10-Q

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal quarter ended June 30, 2002
	OR
o	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: 000-23193

APPLIED MICRO CIRCUITS CORPORATION
(Exact name of Registrant as specified in its charter)

Delaware	94-2586591
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
6290 Sequence Drive
San Diego, CA 92121
(Address of principal executive offices)
Registrant’s telephone number, including area code: (858) 450-9333

          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, as amended (the “Exchange Act”), 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 o

          As of July 26, 2002, 301,100,945 shares of the Registrant’s Common Stock were issued and outstanding.

APPLIED MICRO CIRCUITS CORPORATION

INDEX

		Page
Part I.	FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets at June 30, 2002 (unaudited) and March 31, 2002.	3
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended June 30, 2002 and 2001.	4
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended June 30, 2002 and 2001.	5
	Notes to Condensed Consolidated Financial Statements (unaudited).	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	35
Part II.	OTHER INFORMATION
Item 1.	Legal Proceedings.	35
Item 6.	Exhibits and Reports on Form 8-K.	36
Signatures		37
Certifications		38

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PART I.   FINANCIAL INFORMATION
ITEM 1.   FINANCIAL STATEMENTS

APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)

			June 30, 2002			March 31, 2002
			(unaudited)
ASSETS
Current assets :
	Cash and cash equivalents		$	182,114		$	335,592
	Short-term investments-available-for-sale			871,128			723,117
	Accounts receivable, net of allowance for doubtful accounts–$5,330 and $5,357 at June 30, 2002  (unaudited) and March 31, 2002, respectively			15,820			14,191
	Inventories			14,178			16,608
	Other current assets			22,597			27,653
	Total current assets			1,105,837			1,117,161
	Property and equipment, net			100,346			106,412
	Goodwill and purchased intangibles, net			282,524			590,610
	Strategic equity investments			14,523			14,523
	Other assets			647			487
	Total assets		$	1,503,877		$	1,829,193
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	16,210		$	18,378
	Accrued payroll and related expenses			12,416			9,812
	Other accrued liabilities			32,752			25,246
	Deferred revenue			2,157			2,223
	Current portion of long-term debt and capital lease obligations			1,109			1,138
	Total current liabilities			64,644			56,797
Long-term debt and capital lease obligations, less current portion				877			1,145
Stockholders’ equity:
	Preferred stock, $0.01 par value:
		Authorized shares – 2000, none issued and outstanding		—			—
	Common stock, $0.01 par value:
		Authorized shares – 630,000 at June 30, 2002
		Issued and outstanding shares– 300,857 at June 30, 2002 (unaudited) and 300,468 at March 31, 2002.		3,009			3,005
	Additional paid-in capital			5,907,523			5,907,754
	Deferred compensation, net.			(100,587	)		(170,538	)
	Accumulated other comprehensive income			5,128			2,843
	Accumulated deficit			(4,376,670	)		(3,971,766	)
	Notes receivable from stockholders			(47	)		(47	)
	Total stockholders’ equity			1,438,356			1,771,251
	Total liabilities and stockholders’ equity		$	1,503,877		$	1,829,193

See accompanying Notes to Condensed Consolidated Financial Statements.

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APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share data)

			Three Months Ended June 30,
			2002			2001
Net revenues			$	30,155		$	41,206
Cost of revenues (1)(2)				16,202			49,436
Gross profit (loss)				13,953			(8,230	)
Operating expenses:
	Research and development (1)			35,497			39,052
	Selling, general and administrative (1)			16,326			20,438
	Stock-based compensation (1)			68,744			36,792
	Amortization of goodwill and purchased intangibles			—			169,548
	Other purchased intangible asset impairment charges			204,284			—
	Goodwill impairment charge			—			3,101,817
	Restructuring costs			2,500			—
		Total operating expenses		327,351			3,367,647
Operating loss				(313,398	)		(3,375,877	)
Other expense, net				(130	)		(8,742	)
Interest income, net				10,853			13,625
Net loss before income taxes and cumulative effect of accounting change				(302,675	)		(3,370,994	)
Income tax expense (benefit)				—			(32,814	)
Net loss before cumulative effect of accounting change				(302,675	)		(3,338,180	)
Cumulative effect of accounting change				(102,229	)		—
Net loss			$	(404,904	)	$	(3,338,180	)
Loss per share:
	Basic and diluted loss per share before cumulative effect of accounting change		$	(1.01	)	$	(11.18	)
	Cumulative effect of accounting change			(0.34	)		—
	Basic and diluted loss per share		$	(1.35	)	$	(11.18	)
	Shares used in calculating basic and diluted loss per share			299,811			298,549

(1) Stock-based compensation expense related to acquired companies is excluded from the following (in thousands):

Cost of revenues	$	1,437	$	1,226
Research and development		40,677		18,368
Selling, general and administrative		26,630		17,198
	$	68,744	$	36,792

(2) Cost of revenues includes the following acquisition-related and other special charges (in thousands):

Amortization of developed core technology.	$	1,572	$	14,585
Special excess inventory charge.		—		15,859
	$	1,572	$	30,444

See accompanying Notes to Condensed Consolidated Financial Statements.

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APPLIED MICRO CIRCUITS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)

			Three Months Ended June 30,
			2002			2001
Operating Activities:
	Net loss		$	(404,904	)	$	(3,338,180	)
	Adjustments to reconcile net loss to net cash provided by (used for) operating activities:
	Cumulative effect of accounting change			102,229			—
	Depreciation and amortization			8,226			7,441
	Amortization of purchased intangibles			1,572			184,133
	Goodwill and other intangible asset impairment charges			204,284			3,101,817
	Amortization of deferred compensation			68,744			36,807
	Tax benefit of disqualifying dispositions			—			3,849
	Net loss on strategic investments			—			8,775
	Loss on disposals of property			126			72
	Changes in operating assets and liabilities:
		Accounts receivables		(1,629	)		62,451
		Inventories		2,430			12,479
		Other assets		4,871			348
		Accounts payable		(2,168	)		(14,743	)
		Accrued payroll and other accrued liabilities		10,110			(5,001	)
		Deferred income taxes		—			(39,662	)
		Deferred revenue		(66	)		3,763
		Net cash provided by (used for) operating activities		(6,175	)		24,349
Investing Activities:
	Proceeds from sales and maturities of investments			393,767			1,290,620
	Purchase of investments			(539,589	)		(1,220,032	)
	Proceeds from sales of strategic equity investments			—			2,902
	Notes receivable from officers and employees			25			(123	)
	Purchase of property and equipment			(2,286	)		(11,337	)
		Net cash provided by (used for) investing activities		(148,083	)		62,030
Financing Activities:
	Proceeds from issuance of common stock, net			978			4,054
	Payments on capital lease obligations			(122	)		(108	)
	Payments on long-term debt			(175	)		(163	)
	Other			99			(51	)
		Net cash provided by financing activities		780			3,732
		Net increase (decrease) in cash and cash equivalents		(153,478	)		90,111
Cash and cash equivalents at beginning of period				335,592			58,197
Cash and cash equivalents at end of period			$	182,114		$	148,308
Supplemental disclosure of cash flow information:
	Cash paid for:
		Interest	$	44		$	61
		Income taxes	$	116		$	430

See accompanying Notes to Condensed Consolidated Financial Statements.

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APPLIED MICRO CIRCUITS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

          The accompanying unaudited interim condensed consolidated financial statements of Applied Micro Circuits Corporation (“AMCC” or the “Company”) have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring accruals), which are, in the opinion of management, considered necessary for a fair presentation of the results for the interim periods presented. Interim results are not necessarily indicative of results for a full year. The Company has experienced significant quarterly fluctuations in net revenues and operating results, and expects that these fluctuations in sales, expenses and net income or losses will continue.

          The financial statements and related disclosures have been prepared with the presumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto contained in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission for the year ended March 31, 2002.

Use of Estimates

          The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and disclosures made in the accompanying notes to the financial statements. These estimates include among others, assessing the collectibility of accounts receivable, inventory valuation, costs of future product returns under warranty, the valuation of deferred income taxes, the fair value and useful lives of intangible assets and the valuation of strategic equity investments. Actual results could differ from those estimates.

Reclassification

          Certain prior period amounts have been reclassified to conform to the current period presentation.

Accounting Change

          Effective April 1, 2002, the Company completed the adoption of Statement of Financial Accounting Standards (SFAS) 142, “Goodwill and Other Intangible Assets”.  SFAS 142 requires that the Company discontinue amortizing the remaining balances of goodwill. All remaining and future acquired goodwill will be subject to impairment tests annually, or earlier if indicators of potential impairment exist, using a fair-value-based approach. All other intangible assets will continue to be amortized over their estimated useful lives and assessed for impairment under SFAS 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”  As a result of the implementation of SFAS 142, the Company recorded a non-cash charge of approximately $102.2 million to reduce the carrying value of its goodwill as of April 1, 2002. Such charge is reflected as the cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations. See Note 4.

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          The following table presents the impact of SFAS 142 on the net loss and the net loss per share as if SFAS 142 had been in effect for all periods presented in the interim condensed consolidated statements of operations (in thousands):

			Three Months Ended June 30,
			2002			2001
Net loss – as reported			$	(404,904	)	$	(3,338,180	)
Adjustments:
	Cumulative effect of accounting change			102,229			—
	Amortization of goodwill			—			167,220
	Amortization of assembled workforce previously classified as purchased intangible assets			—			1,048
	Income tax effect			—			424
		Total adjustments		102,229			168,692
Net loss – as adjusted			$	(302,675	)	$	(3,169,488	)
Basic and diluted net loss per share – as reported			$	(1.35	)	$	(11.18	)
Basic and diluted net loss per share – as adjusted			$	(1.01	)	$	(10.62	)

2.   LOSS PER SHARE

          The reconciliation of the net loss and the shares used to calculate basic and diluted loss per share consists of the following (in thousands):

		Three Months Ended June 30,
		2002			2001
Net loss (numerator):
	Net loss before cumulative effect of accounting change	$	(302,675	)	$	(3,338,180	)
	Cumulative effect of accounting change		(102,229	)		—
	Net loss	$	(404,904	)	$	(3,338,180	)
Shares used in basic and diluted loss per share computation (denominator):
	Weighted average common shares outstandingcommon shares outstanding		300,719			300,520
	Less: Unvested common shares outstanding		(908	)		(1,971	)
	Shares used in basic and diluted loss per share computation		299,811			298,549
Basic and diluted loss per share:
	Basic and diluted loss per share before cumulative effect of accounting change	$	(1.01	)	$	(11.18	)
	Cumulative effect of accounting change		(0.34	)		—
	Basic and diluted loss per share	$	(1.35	)	$	(11.18	)

          Because the Company incurred losses for the three months ended June 30, 2002 and 2001, the effect of dilutive securities totaling 3,274 and 11,042 equivalent shares, respectively, have been excluded from the loss per share computations as their impact would be antidilutive.

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3.   CERTAIN FINANCIAL STATEMENT INFORMATION

		June 30, 2002		March 31, 2002
Inventories (in thousands):
	Finished goods	$	5,925	$	3,356
	Work in process		7,095		12,485
	Raw materials		1,158		767
		$	14,178	$	16,608

		June 30, 2002			March 31, 2002
Property and equipment (in thousands):
	Machinery and equipment	$	81,086		$	81,084
	Leasehold improvements		16,898			16,873
	Computers, office furniture and equipment		83,976			82,382
	Land		22,160			22,160
			204,120			202,499
Less accumulated depreciation and amortization			(103,774	)		(96,087	)
		$	100,346		$	106,412
Other income (expense), net includes the following (in thousands):

	Three Months Ended June 30,
	2002			2001
Gain on strategic equity investments	$	—		$	1,225
Recognized impairments on strategic equity investments		—			(10,000	)
Gains (losses) on disposals of fixed assets, net		(126	)		(72	)
Other		(4	)		105
	$	(130)		$	(8,742	)

        Interest income, net includes the following (in thousands):

	Three Months Ended June 30,
		2002			2001
Interest income	$	10,858		$	13,687
Interest expense		(5	)		(62	)
	$	10,853		$	13,625

4.   GOODWILL AND OTHER PURCHASED INTANGIBLE ASSETS

          As discussed in Note 1, effective April 1, 2002, the Company adopted SFAS 142, which requires the Company to discontinue amortizing goodwill and certain intangible assets with indefinite useful lives. Instead, all remaining balances of goodwill will be reviewed annually for impairment.  Upon adoption on April 1, 2002, the Company completed the first of its annual impairment tests, which resulted in the recording of a non-cash charge of $102.2 million to reduce the carrying value of its goodwill.  In calculating the impairment charge, the fair value of the impaired reporting unit was estimated using both the discounted cash flow methodology as well as a market comparable approach.  This charge is reflected as the cumulative effect of an accounting change in the accompanying condensed consolidated statement of operations.

          In performing the fair value analysis as required under SFAS 142, it became evident, as a result of lower revenue forecasts, that certain other purchased intangible assets were also impaired.   As a result of

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these indications of impairment to the carrying value of the Company’s other purchased intangible assets, the Company performed an additional analysis of these assets as required under SFAS 144 and recorded an additional non-cash charge of $187.9 million for the impairment of developed core technology.   In addition, the Company recorded a non-cash charge of $16.3 million as a result of the abandonment of the MMC Networks trademark in the first quarter of fiscal 2003.   These charges are reflected as operating expenses in the condensed consolidated statement of operations for the three months ended June 30, 2002.

          Net goodwill and other purchased intangible balances were as follows (dollar amounts in thousands):

	Life in Years	June 30, 2002		March 31, 2002
Goodwill	N/A	$	262,089	$	358,014
Developed core technology	5		20,435		209,956
Assembled workforce	N/A		—		6,304
Trademark	5		—		16,336
		$	282,524	$	590,610

          As required by SFAS 142, assembled workforce was reclassified to goodwill effective April 1, 2002. The total balances presented above are net of accumulated amortization and impairments of $4.0 billion and $3.7 billion at June 30, 2002 and March 31, 2002, respectively.

          Amortization of other purchased intangibles was $1.6 million and $15.9 million for the three months ended June 30, 2002 and 2001, respectively.

          In June 2001, as a result of the then current industry conditions, lower market valuations and reduced estimates of carrier capital equipment spending, the Company determined that there were indicators of impairment to the carrying value of goodwill.  Based on a review of the value of the intangible assets in accordance with SFAS 121, “Accounting for the Impairment of Long-Lived Assets and for Long-lived Assets to Be Disposed Of”, the Company recorded a charge of $3.1 billion to write down the value of intangible assets associated with its purchase acquisitions.  This charge is reflected as operating expense in the condensed consolidated statement of operations for the three months ended June 30, 2001.

5.   RESTRUCTURING COSTS

          As a result of the prolonged downturn in the telecommunications industry and the uncertainty as to when the telecommunication equipment market will recover, in July 2002 the Company announced its second workforce reduction and restructuring program in the last two years.  The July 2002 workforce reduction and restructuring program is comprised of the following:

• Closure of the wafer manufacturing facility—In June 2002, the Company completed its plan to discontinue manufacturing non-communication ICs and close its internal wafer manufacturing facility. As a result, the Company recorded a charge of $2.5 million in the first quarter of fiscal 2003.  The charge is comprised of severance packages for the manufacturing workforce which had been notified of the reduction prior to June 30, 2002, and estimated facility restoration costs.  The cash payments for severance and facilities restoration costs are estimated to be made in the fourth quarter of fiscal 2003.

• Global workforce reduction—In an effort to reduce the Company’s expenses and lower the breakeven point, in July 2002, the Company began implementation of a workforce reduction plan which will eliminate approximately 25% of the Company’s workforce by the end of fiscal 2003.  As a result, the Company expects to record and pay additional restructuring costs in the second quarter of fiscal 2003 as the affected workforce is notified.

          In July 2001, the Company announced the first of its restructuring programs.  The July 2001 plan was in response to the sharp downturn in business at the end of the Company’s fiscal 2001 and included reducing the Company’s overall cost structure and aligning manufacturing capacity with the then current demand. The July 2001 restructuring plan resulted in a total of $11.6 million of restructuring costs, which

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were recognized as operating expenses in the last three quarters of fiscal 2002.   The July 2001 restructuring plan was comprised of the following components:

• Workforce reduction—Approximately 5% of the workforce was eliminated, which resulted in severance payments of approximately $900,000 for the fiscal year ended March 31, 2002.

• Consolidation of excess facilities—As a result of the Company’s acquisitions and significant internal growth in fiscal 2001, The Company expanded its number of locations throughout the world. In an effort to improve the efficiency of the workforce and reduce the cost structure, the Company implemented a plan to consolidate its workforce into certain designated facilities. As a result, a charge of approximately $2.0 million was recognized in the second quarter of fiscal 2002, primarily relating to non-cancelable lease commitments.

• Property and equipment impairments—During fiscal 2000 and 2001, the Company aggressively expanded its manufacturing capacity in order to meet demand. As a result of the sharp decrease in demand in fiscal 2002, the Company recorded a charge of approximately $5.6 million in the second quarter of fiscal 2002, for the elimination of certain excess manufacturing equipment related to older process technologies. In addition, the Company recorded a charge of approximately $3.1 million relating to the abandonment of certain leasehold improvements and software licenses in connection with the restructuring plan.

          A summary of the July 2002 and July 2001 restructuring costs is as follows (in thousands):

			Total Costs		Noncash Charges			Cash Payments			Liability, June 30, 2002
July 2002 restructuring program:
	Closure of the wafer manufacturing facility:
		Workforce reduction	$	1,500	$	—		$	—		$	1,500
		Facilities restoration costs		1,000		—			—			1,000
				2,500		—			—			2,500
		Global workforce reduction		—		—			—			—
July 2002 restructuring costs				2,500		—			—			2,500
July 2001 restructuring program:
		Workforce reduction		900		—			(900	)
		Consolidation of excess facilities		1,950		—			(844	)		1,106
		Property and equipment impairments		8,727		(8,727	)		—			—
July 2001 restructuring costs				11,577		(8,727	)		(1,744	)		1,106
		Total restructuring costs	$	14,077	$	(8,727	)	$	(1,744	)	$	3,606

          Payments in conjunction with the workforce reduction in the July 2001 plan were substantially paid by the end of fiscal 2002. Amounts related to the consolidation of facilities will be paid over the respective lease terms through fiscal 2005. The estimated costs to exit these facilities are based on available commercial rates and an estimate of the time required to sublet the facilities. The actual loss incurred in exiting these facilities may differ from our estimates.

6.   COMPREHENSIVE LOSS

          The components of comprehensive loss, net of tax, are as follows (in thousands):

		Three Months Ended June 30,
		2002			2001
Net loss	$	(404,904	)	$	(3,338,180	)
Change in net unrealized gain (loss) on available-for-sale investments		2,189			1,155
Foreign currency translation adjustment		96			(51	)
Comprehensive loss	$	(402,619	)	$	(3,337,076	)

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7. STOCK OPTION EXCHANGE OFFER

          On November 27, 2001, the Company completed the offering of a voluntary stock option exchange program to its employees, officers and board members. Under the program, participants were able to tender for cancellation stock options with an exercise price of at least $20 per share for an equal number of replacement options to be granted at least six months and one day from the cancellation. The Company accepted options to purchase approximately 31.1 million shares of Company stock for exchange pursuant to this program.  On May 28, 2002, the Company issued approximately 30.4 million options with an exercise price of $6.54 to complete the program.

8. CONTINGENCIES

          In April 2001, a series of similar federal complaints were filed against the Company and certain executive officers and directors of the Company.  The complaints have been consolidated into a single proceeding in the U.S. District Court for the Southern District of California.  In re Applied Micro Circuits Corp. Securities Litigation, lead case number 01-CV-0649-K(AB).  In November 2001, the court appointed the lead plaintiff and lead plaintiff’s counsel in the consolidated proceeding, and plaintiff filed a consolidated federal complaint in January 2002.  The consolidated federal complaint alleged violations of the Securities Exchange Act of 1934 (the “1934 Act”) and was brought as a purported shareholder class action under Sections 10(b), 20(a) and 20A of the 1934 Act and Rule 10b-5 under the 1934 Act.  Plaintiff sought monetary damages on behalf of the shareholder class.    Defendants brought a motion to dismiss the consolidated federal complaint in March 2002. On May 9, 2002, the court granted the motion, dismissing the complaint, but giving plaintiff 45 days to file an amended complaint. On June 23, 2002, plaintiff filed an amended consolidated complaint.  In general, the consolidated amended federal complaint alleges that the Company and the individual defendants misrepresented the Company’s financial prospects for the quarters ended December 31, 2000 and March 30, 2001, in order to inflate the value of the Company’s stock.  Defendants intend to bring a motion to dismiss the consolidated amended complaint as well.  The motion is expected to be heard in the fall of 2002.   No discovery has been conducted in this lawsuit.

          In May 2001, a series of similar state derivative actions were filed against the directors and certain executive officers of the Company.  The state complaints have been coordinated and assigned to the Superior Court of California in the County of San Diego.  Applied Micro Circuits Shareholders Cases, No. JCCP No. 4193.  In November 2001, the court appointed liaison plaintiffs’ counsel in the coordinated proceeding, and plaintiffs filed a consolidated state complaint in December 2001.  The consolidated state complaint alleges overstatement of the financial prospects of the Company, mismanagement, inflation of stock value and sale of stock at inflated prices for personal gain during the period from November 2000 through February 2001.  Defendants demurred to the consolidated state complaint, which demurrer was partially granted and partially overruled in February 2002.  In February 2002, the Company’s board of directors formed a special litigation committee to evaluate the claims in the consolidated state complaint.  The special litigation committee retained independent legal counsel and submitted a report to the court in July 2002.  Defendants intend to file motions seeking dismissal of the actions, which motions are expected to be heard by the court in the fall of 2002.  Limited discovery against the individual defendants in this lawsuit and third parties has commenced.  Discovery against the Company has been stayed by the court.

          The Company believes that the allegations in these lawsuits are without merit and intends to defend the lawsuits vigorously.  The Company cannot predict the likely outcome of these lawsuits, and an adverse result in either lawsuit could have a material adverse effect on the Company.  The lawsuits have been tendered to the Company’s insurance carriers.

          The Company is party to various claims and legal actions arising in the normal course of business, including notification of possible infringement on the intellectual property rights of third parties. Since 1993, the Company has been named as a potentially responsible party (‘‘PRP’’) along with a large number of other companies that used Omega Chemical Corporation (‘‘Omega’’) in Whittier, California to handle and dispose of certain hazardous waste material. The Company is a member of a large group of PRPs that has agreed to fund certain remediation efforts at the Omega site for which the Company has accrued

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approximately $100,000. On September 14, 2000, the Company entered into a consent decree with the Environmental Protection Agency, pursuant to which the Company agreed to fund its proportionate share of the initial remediation efforts at the Whittier site. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse affect on the Company’s financial position or liquidity; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Company’s results of operations in any period.

9.  RELATED PARTY TRANSACTIONS

      From time to time the Company charters an aircraft for business travel from an aircraft charter company which manages an aircraft owned by a company that the Company’s Chairman of the Board and Chief Executive Officer controls. In the three months ended June 30, 2002 and 2001 the Company recorded expenses of $200,000 and $0 for amounts to be paid to the aircraft charter company, respectively.

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ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is provided as a supplement to the accompanying interim condensed consolidated financial statements and footnotes to help provide an understanding of our financial condition, changes in our financial condition and results of operations.  The MD&A is organized as follows:

• Caution concerning forward-looking statements.  This section discusses how certain forward-looking statements made by us throughout the MD&A are based on management’s present expectations about future events and are inherently susceptible to uncertainty and changes in circumstances.

• Overview.  This section provides a general description of our business.

• Critical accounting policies.  This section discusses those accounting policies that are both considered important to our financial condition and operating results and require significant judgment and estimates on the part of management in their application.

• Results of operations.  This section provides an analysis of our results of operations for the three months ended June 30, 2002 and 2001.  In addition, a brief description is provided of transactions and events that impact the comparability of the results being analyzed.

• Financial condition and liquidity.  This section provides an analysis of our cash position and cash flows, as well as a discussion of our financing arrangements.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

          This MD&A should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended March 31, 2002. This Quarterly Report on Form 10-Q, and in particular the MD&A, contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including, but not limited to, those described in the section entitled “Risk Factors”. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect our present expectations and analysis and are inherently susceptible to uncertainty and changes in circumstances. We assume no obligation to update these forward-looking statements to reflect changes in factors or assumptions affecting such forward-looking statements.

OVERVIEW

          We design, develop, manufacture and market high-performance, high-bandwidth silicon solutions empowering intelligent wide area networks. We utilize a combination of digital, mixed-signal and high-frequency analog design expertise coupled with system-level knowledge and multiple silicon process technologies to offer integrated circuit products that enable the transport of voice and data over wide area networks.  Our system solution portfolio includes switch fabric, traffic management, network processor, framer/mapper, PHY and PMD devices that address the high-performance needs of the evolving intelligent wide area network.   In addition, we continue to supply silicon ICs for the ATE, high-speed computing and military markets.

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CRITICAL ACCOUNTING POLICIES

          The U.S. Securities and Exchange Commission (“SEC”) recently issued Financial Reporting Release No. 60, “Cautionary Advice Regarding Disclosure About Critical Accounting Policies” (“FRR 60”), suggesting companies provide additional disclosure and commentary on their most critical accounting policies.  In FRR 60, the SEC defined the most critical accounting policies as the ones that are most important to the portrayal of a company’s financial condition and operating results, and require management to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain.  Based on this definition, our most critical accounting policies include: inventory valuation, which affects our cost of sales and gross margin; the valuation of purchased intangibles and goodwill, which affects our amortization and write-offs of goodwill and other intangibles; the valuation of strategic equity investments, which affects our other income and expense; and valuation of deferred income taxes, which affects our income tax expense and benefit.  We also have other key accounting policies, such as our policies for revenue recognition, including the deferral of a portion of revenues on sales to distributors, and allowance for bad debt.  The methods, estimates and judgments we use in applying these most critical accounting policies have a significant impact on the results we report in our financial statements.

Inventory Valuation

Our policy is to value inventories at the lower of cost or market on a part-by-part basis.  This policy requires us to make estimates regarding the market value of our inventories, including an assessment of excess or obsolete inventories.  We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months.  The estimates we use for demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts.   If our demand forecast is greater than our actual demand we may be required to take additional excess inventory charges, which will decrease gross margin and net operating results in the future.   In addition, as a result of the expansion of our internal manufacturing capacity during fiscal 2001 and the subsequent downturn in the communications industry, we have excess capacity in our manufacturing facilities.   Currently, we are not capitalizing any inventory costs related to this excess capacity as the recoverability of such costs is not certain. The application of this policy adversely affects our gross margin.

Goodwill and Intangible Asset Valuation

The determination of the fair value of certain assets and liabilities acquired is subjective in nature and often involves the use of significant estimates and assumptions.  Determining the fair values and useful lives of intangible assets especially requires the exercise of judgment.  To assist us in this process we used an independent valuation firm.  While a number of different methods can be used for the estimation of the value of intangibles acquired, we primarily used the discounted cash flow method. This method relies on a number of estimates and assumptions, including projected future cash flows, residual growth rates and discount factors.  Most of these assumptions were made based on available historical information and industry averages. The judgments made in determining the estimated useful lives assigned to each class of assets acquired can also significantly affect net income.

In the first quarter of fiscal 2003, we adopted the new rules for measuring the impairment of goodwill and certain intangible assets under SFAS 142 and SFAS 144.  Under the new accounting guidance, the estimates and assumptions described above, as well as the determination as to how goodwill is allocated to our operating segments, had an effect on the amount of the impairment charge we recorded in the first quarter of fiscal 2003.

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In addition, the value of our intangible assets, including goodwill, is exposed to future impairments if we experience further declines in operating results or additional negative industry or economic trends or if our future performance is below projections and estimates.

Valuation of Strategic Equity Investments

We enter into certain equity investments for the promotion of business and strategic objectives. Our policy is to value these investments at our historical cost.   In addition, our policy requires us to periodically review these investments for impairment.  For these investments, an impairment analysis requires significant judgment, including an assessment of the investees’ financial condition, existence and valuation of subsequent rounds of financing and the impact of any contractual preferences, as well as the investees’ historical results, projected results and prospects for additional financing.  If the actual outcomes for the investees are significantly different from our estimates, our recorded impairments may be understated, and we may incur additional charges in future periods.

            Valuation of Deferred Income Taxes

We record valuation allowances to reduce our deferred tax assets to an amount that we believe is more likely to be realized.  We consider estimated future taxable income and ongoing prudent and feasible tax planning strategies in assessing the need for a valuation allowance.  If we determine that we will not realize all or part of our deferred tax assets in the future, we would make an adjustment to the carrying value of the deferred tax asset, which would be reflected as an income tax expense.  Conversely, if we determine that we will realize a deferred tax asset, which currently has a valuation allowance, we would be required to reverse the valuation allowance which would be reflected as an income tax benefit.

Revenue Recognition

We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101 “Revenue Recognition in Financial Statements” (“SAB 101”).  SAB 101 requires that four basic criteria be met before revenue can be recognized: 1) evidence an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured.  We recognize revenue upon determination that all criteria for revenue recognition have been met. The criteria are usually met at the time of product shipment, except for shipments to distributors with rights of return.  Revenue from shipments to distributors with rights of return are deferred until all return or cancellation privileges lapse.   In addition, we record reductions to revenue for estimated allowances such as returns and competitive pricing programs.  If actual returns or pricing adjustments exceed our estimates, additional reductions to revenue would result.

Allowance for Bad Debt

We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of our customers to make required payments.  Our allowance for doubtful accounts is based on our assessment of the collectability of specific customer accounts, the aging of accounts receivable, our history of bad debts and the general condition of the industry.  If a major customer’s credit worthiness deteriorates, or our customers’ actual defaults exceed our historical experience, our estimates could change and impact our reported results.

RESULTS OF OPERATIONS

          Net Revenues.   Net revenues for the three months ended June 30, 2002 were approximately $30.2 million, representing a decrease of 27% from the net revenues of approximately $41.2 million for the three months ended June 30, 2001. Revenues from sales of communications products decreased 49% to $18.1

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million, or only 60% of net revenues, for the three months ended June 30, 2002 from $35.7 million or 87% of net revenues for the three months ended June 30, 2001.

          The decline in revenues for the three months ended June 30, 2002 when compared to the three months ended June 30 2001 is primarily due to a decrease in the volume of shipments of our communications ICs. This volume decrease was driven by reduced demand from virtually all of our customers as they faced slower demand for their products.   This decrease in the volume of shipments of our communication ICs was partially offset by increases in the absolute dollar value of shipments of our non-communications ICs.  The increase in the non-communications IC revenue was driven by the fulfillment of certain last-time-buy orders generated as a result of the planned closure of the manufacturing facility in which our non-communications ICs are made.  We expect that our revenues for the remainder of fiscal 2003 will continue to benefit from the fulfillment of these last-time-buy orders.  However, due to the prolonged downturn in the communications portion of our business and lack of backlog visibility, we are not able to assess the expected near term trend for total net revenues.

Based on direct shipments, net revenues to customers exceeding 10% were as follows:

	Three Months Ended June 30,
	2002		2001
Harris Corporation.	26	%	—
Solectron Corporation	4	%	14	%
Teksel Co. Ltd..	5	%	10	%

          Looking through product shipments to distributors and subcontractors to the end customers, net revenues to an end customer exceeding 10% were as follows:

	Three Months Ended June 30,
	2002		2001
Harris Corporation.	26	%	—
Nortel Networks Corporation	11	%	14	%

          Sales outside of North America accounted for 29.1% for the three months ended June 30, 2002, compared to 49.5% for the three months ended June 30, 2001.

          Gross Margin.    Gross margin was 46.3% for the three months ended June 30, 2002, as compared to (20.0%) for the three months ended June 30, 2001. The increase in gross margin was primarily attributable to prior year charges for excess inventory of $15.9 million and the non-cash acquisition-related charge of $14.6 million, as well as decreases in expenses in our internal manufacturing departments. This increase was offset in part by the decrease in the volume of our product shipments.

          In the three months ended June 30, 2002 and 2001, cost of revenues included approximately $1.6 million and $14.6 million, respectively, of non-cash purchased intangible charges. Excluding the effect of these non-cash accounting charges and the special inventory charge in the three months ended June 30, 2001, gross margin was 51.5% and 53.9% for the three months ended June 30, 2002 and 2001, respectively. This decrease in gross margin, exclusive of non-cash purchase accounting charges and the special inventory charge, reflects the under utilization of our manufacturing facilities and a decrease in the volume of our product shipments. Due to the current market conditions and uncertainty with respect to expected shipment volumes, we anticipate that gross margin will continue to be affected by the under utilization of our manufacturing facilities, fluctuations in the volume of our product sales, fluctuations in wafer costs and ongoing non-cash amortization of purchased intangibles.  At June 30, 2002, the balance of purchased intangible assets expected to be charged to cost of revenues was $20.4 million.  See “Amortization of Goodwill and Purchased Intangibles.”

          Research and Development.    Research and development (“R&D”) expenses consist primarily of salaries and related costs of employees engaged in research, design and development activities, costs

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related to engineering design tools, subcontracting costs and facilities expenses.  R&D expenses decreased 9.1% to approximately $35.5 million for the three months ended June 30, 2002, from approximately $39.1 million for the three months ended June 30, 2001. The decrease in the absolute dollars spent on R&D is a result of streamlining and prioritizing our product and process development efforts and reducing subcontracting costs.  We believe that a continued commitment to R&D is vital to maintain a leadership position with innovative communications products. Currently, R&D expenses are focused on the development of products and processes for the communications markets, and we expect to continue this focus. We expect R&D in absolute dollars to decrease modestly on a quarterly basis throughout fiscal 2003 as we continue to streamline our cost structure and implement our workforce reduction program. See “Restructuring Costs” below.

          Selling, General and Administrative.    Selling, general and administrative (“SG&A”) expenses consist primarily of personnel-related expenses, professional and legal fees, corporate branding and facilities expenses. SG&A expenses were approximately $16.3 million, or 54.1% of net revenues, for the three months ended June 30, 2002, as compared to approximately $20.4 million, or 49.6% of net revenues, for the three months ended June 30, 2001. The decrease in SG&A expenses for the three months ended June 30, 2002 was primarily attributable to the decrease in payroll and related benefits as a result of reduced headcount, decreases in commissions as a result of lower net revenues and lower travel and marketing expenses as we continue to focus on reducing discretionary spending. We expect SG&A in absolute dollars to decrease modestly on a quarterly basis throughout fiscal 2003, as we continue cost reduction programs, reduce discretionary spending and implement our workforce reduction program. See “Restructuring Costs” below.

          Stock-based Compensation.    Stock-based compensation expense represents the amortization of deferred compensation as well as any expense related to options subject to variable accounting. Deferred compensation is the difference between the fair value of our common stock at the date of each acquisition and the exercise price of the unvested stock options assumed in the acquisition. In fiscal 2001, we recorded approximately $438.8 million of deferred compensation, in connection with stock options assumed in our purchase acquisitions. Stock-based compensation charges were $68.7 million and $36.8 million for the three months ended June 30, 2002 and 2001, respectively. The increase is related to an acceleration of the compensation charge in the first quarter of fiscal 2003 resulting from the voluntary cancellation of certain employees’ stock options in connection with our stock option exchange program. We currently expect to record amortization of deferred compensation with respect to these assumed options of approximately $135.6 million, $33.2 million, and $506,000 during the fiscal years ending March 31, 2003, 2004, and 2005, respectively. These charges could be reduced based on the level of employee turnover. Future acquisitions of businesses may result in substantial additional charges. Such charges may cause fluctuations in our interim or annual operating results.

          Amortization of Goodwill and Purchased Intangibles.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. Intangible assets acquired include developed technology, trademarks and assembled workforce.  In April 2002, we adopted SFAS 142. As required by SFAS 142, we ceased amortizing goodwill as of the beginning of April 2002 and reclassified $6.3 million of assembled workforce to goodwill. Including the amortization of developed core technology, which is included in cost of revenues, amortization of goodwill and purchased intangible assets was $1.6 million and $184.1 million for the three months ended June 30, 2002 and 2001, respectively.  The decrease is primarily related to discontinuing the periodic amortization of goodwill and the impairment of other purchased intangible assets recorded as of the beginning of April 2002.  See “Other Intangible Asset Impairment Charges” below.

          We expect amortization expense for other purchased intangibles, including amounts which will be charged to cost of revenues, to be $4.7 million throughout the remainder of fiscal 2003, $6.3 million annually through fiscal 2005 and $3.1  million for the fiscal year ending March 31, 2006.

          Other Intangible Asset Impairment Charges.    In performing the fair value analysis as required under SFAS 142, it became evident, as a result of lower revenue forecasts, that certain other purchased intangible assets were also impaired.   As a result of these indicators of impairment to the carrying value of our other

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purchased intangible assets, we performed an additional analysis of these assets as required under SFAS 144, and recorded an additional non-cash charge of $187.9 for the impairment of developed core technology.   We also recorded a non-cash charge of $16.3 million as a result of the abandonment of the MMC Networks trademark in the first quarter of fiscal 2003.

          Goodwill Impairment Charge.    In the first quarter of fiscal 2002, as a result of the then current industry conditions, lower market valuations and reduced estimates of carrier capital equipment spending, we determined that there were indicators of impairment to the carrying value of our goodwill.  Based on our review of the value of our intangible assets in accordance with SFAS 121, we recorded a charge of $3.1 billion to write down the value of intangible assets associated with our purchase acquisitions.

          Restructuring Costs.    As a result of the prolonged downturn in the telecommunications industry and the uncertainty as to when the telecommunication equipment market will recover, in July 2002 we announced our second workforce reduction and restructuring program in the last two years.  The July 2002 workforce reduction and restructuring program is comprised of the following:

• Closure of our wafer manufacturing facility—In June 2002, we completed our plan to discontinue manufacturing our non-communication ICs and close our internal wafer manufacturing facility. As a result, we recorded a charge of $2.5 million in the first quarter of fiscal 2003.  The charge is comprised of severance packages for the manufacturing workforce which had been notified of the reduction prior to June 30, 2002, and estimated facility restoration costs.  We estimate that the payments for severance and facilities restoration costs will be made in the fourth quarter of fiscal 2003.

• Global workforce reduction—In an effort to reduce expenses and lower our breakeven point, in July 2002, we announced a major workforce reduction program, which will eliminate approximately 25% of our workforce by the end of fiscal 2003.  As a result, we expect to record and pay additional restructuring costs in the second quarter of fiscal 2003 as the affected workforce is notified.

          In July 2001, we announced the first of our restructuring programs.  The July 2001 plan was in response to the sharp downturn in our business at the end of fiscal 2001 and included reducing our overall cost structure and aligning manufacturing capacity with the then current demand. The July 2001 restructuring plan resulted in a total of $11.6 million of restructuring costs, which were recognized as operating expenses in the last three quarters of fiscal 2002.  The July 2001 restructuring plan was comprised of the following components:

• Workforce reduction—Approximately 5% of the workforce was eliminated, which resulted in workforce reduction charges of approximately $900,000 for the year ended March 31, 2002.

• Consolidation of excess facilities—As a result of our acquisitions and significant internal growth in fiscal 2001, we expanded our number of locations throughout the world. In an effort to improve the efficiency of the workforce and reduce our cost structure, we implemented a plan to consolidate our workforce into certain designated facilities. As a result, a charge of approximately $2.0 million was recognized in the second quarter of fiscal 2002, primarily relating to non-cancelable lease commitments.

• Property and equipment impairments—During fiscal 2000 and 2001, we aggressively expanded our manufacturing capacity in order to meet demand. As a result of the sharp decrease in demand in fiscal 2002, we recorded a charge of approximately $5.6 million in the second quarter of fiscal 2002, for the elimination of certain excess manufacturing equipment related to our older process technologies. In addition, we recorded a charge of approximately $3.1 million relating to the abandonment of certain leasehold improvements and software licenses in connection with our restructuring plan.

          Net Interest Income.     Net interest income decreased 20.3% to $10.9 million for the three months ended June 30, 2002, compared to $13.6 million for the three months ended June 30, 2001. This decrease was due principally to lower yields on investments and lower cash  and investment balances.

          Other Income (Expense).    Other income (expense) for the three months ended June 30, 2002, primarily reflects losses on the disposal of fixed assets.  Other income (expense) for the three months ended June 30, 2001, includes a gain on our strategic equity investments of $1.2 million, offset by a recognized impairment charge of $10 million for certain other strategic equity investments and certain losses on fixed asset disposals.

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          Income Taxes.     We recorded income tax benefits of $0 and $32.8 million for the three months ended June 30, 2002 and 2001, respectively, which resulted in effective tax rates of approximately 0% and 1.0% for the three months ended June 30, 2002 and 2001, respectively. The differences between our effective tax rates for the three months ended June 30, 2002 and 2001 and the federal statutory rate primarily resulted from the effect of certain of our net operating loss carry forwards and tax credits being recorded without tax benefit and the non-deductibility of certain acquisition-related expenses from our purchase transactions completed during fiscal 2001.  At June 30, 2002, we have provided a valuation allowance against our net deferred tax assets in the amount of $182.0 million. As a result, our net deferred tax asset balance as of June 30, 2002 was $0.

          Accounting Change.    In June 2001, the FASB issued SFAS 142. Under these new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized, but are subject to annual impairment tests. Other intangible assets will continue to be amortized over their estimated useful lives.  As required by SFAS 142, we ceased amortizing goodwill as of the beginning of April 2002 and reclassified $6.3 million of assembled workforce to goodwill.  In addition, as a result of the initial impairment review as required by the adoption of the new accounting standard, we recorded a non-cash charge of $102.2 million as the cumulative effect of an accounting change.  The following table presents the impact of SFAS 142 on the net loss and the net loss per share as if SFAS 142 had been in effect for all periods presented in the interim condensed consolidated statements of operations (in thousands):

			Three Months Ended June 30,
				2002			2001
Net loss – as reported			$	(404,904	)	$	(3,338,180	)
Adjustments:
	Cumulative effect of accounting change			102,229			—
	Amortization of goodwill			—			167,220
	Amortization of assembled workforce previously classified as purchased intangible assets			—			1,048
	Income tax effect			—			424
		Total adjustments		102,229			168,692
	Net loss – as adjusted		$	(302,675	)	$	(3,169,488	)
	Basic and diluted net loss per share – as reported		$	(1.35	)	$	(11.18	)
	Basic and diluted net loss per share – as adjusted		$	(1.01	)	$	(10.62	)

          Financial Condition and Liquidity

          As of June 30, 2002, our principal source of liquidity consisted of $1.1 billion in cash, cash equivalents and short-term investments. Working capital as of June 30, 2002 was $1.0 billion, and total long-term debt was only $2.0 million.  At the end of June 30, 2002, we had future operating lease obligations not included on our balance sheet totaling $50.1 million, primarily related to facilities and engineering design software tools.

          For the three months ended June 30, 2002, we used $6.2 million of cash to fund our operations compared to generating $24.3 million from our operations in the three months ended June 30, 2001. Although we had a net loss of $404.9 million for the three months ended June 30, 2002, $376.8 million was non-cash and related to amortization or impairments of amounts recorded in connection with our purchase acquisitions.  The remaining change in operating cash flows for the three months ended June 30, 2002, primarily reflects decreases in inventory, other assets and accrued payroll and increases in accounts payable. Net cash provided by operations for the three months ended June 30, 2001 primarily reflects our operating results before non-cash charges, plus decreases in accounts receivable and inventory.

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          We used $148.1 million of cash from investing activities during the three months ended June 30, 2002, compared to generating $62.0 million during the three months ended June 30, 2001. The outflow of cash for the three months ended June 30, 2002 primarily represents the net purchases of available-for-sale investments, as we looked to increase our investment return by shifting our cash to investments with longer initial maturities.

          Capital expenditures totaled $2.3 million and $11.3 million for the three months ended June 30, 2002 and 2001, respectively. These capital expenditures primarily consisted of the purchases of engineering hardware and design software.

          We generated $800,000 of cash for the three months ended June 30, 2002 from financing activities compared to generating $3.7 million for the three months ended June 30, 2001.  The major financing source of cash was from the sale of our common stock through the exercise of employee stock options.  The  major use of cash from financing activities was for the repayment of debt and capital lease obligations.

          On September 17, 2001, our Board of Directors approved a stock repurchase program whereby we were authorized to expend up to $200 million to purchase our common stock over the 12 months following the Board’s authorization.  Our Board of Directors approved this plan primarily as a result of liquidity concerns following the terrorist attacks of September 11, 2001. We did not repurchase any of our stock under the program during the three months ended June 30, 2002.

          We believe that our available cash, cash equivalents and short-term investments will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months, although we could elect or could be required to raise additional capital during such period. There can be no assurance that such additional debt or equity financing will be available on commercially reasonable terms or at all.

          The following table summarizes our contractual obligations as of June 30, 2002 (in thousands):

		Notes Payable		Operating Leases		Capital Leases		Total
Nine months ended March 31, 2003	$	579	$	12,679	$	347	$	13,605
Fiscal year 2004		516		13,437		679		14,632
Fiscal year 2005		¾		10,956		¾		10,956
Fiscal year 2006		¾		3,910		¾		3,910
Fiscal year 2007		¾		2,199		¾		2,199
Thereafter		¾		4,780		¾		4,780
Total	$	1,095	$	47,961	$	1,026	$	50,082

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RISK FACTORS

          Before deciding to invest in the Company or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC, including our other reports on Forms 10-K, 10-Q and 8-K. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occur, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment.

Our operating results may fluctuate because of a number of factors, many of which are beyond our control.

          If our operating results are below the expectations of public market analysts or investors, then the market price of our common stock could decline. Some of the factors that affect our quarterly and annual results, but which are difficult to control or predict are:

• the reduction, rescheduling or cancellation of orders by customers, whether as a result of slowing demand for our customers’ products, stockpiling of our products or otherwise;

• fluctuations in the timing and amount of customer requests for product shipments;

• general communications equipment industry and semiconductor industry conditions, including the effects of the current significant slowdown;

• the availability of external foundry capacity, purchased parts and raw materials;

• the effects of the pending closure of our internal wafer fabrication facility or recently announced workforce reduction to take place over the remainder of fiscal 2003;

• increases in the costs of products or discontinuance of products by suppliers;

• fluctuations in manufacturing output, yields and inventory levels or other potential problems or delays in the fabrication, assembly, testing or delivery of our products;

• changes in the mix of products that our customers buy;

• the gain or loss of a key customer or significant changes in the financial condition of one or more of our key customers;

• our ability to introduce and deliver new products and technologies on a timely basis;

• the announcement or introduction of products and technologies by our competitors;

• competitive pressures on selling prices;

• market acceptance of our products and our customers’ products;

• the amounts and timing of costs associated with warranties and product returns;

• the amounts and timing of investments in research and development;

• problems or delays that we may face in shifting our products to smaller geometry process technologies and in achieving higher levels of design integration;

• the amounts and timing of the costs associated with payroll taxes related to stock option exercises;

• costs associated with acquisitions and the integration of acquired companies;

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• costs associated with compliance with applicable environmental regulations or remediation;

• costs associated with litigation, including without limitation, litigation or settlements relating to the use or ownership of intellectual property or the pending litigation against us and certain of our executive officers and directors alleging violations of federal securities laws and various state claims;

• the ability of our customers to obtain components from their other suppliers;

• the effects of war or acts of terrorism, such as disruptions in general economic activity, changes in logistics and security arrangements, and reduced customer demand for our products and services; and

• general economic conditions.

Our business, financial condition and operating results would be harmed if we do not achieve anticipated revenues.

          We can have revenue shortfalls for a variety of reasons, including:

• a decrease in demand for our customers’ products;

• a decrease in the financial condition of our customers or liquidity issues with our customers or their customers;

• a stockpiling of our products by our customers resulting in a reduction in their order patterns as they work through the excess inventory of our products;

• the reduction, rescheduling or cancellation of customer orders;

• significant pricing pressures that occur because of declines in average selling prices over the life of a product;

• sudden shortages of raw materials or production capacity constraints that lead our suppliers to allocate available supplies or capacity to customers with resources greater than us and, in turn, interrupt our ability to meet our production obligations;

• the pending closure of our internal wafer fabrication facility;

• delays in product availability; and

• fabrication, test or assembly capacity constraints for devices which interrupt our ability to meet our production obligations.

          Our business is characterized by short-term orders and shipment schedules. Customer orders typically can be canceled or rescheduled without significant penalty to the customer. Because we do not have substantial noncancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand which are highly unpredictable and can fluctuate substantially. Our revenues are increasingly derived from sales of ASSPs, as compared to ASICs. Customer orders for ASSPs typically have shorter lead times than orders for ASICs, which makes it more difficult for us to predict revenues and inventory levels and adjust production appropriately. If we are unable to plan inventory and production levels effectively, our business, financial condition and operating results could be materially harmed.

          From time to time, in response to anticipated long lead times to obtain inventory and materials from our outside suppliers and foundries, we may order materials in advance of anticipated customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors render our products less marketable.

          Our expense levels are relatively fixed and are based, in part, on our expectations of future revenues. We have limited ability to reduce expenses quickly in response to any revenue shortfalls.

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The downturn in the communications equipment industry has negatively impacted our revenues and profitability.

          We derive a majority of our revenues from communications equipment manufacturers. The communications equipment industry, which is highly cyclical, is experiencing a significant extended downturn and as a result, the financial condition of many telecom companies has significantly declined. This downturn has severely affected the demand for our products, and in turn our revenues and profitability. We cannot predict how long this downturn will last. In addition, our need to continue investment in research and development during this downturn and to maintain extensive ongoing customer service and support capability constrains our ability to reduce expenses.

Our business substantially depends upon the continued growth of the Internet.

          A substantial portion of our business and revenue depends on the continued growth of the Internet. We sell our products primarily to communications equipment manufacturers that in turn sell their equipment to customers that depend on the growth of the Internet. As a result of the economic slowdown, the significant decline in the financial condition of many telecommunications companies and the reduction in capital spending, spending on Internet infrastructure has declined. To the extent that the economic slowdown and reduction in capital spending continues to adversely affect spending on Internet infrastructure, our business, operating results, and financial condition will continue to be materially harmed.

Our customers are concentrated. The loss of one or more key customers or the diminished demand for our products from a key customer could significantly reduce our revenues and profits.

          A relatively small number of customers have accounted for a significant portion of our revenues in any particular period. We have no long-term volume purchase commitments from any of our key customers. Many of our key customers have announced dramatic declines in demand for their products into which our products are incorporated. As a result, new orders from these customers have been deferred, and customers may have overstocked our products. Continued reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers could significantly further reduce our revenues and profits. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

          Our ability to maintain or increase sales to key customers and attract new significant customers is subject to a variety of factors, including:

• customers may stop incorporating our products into their own products with limited notice to us and may suffer little or no penalty;

• customers or prospective customers may not incorporate our products in their future product designs;

• design wins with customers may not result in sales to such customers;

• the introduction of a customer’s new products may be late or less successful in the market than planned;

• a customer’s product line using our products may rapidly decline or be phased out;

• our agreements with customers typically do not require them to purchase a minimum amount of our products;

• many of our customers have pre-existing relationships with current or potential competitors that may cause them to switch from our products to competing products;

• we may not be able to successfully develop relationships with additional network equipment vendors; and

• our relationship with some of our larger customers may deter other potential customers (who compete with these customers) from buying our products.

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          The occurrence of any one of the factors above could have a material adverse effect on our business, financial condition and results of operations.

Any significant order cancellations or order deferrals could adversely affect our operating results.

          We typically sell products pursuant to purchase orders that customers can generally cancel or defer on short notice without incurring a significant penalty. Any significant cancellations or deferrals in the future could materially and adversely affect our business, financial condition and results of operations. In addition, cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins, increase product obsolescence and restrict our ability to fund our operations. We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.

An important part of our strategy is to continue our focus on the markets for high-speed communications ICs. If we are unable to expand our share of these markets further, our revenues may not grow and could decline.

          Our markets frequently undergo transitions in which products rapidly incorporate new features and performance standards on an industry-wide basis. If our products are unable to support the new features or performance levels required by OEMs in these markets, we would be likely to lose business from an existing or potential customer and, moreover, would not have the opportunity to compete for new design wins until the next product transition occurs. If we fail to develop products with required features or performance standards, or if we experience a delay as short as a few months in bringing a new product to market, or if our customers fail to achieve market acceptance of their products, our revenues could be significantly reduced for a substantial period.

          A significant portion of our revenues in recent periods has been, and is expected to continue to be, derived from sales of products based on SONET, SDH, ATM and DWDM transmission standards. If the communications market evolves to new standards, we may not be able to successfully design and manufacture new products that address the needs of our customers or gain substantial market acceptance. Although we have developed products for the Gigabit Ethernet and Fibre Channel communications standards, sales volumes of these products are modest, and we may not be successful in addressing the market opportunities for products based on these standards.

          Customers for network processors, one of our product lines, generally have substantial technological capabilities and financial resources. They traditionally use these resources to internally develop their own network processors.  The future prospects for our products in these markets are dependent upon our customers’ acceptance of our network processors as an alternative to their internally developed network processors. Future prospects also are dependent upon acceptance of third-party sourcing for network processors as an alternative to in-house development. Network equipment vendors may in the future continue to use internally developed ASIC components and general-purpose processors. They also may decide to develop or acquire components, technologies or network processors that are similar to, or that may be substituted for, our network processor products.

          If our network equipment vendor customers fail to accept network processors as an alternative, if they develop or acquire the technology to develop such components internally rather than purchase our network processor products, or if we are otherwise unable to develop strong relationships with network equipment vendors, our business, financial condition and results of operations would be materially and adversely affected.

Our industry is subject to consolidation, which may result in stronger competitors.

          There has been a trend toward industry consolidation among communications IC companies for several years. We expect this trend toward industry consolidation to continue as communications IC companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, which in turn could have a material adverse effect on our business, operating results, and financial condition.

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Our operating results are subject to fluctuations because we rely heavily on international sales.

          International sales account for a significant part of our revenues and may account for an increasing portion of our future revenues. As a result, an increasing portion of our revenues may be subject to certain risks, including:

• foreign currency exchange fluctuations;

• changes in regulatory requirements;

• tariffs and other barriers;

• timing and availability of export licenses;

• political and economic instability;

• difficulties in accounts receivable collections;

• difficulties in staffing and managing foreign subsidiary operations;

• difficulties in managing distributors;

• difficulties in obtaining governmental approvals for communications and other products;

• the burden of complying with a wide variety of complex foreign laws and treaties; and

• potentially adverse tax consequences.

          We are subject to risks associated with the imposition of legislation and regulations relating to the import or export of high technology products. We cannot predict whether quotas, duties, taxes or other charges or restrictions upon the importation or exportation of our products will be implemented by the United States or other countries. Because sales of our products have been denominated to date primarily in United States dollars, increases in the value of the United States dollar could increase the price of our products so that they become relatively more expensive to customers in the local currency of a particular country, leading to a reduction in sales and profitability in that country. Future international activity may result in increased foreign currency denominated sales. Gains and losses on the conversion to United States dollars of accounts receivable, accounts payable and other monetary assets and liabilities arising from international operations may contribute to fluctuations in our results of operations. Some of our customer purchase orders and agreements are governed by foreign laws, which may differ significantly from United States laws. Therefore, we may be limited in our ability to enforce our rights under such agreements and to collect damages, if awarded.

Our markets are subject to rapid technological change, so our success depends heavily on our ability to develop and introduce new products.

          The markets for our products are characterized by:

• rapidly changing technologies;

• evolving and competing industry standards;

• short product life cycles;

• changing customer needs;

• emerging competition;

• frequent new product introductions and enhancements;

• increased integration with other functions; and

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• rapid product obsolescence.

          To develop new products for the communications markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to develop technical and design expertise. In addition, we must have our products designed into our customers’ future products and maintain close working relationships with key customers in order to develop new products that meet customers’ changing needs. We must respond to changing industry standards, trends towards increased integration and other technological changes on a timely and cost-effective basis. If we fail to achieve design wins with key customers, our business will significantly suffer because once a customer has designed a supplier’s product into its system, the customer typically is extremely reluctant to change its supply source due to significant costs associated with qualifying a new supplier.

          Products for communications applications are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards for a significant period of time, we could miss opportunities to achieve crucial design wins. We may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. Our pursuit of necessary technological advances may require substantial time and expense.

The markets in which we compete are highly competitive and subject to rapid technological change, price erosion and heightened international competition.

          The communications IC markets are highly competitive and we expect that competition will increase in these markets, due in part to deregulation and heightened international competition. Our ability to compete successfully in our markets depends on a number of factors, including:

• success in designing and subcontracting the manufacture of new products that implement new technologies;

• product quality, reliability and performance;

• customer support;

• time-to-market;

• price;

• production efficiency;

• design wins;

• expansion of production of our products for particular systems manufacturers;

• end-user acceptance of the systems manufacturers’ products;

• market acceptance of competitors’ products; and

• general economic conditions.

          In addition, our competitors may offer enhancements to existing products, or offer new products based on new technologies, industry standards or customer requirements, that are available to customers on a more timely basis than comparable products from us or that have the potential to replace or provide lower cost alternatives to our products. The introduction of such enhancements or new products by our competitors could render our existing and future products obsolete or unmarketable. Furthermore, once a customer has designed a supplier’s product into its system, the customer is extremely reluctant to change its supply source due to the significant costs associated with qualifying a new supplier. Finally, we expect that certain of our competitors and other semiconductor companies may seek to develop and introduce products

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that integrate the functions performed by our IC products on a single chip, thus eliminating the need for our products. Each of these factors could have a material adverse effect on our business, financial condition and results of operations.

          In the communications markets, we compete primarily against companies such as Agere, Broadcom, Conexant, Infineon, Intel, Maxim, Multilink, PMC-Sierra, TriQuint and Vitesse. In addition, certain of our customers or potential customers have internal IC design or manufacturing capability with which we compete. Any failure by us to compete successfully in these target markets, particularly in the communications markets, would have a material adverse effect on our business, financial condition and results of operations.

Revenues that are currently derived from non-communications markets have generally been declining and we expect them to continue to decline in future periods.

          We have derived significant revenues from product sales to customers in the ATE, high-speed computing and military markets and currently anticipate that we will continue to derive revenues from sales to customers in these markets in the near term. We are not currently developing products for these markets, and have initiated a plan to exit these markets entirely. The plan includes closing the facility where a majority of these products are manufactured, as well as coordinating a last time buy program with our customers in these markets.

Our future success depends in part on the continued service of our key design engineering, sales, marketing, manufacturing and executive personnel and our ability to identify, hire and retain additional, qualified personnel.

          There is intense competition for qualified personnel in the semiconductor industry, in particular design, product and test engineers, and we may not be able to continue to attract and train engineers or other qualified personnel necessary for the development of our business, or to replace engineers or other qualified personnel who may leave our employment in the future. Periods of contraction in our business may inhibit our ability to attract and retain our personnel. Loss of the services of, or failure to recruit, key design engineers or other technical and management personnel could be significantly detrimental to our product and process development programs.

          In November 2001, we implemented a stock option exchange program, which was completed in May 2002. The sole purpose of the program was to improve our ability to retain and motivate employees, officers and board members. We cannot be certain that the program will result in increased retention of employees, officers or board members.

          To manage operations effectively, we will be required to continue to improve our operational, financial and management systems and to successfully hire, train, motivate and manage our employees. The integration of past and future potential acquisitions will require significant additional management, technical and administrative resources. We cannot be certain that we will be able to manage our expanded operations effectively.

A disruption in the manufacturing capabilities of our outside foundries would negatively impact the production of certain of our products.

          We rely on outside foundries for the manufacture of the majority of our products, including all of our products designed on CMOS and SiGe BiCMOS processes. These outside foundries generally manufacture our products on a purchase order basis. A majority of our products are only qualified for production at a single foundry. These suppliers can allocate, and in the past have allocated, capacity to the production of other companies’ products while reducing deliveries to us on a short notice. Because establishing relationships and ramping production with new outside foundries may take over a year, there is no readily available alternative source of supply for these products. A manufacturing disruption experienced by one or more of our outside foundries or a disruption of our relationship with an outside foundry, including discontinuance of our products by that foundry, would negatively impact the production of certain of our products for a substantial period of time. In addition, the transition to the next generation of manufacturing technologies at one or more of our outside foundries could be unsuccessful or delayed.

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Our dependence on third-party manufacturing and supply relationships increases the risk that we will not have an adequate supply of products to meet demand or that our cost of materials will be higher than expected.

          The risks associated with our dependence upon third parties which manufacture, assemble or package certain of our products, include:

• reduced control over delivery schedules and quality;

• risks of inadequate manufacturing yields and excessive costs;

• difficulties selecting and integrating new subcontractors;

• the potential lack of adequate capacity during periods of excess demand;

• limited warranties on products supplied to us;

• potential increases in prices; and

• potential misappropriation of our intellectual property.

          Difficulties associated with adapting our technology and product design to the proprietary process technology and design rules of outside foundries can lead to reduced yields. The process technology of an outside foundry is typically proprietary to the manufacturer. Since low yields may result from either design or process technology failures, yield problems may not be effectively determined or resolved until an actual product exists that can be analyzed and tested to identify process sensitivities relating to the design rules that are used. As a result, yield problems may not be identified until well into the production process, and resolution of yield problems may require cooperation between us and our manufacturer. This risk could be compounded by the offshore location of certain of our manufacturers, increasing the effort and time required to identify, communicate and resolve manufacturing yield problems. Manufacturing defects that we do not discover during the manufacturing or testing process may lead to costly product recalls. These risks may lead to increased costs or delayed product delivery, which would harm our profitability and customer relationships.

          If the foundries or subcontractors we use to manufacture our products discontinue the manufacturing processes needed to meet our demands, or fail to upgrade their technologies needed to manufacture our products, we may be unable to deliver products to our customers.

          Our requirements typically represent a very small portion of the total production of the third-party foundries. As a result, we are subject to the risk that a producer will cease production on an older or lower-volume process that it uses to produce our parts. We cannot be certain our external foundries will continue to devote resources to the production of our products or continue to advance the process design technologies on which the manufacturing of our products are based. Each of these events could increase our costs and materially impact our ability to deliver our products on time.

Our operating results depend on manufacturing output and yields, which may not meet expectations.

          Though we intend to close our wafer manufacturing facility in the fourth quarter of fiscal 2003, we still manufacture a portion of our ICs at that facility. Because the majority of our costs of manufacturing are relatively fixed, downturns in the volumes manufactured by our internal process such as wafer fabrication and test and assembly will result in substantially higher unit costs and may result in reduced gross profit and net income.

          Manufacturing ICs requires manufacturing tools which are unique to each product being produced. If one of these unique manufacturing tools was damaged or destroyed, then our ability to manufacture the related product and fulfill any last time buy orders would be impaired and our business would suffer until the tools were repaired or replaced.

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          Our yields decline whenever a substantial percentage of wafers must be rejected or a significant number of die on each wafer are nonfunctional. Such declines can be caused by many factors, including minute levels of contaminants in the manufacturing environment, design issues, defects in masks used to print circuits on a wafer and difficulties in the fabrication process. Design iterations and process changes by our suppliers can cause a risk of contamination. Many of these problems are difficult to diagnose, are time consuming and expensive to remedy, and can result in shipment delays.

          We estimate yields per wafer in order to estimate the value of inventory. If yields are materially different than projected, work-in-process inventory may need to be revalued. We have in the past, and may occasionally in the future, take inventory write-downs as a result of decreases in manufacturing yields. We may suffer periodic yield problems in connection with new or existing products or in connection with the commencement of production at a new manufacturing facility.

          In addition, our manufacturing output or yields may decline as a result of power outages, supply shortages, accidents, natural disasters or other disruptions to the manufacturing process.

          Due to an industry transition to six-inch, eight-inch and twelve-inch wafer fabrication facilities, there is a limited number of suppliers of the four-inch wafers that we use to build products in our existing manufacturing facility, and we rely on a single supplier for these wafers. We believe that we will have sufficient access to four-inch wafers to support production in our existing fabrication facility until it is closed.  However, if we are unable to attain sufficient numbers of these four-inch wafers, it may prevent us from fulfilling our last time buy orders with certain customers of our legacy products.

We must develop or otherwise gain access to improved process technologies.

          Our future success will depend upon our ability to continue to improve existing process technologies, to develop or acquire new process technologies, and to adapt our process technologies to emerging industry standards. In the future, we may be required to transition one or more of our products to process technologies with smaller geometries, other materials or higher speeds in order to reduce costs and/or improve product performance. We may not be able to improve our process technologies and develop or otherwise gain access to new process technologies in a timely or affordable manner. In addition, products based on these technologies may not achieve market acceptance.

We may experience difficulties in transitioning to smaller geometry process technologies or in achieving higher levels of design integration and that may result in reduced manufacturing yields, delays in product deliveries and increased expenses.

          In order to remain competitive, we expect to continue to transition our products to increasingly smaller line width geometries. This transition will require us to modify the manufacturing processes for our products and redesign certain products. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs, and we have designed products to be manufactured at as little as .13 micron geometry processes. In the past, we have experienced some difficulties in shifting to smaller geometry process technologies or new manufacturing processes. These difficulties resulted in reduced manufacturing yields, delays in product deliveries and increased expenses.  We may face similar difficulties, delays and expenses as we continue to transition our products to smaller geometry processes. We are dependent on our relationships with our foundries to transition to smaller geometry processes successfully. We cannot assure you that our foundries will be able to effectively  manage the transition or that we will be able to maintain our relationships with our foundries. If we or our foundries experience significant delays in this transition or fail to efficiently implement this transition, our business, financial condition and results of operations could be materially and adversely affected. As smaller geometry processes become more prevalent, we expect to continue to integrate greater levels of functionality into our products. However, we may not be able to achieve higher levels of design integration or deliver new integrated products on a timely basis, or at all.

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The complexity of our products may lead to errors, defects and bugs when they are first introduced, which could negatively impact our reputation with customers.

          Products as complex as ours may contain errors, defects and bugs when first introduced or as new versions are released. Our products have in the past experienced such errors, defects and bugs. Delivery of products with production defects or reliability, quality or compatibility problems could significantly delay or hinder market acceptance of the products. This, in turn, could damage our reputation and adversely affect our ability to retain existing customers and to attract new customers. Errors, defects or bugs could cause problems, interruptions, delays or cessation of sales to our customers.

          We may also be required to make significant expenditures of capital and resources to resolve such problems. There can be no assurance that problems will not be found in new products after commencement of commercial production, despite testing by us, our suppliers or our customers. This could result in:

• additional development costs;

• loss of, or delays in, market acceptance;

• diversion of technical and other resources from our other development efforts;

• claims by our customers or others against us; and

• loss of credibility with our current and prospective customers.

          Any such event could have a material adverse effect on our business, financial condition and results of operations.

Our ability to manufacture a sufficient number of products to meet demand could be severely hampered by a shortage of water, electricity or other supplies, or by natural disasters or other catastrophes.

          The manufacture of our products requires significant amounts of water. Previous droughts have resulted in restrictions being placed on water use by manufacturers. In the event of a future drought, reductions in water use may be mandated generally, and our ability or our external foundries’ ability to manufacture our products could be impaired.

          Early in 2001, California experienced prolonged energy alerts and blackouts caused by disruption in energy supplies. As a consequence, California continues to experience substantially increased costs of electricity and natural gas. To minimize the potential disruption to our business, we equipped our internal manufacturing facilities with generators. We are unsure whether these alerts and blackouts will reoccur or how severe they may become in the future. Several of our facilities, including our principal executive offices and principal research and development headquarters, are located in California. Many of our customers and suppliers are also headquartered or have substantial operations in California. If we, or any of our major customers located in California, experience a sustained disruption in energy supplies, our results of operations could be materially and adversely affected.

          Our internal manufacturing facilities are located in San Diego, California which is subject to natural disasters such as earthquakes or floods. We do not have earthquake insurance for these facilities, because adequate coverage is not offered at economically justifiable rates. In addition, some of our external foundries upon which we rely for the manufacture of the majority of our products are also located in areas which have in the past, and may in the future, experience a significant earthquake. A significant natural disaster or other catastrophic event could have a material adverse impact on our business, financial condition and operating results.

          In addition, the effects of war or acts of terrorism could have a material adverse effect on our business, operating results and financial condition. The terrorist attacks in New York and Washington, D.C. on September 11, 2001 disrupted commerce throughout the world and intensified the uncertainty of the US economy and other economies around the world. The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to these economies and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially and adversely affected.

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We could incur substantial fines or litigation costs associated with our storage, use and disposal of hazardous materials.

          We are subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Any failure to comply with present or future regulations could result in the imposition of fines, the suspension of production or a cessation of operations. These regulations could require us to acquire costly equipment or incur other significant expenses to comply with environmental regulations or clean up prior discharges. Since 1993, we have been named as a potentially responsible party, along with a large number of other companies that used Omega Chemical Corporation in Whittier, California to handle and dispose of certain hazardous waste material. We are a member of a large group of potentially responsible parties that has agreed to fund certain remediation efforts at the Omega site, which efforts are ongoing. To date, our payment obligations with respect to these funding efforts have not been material, and we believe that our future obligations to fund these efforts will not have a material adverse effect on our business, financial condition or operating results. Although we believe that we are currently in material compliance with applicable environmental laws and regulations, we cannot assure you that we are or will be in material compliance with these laws or regulations or that our future obligations to fund any remediation efforts, including those at the Omega site, will not have a material adverse effect on our business.

We have in the past and may in the future make acquisitions that will involve numerous risks. We may not be able to address these risks successfully without substantial expense, delay or other operational or financial problems.

          The risks involved with acquisitions include:

• diversion of management’s attention;

• failure to retain key personnel;

• difficulty in completing an acquired company’s in-process research or development projects;

• amortization of acquired intangible assets and deferred compensation;

• customer dissatisfaction or performance problems with an acquired company’s products or services;

• the cost associated with acquisitions and the integration of acquired operations;

• ability of the acquired companies to meet their financial projections; and

• assumption of unknown liabilities, or other unanticipated events or circumstances.

          As with past purchase acquisitions, future acquisitions could adversely affect operating results. In particular, acquisitions may materially and adversely affect our results of operations because they may require large one-time charges or could result in increased debt or contingent liabilities, adverse tax consequences, substantial additional depreciation or deferred compensation charges. In connection with our six purchase acquisitions in fiscal 2001, we recorded goodwill in the aggregate amount of approximately $4.0 billion. In accordance with Statement of Financial Accounting Standard No. 121, “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of”, we recorded a goodwill impairment charge of $3.1 billion in the three months ended June 30, 2001 to write down the value of goodwill associated with certain of our purchase transactions.  In connection with the adoption of Statement of Financial Accounting Standard No. 141, “Business Combinations” and Statement No. 142, “Goodwill and Other Intangible Assets” in the first quarter of fiscal 2003, we recorded a $102.2 million charge for the impairment of the carrying value of goodwill and an additional $204.3 million for the estimated impairment of the carrying value of other purchased intangibles.  There can be no assurance that we will not be required to take additional significant charges as a result of an impairment to the carrying value of goodwill or other intangible assets.

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          Any of these risks could materially harm our business, financial condition and results of operations. Any business that we acquire may not achieve anticipated revenues or operating results.

We have been named as a defendant in securities class action litigation that could result in substantial costs and divert management’s attention and resources.

          We are aware of several lawsuits in which we, our chief executive officer, chief financial officer and certain of our other executive officers and directors, have been sued for alleged violations of federal securities laws related to alleged misrepresentations regarding our financial prospects for the fourth quarter of fiscal 2001. We believe that the claims being brought against us, our officers and directors are without merit, and we intend to engage in a vigorous defense of such claims. If we are not successful in our defense of such claims, we could be forced to make significant payments to our stockholders and their lawyers, and such payments could have a material adverse effect on our business, financial condition and results of operations if not covered by our insurance carriers. Even if such claims are not successful, the litigation could result in substantial costs and divert management’s attention and resources, which could have an adverse effect on our business.

We may not be able to protect our intellectual property adequately.

          We rely in part on patents to protect our intellectual property. We cannot assure you that our pending patent applications or any future applications will be approved, or that any issued patents will adequately protect the intellectual property in our products,  provide us with competitive advantages or will not be challenged by third parties, or that if challenged, will be found to be valid or enforceable. Furthermore, others may independently develop similar products or processes, duplicate our products or processes or design around any patents that may be issued to us.

          To protect our intellectual property, we also rely on the combination of mask work protection under the Federal Semiconductor Chip Protection Act of 1984, trademarks, copyrights, trade secret laws, employee and third-party nondisclosure agreements and licensing arrangements. Despite these efforts, we cannot be certain that others will not independently develop substantially equivalent intellectual property or otherwise gain access to our trade secrets or intellectual property, or disclose such intellectual property or trade secrets, or that we can meaningfully protect our intellectual property.  A failure by us to meaningfully protect our intellectual property could have a material adverse effect on our business, financial condition and operating results.

We could be harmed by litigation involving patents and proprietary rights.

          Litigation may be necessary to enforce our intellectual property rights, to determine the validity and scope of the proprietary rights of others or to defend against claims of infringement or misappropriation. The semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. Such litigation could result in substantial costs and diversion of resources, including the attention of our management and technical personnel and could have a material adverse effect on our business, financial condition and results of operations. We may be accused of infringing the intellectual property rights of third parties. We have certain indemnification obligations to customers with respect to the infringement of third-party intellectual property rights by our products. We cannot be certain that infringement claims by third parties or claims for indemnification by customers or end users resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not harm our business.

          Any litigation relating to the intellectual property rights of third parties, whether or not determined in our favor or settled by us, would at a minimum be costly and could divert the efforts and attention of our management and technical personnel. In the event of any adverse ruling in any such litigation, we could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license under the intellectual property rights of the third party claiming infringement. A license might not be available on reasonable terms, or at all.

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Our stock price is volatile.

          The market price of our common stock has fluctuated significantly. In the future, the market price of our common stock could be subject to significant fluctuations due to general economic and market conditions and in response to quarter-to-quarter variations in:

• our anticipated or actual operating results;

• announcements or introductions of new products;

• technological innovations or setbacks by us or our competitors;

• conditions in the semiconductor, telecommunications, data communications or high-speed computing markets;

• the commencement or outcome of litigation;

• changes in estimates of our performance by securities analysts;

• announcements of merger or acquisition transactions; and

• other events or factors.

          In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, particularly semiconductor companies, and that have often been unrelated or disproportionate to the operating performance of those companies. These fluctuations may harm the market price of our common stock.

The anti-takeover provisions of our certificate of incorporation and of the Delaware general corporation law may delay, defer or prevent a change of control.

          Our board of directors has the authority to issue up to 2,000,000 shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. The issuance of preferred stock could have a dilutive effect on our stockholders.

If we issue additional shares of stock in the future, it may have a dilutive effect on our stockholders.

          We have a significant number of authorized and unissued shares of our common stock available. These shares will provide us with the flexibility to issue our common stock for proper corporate purposes, which may include making acquisitions through the use of stock, adopting additional equity incentive plans and raising equity capital. Any subsequent issuance of our common stock may result in immediate dilution of our then current stockholders.

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ITEM 3.     QUANTITATIVE AND QUALTITATIVE DISCLOSURE ABOUT MARKET RISK

          Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange, interest rates and a decline in the stock market. We do not hold or enter into derivatives or other financial instruments for trading or speculative purposes. We are exposed to market risks related to changes in interest rates and foreign currency exchange rates.

          We are exposed to market risk as it relates to changes in the market value of our investments. At June 30, 2002, our investment portfolio includes fixed-income securities classified as available-for-sale investments with a fair market value of $871.1 million and a cost basis of $863.3 million. These securities are subject to interest rate risk and will decline in value if interest rates increase. Because the maturity dates of our investment portfolio are relatively short, an immediate 100 basis point increase in interest rates would have no material impact on our financial condition or results of operations.

          We invest in equity instruments of private companies for business and strategic purposes. These investments are classified as long-term strategic equity investments and are valued based on prices recently paid for the securities. The estimated fair values are not necessarily representative of the amounts that we could realize in a current transaction.

          We generally conduct business, including sales to foreign customers, in U.S. dollars, and as a result, we have limited foreign currency exchange rate risk. The effect of an immediate 10 percent change in foreign exchange rates would not have a material impact on our financial condition or results of operations.

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PART II.   OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

          In April 2001, a series of similar federal complaints were filed against the Company and certain executive officers and directors of the Company.  The complaints have been consolidated into a single proceeding in the U.S. District Court for the Southern District of California.  In re Applied Micro Circuits Corp. Securities Litigation, lead case number 01-CV-0649-K(AB).  In November 2001, the court appointed the lead plaintiff and lead plaintiff’s counsel in the consolidated proceeding, and plaintiff filed a consolidated federal complaint in January 2002.  The consolidated federal complaint alleged violations of the Securities Exchange Act of 1934 (the “1934 Act”) and was brought as a purported shareholder class action under Sections 10(b), 20(a) and 20A of the 1934 Act and Rule 10b-5 under the 1934 Act.  Plaintiff sought monetary damages on behalf of the shareholder class.    Defendants brought a motion to dismiss the consolidated federal complaint in March 2002. On May 9, 2002, the court granted the motion, dismissing the complaint, but giving plaintiff 45 days to file an amended complaint. On June 23, 2002, plaintiff filed an amended consolidated complaint.  In general, the consolidated amended federal complaint alleges that the Company and the individual defendants misrepresented the Company’s financial prospects for the quarters ending in December 31, 2000 and March 30, 2001, in order to inflate the value of the Company’s stock.  Defendants intend to bring a motion to dismiss the consolidated amended complaint as well.  The motion is expected to be heard in the fall of 2002.   No discovery has been conducted in this lawsuit.

          In May 2001, a series of similar state derivative actions were filed against the directors and certain executive officers of the Company.  The state complaints have been coordinated and assigned to the Superior Court of California in the County of San Diego.  Applied Micro Circuits Shareholders Cases, No. JCCP No. 4193.  In November 2001, the court appointed liaison plaintiffs’ counsel in the coordinated proceeding, and plaintiffs filed a consolidated state complaint in December 2001.  The consolidated state complaint alleges overstatement of the financial prospects of the Company, mismanagement, inflation of stock value and sale of stock at inflated prices for personal gain during the period from November 2000 through February 2001.  Defendants demurred to the consolidated state complaint, which demurrer was partially granted and partially overruled in February 2002.  In February 2002, the Company’s board of directors formed a special litigation committee to evaluate the claims in the consolidated state complaint.  The special litigation committee retained independent legal counsel and submitted a report to the court in July, 2002.  Defendants intend to file motions seeking dismissal of the actions, which motion are expected to be heard in the fall of 2002.     Limited discovery against the individual defendants in this lawsuit and third parties has commenced.  Discovery against the Company has been stayed by the court.

          The Company believes that the allegations in these lawsuits are without merit and intends to defend the lawsuits vigorously.  The Company cannot predict the likely outcome of these lawsuits, and an adverse result in either lawsuit could have a material adverse effect on the Company.  The lawsuits have been tendered to the Company’s insurance carriers.

          The Company is party to various claims and legal actions arising in the normal course of business, including notification of possible infringement on the intellectual property rights of third parties. In addition, since 1993 the Company has been named as a potentially responsible party (‘‘PRP’’) along with a large number of other companies that used Omega Chemical Corporation (‘‘Omega’’) in Whittier, California to handle and dispose of certain hazardous waste material. The Company is a member of a large group of PRPs that has agreed to fund certain remediation efforts at the Omega site for which the Company has accrued approximately $100,000. On September 14, 2000, the Company entered into a consent decree with the Environmental Protection Agency, pursuant to which the Company agreed to fund its proportionate share of the initial remediation efforts at the Whittier site. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters, net of amounts accrued, will not have a material adverse affect on the Company’s financial position or liquidity; however, there can be no assurance that the ultimate resolution of these matters will not have a material impact on the Company’s results of operations in any period

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ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K

          (a) EXHIBITS:

10.3        1992 Stock Option Plan and form of option agreement, as amended

10.5        1997 Directors, Stock Option Plan and form of option agreement, as amended

10.26      1998 Stock Incentive Plan and form of option agreement, as amended

10.33      2000 Equity Incentive Plan and form of option agreement, as amended

10.38      AMCC Deferred Compensation Plan

          (b) REPORTS ON FORM 8-K

          The Company did not file any current reports on Form 8-K with the Commission during the quarter ended June 30, 2002.

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SIGNATURES

          Pursuant to the requirements 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.

Date: August 13, 2002	APPLIED MICRO CIRCUITS CORPORATION
	By:	/s/   WILLIAM BENDUSH
		William Bendush
		Senior Vice President And Chief Financial Officer
		(Duly Authorized Signatory and Principal Financial and Accounting Officer)

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CERTIFICATION

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted), David Rickey, Chief Executive Officer of the registrant, hereby certifies that, to the best of his knowledge:

1.	This report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934.
2.	The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Dated:  August 13, 2002	/s/ DAVID RICKEY
	David Rickey, Chief Executive Officer

CERTIFICATION

          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted), William Bendush, Chief Financial Officer of the registrant, hereby certifies that, to the best of his knowledge:

1.	This report fully complies with the requirements of section 13(a) of the Securities Exchange Act of 1934.
2.	The information contained in this report fairly presents, in all material respects, the financial condition and results of operations of the registrant.

Dated:  August 13, 2002	/s/  WILLIAM BENDUSH
	William Bendush, Chief Financial Officer

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EX-10.3

Exhibit 10.3

APPLIED MICRO CIRCUITS CORPORATION

1992 STOCK OPTION PLAN

1.    PURPOSES OF THE PLAN.    The purposes of this 1992 Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company’s business. Options granted under the Plan may be incentive stock options (as defined under Section 422 of the Code) or non statutory stock options, as determined by the Administrator at the time of grant of an option and subject to the applicable provisions of Section 422 of the Code, as amended, and the regulations promulgated thereunder.

2.    DEFINITIONS.    As used herein, the following definitions shall apply:

(a)    “Administrator” means the Board or any of its Committees appointed pursuant to Section 4 of the Plan.

(b)    “Board” means the Board of Directors of the Company.

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

(d)    “Committee” means the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan.

(e)    “Common Stock” means the Common Stock of the Company.

(f)    “Company” means Applied Micro Circuits Corporation, a Delaware corporation.

(g)    “Consultant” means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services, and any director of the Company whether compensated for such services or not.

(h)    “Continuous Status as an Employee or Consultant” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor.

(i)    “Employee” means any person, including officers and directors, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company.

(j)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

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(k)    “Executive Officer” means any person who has been expressly designated an executive officer of the Company by the Board, without regard to whether such person meets the criteria for an executive officer as set forth in Rule 405 under the Securities Act of 1933, as amended.

(l)    “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i)    If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported), as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock, for the last market trading day prior to the time of determination as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii)    If the Common Stock is quoted on the NASDAQ System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock or;

(iii)    In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

(m)    “Incentive Stock Option” means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code.

(n)    “Named Executive” means any individual who, on the last day of the Company’s fiscal year, is the chief executive officer of the Company (or is acting in such capacity) or among the four highest compensated officers of the Company (other than the chief executive officer). Such officer status shall be determined pursuant to the executive compensation disclosure rules under the Exchange Act.

(o)    “Nonstatutory Stock Option” means an Option not intended to qualify as an Incentive Stock Option.

(p)    “Option” means a stock option granted pursuant to the Plan.

(q)    “Optioned Stock” means the Common Stock subject to an Option.

(r)    “Optionee” means an Employee or Consultant who receives an Option.

(s)    “Parent” means a “parent corporation”, whether now or hereafter existing, as defined in Section 424(e) of the Code.

(t)    “Plan” means this 1992 Stock Option Plan.

(u)    “Retirement” means the termination of an Optionee’s Continuous Status as an Employee or Consultant by retirement as determined in accordance with the Company’s then current employment policies and guidelines.

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(v)     “Share” means a share of the Common Stock, as adjusted in accordance with Section 13 of the Plan.

(w)    “Subsidiary” means a “subsidiary corporation”, whether now or hereafter existing, as defined in Section 424(f) of the Code.

(x)    “Total Service” means the sum of all of an Optionee’s periods of Continuous Status as an Employee or Consultant.

3.    STOCK SUBJECT TO THE PLAN.    Subject to the provisions of Section 13 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is Seventy-Eight Million Six Hundred Eighteen Thousand Four Hundred Thirty-Two (78,618,432) shares of Common Stock (on a post-split basis). The shares may be authorized, but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan.

4.    ADMINISTRATION OF THE PLAN.

(a)    Procedure.

(i)    Administration With Respect to Directors and Officers.    With respect to grants of Options to Employees or Consultants who are also officers or directors of the Company, grants under the Plan shall be made by (A) the Board if the Board may make grants under the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor thereto (“Rule 16b-3”) and Section 162(m) of the Code as it applies so as to qualify grants or Options to Named Executives as performance-based compensation, or (B) a Committee designated by the Board to make grants under the Plan, which Committee shall be constituted in such a manner as to permit grants under the Plan to comply with Rule 16b-3, to qualify grants of options to Named Executives as performance-based compensation under Section 162(m) of the Code and otherwise so as to satisfy legal requirements relating to the administration of incentive stock option plans, if any, of California corporate and securities laws and of the Code (the “Applicable Laws”). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3 and to the extent required under Section 162(m) of the Code to qualify grants of Options to Named Executives as performance-based compensation.

(ii)    Multiple Administrative Bodies.    If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers.

(iii)    Administration With Respect to Consultants and Other Employees.    With respect to grants of Options to Employees or Consultants who are neither directors nor officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to

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satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.

(b)    Powers of the Administrator.    Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i)    to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan;

(ii)    to select the Consultants and Employees to whom Options may from time to time be granted hereunder;

(iii)    to determine whether and to what extent Options are granted hereunder;

(iv)    to determine the number of shares of Common Stock to be covered by each such award granted hereunder;

(v)    to approve forms of agreement (including electronic forms of agreement) for use under the Plan (each an “Option Agreement”); and

(vi)    to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder.

(c)    Repricings.    The Administrator shall not have the authority to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted.

(d)    Effect of Administrator’s Decision.    All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options.

5.    ELIGIBILITY.

(a)    Nonstatutory Stock Options may be granted to Employees and Consultants. Incentive Stock Options may be granted only to Employees. An Employee or Consultant who has been granted an Option may, if such Optionee is otherwise eligible, be granted an additional Option or Options.

(b)    Each Option shall be designated in the Option Agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate Fair Market Value of the Shares with respect to which Options designated as Incentive Stock Options are exercisable for the first time by any

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Optionee during any calendar year (under all plans of the Company or any Parent or Subsidiary) exceeds $100,000, such excess Options shall be treated as Nonstatutory Stock Options.

(c)    For purposes of Section 5(b), Incentive Stock Options shall be taken into account in the order in which they were granted, and the Fair Market Value of the Shares shall be determined as of the time the Option with respect to such Shares is granted.

(d)    The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such Optionee’s right or the Company’s right to terminate such Optionee’s employment or consulting relationship at any time, with or without cause.

6.    TERM OF PLAN.    The Plan shall become effective upon the earlier to occur of its adoption by the Board of Directors or its approval by the stockholders of the Company as described in Section 19 of the Plan. It shall continue in effect until July 1, 2012 unless sooner terminated under Section 15 of the Plan.

7.    TERM OF OPTION.    The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement. However, in the case of an Incentive Stock Option granted to an Optionee who, at the time the Option is granted, owns stock representing more than ten percent (10%) of the voting power of all classes of stock of the Company or any Parent or Subsidiary, the term of the Option shall be five (5) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.

8.    LIMITATION ON GRANTS TO EMPLOYEES.    Subject to adjustment as provided in this Plan, the maximum number of Shares which may be subject to options granted to any one Employee under this Plan for any fiscal year of the Company shall be 8,000,000. This Section 8 shall not apply prior to the date upon which the Company becomes subject to the Exchange Act and following such date, shall not apply until the (i) earliest of: (A) the first material modification of the Plan (including any increase to the number of shares reserved for issuance under the Plan in accordance with Section 3); (B) the issuance of all of the shares of common stock reserved for issuance under the Plan; (C) the expiration of the Plan; or (D) the first meeting of shareholders at which directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of any equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder.

9.    OPTION EXERCISE PRICE AND CONSIDERATION.

(a)    The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board, but shall be subject to the following:

(i)    In the case of an Incentive Stock Option,

(1)    granted to an Employee who, at the time of the grant of such Incentive Stock Option, owns stock representing more than ten percent (10%) of the voting

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power of all classes of stock of the Company or any Parent or Subsidiary, the per Share exercise price shall be no less than 110% of the Fair Market Value per Share on the date of grant.

(2)    granted to any other Employee, the per Share exercise price shall be no less than 100% of the Fair Market Value per Share on the date of grant.

(ii)    In the case of a Nonstatutory Stock Option, the per Share exercise price shall be no less than 100% of the Fair Market Value on the date of grant.

(b)    The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator (and, in the case of an Incentive Stock Option, shall be determined at the time of grant) and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, (6) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (7) any combination of the foregoing methods of payment, (8) or such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

10.    EXERCISE OF OPTION.

(a)    Procedure for Exercise; Rights as a Stockholder.    Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when notice of such exercise has been provided in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 9(b) of the Plan. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b)    Termination of Employment.    In the event of termination of an Optionee’s Continuous Status as an Employee or Consultant with the Company (as the case may be), such Optionee may, but only within thirty (30) days (or such other period of time as is

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determined by the Board, which, in the case of an Incentive Stock Option shall not exceed three (3) months after the date of such termination but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise such Optionee’s Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(c)    Disability of Optionee.    Notwithstanding the provisions of Section 10(b) above, in the event of termination of an Optionee’s Continuous Status as an Employee or Consultant as a result of such Optionee’s total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (or such other period of time as is determined by the Board but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(d)    Death of Optionee.    In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (or such other period of time as is determined by the Board but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee was entitled to exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(e)    Rule 16b-3.    Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

11.    NON-TRANSFERABILITY OF OPTIONS.    An Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or, in the case of a Nonstatutory Stock Option only, pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised, during the lifetime of the Optionee, only by the Optionee or a transferee permitted by this Section. Notwithstanding the foregoing, the Optionee may by delivering notice to the Company in a form satisfactory to the Company designate a third party who in the event of the death of the Optionee shall thereafter be entitled to exercise the Option.

12.    STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS.    At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (i) by cash payment, or (ii) out of Optionee’s current compensation, or (iii) if permitted

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by the Administrator, in its discretion, by surrendering to the Company Shares which (a) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (b) have a fair market value on the date of surrender equal to or less than the applicable withholding taxes, (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the “Tax Date”).

If the Optionee is subject to Section 16 of the Exchange Act (an “Insider”), any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”).

All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in a form acceptable to the Administrator and shall be subject to the following restrictions:

(a)    the election must be made on or prior to the applicable Tax Date;

(b)    once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and

(c)    all elections shall be subject to the consent or disapproval of the Administrator.

In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.

13.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

(a)    Changes in Capitalization.    Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of

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any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b)    Corporate Transactions.    In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Administrator. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Administrator and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation, or (iii) a reverse merger in which the Company is the surviving corporation but the Shares outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, the Option shall vest and become immediately exercisable for the number of Shares that would otherwise be vested and exercisable under the terms of the Option one (1) year after the date of such transaction. Thereafter, the Option shall be assumed or an equivalent option shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Administrator determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Option shall vest and the Optionee shall have the right to immediately exercise the Option as to some or all of the Optioned Stock, including Shares as to which the Option would not otherwise be vested and exercisable. If the Administrator makes an Option vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be vested and immediately exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period.

14.    TIME OF GRANTING OPTIONS.    The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.

15.    AMENDMENT AND TERMINATION OF THE PLAN.

(a)    Amendment and Termination.    The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without such Optionee’s consent. In addition, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act or with Sections 162(m) and 422 of the Code (or any other applicable law or regulation, including the requirements of the NASD or an established stock exchange), the Company shall obtain stockholder approval of any Plan amendment in such a manner and to such a degree as required.

(b)    Effect of Amendment or Termination.    Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be executed by the Optionee and the Company.

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16.    CONDITIONS UPON ISSUANCE OF SHARES.    Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

17.    RESERVATION OF SHARES.    The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

18.    AGREEMENTS.    Options shall be evidenced by agreements in such form (including electronic form) as the Board shall approve from time to time.

19.    STOCKHOLDER APPROVAL.    Continuance of the Plan shall be subject to approval by the stockholders of the Company within twelve (12) months before or after the date the Plan is adopted. Such stockholder approval shall be obtained in the degree and manner required under applicable state and federal law.

20.    INFORMATION TO OPTIONEES.    The Company shall provide to each Optionee, during the period such Optionee has one or more Options outstanding, and to each individual who acquired shares pursuant to the exercise of an option, with copies of all annual reports and other information which are provided to all stockholders of the Company. The Company shall not be required to provide such information if the issuance of Options under the Plan is limited to key employees whose duties in connection with the Company assure their access to equivalent information.

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APPLIED MICRO CIRCUITS CORPORATION

1992 STOCK OPTION PLAN

FORM OF NOTICE OF GRANT, STOCK OPTION AGREEMENT AND NOTICE OF EXERCISE

[GRAPHIC]

Applied Micro Circuits Corporation

6290 Sequence Drive

San Diego, CA 92121

ID: 94-2586591

«First_Name» «Middle_Name» «Last_Name»	Option Number: «Number»
«Address_Line_1» «Address_Line_2»	Plan: «Plan»
«City» «State» «Country» «Zip_Code»	ID: «ID»

Effective «Option_Date», you have been granted a «Long_Type» to buy «Shares_Granted» shares of Applied Micro Circuits Corporation (AMCC) common stock at $«Option_Price» per share.

The total option price of the shares granted is «Total_Option_Price».

Your shares become exercisable as follows:

Shares	Vest Type	Full Vest	Expiration
«Shares_Period_1»	«Vest_Type_Period_1»	«Vest_Date_Period_1»	«Expiration_Date_Period_1»
«Shares_Period_2»	«Vest_Type_Period_2»	«Vest_Date_Period_2»	«Expiration_Date_Period_2»

If you have any questions, please contact Stock Administration at x 3462.

By your signature and the signature of David M. Rickey below, you and AMCC agree that these options are granted under and governed by the terms and conditions of AMCC’s 1992 Stock Option Plan and this Option Agreement. You acknowledge that you have reviewed the 1992 Stock Option Plan and this Option Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Option. You also agree to accept as binding, conclusive and final all decisions or interpretations of the AMCC Board of Directors upon any questions arising under the 1992 Stock Option Plan and this Option Agreement.

Your option will not become exercisable until a signed copy of this Option Agreement is received by Stock Administration.

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David M. Rickey, Chairman and CEO                                                                          Date

«First_Name» «Middle_Name» «Last_Name»                                                             Date

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APPLIED MICRO CIRCUITS CORPORATION

1992 STOCK OPTION PLAN

Applied Micro Circuits Corporation, a Delaware corporation (the “Company”), has granted to              (the “Optionee”), an option (the “Option”) to purchase the total number of shares of Common Stock of the Company (the “Shares”) set forth in the attached Notice of Grant effective              (the “Notice of Grant”), at the price as set forth in the Notice of Grant (the “Exercise Price”), subject in all respects to the terms, definitions and provisions of the 1992 Stock Option Plan (the “Plan”) adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings herein.

NATURE OF THE OPTION.    THIS OPTION IS INTENDED BY THE COMPANY AND THE OPTIONEE TO BE A NONSTATUTORY STOCK OPTION, AND DOES NOT QUALIFY FOR ANY SPECIAL TAX BENEFITS TO THE OPTIONEE. THIS OPTION IS NOT AN INCENTIVE STOCK OPTION AND IS NOT SUBJECT TO SECTION 5(B) OF THE PLAN.

EXERCISE PRICE.    THE EXERCISE PRICE FOR EACH SHARE OF COMMON STOCK IS SET FORTH IN THE NOTICE OF GRANT AND IS NOT LESS THAN THE FAIR MARKET VALUE PER SHARE OF THE COMMON STOCK ON THE DATE OF GRANT.

EXERCISE OF OPTION.    THIS OPTION SHALL BE EXERCISABLE DURING ITS TERM IN ACCORDANCE WITH THE EXERCISE SCHEDULE SET OUT IN THE NOTICE OF GRANT AND WITH THE PROVISIONS OF SECTION 9 OF THE PLAN AS FOLLOWS:

Right to Exercise.

The Vesting Schedule set forth in the Notice of Grant shall temporarily cease during any period of time that Optionee’s employment is subject to an approved leave of absence as set forth in Section 2(h) of the Plan and shall recommence upon Optionee’s return to the employ of the Company.

This Option may not be exercised for a fraction of a share or for an amount less than 100 shares.

In the event of Optionee’s death, disability or other termination of employment or consultancy, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitations contained in subsection 3(i)(d).

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In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in Section 11 below.

Methods of Exercise.    This Option shall be exercisable by any of the following methods: (i) execution of the Stock Option Notice of Exercise in the form attached hereto as Exhibit A and delivery of such Notice of Exercise in person to Stock Administration, (ii) online exercise through a captive broker designated by the Company (a “Captive Broker”), (iii) telephonic exercise communicated to a representative of a Captive Broker, (iv) telephonic exercise through a voice response system designated by the Company or (v) such other method or methods of exercise as may be designated by the Company from time to time. Any such method of exercise shall require the Optionee to notify the Company of the Optionee’s election to exercise the Option and the number of Shares in respect of which the Option is being exercised, and may require the Optionee to make such other representations and agreements as to the Optionee’s investment intent with respect to such Shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan (collectively, an “Exercise Notice”). This Option shall be deemed to be exercised upon receipt by the Company or Captive Broker, as applicable, of such Exercise Notice and receipt by the Company of the exercise price for the Shares in respect of which the Option is being exercised.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

OPTIONEE’S REPRESENTATIONS; “AT-WILL” EMPLOYMENT RELATIONSHIP.    IN THE EVENT THIS OPTION AND THE SHARES PURCHASABLE PURSUANT TO THE EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AT THE TIME THIS OPTION IS EXERCISED, OPTIONEE SHALL, IF REQUIRED BY THE COMPANY CONCURRENTLY WITH THE EXERCISE OF ALL OR ANY PORTION OF THIS OPTION, DELIVER TO THE COMPANY AN INVESTMENT REPRESENTATION STATEMENT IN THE CUSTOMARY FORM, A COPY OF WHICH IS AVAILABLE FOR OPTIONEE’S REVIEW FROM THE COMPANY UPON REQUEST.

IF OPTIONEE IS AN EMPLOYEE, OPTIONEE’S EMPLOYMENT RELATIONSHIP WITH THE COMPANY IS AN “AT-WILL” EMPLOYMENT RELATIONSHIP UNLESS THE COMPANY AND OPTIONEE HAVE ENTERED INTO AN EXPRESS WRITTEN AGREEMENT THAT SETS FORTH A DIFFERENT EMPLOYMENT RELATIONSHIP.

METHOD OF PAYMENT.    PAYMENT OF THE EXERCISE PRICE SHALL BE BY ANY OF THE FOLLOWING, OR A COMBINATION THEREOF, AT THE ELECTION OF THE BOARD, IN ITS SOLE DISCRETION:

(i)    cash;

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(ii)    check;

(iii)    delivery of other shares of Common Stock of the Company which (x) have been owned by Optionee for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that Optionee did not acquire, directly or indirectly, from the Company, (y) are owned free and clear of any liens, claims, encumbrances or security interests and (z) have a Fair Market Value on the date of delivery equal to the exercise price of the Shares as to which the Option is being exercised. “Delivery” for these purposes, in the sole discretion of the Company at the time Optionee exercises an Option, shall include delivery to the Company of Optionee’s attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, Optionee may not exercise an Option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock; or

(iv)    delivery of a properly executed Exercise Notice together with such documentation as the Administrator or Captive Broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price.

RESTRICTIONS ON EXERCISE.    THIS OPTION MAY NOT BE EXERCISED UNTIL SUCH TIME AS THE PLAN HAS BEEN APPROVED BY THE STOCKHOLDERS OF THE COMPANY, OR IF THE ISSUANCE OF SUCH SHARES UPON SUCH EXERCISE OR THE METHOD OF PAYMENT OF CONSIDERATION FOR SUCH SHARES WOULD CONSTITUTE A VIOLATION OF ANY APPLICABLE FEDERAL OR STATE SECURITIES OR OTHER LAW OR REGULATION, INCLUDING ANY RULE UNDER PART 207 OF TITLE 12 OF THE CODE OF FEDERAL REGULATIONS (“REGULATION G”) AS PROMULGATED BY THE FEDERAL RESERVE BOARD. AS A CONDITION TO THE EXERCISE OF THIS OPTION, THE COMPANY MAY REQUIRE OPTIONEE TO MAKE ANY REPRESENTATION AND WARRANTY TO THE COMPANY AS MAY BE REQUIRED BY ANY APPLICABLE LAW OR REGULATION.

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TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT.    IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT, THE OPTIONEE MAY, BUT ONLY WITHIN NINETY (90) DAYS AFTER THE DATE OF SUCH TERMINATION (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), EXERCISE THIS OPTION TO THE EXTENT EXERCISABLE AT THE DATE OF SUCH TERMINATION; PROVIDED, HOWEVER, THAT IF OPTIONEE WAS AN EXECUTIVE OFFICER ON THE DATE OF GRANT OF THIS OPTION OR AT ANY TIME PRIOR TO THE DATE OF GRANT OF THIS OPTION AND SUCH TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT IS DUE TO OPTIONEE’S RETIREMENT, SUCH PERIOD OF EXERCISE AFTER THE DATE OF TERMINATION SHALL BE FIFTEEN (15) MONTHS OR, IF OPTIONEE’S TOTAL SERVICE WAS MORE THAN SEVEN (7) YEARS AT THE DATE OPTIONEE’S RETIREMENT COMMENCES, TWENTY-FOUR (24) MONTHS (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11). IF AN EMPLOYEE OF THE COMPANY, OPTIONEE’S EMPLOYMENT SHALL BE DEEMED TERMINATED ON SUCH DATE, IF ANY, AS OPTIONEE BECOMES A PART-TIME EMPLOYEE, AS DEFINED IN THE COMPANY’S THEN CURRENT EMPLOYMENT GUIDELINES. TO THE EXTENT THIS OPTION WAS NOT EXERCISABLE AT THE DATE OF SUCH TERMINATION, OR IF THE OPTIONEE DOES NOT EXERCISE THIS OPTION WITHIN THE TIME SPECIFIED HEREIN, THE OPTION SHALL TERMINATE.

DISABILITY OF OPTIONEE.    NOTWITHSTANDING THE PROVISIONS OF SECTION 7 ABOVE, IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT AS A RESULT OF SUCH OPTIONEE’S TOTAL AND PERMANENT DISABILITY (AS DEFINED IN SECTION 22(E)(3) OF THE CODE), THE OPTIONEE MAY, BUT ONLY WITHIN FIFTEEN (15) MONTHS FROM THE DATE OF SUCH TERMINATION (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), EXERCISE THIS OPTION TO THE EXTENT EXERCISABLE AT THE DATE OF SUCH TERMINATION. TO THE EXTENT THAT THE OPTION WAS NOT EXERCISABLE AT THE DATE OF TERMINATION, OR IF THE OPTIONEE DOES NOT EXERCISE SUCH OPTION WITHIN THE TIME SPECIFIED HEREIN, THE OPTION SHALL TERMINATE.

DEATH OF OPTIONEE.    IN THE EVENT OF THE DEATH OF OPTIONEE DURING THE TERM OF THIS OPTION AND WHILE AN EMPLOYEE OR CONSULTANT OF THE COMPANY AND HAVING BEEN IN CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT SINCE THE DATE OF GRANT OF THE OPTION, THE OPTION MAY BE EXERCISED, AT ANY TIME WITHIN FIFTEEN (15) MONTHS FOLLOWING THE DATE OF DEATH (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), BY OPTIONEE’S ESTATE OR BY A PERSON WHO ACQUIRED THE RIGHT TO EXERCISE THE OPTION BY BEQUEST OR INHERITANCE, BUT ONLY TO THE EXTENT EXERCISABLE AT THE DATE OF DEATH.

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NON-TRANSFERABILITY OF OPTION.    THIS OPTION MAY NOT BE TRANSFERRED IN ANY MANNER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT OR DISTRIBUTION OR, IN THE CASE OF A NONSTATUTORY STOCK OPTION ONLY, PURSUANT TO A DOMESTIC RELATIONS ORDER (AS DEFINED BY THE CODE OR THE RULES THEREUNDER) AND MAY BE EXERCISED DURING THE LIFETIME OF OPTIONEE ONLY BY HIM OR A TRANSFEREE PERMITTED BY THIS SECTION. THE TERMS OF THIS OPTION SHALL BE BINDING UPON THE EXECUTORS, ADMINISTRATORS, HEIRS, SUCCESSORS AND ASSIGNS OF THE OPTIONEE.

TERM OF OPTION.    THIS OPTION MAY BE EXERCISED ON OR BEFORE THE EXPIRATION DATE SET FORTH IN THE NOTICE OF GRANT AND MAY BE EXERCISED DURING SUCH TERM ONLY IN ACCORDANCE WITH THE PLAN AND THE TERMS OF THIS OPTION.

WITHHOLDING AND EMPLOYMENT TAXES UPON EXERCISE OF OPTION.    OPTIONEE UNDERSTANDS THAT, UPON EXERCISE OF THIS OPTION, SUCH OPTIONEE WILL RECOGNIZE INCOME FOR TAX PURPOSES IN AN AMOUNT EQUAL TO THE EXCESS OF THE THEN FAIR MARKET VALUE OF THE SHARES OVER THE EXERCISE PRICE. THE COMPANY WILL BE REQUIRED TO WITHHOLD TAX FROM OPTIONEE’S CURRENT COMPENSATION WITH RESPECT TO SUCH INCOME; TO THE EXTENT THAT OPTIONEE’S CURRENT COMPENSATION IS INSUFFICIENT TO SATISFY THE WITHHOLDING TAX LIABILITY, THE COMPANY MAY REQUIRE THE OPTIONEE TO MAKE A CASH PAYMENT TO COVER SUCH LIABILITY AS A CONDITION OF EXERCISE OF THIS OPTION. TO THE EXTENT AUTHORIZED BY THE BOARD IN ITS SOLE DISCRETION, OPTIONEE MAY MAKE AN ELECTION, BY MEANS OF A FORM OF ELECTION TO BE PRESCRIBED BY THE BOARD, TO HAVE SHARES OF COMMON STOCK OR OTHER SECURITIES OF THE COMPANY THAT ARE ACQUIRED UPON EXERCISE OF THE OPTION WITHHELD BY THE COMPANY OR TO TENDER OTHER SHARES OF COMMON STOCK OR OTHER SECURITIES OF THE COMPANY OWNED BY OPTIONEE TO THE COMPANY AT THE TIME OF EXERCISE OF THE OPTION TO PAY THE AMOUNT OF TAX THAT WOULD OTHERWISE BE REQUIRED BY LAW TO BE WITHHELD BY THE COMPANY AS A RESULT OF ANY EXERCISE OF THE OPTION FROM AMOUNTS PAYABLE TO SUCH PERSON, SUBJECT TO THE FOLLOWING LIMITATIONS:

(i)    such election shall be irrevocable;

(ii)    such election shall be subject to the disapproval of the Board at any time;

(iii)    such election may not be made within six months of the date of grant of the Option (except that this limitation shall not apply in the event of death or disability of such person occurring prior to the expiration of the six-month period); and

(iv)    such election must be made either (A) six months prior to the date that the amount of tax to be withheld upon such exercise is determined or (B) in any ten-day period beginning on the third business day following the date of release by the Company for publication of quarterly or annual summary statements of sales or earnings of the Company.

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Any securities so withheld or tendered will be valued by the Company as of the date of exercise.

THIS SPACE INTENTIONALLY

LEFT BLANK—SIGNATURE OF

OPTIONEE ON FOLLOWING PAGE

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OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE NOTICE OF GRANT AND SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY’S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH SUCH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE SUCH OPTIONEE’S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.

Dated:                                          

[Name]

Residence Address:

NOTICE OF EXERCISE

To:	Applied Micro Circuits Corporation
Attn:	Stock Option Administrator
Subject:	Notice of Intention to Exercise Stock Option

This is official notice that the undersigned (“Optionee”) intends to exercise Optionee’s option to purchase Shares of Applied Micro Circuits Corporation Common Stock, all of which are vested, as follows:

Option
Number Option
Date Type of
Option
ISO/NQ Number of Shares Being Purchased Option Price (Per Share) Tax Due* (if applicable) Total Amount Due AMCC

* AMCC is required to withhold taxes when employees exercise an NQO. Under current law, U.S. income tax withholding is not required when exercising an ISO.

I am paying the cost to exercise as specified below by method a, b or c (circle one below)

1.    Cash Payment:    Enclosed is my check # __________ in the amount of $__________.

b.    Cashless Exercise and Same-Day Sale:    I will call my stockbroker (complete broker info below) to authorize them to issue a check payable to AMCC from my account #                      .

Broker Name and Contact:                         

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Broker Telephone No.:                                 

c.    Surrender or Swap Shares Owned:    (Shares must have been held for at least six months.)

I certify that the stock purchased through the exercise of these options will not be sold in a manner that would violate the Company’s policy on Insider Trading.

Optionee’s Signature:                                                                                  

Print Name:                                                                                                   

Social Security Number:                                                                              

Send shares to:

Broker Name                                                                         

Account No.                                                                           

My home address                                                                      

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EX-10.5

Exhibit 10.5

APPLIED MICRO CIRCUITS CORPORATION

1997 DIRECTORS’ STOCK OPTION PLAN

Amended April 17, 2002

1.    Purposes of the Plan.    The purposes of this Directors’ Stock Option Plan are to attract and retain the best available personnel for service as Directors of the Company, to provide additional incentive to the Outside Directors of the Company to serve as Directors, and to encourage their continued service on the Board.

All options granted hereunder shall be nonstatutory stock options.

2.    Definitions.    As used herein, the following definitions shall apply:

(a)    “Board” shall mean the Board of Directors of the Company.

(b)    “Code” shall mean the Internal Revenue Code of 1986, as amended.

(c)    “Common Stock” shall mean the Common Stock of the Company.

(d)    “Company” shall mean Applied Micro Circuits Corporation, a Delaware corporation.

(e)    “Continuous Status as a Director” shall mean the absence of any interruption or termination of service as a Director.

(f)    “Director” shall mean a member of the Board.

(g)    “Employee” shall mean any person, including any officer or director, employed by the Company or any Parent or Subsidiary of the Company. The payment of a director’s fee by the Company shall not be sufficient in and of itself to constitute “employment” by the Company.

(h)    “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.

(i)    “Option” shall mean a stock option granted pursuant to the Plan. All options shall be nonstatutory stock options (i.e., options that are not intended to qualify as incentive stock options under Section 422 of the Code).

(j)    “Optioned Stock” shall mean the Common Stock subject to an Option.

(k)    “Optionee” shall mean an Outside Director who receives an Option.

(l)    “Outside Director” shall mean a Director who is not an Employee.

(m)    “Parent” shall mean a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

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(n)    “Plan” shall mean this 1997 Directors’ Stock Option Plan.

(o)    “Share” shall mean a share of the Common Stock, as adjusted in accordance with Section 11 of the Plan.

(p)    “Subsidiary” shall mean a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

3.    Stock Subject to the Plan.    Subject to the provisions of Section 11 of the Plan, the maximum aggregate number of Shares which may be optioned and sold under the Plan is 2,200,000 Shares (the “Pool”) of Common Stock. The Shares may be authorized, but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan. If Shares which were acquired upon exercise of an Option are subsequently repurchased by the Company, such Shares shall not in any event be returned to the Plan and shall not become available for future grant under the Plan.

4.    Administration of and Grants of Options under the Plan.

(a)    Administrator.    Except as otherwise required herein, the Plan shall be administered by the Board.

(b)    Procedure for Grants.    All grants of Options hereunder shall be automatic and nondiscretionary and shall be made strictly in accordance with the following provisions:

(i)    No person shall have any discretion to select which Outside Directors shall be granted Options or to determine the number of Shares to be covered by Options granted to Outside Directors.

(ii)    An Outside Director shall be automatically granted an Option to purchase 100,000 Shares (the “First Option”) on the date on which such person first becomes an Outside Director after the effective date of the Plan, whether through election by the stockholders of the Company or appointment by the Board of Directors to fill a vacancy.

(iii)    Each Outside Director shall be automatically granted an Option to purchase 50,000 Shares (a “Subsequent Option”) on April 1 of each calendar year, provided that, on such date, he or she shall have served on the Board for at least six (6) months prior to the date of such Annual Meeting and, provided further, that a Subsequent Option shall not be granted to an Outside Director who is an Outside Director on the effective date of the Plan until April 1, 2000.

(iv)    Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the event that a grant would cause the number of Shares subject to outstanding Options plus the number of Shares previously purchased upon exercise of Options to exceed the Pool, then each such automatic grant shall be for that number of Shares determined by dividing the total number of Shares remaining available for grant by the number of Outside Directors receiving an Option on such date on the automatic grant date. Any further grants shall then be deferred until

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such time, if any, as additional Shares become available for grant under the Plan through action of the stockholders to increase the number of Shares which may be issued under the Plan or through cancellation or expiration of Options previously granted hereunder.

(v)    Notwithstanding the provisions of subsections (ii) and (iii) hereof, any grant of an Option made before the Company has obtained stockholder approval of the Plan in accordance with Section 17 hereof shall be conditioned upon obtaining such stockholder approval of the Plan in accordance with Section 17 hereof.

(vi)    The terms of each First Option granted hereunder shall be as follows:

(1)    the First Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof;

(2)    the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the First Option, determined in accordance with Section 8 hereof; and

(3)    the First Option shall become exercisable in installments cumulatively as to 1/12th of the Shares subject to the First Option on each monthly anniversary of the date of grant of the Option.

(vii)    The terms of each Subsequent Option granted hereunder shall be as follows:

(1)    the Subsequent Option shall be exercisable only while the Outside Director remains a Director of the Company, except as set forth in Section 9 hereof;

(2)    the exercise price per Share shall be 100% of the fair market value per Share on the date of grant of the Subsequent Option, determined in accordance with Section 8 hereof; and

(3)    the Subsequent Option shall become exercisable in installments cumulatively as to 1/12th of the Shares subject to the Subsequent Option on each monthly anniversary of the date of grant of the Subsequent Option.

(c)    Powers of the Board.    Subject to the provisions and restrictions of the Plan, the Board shall have the authority, in its discretion: (i) to determine, upon review of relevant information and in accordance with Section 8(b) of the Plan, the fair market value of the Common Stock; (ii) to determine the exercise price per share of Options to be granted, which exercise price shall be determined in accordance with Section 8(a) of the Plan; (iii) to interpret the Plan; (iv) to prescribe, amend and rescind rules and regulations relating to the Plan; (v) to authorize any person to execute on behalf of the Company any instrument required to effectuate the grant of an Option previously granted hereunder; and (vi) to make all other determinations deemed necessary or advisable for the administration of the Plan.

(d)    Effect of Board’s Decision.    All decisions, determinations and interpretations of the Board shall be final and binding on all Optionees and any other holders of any Options granted under the Plan.

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(e)    Suspension or Termination of Option.    If the Chairman of the Board or his or her designee reasonably believes that an Optionee has committed an act of misconduct, the Chairman of the Board may suspend the Optionee’s right to exercise any Option pending a determination by the Board (excluding any Director accused of the misconduct). If the Board (excluding any Director accused of the misconduct) determines that the Optionee has (i) committed an act of embezzlement, fraud, dishonesty, nonpayment of an obligation owed to the Company, breach of fiduciary duty or deliberate disregard of the Company rules resulting in loss, damage or injury to the Company, (ii) made an unauthorized disclosure of any Company trade secret or confidential information, (iii) engaged in any conduct constituting unfair competition, (iv) induced any Company customer to breach a contract with the Company, or (v) induced any principal for whom the Company acts as agent to terminate such agency relationship, neither the Optionee nor his or her estate or any person who acquired the right to exercise the Option by bequest or inheritance shall be entitled to exercise any Option whatsoever. In making such determination, the Board (excluding any Director accused of the misconduct) shall act fairly and shall give the Optionee an opportunity to appear and present evidence on Optionee’s behalf at a hearing before the Board or a committee of the Board.

5.    Eligibility.    Options may be granted only to Outside Directors. All Options shall be automatically granted in accordance with the terms set forth in Section 4(b) hereof. An Outside Director who has been granted an Option may, if he or she is otherwise eligible, be granted an additional Option or Options in accordance with such provisions.

The Plan shall not confer upon any Optionee any right with respect to continuation of service as a Director or nomination to serve as a Director, nor shall it interfere in any way with any rights which the Director or the Company may have to terminate his or her directorship at any time.

6.    Term of Plan; Effective Date.    The Plan shall become effective on the effectiveness of the registration statement under the Securities Act of 1933, as amended, relating to the Company’s initial public offering of securities. It shall continue in effect for a term of ten (10) years unless sooner terminated under Section 13 of the Plan.

7.    Term of Options.    The term of each Option shall be ten (10) years from the date of grant thereof.

8.    Exercise Price and Consideration.

(a)    Exercise Price.    The per Share exercise price for the Shares to be issued pursuant to exercise of an Option shall be 100% of the fair market value per Share on the date of grant of the Option.

(b)    Fair Market Value.    The fair market value shall be determined by the Board; provided, however, that where there is a public market for the Common Stock, the fair market value per Share shall be the mean of the bid and asked prices of the Common Stock in the over-the-counter market on the date of grant, as reported in The Wall Street Journal (or, if not so reported, as otherwise reported by the National Association of Securities Dealers Automated Quotation (“Nasdaq”) System) or, in the event the Common Stock is traded on the Nasdaq National Market or listed on a stock exchange, the fair market value per Share shall be the closing price on such system or exchange on the date of grant of the Option (or, in the event that the Common Stock is not traded on such date, on the immediately preceding trading date), as

4

reported in The Wall Street Journal. With respect to any Options granted hereunder concurrently with the initial effectiveness of the Plan, the fair market value shall be the Price to Public as set forth in the final prospectus relating to such initial public offering.

(c)    Form of Consideration.    The consideration to be paid for the Shares to be issued upon exercise of an Option shall consist entirely of cash, check, other Shares of Common Stock having a fair market value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised (which, if acquired from the Company, shall have been held for at least six months), by delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price, or any combination of such methods of payment and/or any other consideration or method of payment as shall be permitted under applicable corporate law.

9.    Exercise of Option.

(a)    Procedure for Exercise; Rights as a Stockholder.    Any Option granted hereunder shall be exercisable at such times as are set forth in Section 4(b) hereof; provided, however, that no Options shall be exercisable prior to stockholder approval of the Plan in accordance with Section 17 hereof has been obtained.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may consist of any consideration and method of payment allowable under Section 8(c) of the Plan. Until the issuance (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company) of the stock certificate evidencing such Shares, no right to vote or receive dividends or any other rights as a stockholder shall exist with respect to the Optioned Stock, notwithstanding the exercise of the Option. A share certificate for the number of Shares so acquired shall be issued to the Optionee as soon as practicable after exercise of the Option. No adjustment will be made for a dividend or other right for which the record date is prior to the date the stock certificate is issued, except as provided in Section 11 of the Plan.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b)    Termination of Status as a Director.    If an Outside Director ceases to serve as a Director, he or she may, but only within ninety (90) days after the date he or she ceases to be a Director (or such other period of time as is determined by the Board) exercise his or her Option to the extent that he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that such Outside Director was not entitled to exercise an Option at the date of such termination, or does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate.

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(c)    Disability of Optionee.    Notwithstanding Section 9(b) above, in the event a Director is unable to continue his or her service as a Director with the Company as a result of his or her total and permanent disability (as defined in Section 22(e)(3) of the Code), he or she may, but only within six (6) months (or such other period of time as is determined by the Board) from the date of such termination, exercise his or her Option to the extent he or she was entitled to exercise it at the date of such termination. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired. To the extent that he or she was not entitled to exercise the Option at the date of termination, or if he or she does not exercise such Option (which he or she was entitled to exercise) within the time specified herein, the Option shall terminate.

(d)    Death of Optionee.    In the event of the death of an Optionee, the Option may be exercised, at any time within six (6) months (or such other period of time as is determined by the Board) following the date of death, by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent of the right to exercise that would have accrued had the Optionee continued living and remained in Continuous Status as Director for six (6) months (or such other period of time as is determined by the Board) after the date of death. Notwithstanding the foregoing, in no event may the Option be exercised after its term set forth in Section 7 has expired.

10.    Nontransferability of Options.    The Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or pursuant to a domestic relations order (as defined by the Code or the rules thereunder). The designation of a beneficiary by an Optionee does not constitute a transfer. An Option may be exercised during the lifetime of an Optionee only by the Optionee or a transferee permitted by this Section.

11.    Adjustments Upon Changes in Capitalization; Corporate Transactions.

(a)    Adjustment.    Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b)    Corporate Transactions.    In the event of (i) a dissolution or liquidation of the Company, (ii) a sale of all or substantially all of the Company’s assets, (iii) a merger or consolidation in which the Company is not the surviving corporation, or (iv) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to

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vote are exchanged, the Company shall give to the Eligible Director, at the time of adoption of the plan for liquidation, dissolution, sale, merger, consolidation or reorganization, either a reasonable time thereafter within which to exercise the Option, including Shares as to which the Option would not be otherwise exercisable, prior to the effectiveness of such liquidation, dissolution, sale, merger, consolidation or reorganization, at the end of which time the Option shall terminate, or the right to exercise the Option, including Shares as to which the Option would not be otherwise exercisable (or receive a substitute option with comparable terms), as to an equivalent number of shares of stock of the corporation succeeding the Company or acquiring its business by reason of such liquidation, dissolution, sale, merger, consolidation or reorganization.

12.    Time of Granting Options.    The date of grant of an Option shall, for all purposes, be the date determined in accordance with Section 4(b) hereof. Notice of the determination shall be given to each Outside Director to whom an Option is so granted within a reasonable time after the date of such grant.

13.    Amendment and Termination of the Plan.

(a)    Amendment and Termination.    The Board may amend or terminate the Plan from time to time in such respects as the Board may deem advisable; provided that, to the extent necessary and desirable to comply with Rule 16b-3 under the Exchange Act (or any other applicable law or regulation), the Company shall obtain approval of the stockholders of the Company to Plan amendments to the extent and in the manner required by such law or regulation. Notwithstanding the foregoing, the provisions set forth in Section 4 of this Plan (and any other Sections of this Plan that affect the formula award terms required to be specified in this Plan by Rule 16b-3) shall not be amended more than once every six months, other than to comport with changes in the Code, the Employee Retirement Income Security Act of 1974, as amended, or the rules thereunder.

(b)    Effect of Amendment or Termination.    Any such amendment or termination of the Plan that would impair the rights of any Optionee shall not affect Options already granted to such Optionee and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be in writing and signed by the Optionee and the Company.

14.    Conditions Upon Issuance of Shares.    Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, state securities laws, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance. As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

15.    Reservation of Shares.    The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the

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requirements of the Plan. Inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

16.    Option Agreement.    Options shall be evidenced by written option agreements in such form as the Board shall approve.

17.    Stockholder Approval.    Continuance of the Plan shall be subject to approval by the stockholders of the Company at or prior to the first annual meeting of stockholders held subsequent to the granting of an Option hereunder. If such stockholder approval is obtained at a duly held stockholders’ meeting, it may be obtained by the affirmative vote of the holders of a majority of the outstanding shares of the Company present or represented and entitled to vote thereon. If such stockholder approval is obtained by written consent, it may be obtained by the written consent of the holders of a majority of the outstanding shares of the Company. Options may be granted, but not exercised, before such stockholder approval.

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APPLIED MICRO CIRCUITS CORPORATION

1992 STOCK OPTION PLAN

FORM OF NOTICE OF GRANT, STOCK OPTION AGREEMENT AND NOTICE OF EXERCISE

[GRAPHIC]

Applied Micro Circuits Corporation

6290 Sequence Drive

San Diego, CA 92121

ID: 94-2586591

«First_Name» «Middle_Name» «Last_Name»	Option Number: «Number»
«Address_Line_1» «Address_Line_2»	Plan: «Plan»
«City» «State» «Country» «Zip_Code»	ID: «ID»

Effective «Option_Date», you have been granted a «Long_Type» to buy «Shares_Granted» shares of Applied Micro Circuits Corporation (AMCC) common stock at $«Option_Price» per share.

The total option price of the shares granted is «Total_Option_Price».

Your shares become exercisable as follows:

Shares	Vest Type	Full Vest	Expiration
«Shares_Period_1»	«Vest_Type_Period_1»	«Vest_Date_Period_1»	«Expiration_Date_Period_1»
«Shares_Period_2»	«Vest_Type_Period_2»	«Vest_Date_Period_2»	«Expiration_Date_Period_2»

If you have any questions, please contact Stock Administration at x 3462.

By your signature and the signature of David M. Rickey below, you and AMCC agree that these options are granted under and governed by the terms and conditions of AMCC’s 1992 Stock Option Plan and this Option Agreement. You acknowledge that you have reviewed the 1992 Stock Option Plan and this Option Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Option. You also agree to accept as binding, conclusive and final all decisions or interpretations of the AMCC Board of Directors upon any questions arising under the 1992 Stock Option Plan and this Option Agreement.

Your option will not become exercisable until a signed copy of this Option Agreement is received by Stock Administration.

David M. Rickey, Chairman and CEO                                                                          Date

«First_Name» «Middle_Name» «Last_Name»                                                             Date

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APPLIED MICRO CIRCUITS CORPORATION

1997 DIRECTORS’ STOCK OPTION PLAN

1.    Grant of Option.    The Board of Directors of the Company hereby grants to the Optionee named in the Notice of Grant attached hereto (the “Optionee”), an option (the “Option”) to purchase a number of Shares, as set forth in the Notice of Grant, at the exercise price per share set forth in the Notice of Grant (the “Exercise Price”), subject to the terms and conditions of the 1997 Directors’ Stock Option Plan (the “Plan”), which is incorporated herein by reference. Capitalized terms not defined herein shall have the meanings ascribed to such terms in the Plan. In the event of a conflict between the terms and conditions of the Plan and the terms and conditions of this Option Agreement, the terms and conditions of the Plan shall prevail.

2.    Exercise of Option.

(a)    Right to Exercise.    This Option is exercisable during its term in accordance with the Vesting Schedule set out in the Notice of Grant and the applicable provisions of the Plan and this Option Agreement. In the event of Optionee’s death, disability or other termination of Optionee’s employment or consulting relationship, the exercisability of the Option is governed by the applicable provisions of the Plan and this Option Agreement.

(b)    Methods of Exercise.    This Option shall be exercisable by any of the following methods: (i) execution of the Notice of Exercise in the form attached hereto and delivery of such Notice of Exercise in person to Stock Administration, (ii) online exercise through a captive broker designated by the Company (a “Captive Broker”), (iii) telephonic exercise communicated to a representative of a Captive Broker, (iv) telephonic exercise through a voice response system designated by the Company or (v) such other method or methods of exercise as may be designated by the Company from time to time. Any such method of exercise shall require Optionee to notify the Company of Optionee’s election to exercise the Option and the number of Shares in respect of which the Option is being exercised (the “Exercised Shares”), and may require Optionee to make such other representations and agreements as to Optionee’s investment intent with respect to such Exercised Shares as may be required by the Company pursuant to the provisions of the Plan (collectively, an “Exercise Notice”). This Option shall be deemed to be exercised upon receipt by the Company or Captive Broker, as applicable, of such Exercise Notice and receipt by the Company of the exercise price for the Exercised Shares.

No Shares will be issued pursuant to the exercise of this Option unless such issuance and such exercise complies with all relevant provisions of law and the requirements of any stock exchange or quotation service upon which the Shares are then listed. Assuming such compliance, for income tax purposes the Exercised Shares shall be considered transferred to Optionee on the date the Option is exercised with respect to such Exercised Shares.

3.    Method of Payment.    Payment of the aggregate Exercise Price shall be by any of the following, or a combination thereof, at the election of Optionee:

(a)    cash;

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(b)    check;

(c)    delivery of a properly executed Notice of Exercise together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price; or

(d)    delivery of other shares of Common Stock of the Company which (x) have been owned by Optionee for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that Optionee did not acquire, directly or indirectly, from the Company, (y) are owned free and clear of any liens, claims, encumbrances or security interests and (z) have a Fair Market Value on the date of delivery equal to the aggregate Exercise Price of the Exercised Shares. “Delivery” for these purposes, in the sole discretion of the Company at the time Optionee exercises the Option, shall include delivery to the Company of Optionee’s attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, Optionee may not exercise an Option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

4.    TERMINATION OF STATUS AS A DIRECTOR.    IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS A DIRECTOR FOR ANY REASON, OTHER THAN AS A RESULT OF THE DEATH OF OPTIONEE, OPTIONEE MAY EXERCISE THIS OPTION NO LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 8 BELOW, BUT ONLY TO THE EXTENT EXERCISABLE AT THE DATE OF SUCH TERMINATION. TO THE EXTENT THIS OPTION WAS NOT EXERCISABLE AT THE DATE OF SUCH TERMINATION OR IF OPTIONEE DOES NOT EXERCISE THIS OPTION WITHIN THE TIME SPECIFIED HEREIN, THE OPTION SHALL TERMINATE.

5.    DEATH OF OPTIONEE.

(A)    IN THE EVENT OF THE DEATH OF OPTIONEE DURING THE TERM OF THIS OPTION AND WHILE A DIRECTOR OF THE COMPANY AND HAVING BEEN IN CONTINUOUS STATUS AS A DIRECTOR SINCE THE DATE OF GRANT OF THE OPTION, THE OPTION MAY BE EXERCISED AT ANY TIME WITHIN FIFTEEN (15) MONTHS FOLLOWING THE DATE OF DEATH (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 8 BELOW) BY OPTIONEE’S ESTATE OR BY A PERSON WHO ACQUIRED THE RIGHT TO EXERCISE THE OPTION BY BEQUEST OR INHERITANCE BUT ONLY TO THE EXTENT EXERCISABLE AT THE DATE OF DEATH.

(b)    In the event of the death of Optionee during the term of this Option but after the date of termination of Optionee’s Continuous Status as a Director, the Option may be exercised by Optionee’s estate or by a person who acquired the right to exercise the Option by

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bequest or inheritance at any time no later than the date of expiration of the term of this Option as set forth in Section 8 below, but only to the extent exercisable at the date of termination of Optionee’s Continuous Status as a Director. To the extent this Option was not exercisable at the date of termination Optionee’s Continuous Status as a Director or if Optionee’s estate or such other person does not exercise this Option within the time specified herein, the Option shall terminate.

6.    SUSPENSION OR TERMINATION OF OPTION.    IF THE CHAIRMAN OF THE BOARD OR HIS OR HER DESIGNEE REASONABLY BELIEVES THAT OPTIONEE HAS COMMITTED AN ACT OF MISCONDUCT, THE CHAIRMAN OF THE BOARD MAY SUSPEND OPTIONEE’S RIGHT TO EXERCISE THIS OPTION PENDING A DETERMINATION BY THE BOARD (EXCLUDING ANY DIRECTOR ACCUSED OF THE MISCONDUCT). IF THE BOARD (EXCLUDING ANY DIRECTOR ACCUSED OF THE MISCONDUCT) DETERMINES THAT OPTIONEE HAS (I) COMMITTED AN ACT OF EMBEZZLEMENT, FRAUD, DISHONESTY, NONPAYMENT OF AN OBLIGATION OWED TO THE COMPANY, BREACH OF FIDUCIARY DUTY OR DELIBERATE DISREGARD OF THE COMPANY RULES RESULTING IN LOSS, DAMAGE OR INJURY TO THE COMPANY, (II) MADE AN UNAUTHORIZED DISCLOSURE OF ANY COMPANY TRADE SECRET OR CONFIDENTIAL INFORMATION, (III) ENGAGED IN ANY CONDUCT CONSTITUTING UNFAIR COMPETITION, (IV) INDUCED ANY COMPANY CUSTOMER TO BREACH A CONTRACT WITH THE COMPANY, OR (V) INDUCED ANY PRINCIPAL FOR WHOM THE COMPANY ACTS AS AGENT TO TERMINATE SUCH AGENCY RELATIONSHIP, NEITHER OPTIONEE NOR HIS OR HER ESTATE OR ANY PERSON WHO ACQUIRED THE RIGHT TO EXERCISE THIS OPTION BY BEQUEST OR INHERITANCE SHALL BE ENTITLED TO EXERCISE THE OPTION. IN MAKING SUCH DETERMINATION, THE BOARD (EXCLUDING ANY DIRECTOR ACCUSED OF THE MISCONDUCT) SHALL ACT FAIRLY AND SHALL GIVE OPTIONEE AN OPPORTUNITY TO APPEAR AND PRESENT EVIDENCE ON OPTIONEE’S BEHALF AT A HEARING BEFORE THE BOARD OR A COMMITTEE OF THE BOARD.

7.    Non-Transferability of Option.    This Option may not be transferred in any manner otherwise than by will or by the laws of descent or distribution or pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised during the lifetime of Optionee only by Optionee or a transferee permitted by Section 10 of the Plan. The terms of the Plan and this Option Agreement shall be binding upon the executors, administrators, heirs, successors and assigns of Optionee.

8.    Term of Option.    This Option may be exercised only within the term set out in the Notice of Grant, and may be exercised during such term only in accordance with the Plan and the terms of this Option Agreement.

9.    Withholding and Employment Taxes Upon Exercise of Option.    Optionee understands that, upon exercise of this Option, Optionee will recognize income for tax purposes in an amount equal to the excess of the then fair market value of the shares over the exercise price. The Company will be required to withhold tax from Optionee’s current compensation with

12

respect to such income; to the extent that Optionee’s current compensation is insufficient to satisfy the withholding tax liability, the Company may require Optionee to make a cash payment to cover such liability as a condition of exercise of this Option. To the extent authorized by the Board in its sole discretion, Optionee may make an election, by means of a form of election to be prescribed by the Board, to have shares of Common Stock or other securities of the Company that are acquired upon exercise of the Option withheld by the Company or to tender other shares of Common Stock or other securities of the Company owned by Optionee to the Company at the time of exercise of the Option to pay the amount of tax that would otherwise be required by law to be withheld by the Company as a result of any exercise of the Option from amounts payable to such person, subject to the following limitations:

(I)    SUCH ELECTION SHALL BE IRREVOCABLE;

(ii)    such election shall be subject to the disapproval of the Board at any time;

(iii)    such election may not be made within six months of the date of grant of the Option (except that this limitation shall not apply in the event of death or disability of such person occurring prior to the expiration of the six-month period); and

(iv)    such election must be made either (A) six months prior to the date that the amount of tax to be withheld upon such exercise is determined or (B) in any ten-day period beginning on the third business day following the date of release by the Company for publication of quarterly or annual summary statements of sales or earnings of the Company.

Any securities so withheld or tendered will be valued by the Company as of the date of exercise.

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CONSENT OF SPOUSE

The undersigned spouse of Optionee has read and hereby approves the terms and conditions of the Plan and this Option Agreement. In consideration of the Company’s granting his or her spouse the right to purchase Shares as set forth in the Plan and this Option Agreement, the undersigned hereby agrees to be irrevocably bound by the terms and conditions of the Plan and this Option Agreement and further agrees that any community property interest shall be similarly bound. The undersigned hereby appoints the undersigned’s spouse as attorney-in-fact for the undersigned with respect to any amendment or exercise of rights under the Plan or this Option Agreement.

Spouse of Optionee

NOTICE OF EXERCISE

To:	Applied Micro Circuits Corporation
Attn:	Stock Option Administrator
Subject:	Notice of Intention to Exercise Stock Option

This is official notice that the undersigned (“Optionee”) intends to exercise Optionee’s option to purchase              shares of Applied Micro Circuits Corporation Common Stock, under and pursuant to the Company’s 1997 Directors’ Stock Option Plan and the Option Agreement dated                     , as follows:

Grant Number:

Date of Purchase:

Number of Shares:

Purchase Price:

Method of Payment of

Purchase Price:

Social Security No.:

The shares should be issued as follows:

Name:                                                                                      

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Address:    

Signed:

Date:

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EX-10.26

Exhibit 10.26

APPLIED MICRO CIRCUITS CORPORATION

1998 STOCK INCENTIVE PLAN

1.    PURPOSES OF THE PLAN.    The purposes of this 1998 Stock Incentive Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Employees and Consultants of the Company and its Subsidiaries and to promote the success of the Company’s business. Options granted under the Plan shall be nonstatutory stock options.

2.    DEFINITIONS.    As used herein, the following definitions shall apply:

(a)    “Administrator” means the Board or any of its Committees appointed pursuant to Section 4 of the Plan.

(b)    “Board” means the Board of Directors of the Company.

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

(d)    “Committee” means the Committee appointed by the Board of Directors in accordance with paragraph (a) of Section 4 of the Plan.

(e)    “Common Stock” means the Common Stock of the Company.

(f)    “Company” means Applied Micro Circuits Corporation, a Delaware corporation.

(g)    “Consultant” means any person, including an advisor, who is engaged by the Company or any Parent or Subsidiary to render services and is compensated for such services.

(h)    “Continuous Status as an Employee or Consultant” means the absence of any interruption or termination of service as an Employee or Consultant. Continuous Status as an Employee or Consultant shall not be considered in the case of: (i) sick leave; (ii) military leave; (iii) any other leave of absence approved by the Board, provided that such leave is for a period of not more than ninety (90) days, unless reemployment upon the expiration of such leave is guaranteed by contract or statute, or unless provided otherwise pursuant to Company policy adopted from time to time; or (iv) in the case of transfers between locations of the Company or between the Company, its Subsidiaries or its successor.

(i)    “Employee” means any person employed by the Company or any Parent or Subsidiary of the Company. The term “Employee” shall not include officers of the Company unless an award granted under the Plan is an essential inducement to such person’s first entering into an employment relationship with the Company. The payment of a director’s fee by the Company shall not be sufficient to constitute “employment” by the Company.

(j)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

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(k)     “Executive Officer” means any person who has been expressly designated an executive officer of the Company by the Board, without regard to whether such person meets the criteria for an executive officer as set forth in Rule 405 under the Securities Act of 1933, as amended.

(l)    “Fair Market Value” means, as of any date, the value of Common Stock determined as follows:

(i)    If the Common Stock is listed on any established stock exchange or a national market system including without limitation the National Market of the National Association of Securities Dealers, Inc. Automated Quotation (“NASDAQ”) System, its Fair Market Value shall be the closing sales price for such stock (or the closing bid, if no sales were reported, as quoted on such system or exchange, or the exchange with the greatest volume of trading in Common Stock, for the last market trading day prior to the time of determination) as reported in The Wall Street Journal or such other source as the Administrator deems reliable;

(ii)    If the Common Stock is quoted on the NASDAQ System (but not on the National Market thereof) or regularly quoted by a recognized securities dealer but selling prices are not reported, its Fair Market Value shall be the mean between the high bid and low asked prices for the Common Stock or;

(iii)    In the absence of an established market for the Common Stock, the Fair Market Value thereof shall be determined in good faith by the Administrator.

(m)    “Nonstatutory Stock Option” means an Option not intended to qualify as an incentive stock option under Section 422 of the Code.

(n)    “Option” means a stock option granted pursuant to the Plan.

(o)    “Optioned Stock” means the Common Stock subject to an Option.

(p)    “Optionee” means an Employee or Consultant who receives an Option.

(q)    “Parent” means a “parent corporation,” whether now or hereafter existing, as defined in Section 424(e) of the Code.

(r)    “Plan” means this 1998 Stock Incentive Plan (formerly known as the Cimaron Communications Corporation 1998 Stock Incentive Plan).

(s)    “Retirement” means the termination of an Optionee’s Continuous Status as an Employee or Consultant by retirement as determined in accordance with the Company’s then current employment policies and guidelines.

(t)    “Share” means a share of the Common Stock, as adjusted in accordance with Section 12 of the Plan.

(u)    “Subsidiary” means a “subsidiary corporation,” whether now or hereafter existing, as defined in Section 424(f) of the Code.

(v)    “Total Service” means the sum of all of an Optionee’s periods of Continuous Status as an Employee or Consultant.

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3.    STOCK SUBJECT TO THE PLAN.    Subject to the provisions of Section 12 of the Plan, the maximum aggregate number of shares which may be optioned and sold under the Plan is 8,130,920 shares of Common Stock. The shares may be authorized, but unissued, or reacquired Common Stock.

If an Option should expire or become unexercisable for any reason without having been exercised in full, the unpurchased Shares which were subject thereto shall, unless the Plan shall have been terminated, become available for future grant under the Plan.

4.    ADMINISTRATION OF THE PLAN.

(a)    Procedure.

(i)    Administration With Respect to Directors and Officers.    With respect to grants of Options to Employees who are also officers of the Company, grants under the Plan shall be made by (A) the Board if the Board may make grants under the Plan in compliance with Rule 16b-3 promulgated under the Exchange Act or any successor thereto (“Rule 16b-3”), or (B) a Committee designated by the Board to make grants under the Plan, which Committee shall be constituted in such a manner as to permit grants under the Plan to comply with Rule 16b-3 and otherwise so as to satisfy legal requirements relating to the administration of stock option plans, if any, of state corporate and state and federal securities laws and of the Code (the “Applicable Laws”). Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by Rule 16b-3.

(ii)    Multiple Administrative Bodies.    If permitted by Rule 16b-3, the Plan may be administered by different bodies with respect to directors, non-director officers and Employees who are neither directors nor officers.

(iii)    Administration With Respect to Consultants and Other Employees.    With respect to grants of Options to Employees or Consultants who are not officers of the Company, the Plan shall be administered by (A) the Board or (B) a Committee designated by the Board, which committee shall be constituted in such a manner as to satisfy the Applicable Laws. Once appointed, such Committee shall continue to serve in its designated capacity until otherwise directed by the Board. From time to time the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause) and appoint new members in substitution therefor, fill vacancies, however caused, and remove all members of the Committee and thereafter directly administer the Plan, all to the extent permitted by the Applicable Laws.

(b)    Powers of the Administrator.    Subject to the provisions of the Plan and in the case of a Committee, the specific duties delegated by the Board to such Committee, the Administrator shall have the authority, in its discretion:

(i)    to determine the Fair Market Value of the Common Stock, in accordance with Section 2(l) of the Plan;

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(ii)    to select the Consultants and Employees to whom Options may from time to time be granted hereunder;

(iii)    to determine whether and to what extent Options are granted hereunder;

(iv)    to determine the number of shares of Common Stock to be covered by each such award granted hereunder;

(v)    to approve forms of agreement (including electronic forms of agreement) for use under the Plan (each an “Option Agreement”);

(vi)    to determine the terms and conditions, not inconsistent with the terms of the Plan, of any award granted hereunder;

(vii)    to reduce the exercise price of any Option to the then current Fair Market Value if the Fair Market Value of the Common Stock covered by such Option shall have declined since the date the Option was granted.

(c)    Effect of Administrator’s Decision.    All decisions, determinations and interpretations of the Administrator shall be final and binding on all Optionees and any other holders of any Options.

5.    ELIGIBILITY.

(a)    Nonstatutory Stock Options may be granted to Employees and Consultants. An Employee or Consultant who has been granted an Option may, if such Optionee is otherwise eligible, be granted an additional Option or Options.

(b)    The Plan shall not confer upon any Optionee any right with respect to continuation of employment or consulting relationship with the Company, nor shall it interfere in any way with such Optionee’s right or the Company’s right to terminate such Optionee’s employment or consulting relationship at any time, with or without cause.

6.    TERM OF PLAN.    The Plan shall become effective upon its adoption by the Board of Directors of Cimaron Communications Corporation (a corporation to which the Company is a successor) and shall continue in effect for a term of ten (10) years from such date unless sooner terminated under Section 16 of the Plan.

7.    TERM OF OPTION.    The term of each Option shall be the term stated in the Option Agreement; provided, however, that the term shall be no more than ten (10) years from the date of grant thereof or such shorter term as may be provided in the Option Agreement.

8.    OPTION EXERCISE PRICE AND CONSIDERATION.

(a)    The per share exercise price for the Shares to be issued pursuant to exercise of an Option shall be such price as is determined by the Board.

(b)    The consideration to be paid for the Shares to be issued upon exercise of an Option, including the method of payment, shall be determined by the Administrator and may consist entirely of (1) cash, (2) check, (3) promissory note, (4) other Shares which (x) in the case

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of Shares acquired upon exercise of an Option have been owned by the Optionee for more than six months on the date of surrender, and (y) have a Fair Market Value on the date of surrender equal to the aggregate exercise price of the Shares as to which said Option shall be exercised, (5) delivery of a properly executed exercise notice together with such documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price (6) by delivering an irrevocable subscription agreement for the Shares which irrevocably obligates the option holder to take and pay for the Shares not more than twelve months after the date of delivery of the subscription agreement, (7) any combination of the foregoing methods of payment, (8) or such other consideration and method of payment for the issuance of Shares to the extent permitted under Applicable Laws. In making its determination as to the type of consideration to accept, the Board shall consider if acceptance of such consideration may be reasonably expected to benefit the Company.

9.    EXERCISE OF OPTION.

(a)    Procedure for Exercise; Rights as a Stockholder.    Any Option granted hereunder shall be exercisable at such times and under such conditions as determined by the Board, including performance criteria with respect to the Company and/or the Optionee, and as shall be permissible under the terms of the Plan.

An Option may not be exercised for a fraction of a Share.

An Option shall be deemed to be exercised when notice of such exercise has been provided in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the Shares with respect to which the Option is exercised has been received by the Company. Full payment may, as authorized by the Board, consist of any consideration and method of payment allowable under Section 8(b) of the Plan. The Company shall issue (or cause to be issued) such stock certificate promptly upon exercise of the Option.

Exercise of an Option in any manner shall result in a decrease in the number of Shares which thereafter may be available, both for purposes of the Plan and for sale under the Option, by the number of Shares as to which the Option is exercised.

(b)    Termination of Employment.    In the event of termination of an Optionee’s Continuous Status as an Employee or Consultant with the Company (as the case may be), such Optionee may, but only within thirty (30) days (or such other period of time as is determined by the Board but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise such Optionee’s Option to the extent that Optionee was entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of such termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(c)    Disability of Optionee.    Notwithstanding the provisions of Section 9(b) above, in the event of termination of an Optionee’s Continuous Status as an Employee or Consultant as a result of such Optionee’s total and permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only within twelve (12) months from the date of such termination (or such other period of time as is determined by the Board but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), exercise the

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Option to the extent otherwise entitled to exercise it at the date of such termination. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(d)    Death of Optionee.    In the event of the death of an Optionee, the Option may be exercised at any time within twelve (12) months following the date of death (or such other period of time as is determined by the Board but in no event later than the expiration date of the term of such Option as set forth in the Option Agreement), by the Optionee’s estate or by a person who acquired the right to exercise the Option by bequest or inheritance, but only to the extent the Optionee was entitled to exercise the Option at the date of death. To the extent that Optionee was not entitled to exercise the Option at the date of termination, or if Optionee does not exercise such Option to the extent so entitled within the time specified herein, the Option shall terminate.

(e)    Rule 16b-3.    Options granted to persons subject to Section 16(b) of the Exchange Act must comply with Rule 16b-3 and shall contain such additional conditions or restrictions as may be required thereunder to qualify for the maximum exemption from Section 16 of the Exchange Act with respect to Plan transactions.

10.    NON-TRANSFERABILITY OF OPTIONS.    An Option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution or, in the case of a Nonstatutory Stock Option only, pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and may be exercised, during the lifetime of the Optionee, only by the Optionee or a transferee permitted by this Section. Notwithstanding the foregoing, the Optionee may by delivering notice to the Company in a form satisfactory to the Company designate a third party who in the event of the death of the Optionee shall thereafter be entitled to exercise the Option.

11.    STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS.    At the discretion of the Administrator, Optionees may satisfy withholding obligations as provided in this paragraph. When an Optionee incurs tax liability in connection with an Option, which tax liability is subject to tax withholding under applicable tax laws, and the Optionee is obligated to pay the Company an amount required to be withheld under applicable tax laws, the Optionee may satisfy the withholding tax obligation by one or some combination of the following methods: (i) by cash payment, or (ii) out of Optionee’s current compensation, or (iii) if permitted by the Administrator, in its discretion, by surrendering to the Company Shares which (a) in the case of Shares previously acquired from the Company, have been owned by the Optionee for more than six months on the date of surrender, and (b) have a fair market value on the date of surrender equal to or less than the applicable withholding taxes, (iv) by electing to have the Company withhold from the Shares to be issued upon exercise of the Option that number of Shares having a fair market value equal to the amount required to be withheld. For this purpose, the fair market value of the Shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined (the “Tax Date”).

If the Optionee is subject to Section 16 of the Exchange Act (an “Insider”), any surrender of previously owned Shares to satisfy tax withholding obligations arising upon exercise of this Option must comply with the applicable provisions of Rule 16b-3 promulgated under the Exchange Act (“Rule 16b-3”).

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All elections by an Optionee to have Shares withheld to satisfy tax withholding obligations shall be made in a form acceptable to the Administrator and shall be subject to the following restrictions:

(a)    the election must be made on or prior to the applicable Tax Date;

(b)    once made, the election shall be irrevocable as to the particular Shares of the Option as to which the election is made; and

(c)    all elections shall be subject to the consent or disapproval of the Administrator.

In the event the election to have Shares withheld is made by an Optionee and the Tax Date is deferred under Section 83 of the Code because no election is filed under Section 83(b) of the Code, the Optionee shall receive the full number of Shares with respect to which the Option is exercised but such Optionee shall be unconditionally obligated to tender back to the Company the proper number of Shares on the Tax Date.

12.    ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; CORPORATE TRANSACTIONS.

(a)    Changes in Capitalization.    Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding Option, the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no Options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option, as well as the price per share of Common Stock covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an Option.

(b)    Corporate Transactions.    In the event of the proposed dissolution or liquidation of the Company, the Option will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Administrator. The Administrator may, in the exercise of its sole discretion in such instances, declare that any Option shall terminate as of a date fixed by the Administrator and give each Optionee the right to exercise his or her Option as to all or any part of the Optioned Stock, including Shares as to which the Option would not otherwise be exercisable. In the event of a sale of all or substantially all of the assets of the Company, or the merger of the Company with or into another corporation, in which the Company is not the surviving corporation the Option shall vest and become immediately exercisable for the number of Shares that would otherwise be vested and exercisable under the terms of the Option one (1) year after the date of the Corporate Transaction. Thereafter, the Option shall be assumed or an equivalent option shall be substituted by such successor

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corporation or a parent or subsidiary of such successor corporation, unless the Administrator determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Option shall vest and the Optionee shall have the right to exercise the Option as to some or all of the Optioned Stock, including Shares as to which the Option would not otherwise be vested and exercisable. If the Administrator makes an Option vested and exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the Optionee that the Option shall be vested and exercisable for a period of fifteen (15) days from the date of such notice, and the Option will terminate upon the expiration of such period.

13.    TIME OF GRANTING OPTIONS.    The date of grant of an Option shall, for all purposes, be the date on which the Administrator makes the determination granting such Option, or such other date as is determined by the Board. Notice of the determination shall be given to each Employee or Consultant to whom an Option is so granted within a reasonable time after the date of such grant.

14.    AMENDMENT AND TERMINATION OF THE PLAN.

(a)    Amendment and Termination.    The Board may at any time amend, alter, suspend or discontinue the Plan, but no amendment, alteration, suspension or discontinuation shall be made which would impair the rights of any Optionee under any grant theretofore made, without such Optionee’s consent.

(b)    Effect of Amendment or Termination.    Any such amendment or termination of the Plan shall not affect Options already granted and such Options shall remain in full force and effect as if this Plan had not been amended or terminated, unless mutually agreed otherwise between the Optionee and the Board, which agreement must be executed by the Optionee and the Company.

15.    CONDITIONS UPON ISSUANCE OF SHARES.    Shares shall not be issued pursuant to the exercise of an Option unless the exercise of such Option and the issuance and delivery of such Shares pursuant thereto shall comply with all relevant provisions of law, including, without limitation, the Securities Act of 1933, as amended, the Exchange Act, the rules and regulations promulgated thereunder, and the requirements of any stock exchange upon which the Shares may then be listed, and shall be further subject to the approval of counsel for the Company with respect to such compliance.

As a condition to the exercise of an Option, the Company may require the person exercising such Option to represent and warrant at the time of any such exercise that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares if, in the opinion of counsel for the Company, such a representation is required by any of the aforementioned relevant provisions of law.

16.    RESERVATION OF SHARES.    The Company, during the term of this Plan, will at all times reserve and keep available such number of Shares as shall be sufficient to satisfy the requirements of the Plan.

The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect

8

of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

17.    AGREEMENTS.    Options shall be evidenced by agreements in such form (including electronic form) as the Board shall approve from time to time.

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APPLIED MICRO CIRCUITS CORPORATION

1998 STOCK INCENTIVE PLAN

FORM OF NOTICE OF GRANT, STOCK OPTION AGREEMENT AND NOTICE OF EXERCISE

[GRAPHIC]

Applied Micro Circuits Corporation

6290 Sequence Drive

San Diego, CA 92121

ID: 94-2586591

«First_Name» «Middle_Name» «Last_Name»	Option Number: «Number»
«Address_Line_1» «Address_Line_2»	Plan: «Plan»
«City» «State» «Country» «Zip_Code»	ID: «ID»

Effective «Option_Date», you have been granted a «Long_Type» to buy «Shares_Granted» shares of Applied Micro Circuits Corporation (AMCC) common stock at $«Option_Price» per share.

The total option price of the shares granted is «Total_Option_Price».

Your shares become exercisable as follows:

Shares	Vest Type	Full Vest	Expiration
«Shares_Period_1»	«Vest_Type_Period_1»	«Vest_Date_Period_1»	«Expiration_Date_Period_1»
«Shares_Period_2»	«Vest_Type_Period_2»	«Vest_Date_Period_2»	«Expiration_Date_Period_2»

If you have any questions, please contact Stock Administration at x 3462.

By your signature and the signature of David M. Rickey below, you and AMCC agree that these options are granted under and governed by the terms and conditions of AMCC’s 1998 Stock Incentive Plan and this Option Agreement. You acknowledge that you have reviewed the 1998 Stock Incentive Plan and this Option Agreement in their entirety, have had an opportunity to obtain the advice of counsel prior to executing this Option Agreement and fully understands all provisions of the Option. You also agree to accept as binding, conclusive and final all decisions or interpretations of the AMCC Board of Directors upon any questions arising under the 1998 Stock Incentive Plan and this Option Agreement.

Your option will not become exercisable until a signed copy of this Option Agreement is received by Stock Administration.

David M. Rickey, Chairman and CEO Date

«First_Name» «Middle_Name» «Last_Name» Date

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APPLIED MICRO CIRCUITS CORPORATION

1998 STOCK INCENTIVE PLAN

Applied Micro Circuits Corporation, a Delaware corporation (the “Company”), has granted to «First_Name» «Middle_Name» «Last_Name» (the “Optionee”), an option (the “Option”) to purchase the total number of shares of Common Stock of the Company (the “Shares”) set forth in the attached Notice of Grant effective «Option_Date» (the “Notice of Grant”), at the price as set forth in the Notice of Grant (the “Exercise Price”), subject in all respects to the terms, definitions and provisions of the 1998 Stock Incentive Plan (the “Plan”) adopted by the Company, which is incorporated herein by reference. Unless otherwise defined herein, the terms defined in the Plan shall have the same defined meanings herein.

NATURE OF THE OPTION.    THIS OPTION IS INTENDED BY THE COMPANY AND THE OPTIONEE TO BE A NONSTATUTORY STOCK OPTION, AND DOES NOT QUALIFY FOR ANY SPECIAL TAX BENEFITS TO THE OPTIONEE. THIS OPTION IS NOT AN INCENTIVE STOCK OPTION.

EXERCISE PRICE.    THE EXERCISE PRICE FOR EACH SHARE OF COMMON STOCK IS SET FORTH IN THE NOTICE OF GRANT AND IS NOT LESS THAN THE FAIR MARKET VALUE PER SHARE OF THE COMMON STOCK ON THE DATE OF GRANT.

EXERCISE OF OPTION.    THIS OPTION SHALL BE EXERCISABLE DURING ITS TERM IN ACCORDANCE WITH THE EXERCISE SCHEDULE SET OUT IN THE NOTICE OF GRANT AND WITH THE PROVISIONS OF SECTION 9 OF THE PLAN AS FOLLOWS:

Right to Exercise.

The Vesting Schedule set forth in the Notice of Grant shall temporarily cease during any period of time that Optionee’s employment is subject to an approved leave of absence as set forth in Section 2(h) of the Plan and shall recommence upon Optionee’s return to the employ of the Company.

This Option may not be exercised for a fraction of a share or for an amount less than 100 shares.

In the event of Optionee’s death, disability or other termination of employment or consultancy, the exercisability of the Option is governed by Sections 7, 8 and 9 below, subject to the limitations contained in subsection 3(i)(d).

In no event may this Option be exercised after the date of expiration of the term of this Option as set forth in Section 11 below.

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Methods of Exercise.    This Option shall be exercisable by any of the following methods: (i) online exercise through a captive broker designated by the Company (a “Captive Broker”), (ii) telephonic exercise communicated to a representative of a Captive Broker, (iii) telephonic exercise through a voice response system designated by the Company or (iv) such other method or methods of exercise as may be designated by the Company from time to time. Any such method of exercise shall require the Optionee to notify the Company of the Optionee’s election to exercise the Option and the number of Shares in respect of which the Option is being exercised, and may require the Optionee to make such other representations and agreements as to the Optionee’s investment intent with respect to such Shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan (collectively, an “Exercise Notice”). This Option shall be deemed to be exercised upon receipt by the Company or Captive Broker, as applicable, of such Exercise Notice and receipt by the Company of the exercise price for the Shares in respect of which the Option is being exercised.

No Shares will be issued pursuant to the exercise of an Option unless such issuance and such exercise shall comply with all relevant provisions of law and the requirements of any stock exchange upon which the Shares may then be listed. Assuming such compliance, for income tax purposes the Shares shall be considered transferred to the Optionee on the date on which the Option is exercised with respect to such Shares.

OPTIONEE’S REPRESENTATIONS; “AT-WILL” EMPLOYMENT RELATIONSHIP.    IN THE EVENT THIS OPTION AND THE SHARES PURCHASABLE PURSUANT TO THE EXERCISE OF THIS OPTION HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AT THE TIME THIS OPTION IS EXERCISED, OPTIONEE SHALL, IF REQUIRED BY THE COMPANY CONCURRENTLY WITH THE EXERCISE OF ALL OR ANY PORTION OF THIS OPTION, DELIVER TO THE COMPANY AN INVESTMENT REPRESENTATION STATEMENT IN THE CUSTOMARY FORM, A COPY OF WHICH IS AVAILABLE FOR OPTIONEE’S REVIEW FROM THE COMPANY UPON REQUEST.

IF OPTIONEE IS AN EMPLOYEE, OPTIONEE’S EMPLOYMENT RELATIONSHIP WITH THE COMPANY IS AN “AT-WILL” EMPLOYMENT RELATIONSHIP UNLESS THE COMPANY AND OPTIONEE HAVE ENTERED INTO AN EXPRESS WRITTEN AGREEMENT THAT SETS FORTH A DIFFERENT EMPLOYMENT RELATIONSHIP.

METHOD OF PAYMENT.    PAYMENT OF THE EXERCISE PRICE SHALL BE BY ANY OF THE FOLLOWING, OR A COMBINATION THEREOF, AT THE ELECTION OF THE BOARD, IN ITS SOLE DISCRETION:

(i)    cash;

(ii)    check;

(iii)    delivery of other shares of Common Stock of the Company which (x) have been owned by Optionee for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that Optionee did not acquire, directly or indirectly, from the Company, (y) are owned free and clear of any liens, claims, encumbrances or security interests

12

and (z) have a Fair Market Value on the date of delivery equal to the exercise price of the Shares as to which the Option is being exercised. “Delivery” for these purposes, in the sole discretion of the Company at the time Optionee exercises an Option, shall include delivery to the Company of Optionee’s attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, Optionee may not exercise an Option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock; or

(iv) delivery of a properly executed Exercise Notice together with such documentation as the Administrator or Captive Broker, as applicable, shall require to effect an exercise of the Option and delivery to the Company of the sale or loan proceeds required to pay the exercise price.

RESTRICTIONS ON EXERCISE.    THIS OPTION MAY NOT BE EXERCISED UNTIL SUCH TIME AS THE PLAN HAS BEEN APPROVED BY THE STOCKHOLDERS OF THE COMPANY, OR IF THE ISSUANCE OF SUCH SHARES UPON SUCH EXERCISE OR THE METHOD OF PAYMENT OF CONSIDERATION FOR SUCH SHARES WOULD CONSTITUTE A VIOLATION OF ANY APPLICABLE FEDERAL OR STATE SECURITIES OR OTHER LAW OR REGULATION, INCLUDING ANY RULE UNDER PART 207 OF TITLE 12 OF THE CODE OF FEDERAL REGULATIONS (“REGULATION G”) AS PROMULGATED BY THE FEDERAL RESERVE BOARD. AS A CONDITION TO THE EXERCISE OF THIS OPTION, THE COMPANY MAY REQUIRE OPTIONEE TO MAKE ANY REPRESENTATION AND WARRANTY TO THE COMPANY AS MAY BE REQUIRED BY ANY APPLICABLE LAW OR REGULATION.

13

TERMINATION OF STATUS AS AN EMPLOYEE OR CONSULTANT.    IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT, THE OPTIONEE MAY, BUT ONLY WITHIN NINETY (90) DAYS AFTER THE DATE OF SUCH TERMINATION (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), EXERCISE THIS OPTION TO THE EXTENT EXERCISABLE AT THE DATE OF SUCH TERMINATION; PROVIDED, HOWEVER, THAT IF OPTIONEE WAS AN EXECUTIVE OFFICER ON THE DATE OF GRANT OF THIS OPTION OR AT ANY TIME PRIOR TO THE DATE OF GRANT OF THIS OPTION AND THE TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT IS DUE TO OPTIONEE’S RETIREMENT, SUCH PERIOD OF EXERCISE AFTER THE DATE OF TERMINATION SHALL BE FIFTEEN (15) MONTHS OR, IF OPTIONEE’S TOTAL SERVICE WAS MORE THAN SEVEN (7) YEARS AT THE DATE OPTIONEE’S RETIREMENT COMMENCES, TWENTY-FOUR (24) MONTHS (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11). IF AN EMPLOYEE OF THE COMPANY, OPTIONEE’S EMPLOYMENT SHALL BE DEEMED TERMINATED ON SUCH DATE, IF ANY, AS OPTIONEE BECOMES A PART-TIME EMPLOYEE, AS DEFINED IN THE COMPANY’S THEN CURRENT EMPLOYMENT GUIDELINES. TO THE EXTENT THIS OPTION WAS NOT EXERCISABLE AT THE DATE OF SUCH TERMINATION, OR IF THE OPTIONEE DOES NOT EXERCISE THIS OPTION WITHIN THE TIME SPECIFIED HEREIN, THE OPTION SHALL TERMINATE. NOTWITHSTANDING THE FOREGOING, UNLESS AN OPTIONEE QUALIFIES AS AN EXEMPT EMPLOYEE UNDER STATE AND FEDERAL WAGE AND HOUR LAWS OR IS A RESIDENT OUTSIDE THE UNITED STATES, SUCH OPTIONEE MAY NOT EXERCISE THIS OPTION WITHIN SIX (6) MONTHS OF THE DATE OF GRANT, EVEN IF THIS OPTION IS VESTED AT THAT TIME; PROVIDED, HOWEVER, THAT AN OPTIONEE MAY EXERCISE THIS OPTION WITHIN THE SIX-MONTH PERIOD FOLLOWING THE DATE OF GRANT IF SUCH OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT IS TERMINATED DUE TO DEATH OR DISABILITY OR DUE TO SUCH OTHER CIRCUMSTANCE(S) THAT WOULD ENTITLE THE INCOME DERIVED FROM SUCH OPTION EXERCISE TO BE EXEMPTED FROM THE OPTIONEE’S REGULAR RATE UNDER THE FAIR LABOR STANDARDS ACT OF 1938 BY REASON OF THE WORKER ECONOMIC OPPORTUNITY ACT. IN ADDITION, UNLESS AN OPTIONEE QUALIFIES AS AN EXEMPT EMPLOYEE UNDER STATE AND FEDERAL WAGE AND HOUR LAWS OR IS RESIDENT OUTSIDE THE UNITED STATES, IN THE EVENT THAT THE TERMINATION OF THE OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT FOR ANY REASON OTHER THAN THE OPTIONEE’S DISABILITY OR DEATH OCCURS WITHIN THE SIX-MONTH PERIOD FOLLOWING THE DATE ON WHICH THIS OPTION WAS GRANTED, THEN THIS OPTION SHALL EXPIRE NINETY (90) DAYS AFTER THE END OF SUCH SIX-MONTH PERIOD.

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DISABILITY OF OPTIONEE.    NOTWITHSTANDING THE PROVISIONS OF SECTION 7 ABOVE, IN THE EVENT OF TERMINATION OF OPTIONEE’S CONTINUOUS STATUS AS AN EMPLOYEE OR CONSULTANT AS A RESULT OF SUCH OPTIONEE’S TOTAL AND PERMANENT DISABILITY (AS DEFINED IN SECTION 22(E)(3) OF THE CODE), THE OPTIONEE MAY, BUT ONLY WITHIN FIFTEEN (15) MONTHS FROM THE DATE OF SUCH TERMINATION (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), EXERCISE THIS OPTION TO THE EXTENT EXERCISABLE AT THE DATE OF SUCH TERMINATION. TO THE EXTENT THAT THE OPTION WAS NOT EXERCISABLE AT THE DATE OF TERMINATION, OR IF THE OPTIONEE DOES NOT EXERCISE SUCH OPTION WITHIN THE TIME SPECIFIED HEREIN, THE OPTION SHALL TERMINATE.

DEATH OF OPTIONEE.    IN THE EVENT OF THE DEATH OF OPTIONEE DURING THE TERM OF THIS OPTION AND WHILE AN EMPLOYEE OR CONSULTANT OF THE COMPANY AND HAVING BEEN IN CONTINUOUS STATUS AS AN EMPLOYEE OR ZCONSULTANT SINCE THE DATE OF GRANT OF THE OPTION, THE OPTION MAY BE EXERCISED, AT ANY TIME WITHIN FIFTEEN (15) MONTHS FOLLOWING THE DATE OF DEATH (BUT IN NO EVENT LATER THAN THE DATE OF EXPIRATION OF THE TERM OF THIS OPTION AS SET FORTH IN SECTION 11 BELOW), BY OPTIONEE’S ESTATE OR BY A PERSON WHO ACQUIRED THE RIGHT TO EXERCISE THE OPTION BY BEQUEST OR INHERITANCE, BUT ONLY TO THE EXTENT EXERCISABLE AT THE DATE OF DEATH.

NON-TRANSFERABILITY OF OPTION.    THIS OPTION MAY NOT BE TRANSFERRED IN ANY MANNER OTHERWISE THAN BY WILL OR BY THE LAWS OF DESCENT OR DISTRIBUTION OR, IN THE CASE OF A NONSTATUTORY STOCK OPTION ONLY, PURSUANT TO A DOMESTIC RELATIONS ORDER (AS DEFINED BY THE CODE OR THE RULES THEREUNDER) AND MAY BE EXERCISED DURING THE LIFETIME OF OPTIONEE ONLY BY HIM OR A TRANSFEREE PERMITTED BY THIS SECTION. THE TERMS OF THIS OPTION SHALL BE BINDING UPON THE EXECUTORS, ADMINISTRATORS, HEIRS, SUCCESSORS AND ASSIGNS OF THE OPTIONEE.

TERM OF OPTION.    THIS OPTION MAY BE EXERCISED ON OR BEFORE THE EXPIRATION DATE SET FORTH IN THE NOTICE OF GRANT AND MAY BE EXERCISED DURING SUCH TERM ONLY IN ACCORDANCE WITH THE PLAN AND THE TERMS OF THIS OPTION.

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WITHHOLDING AND EMPLOYMENT TAXES UPON EXERCISE OF OPTION.    OPTIONEE UNDERSTANDS THAT, UPON EXERCISE OF THIS OPTION, SUCH OPTIONEE WILL RECOGNIZE INCOME FOR TAX PURPOSES IN AN AMOUNT EQUAL TO THE EXCESS OF THE THEN FAIR MARKET VALUE OF THE SHARES OVER THE EXERCISE PRICE. THE COMPANY WILL BE REQUIRED TO WITHHOLD TAX FROM OPTIONEE’S CURRENT COMPENSATION WITH RESPECT TO SUCH INCOME; TO THE EXTENT THAT OPTIONEE’S CURRENT COMPENSATION IS INSUFFICIENT TO SATISFY THE WITHHOLDING TAX LIABILITY, THE COMPANY MAY REQUIRE THE OPTIONEE TO MAKE A CASH PAYMENT TO COVER SUCH LIABILITY AS A CONDITION OF EXERCISE OF THIS OPTION. TO THE EXTENT AUTHORIZED BY THE BOARD IN ITS SOLE DISCRETION, OPTIONEE MAY MAKE AN ELECTION, BY MEANS OF A FORM OF ELECTION TO BE PRESCRIBED BY THE BOARD, TO HAVE SHARES OF COMMON STOCK OR OTHER SECURITIES OF THE COMPANY THAT ARE ACQUIRED UPON EXERCISE OF THE OPTION WITHHELD BY THE COMPANY OR TO TENDER OTHER SHARES OF COMMON STOCK OR OTHER SECURITIES OF THE COMPANY OWNED BY OPTIONEE TO THE COMPANY AT THE TIME OF EXERCISE OF THE OPTION TO PAY THE AMOUNT OF TAX THAT WOULD OTHERWISE BE REQUIRED BY LAW TO BE WITHHELD BY THE COMPANY AS A RESULT OF ANY EXERCISE OF THE OPTION FROM AMOUNTS PAYABLE TO SUCH PERSON, SUBJECT TO THE FOLLOWING LIMITATIONS:

(i)    such election shall be irrevocable;

(ii)    such election shall be subject to the disapproval of the Board at any time;

(iii)    such election may not be made within six months of the date of grant of the Option (except that this limitation shall not apply in the event of death or disability of such person occurring prior to the expiration of the six-month period); and

(iv)    such election must be made either (A) six months prior to the date that the amount of tax to be withheld upon such exercise is determined or (B) in any ten-day period beginning on the third business day following the date of release by the Company for publication of quarterly or annual summary statements of sales or earnings of the Company.

Any securities so withheld or tendered will be valued by the Company as of the date of exercise.

THIS SPACE INTENTIONALLY

LEFT BLANK—SIGNATURE OF

OPTIONEE ON FOLLOWING PAGE

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OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE NOTICE OF GRANT AND SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING SERVICE AS AN EMPLOYEE OR CONSULTANT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY’S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH SUCH OPTIONEE’S RIGHT OR THE COMPANY’S RIGHT TO TERMINATE SUCH OPTIONEE’S EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.

Dated:

«First_Name» «Middle_Name» «Last_Name»

Residence Address:

«Address_Line_1»

«Address_Line_2»

«City» «State» «Country» «Zip_Code»

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NOTICE OF EXERCISE

To:	Applied Micro Circuits Corporation
Attn:	Stock Option Administrator
Subject:	Notice of Intention to Exercise Stock Option

This is official notice that the undersigned (“Optionee”) intends to exercise Optionee’s option to purchase Shares of Applied Micro Circuits Corporation Common Stock, all of which are vested, as follows:

Option Number Option Date Type of Option ISO/NQ Number of Shares Being Purchased Option Price (Per Share) Tax Due* (if applicable) Total Amount Due AMCC

* AMCC is required to withhold taxes when employees exercise an NQO. Under current law, U.S. income tax withholding is not required when exercising an ISO.

I am paying the cost to exercise as specified below by method a, b or c (circle one below)

18.    Cash Payment:    Enclosed is my check #                        in the amount of $                    .

b.    Cashless Exercise and Same-Day Sale:    I will call my stockbroker (complete broker info below) to authorize them to issue a check payable to AMCC from my account #                                         .

Broker Name and Contact:                                                                                          

Broker Telephone No.:                                                                                             

c.    Surrender or Swap Shares Owned:    (Shares must have been held for at least six months.)

I certify that the stock purchased through the exercise of these options will not be sold in a manner that would violate the Company’s policy on Insider Trading.

Optionee’s Signature:                                                                                                                 

Print Name:                                                                                                                                

Social Security Number:                                                                                                             

Send shares to:

Broker Name                                                                                                                             

Account No.                                                                                                                              

My home address                                                                                                                      

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EX-10.33

Exhibit 10.33

APPLIED MICRO CIRCUITS CORPORATION

2000 EQUITY INCENTIVE PLAN

1.    PURPOSES.

(a)    Eligible Stock Award Recipients.    The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates.

(b)    Available Stock Awards.    The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Nonstatutory Stock Options, (ii) stock bonuses and (iii) rights to acquire restricted stock.

(c)    General Purpose.    The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates.

2.    DEFINITIONS.

(a)    “Affiliate” means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code.

(b)    “Board” means the Board of Directors of the Company.

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

(d)    “Committee” means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c).

(e)    “Common Stock” means the common stock of the Company.

(f)    “Company” means Applied Micro Circuits Corporation, a Delaware corporation.

(g)    “Consultant” means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term “Consultant” shall not include either Directors who are not compensated by the Company for their services as Directors or Directors who are merely paid a director’s fee by the Company for their services as Directors.

(h)    “Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant’s Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether

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Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave.

(i)    “Covered Employee” means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to shareholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code.

(j)    “Director” means a member of the Board of Directors of the Company.

(k)    “Disability” means the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code.

(l)    “Employee” means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director’s fee by the Company or an Affiliate shall not be sufficient to constitute “employment” by the Company or an Affiliate.

(m)    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

(n)    “Executive Officer” means any person who has been expressly designated an executive officer of the Company by the Board, without regard to whether such person meets the criteria for an executive officer as set forth in Rule 405 under the Securities Act.

(o)    “Fair Market Value” means, as of any date, the value of the Common Stock determined as follows:

(i)    If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the date of grant, as reported in The Wall Street Journal or such other source as the Board deems reliable.

(ii)    In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board.

(p)    “Non-Employee Director” means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“Regulation S-K”)), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation  S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(q)    “Nonstatutory Stock Option” means an Option not intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(r)    “Officer” means a person who possesses the authority of an “officer” as that term is used in Rule 4460(i)(1)(A) of the Rules of the National Association of Securities Dealers, Inc. For purposes of the Plan, a person in the position of “Vice President” or higher shall be classified as an “Officer” unless the Board or

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Committee expressly finds that such person does not possess the authority of an “officer” as that term is used in Rule 4460(i)(1)(A) of the Rules of the National Association of Securities Dealers, Inc.

(s)    “Option” means a Nonstatutory Stock Option granted pursuant to the Plan.

(t)    “Option Agreement” means an agreement (including an electronic agreement) between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

(u)    “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(v)    “Participant” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

(w)    “Plan” means this Applied Micro Circuits Corporation 2000 Equity Incentive Plan.

(x)    “Retirement” means the termination of a Participant’s Continuous Service by retirement as determined in accordance with the Company’s then current employment policies and guidelines.

(y)    “Rule 16b-3” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(z)    “Securities Act” means the Securities Act of 1933, as amended.

(aa)    “Stock Award” means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock.

(bb)    “Stock Award Agreement” means an agreement (including an electronic agreement) between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(cc)    “Ten Percent Shareholder” means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates.

(dd)    “Total Service” means the sum of all of a Participant’s periods of Continuous Service.

3.    ADMINISTRATION.

(a)    Administration by Board.    The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c).

(b)    Powers of Board.    The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i)    To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock

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Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

(ii)    To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

(iii)    To amend the Plan or a Stock Award as provided in Section 12.

(iv)    Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan.

(c)    Delegation to Committee.

(i)    General.    The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term “Committee” shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

(ii)    Committee Composition when Common Stock is Publicly Traded.    At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or (2) delegate to a committee of one or more members of the Board who are not Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

(d)    Effect of Board’s Decision.    All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

4.    SHARES SUBJECT TO THE PLAN.

(a)    Share Reserve.    Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, the Common Stock that may be issued pursuant to Stock Awards shall not exceed in the aggregate twenty-two million (22,000,000) shares of Common Stock.

(b)    Reversion of Shares to the Share Reserve.    If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan.

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(c)    Source of Shares.    The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise.

5.    ELIGIBILITY.

(a)    Eligibility for Specific Stock Awards.    Stock Awards may be granted to Employees, Directors and Consultants.

(b)    Restrictions on Eligibility.    Notwithstanding the foregoing, the aggregate number of shares issued pursuant to Stock Awards granted to Officers and Directors cannot exceed forty percent (40%) of the number of shares reserved for issuance under the Plan as determined at the time of each such issuance to an Officer or Director, except that there shall be excluded from this calculation shares issued to Officers not previously employed by the Company pursuant to Stock Awards granted as an inducement essential to such individuals entering into employment contracts with the Company.

(c)    Consultants.

(i)    A Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is not available to register either the offer or the sale of the Company’s securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions.

(ii)    Form S-8 generally is available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer’s parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer’s securities.

6.    OPTION PROVISIONS.

Each Option shall be in such form (including electronic form) and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions:

(a)    Term.    The term of an Option shall be the term determined by the Board, either at the time of grant of the Option or as the Option may be amended thereafter.

(b)    Exercise Price of a Nonstatutory Stock Option.    The exercise price of each Nonstatutory Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code.

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(c)    Consideration.    The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board. Unless otherwise specifically provided in the Option, the purchase price of Common Stock acquired pursuant to an Option that is paid by delivery to the Company of other Common Stock acquired, directly or indirectly from the Company, shall be paid only by shares of the Common Stock of the Company that have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes). At any time that the Company is incorporated in Delaware, payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement.

(d)    Transferability of an Option.    An Option shall be transferable to the extent provided in the Option Agreement. If the Option Agreement does not provide for transferability, then the Option shall not be transferable except by will or by the laws of descent and distribution or, in the case of a Nonstatutory Stock Option only, pursuant to a domestic relations order (as defined by the Code or the rules thereunder) and shall be exercisable during the lifetime of the Optionholder only by the Optionholder or a transferee as permitted by this Section. Notwithstanding the foregoing, the Optionholder may, by delivering notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option.

(e)    Vesting Generally.    The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

(f)    Termination of Continuous Service.    In the event an Optionholder’s Continuous Service terminates (other than upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date thirty (30) days following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate.

(g)    Extension of Termination Date.    An Optionholder’s Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in the Option Agreement, or (ii) the expiration of the applicable period of time after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements.

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(h)    Disability of Optionholder.    In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate.

(i)    Death of Optionholder.    In the event an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder’s death pursuant to subsection 6(d), but only within the period ending on the earlier of (1) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate.

(j)    Early Exercise.    The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder’s Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Any unvested shares of Common Stock so purchased may be subject to a repurchase option in favor of the Company or to any other restriction the Board determines to be appropriate. The Company will not exercise its repurchase option until at least six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes) have elapsed following exercise of the Option unless the Board otherwise specifically provides in the Option.

(k)    Re-Load Options.

(i)    Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a “Re-Load Option”) in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Unless otherwise specifically provided in the Option, the Optionholder shall not surrender shares of Common Stock acquired, directly or indirectly from the Company, unless such shares have been held for more than six (6) months (or such longer or shorter period of time required to avoid a charge to earnings for financial accounting purposes).

(ii)    Any such Re-Load Option shall (1) provide for a number of shares of Common Stock equal to the number of shares of Common Stock surrendered as part or all of the exercise price of such Option; (2) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re-Load Option; and (3) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re-Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan.

(iii)    There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares of Common Stock under subsection 4(a) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options.

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7.    PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a)    Stock Bonus Awards.    Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i)    Consideration.    A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit.

(ii)    Vesting.    Shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

(iii)    Termination of Participant’s Continuous Service.    In the event a Participant’s Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement.

(iv)    Transferability.    Rights to acquire shares of Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement.

(b)    Restricted Stock Awards.    Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i)    Purchase Price.    The purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. The purchase price shall not be less than one hundred percent (100%) of the Common Stock’s Fair Market Value on the date such award is made or at the time the purchase is consummated.

(ii)    Consideration.    The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stock’s “par value,” as defined in the Delaware General Corporation Law, shall not be made by deferred payment.

(iii)    Vesting.    Shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board.

(iv)    Termination of Participant’s Continuous Service.    In the event a Participant’s Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of

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Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement.

(v)    Transferability.    Rights to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement.

8.    COVENANTS OF THE COMPANY.

(a)    Availability of Shares.    During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

(b)    Securities Law Compliance.    The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.

9.    USE OF PROCEEDS FROM STOCK.

Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

10.    MISCELLANEOUS.

(a)    Acceleration of Exercisability and Vesting.    The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

(b)    Shareholder Rights.    No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms.

(c)    No Employment or other Service Rights.    Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

(d)    Investment Assurances.    The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give assurances satisfactory to the Company as to

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the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (1) the issuance of the shares of Common Stock upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (2) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

(e)    Withholding Obligations.    To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award, provided, however, that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law; or (iii) delivering to the Company owned and unencumbered shares of Common Stock.

11.    ADJUSTMENTS UPON CHANGES IN STOCK.

(a)    Capitalization Adjustments.    If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.)

(b)    Dissolution or Liquidation.    In the event of the proposed dissolution or liquidation of the Company, all outstanding Stock Awards will terminate immediately prior to the consummation of such proposed action, unless otherwise provided by the Board. The Board may, in the exercise of its sole discretion in such instances, declare that any Stock Award shall terminate as of a date fixed by the Board and, if applicable, give each Participant the right to exercise his or her Stock Award as to all or any part of the shares subject to the Stock Award, including shares of Common Stock as to which the Stock Award would not otherwise be exercisable.

(c)    Corporate Transactions.    In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares

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of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then the Stock Awards shall vest (and, if applicable, become immediately exercisable) for the number of shares of Common Stock that would otherwise be vested under the terms of the Stock Award one (1) year after the date of such transaction. Thereafter, the Stock Award shall be assumed or an equivalent stock award shall be substituted by such successor corporation or a parent or subsidiary of such successor corporation, unless the Board determines, in the exercise of its sole discretion and in lieu of such assumption or substitution, that the Stock Award shall vest and, if applicable, the Participant shall have the right to immediately exercise the Stock Award as to some or all of the shares of Common Stock, including shares of Common Stock as to which the Stock Award would not otherwise be vested and exercisable. If the Board makes a Stock Award vested (and, if applicable, immediately exercisable) in lieu of assumption or substitution in the event of a merger or sale of assets, the Board shall notify the Participant that the Stock Award shall be vested (and, if applicable, immediately exercisable) for a period of fifteen (15) days from the date of such notice, and the Stock Award will terminate upon the expiration of such period.

12.    AMENDMENT OF THE PLAN AND STOCK AWARDS.

(a)    Amendment of Plan.    The Board at any time, and from time to time, may amend the Plan.

(b)    Shareholder Approval.    The Board may, in its sole discretion, submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers.

(c)    Contemplated Amendments.    It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder and/or to bring the Plan and/or Options into compliance therewith.

(d)    No Impairment of Rights.    Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents to such amendment.

(e)    Amendment of Stock Awards.    The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents to such amendment.

13.    TERMINATION OR SUSPENSION OF THE PLAN.

(a)    Plan Term.    The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

(b)    No Impairment of Rights.    Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the consent of the Participant.

14.    EFFECTIVE DATE OF PLAN.

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The Plan shall become effective as determined by the Board.

15.    CHOICE OF LAW.

The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state’s conflict of laws rules.

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APPLIED MICRO CIRCUITS CORPORATION

2000 EQUITY INCENTIVE PLAN

FORM OF NOTICE OF GRANT, STOCK OPTION AGREEMENT AND NOTICE OF EXERCISE

Applied Micro Circuits Corporation (the “Company”), pursuant to its 2000 Equity Incentive Plan (the “Plan”), hereby grants to Optionholder an option to purchase the number of shares of the Company’s Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety.

Optionholder:

Date of Grant:

Vesting Commencement Date:

Number of Shares Subject to Option:

Exercise Price (Per Share):

Total Exercise Price:

Expiration Date:

Type of Grant:           x  Nonstatutory Stock Option

Exercise Schedule:     x  Same as Vesting Schedule*        ¨  Early Exercise Permitted

* Except as otherwise provided in your Option Agreement, unless you qualify as an exempt employee under state and federal wage and hour laws or are a resident outside the United States, you may not exercise an option within six (6) months of the date of grant, even if the option is vested at that time; provided, however, that you may exercise such option within the six-month period following the date of grant if your Continuous Service is terminated due to your death or Disability or due to such other circumstance(s) that would entitle the income derived from such option exercise to be exempted from your regular rate under the Fair Labor Standards Act of 1938 by reason of the Worker Economic Opportunity Act. In addition and notwithstanding anything to the contrary in Section 6(a) of your Option Agreement, unless you qualify as an exempt employee under state and federal wage and hour laws, in the event that the termination of your Continuous Service for any reason other than your Disability or death occurs within the six-month period following the date on which your option was granted, then your option shall expire ninety (90) days after the end of such six-month period.

Vesting Schedule:	1/48th of the shares vest monthly over four years, subject to the shares not vesting earlierthan the Optionee’s initial options, and such that this option is fully vested in four years.
Payment:	By one or a combination of the following items (described in the Stock Option Agreement):

By cash or check

Pursuant to a Regulation T Program if the Shares are publicly traded

By delivery of already-owned shares if the Shares are publicly traded

Additional Terms/Acknowledgements:    The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only:

OTHER AGREEMENTS:

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APPLIED MICRO CIRCUITS CORPORATION OPTIONHOLDER:
By:	/s/    DAVID M. RICKEY
	Signature
Title:    Chief Executive Officer
Date:

ATTACHMENTS:    Stock Option Agreement, 2000 Equity Incentive Plan and Notice of Exercise

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APPLIED MICRO CIRCUITS CORPORATION

2000 EQUITY INCENTIVE PLAN

Pursuant to your Stock Option Grant Notice (“Grant Notice”) and this Stock Option Agreement, Applied Micro Circuits Corporation (the “Company”) has granted you an option under its 2000 Equity Incentive Plan (the “Plan”) to purchase the number of shares of the Company’s Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan.

The details of your option are as follows:

1.    VESTING.    Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service.

2.    NUMBER OF SHARES AND EXERCISE PRICE.    The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan.

3.    METHOD OF PAYMENT.    Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price in cash or by check or in any other manner permitted by your Grant Notice, which may include one or more of the following:

(a)    In the Company’s sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds.

(b)    Provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, by delivery of already-owned shares of Common Stock that (x) you have held for the period required to avoid a charge to the Company’s reported earnings (generally six months) or that you did not acquire, directly or indirectly from the Company, (y) are owned free and clear of any liens, claims, encumbrances or security interests and (z) have a Fair Market Value on the date of delivery equal to the exercise price of the Shares as to which your option is being exercised. “Delivery” for these purposes, in the sole discretion of the Company at the time you exercise your option, shall include delivery to the Company of your attestation of ownership of such shares of Common Stock in a form approved by the Company. Notwithstanding the foregoing, you may not exercise your option by tender to the Company of Common Stock to the extent such tender would violate the provisions of any law, regulation or agreement restricting the redemption of the Company’s stock.

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4.    WHOLE SHARES.    You may exercise your option only for whole shares of Common Stock.

5.    SECURITIES LAW COMPLIANCE.    Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations.

6.    TERM.    You may not exercise your option before the commencement of its term or after its term expires. The term of your option commences on the Date of Grant and expires upon the earliest of the following:

(a)    ninety (90) days after the termination of your Continuous Service for any reason other than your Disability or death, provided that if you were an Executive Officer on the Date of Grant or at any time prior to the Date of Grant and the termination of your Continuous Service is due to the commencement of your Retirement, such period of exercise after the date of termination shall be fifteen (15) months or, if your Total Service was more than seven (7) years at the date your Retirement commences, twenty-four (24) months (but in no event later than the Expiration Date), provided further, that if during any part of such period (whether 90 days, 15 months or 24 months) your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to “Securities Law Compliance,” your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period equal to the applicable period of time after the termination of your Continuous Service;

(b)    fifteen (15) months after the termination of your Continuous Service due to your Disability;

(c)    fifteen (15) months after your death if you die during your Continuous Service;

(d)    the Expiration Date indicated in your Grant Notice; or

(e)    the day before the tenth (10th) anniversary of the Date of Grant.

7.    EXERCISE.

(a)    You may exercise the vested portion of your option during its term by any of the following methods: (i) online exercise through a captive broker designated by the Company (a “Captive Broker”), (ii) telephonic exercise communicated to a representative of a Captive Broker, (iii) telephonic exercise through a voice response system designated by the Company or (iv) such other method or methods of exercise as may be designated by the Company from time to time. Any such method of exercise shall require you to notify the Company of your election to exercise your option and the number of Shares in respect of which your option is being exercised, and may require you to make such other representations and

16

agreements as to your investment intent with respect to such shares of Common Stock as may be required by the Company pursuant to the provisions of the Plan (collectively, an “Exercise Notice”). Your option shall be deemed to be exercised upon receipt by the Company or Captive Broker, as applicable, of such Exercise Notice and receipt by the Company of the exercise price for the Shares in respect of which your option is being exercised.

(b)    By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise.

8.    TRANSFERABILITY.    Your option is not transferable, except by will or by the laws of descent and distribution or, in the case of a Nonstatutory Stock Option only, pursuant to a domestic relations order (as defined by the Code or the rules thereunder), and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option.

9.    “AT-WILL” EMPLOYMENT RELATIONSHIP; OPTION NOT A SERVICE CONTRACT.    If you are an Employee, your employment relationship with the Company is an “at-will” employment relationship unless the Company and you have entered into an express written agreement that sets forth a different employment relationship. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective shareholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate.

10.    WITHHOLDING OBLIGATIONS.

(a)    At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a “cashless exercise” pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option.

(b)    Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding

17

obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility.

(c)    You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein.

11.    NOTICES.    Any notices provided for in your option or the Plan shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company.

12.    GOVERNING PLAN DOCUMENT.    Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control.

NOTICE OF EXERCISE

To:	Applied Micro Circuits Corporation
Attn:	Stock Option Administrator
Subject:	Notice of Intention to Exercise Stock Option

This is official notice that the undersigned (“Optionee”) intends to exercise Optionee’s option to purchase Shares of Applied Micro Circuits Corporation Common Stock, all of which are vested, as follows:

Option Number Option Date Type of Option ISO/NQ Number of Shares Being
Purchased Option Price
(Per Share) Tax Due* (if applicable) Total Amount
Due AMCC

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*AMCC is required to withhold taxes when employees exercise an NQO. Under current law, U.S. income tax withholding is not required when exercising an ISO.

I am paying the cost to exercise as specified below by method a, b or c (circle one below)

a.    Cash Payment:    Enclosed is my check #                  in the amount of $                .

b.    Cashless Exercise and Same-Day Sale:    I will call my stockbroker (complete broker info below) to authorize them to issue a check payable to AMCC from my account #                         .

Broker Name and Contact:                                                       

Broker Telephone No.:                                                             

c.    Surrender or Swap Shares Owned:    (Shares must have been held for at least six months.)

I certify that the stock purchased through the exercise of these options will not be sold in a manner that would violate the Company’s policy on Insider Trading.

Optionee’s Signature:                                                                                                          

Print Name:                                                                                                                          

Social Security Number:                                                                                                      

Send shares to:

Broker Name                                                                     

Account No.                                                                      

My home address                                                              

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EX-10.38

Exhibit 10.38

AMCC

DEFERRED COMPENSATION PLAN

AMCC

DEFERRED COMPENSATION PLAN

Table of Contents

Article		Page
1	Purpose	1
2	Definitions	1
3	Participation in the Plan	4
4	Contributions and Allocations	5
5	Vesting	7
6	Distributions to Participants	7
7	Amendment or Termination of the Plan	10
8	Plan Administration	10
9	Miscellaneous	14

2

AMCC

DEFERRED COMPENSATION PLAN

The Board of Directors of Applied Micro Circuits Corporation (the “Company”), a California corporation, adopts this non-qualified deferred compensation plan, known as the AMCC DEFERRED COMPENSATION PLAN (the “Plan”), effective April 1, 2002.

ARTICLE 1

1.    PURPOSE.    The purpose of the Plan is to permit a select group of management or highly compensated employees of the Company to accumulate additional retirement income through a nonqualified deferred compensation plan that enables them to make elective deferrals in excess of those permitted under the AMCC 401(k) Retirement Plan.

This Plan is not intended to be a qualified plan within the meaning of sections 401(a) and 501(a) of the Internal Revenue Code of 1986, as amended (the “Code”). This Plan is designed to qualify under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), as an unfunded plan maintained by the Company primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees. If, for any reason, including but not limited to, the promulgation of regulations by the United States Department of Labor, this Plan, either in form or in operation, shall fail to so qualify, the Plan shall be revised, as necessary, and notwithstanding any other limitations herein, to comply with the requirements for maintaining such an unfunded plan.

ARTICLE 2

2.    DEFINITIONS.    As used in this Plan, the following capitalized words and phrases have the meanings indicated, unless a different meaning is expressly provided or plainly required by the context:

2.1.    Account means amounts credited to bookkeeping entries established or maintained for a Participant under the Plan.

2.2.    Allocation Date means the last day of any Plan Year, or any other date designated by the Committee.

2.3.    Beneficiary means the person or persons designated by a Participant, or otherwise entitled, to receive any amount credited to his Account that remains undistributed at his death.

2.4.    Bonus Compensation means the aggregate bonus amount paid to a Participant by the Company for the Plan Year, which bonus amount is based in whole or in part upon the performance of the business unit(s) which the Participant is responsible for managing.

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2.5.    Change in Control means:

(A)    the shareholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company;

(B)    substantially all of the assets or stock of the Company are sold or otherwise transferred to parties that are not within the “controlled group of corporations” (as defined in Section 1563 of the Code) in which the Company is a member; or

(C)    a merger, consolidation or reorganization of the Company with or involving any other corporation, other than a merger, consolidation or reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than fifty percent (50%) of the combined voting power of the voting securities of the Company (or such surviving entity) outstanding immediately after such merger, consolidation or reorganization.

2.6.    Code means the Internal Revenue Code of 1986, as amended from time to time.

2.7.    Committee means the committee appointed in accordance with Section 8.1 to administer the Plan.

2.8.    Company means Applied Micro Circuits Corporation, a California corporation; any entity within the “controlled group of corporations” (as defined in Section 1563 of the Code) that, with the consent of the Committee, shall participate in this Plan; and any successor that shall maintain this Plan. Where, in the context of the Plan, Company refers to a single entity, Company means AMCC

2.9.    Compensation Reduction Accrual means an amount credited to the Compensation Reduction Accrual Account pursuant to a Compensation Reduction Agreement.

2.10.    Compensation Reduction Accrual Account means the account established to record Compensation Reduction Accruals authorized by Participants under the terms of this Plan.

2.11.    Compensation Reduction Agreement means an agreement between a Participant and the Company, under which the Participant agrees to a reduction in his Salary Compensation and/or Bonus Compensation and the Company agrees to credit him with Compensation Reduction Accruals under this Plan.

2.12.    Disability means a “disability” as defined in any group long-term disability policy or program sponsored by the Company and in effect at the time a Participant who has suffered a physical or mental impairment makes application under this Plan for a disability distribution.

2.13.    Effective Date means April 1, 2002, the date on which this Plan went into effect.

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2.14.    Eligible Employee means an employee of the Company who has been designated to participate in the Plan by the Committee.

2.15.    Entry Date means the first day of each payroll period.

2.16.    Participant means any Eligible Employee who satisfies the conditions for participation in the Plan set forth in Section 3.1.

2.17.    Plan means the AMCC Deferred Compensation Plan, as set forth herein and as from time to time amended.

2.18.    Plan Year means the twelve (12) consecutive month period beginning each January 1st and ending each December 31st.

2.19.    Qualified Plan means the AMCC 401(k) Retirement Plan, as from time to time amended.

2.20.    Salary Compensation means the base annual salary payable to a Participant but shall not include Bonus Compensation. Salary Compensation also includes Compensation Reduction Accruals attributable to Salary Compensation under this Plan and any elective deferrals under cash-or-deferred arrangements or cafeteria plans that are not includible in gross income by reason of sections 125 or 402(a)(8) of the Code, but Salary Compensation does not include any other amounts contributed pursuant to, or received under, any other plan of deferred compensation or other amounts which may be compensation under section 3401(a) of the Code or otherwise.

2.21.    Termination of Employment means a Participant’s or former Participant’s separation from the service of the Company (including all affiliates of the Company) by reason of his resignation, retirement, discharge or death.

2.22.    Valuation Date means any Allocation Date and any other date as of which the value of Participants’ Accounts is determined.

Rules of Construction

2.23.    Governing Law—Except to the extent preempted by ERISA, construction and operation of this Plan will be governed by the laws of the State of California.

2.24.    Undefined Terms—unless the context clearly requires another meaning, any term not specifically defined in this Plan is used in the sense given to it by the Qualified Plan.

2.25.    Headings—the headings of Articles, Sections and Subsections are for reference only and are not to be utilized in construing the Plan.

2.26.    Gender—unless clearly inappropriate, all pronouns of whatever Gender refer indifferently to persons or objects of any gender.

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2.27.    Singular and Plural—unless clearly inappropriate, singular terms refer also to the plural number and vice versa.

2.28.    Severability—if any provision of this Plan is held illegal or invalid for any reason, the remaining provisions are to remain in full force and effect and are to be construed and enforced in accordance with the purposes of the Plan as if the illegal or invalid provision did not exist.

ARTICLE 3

3.    PARTICIPATION IN THE PLAN

3.1.    Commencement of Participation.    An employee of the Company becomes a Participant on the first Entry Date following the date on which he becomes an Eligible Employee, provided he has made a Written Election in accordance with the terms of Section 3.3 below.

3.2.    Cessation of Participation.    If a Participant ceases to satisfy the conditions set forth in Section 3.1, his participation in this Plan terminates immediately, except that his Account will continue to be held for his benefit and will be distributed to him in accordance with the provisions of Article 6. He may resume participation as of any Entry Date on which he again satisfies the conditions of Section 3.1.

3.3.    Written Election by Participant.    Each Eligible Employee shall submit to the Committee a Written Election prior to the last day of the third quarter of the Corporate Fiscal Year for which he will be a Participant or, in the case of the Plan Year that includes the date on which the Plan is adopted, not later than thirty (30) days after such adoption; provided that in no event shall a Written Election be submitted later than December 31 of the year prior to the year for which Salary Compensation and/or Bonus Compensation is to be deferred.

3.3.1.    Such Written Election shall be made on the form made available by the Committee and shall set forth:

(A)    his participation in this Plan under the terms hereof;

(B)    the amount of Salary Compensation and/or Bonus Compensation the Eligible Employee has determined to defer under this Plan for the Plan Year, pursuant to Section 4.1 below;

(C)    the investment vehicles into which the Participant elects to have his Compensation Reduction Accrual Account deemed invested and the percentage of the account allocated to each elected investment vehicle; and

(D)    the form in which his benefit is to be distributed upon termination of service.

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3.3.2.    A Participant may change a submitted Written Election in accordance with the following:

(A)    A Participant may change the investment vehicle(s) and the percentage of his Compensation Reduction Accrual Account allocated to each investment vehicle by completing and submitting any form or forms required by the Committee. Changes submitted to the Committee more than fifteen (15) days prior to the end of a calendar month shall be effective on the first day of the following calendar month. Changes submitted less than fifteen (15) days prior to the end of a calendar month shall become effective on the first day of the calendar month that is fifteen (15) or more days following delivery of the form to the Committee.

(B)    A Participant may change the form of distribution by submitting a new Written Election to the Company, provided that such change is submitted at least one hundred eighty (180) days prior to the commencement of distributions or, in the event of Disability, at any time on or after the determination of Disability has been approved by the Committee.

ARTICLE 4

4.    CONTRIBUTIONS AND ALLOCATIONS

4.1.    Participant Contributions.    A Participant may elect to defer a portion of his Salary Compensation and/or Bonus Compensation for each Plan Year. The amount deferred must be expressed as a percentage in whole numbers, of such Salary or Bonus Compensation. The Committee shall determine from time to time the minimum and maximum annual deferrals permitted for each Participant; provided, however, that the maximum annual deferral limitation for Salary Compensation is 85% of such Salary Compensation and, for Bonus Compensation, 100% of such Bonus Compensation. The minimum deferral a Participant must defer is $10,000.

4.2.    Establishment of Accounts.    The accounts specified in this Article 4 are established under the Plan to record the liability of the Company to Participants. All accounts are maintained on the books of the Company, and the Company is under no obligation to segregate any assets to provide for these liabilities; provided, however, that the Company may create a grantor trust in accordance with Section 8.5.2.

4.2.1.    Compensation Reduction Accrual Accounts.    A Compensation Reduction Accrual Account is maintained for each Participant for the purpose of recording the current value of his Compensation Reduction Accruals.

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4.3.    Valuation of Accounts.

4.3.1.    Timing of Valuation.    All Accounts are valued as of each Allocation Date and as of any other Valuation Date fixed by the Committee.

4.3.2    Method of Valuing Accounts.

(A)    Allocation of Participant Contributions.    All salary amounts which a Participant elects to defer under the terms of this Plan shall be allocated to his Compensation Reduction Accrual Account on the last day of the month in which the pay date occurs. All annual bonus amounts which a Participant elects to defer under the terms of this Plan shall be allocated to his Compensation Reduction Accrual Account on the day that the annual bonus payment actually occurs.

(B)    Credited Earnings.    The amount credited to the Compensation Reduction Accrual Account of each Participant shall be deemed to be invested in investment vehicles as may be selected by the Committee in its sole discretion and the Committee shall not be obliged to make any investment directed pursuant to Section 3.3.1., the purpose of such deemed investment directions being to establish a method of adjusting each Participant’s Compensation Reduction Accrual Account in order to determine the amount that may ultimately be distributed hereunder. As of the last day of each month, a Participant’s Compensation Reduction Accrual Account shall be increased to reflect the additions credited to the Participant as a result of such deemed investments, determined as if the investments had actually been made and shall be charged with a reasonable estimate of the amount of expenses that would have been incurred had such investments actually been made.

(C)    Deductions.    A Participant’s Compensation Reduction Accrual Account shall be decreased by any distributions made with respect to the Participant pursuant to Article 6.

(D)    Investment Risk.    By electing to participate in this Plan, the Participant agrees on behalf of himself and his Beneficiaries to assume all risk in connection with any increase or decrease in the value of the investments which are deemed to be held in his Account.

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ARTICLE 5

5.    VESTING.    A Participant’s interest in his Account is vested when it is not subject to forfeiture for any reason. Subject to Section 6.12, a Participant’s interest in his Compensation Reduction Accrual Account is fully (100%) vested at all times.

ARTICLE 6

6.    DISTRIBUTIONS TO PARTICIPANTS

6.1.    Termination of Employment Benefit.    Distribution of benefits will be made or commence, whichever is applicable, as soon as reasonably practicable after the first day of the second Plan Year following the Plan Year in which the Participant incurs a Termination of Employment.

6.1.1.    Manner of Distribution.    Each Written Election must specify in what form benefits accrued under the Plan will be distributed to the Participant. Available forms of distribution include:

(A)    lump sum;

(B)    annual installments paid over three (3) years;

(C)    annual installments paid over five (5) years;

(D)    annual installments paid over ten (10) years; or

(E)    annual installments paid over fifteen (15) years.

Notwithstanding any prior Written Election by a Participant, if a Participant incurs a delayed distribution pursuant to Section 8.6, the distribution to such Participant will only be made in annual installments paid over five (5) years.

6.1.2.    Interest Accrual.    If the form of distribution is in annual installments, the Participant’s Account will continue to be deemed invested in the investment vehicles elected by the Participant and the annual installment payments will be adjusted to reflect the earnings of such deemed investments.

6.2.    Disability Benefit.    If a Participant becomes disabled as defined in Section 2.12, distribution of benefits will commence as soon as reasonably practicable after the Participant is disabled. Disability benefits will be paid according to the Participant’s Written Election.

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6.3.    Survivor Benefits.

6.3.1    If a Participant dies after a distribution has commenced, his Beneficiary shall receive, as soon as practicable after the date of death, a distribution of the Participant’s entire benefit in a lump sum.

6.3.2    If a Participant dies before a distribution has commenced and the Company has not purchased a life insurance contract in connection with such Participant’s benefit, the Company will pay the Participant’s Beneficiary an amount equal to the Participant’s current Account balance. Such benefit shall be distributed, as soon as practicable after the death of the Participant, in a lump sum.

6.4.    Unplanned In-Service Benefit.    A Participant may elect to receive his Account balance as an Unplanned In-Service Benefit, in any form of distribution permitted under Section 6.1.1, and commencing (or to be made) as soon as reasonably practicable after the first day of the second Plan Year following the date of the election, by providing the Committee with a written election to do so. In consideration for receiving an Unplanned In-Service Benefit, such Participant shall permanently forfeit an amount equal to ten (10%) of his Account balance and forego all future participation for the remainder of the Plan Year and the following Plan Year.

6.5.    Financial Hardship Benefit.    A Participant may request a distribution of a portion of his Account as a Financial Hardship Benefit at any time by providing the Committee, to its satisfaction, with a written election to do so, proof of an unforeseeable financial hardship and proof that all other financial resources have been explored and utilized. The amount of a Financial Hardship Benefit shall be limited to the lesser of the amount needed for the financial hardship or such Participant’s Account balance. In consideration for receiving a Financial Hardship Benefit, such Participant shall forego all future participation for the remainder of the Plan Year and the following Plan Year.

6.6.    Change in Control Benefit.    In the case of a Change in Control as defined in Section 2.5, all Participant Accounts shall be distributed in a lump sum payment as soon as administratively practicable.

6.7.    Type of Property to be Distributed.    All distributions from the Plan to Participants and Beneficiaries shall be made in cash, unless the Committee determines that other property should be distributed.

6.8.    Election of Beneficiary

6.8.1.    Designation or Change of Beneficiary by Participant.    When an Eligible Employee qualifies for participation in the Plan, the Committee will send him a Beneficiary designation form, on which he may designate one or more Beneficiaries and successor Beneficiaries. A Participant may change his Beneficiary designation at any time by filing the prescribed form with the Committee and the consent of the Participant’s current Beneficiary is not required for a change of Beneficiary. No Beneficiary

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has any rights under this Plan except as are provided by its terms. The rights of a Beneficiary who predeceases the Participant who designated him immediately terminate, unless the Participant has specified otherwise.

6.8.2.    Beneficiary if No Election is Made.    Unless a different Beneficiary has been elected in accordance with Section 6.9.1, the Beneficiary of any Participant who is lawfully married on the date of his death is his surviving spouse of if no surviving spouse, then surviving children shall be the beneficiary. The Beneficiary of any other Participant who dies without having designated a Beneficiary is his estate.

6.9.    Nonalienability.    The rights of each Participant are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or any Beneficiary. Neither the Participant nor Beneficiary may assign, transfer or pledge the benefits under this Plan. Any attempt to assign, transfer or pledge a Participant’s benefits under this Plan is void.

6.10.    Dissolution of Marriage.    If a Participant is divorced prior to the commencement of his Annual Benefit, the former spouse of the Participant shall only be entitled to receive a portion of the Participant’s Annual Benefit, if at all, at such time and in such form as the Participant is entitled to his Annual Benefit. Any rights of the former spouse are contingent upon the rights of the Participant hereunder, and the former spouse shall not be entitled to accelerate distributions and shall not be entitled to any funds before they are available to the Participant, if at all, under the terms of the Plan.

6.11.    Income Recognition.    If it shall be determined by a final administrative decision of the Internal Revenue Service (which is not appealed by the Participant) or by a final decision of a court of competent jurisdiction (which is not appealed by the Participant) that all or any part of the Participant’s Account is includable in the income of the Participant prior to the actual receipt of such amount, the Committee shall make a special payment to such Participant, which shall, to that extent, discharge the Company’s obligations under this Plan, in an amount equal to such Participant’s estimated federal, state and local income tax liabilities related to such inclusion and to the inclusion in income of such special payment; provided, that such special payment shall not exceed the value of the Participant’s Account balance. The Participant shall have no obligation to appeal any determination made by the Internal Revenue Service or the decision of any such court.

6.12.    Manner of Payment.    Any payment to be made by the Committee hereunder may be made by the Company’s check. Mailing to a person entitled to payment hereunder at the address of such person last furnished to the Company shall be adequate delivery of such payment for all purposes. If the whereabouts of a person entitled to payment under the Plan cannot be determined after reasonable search by the Committee and such person’s whereabouts continue to be unknown for a period of three (3) years, the Committee may determine that such person has died, and payment shall be made to such person’s Beneficiary or, if after a reasonable search by the Committee, no such Beneficiary shall be located, the Participant’s Account

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under the Plan shall be forfeited. Any determination hereunder shall be final and binding on all persons under the Plan, and no interest or penalty shall be payable with respect to any payment that cannot be delivered because a person’s whereabouts cannot be so determined or continue to be unknown.

ARTICLE 7

7.    AMENDMENT OR TERMINATION OF THE PLAN

7.1    Committee’s Right to Amend or Terminate Plan.    The Committee may, at any time and from time to time, amend, in whole or in part, any of the provisions of this Plan or may terminate it as a whole or with respect to any Participant or group of Participants. Any such amendment or termination is binding upon all Participants and their Beneficiaries and all other parties in interest.

7.2    When Amendment or Termination Take Effect.    A resolution amending or terminating the Plan becomes effective as of the date specified therein.

7.3    Restriction on Retroactive Amendments.    No amendment may be made that retroactively deprives a Participant of any benefit accrued before the date of the amendment.

ARTICLE 8

8.     PLAN ADMINISTRATION

8.1    The Administrative Committee.    The Plan is administered by the Committee which consists of one or more persons appointed by the Chief Executive Officer. The Chief Executive Officer may remove any member of the Committee at any time, with or without cause, and may fill any vacancy. If a vacancy occurs, the remaining member or members of the Committee have full authority to act. Any member of the Committee may resign by delivering his written resignation to the Chief Executive Officer and the Committee. Any such resignation becomes effective upon its receipt by the Chief Executive Officer or on such other date as is agreed to by the Committee and the resigning member. The Committee acts by a majority of its members at the time in office and may take action either by vote at a meeting or by consent in writing without a meeting. The Committee may adopt such rules and appoint such subcommittees, as it deems desirable for the conduct of its affairs and the administration of the Plan. If, at any time, the Chief Executive Officer of the Company has been determined to be incapacitated by the Committee, the Chief Operating Officer of the Company shall succeed to the functions set forth herein of the Chief Executive Officer.

8.2    Powers of the Committee.    In carrying out its duties with respect to the general administration of the Plan, the Committee has, in addition to any other powers conferred by the Plan or by law, the following powers:

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(a)    to determine all questions relating to eligibility to participate in the Plan;

(b)    to compute the amount and kind of distributions payable to Participants and their Beneficiaries;

(c)    to maintain all records necessary for the administration of the Plan;

(d)    to interpret the provisions of the Plan and make any and all determinations arising thereunder, such interpretations and determinations to be final, conclusive and binding on all Participants and Beneficiaries hereunder;

(e)    to establish and modify the method of accounting for the Plan;

(f)    to employ counsel, accountants and other consultants to aid in exercising its powers and carrying out its duties hereunder; and

(g)    to perform any other acts necessary and proper for the administration of the Plan.

8.3    Indemnification

8.3.1    Indemnification of Members of the Committee by the Company.    The Company agrees to indemnify and hold harmless each member of the Committee against any and all expenses and liabilities arising out of his action or failure to act in such capacity, excepting only expenses and liabilities arising out of his own willful misconduct or gross negligence. This right of indemnification is in addition to any other rights to which any member of the Committee may be entitled.

8.3.2    Liabilities for which Members of the Committee are Indemnified.    Liabilities and expenses against which a member of the Committee is indemnified hereunder include, without limitation, the amount of any settlement or judgment, costs, counsel fees and related charges reasonably incurred in connection with a claim asserted or a proceeding brought against him or the settlement thereof.

8.3.3.    Company’s Right to Settle Claims.    The Company may, at its own expense, settle any claim asserted or proceeding brought against any member of the Committee when such settlement appears to be in the best interests of the Company.

8.4.    Claims Procedure.    Any Participant or Beneficiary who believes that he is being denied a benefit to which he is entitled under the Plan and who wishes to request review of a claim for benefits, or who wishes an explanation of a benefit or its denial, may direct to the Committee a written request for such review. The Committee shall respond to the request by issuing a notice to the claimant as soon as possible, but in no event later than ninety (90) days from the date of the request. This notice furnished by the Committee shall be written in a manner calculated to be understood by the claimant and shall include the following:

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·    The specific reason or reasons for any denial of benefits;

·    The specific Plan provisions on which any denial is based;

·    A description of any further material or information which is necessary for the claimant to perfect his claim and an explanation of why the material or information is needed; and

·    An explanation of the Plan’s claim appeals procedure.

If the claimant does not respond to the notice, posted by first-class mail to the address of record of the Committee, within sixty (60) days from the posting of the notice, the claimant shall be considered satisfied in all respects. If the Committee fails to respond to the claimant’s written request for a review, the claimant shall be entitled to proceed to the claim appeals procedure described in the next paragraph.

In the event that the claimant wishes to appeal the claim review denial, the claimant or his duly authorized representative may submit to the Committee, within sixty (60) days of the receipt of the notice, a written notification of appeal of the claim denial. The notification of appeal of the claim denial shall permit the claimant or his duly authorized representative to utilize the following claim appeals procedures:

·    To review pertinent documents; and

·    To submit issues and comments in writing to which the Committee shall respond.

The Committee shall furnish a written decision on the appeal no later than sixty (60) days after receipt of the notification of appeal, unless special circumstances require an extension of the time for processing the appeal. In no event, however, shall the Committee respond later than one hundred twenty (120) days after a request for an appeal. The decision on appeal shall be in writing and shall include specific reasons for the decision, and shall be written in a manner calculated to be understood by the claimant and contain specific reference to the pertinent Plan provisions on which the decision is based.

8.5.    Deferred Compensation As An Unsecured Promise

8.5.1.    No Segregation.    The Company shall not be required to segregate any funds representing the Accounts of Participants hereunder, and nothing in this Plan shall be construed as providing for such segregation.

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8.5.2.    Creation of Trust.    The Company may create a grantor trust (within the meaning of Section 671 of the Code) in connection with the adoption of this Plan to which it may from time to time make contributions. Notwithstanding any creation of such a trust, the benefits hereunder shall be a general obligation of the Company. Payment of benefits from such trust shall, to that extent, discharge the Company’s obligations under this Plan. All payments provided for under this Plan not so discharged shall be paid in cash from general assets of the Company.

8.5.3.    Reliance.    Nothing in this Plan, and no action taken pursuant to its terms, shall create or be construed to create a trust or escrow account of any kind, or a fiduciary relationship between the Committee or the Company and any Participant or any other person. The Participants shall rely solely on the unsecured promise of the Company to make the payments required hereunder, but shall have the right to enforce such a claim in the same manner as any unsecured general creditor of the Company.

8.5.4.    Insurance Policies.    In the event that, in its discretion, the Company purchases an insurance policy or policies insuring the life of a Participant to allow the Company to recover the cost of providing benefits, in whole or in part, hereunder, neither the Participant nor his Beneficiary shall have any rights therein or in the proceeds therefrom. The Company shall be the sole owner and beneficiary of any such insurance policy and shall possess and exercise all incidents of ownership therein.

8.6.    Delayed Distributions.    Notwithstanding any other provision of this Plan, all rights to a Participant’s Account, and to any payments hereunder, shall be delayed until the second anniversary of the date of termination, if any one of the following circumstances occur:

·    the Participant is discharged from employment with the Company for “cause;” or

·    the Participant violates the non-competition and non-disclosure agreements previously entered into with the Company.

For purposes of this Plan, the Participant shall be deemed terminated for cause if the Company terminates the Participant, or the Participant terminates his employment, after the Participant shall have committed any felony relating to the Company or its property, including, but not limited to, a felony involving fraud, theft, misappropriation, dishonesty, or embezzlement.

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ARTICLE 9

9.    MISCELLANEOUS

9.1    Plan not a Contract of Employment.    The adoption and maintenance of the Plan does not constitute a contract between the Company and any Participant or to be consideration for the employment of any person. Nothing herein contained gives any Participant the right to be retained in the employ of the Company or derogates from the right of the Company to discharge any Participant at any time without regard to the effect of such discharge upon his rights as a Participant in the Plan.

9.2    No Rights Under Plan Except as Set Forth Herein. Nothing in this Plan, express or implied, is intended, or shall be construed, to confer upon or give to any person, firm, association, or corporation, other than the parties hereto and their successors in interest, any right, remedy, or claim under or by reason of this Plan or any covenant, condition, or stipulation hereof, and all covenants, conditions and stipulations in this Plan, by or on behalf of any party, are for the sole and exclusive benefit of the parties hereto.

9.3    Withholding.    The Company retains the right to deduct and withhold from any payments made hereunder all sums which it then may be required to deduct or withhold pursuant to any applicable tax, statute, law, regulation, or order of any jurisdiction whatsoever.

9.4    Obligations to the Company.    If a Participant becomes entitled to a distribution of benefits under the Plan, and if at such time the Participant has outstanding any debt, obligation, or other liability representing an amount owed to the Company, the payment to the Participant or his Beneficiary shall be reduced by, or set off against, the amount of such indebtedness or claim, and the Participant, as a condition of participation hereunder, consents to such set-off. In addition to the foregoing, the payment to a Participant or his Beneficiary also shall be reduced by the Company’s costs and expenses, including reasonable attorneys’ and accountants’ fees, incurred in defending any claim for benefits brought against it by such Participant or Beneficiary.

9.5    Notice.    Any notice required or permitted to be made under the Plan shall be sufficient if in writing and hand delivered, or sent by registered or certified mail, to (i) in the case of notice to the Company or the Committee, the principal office of the Company, directed to the attention of the Committee, and (ii) in the case of a Participant or Beneficiary, the Participant’s (or Beneficiary’s) mailing address maintained in the Company’s personnel records. Such notice shall be deemed given

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as of the date of delivery or, if delivery is made by mail, as of the date shown on the receipt for registration or certification.

9.6    No Loans.    The account balances in the plan are not available for loans. The amounts cannot be pledged as collateral for loans from third parties.

9.7    FICA Withholding.    Although not subject to state or federal income tax withholding at time of deferral, such deferrals are subject to FICA tax withholding. FICA tax withholding on amounts deferred will be withheld from compensation paid to the participant.

IN WITNESS WHEREOF, Applied Micro Circuits Corporation has caused this Plan to be executed by its duly authorized officer on April     , 2002.

APPLIED MICRO CIRCUITS CORPORATION

By:                                                                                                  

Its:                                                                                                 

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