  | 12.2            | %



|* | Represents holdings of less than one percent.
|- | ---------------------------------------------



119



---

##### Table of Contents

|(1) | Includes 96,666 shares of our common stock issuable upon the exercise of options, 300,000 shares held by The Godinho Bypass Trust DTD June 12, 1995, 105,000 shares
held by The Godinho Childrens Trust, DTD November 7, 1983, and 3,518,310 shares held by The Godinho Family Revocable Living Trust dated April 21, 1995, Norman Godinho, Trustee. Mr. Godinho reported that he has sole voting and
investment power with respect to 100% of these shares. Mr. Godinho disclaims beneficial ownership of the shares held by The Godinho Bypass Trust DTD June 12, 1995 and The Godinho Childrens Trust, DTD November 7, 1983.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | This information is based solely on the Schedule 13G filed with the Securities and Exchange Commission on January 19, 2010 by Wells Fargo and Company on its own
behalf and on behalf of the following subsidiaries of Wells Fargo and Company: Wells Capital Management Incorporated, Wells Fargo Funds Management Company, LLC, Evergreen Investment Management Company, LLC, Wells Fargo Advisors, LLC, Wells Fargo
Delaware Trust Company, National Association, Calibre Advisory Services, Inc., Wachovia Bank, National Association, Wells Fargo Bank, N.A., and Peregrine Capital Management, Inc.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | This information is based solely on the Schedule 13G filed with the Securities and Exchange Commission on November 9, 2009 by Warburg Pincus Private Equity VIII,
L.P. (WP VIII) on its own behalf and on behalf of Warburg Pincus & Co. (WP), Warburg Pincus LLC (WP LLC), Warburg Pincus Partners, LLC (WP Partners), Charles R. Kaye and Joseph P. Landy. WP
Partners is the sole general partner of WP VIII. WP LLC manages WP VIII. Charles R. Kaye and Joseph P. Landy are each Managing General Partners of WP and Co-Presidents and Managing Members of WP LLC. Each of Mr. Kaye, Mr. Landy, WP, WP
Partners, WP LLC and WP VIII disclaim beneficial ownership of the common stock of NetLogic Microsystems except to the extent of any indirect pecuniary interest therein.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | This information is based solely on the Schedule 13G filed with the Securities and Exchange Commission on February 5, 2010 by Turner Investment Partners, Inc.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Includes 596,732 shares of our common stock issuable upon the exercise of options and vesting of restricted stock units, and 583,480 shares of our common stock held by
Global Link 1 Capital, of which Mr. Jankov is a trustee. Mr. Jankov is our President and Chief Executive Officer and one of our directors.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Includes 151,250 shares of our common stock issuable upon the exercise of options. Mr. Tate is our Vice President and Chief Financial Officer.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Includes 16,666 shares of our common stock issuable upon the exercise of options, 5,000 shares of our common stock directly owned by Mr. Domenik, 36 shares
directly owned by SRB Associates VIII L.P. (SRB VIII) and 5,110 shares directly owned by Sevin Rosen Bayless Management Company (SRBMC). Mr. Domenik is a general partner of SRB VIIII and a director of SRBMC.
Mr. Domenik reported that he has shared voting and investment power with respect to, and disclaims beneficial ownership of, the shares held by SRB VIII and SRBMC except to his pecuniary interest therein.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Includes 18,430 shares of our common stock issuable upon the exercise of options. Mr. Srinivasan is our Vice President of Product Development and Chief Technical
Officer.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Includes 96,666 shares of our common stock issuable upon the exercise of options.
|--- | ---------------------------------------------------------------------------------



|(10) | Includes 96,666 shares of our common stock issuable upon the exercise of options.
|---- | ---------------------------------------------------------------------------------



|(11) | Includes zero shares of our common stock issuable upon the exercise of options and 68,766 shares of our common stock issuable upon vesting of restricted stock units.
Mr. Abdi is our Executive Vice President and General Manager.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | Includes 265,920 shares of our common stock issuable upon the exercise of immediately-exercisable options. Ms. Zander is our Vice President of Sales.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | Includes 16,666 shares of our common stock issuable upon the exercise of options.
|---- | ---------------------------------------------------------------------------------



|(14) | Includes 1,769,372 shares of our common stock issuable upon the exercise of options and vesting of restricted stock units.
|---- | --------------------------------------------------------------------------------------------------------------------------



120



---

##### Table of Contents

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

Transactions With Related Persons

During 2009, we believe there were no
transactions, or series of similar transactions, to which we were or are to be a party in which the amount involved exceeded $120,000, and in which any of our directors or executive officers, any holders of more than 5% of our common stock, any
members of any such persons immediate family, had or will have a direct or indirect material interest, other than compensation described in the sections titled Compensation of Non-employee Directors and Executive
Compensation of Item 11 above.

It is our policy to require that all transactions between us and any related person, as
defined above, must be approved by our Audit Committee in accordance with its charter and by a majority of our board of directors, including a majority of independent directors who are disinterested in the transactions to be approved.

Director Independence

Our
board of directors has determined that directors Perham, Broyles, Krock, Godinho and Domenik are independent, as defined under Marketplace Rule 5605(a)(2) of the listing rules of the NASDAQ Stock Market. No director qualifies as
independent unless our board of directors determines that the director has no direct or indirect material relationship with us. On an annual basis, each director and executive officer is obligated to complete a questionnaire that requires disclosure
of any transactions with us in which the director or executive officer, or any member of his or her immediate family, has a direct or indirect material interest. We also independently review our relationship to any entity employing a director or on
which the director serves as a member of the board of directors. Our board of directors has determined that all directors who served during our 2009 fiscal year, other than Mr. Jankov, are independent in accordance with SEC and the NASDAQ
listing rules. Our board of directors has concluded that there are no business relationships that are material or that would interfere with the exercise of independent judgment by any of these directors in their service on our board of directors or
its committees. Our board of directors also considered share ownership of the directors and determined in the case of Mr. Godinho that his beneficial ownership of shares representing approximately 6.9% of the common stock does not result in his
having a controlling block of shares or prevent him from acting independently.

Our board of directors also has determined
that Mr. Perham is the lead independent director. Our board of directors has standing Audit, Compensation and Governance and Nominating Committees, each of which is comprised solely of independent directors in accordance with the NASDAQ listing
rules.



121



---

##### Table of Contents

|ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES
|-------- | --------------------------------------

Audit Fees

The following table shows the fees paid or accrued (in thousands) by us for the audit and other
services provided by PwC for fiscal 2009 and 2008. During the fiscal years ended December 31, 2009 and 2008, no other fees were billed by PwC for information, technology consulting or any other services.



|                   |  |      |       |      |   |      
|------------------ |  | ---- | ----- | ---- | - | -----
|                   |  | 2009 |       | 2008
|Audit Fees (1)     |  | $    | 1,797 |      | $ | 1,065
|Audit-Related Fees |  |      |      |      |   |     
|Tax Fees           |  |      |      |      |   |     
|All Other Fees     |  |      |      |      |   |     
|                   |  |      |       |      |   |      
|Total              |  | $    | 1,797 |      | $ | 1,065
|                   |  |      |       |      |   |      



|(1) | Audit fees consist of the aggregate fees for professional services rendered by PwC for the annual audit of financial statements and internal control over financial
reporting in compliance with regulatory requirements under the Sarbanes-Oxley Act and review of condensed financial statements included in quarterly reports on Form 10-Q. In addition, audit fees in fiscal 2009 included the fees for professional
services rendered by PwC in connection with our filing of Form S-3 and the acquisition of certain assets of the network search engine business from Integrated Device Technology, Inc. and the merger with RMI Corporation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



122



---

##### Table of Contents

PART IV



|ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
|-------- | -------------------------------------------



|(a) | The following documents are filed as part of this report on Form 10-K:
|--- | ----------------------------------------------------------------------



| | (1) | Financial Statements. Reference is made to the Index to the registrants the Financial Statements under Item 8 in Part II of this Form 10-K.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Financial Statement Schedules. The following consolidated financial statement schedule of the registrant is filed as part of this report on Form 10-K and
should be read in conjunction with the Financial Statements of NetLogic Microsystems, Inc.:
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Schedule IIValuation and Qualifying Accounts for the years ended December 31, 2009, 2008 and 2007.

Schedules not listed above are omitted because they are not required, they are not applicable or the information is already included in the consolidated financial statements or notes thereto.



| | (3) | Exhibits. The exhibits listed on the accompanying index to exhibits in Item 15(b) below are filed as part of, or hereby incorporated by reference into, this
report on Form 10-K.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) | Exhibits.
|--- | ---------

The exhibits
listed below are required by Item 601 of Regulation S-K.



|        |  |                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                          
|2.1     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.2     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.3     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.4     |  | Asset Purchase Agreement, dated as of April 30, 2009, between NetLogic Microsystems, Inc. and Integrated Device Technology, Inc., which includes the forms of Intellectual
Property Cross License Agreement (Exhibit D) and Non-Competition Agreement (Exhibit E) (1)
|        | 
|2.5     |  | Agreement and Plan of Merger Reorganization by and among NetLogic Microsystems, Inc., Roadster Merger Corporation, RMI Corporation and the Representative of Certain of the
Holders of all of the Capital Stock of RMI Corporation dated as of May 31, 2009 (2)      
|        | 
|3.1     |  | Restated Certificate of Incorporation of the registrant filed on August 2, 2004 (3)                                                                                                                                                                                  
|        | 
|3.4     |  | Bylaws of the registrant (4)                                                                                                                                                                                                                                         
|        | 
|4.1     |  | Specimen common stock certificate (5)                                                                                                                                                                                                                                
|        | 
|4.2     |  | Rights Agreement by and between the registrant and Wells Fargo Bank, National Association, dated July 7, 2004 (6)                                                                                                                                                    
|        | 
|4.3*    |  | Form of Stock Option Agreement (7)                                                                                                                                                                                                                                   
|        | 
|4.4*    |  | Form of Restricted Stock Unit Agreement (8)                                                                                                                                                                                                                          
|        | 
|10.1*   |  | 2000 Stock Plan and forms of related agreements (9)                                                                                                                                                                                                                  
|        | 
|10.2*   |  | 2004 Equity Incentive Plan (5)                                                                                                                                                                                                                                       
|        | 
|10.2.1* |  | Form of Stock Option Agreement under 2004 Equity Incentive Plan (10)                                                                                                                                                                                                 
|        | 
|10.2.2* |  | Form of Restricted Stock Agreement under 2004 Equity Incentive Plan (11)                                                                                                                                                                                             
|        | 
|10.3*   |  | 2004 Employee Stock Purchase Plan and forms of related agreements (12)                                                                                                                                                                                               



123



---

##### Table of Contents

|        |  |                                                                                                                                                                                                                                
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                    
|10.4    |  | Form of Indemnity Agreement (9)                                                                                                                                                                                                
|        | 
|10.5    |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.9*   |  | Form of Change-In-Control Agreement between the registrant and each of certain officers thereof (13)                                                                                                                           
|        | 
|10.10*  |  | Incentive Bonus Plan effective May 5, 2005 (14)                                                                                                                                                                                
|        | 
|10.11   |  | Form of Master Purchase Agreement by and between the registrant and Cisco Systems, Inc. (15)                                                                                                                                  
|        | 
|10.12   |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.13   |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.14   |  | Standard Form Lease by and between the registrant and Mission West Properties, L.P. dated May 3, 2004 (16)                                                                                                                     
|        | 
|10.15   |  | Second Amendment to Lease between Mission West Charleston, LLC and NetLogic Microsystems, Inc. (17)                                                                                                                            
|        | 
|10.16*  |  | Employment offer letter, dated April 12, 2000, between the registrant and Ronald Jankov (17)                                                                                                                                   
|        | 
|10.17*  |  | Employment offer letter, dated April 1, 1999, between the registrant and Roland Cortes (17)                                                                                                                                    
|        | 
|10.18*  |  | Employment offer letter, dated March 15, 2002, between the registrant and Ibrahim Korgav, as amended (17)                                                                                                                      
|        | 
|10.19*  |  | Employment offer letter, dated February 9, 1996, between the registrant and Varadarajan Srinivasan (17)                                                                                                                        
|        | 
|10.20*  |  | Employment offer letter, dated June 7, 1999, between the registrant and Marcia Zander (17)                                                                                                                                     
|        | 
|10.21*  |  | Form of Restricted Stock Unit Award Agreement (18)                                                                                                                                                                             
|        | 
|10.22   |  | Employment offer letter, dated June 30, 2009, between the registrant and Behrooz Abdi. (24)                                                                                                                                    
|        | 
|10.23*  |  | Employment offer letter, dated July 11, 2007, between registrant and Michael Tate (19)                                                                                                                                         
|        | 
|10.24   |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.25   |  | Purchase Agreement between Registrant and Wintec Industries, Inc. (19)                                                                                                                                                        
|        | 
|10.26   |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.27*  |  | NetLogic Microsystems, Inc. 2008 New Employee Inducement Incentive Plan dated January 16, 2008 (20)                                                                                                                            
|        | 
|10.28*  |  | Form of Restricted Stock Agreement for New Employee Inducement Grants (19)                                                                                                                                                     
|        | 
|10.29*  |  | Form of Notice of Restricted Stock Unit Award and Agreement under the registrants 2008 New Employee Inducement Incentive Plan (21)                                                                                            
|        | 
|10.30*  |  | Form of Notice of Restricted Stock Unit Award and Agreement under the registrants 2004 Equity Incentive Plan (21)                                                                                                             
|        | 
|10.31   |  | Not in use.                                                                                                                                                                                                                    
|        | 
|10.32   |  | Purchase Agreement dated December 18, 2009 between NetLogic Microsystems, Inc. and Wells Capital Management (22)                                                                                                               
|        | 
|10.32   |  | Senior Secured Credit Facilities Credit Agreement, dated as of June 19, 2009, among NetLogic Microsystems, Inc., NetLogic Microsystems International Limited, the several
lenders parties thereto and Silicon Valley Bank. (23)



124



---

##### Table of Contents

|        |  |                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                     
|10.33   |  | Form of Revolving Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.34   |  | Form of Tranche A Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.35   |  | Form of Tranche B Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.36   |  | BVI Guarantee and Collateral Agreement, dated as of July 17, 2009, by NetLogic Microsystems, Inc., NetLogic Microsystems International Limited and the other grantors
referred to therein, in favor of Silicon Valley Bank. (23)
|        | 
|10.37   |  | Guarantee and Collateral Agreement, dated as of July 17, 2009, by NetLogic Microsystems, Inc. and the other grantors referred to therein, in favor of Silicon Valley Bank.
(23)                                                 
|        | 
|10.38   |  | Office Lease by and between the registrant and Carr NP Properties, L.L.C. and 3975 Freedom Circle Drive L.L.C. dated March 19, 2010 (25)                                                                                        
|        | 
|21.1    |  | List of Subsidiaries of Registrant (24)                                                                                                                                                                                         
|        | 
|23.1**  |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                                            
|        | 
|31.1**  |  | Rule 13a-14 certification                                                                                                                                                                                                       
|        | 
|31.2**  |  | Rule 13a-14 certification                                                                                                                                                                                                       
|        | 
|32.1**  |  | Section 1350 certification                                                                                                                                                                                                      
|        | 
|32.2**  |  | Section 1350 certification                                                                                                                                                                                                      



|(1) | Incorporated by reference to Exhibit 2.4 to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to Annex A to the definitive proxy statement filed by the registrant with the Securities and Exchange Commission on September 30, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, filed
with the Securities and Exchange Commission on August 20, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to the same-numbered exhibit to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 21, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to the same-numbered exhibit to Amendment No. 3 to Form S-1 (Registration No. 333-114549) filed by the registrant with the
Securities and Exchange Commission on June 21, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to Exhibit 99 (i) to Form 8-A (Registration No. 000-50838) filed by the registrant with the Securities and Exchange Commission on
July 8, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to Exhibit 4.3 to Form S-8 (Registration No. 333-162765) filed by the registrant with the Securities and Exchange Commission on
October 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference to Exhibit 4.4 to Form S-8 (Registration No. 333-162765) filed by the registrant with the Securities and Exchange Commission on
October 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference to the same-numbered exhibit to Form S-1 (Registration No. 333-114549) filed by the registrant with the Securities and Exchange
Commission on April 16, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004,
filed with the Securities and Exchange Commission on November 12, 2004.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2005, filed with the
Securities and Exchange Commission on February 28, 2006.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



125



---

##### Table of Contents

|(12) | Incorporated by reference to the same-numbered exhibit to Form S-8 (Registration No. 333-117619) filed by the registrant with the Securities and Exchange
Commission on July 23, 2004.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2004, filed with the
Securities and Exchange Commission on March 11, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, filed
with the Securities and Exchange Commission on May 9, 2005.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005,
filed with the Securities and Exchange Commission on November 8, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(16) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2006, filed
with the Securities and Exchange Commission on May 9, 2006.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(17) | Incorporated by reference to the same-numbered exhibit to Amendment No. 1 to Form S-1 (Registration No. 333-114549) filed by the registrant with the
Securities and Exchange Commission on May 19, 2004.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(18) | Incorporated by reference to Exhibit 10.25 to Form S-8 (Registration No. 333-147064) filed by the registrant with the Securities and Exchange Commission on
October 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(19) | Incorporated by reference to same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed with the
Securities and Exchange Commission on August 7, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(20) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2007, filed
with the Securities and Exchange Commission on March 14, 2008.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(21) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2008, filed
with the Securities and Exchange Commission on March 4, 2009.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(22) | Incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22,
2009.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(23) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed
with the Securities and Exchange Commission on August 5, 2009.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(24) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2009 filed with the
Securities and Exchange Commission on February 26, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(25) | Incorporated by reference to the same-numbered exhibit to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on March
23, 2010.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Indicates management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------



|** | Filed herewith.
|-- | ---------------



| | Certain portions of this exhibit are subject to confidential treatment.
|- | -----------------------------------------------------------------------



|(c) | Financial statements and schedules.
|--- | -----------------------------------

Reference is made to Item 15(a) above.



126



---

##### Table of Contents

SIGNATURES

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



|                      |  |  |  |                             |  |    |  |                                                    
|--------------------- |  |  |  | --------------------------- |  | -- |  | ---------------------------------------------------
|Dated: March 24, 2010 |  |  |  | NETLOGIC MICROSYSTEMS, INC.
|                      |  |  |  |                            
|                      |  |  |  |                             |  | By |  | /s/    RONALD
JANKOV                               
|                      |  |  |  |                             |  |    |  | Ronald Jankov 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 and on the dates indicated.



|                                                     |  |                                                                                                           |  |               
|---------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------- |  | --------------
|Name                                                 |  | Title                                                                                                     |  | Date          
|                                                     |  |                                                                                                          
|/s/    RONALD
JANKOV Ronald Jankov                   |  | Chief Executive Officer and Director (Principal Executive Officer)                                        |  | March 24, 2010
|                                                     |  |                                                                                                          
|/s/    MICHAEL
TATE Michael Tate                     |  | Vice President and Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) |  | March 24, 2010
|                                                     |  |                                                                                                          
|* Leonard Perham                                     |  | Director                                                                                                  |  | March 24, 2010
|                                                     |  |                                                                                                          
|* Norman Godinho                                     |  | Director                                                                                                  |  | March 24, 2010
|                                                     |  |                                                                                                          
|* Alan Krock                                         |  | Director                                                                                                  |  | March 24, 2010
|                                                     |  |                                                                                                          
|* Douglas Broyles                                    |  | Director                                                                                                  |  | March 24, 2010
|                                                     |  |                                                                                                          
|* Steve Domenik                                      |  | Director                                                                                                  |  | March 24, 2010
|                                                     |  |                                                                                                          
|*  /S/    MICHAEL
TATE Michael Tate Attorney-In-Fact |  |                                                                                                           |  |               



127



---

##### Table of Contents

SCHEDULE II

VALUATION AND QUALIFYING ACCOUNTS

FOR THE YEARS
ENDED DECEMBER 31, 2009, 2008 and 2007

(in thousands)



|                                                      |  |                              |        |           |   |                       |  |       |                        |   |         |   |  |   |      
|----------------------------------------------------- |  | ---------------------------- | ------ | --------- | - | --------------------- |  | ----- | ---------------------- | - | ------- | - |  | - | -----
|                                                      |  | Balance atBeginningof Period |        | Additions |   | Write-off/Adjustments |  |       | Balance atEnd ofPeriod
|Allowance for Doubtful Accounts and Customer Returns: |  |                              |        |           |   |                       |  |       |                        |   |         |   | 
|Year ended December 31, 2009                          |  | $                            | 68     |           | $ |                       |  | 4     |                        | $ | 187     |   |  | $ | 259  
|Year ended December 31, 2008                          |  | $                            | 19     |           | $ |                       |  | 68    |                        | $ | (19     | ) |  | $ | 68   
|Year ended December 31, 2007                          |  | $                            | 44     |           | $ |                       |  | 18    |                        | $ | (43     | ) |  | $ | 19   
|                                                      |  |                              |        |           |  
|Income Tax Valuation Allowance:                       |  |                              |        |           |   |                       |  |       |                        |   |         |   |  |   |      
|Year ended December 31, 2009                          |  | $                            |       |           | $ |                       |  | 7,043 |                        | $ |        |   |  | $ | 7,043
|Year ended December 31, 2008                          |  | $                            |       |           | $ |                       |  |      |                        | $ |        |   |  | $ |     
|Year ended December 31, 2007                          |  | $                            | 34,526 |           | $ |                       |  |      |                        | $ | (34,526 | ) |  | $ |     



128



---

##### Table of Contents

EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                          
|2.1     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.2     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.3     |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|2.4     |  | Asset Purchase Agreement, dated as of April 30, 2009, between NetLogic Microsystems, Inc. and Integrated Device Technology, Inc., which includes the forms of Intellectual
Property Cross License Agreement (Exhibit D) and Non-Competition Agreement (Exhibit E) (1)
|        | 
|2.5     |  | Agreement and Plan of Merger Reorganization by and among NetLogic Microsystems, Inc., Roadster Merger Corporation, RMI Corporation and the Representative of Certain of the
Holders of all of the Capital Stock of RMI Corporation dated as of May 31, 2009 (2)      
|        | 
|3.1     |  | Restated Certificate of Incorporation of the registrant filed on August 2, 2004 (3)                                                                                                                                                                                  
|        | 
|3.4     |  | Bylaws of the registrant (4)                                                                                                                                                                                                                                         
|        | 
|4.1     |  | Specimen common stock certificate (5)                                                                                                                                                                                                                                
|        | 
|4.2     |  | Rights Agreement by and between the registrant and Wells Fargo Bank, National Association, dated July 7, 2004 (6)                                                                                                                                                    
|        | 
|4.3*    |  | Form of Stock Option Agreement (7)                                                                                                                                                                                                                                   
|        | 
|4.4*    |  | Form of Restricted Stock Unit Agreement (8)                                                                                                                                                                                                                          
|        | 
|10.1*   |  | 2000 Stock Plan and forms of related agreements (9)                                                                                                                                                                                                                  
|        | 
|10.2*   |  | 2004 Equity Incentive Plan (5)                                                                                                                                                                                                                                       
|        | 
|10.2.1* |  | Form of Stock Option Agreement under 2004 Equity Incentive Plan (10)                                                                                                                                                                                                 
|        | 
|10.2.2* |  | Form of Restricted Stock Agreement under 2004 Equity Incentive Plan (11)                                                                                                                                                                                             
|        | 
|10.3*   |  | 2004 Employee Stock Purchase Plan and forms of related agreements (12)                                                                                                                                                                                               
|        | 
|10.4    |  | Form of Indemnity Agreement (9)                                                                                                                                                                                                                                      
|        | 
|10.5    |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|10.9*   |  | Form of Change-In-Control Agreement between the registrant and each of certain officers thereof (13)                                                                                                                                                                 
|        | 
|10.10*  |  | Incentive Bonus Plan effective May 5, 2005 (14)                                                                                                                                                                                                                      
|        | 
|10.11   |  | Form of Master Purchase Agreement by and between the registrant and Cisco Systems, Inc. (15)                                                                                                                                                                        
|        | 
|10.12   |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|10.13   |  | Not in use.                                                                                                                                                                                                                                                          
|        | 
|10.14   |  | Standard Form Lease by and between the registrant and Mission West Properties, L.P. dated May 3, 2004 (16)                                                                                                                                                           
|        | 
|10.15   |  | Second Amendment to Lease between Mission West Charleston, LLC and NetLogic Microsystems, Inc. (17)                                                                                                                                                                  
|        | 
|10.16*  |  | Employment offer letter, dated April 12, 2000, between the registrant and Ronald Jankov (17)                                                                                                                                                                         
|        | 
|10.17*  |  | Employment offer letter, dated April 1, 1999, between the registrant and Roland Cortes (17)                                                                                                                                                                          



129



---

##### Table of Contents

|        |  |                                                                                                                                                                                                                                 
|------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                     
|10.18*  |  | Employment offer letter, dated March 15, 2002, between the registrant and Ibrahim Korgav, as amended (17)                                                                                                                       
|        | 
|10.19*  |  | Employment offer letter, dated February 9, 1996, between the registrant and Varadarajan Srinivasan (17)                                                                                                                         
|        | 
|10.20*  |  | Employment offer letter, dated June 7, 1999, between the registrant and Marcia Zander (17)                                                                                                                                      
|        | 
|10.21*  |  | Form of Restricted Stock Unit Award Agreement (18)                                                                                                                                                                              
|        | 
|10.22   |  | Employment offer letter, dated June 30, 2009, between the registrant and Behrooz Abdi. (24)                                                                                                                                     
|        | 
|10.23*  |  | Employment offer letter, dated July 11, 2007, between registrant and Michael Tate (19)                                                                                                                                          
|        | 
|10.24   |  | Not in use.                                                                                                                                                                                                                     
|        | 
|10.25   |  | Purchase Agreement between Registrant and Wintec Industries, Inc. (19)                                                                                                                                                         
|        | 
|10.26   |  | Not in use.                                                                                                                                                                                                                     
|        | 
|10.27*  |  | NetLogic Microsystems, Inc. 2008 New Employee Inducement Incentive Plan dated January 16, 2008 (20)                                                                                                                             
|        | 
|10.28*  |  | Form of Restricted Stock Agreement for New Employee Inducement Grants (19)                                                                                                                                                      
|        | 
|10.29*  |  | Form of Notice of Restricted Stock Unit Award and Agreement under the registrants 2008 New Employee Inducement Incentive Plan (21)                                                                                             
|        | 
|10.30*  |  | Form of Notice of Restricted Stock Unit Award and Agreement under the registrants 2004 Equity Incentive Plan (21)                                                                                                              
|        | 
|10.31   |  | Not in use.                                                                                                                                                                                                                     
|        | 
|10.32   |  | Purchase Agreement dated December 18, 2009 between NetLogic Microsystems, Inc. and Wells Capital Management (22)                                                                                                                
|        | 
|10.32   |  | Senior Secured Credit Facilities Credit Agreement, dated as of June 19, 2009, among NetLogic Microsystems, Inc., NetLogic Microsystems International Limited, the several
lenders parties thereto and Silicon Valley Bank. (23) 
|        | 
|10.33   |  | Form of Revolving Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.34   |  | Form of Tranche A Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.35   |  | Form of Tranche B Note under the Senior Secured Credit Facilities Credit Agreement. (23)                                                                                                                                        
|        | 
|10.36   |  | BVI Guarantee and Collateral Agreement, dated as of July 17, 2009, by NetLogic Microsystems, Inc., NetLogic Microsystems International Limited and the other grantors
referred to therein, in favor of Silicon Valley Bank. (23)
|        | 
|10.37   |  | Guarantee and Collateral Agreement, dated as of July 17, 2009, by NetLogic Microsystems, Inc. and the other grantors referred to therein, in favor of Silicon Valley Bank.
(23)                                                 
|        | 
|10.38   |  | Office Lease by and between the registrant and Carr NP Properties, L.L.C. and 3975 Freedom Circle Drive L.L.C. dated March 19, 2010 (25)                                                                                        
|        | 
|21.1    |  | List of Subsidiaries of Registrant (24)                                                                                                                                                                                         
|        | 
|23.1**  |  | Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm                                                                                                                                            
|        | 
|31.1**  |  | Rule 13a-14 certification                                                                                                                                                                                                       
|        | 
|31.2**  |  | Rule 13a-14 certification                                                                                                                                                                                                       



130



---

##### Table of Contents

|        |  |                           
|------- |  | --------------------------
|Exhibit |  | Description               
|32.1**  |  | Section 1350 certification
|        | 
|32.2**  |  | Section 1350 certification



|(1) | Incorporated by reference to Exhibit 2.4 to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on May 6, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Incorporated by reference to Annex A to the definitive proxy statement filed by the registrant with the Securities and Exchange Commission on September 30, 2009.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2004, filed
with the Securities and Exchange Commission on August 20, 2004.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Incorporated by reference to the same-numbered exhibit to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on
October 21, 2008.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(5) | Incorporated by reference to the same-numbered exhibit to Amendment No. 3 to Form S-1 (Registration No. 333-114549) filed by the registrant with the
Securities and Exchange Commission on June 21, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(6) | Incorporated by reference to Exhibit 99 (i) to Form 8-A (Registration No. 000-50838) filed by the registrant with the Securities and Exchange Commission on
July 8, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(7) | Incorporated by reference to Exhibit 4.3 to Form S-8 (Registration No. 333-162765) filed by the registrant with the Securities and Exchange Commission on
October 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(8) | Incorporated by reference to Exhibit 4.4 to Form S-8 (Registration No. 333-162765) filed by the registrant with the Securities and Exchange Commission on
October 30, 2009.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(9) | Incorporated by reference to the same-numbered exhibit to Form S-1 (Registration No. 333-114549) filed by the registrant with the Securities and Exchange
Commission on April 16, 2004.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(10) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2004,
filed with the Securities and Exchange Commission on November 12, 2004.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(11) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2005, filed with the
Securities and Exchange Commission on February 28, 2006.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(12) | Incorporated by reference to the same-numbered exhibit to Form S-8 (Registration No. 333-117619) filed by the registrant with the Securities and Exchange
Commission on July 23, 2004.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(13) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2004, filed with the
Securities and Exchange Commission on March 11, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(14) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2005, filed
with the Securities and Exchange Commission on May 9, 2005.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(15) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2005,
filed with the Securities and Exchange Commission on November 8, 2005.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(16) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarterly period ended March 30, 2006, filed
with the Securities and Exchange Commission on May 9, 2006.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(17) | Incorporated by reference to the same-numbered exhibit to Amendment No. 1 to Form S-1 (Registration No. 333-114549) filed by the registrant with the
Securities and Exchange Commission on May 19, 2004.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



131



---

##### Table of Contents

|(18) | Incorporated by reference to Exhibit 10.25 to Form S-8 (Registration No. 333-147064) filed by the registrant with the Securities and Exchange Commission on
October 31, 2007.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(19) | Incorporated by reference to same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2007 filed with the
Securities and Exchange Commission on August 7, 2007.
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(20) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2007, filed
with the Securities and Exchange Commission on March 14, 2008.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(21) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2008, filed
with the Securities and Exchange Commission on March 4, 2009.
|---- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(22) | Incorporated by reference to Exhibit 10.1 to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on December 22,
2009.
|---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------



|(23) | Incorporated by reference to the same-numbered exhibit to the registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2009 filed
with the Securities and Exchange Commission on August 5, 2009.
|---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(24) | Incorporated by reference to the same-numbered exhibit to the registrants Annual Report on Form 10-K for the year ended December 31, 2009 filed with the
Securities and Exchange Commission on February 26, 2010.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(25) | Incorporated by reference to the same-numbered exhibit to the registrants Current Report on Form 8-K filed with the Securities and Exchange Commission on March
23, 2010.
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|* | Indicates management contract or compensatory plan or arrangement.
|- | ------------------------------------------------------------------



|** | Filed herewith.
|-- | ---------------



| | Certain portions of this exhibit are subject to confidential treatment.
|- | -----------------------------------------------------------------------



|(c) | Financial statements and schedules.
|--- | -----------------------------------

Reference is made to Item 15(a) above.



132