On December 14, 2009, Cavium Networks, Inc. (the “Company”) completed the acquisition of MontaVista Software, Inc. (“MontaVista”) pursuant to the Agreement and Plan of Merger and Reorganization dated November 6, 2009, as amended by the Amendment No. 1 to the Agreement and Plan of Merger and Reorganization dated December 14, 2009 (the “Merger Agreement”). On December 23, 2008, the Company completed the acquisition of W&W Communications, Inc. (“W&W”) pursuant to the Agreement and Plan of Merger and Reorganization (“Agreement”) dated November 19, 2008. On August 1, 2008, the Company completed the acquisition of Star Semiconductor Corporation (“Star”), a Taiwan-based company, pursuant to the Asset Purchase Agreement dated July 15, 2008.

The unaudited pro forma combined condensed balance sheet as of September 30, 2009 is presented as if the acquisition of MontaVista had occurred on September 30, 2009. The unaudited pro forma combined condensed statements of operations are presented as if the acquisitions of MontaVista, Star and W&W had occurred on January 1, 2008 with recurring merger-related adjustments reflected in each of the periods presented.

The acquisitions have been accounted for using the acquisition method of accounting and, accordingly, the total estimated purchase consideration of the acquisitions were allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase consideration over the net tangible and identifiable intangible assets acquired and liabilities assumed were recorded as goodwill. Determination of the MontaVista purchase price and allocations of the MontaVista purchase price used in the unaudited pro forma combined condensed financial statements are based upon preliminary estimates and assumptions. These preliminary estimates and assumptions could change significantly during the purchase price measurement period as the Company finalizes the valuations of the net tangible assets and intangible assets acquired and liabilities assumed. Any change could result in material variances between our future financial results and the amounts presented in these unaudited condensed combined financial statements, including variances in fair values recorded, as well as expenses associated with these items.

The unaudited pro forma combined condensed statements of operations do not reflect nonrecurring charges resulting from the acquisition transactions.

The unaudited pro forma combined condensed financial statements are for information purposes only and do not purport to represent what the Company’s actual results would have been if the acquisitions had been completed as of the date indicated above or that may be achieved in the future. The unaudited pro forma combined condensed statement of operations does not include the effects of any cost savings from operating efficiencies and synergies that may result from the acquisitions.

The unaudited pro forma combined condensed financial statements, including the notes thereto, should be read in conjunction with the Company’s historical financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 filed on March 2, 2009, as well as Star’s and W&W’s historical financial statements included in the Current Reports on Form 8-K/A filed on October 17, 2008 and March 5, 2009, respectively, and MontaVista’s historical financial statements for the year ended December 31, 2008 and for the nine-month period ended September 30, 2009 included as Exhibit 99.1 and 99.2 in this Current Report on Form 8-K/A.

(in thousands)

		Historical
		As of September 30, 2009								Pro Forma				Pro Forma
		Cavium				Monta Vista				Adjustments				Combined
Assets
Current assets:
Cash and cash equivalents		$	70,693			$	9,440			$	(10,978	)(a)		$	69,155
Accounts receivable, net			11,717				2,808				—				14,525
Accounts receivable, related party			—				369				—				369
Inventories			18,313				—				—				18,313
Prepaid expenses and other current assets			2,941				1,082				—				4,023
Total current assets			103,664				13,699				(10,978	)			106,385
Property and equipment, net			8,404				791				—				9,195
Intangible assets, net			13,120				—				14,840	(b)			27,960
Goodwill			13,027				—				31,724	(b)			44,751
Other assets			433				806				—				1,239
Total assets		$	138,648			$	15,296			$	35,586			$	189,530
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable		$	7,102			$	1,584			$	—			$	8,686
Accrued expenses and other current liabilities			3,081				3,492				7,500	(c)			14,073
Deferred revenue			1,444				13,511				(7,343	)(d)			7,612
Bank line of credit			—				5,062				—				5,062
Capital lease and technology license obligations, current			2,886				94				—				2,980
Total current liabilities			14,513				23,743				157				38,413
Deferred revenue, long-term			—				539				(539	)(d)			—
Capital lease and technology license obligations, net of current			449				186				—				635
Warrants issued on financing arrangement			—				14				(14	)(e)			—
Other non-current liabilities			1,665				—				—				1,665
Total liabilities			16,627				24,482				(396	)			40,713
Redeemable convertible preferred stock			—				73,215				(73,215	)(f)			—
Stockholders’ equity (deficit)
Common stock			42				28				(26	)(f)(g)			44
Additional paid-in capital			196,069				29,922				4,372	(f)(g)			230,363
Accumulated comprehensive loss			—				(906	)			906	(f)			—
Accumulated deficit			(74,090	)			(111,445	)			103,945	(c)(f)			(81,590	)
Total stockholders’ equity (deficit)			122,021				(82,401	)			109,197				148,817
Total liabilities, redeemable convertible preferred stock and stockholders’ equity		$	138,648			$	15,296			$	35,586			$	189,530

CAVIUM NETWORKS, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2008
(in thousands, except per share data)

		Historical																				Historical
		For the				For the				For the
		twelve				seven				period from												For the
		months				months				January 1, 2008												twelve
		ended				ended				to				Pro forma								months				Pro forma
		December 31,				August 1,				December 23,				Adjustments								ended December 31,				Adjustments
		2008				2008				2008				for				Sub total				2008				for				Pro forma
														Star and
														W&W												Monta Vista
		Cavium				Star US$ (i)				W&W				acquisitions								Monta Vista				acquisition				Combined
Net revenue		$	86,609			$	1,355			$	3,072			$	—			$	91,036			$	33,826			$	—			$	124,862
Cost of revenue			35,639				699				1,313				3,463	(h)			41,114				10,729				1,931	(m)			53,774
Gross profit			50,970				656				1,759				(3,463	)			49,922				23,097				(1,931	)			71,088
Operating expenses:
Research and development			27,180				1,726				4,944				—				33,850				9,619				—				43,469
Sales, general and administrative			22,111				461				4,438				121	(h)			27,131				21,088				369	(m)			48,588
In-process research and development			1,319				—				—				—				1,319				—				—				1,319
Total operating expenses			50,610				2,187				9,382				121				62,300				30,707				369				93,376
Income (loss) from operations			360				(1,531	)			(7,623	)			(3,584	)			(12,378	)			(7,610	)			(2,300	)			(22,288	)
Other income (expense), net:
Interest expense			(499	)			—				(797	)			797	(i)			(499	)			(157	)			—				(656	)
Interest income and other			2,576				59				950				(234	)(j)			3,351				(434	)			—				2,917
Total other income (expense), net			2,077				59				153				563				2,852				(591	)			—				2,261
Income (loss) before income tax expense			2,437				(1,472	)			(7,470	)			(3,021	)			(9,526	)			(8,201	)			(2,300	)			(20,027	)
Income tax expense (benefit)			930				—				—				(706	)(k)			224				368				(99	)(n)			493
Net income (loss)		$	1,507			$	(1,472	)		$	(7,470	)		$	(2,315	)		$	(9,750	)		$	(8,569	)		$	(2,201	)		$	(20,520	)
Net income (loss) per common share, basic		$	0.04																											$	(0.49	)
Weighted average shares used in computing basic net income (loss) per common share			40,385												330	(l)											1,592	(o)			42,307
Net income (loss) per common share, diluted		$	0.04																											$	(0.49	)
Weighted average shares used in computing diluted net income (loss) per common share			42,566												330	(l)											1,592	(o)			42,307

		Historical
		For the nine				For the nine
		months ended				months ended
		September 30,				September 30,				Pro forma
		2009				2009				Adjustments for				Pro forma
										Monta Vista
		Cavium				Monta Vista				acquisition				Combined
Net revenue		$	69,080			$	21,178			$	—			$	90,258
Cost of revenue			35,520				6,687				1,448	(m)		$	43,655
Gross profit			33,560				14,491				(1,448	)			46,603
Operating expenses:
Research and development			30,894				7,015				—			$	37,909
Sales, general and administrative			19,310				12,362				277	(m)		$	31,949
Total operating expenses			50,204				19,377				277				69,858
Income (loss) from operations			(16,644	)			(4,886	)			(1,725	)			(23,255	)
Other income (expense), net:
Interest expense			(200	)			(120	)			—			$	(320	)
Interest income and other			228				47				—			$	275
Total other income (expense), net			28				(73	)			—				(45	)
Income (loss) before income tax expense			(16,616	)			(4,959	)			(1,725	)		$	(23,300	)
Income tax expense (benefit)			251				145				(216	)(n)		$	180
Net income (loss)		$	(16,867	)		$	(5,104	)		$	(1,509	)		$	(23,480	)
Net income (loss) per common share, basic		$	(0.41	)										$	(0.55	)
Weighted average shares used in computing basic net income (loss) per common share			41,250								1,592	(o)			42,842
Net income (loss) per common share, diluted		$	(0.41	)										$	(0.55	)
Weighted average shares used in computing diluted net income (loss) per common share			41,250								1,592	(o)			42,842

     On December 14, 2009, Cavium Networks, Inc. (the “Company”) completed the acquisition of MontaVista Software, Inc. (“MontaVista”) pursuant to the Agreement and Plan of Merger and Reorganization dated November 6, 2009 as amended by Amendment No. 1 Agreement and Plan of Merger and Reorganization dated December 14, 2009 (the “Merger Agreement”). On December 23, 2008, Cavium Networks, Inc. (“the Company”) completed the acquisition of W&W Communications, Inc. (“W&W”) pursuant to the Agreement and Plan of Merger and Reorganization (“Agreement”) dated November 19, 2008. On August 1, 2008, the Company completed the acquisition of Star Semiconductor Corporation (“Star”), a Taiwan-based company, pursuant to the Asset Purchase Agreement dated July 15, 2008. The acquisitions were accounted for under purchase method of accounting.

     The unaudited pro forma combined condensed balance sheet as of September 30, 2009 is based on the historical financial statements of the Company and MontaVista after giving effect to the acquisition adjustments resulting from the acquisition of MontaVista. The unaudited pro forma combined balance sheet as of September 30, 2009 is presented as if the MontaVista acquisition had occurred on September 30, 2009.

     The unaudited pro forma combined condensed statements of operations for the year ended December 31, 2008 are based on the historical financial statements of the Company for the period then ended, which includes the results of Star subsequent to August 1, 2008 (the acquisition date), W&W subsequent to December 23, 2008 (the acquisition date), Star’s historical financial statements for the period January 1, 2008 through August 1, 2008, W&W’s historical financial statements from January 1, 2008 through December 23, 2008, and MontaVista’s historical financial statements for the year then ended after giving effect to the acquisition adjustments. The unaudited pro forma combined condensed statements of operations for the nine months ended September 30, 2009 are based on the historical financial statements of the Company for the period then ended and MontaVista’s historical financial statements for the period then ended after giving effect to the acquisition adjustments. The unaudited pro forma combined condensed statement of operations is presented as if the Star, W&W and MontaVista acquisitions had occurred on January 1, 2008.

(i)

Star maintains its accounting records and prepares its financial statements in New Taiwan (“NT”) dollars under Republic of China (“ROC”) GAAP. The US GAAP balances were derived from US GAAP adjustment and translations. For detail balance in NT dollars and US GAAP adjustments, please refer to Form 8-K/A filed on October 17, 2008 (No. 001-33435).

     On December 14, 2009, the Company completed the acquisition of MontaVista. Pursuant to the Merger Agreement, the Company paid approximately $11.0 million in cash and issued 1,592,196 common shares of the Company’s Common Stock valued at approximately $34.3 million based on the Company’s December 14, 2009 closing stock price per share. Included in the purchase price was approximately $1.1 million in cash and 160,000 shares of the Company’s common stock that were placed in escrow for a limited period after closing in order to indemnify the Purchasers for certain matters, including breaches of representations and warranties and covenants made by MontaVista in the Merger Agreement.

     The Company accounted for this business combination by applying the acquisition method, and accordingly, the estimated purchase price was allocated to the tangible assets and identifiable intangible assets acquired and liabilities assumed based on their relative fair values. The excess of the purchase price over the net tangible and identifiable intangible assets and liabilities was recorded as goodwill. Upon completion of the fair value assessment after the acquisition, the Company anticipates that the final purchase price allocation will differ from the preliminary allocation outlined below. The purchase price allocation will be finalized in 2010.

		Amount
		(in thousands)
Total fair value of consideration transferred is estimated as follows:
Cash consideration		$	10,978
Value of Cavium’s common stock issued			34,296
Total		$	45,274

The preliminary allocation of purchase price based on estimated fair values (in thousands):

Net tangible assets (liabilities)		$	(1,290	)
Identifiable intangible assets
Existing technology			1,295
Subscriber base			10,420
Customer contracts and relationships			2,212
Tradename and trademarks			913
Goodwill			31,724
Total purchase price		$	45,274

     The fair value of the subscriber base as well as the customer contracts and related relationships were determined based on an income approach using the discounted cash flow method. A discount rate of 12.0% was used to value the subscriber base as well as the customer contracts and related relationships. In each case, the discount rate was estimated using a discount rate based on the implied rate of return of the transaction, adjusted for the specific risk profile of each asset. The remaining useful life of the subscriber base as well as the customer contracts and related relationships were estimated based on projected customer attrition and new customer acquisition, and the pattern of projected economic benefit of the asset.

     The fair values of the existing technology and the trade name / trademarks were determined using a variation of the income approach known as the profit allocation method. To estimate the fair value of the existing technology an estimated savings in profit was determined using a 3.0% profit allocation rate and a 12.0% discount rate. The remaining useful life for the existing technology was based on historical product development cycles, the projected rate of technology attrition, and the pattern of projected economic benefit of the asset. To estimate the fair value of the trade name / trademarks an estimated savings in profit was determined using a 1.0% profit allocation rate and a 14.0% discount rate. The remaining useful life for the trade name / trademarks was determined based on the future economic benefit expected to be received from the asset. In each case, the discount rate was estimated using a discount rate based on the implied rate of return of the transaction, adjusted for the specific risk profile of each asset.

     Of the total purchase price, $31.7 million has been allocated to goodwill. Goodwill represents the excess of the purchase price over the fair value of the underlying net tangible and identifiable intangible assets acquired and liabilities assumed and goodwill is not deductible for tax purposes. The acquisition of MontaVista is intended to complement Company’s broad portfolio of multi-core processors to further enhance the Company’s product offerings. These new opportunities, among other factors were the reasons for the establishment of the purchase price, resulting in the recognition of a significant amount of goodwill. Goodwill amounts are not amortized, but rather are tested for impairment at least annually. In the event that the Company determines that the value of goodwill has become impaired, the Company will record an accounting charge for the amount of impairment during the fiscal quarter in which such determination is made.

(3) PRO FORMA ADJUSTMENTS

     The unaudited pro forma combined condensed balance sheets and statements of operations give effect to the following pro forma adjustments:

	(a) To record the payment of the cash portion of the MontaVista merger consideration of approximately $11.0 million.
	(b) To record the fair value of identifiable intangible assets and goodwill resulting from the MontaVista acquisition (see footnote 2 above)
	(c) To record direct acquisition costs of approximately $1.5 million related to the acquisition of MontaVista. The amount also includes retention related payments of approximately $6.0 million as defined in the Merger Agreement.
	(d) To adjust MontaVista’s deferred revenue to fair value, representing the legal performance obligations under MontaVista’s existing contracts.
	(e) To eliminate MontaVista’s warrant liability upon conversion of related warrants.
	(f) To eliminate MontaVista’s historical redeemable convertible preferred stock, common stock, additional paid-in capital, accumulated comprehensive loss and accumulated deficit of approximately $9.2 million.
	(g) To record the issuance of approximately 1,592,196 shares of the Company’s common stock valued at approximately $34.3 million based on the Company’s December 14, 2009 closing stock price per share.

	(h) To record amortization expense for the year ended December 31, 2008 related to acquired intangibles resulting from the Star and W&W acquisitions.
	(i) To adjust interest expense for the year December 31, 2008, which was related to W&W’s note that was repaid as part of the acquisition.
	(j) To adjust interest income to reflect cash paid to repay W&W’s note of approximately $8.4 million. The interest income was based on an estimated annual interest rate of 2.84% for the year ended December 31, 2008, which was based on the Company’s historical rate on its interest-bearing cash balance for the year 2008.
	(k) To record the income tax benefit related to the Star and W&W acquisitions
	(l) To adjust the weighted average shares used in computing basic and diluted net income (loss) per share for the number of shares issued in connection with the W&W acquisition
	(m) To record amortization expense for the year ended December 31, 2008 and for the nine months ended September 30, 2009, related to acquired intangibles resulting from the MontaVista acquisition as follows (in thousands):

										Expense for the				Expense for the nine
						Estimated useful				twelve months ended				months ended
Intangible Assets		Estimated fair value				life (in years)				December 31, 2008				September 30, 2009
Existing technology		$	1,295				5.0			$	259			$	194
Subscriber base			10,420				7.0				1,489				1,117
Customer contracts and relationships			2,212				6.0				369				277
Tradename and trademarks			913				5.0				183				137
Total		$	14,840							$	2,300			$	1,725

	(n) To record the income tax benefit related to the MontaVista acquisition.
	(o) To adjust the weighted average shares used in computing basic and diluted net income (loss) per share for the number of shares issued in connection with the MontaVista acquisition