-----BEGIN PRIVACY-ENHANCED MESSAGE-----
Proc-Type: 2001,MIC-CLEAR
Originator-Name: webmaster@www.sec.gov
Originator-Key-Asymmetric:
MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen
TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB
MIC-Info: RSA-MD5,RSA,
R1mp+O3UqbiMKP8Nuw4S3Pc3Xt3jkSoN8L+dOZ9MBK7gjndHegzlHpG6cO1TW00N
Pix+FJ43fiRHuOR4nugD1w==
<SEC-DOCUMENT>0000898430-01-500756.txt : 20010524
<SEC-HEADER>0000898430-01-500756.hdr.sgml : 20010524
ACCESSION NUMBER: 0000898430-01-500756
CONFORMED SUBMISSION TYPE: 10-K405
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 20010331
FILED AS OF DATE: 20010523
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: APPLIED MICRO CIRCUITS CORP
CENTRAL INDEX KEY: 0000711065
STANDARD INDUSTRIAL CLASSIFICATION: SEMICONDUCTORS & RELATED DEVICES [3674]
IRS NUMBER: 942586591
STATE OF INCORPORATION: DE
FISCAL YEAR END: 0331
FILING VALUES:
FORM TYPE: 10-K405
SEC ACT:
SEC FILE NUMBER: 000-23193
FILM NUMBER: 1646429
BUSINESS ADDRESS:
STREET 1: 6290 SEQUENCE DR
CITY: SAN DIEGO
STATE: CA
ZIP: 92121
BUSINESS PHONE: 6194509333
MAIL ADDRESS:
STREET 1: 6290 SEQUENCE DRIVE
CITY: SAN DIEGO
STATE: CA
ZIP: 92121
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K405
<SEQUENCE>1
<FILENAME>d10k405.txt
<DESCRIPTION>FORM 10-K
<TEXT>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Form 10-K
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended March 31, 2001
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 000-23193
APPLIED MICRO CIRCUITS CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 94-2586591
(State or other jurisdiction of incorporation
or organization) (I.R.S. Employer Identification No.)
</TABLE>
6290 Sequence Drive
San Diego, California 92121
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (858) 450-9333
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period than the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES [X] NO [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $4,857,955,954 as of March 31, 2001, based
upon the closing sale price on the Nasdaq National Market reported for such
date. Shares of Common Stock held by each officer and director and by each
person who owns 10% or more of the outstanding Common Stock have been excluded
in that such persons may be deemed to be affiliates. This determination of
affiliate status is not necessarily a conclusive determination for other
purposes.
There were 300,487,342 shares of the registrant's Common Stock issued and
outstanding as of May 11, 2001.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the definitive proxy
statement for the Annual Meeting of Stockholders to be held on August 30,
2001.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business.
Applied Micro Circuits Corporation ("AMCC") was incorporated and commenced
operations in California in 1979. AMCC was reincorporated in Delaware in 1987.
Certain statements in this Annual Report on Form 10-K, including statements
contained in the "Business" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations", constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended (the "Securities Act"), and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. See "Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations".
In this Annual Report on Form 10-K, "Applied Micro Circuits Corporation",
"AMCC", the "Company", "we", "us" and "our" refer to Applied Micro Circuits
Corporation and all of our consolidated subsidiaries.
On each of October 30, 2000, March 23, 2000 and September 9, 1999, the
Company effected two-for-one stock splits in the form of 100% stock dividends.
Accordingly, all share, per share, common stock, and stock option amounts in
this Annual Report on Form 10-K have been restated to reflect the stock
splits.
Overview
We design, develop, manufacture and market high-performance, high-bandwidth
silicon solutions for the world's optical networks. We utilize a combination
of high-frequency analog, mixed-signal and digital 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
fiber optic networks. Our customers include leading communications equipment
manufacturers such as Alcatel, Ciena, Cisco, Fujitsu, Hitachi, Huawei, JDS
Uniphase, Juniper Networks, Lucent, Marconi Communications, NEC, Nortel,
Sycamore Networks, ONI Systems, Tellabs and Tellium.
Our objective is to be the premier supplier of high-bandwidth silicon
integrated circuits ("ICs") for the world's optical networks. Our strategy for
achieving this objective includes:
. focusing on the high-growth, fiber optic-based network markets;
. providing a time-to-market advantage to our customers by offering
complete, fiber-through-switch solutions, and integrated product
functionality; and
. leveraging our expertise in multiple silicon-process technologies to
provide cost-effective, optimized solutions.
Our products target the Synchronous Optical Network ("SONET"), Synchronous
Digital Hierarchy ("SDH"), Asynchronous Transfer Mode ("ATM"), Dense Wave
Division Multiplexing ("DWDM"), Gigabit Ethernet and Fibre Channel
semiconductor markets. We provide our customers with complete silicon IC
solutions including physical media dependent ("PMD") devices such as laser
drivers, physical layer ("PHY") products such as transceivers, overhead
processor products such as framers and mappers, and higher layer processors
such as network processors and switch fabrics. Our products currently target
data rates up to 40 gigabits per second (a rate known as "OC-768").
We continue to supply silicon ICs for the Automated Test Equipment ("ATE"),
high-speed computing and military markets. The revenues from these products
have become less important as we have focused our business and operations on
communications markets.
1
<PAGE>
A majority of our products are manufactured using outside semiconductor
wafer fabrication facilities. We also manufacture a significant portion of our
products internally at our silicon wafer facility in San Diego, California.
Industry Background
The Communications Industry
Communications technology has evolved from simple analog voice signals
transmitted over networks of copper telephone lines to complex analog and
digital voice and data signals transmitted over hybrid networks of media, such
as copper, coaxial and fiber optic cables, as well as by radio frequency. This
evolution has been driven by enormous increases in the number of users and the
complexity of the data types transmitted. In addition, the substantial growth
in the Internet, wireless and facsimile communications; the emergence of new
applications, such as video conferencing and wireless web devices; and the
increase in demand for remote network access and higher speed, higher
bandwidth communication between local area networks and local and wide area
networks have increased network bandwidth requirements. This increase has made
many systems' architectures inadequate.
In the wide area network ("WAN") market, service providers and equipment
suppliers in particular were impacted by the inadequacy of systems'
architectures caused by the legacy public network infrastructure. This
infrastructure was designed to optimize voice communications and is not well
suited for the high throughput requirements of data transmission in "packet
bursts." The volume and complexity of this data led to the increasing
deployment of fiber optic technology for use in WANs. This technology provides
substantially greater transmission capacity and is less error prone and easier
to maintain than copper networks. The SONET standard in North America and
Japan and the SDH standard in the rest of the world became the standards for
the transmission of signals over optical fiber. The SONET/SDH standards
facilitate high data integrity and improved network reliability, while
reducing maintenance and other operation costs by standardizing
interoperability among equipment from different vendors. With data and video
traffic being added in abundance to voice traffic, ATM emerged as a
transmission protocol complimentary to SONET/SDH to optimize bandwidth
utilization. With exponential increases in data traffic and very modest
increases in voice traffic, data has become the dominant traffic over fiber
optic networks today. Because of the explosive bandwidth growth in today's
datacentric networks, more advanced optical networking technologies, such as
DWDM, have been adopted. DWDM is the optical multiplexing of different
wavelengths of light down a single fiber. Each wavelength is the equivalent of
an independent optical channel. DWDM greatly increases the capacity of
installed fiber. Complementing DWDM transmission capabilities are emerging
optical add drop multiplexers and cross connects which can more efficiently
switch large optical datapaths through the network. New protocols, such as
multi-protocol level switching ("MPLS"), have emerged which are better suited
for data traffic while providing for the low latency and quality of service
needs of voice and video traffic. The SONET/SDH standards have also evolved to
handle these new protocols with packet over SONET ("POS") capabilities.
The Communications IC Opportunity
To address the requirements of communications networks, equipment suppliers
("OEMs") are developing and introducing more sophisticated systems at a rapid
rate. To achieve the performance and functionality required by such systems,
these OEMs must utilize more complex ICs, which increasingly account for a
larger portion of the cost of such systems. As a result of the rapid pace of
new product introductions, the proliferation of standards to be accommodated
and the difficulty of designing and producing the required ICs, equipment
suppliers increasingly outsource these ICs to semiconductor firms with
specialized expertise. These trends have created a significant opportunity for
IC suppliers that can design cost-effective solutions for the transmission of
data. IC suppliers must utilize a variety of skills and technologies to
satisfy the requirements of communications OEMs. These OEMs require IC
suppliers that possess system-level expertise and can quickly bring to market
high-performance, highly reliable, power-efficient ICs. These OEMs seek
suppliers with both analog and digital expertise to provide a more complete
solution that enables faster integration into the system design and higher
2
<PAGE>
performance. In particular, WAN OEMs require IC suppliers to provide solutions
that minimize jitter (a measure of the stability and noise level of a signal),
which degrades transmission quality over distance.
In the high-performance communication IC market, a number of process
technologies are used to produce ICs. Traditionally, designers have relied on
silicon-based manufacturing process technologies for the development of high-
speed, analog, mixed-signal and digital ICs with precision timing. In some
cases, OEMs utilize IC solutions based on non-silicon processes, such as
gallium arsenide ("GaAs"), to meet the requirements of certain communications
products. However, non-silicon processes tend to be more expensive and less
predictable with respect to manufacturing yields and do not ramp to high-
volume production as well as silicon processes.
AMCC Strategy
Our objective is to be the leading supplier of high-performance, high-
bandwidth silicon IC solutions for the world's optical communications
infrastructure. To achieve this objective, we employ the following strategies:
Focus on High-Growth Wide Area Network Markets
We target key high-growth WAN markets, including those for SONET/SDH, ATM,
POS, DWDM and optical modules. We have built substantial competencies focused
on the specific requirements of these markets in the areas of process
technology and mixed-signal design and substantial expertise in systems
architecture and applications support. We believe that the integration of
these capabilities enables us to optimize solutions addressing the high-
bandwidth connectivity requirements of WAN systems OEMs.
Provide a Time-to-Market Advantage to Our Customers by Offering Complete
Fiber-Through-Switch Solutions and Integrated Product Functionality
Our strategy is to provide our customers with fiber-through-switch silicon
solutions. We believe this comprehensive solution strategy provides our
customers with guaranteed interoperability, pre-designed subsystems, better-
cost economics, and system-level expertise. The result is faster time-to-
market, better performance and lower cost. To continue these customer benefits
in future generations of products, we are pursuing an aggressive integration
strategy to provide greater functionality in fewer ICs.
Leverage our Expertise in Multiple Silicon Process Technologies to Provide
Optimized Solutions
We are dedicated to utilizing the best silicon process technologies
available to offer solutions optimized for specific applications and customer
requirements. We believe our expertise in advanced processes from external
foundries, provide us with the flexibility to design and manufacture products
that are tailored to an application's individual needs. Through this flexible
approach, we are better able to transition products over time to new
manufacturing processes as product performance requirements and process
technologies evolve.
Products and Customers
Transition from ASICs to ASSPs
Application specific integrated circuits ("ASICs") are custom products that
are designed by or for only one customer, and can be sold only to that one
customer. Application specific standard products ("ASSPs") are standardized
products that are designed for, and can be used by, multiple customers. As the
competition in the telecom and networking equipment markets increases, our
customers are looking for ways to accelerate their time-to-market, reduce
research and development cost, and ensure interoperability of components in
their systems. ASSPs generally can be designed into the systems and brought to
market in less time for less cost. As more companies realize the cost and
time-to-market benefits that ASSPs provide, the more apt they are to use ASSPs
in the future. Most of our products are ASSPs, and we believe that the trend
towards greater usage of ASSPs in communication network systems will continue.
3
<PAGE>
We have several types of communications IC products categorized by the order
in which they receive and transmit signals and information within
communication equipment. These categories are:
PMD Layer: Our PMD layer ICs typically work in conjunction with the lasers
or photo diodes that provide the electrical-to-optical and optical-to-
electrical signal conversions. These ICs include various amplifiers that take
very weak analog electrical signals (e.g. a few millivolts) and increase them
for use by the physical layer. Our PMD layer products transmit signals at
rates ranging from 1 to over 40 gigabits per second ("Gbps").
Physical Layer: Our physical layer ICs transmit and receive signals to and
from the PMD layer in a very high-speed serial format (over 10 Gbps today) and
reduce overall system "noise". This low noise capability permits the
transmission of signals over greater distances with fewer errors. Our physical
layer ICs also convert analog signals from the PMD layer to digital signals
for the framing layer and vice versa.
Framing Layer: Our framing layer ICs transmit and receive signals to and
from the physical layer in a parallel format and are used predominately in
systems, such as very high-speed transmission equipment, add-drop
multiplexers, digital and optical cross-connects, edge and core routers and
DWDM. After receiving the signals, these ICs then perform a number of
additional functions, including framing, terminating the overhead, performance
monitoring, forward error correction and mapping the data payload to/from the
transmission format. The framing layer ICs then pass the data either directly
to a switch fabric product which switches the information to its destination,
or to a network processor, which further processes the data prior to
forwarding it to a switch fabric product. Framing layer ICs similarly process
signals received from the network processing and switching layers for
transmission to the physical layer on their return to the optical network.
Network Processing Layer: Our network processor ICs are software
programmable processors that receive and transmit signals from and to the
framing layer and perform the processing of packet and cell headers, including
such functions as real-time parsing, matching and table look-up, as well as
bit stream manipulations, such as adding, deleting, substituting, appending
and pre-pending. They can perform intelligent packet classification for
policy-based network services. After processing, the signals are sent on to
the traffic management and switch fabric layer.
Traffic Management and Switching Layer: Our traffic management ICs receive
and transmit signals from and to the network processor and primarily perform
the queuing and buffering required on packets before sending on to the switch
fabric. Our switch fabric ICs then switch the information in the proper
priority and to the proper destinations.
Products
PMD Products: During fiscal 2001, we introduced our first generation OC-768
transimpedance amplifier and 3.2 Gbps quad VCSEL laser driver and amplifier
products. In addition, we introduced our second generation analog PMD product,
the S3095 integrated transimpedance amplifier with automatic gain control
amplifier for the OC-192 (10 Gbps) market. Our current customers for PMD
products include Alcatel, Ciena, Fujitsu, Mitel, NEC, Sumitomo and Sycamore
Networks.
Physical Layer Products: We introduced our first generation of physical
layer products in 1993. We have since developed several generations of these
products improving cost, power, functionality and performance. During fiscal
2001, we introduced several OC-48 (2.5 Gbps) integrated physical layer
transceiver devices, including our first OC-48 devices manufactured using the
CMOS fabrication process. In addition, we introduced our second generation OC-
192 transmitter and receiver chipset. Our current customers for physical layer
products include Alcatel, Cisco, Ciena, Fujitsu, Hitachi, JDS Uniphase,
Juniper Networks, Lucent, Marconi Communications, Nortel, Sycamore Networks
and Tellabs.
4
<PAGE>
Framer Layer Products: During fiscal 2001, we introduced several framing
layer products for the OC-12 (625 megabits per second), OC-48 and OC-192
markets. The Ganges device is the first commercially available OC-192 framer.
The Hudson device supports OC-192 forward error correction, digital wrapper
and performance monitoring. Additionally, we introduced Danube, our second
generation OC-48 pointer processing device, and the Orinoco, DS-3 to OC-12
mapping device. Our current customers for framing layer products include
Cisco, Ciena, Lucent, Marconi Communications, NEC, Nortel, Sycamore Networks,
Tellabs, and Tellium.
Network Processing Layer Products: All of our current network processing
products come from the acquisition of MMC Networks, Inc. ("MMC") completed on
October 25, 2000. These products include the nP7120 packet processor. Our
current customers for network processing products include Cisco, Fujitsu and
Nortel.
Traffic Management and Switching Layer Products: All of our current traffic
management and switching layer products also come from the acquisition of MMC.
These products include the second generation nPX5410, a fully integated 22
Gbps full-duplex switching and traffic management IC and the first generation
nPX5500 integrated 20 Gbps full-duplex switching and traffic manager. Our
current customers for traffic management and switching layer products include
Cisco, Fujitsu and Nortel.
ATE
We are not currently developing new products for the ATE market. We
continue to manufacture and sell ASIC products to customers such as Agilent,
LTX, Schlumberger, Teradyne and Texas Instruments.
High-Speed Computing Products
We offer a PCI product line that addresses the high-speed computing market.
However, we are not currently developing new products for this market. The
S5933 is a standard master/slave PCI controller chip. The S5920 is a standard
target-only PCI controller chip. These devices are supported with
comprehensive development kits and third-party driver software. We sell these
products to a very large and diverse customer base. Current customers of our
PCI products include Cisco Systems, Ericsson, IBM, Nortel and Sagem.
Military
We are not currently developing new products for military applications. We
continue to manufacture and sell ASIC products for military applications to
customers such as Northrop Grumman and Raytheon Systems.
Technology
We utilize our technological and design expertise to solve the problems of
high-speed analog, digital and mixed-signal circuit designs for the world's
intelligent optical networks. Our technological competencies include the
definition, design and manufacturing of high-performance analog, digital and
mixed signal ICs for optical communications systems.
Definition of Communications ICs
We believe that our systems architects, design engineers and technical
marketing and applications engineers have a thorough understanding of the
fiber optic communications systems for which we design and build ASSPs. We
substantially expanded this expertise into higher layers of the communication
system with the acquisitions of Cimaron, YuniNetworks and MMC Networks. Using
this systems expertise, we develop semiconductor devices to meet OEMs' high-
bandwidth systems requirements. By understanding the systems into which our
products are designed, we believe that we are better able to anticipate and
develop solutions optimized for the various cost, power and performance trade-
offs faced by our customers. We believe that our systems knowledge also
enables us to develop more comprehensive, interoperable solutions. This allows
us to develop boards with products that fulfill customers' system needs from
fiber-through-switch, enabling faster integration into their products.
5
<PAGE>
Design of Communications ICs
We have developed multiple generations of products that integrate both
analog and digital elements on the same IC, while balancing the difficult
trade-offs of speed, power and timing inherent in high-speed applications. We
were one of the first companies to embed analog phase locked loops in bipolar
chips with digital logic for high-speed data transmission and receiver
applications. Since the introduction of our first on-chip clock recovery and
clock synthesis products in 1993, we have refined these products and have
successfully integrated multiple analog functions and multiple channels on the
same IC. The mixing of digital and analog signals poses difficult challenges
for IC designers, particularly at high frequencies. We have acquired
significant expertise in mixed-signal IC designs through the development of
multiple generations of products. Through the acquisition of MMC Networks and
YuniNetworks, we added network processor and switch fabric digital design and
systems expertise. We will continue to apply these competencies in the
development of more complex digital products.
Manufacturing of Communications ICs
The manufacturing of communications ICs requires a combination of
competencies in advanced silicon technologies such as deep submicron CMOS and
BiCMOS silicon germanium ("SiGe"), IC package design and manufacturing, and
high speed test and characterization.
We continue to utilize our own internal wafer fabrication facility and have
developed and produced multiple generations of bipolar and BiCMOS processes.
The proven internal silicon-based process technologies we employ have not
required the highly capital-intensive facilities needed by certain advanced
microprocessor, memory or CMOS ASIC suppliers. We have obtained access to
advanced CMOS and SiGe BiCMOS processes through foundry relationships. We have
substantial experience in the development and use of plastic and ceramic
packages for high-performance applications. The selection of the optimal
package solution is a vital element of the delivery of high-performance
products and involves balancing cost, size, thermal management and technical
performance. Our products are designed to reduce power dissipation and die
size to enable the use of industry standard packages. We employ a wide variety
of package types and are currently designing products using ball grid arrays,
tape ball grid arrays and multi-chip modules. Our experience with a variety of
packages is one of the factors that enables us to provide optimal high-
performance IC solutions to our customers.
Research and Development
Our research and development expertise and efforts are focused on the
development of high-performance analog, digital and mixed-signal ASSPs for
fiber optic communications applications. We also develop high-performance
libraries and design methodologies that are optimized for these applications.
Product Development
Our product development is focused on building high-performance high-gate-
count digital design expertise and analog-intensive design expertise that is
incorporated into well-documented blocks that can be reused for multiple
products. We have made, and will continue to make, significant investments in
advanced CAD tools to leverage our design engineering staff. Our product
development is driven by the imperatives of reducing design cycle time,
increasing first-time design correctness, adhering to disciplined, well
documented design processes and continuing to be responsive to customer needs.
We are also developing high-performance packages for our products in
collaboration with our packaging suppliers and our customers.
Process Development
Our process development is focused on developing or acquiring new processes
optimized for high-performance digital and mixed-signal communications
applications. Our process engineers are also involved with the selection and
management of our relationships with outside foundries to provide the advanced
CMOS and
6
<PAGE>
SiGe BiCMOS processes required for certain of our products. If we fail to
improve our existing process technologies or to obtain access to new process
technologies from external foundries in a timely or affordable manner our
business, financial condition and operating results could be adversely
affected.
Our research and development expenses in fiscal 1999, 2000 and 2001 were
$22.3 million, $32.5 million and $105.2 million, respectively, which were
21.2%, 18.9% and 24.2%, respectively, of revenues for such periods. We have
556 employees classified as research and development.
Manufacturing
Wafer Fabrication
We manufacture a majority of our IC products at outside foundries such as
IBM, Taiwan Semiconductor Manufacturing Corporation ("TSMC") and United
Microelectronics Corporation. We rely on these foundries for the manufacture
of nearly all of our products designed on CMOS and SiGe BiCMOS processes. We
do not plan to fabricate our own CMOS wafers.
In addition, we manufacture a significant amount of our IC products at our
wafer fabrication facility located in San Diego, California. We are currently
running several different bipolar and BiCMOS processes in this facility and we
believe that the wafer fabrication facility has competitive yields, cycle
times and costs, produces large die at acceptable yields and operates on a
flexible basis of multiple products and variable lot sizes.
We continue to explore alternatives to obtain additional manufacturing
capacity, including:
.entering into additional strategic relationships to obtain capacity;
.building a new manufacturing facility; or
.purchasing a manufacturing facility.
Components and Raw Materials
We purchase all of our "raw" silicon wafers from Wacker Siltronic
Corporation. While most silicon wafers now being supplied to the semiconductor
industry are larger than four inches, we believe that Wacker Siltronic will
continue to supply our needs for the foreseeable future. We also carry a
significant inventory of raw wafers to cushion any interruption in supply. We
purchase our ceramic packages from Kyocera America, Motorola and NTK Ceramics
and our plastic packaging from Amkor and ASAT.
Assembly and Test
Most of our production assembly is performed by multiple assembly
subcontractors located in Asia, Europe and the United States. Following
assembly, some of the devices are tested at the subcontractors and returned to
us ready for shipment to our customers; however, a majority of the packaged
units are returned to us for final testing and marking prior to shipment to
customers.
Sales and Marketing
We sell our products principally with a network of independent
manufacturers representatives and distributors in specified territories under
the direction of our direct sales force.
The direct sales force is technically trained and is supported by
applications engineers in the field as well as applications and customer
engineers at our design centers. We believe that this "engineering-intensive"
relationship with our customers results in strong, long-term customer
relationships beneficial to both us and our customers. We augment this
strategic account sales approach with domestic and foreign distributors that
service primarily smaller accounts purchasing ASSPs.
7
<PAGE>
In North America, our direct sales effort is supported by 16 independent
manufacturers representatives and two distributors. Internationally, we sell
our products through 16 manufacturers representatives and distributors.
Typically, distributors handle a wide variety of products, including those
that compete with our products, and fill orders for many customers. Most of
our sales to distributors are made under agreements allowing for price
protection and right of return on stipulated quantities of unsold merchandise.
Sales representatives generally do not offer directly competitive products,
but may carry complementary items manufactured by others. Representatives do
not maintain a product inventory; instead, their customers place orders
directly with us or through distributors. Our sales headquarters is located in
San Diego, California. We maintain sales offices throughout the world.
Based on direct shipments, net revenues to customers exceeding 10% for the
years ending March 31, were as follows:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Nortel........................................................ 19% 26% 10%
Insight....................................................... 13% 17% 19%
Raytheon...................................................... 16% -- --
</TABLE>
Looking through product shipments to distributors and subcontractors, net
revenues on an end customer basis, exceeding 10% for the years ending March
31, were as follows:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Nortel........................................................ 20% 38% 20%
Raytheon...................................................... 16% -- --
</TABLE>
Backlog
Our sales are made primarily pursuant to standard purchase orders for the
delivery of products. Quantities of our products to be delivered and delivery
schedules are frequently revised to reflect changes in customers' needs, and
customer orders generally can be canceled or rescheduled without significant
penalty to the customer. For these reasons, our backlog as of any particular
date is not representative of actual sales for any succeeding period, and we
therefore believe that backlog is not a good indicator of future revenue. Our
backlog for products requested to be shipped and non-recurring engineering
services to be completed in the next six months was $100.3 million on March
31, 2001, compared to $86.1 million on March 31, 2000. See "Risk Factors".
Competition
The semiconductor market, particularly the high-performance semiconductor
market, is highly competitive and subject to rapid technological change, price
erosion and heightened international competition. The communications industry
is becoming intensely competitive due in part to deregulation and heightened
international competition. Our ability to successfully compete in these
markets depends on a number of factors, including: product performance,
success in designing and subcontracting the manufacture of new products that
implement new technologies, product quality, reliability, price, the
efficiency of production, design wins for our IC products, ramp up of
production of our products for particular system manufacturers, end-user
acceptance of the system manufacturers' products, market acceptance of
competitors' products, overall communications equipment capital spending
levels 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
8
<PAGE>
develop and introduce products 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. See "Risk Factors".
In the communications markets, we compete primarily against companies such
as Agere, Broadcom, Conexant, Infineon, Intel, Maxim, Multilink, PMC-Sierra,
TriQuint and Vitesse. In certain circumstances, most notably with respect to
ASICs supplied to Nortel, our customers or potential customers have internal
IC design or manufacturing capability, and this internal source is an
alternative available to the customer. In addition, in lower-frequency
applications, we face increasing competition from other CMOS-based products,
particularly as the performance of such products continues to improve. There
can be no assurance that we will be able to develop new products to compete
with new technologies on a timely basis or in a cost-effective manner. 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. See "Risk Factors".
Proprietary Rights
We rely in part on patents to protect our intellectual property. We have
been issued 61 patents, which principally cover certain aspects of the design
and architecture of our IC products. In addition, we have 55 patent
applications pending in the U.S. Patent and Trademark Office. There can be no
assurance that our pending patent applications or any future applications will
be approved, or that any issued patents will 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, or that the patents of others will
not have an adverse effect on our ability to do business. There can be no
assurance that others will not 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 a 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,
there can be no assurance 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.
As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property
rights. In the past we have been, and in the future may be, notified that we
may be 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.
There can be no assurance that infringement claims by third parties or claims
for indemnification by customers or end users of our products resulting from
infringement claims will not be asserted in the future or that such
assertions, if proven to be true, will not materially adversely affect our
business, financial condition or operating results. In the event of any
adverse ruling in any such matter, we could be required to pay substantial
damages, which could include treble 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. There can be no assurance that a license would be
available on reasonable terms or at all. Any limitations on our ability to
market our products, any delays and costs associated with redesigning our
products or payments of license fees to third parties or any failure by us to
develop or license a substitute technology on commercially reasonable terms
could have a material adverse effect on our business, financial condition and
operating results. See "Risk Factors".
Environmental Matters
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
9
<PAGE>
production or a cessation of operations. In addition, such regulations could
restrict our ability to expand our facility at its present location or
construct or operate our planned manufacturing facility or could require us to
acquire costly equipment or incur other significant expenses to comply with
environmental regulations or clean up prior discharges. In this regard, since
1993, we have 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. We are a member of a large group of PRPs that has agreed to
fund certain remediation efforts at the Omega site, which efforts are ongoing.
To date, our payment obligations with respect to such funding efforts have not
been material, and we believe that our future obligations to fund such 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, there can be no
assurance that we are or will be in material compliance with such 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, financial condition or operating results. See "Risk Factors".
10
<PAGE>
EMPLOYEES
As of March 31, 2001, we had 1,169 full-time employees: 109 in
administration, 556 in research and development, 290 in operations and 214 in
marketing and sales. Our ability to attract and retain qualified personnel is
essential to our continued success. None of our employees is covered by a
collective bargaining agreement, nor have we ever experienced any work
stoppage. We believe our employee relations are good. 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 or otherwise have a material adverse effect on our
business, financial condition and results of operations. See "Risk Factors".
Executive Officers of the Registrant
Our executive officers and their ages as of May 1, 2001, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
Chairman of the Board, Chief Executive Officer
David M. Rickey........... 45 and President
Roger A. Smullen, Sr. .... 65 Vice Chairman of the Board
Senior Vice President, Chief Financial Officer
William E. Bendush........ 52 and Secretary
Brent E. Little........... 37 Senior Vice President, Marketing
Douglas C. Spreng......... 55 Senior Vice President, Switch Fabric and
Network Processing and President of MMC
Networks
Ramakrishna R. Sudireddy.. 34 Senior Vice President, Digital Products
Thomas L. Tullie.......... 36 Senior Vice President, Sales and Operations
Gregory A. Winner......... 45 Senior Vice President, Engineering
Vincent J. DeMaioribus.... 42 Vice President, Manufacturing
Candace H. Kilburn........ 47 Vice President, Human Resources
Stephen M. Smith.......... 42 Vice President, Business Development
</TABLE>
David M. Rickey has served as President, Chief Executive Officer and
Director since February 1996. In January of 2001, Mr. Rickey was elected
Chairman of the Board of Directors. From August 1993 to May 1995, Mr. Rickey
served as the Company's Vice President of Operations. From May 1995 to
February 1996, Mr. Rickey served as Vice President of Operations at NexGen, a
semiconductor company. Previously, for eight years, Mr. Rickey was employed by
Northern Telecom United, a telecommunications manufacturer, where he led the
wafer fab engineering and manufacturing operations in both Ottawa, Canada and
San Diego, California. Mr. Rickey has earned B.S. degrees from both Marietta
College (summa cum laude) and Columbia University. In addition, Mr. Rickey
received an M.S. in Materials Science and Engineering from Stanford
University.
Roger A. Smullen, Sr. was elected Vice Chairman of the Board of Directors
in November 2000. Prior to November, Mr. Smullen served as the Chairman of the
Company's Board of Directors since October 1982. Mr. Smullen also served as
Acting Vice President, Operations of the Company from August 1997 through
October 1997 and the Company's Chief Executive Officer from April 1983 until
April 1987. Previously, he was Senior Vice President of Operations of
Intersil, Inc.'s semiconductor division. In 1967, Mr. Smullen co-founded
National Semiconductor Corporation, a manufacturer of integrated circuits.
Prior to that, he was Director of Integrated Circuits at Fairchild
Semiconductor, a manufacturer of integrated circuits. Mr. Smullen is currently
a director of Micro Linear Corporation, a manufacturer of integrated circuits.
He holds a B.S. in Mechanical Engineering from the University of Minnesota.
William E. Bendush joined AMCC in April of 1999 as Vice President, Chief
Financial Officer and Secretary. In January of 2001, Mr. Bendush was promoted
to a Senior Vice President of the Company. Mr. Bendush came to AMCC from
Silicon Systems Inc., where he served as Senior Vice President and Chief
Financial Officer from September 1986 to April 1999. Prior to joining Silicon
Systems Inc., Mr. Bendush held various financial management positions at AM
International, Gulf + Western Industries and Gould Inc. Mr. Bendush received a
B.A. from Northern Illinois University.
11
<PAGE>
Brent E. Little joined AMCC in 1991. In January of 2001, Mr. Little was
promoted to a Senior Vice President of the Company. Prior to his current
position, Mr. Little held several marketing management positions with AMCC as
the Director of Strategic Marketing and Director of Marketing for ASIC
products. Prior to joining the Company, he worked as Business Development
Manager for Analysis and Technology, Inc., and worked with the U.S. Navy as a
Project Engineer. Mr. Little earned a BS in Electrical Engineering from the
University of California, Santa Barbara.
Douglas C. Spreng joined AMCC in October 2000 when AMCC acquired MMC
Networks. Mr. Spreng joined MMC Networks in April,1999. Prior to MMC Networks,
Mr. Spreng was Executive Vice President of the Client Access Business Unit at
3Com Corporation for seven years. In the early 1990's, Mr. Spreng was
President and COO of Cellnet Data Systems. He began his career with Hewlett
Packard Company, where he held various marketing, manufacturing and general
management positions for more than 23 years. He holds a BSEE degree from MIT
and an MBA from the Harvard Business School.
Ramakrishna R. Sudireddy joined AMCC in March 1999 when AMCC acquired
Cimaron Communications. In January of 2000, Mr. Sudireddy was promoted to a
Senior Vice President of the Company. Before co-founding Cimaron in January,
1998, Mr. Sudireddy founded Siltek Corporation in 1996, and served as its Vice
President of Research and Development until 1997. Siltek provided ATM and
SONET design services for such companies as Lucent Technologies, SGS Thomson,
and Sun Microsystems. From 1991 to 1996, Mr. Sudireddy was a Member of
Technical Staff at AT&T Bell Laboratories. While at Bell Labs, he was the
chief architect and lead designer for a number of highly complex ASICs. Mr.
Sudireddy has a master's degree in Computer Engineering from the University of
Massachusetts at Lowell, and a bachelor's degree in Electrical Engineering
from Nagarjuna University in Guntur, India.
Thomas L. Tullie joined the Company as Vice President, Sales in August
1996. In January of 2001, Mr. Tullie was promoted to a Senior Vice President
of the Company. Prior to joining the Company, from 1989 to 1996, Mr. Tullie
held several strategic sales management positions, most recently as Director
of East Coast Sales, at S-MOS Systems, a semiconductor company. Prior to
joining S-MOS Systems, Mr. Tullie was a designer in the workstations group of
Digital Equipment Corporation. Mr. Tullie earned a BS from the University of
Massachusetts and an MBA from Clark University.
Gregory A. Winner joined AMCC in November 1999 as Vice President,
Engineering. In January of 2001, Mr. Winner was promoted to a Senior Vice
President of the Company. Mr. Winner came to AMCC from Silicon Systems, Inc.,
where he was responsible for the advanced development of integrated circuit
products as their Vice President of Product Development from September 1982 to
November 1999. Prior to that time, he held various engineering positions at
Memorex, IBM and General Dynamics. Mr. Winner holds an MSEE from Stanford
University and a BSEE degree from the University of California, Los Angeles.
Vincent J. DeMaioribus has served as Vice President, Manufacturing for the
Company since November of 2000. From November 1997 to October 2000, Mr.
DeMaioribus served as the Company's Director of Operations. Prior to joining
the Company, from October 1997, Mr. DeMaioribus served as Engineering Manager
for Hitachi Semiconductor (America). In 1997, he served as the Director of
Process Engineering for InterConnect Technology. From November of 1995 to
March of 1997, Mr. DeMaioribus served as Director of Process Engineering for
TelCom Semiconductor Inc. From 1990 to 1995, Mr. DeMaioribus served as the
Manufacturing Module Manager for Silicon Systems Inc. Mr. DeMaioribus holds a
BS degree in Electrical Engineering from the Rochester Institute of Technology
in Rochester, New York.
Candace H. Kilburn joined AMCC in 1996 with over 19 years Human Resources
management experience. Prior to joining AMCC, Kilburn served as Director of
Human Resources with Buck Knives Inc. from 1990 to 1996 where she was
responsible for international human resources. She has also held positions at
Handyman Corporation and Rohr Industries. Ms. Kilburn earned a Bachelor of
Science in Business Administration from the United States International
University, and an MBA from Chapman University. She is designated as a
Senior Professional in Human Resources, a Certified Employee Benefits
Specialist, and has two certificates in Human Resources Management.
12
<PAGE>
Stephen M. Smith joined AMCC in October of 1999 as Vice President, Business
Development. Mr. Smith also serves as Director on the Board of Entridia
Corporation, a privately held developer of high performance packet processing
and forwarding ASICs. From May 1998 to October 1999, Mr. Smith worked at
ST Microelectronics (a semiconductor company) as the Director of the Micro-
fluidics Business Unit located in San Diego, California. Additionally, Mr.
Smith worked for STMicroelectronics from January 1993 until May 1997 as the
Director of Finance, Region Americas located in Carrollton, Texas. From May
1997 to May 1998, Mr. Smith served as Vice President, Finance for Vixel
Corporation, a Fibre Channel company. Previously, Mr. Smith spent 8 years with
Nortel, a telecommunications manufacturer, where he led the Finance teams in
both Ottawa, Canada and San Diego, California. Mr. Smith also worked in
various finance positions with Motorola from 1982 to 1985. Mr. Smith holds a
BS degree from Arizona State University.
13
<PAGE>
RISK FACTORS
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;
. the availability of external foundry capacity, purchased parts and raw
materials;
. increases in the costs of products or discontinuance of products by
suppliers;
. fluctuations in product life cycles;
. 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;
. our ability to introduce 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;
. the amount and timing of the costs associated with payroll taxes related
to stock option exercises;
. the timing of depreciation and other expenses that we expect to incur in
connection with any expansion of our manufacturing capacity;
. costs associated with acquisitions and the integration of acquired
companies, including MMC;
. 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 the Company and
certain of its executive officers and directors alleging violations of
federal securities laws;
. the ability of our customers to obtain components from their other
suppliers;
. general communications systems industry and semiconductor industry
conditions; and
. general economic conditions.
Our expense levels are relatively fixed and are based, in part, on our
expectations of future revenues. We are continuing to increase our operating
expenses for additional manufacturing capacity, personnel and new product
development. We have limited ability to reduce expenses quickly in response to
any revenue shortfalls.
14
<PAGE>
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:
. the reduction, rescheduling or cancellation of customer orders;
. a decrease in demand for our customers' products;
. 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;
. 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; and
. fabrication, test or assembly capacity constraints for internally
manufactured devices which interrupt our ability to meet our production
obligations.
Our business is characterized by short-term orders and shipment schedules,
and 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. 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 might result in excess inventory levels or
unanticipated inventory write-downs if expected orders fail to materialize, or
other factors render the customers' products less marketable. We currently
anticipate that an increasing portion of our revenues in future periods will
be derived from sales of application specific standard products, or ASSPs, as
compared to application specific integrated circuits, or ASICs. Customer
orders for ASSPs typically have shorter lead times than orders for ASICs,
which may make it increasingly 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.
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 processes and silicon
germanium processes. These outside foundries manufacture our products on a
purchase order basis. Currently, 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 would
negatively impact the production of certain of our products for a substantial
period of time. The transition to the next generation of manufacturing
technologies at one or more of our outside foundries could be unsuccessful or
delayed.
IF WE DO NOT SUCCESSFULLY EXPAND OUR MANUFACTURING CAPACITY ON TIME, WE MAY
FACE SERIOUS CAPACITY CONSTRAINTS.
We are exploring alternatives for the further expansion of our
manufacturing capacity, including:
. entering into strategic relationships to obtain additional capacity;
. qualifying second source manufacturers of our products;
15
<PAGE>
. building a manufacturing facility; or
. purchasing a manufacturing facility.
Any of these alternatives, either singly or in combination, could require a
significant investment by us. We cannot assure you that any of the
alternatives for expansion of our manufacturing capacity will be available on
a timely basis or that we will be able to manage our growth and effectively
integrate the expansion into our current operations.
The cost of any investment we may have to make to expand our manufacturing
capacity is expected to be funded through a combination of available cash,
cash equivalents and short-term investments, cash from operations and
additional debt, lease or equity financing. We may not be able to obtain the
additional financing necessary to fund the construction and completion of the
expanded manufacturing facility.
Building a manufacturing facility or purchasing a manufacturing facility
entails significant risks, including:
. shortages of materials and skilled labor;
. unforeseen environmental or engineering problems;
. inability to obtain building permits or necessary approvals;
. work stoppages;
. weather interferences; and
. unanticipated cost increases.
Any one of these risks could have a material adverse effect on the
building, equipping and production start-up of a new facility. Unexpected
changes or concessions required by local, state or federal regulatory agencies
with respect to necessary licenses, land use permits, site approvals and
building permits could involve significant additional costs and delay the
scheduled opening of a new facility and could reduce our anticipated revenues.
Also, the timing of commencement of operation of a new facility will depend
upon the availability, timely delivery, successful installation and testing of
the necessary process equipment. As a result of the foregoing and other
factors, a new facility may not be completed and production volume may not be
within budget or within the necessary timeframe. In addition, we may be unable
to achieve adequate manufacturing yields in a new facility in a timely manner,
and our revenues may not increase commensurate with the increase in
manufacturing capacity associated with a facility.
We currently manufacture a significant portion of our IC products at our
fabrication facility in San Diego, California. We believe that we will be able
to satisfy our production needs of the products built in the San Diego
facility for the foreseeable future.
DOWNTURNS IN THE TELECOMMUNICATIONS EQUIPMENT INDUSTRY COULD NEGATIVELY IMPACT
OUR REVENUES AND PROFITABILITY.
We derive substantially all of our revenues from telecommunications
equipment manufacturers. The telecommunications equipment industry is highly
cyclical and has historically experienced periodic and significant downturns.
These downturns have had a severe effect on the demand for our products. We
believe that downturns in the telecommunications equipment industry will
periodically occur, resulting in periodic decreases in demand for our
products. In addition, we believe that in a future downturn our need to
continue investment in research and development, and to maintain extensive
ongoing customer service and support capability, will constrain our ability to
reduce expenses. Accordingly, downturns in the telecommunications equipment
industry could likely have a material adverse effect on our revenues and
profitability.
16
<PAGE>
OUR CUSTOMERS ARE CONCENTRATED, SO THE LOSS OF ONE OR MORE KEY CUSTOMERS 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 major customers. We anticipate that sales
of products to relatively few customers will continue to account for a
significant portion of our revenues. If a significant customer overstocked our
products, additional orders for our products would be harmed. A reduction,
delay or cancellation of orders from one or more significant customers or the
loss of one or more key customers could significantly reduce our revenues and
profits. Some of our significant customers have reported declining sales and
lower than expected demand growth for their products. 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 suffer little or no penalty;
. design wins with customers may not result in significant sales to such
customers;
. the introduction of a customer's new products may be late or less
successful in the market than planned;
. a significant customer's product line using our products may rapidly
decline or be phased out;
. customers or prospective customers may not incorporate our products in
their future product designs;
. 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
significant 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.
Any one of the factors above could have a material adverse effect on our
business, financial condition and results of operation.
OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY DESIGN
ENGINEERING, SALES, MARKETING AND EXECUTIVE PERSONNEL AND OUR ABILITY TO
IDENTIFY, HIRE AND RETAIN ADDITIONAL PERSONNEL.
There is intense competition for qualified personnel in the semiconductor
industry, in particular design 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 employ in the future. Rapid growth and expansion
could place increased demands on our resources and will likely require the
addition of new management personnel and the development of additional
expertise by existing management personnel. 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.
To manage expanded 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
17
<PAGE>
integration of past and future potential acquisitions and the expansion of our
manufacturing capacity will require significant additional management,
technical and administrative resources. We cannot be certain that we will be
able to manage our growth or effectively integrate a new or expanded wafer
fabrication facility into our current operations.
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
. 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, as well as for high-speed
computing 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 market is highly competitive and we expect that
competition will increase in these markets. 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;
18
<PAGE>
. customer support;
. time-to-market;
. price;
. the efficiency of production;
. 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 or customers may offer enhancements to our
existing products or offer new products based on new technologies, industry
standards or customer requirements including, but not limited to, all optical
networking systems 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 or higher performance alternatives to our products. The
introduction of enhancements or new products by our competitors could render
our existing and future products obsolete or unmarketable. We expect that
certain of our competitors and other semiconductor companies may seek to
develop and introduce products that integrate the functions performed by our
IC products on a single chip, thus eliminating the need for our products.
In the communications markets, we compete primarily against companies such
as Agere, Broadcom, Conexant, Infineon, Intel, Maxim, Multilink, PMC-Sierra,
TriQuint and Vitesse. Some of these companies have significantly greater
financial and other resources than us, and some of these companies use other
process technologies, such as gallium arsenide, which may have certain
advantages over technology we currently use. In certain circumstances, most
notably with respect to ASICs supplied to Nortel, our customers or potential
customers have internal IC manufacturing capabilities.
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;
. amortization of acquired intangible assets and deferred compensation;
. client dissatisfaction or performance problems with an acquired firm;
. 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, if we were to acquire a company or
assets and record the acquisition as a purchase, we may capitalize a
significant amount of goodwill and purchased intangibles. These assets would
be amortized over their expected period of benefit. The resulting amortization
expense could seriously impact operating results for many years. In addition,
we are required to periodically review the goodwill and purchased intangible
assets for impairment. There can be no assurance that we will not be required
to take significant one time charges, in addition to amortization, as a result
of an impairment to the carrying value of the goodwill.
19
<PAGE>
In addition, acquisitions accounted for using the pooling of interests
method of accounting are subject to rules established by the Financial
Accounting Standards Board and the Securities and Exchange Commission. These
rules are complex and the interpretation of them is subject to change. The
availability of pooling of interests accounting treatment for a business
combination depends in part upon circumstances and events occurring after the
effective time. The failure of a past business combination or a future
potential business combination that has been accounted for under the pooling
of interests accounting method to qualify for this accounting treatment would
materially harm our reported and future earnings and likely, the price of our
common stock.
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.
THE MERGER WITH MMC MAY NOT REALIZE THE ANTICIPATED BENEFITS.
On October 25, 2000, we completed a merger with MMC. We entered the merger
agreement with MMC with the expectation that the merger would result in
benefits to us including:
. combining complementary technologies to permit us to provide products
with more complete solutions than we can now provide on our own;
. a combined company with greater financial, technological and human
resources for developing new products and providing greater sales and
marketing resources to promote and sell our products; and
. providing us with access to the MMC customer base to increase
distribution of our products.
As a result of the merger, we recorded a significant amount of intangible
assets, goodwill and deferred compensation. These items will be amortized over
the period of expected benefit and have, and will continue to, materially
adversely affect our operating results reported under generally accepted
accounting principles ("GAAP"). In addition, we recorded a charge of $176.7
million for acquired in-process research and development which further
decreased our GAAP basis operating results for the third quarter of fiscal
2001.
Our integration with MMC may not realize any of the anticipated benefits.
Failure to successfully integrate the two companies could have a material
adverse effect on our business, financial condition and operating results.
OUR OPERATING RESULTS SUBSTANTIALLY DEPEND ON MANUFACTURING OUTPUT AND YIELDS,
WHICH MAY NOT MEET EXPECTATIONS.
We manufacture a significant portion of our ICs at our San Diego
fabrication facility. 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 would be impaired and our business would suffer until the tools were
repaired or replaced.
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, and 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 in the future from time
to time, 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 or expanded manufacturing facility.
20
<PAGE>
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.
Because the majority of our costs of manufacturing are relatively fixed,
yield decreases can result in substantially higher unit costs and may result
in reduced gross profit and net income. Yield decreases could force us to
allocate available product supply among customers, which could potentially
harm customer relationships.
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:
. the potential lack of adequate capacity during periods of excess demand;
. reduced control over delivery schedules and quality;
. risks of inadequate manufacturing yields and excessive costs;
. difficulties selecting and integrating new subcontractors;
. 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 ourselves 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 delay product delivery,
which would harm our profitability and customer relationships.
If the 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 face production
delays.
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
harm our ability to deliver our products on time.
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. Although we
believe that we will have sufficient access to four-inch wafers to support
production in our existing fabrication facility for the foreseeable future, we
cannot be certain that our current supplier will continue to supply us with
four-inch wafers on a long-term basis. The
21
<PAGE>
availability of manufacturing equipment needed for a four-inch process is
limited, and certain new equipment required for more advanced processes may
not be available for a four-inch process.
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
including silicon germanium processes, 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,
including both SiGe and CMOS process technologies, in a timely or affordable
manner. In addition, products based on these technologies may not achieve
market acceptance.
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 COULD STOP GROWING AND MAY 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 Ethernet 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, volume sales 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 have substantial technological
capabilities and financial resources. They traditionally use these resources
to internally develop the ASIC components and develop programs for the
general-purpose processors utilized in our network processor products. Our
future prospects are dependent upon our customers' acceptance of network
processors as an alternative to ASIC components and general-purpose
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.
22
<PAGE>
THE COMPLEXITY OF OUR PRODUCTS FREQUENTLY LEADS TO ERRORS, DEFECTS AND BUGS
WHEN THEY ARE FIRST INTRODUCED, WHICH COULD NEGATIVELY IMPACT OUR REPUTATION
WITH CUSTOMERS.
Products as complex as ours frequently 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 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 combined company's
other development efforts;
. claims by our customers or others against it; 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.
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 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, or that the patents of others will
not have an adverse effect on our ability to do business. 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.
WE HAVE BEEN NAMED AS A DEFENDANT IN RECENTLY INITIATED 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.
23
<PAGE>
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.
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;
. natural disasters;
. 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 the 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
24
<PAGE>
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.
REVENUES THAT ARE CURRENTLY DERIVED FROM NON-COMMUNICATIONS MARKETS HAVE 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 funding product development efforts in
these markets, and revenues from products in these markets have been declining
and we expect them to continue to decline in future periods. The market for
ATE and high-speed computing IC products is subject to extreme price
competition, and we may not be able to reduce the costs of manufacturing high-
speed computing IC products in response to declining average selling prices.
We expect that certain competitors will seek to develop and introduce
products that integrate the functions performed by our ATE and high-speed
computing IC products on single chips. One or more of our customers may choose
to utilize discrete components to perform the functions served by our high-
speed computing IC products or may use their own design and fabrication
facilities to create a similar product. In either case, the need for ATE and
high-speed computing customers to purchase our IC products could be
eliminated.
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 restrict our ability to expand our
facilities at the present location or construct or operate a new fabrication
facility or 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.
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.
We use significant amounts of water throughout our manufacturing process.
Previous droughts in California have resulted in restrictions being placed on
water use by manufacturers and residents in California. In the event of future
drought, reductions in water use may be mandated generally, and it is unclear
how such reductions will be allocated among California's different users.
California has experienced shortages in the available power supply. We are
in the process of equipping our internal manufacturing facilities with
generators to minimize disruption in case of a power outage. However, power
outages at vendors we rely on could have material adverse consequences to our
ability to meet demand,
25
<PAGE>
and thus our results of operations. Additionally, power outages at our
customers may adversely affect their demand for our products.
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. A significant natural disaster
could have a material adverse impact on our business, financial condition and
operating results.
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 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
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.
26
<PAGE>
Item 2. Properties.
Our corporate headquarters are located in San Diego, California. Below is a
summary of material properties leased on March 31, 2001:
<TABLE>
<CAPTION>
Lease Square
Location Expiration Footage Use
-------- ------------- ------- ---
<C> <C> <C> <S>
San Diego, California 2007 90,000 Executive offices, sales
headquarters, test and
assembly
San Diego, California 2010 62,000 Engineering headquarters
San Diego, California 2003 52,000 Marketing applications
San Diego, California 2003 21,000 Wafer fabrication
-------
Total San Diego, California 225,000
Andover, Massachusetts 2005 70,000 Engineering, sales and
marketing
Andover, Massachusetts 2003 23,000 Engineering, sales and
marketing
Sunnyvale, California 2005 128,000 Switching and network
processing business unit
including engineering,
sales and marketing
Other United States locations Various dates 55,000 Engineering, sales and
through marketing applications
2006
Foreign locations Various dates 30,000 Engineering, sales and
through marketing applications
2006
-------
Total facilities 531,000
=======
</TABLE>
In September 2000, we acquired 32 acres of land as a site for a future
corporate campus with manufacturing facilities. This parcel of land is located
in Poway, California. The land does not have any improvements and there are no
current plans to commence building on the land. In May 1999, we acquired a
parcel of land located near our current San Diego, California headquarters. We
have commenced construction of a 103,000 square foot facility to be used for
executive offices, sales and marketing, with an estimated completion date of
December 2001.
Our foreign locations consist of the following: Kanata, Canada; Manchester,
United Kingdom; Cheshire, United Kingdom; Munich, Germany; Milan, Italy;
Paris, France; Tokyo, Japan; Shenzhen, People's Republic of China; Shanghai,
People's Republic of China; and Netanya, Israel.
Item 3. Legal Proceedings.
Starting in April 2001, a series of similar federal complaints were filed
against the Company and its chief executive officer, chief financial officer
and certain other executive officers and directors of the Company. These
complaints, separately identified below* (collectively the "Complaints"),
allege essentially identical violations
* Naiditch v. Applied Micro Circuits Corporation, et al., case number 01-CV-
0649 K (AJB), pending in the United States District Court for the Southern
District of California; Congregation Givate v. Applied Micro Circuits
Corporation, et al., case no. 01-CV-0675 K (AJB), pending in United States
District Court for the Southern District of California; Harris v. Applied
Micro Circuits Corporation, et al., case no. 01-CV-0675 K (AJB), pending in
United States District Court for the Southern District of California;
Shapiro v. Applied Micro Circuits Corporation, et al., case no. 01-CV-0743
IEG (RBB), pending in the United States District Court for the Southern
District of California; Kucera v. Applied Micro Circuits Corporation, et
al., case no. 01-CV-0772K (JAH), pending in United States District Court
for the Southern District of California; Fairland Management v. Applied
Micro Circuits Corporation, et al., case no. 01-CV-0798 IEG (CGA), pending
in United States District Court for the Southern District of California;
Hsu & Graef v. Applied Micro Circuits Corporation, et al., case no. 01-CV-
0799 B (CGA), pending in United States District Court for the Southern
District of California; Scofield v. Applied Micro Circuits Corporation, et
al., case no. 01-CV-0804 IEG (LAB), pending in United States District Court
for the Southern District of California; Reed v. Applied Micro Circuits
Corporation, et al., case no. 01-CV-0808 TW (JAH), pending in United States
District Court for the Southern District of California.
27
<PAGE>
of the Securities Exchange Act of 1934 (the "1934 Act"). The Complaints have
been brought as purported shareholder class actions under Sections 10(b) and
20(a) of the 1934 Act and Rule 10b-5 promulgated thereunder and seek monetary
damages on behalf of the shareholder class. In general, the Complaints allege
that the Company and the individual defendants misrepresented the Company's
financial prospects for the fourth quarter of fiscal 2001 to inflate the value
of the Company's stock. The Company anticipates that the Complaints pending in
federal court will be consolidated into a single proceeding. In addition, in
May 2001, two individuals filed a derivative action against the directors and
certain executive officers in the California Superior Court for Santa Clara
County (Weiss v. Rickey, et al., case no. CV798253), and another individual
filed a separate derivative action, in the California Superior Court for San
Diego County (Cheng v. Bowes, et al., case no. GIC767574). These state court
derivative complaints allege 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 time period from November 2000
through February 2001. The Company has not yet responded to any of these
lawsuits, and no discovery has been conducted. The Company believes that the
allegations in each of these actions are without merit and intends to defend
the actions vigorously. The actions have been tendered to the Company's
insurance carriers.
In addition, from time to time, the Company may be involved in litigation
relating to claims arising out of our operations in the normal course of
business. As of the date of this Annual Report on Form 10-K, except as
described herein, the Company is not engaged in any legal proceedings that are
expected, individually or in the aggregate, to have a material adverse effect
on its business, financial condition or operating results.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of the Company's stockholders during
the fourth quarter of the fiscal year ended March 31, 2001.
28
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The following table sets forth the high and low sales prices of our Common
Stock as reported by the Nasdaq National Market for the periods indicated.
On each of September 9, 1999, March 23, 2000, and October 30, 2000, we
effected two-for-one stock splits (in the form of 100% stock dividends);
accordingly, the prices presented below have been restated to reflect these
stock splits.
<TABLE>
<CAPTION>
High Low
Fiscal year ended March 31, 2000 ------- ------
<S> <C> <C>
First Quarter................................................... $ 10.63 $ 5.14
Second Quarter.................................................. $ 16.75 $ 9.53
Third Quarter................................................... $ 32.09 $13.59
Fourth Quarter.................................................. $ 79.44 $25.27
<CAPTION>
High Low
Fiscal year ended March 31, 2001 ------- ------
<S> <C> <C>
First Quarter................................................... $ 74.63 $32.75
Second Quarter.................................................. $109.75 $47.75
Third Quarter................................................... $109.25 $45.88
Fourth Quarter.................................................. $ 88.25 $16.13
</TABLE>
At March 31, 2001, there were approximately 816 holders on record of our
Common Stock.
We have not paid cash dividends on our Common Stock and presently intend to
continue this policy.
There were no sales of equity securities by the Company that were not
registered under the Securities Act in the fourth quarter of fiscal 2001.
29
<PAGE>
Item 6. Selected Financial Data.
We effected two-for-one stock splits in the form of 100% stock dividends on
each of September 9, 1999, March 23, 2000, and October 30, 2000. All share and
per share information has been restated to reflect these events.
<TABLE>
<CAPTION>
March 31,
-------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of
Operations Data:
Net revenues................ $ 57,468 $ 76,618 $105,000 $ 172,352 $ 435,543
Cost of revenues(1)......... 30,057 34,321 37,937 50,218 163,166
-------- -------- -------- ---------- ----------
Gross profit................ 27,411 42,297 67,063 122,134 272,377
Operating expenses:
Research and
development(1)........... 7,870 13,268 22,301 32,527 105,225
Selling, general and
administrative(1)........ 12,537 14,278 17,795 28,035 69,232
Stock-based
compensation(1).......... -- -- 701 452 79,730
Amortization of goodwill
and purchased
intangibles.............. -- -- -- -- 308,835
Acquired in-process
research and
development.............. -- -- -- -- 202,100
Merger-related costs...... -- -- 2,350 -- --
-------- -------- -------- ---------- ----------
Total operating
expenses................ 20,407 27,546 43,147 61,014 765,122
-------- -------- -------- ---------- ----------
Operating income (loss)..... 7,004 14,751 23,916 61,120 (492,745)
Interest income (expense),
net........................ (29) 871 3,450 12,872 55,449
-------- -------- -------- ---------- ----------
Income (loss) before income
taxes...................... 6,975 15,622 27,366 73,992 (437,296)
Income tax expense
(benefit).................. 659 406 10,233 25,367 (1,081)
-------- -------- -------- ---------- ----------
Net income (loss)........... $ 6,316 $ 15,216 $ 17,133 $ 48,625 $ (436,215)
======== ======== ======== ========== ==========
Basic earnings (loss) per
share:
Earnings (loss) per
share.................... $ 0.16 $ 0.18 $ 0.09 $ 0.23 $ (1.63)
======== ======== ======== ========== ==========
Shares used in calculating
basic earnings (loss) per
share.................... 40,048 84,752 196,112 215,640 267,363
======== ======== ======== ========== ==========
Diluted earnings (loss) per
share:
Earnings (loss) per
share.................... $ 0.04 $ 0.09 $ 0.08 $ 0.20 $ (1.63)
======== ======== ======== ========== ==========
Shares used in calculating
diluted earnings (loss)
per share................ 143,256 162,352 219,440 238,304 267,363
======== ======== ======== ========== ==========
Consolidated Balance Sheet
Data:
Working capital............. $ 19,364 $ 77,417 $103,617 $ 977,621 $1,208,226
Total assets................ 41,814 112,834 150,655 1,046,882 5,453,278
Long-term debt and capital
lease obligations including
current portion............ 5,854 6,711 10,495 7,417 3,530
Total stockholders' equity.. 27,743 91,634 121,694 1,013,805 5,238,101
Cost of revenues.......... $ -- $ -- $ -- $ -- $ 2,820
Research and development.. -- -- 171 288 41,303
Selling, general and
administrative........... -- -- 530 164 35,607
-------- -------- -------- ---------- ----------
$ -- $ -- $ 701 $ 452 $ 79,730
======== ======== ======== ========== ==========
</TABLE>
- --------
(1) For presentation purposes, the functional line items exclude stock-based
compensation charges related to acquired companies as follows (in
thousands):
30
<PAGE>
Quarterly Comparisons
The following tables set forth consolidated statements of operations for
each of our last eight quarters. This quarterly information is unaudited and
has been prepared on the same basis as the annual consolidated financial
statements. In our opinion, this quarterly information reflects all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the periods presented. The operating
results for any quarter are not necessarily indicative of results for any
future period.
QUARTERLY FINANCIAL INFORMATION FOR FISCAL 2000 AND FISCAL 2001
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal 2000 Fiscal 2001
------------------------------- ------------------------------------
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
------- ------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues............ $31,643 $37,898 $45,762 $57,049 $74,188 $97,007 $ 143,269 $ 121,079
Cost of revenues (1).... 10,283 11,326 13,209 15,400 19,314 24,532 61,196 58,124
------- ------- ------- ------- ------- ------- --------- ---------
Gross profit............ 21,360 26,572 32,553 41,649 54,874 72,475 82,073 62,955
Operating expenses:
Research and
development (1)...... 6,282 7,122 8,209 10,914 14,742 19,315 31,285 39,883
Selling, general and
administrative (1)... 5,528 6,507 7,020 8,980 10,572 14,661 20,498 23,501
Stock-based
compensation (1)..... 113 113 113 113 134 610 35,954 43,032
Amortization of
goodwill and
purchased
intangibles.......... -- -- -- -- 2,284 8,563 127,574 170,414
Acquired in-process
research and
development.......... -- -- -- -- 21,800 3,600 176,700 --
------- ------- ------- ------- ------- ------- --------- ---------
Total operating
expenses............... 11,923 13,742 15,342 20,007 49,532 46,749 392,011 276,830
------- ------- ------- ------- ------- ------- --------- ---------
Operating income
(loss)................. 9,437 12,830 17,211 21,642 5,342 25,726 (309,938) (213,875)
Interest income, net.... 884 1,005 1,225 9,758 12,277 13,465 14,771 14,936
------- ------- ------- ------- ------- ------- --------- ---------
Income (loss) before
income taxes........... 10,321 13,835 18,436 31,400 17,619 39,191 (295,167) (198,939)
Income tax expense
(benefit).............. 3,535 4,738 6,324 10,770 14,224 15,576 (25,680) (5,201)
------- ------- ------- ------- ------- ------- --------- ---------
Net income (loss)....... $ 6,786 $ 9,097 $12,112 $20,630 $ 3,395 $23,615 $(269,487) $(193,738)
======= ======= ======= ======= ======= ======= ========= =========
Diluted earnings (loss)
per share.............. $ 0.03 $ 0.04 $ 0.05 $ 0.08 $ 0.01 $ 0.09 $ (0.95) $ (0.65)
======= ======= ======= ======= ======= ======= ========= =========
Shares used in
calculating diluted
earnings (loss) per
share.................. 228,224 231,728 235,216 258,048 265,162 271,798 282,313 296,387
======= ======= ======= ======= ======= ======= ========= =========
Cost of revenues ....... $ -- $ -- $ -- $ -- $ -- $ -- $ 1,203 $ 1,617
Research and
development............ 72 72 72 72 95 491 18,122 22,595
Selling, general and
administrative......... 41 41 41 41 39 119 16,629 18,820
------- ------- ------- ------- ------- ------- --------- ---------
$ 113 $ 113 $ 113 $ 113 $ 134 $ 610 $ 35,954 $ 43,032
======= ======= ======= ======= ======= ======= ========= =========
</TABLE>
- --------
(1) For presentation purposes, the functional line items exclude stock-based
compensation charges related to acquired companies as follows (in
thousands):
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following discussion of the financial condition and results of our
operations should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in our Annual Report on Form
10-K. This discussion 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 "Risk Factors".
Readers are cautioned not to place undue reliance on these forward-looking
statements, which reflect our analysis only as of the date hereof. We assume
no obligation to update these forward-looking statements to reflect actual
results or changes in factors or assumptions affecting such forward-looking
statements.
31
<PAGE>
Overview
We design, develop, manufacture and market high-performance, high-bandwidth
silicon solutions for the world's optical networks. We utilize a combination
of high-frequency analog, mixed-signal and digital 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
fiber optic networks. Our system solution portfolio includes PMD, PHY, FEC,
framer/mapper, network processor, traffic management and switch fabric devices
that address the high-performance needs of the evolving intelligent optical
network. Our products target the SONET/SDH, ATM, DWDM, Gigabit Ethernet and
Fibre Channel semiconductor markets. We provide our customers with complete
silicon IC solutions including physical media dependent devices such as laser
drivers, physical layer products such as transceivers, overhead processor
products such as framers and mappers, and higher layer processors such as
network processors and switch fabrics. Our products currently target data
rates up to 40 Gbps (a rate known as "OC-768").
We continue to supply silicon ICs for the ATE, high-speed computing and
military markets. The revenues from these products have become less important
as we have focused our business and operations on communications markets.
Results of Operations
The following table sets forth certain selected consolidated statement of
operations data in dollars and as a percentage of revenues for the periods
indicated:
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-------------------------------------------------
1999 2000 2001
-------------- -------------- -----------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net revenues............... $105,000 100.0% $172,352 100.0% $ 435,543 100.0%
Cost of revenues (1)....... 37,937 36.1 50,218 29.1 163,166 37.5
-------- ----- -------- ----- --------- ------
Gross profit............... 67,063 63.9 122,134 70.9 272,377 62.5
Operating expenses:
Research and development
(1)..................... 22,301 21.2 32,527 18.9 105,225 24.2
Selling, general and
administrative (1)...... 17,795 16.9 28,035 16.3 69,232 15.9
Stock-based compensation
(1)..................... 701 0.7 452 0.3 79,730 18.3
Amortization of goodwill
and purchased
intangibles............. -- -- -- -- 308,835 70.9
Acquired in-process
research and
development............. -- -- -- -- 202,100 46.4
Merger-related costs..... 2,350 2.2 -- -- -- --
-------- ----- -------- ----- --------- ------
Total operating
expenses............... 43,147 41.1 61,014 35.4 765,122 175.7
-------- ----- -------- ----- --------- ------
Operating income (loss).... 23,916 22.8 61,120 35.5 (492,745) (113.1)
Interest income, net....... 3,450 3.3 12,872 7.5 55,449 12.7
-------- ----- -------- ----- --------- ------
Income (loss) before income
taxes..................... 27,366 26.1 73,992 42.9 (437,296) (100.4)
Income tax expense
(benefit)................. 10,233 9.7 25,367 14.7 (1,081) (0.2)
-------- ----- -------- ----- --------- ------
Net income (loss).......... $ 17,133 16.3% $ 48,625 28.2% $(436,215) (100.2)%
======== ===== ======== ===== ========= ======
Diluted earnings (loss) per
share:
Earnings (loss) per share.. $ 0.08 $ 0.20 $ (1.63)
======== ======== =========
Shares used in calculating
diluted earnings (loss)
per share................. 219,440 238,304 267,363
======== ======== =========
- --------
(1) For presentation purposes, the functional line items exclude stock-based
compensation charges related to acquired companies as follows (in
thousands):
Cost of revenues ........ $ -- -- % $ -- -- % $ 2,820 0.6%
Research and
development............. 171 0.2 288 0.2 41,303 9.5
Selling, general and
administrative.......... 530 0.5 164 0.1 35,607 8.2
-------- ----- -------- ----- --------- ------
$ 701 0.7% $ 452 0.3% $ 79,730 18.3%
======== ===== ======== ===== ========= ======
</TABLE>
32
<PAGE>
Comparison of the Year Ended March 31, 2001 to the Year Ended March 31, 2000
On September 9, 1999, March 23, 2000 and October 30, 2000, we effected two-
for-one stock splits (in the form of 100% stock dividends); accordingly, all
share and per share amounts in this discussion of the results of operations
have been restated to reflect the stock splits.
Net Revenues. Net revenues for the year ended March 31, 2001 were
approximately $435.5 million, representing an increase of 152.7% over net
revenues of approximately $172.4 million for the year ended March 31, 2000.
Revenues from sales of communications products increased 181.5% to $388.8
million or 89% of net revenues for the year ended March 31, 2001 from $138.1
million or 80% of net revenues for the year ended March 31, 2000. Of this
increase, $45.5 million is attributable to revenues generated by MMC since the
date of acquisition. The remaining increase reflects both unit growth in
shipments of existing products, as well as the introduction of new
communications products. Revenues from sales of non-communications products,
consisting of the ATE, high-speed computing and military markets, decreased
from 20% of net revenues for the year ended March 31, 2000, to 11% of net
revenues for the year ended March 31, 2001.
In the fourth quarter of fiscal 2001, we experienced a decline in our
revenues, bookings and backlog from the previous quarter. Many of our
customers have announced that they anticipate lower revenues and profits for
fiscal 2002 as a result of a slowdown or reduction of capital expenditures by
their customers. This factor, coupled with indicators of a general economic
slowdown in the United States, has reduced demand for our products. We expect
that revenues will decline materially for at least the first two quarters of
fiscal 2002, when compared to the last two quarters of fiscal 2001.
Based on direct shipments, net revenues to customers exceeding 10% for the
years ending March 31, were as follows:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Nortel...................................................... 19% 26% 10%
Insight..................................................... 13% 17% 19%
Raytheon.................................................... 16% -- --
</TABLE>
Looking through product shipments to distributors and subcontractors, net
revenues on an end customer basis, exceeding 10% for the years ending March
31, were as follows:
<TABLE>
<CAPTION>
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Nortel...................................................... 20% 38% 20%
Raytheon.................................................... 16% -- --
</TABLE>
Gross Margin. Gross margin was 62.5% for the year ended March 31, 2001, as
compared to 70.9% for the year ended March 31, 2000. Gross margin was
adversely affected by a $26.9 million purchase accounting charge to cost of
revenues based on an increase in the value of the MMC inventory as of the
acquisition date, as well as $25.3 million of developed core technology
amortization (see Footnote 3 of the notes to the consolidated financial
statements). Excluding the effect of these purchase accounting charges, gross
margin actually increased to 74.5% for the year ended March 31, 2001. This
increase in gross margin was driven principally by the increased percentage of
revenues derived from our communications standard products which have higher
average selling prices and the increased utilization of our wafer fabrication
facility. We anticipate that gross margin will decline in fiscal 2002 as a
result of decreasing utilization of our manufacturing facilities and the
potential for lower average selling prices as a result of the current softness
in demand for our products.
Research and Development. Research and development ("R&D") expenses
increased 224% to approximately $105.2 million, or 24.2% of revenues, for the
year ended March 31, 2001, from approximately $32.5 million, or 18.9% of net
revenues, for the year ended March 31, 2000. The increase is a result of new
product and process development efforts, investments made in new design tools
for the development of new products, and increases in personnel costs as a
result of acquisitions and internal hiring of R&D personnel. We
33
<PAGE>
believe that a continued commitment to R&D is vital to maintain a leadership
position with innovative communications products. Accordingly, we expect R&D
expenses to increase in the future. Currently, R&D expenses are focused on the
development of products and processes for the communications markets, and we
expect to continue this focus.
Selling, General and Administrative. Selling, general and administrative
("SG&A") expenses were approximately $69.2 million, or 15.9% of revenues, for
the year ended March 31, 2001, as compared to approximately $28.0 million, or
16.3% of net revenues, for the year ended March 31, 2000. The increase in SG&A
expenses in absolute dollars for the year ended March 31, 2001 was primarily
attributable to investments made in our corporate infrastructure, an increase
in the size of our sales force and related commissions, additional marketing
and advertising investments associated with the introduction of new products,
general corporate branding and increases in our reserves for bad debt. The
remaining increase is the result of our acquisition of MMC in the third
quarter which had similar expenses not included in the prior year as a result
of purchase accounting. We expect SG&A expenses to increase in the future due
principally to additional staffing in our sales and marketing departments, as
well as increased spending on information technology and product promotion,
although we do expect that the rate of increase will be reduced.
Stock-based Compensation. During the year ended March 31, 2001, deferred
compensation of $438.8 million was recorded related to restricted stock and
unvested options granted to employees of acquired companies in accordance with
FASB Interpretation No. 44 ("FIN 44"). Prior to FIN 44, the fair value of
these stock awards would have been included as part of the purchase price of
the acquisitions, probably resulting in additional goodwill. Stock-based
compensation charges were $79.7 million and $0.5 million for the years ended
March 31, 2001 and March 31, 2000, respectively. The increase is directly
related to the acquisitions of MMC, SiLUTIA, Inc. ("SiLUTIA"), YuniNetworks,
pBaud Logic, Inc. ("pBaud"), Chameleon Technologies ("Chameleon") and Raleigh
Technology Corporation ("RTC"). We currently expect to record amortization of
deferred compensation with respect to these option grants of approximately
$147.2 million, $134.1 million, $63.5 million, and $4.1 million during the
fiscal years ended March 31, 2002, 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. Amortization of
goodwill and purchased intangible assets was $308.8 million for the year ended
March 31, 2001. These charges are related to the purchases of MMC, SiLUTIA,
YuniNetworks, pBaud, Chameleon and RTC. There were no amortization charges
arising from purchase acquisitions in the year ended March 31, 2000.
Currently, we expect amortization expense to be $736.4 million, $736.3
million, $734.4 million, $731.6 million and $704.0 million for the years ended
March 31, 2002, 2003, 2004, 2005 and 2006, respectively. There can be no
assurance that acquisitions of businesses by us in the future will not result
in substantial changes to the expected amortization, which may cause
fluctuations in our interim and annual operating results. The estimated
amortization of goodwill expense is based on the current guidance for the
amortization of intangible assets and does not reflect the exposure draft
regarding the impairment only approach to goodwill amortization expected to be
effective in fiscal 2002. If the new guidance becomes effective as it is
currently drafted, the amortization of goodwill would no longer be required.
Acquired In-process Research and Development. For the year ended March 31,
2001, we recorded $202.1 million of acquired in-process research and
development ("IPR&D") resulting from the acquisitions of YuniNetworks, SiLUTIA
and MMC. This amount was expensed on the acquisition date because the acquired
technology had not yet reached technological feasibility and had no future
alternative uses.
34
<PAGE>
The following table summarizes the significant assumptions underlying the
valuations related to the IPR&D at the date of acquisition:
<TABLE>
<CAPTION>
Estimated Cost Discount Rate Weighted
IPR&D to Complete Applied to Average Cost
Charge Technology IPR&D of Capital
-------- -------------- ------------- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
MMC Networks, Inc. ....... $176,700 $11,494 20% 14%
SiLUTIA, Inc. ............ 3,600 276 22% 17%
YuniNetworks, Inc......... 21,800 3,078 21% 16%
-------- -------
Total................... $202,100 $14,848
======== =======
</TABLE>
Included below are additional details regarding the in-process technology
acquired in these transactions:
MMC Networks, Inc.--MMC designs, develops, manufactures and markets network
processors, traffic management and switch fabric ICs. The total IPR&D charge
related to eight projects, which at the date of the acquisition were between
20% and 90% complete. Three projects accounted for approximately 62% of the
value assigned to IPR&D. These projects were estimated to be completed in
fiscal 2002 and are on schedule. The remaining projects, which accounted for
38% of the charge, are at various stages of completion and are also on
schedule except for insignificant delays related to resource constraints.
SiLUTIA, Inc.--SiLUTIA specializes in digital and mixed signal IC designs.
Ninety-five percent of the IPR&D charge related to one project which was 60%
complete at the date of acquisition. At March 31, 2001, the project is
estimated to be approximately 95% complete and is on budget.
YuniNetworks, Inc.--YuniNetworks develops scalable switch fabric silicon
ICs. The IPR&D charge related to one chipset consisting of six ICs. At the
date of acquisition, the project was estimated to be 32% complete. The
original project was completed on time and on budget. The chipset has not been
production released and is currently being modified to include additional
functionality not planned in the original project.
There can be no assurance that acquisitions of businesses, products or
technologies by us in the future will not result in substantial charges for
acquired in-process research and development that may cause fluctuations in
our interim and annual operating results.
Net Interest Income. Net interest income increased to $55.4 million for the
year ended March 31, 2001 compared to $12.9 million for the year ended March
31, 2000. This increase was due principally to increased funds available for
investment generated by our operations, public stock offerings and employee
stock option exercises.
Income Taxes. Income taxes for the year ended March 31, 2001 differed from
statutory rates primarily due to the utilization of certain federal and state
tax credits and the nondeductibility of IPR&D and the amortization of
purchased intangibles.
Backlog. Our sales are made primarily pursuant to standard purchase orders
for delivery of products. Quantities of our products to be delivered and
delivery schedules are frequently revised to reflect changes in customer
needs, and customer orders can be canceled or rescheduled without significant
penalty to the customer. For these reasons, our backlog as of any particular
date is not representative of actual sales for any succeeding period, and we
therefore believe that backlog is not a good indicator of future revenue. Our
backlog for products requested to be shipped and nonrecurring engineering
services to be completed in the next six months was $100.3 million on March
31, 2001, compared to $86.1 million on March 31, 2000.
35
<PAGE>
Comparison of the Year Ended March 31, 2000 to the Year Ended March 31, 1999
Net Revenues. Net revenues for the year ended March 31, 2000 were
approximately $172.4 million, representing an increase of 64% over net
revenues of approximately $105.0 million for the year ended March 31, 1999.
Revenues from sales of communications products increased 141% to $138.1
million or 80% of net revenues for the year ended March 31, 2000 from $57.3
million or 55% of net revenues for the year ended March 31, 1999. This
increase reflected both unit growth in shipments of existing products, as well
as the introduction of new products for the communications market. Revenues
from sales of non-communications products decreased from 45% of net revenues
for the year ended March 31, 1999 to 20% of net revenues for the year ended
March 31, 2000.
Gross Margin. Gross margin was 70.9% for the year ended March 31, 2000, as
compared to 63.9% for the year ended March 31, 1999. The increase in gross
margin resulted primarily from increased utilization of our wafer fabrication
facility.
Research and Development. R&D expenses increased 46% to approximately $32.5
million, or 18.9% of revenues, for the year ended March 31, 2000 from
approximately $22.3 million, or 21.2% of net revenues, for the year ended
March 31, 1999. The increase in R&D expenses in absolute dollars is a
reflection of our aggressive product development efforts. Factors contributing
to the increase in R&D expenses are an increase in compensation related costs,
as a result of both increased headcount and increased average compensation
costs, an increase in the cost of design tools and software, and an increase
in prototyping and outside contractor costs.
Selling, General and Administrative. SG&A expenses were approximately $28.0
million, or 16.3% of net revenues, for the year ended March 31, 2000, as
compared to approximately $17.8 million, or 16.9% of net revenues, for the
year ended March 31, 1999. The increase in SG&A expenses for the year ended
March 31, 2000 was primarily due to increases in personnel and travel costs,
commissions earned by sales representatives, product promotion expenses, and
professional fees related to legal, accounting and strategic developments.
Net Interest Income. Net interest income increased to $12.9 million for the
year ended March 31, 2000 compared to $3.5 million for the year ended March
31, 1999. This increase was due principally to higher interest income from
larger cash and short-term investment balances generated from operations and
the net proceeds of approximately $815 million from our public offering
completed in January 2000.
Income Taxes. Our annual effective tax rate for the year ended March 31,
2000 was 34.3%, compared to an effective tax rate of 37.4% for the year ended
March 31, 1999. The effective tax rate for the year ended March 31, 2000 was
decreased from statutory rates due to the utilization of certain federal and
state tax credits. The rate for fiscal 2000 was lower than fiscal 1999 due to
the nondeductibility of certain merger-related costs incurred in fiscal 1999.
Liquidity and Capital Resources
Our principal source of liquidity as of March 31, 2001 consisted of $1.1
billion in cash, cash equivalents and short-term investments. Working capital
as of March 31, 2001 was $1.2 billion, compared to $1.0 billion as of March
31, 2000. This increase in working capital was primarily due to net cash
provided by operating activities and proceeds from the issuance of common
stock, offset by the purchase of property and equipment.
For the years ended March 31, 2001, 2000 and 1999, net cash provided by
operating activities was $199.8 million, $65.3 million, and $22.0 million,
respectively. Net cash provided by operating activities in fiscal 2001 and
2000 primarily reflected net income before depreciation and amortization
expense, acquired IPR&D and the tax benefit of disqualifying dispositions,
offset by increases in deferred tax liabilities.
Capital expenditures totaled $78.2 million, $22.8 million, and $16.5 for
the years ended March 31, 2001, 2000 and 1999, respectively, which primarily
consisted of engineering hardware and design software,
36
<PAGE>
manufacturing and test equipment and land. As we continue to expand our
operations and as we integrate and upgrade the capital equipment, software and
facilities of our acquired companies, we intend to increase our capital
expenditures for computer hardware/software, manufacturing and test equipment,
and real estate.
In addition, we continue to explore alternatives for the expansion of our
manufacturing capacity, including entering into additional strategic
relationships to obtain capacity, qualifying second source manufacturers of
our products, building a new manufacturing facility, and purchasing a
manufacturing facility. Any of these alternatives could require a significant
investment by us, and there can be no assurance that any of the alternatives
for the expansion of our manufacturing capacity will be available on a timely
basis.
We believe that our available cash, cash equivalents and short-term
investments, and cash generated from operations, will be sufficient to meet
our capital requirements for 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.
Item 7A. Quantitative and Qualitative Disclosures 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 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 March 31, 2001, our investment portfolio includes
fixed-income securities classified as available-for-sale investments with a
fair market value of $1,074 million and a cost basis of $1,070 million. The
gross unrealized gains of $3.9 million and gross unrealized losses of $0.1
million have been recorded net of deferred taxes of $1.4 million as a separate
component of accumulated other comprehensive income. 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, most of which are communications IC companies. These
investments are classified as long-term strategic equity and convertible debt
investments and are valued based on prices recently paid for the securities.
The estimated fair values are not necessarily representative of the amounts
that the Company 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.
Item 8. Financial Statements and Supplementary Data.
Refer to the Index to the Financial Statements on Page F-l of this Annual
Report on Form 10-K.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
37
<PAGE>
PART III
Certain information required by Part III is omitted from this report
because we will file a definitive proxy statement within 120 days after the
end of our fiscal year pursuant to Regulation 14A (the "Proxy Statement") for
our Annual Meeting of Stockholders to be held August 30, 2001, and the
information included in the Proxy Statement is incorporated herein by
reference.
Item 10. Directors and Executive Officers of the Registrant.
(a) Executive Officers--See the section entitled "Executive Officers of the
Registrant" in Part I, Item 1 hereof.
(b) Directors--The information required by this Item is incorporated by
reference to the section entitled "Election of Directors" in the Proxy
Statement.
Item 11. Executive Compensation.
The information required by this Item is incorporated by reference to the
sections entitled "Compensation of Executive Officers" in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
The information required by this Item is incorporated by reference to the
section entitled "Common Stock Ownership of Certain Beneficial Owners and
Management" of the Proxy Statement.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is incorporated by reference to the
section entitled "Transactions with Management" in the Proxy Statement.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements
The financial statements of the Company are included herein as required
under Item 8 of this Annual Report on Form 10-K. See Index on page F-l.
(2) Financial Statement Schedules
For the three fiscal years ended March 31, 2001--II Valuation and
Qualifying Accounts
Schedules not listed above have been omitted because information
required to be set forth therein is not applicable or is shown in the
financial statements or notes thereto.
(3) Exhibits (numbered in accordance with Item 601 of Regulation S-K)
38
<PAGE>
The following exhibits are filed or incorporated by reference into this
report.
(a) Exhibits
<TABLE>
<C> <S>
3.1(3) Amended and Restated Certificate of Incorporation of the Company.
3.2(3) Amended and Restated Bylaws of the Company.
4.1(1) Specimen Stock Certificate.
10.1(1) Form of Indemnification Agreement between the Company and each of its
Officers and Directors.
10.2(1) *1982 Employee Incentive Stock Option Plan, as amended, and form of
Option Agreement.
10.3 *1992 Stock Option Plan as amended, and form of Option Agreement.
10.4(1) *1997 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.5 *1997 Directors' Stock Option Plan and form of Option Agreement.
10.6(1) *401(k) Plan, effective April 1, 1985 and form of Enrollment
Agreement.
10.9(1) Industrial Real Estate Lease, dated October 29, 1996 between the
Company and ADI Mesa Partners AMCC, L.P. (the Sequence Drive Lease).
10.10(1) Industrial Real Estate Lease, dated April 8, 1992 between the Company
and Mira Mesa Business Park (the Oberlin Drive Lease).
10.17(1) Patent License Agreement, dated June 1, 1997 by and between the
Company and International Business Machines Corporation.
10.18(1) *Letter Agreement, dated January 30, 1996 by and between the Company
and David Rickey.
10.19(1) Patent License Agreement, dated October 19, 1992, as amended by and
between Registrant and Alcatel Network Systems, Inc.
10.24 *1998 Employee Stock Purchase Plan and form of Subscription
Agreement.
10.26 *1998 Stock Incentive Plan of Cimaron Communications Corporation
adopted by Registrant in merger transaction, effective March 17,
1999.
10.27(2) *Employment Agreement by and between Registrant and Gary Martin.
10.28(2) *Employment Agreement by and between Registrant and Ramakrishna
Sudireddy.
10.29(2) Agreement to Sell and Purchase and Escrow Instructions to Acquire
Land by and between Kilroy Realty, L.P. and Registrant dated January
8, 1999.
10.30(2) Lease of Engineering Building by and between Kilroy Realty, L.P. and
Registrant dated February 17, 1999.
10.31(2) **Custom Sales Agreement dated July 14, 1998 by and between
Registrant and International Business Machines.
10.32(3) Amendment No. 1 to the engineering Building Lease dated November,
1999.
10.33 *2000 Equity Incentive Plan and form of Option Agreement.
10.35(4) Lease of Facilities in Andover, Massachusetts between 200 Minuteman
Limited Partnership and Registrant dated September 13, 2000.
10.36(5) Agreement to Acquire Land in Poway, California by and between Tech
Business Center LLC and Registrant dated September 29, 2000.
10.37 MMC Networks, Inc. 1997 Stock Plan and Form of Option Agreement.
11.1(6) Computation of Per Share Data under SFAS No. 128.
</TABLE>
39
<PAGE>
<TABLE>
<C> <S>
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
24.1 Power of Attorney (see page 41).
</TABLE>
(b) The Company did not file any current reports on Form 8-K with the
Commission during the quarter ended March 31, 2001.
- --------
* Management contract or compensatory plan.
** Confidential treatment has been granted with respect to certain portions of
this exhibit.
(1) Incorporated by reference to identically numbered exhibits filed with the
Company's Registration Statement (No. 333-37609) filed October 10, 1997,
or with any Amendments thereto, which registration statement became
effective November 24, 1997.
(2) Incorporated by reference to identically numbered exhibits filed with the
Company's Annual Report, Form 10-K for the year ended March 31, 1999.
(3) Incorporated by reference to identically numbered exhibits filed with the
Company's Annual Report, Form 10-K for the year ended March 31, 2000.
(4) Incorporated by reference to identically numbered exhibits filed with the
Company's Quarterly Report, Form 10-Q for the quarter ended September 30,
2000.
(5) Incorporated by reference to identically numbered exhibits filed with the
Company's Quarterly Report, Form 10-Q for the quarter ended December 31,
2000.
(6) The Computation of Per Share Data under SFAS No. 128 is included in the F-
pages of this report.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(1)
Charged to
Balance at Charged to Other Balance
Beginning Costs and Accounts At End Of
Description of Period Expenses Describe Deductions Period
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended March 31,
2001:
Allowance for doubtful
accounts.............. $314 $ 3,659 $ 747 $ 145(/2/) $ 4,575
Reserve for excess and
obsolete inventory.... -- 10,142 608 1,342(/3/) 9,408
---- ------- ------ ------ -------
$314 $13,801 $1,355 $1,487 $13,983
==== ======= ====== ====== =======
- -----------------------------------------------------------------------------------
Year ended March 31,
2000:
Allowance for doubtful
accounts.............. $177 $ 150 $ -- $ 13(/2/) $ 314
- -----------------------------------------------------------------------------------
Year ended March 31,
1999:
Allowance for doubtful
accounts.............. $350 $ 50 $ -- $ 223(/2/) $ 177
</TABLE>
- --------
(1) Assumed through purchase acquisitions
(2) Accounts written off as uncollectable
(3) General reserves which were converted to reserves against specific parts
40
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
APPLIED MICRO CIRCUITS CORPORATION
/s/ David M. Rickey
By:---------------------------------
David M. Rickey
Chairman of the Board of Directors,
President and Chief Executive
Officer
Date: May 18, 2001
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David M. Rickey and William E. Bendush,
jointly and severally, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any amendments
to this Report on Form 10-K, and to file the same, with exhibits thereto and
other documents in connection therewith with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-
in-fact, or his or her substitute or substitutes may do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ David M. Rickey Chairman of the Board of May 18, 2001
____________________________________ Directors, President and
David M. Rickey Chief Executive Officer
/s/ William E. Bendush Chief Financial Officer May 18, 2001
____________________________________
William E. Bendush
/s/ Roger A. Smullen, Sr. Director and Vice Chairman May 18, 2001
____________________________________ of the Board of Directors
Roger A. Smullen, Sr.
/s/ William K. Bowes, Jr. Director May 18, 2001
____________________________________
William K. Bowes, Jr.
/s/ Franklin P. Johnson, Jr. Director May 18, 2001
____________________________________
Franklin P. Johnson, Jr.
/s/ R. Wayne Price Director May 18, 2001
____________________________________
R. Wayne Price
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ S. Atiq Raza Director May 18, 2001
____________________________________
S. Atiq Raza
/s/ Douglas Spreng Director May 18, 2001
____________________________________
Douglas Spreng
/s/ Arthur B. Stabenow Director May 18, 2001
____________________________________
Arthur B. Stabenow
/s/ Harvey P. White Director May 18, 2001
____________________________________
Harvey P. White
</TABLE>
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................ F-2
Consolidated Balance Sheets as of March 31, 2000 and 2001................ F-3
Consolidated Statements of Operations for the fiscal years ended March
31, 1999, 2000 and 2001................................................. F-4
Consolidated Statements of Stockholders' Equity for the fiscal years
ended March 31, 1999, 2000 and 2001..................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended March
31, 1999, 2000 and 2001................................................. F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Applied Micro Circuits Corporation
We have audited the accompanying consolidated balance sheets of Applied
Micro Circuits Corporation as of March 31, 2000 and 2001, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the three years in the period ended March 31, 2001. Our audits
also included the financial statement schedule listed in the index at Item
14(a). These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Applied Micro Circuits Corporation at March 31, 2000 and 2001, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended March 31, 2001, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
/s/ Ernst & Young LLP
San Diego, California
April 20, 2001
F-2
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except par value)
<TABLE>
<CAPTION>
March 31,
----------------------
2000 2001
---------- ----------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................ $ 170,102 $ 58,197
Short-term investments--available-for-sale........... 784,449 1,073,896
Accounts receivable, net of allowance for doubtful
accounts of $314 and $4,575 at March 31, 2000 and
2001, respectively.................................. 25,459 83,892
Inventories.......................................... 10,925 32,740
Deferred income taxes................................ 4,148 27,597
Current portion of notes receivable from officer and
employees........................................... 81 25
Other current assets................................. 10,240 24,750
---------- ----------
Total current assets............................... 1,005,404 1,301,097
Property and equipment, net............................ 37,842 112,953
Notes receivable from officers and employees, less
current portion....................................... 48 120
Purchased intangibles, net of $334,116 of accumulated
amortization at March 31, 2001........................ -- 4,008,440
Strategic equity and convertible debt investments...... -- 28,023
Other assets........................................... 3,588 2,645
---------- ----------
Total assets....................................... $1,046,882 $5,453,278
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable..................................... $ 8,818 $ 38,069
Accrued payroll and related expenses................. 7,618 17,868
Other accrued liabilities............................ 6,448 30,583
Deferred revenue..................................... 2,776 5,087
Current portion of long-term debt.................... 1,394 668
Current portion of capital lease obligations......... 729 596
---------- ----------
Total current liabilities.......................... 27,783 92,871
Long-term debt, less current portion................... 3,599 1,216
Long-term capital lease obligations, less current
portion............................................... 1,695 1,050
Deferred income taxes.................................. -- 120,040
Commitments and contingencies (Notes 7 and 10)
Stockholders' equity:
Preferred stock, $0.01 par value:
Authorized shares--2,000, none issued and
outstanding........................................ -- --
Common stock, $0.01 par value:
Authorized shares--630,000 at March 31, 2001
Issued and outstanding shares--243,684 and 299,822
at March 31, 2000 and 2001, respectively............ 2,437 2,998
Additional paid-in capital............................. 943,293 5,947,682
Deferred compensation, net............................. (1,443) (348,894)
Accumulated other comprehensive income (loss).......... (166) 2,438
Retained earnings (deficit)............................ 70,139 (366,076)
Notes receivable from stockholders..................... (455) (47)
---------- ----------
Total stockholders' equity......................... 1,013,805 5,238,101
---------- ----------
Total liabilities and stockholders' equity......... $1,046,882 $5,453,278
========== ==========
</TABLE>
F-3
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
---------------------------
1999 2000 2001
-------- -------- ---------
<S> <C> <C> <C>
Net revenues...................................... $105,000 $172,352 $ 435,543
Cost of revenues (1).............................. 37,937 50,218 163,166
-------- -------- ---------
Gross profit...................................... 67,063 122,134 272,377
Operating expenses:
Research and development (1).................... 22,301 32,527 105,225
Selling, general and administrative (1)......... 17,795 28,035 69,232
Stock-based compensation (1).................... 701 452 79,730
Amortization of goodwill and purchased
intangibles.................................... -- -- 308,835
Acquired in-process research and development.... -- -- 202,100
Merger-related costs............................ 2,350 -- --
-------- -------- ---------
Total operating expenses...................... 43,147 61,014 765,122
-------- -------- ---------
Operating income (loss)........................... 23,916 61,120 (492,745)
Interest income, net.............................. 3,450 12,872 55,449
-------- -------- ---------
Income (loss) before income taxes................. 27,366 73,992 (437,296)
Income tax expense (benefit)...................... 10,233 25,367 (1,081)
-------- -------- ---------
Net income (loss)................................. $ 17,133 $ 48,625 $(436,215)
======== ======== =========
Basic earnings (loss) per share:
Earnings (loss) per share....................... $ 0.09 $ 0.23 $ (1.63)
======== ======== =========
Shares used in calculating basic earnings (loss)
per share...................................... 196,112 215,640 267,363
======== ======== =========
Diluted earnings (loss) per share:
Earnings (loss) per share....................... $ 0.08 $ 0.20 $ (1.63)
======== ======== =========
Shares used in calculating diluted earnings
(loss) per share............................... 219,440 238,304 267,363
======== ======== =========
- --------
(1) For presentation purposes, the functional line items exclude stock-based
compensation charges related to acquired companies as follows (in
thousands):
Cost of revenues.................................. $ -- $ -- $ 2,820
Research and development.......................... 171 288 41,303
Selling, general and administrative............... 530 164 35,607
-------- -------- ---------
$ 701 $ 452 $ 79,730
======== ======== =========
</TABLE>
See accompanying notes.
F-4
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Accumulated Notes
Common Stock Additional Other Retained Receivable Total
--------------- Paid-In Deferred Comprehensive Earnings From Stockholders'
Shares Amount Capital Compensation Income (Loss) (Deficit) Stockholders Equity
------- ------ ---------- ------------ ------------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March 31,
1998.................... 180,288 $1,802 $ 85,083 $ (472) $ -- $ 5,722 $(501) $ 91,634
Issuance of stock upon
formation of Cimaron... 18,752 186 4,478 (230) -- -- -- 4,434
Issuance of common
stock under employee
stock purchase plans... 3,336 34 3,145 -- -- -- -- 3,179
Issuance of stock
pursuant to exercise of
stock options.......... 10,520 106 2,431 (964) -- -- -- 1,573
Tax benefit of
disqualifying
dispositions........... -- -- 4,209 -- -- -- -- 4,209
Payment on notes....... -- -- -- -- -- -- 46 46
Deferred compensation
related to stock
options and restricted
stock.................. -- -- 1,317 (1,317) -- -- -- --
Amortization of
deferred compensation.. -- -- -- 860 -- -- -- 860
Adjustment for change
in Cimaron's year end.. -- -- -- -- -- (1,341) -- (1,341)
Comprehensive income:
Net income............. -- -- -- -- -- 17,133 -- 17,133
Unrealized loss on
short-term investments,
net of tax............. -- -- -- -- (33) -- -- (33)
----------
Total comprehensive
income................. -- -- -- -- -- -- -- 17,100
------- ------ ---------- --------- ------ --------- ----- ----------
Balance, March 31,
1999.................... 212,896 2,128 100,663 (2,123) (33) 21,514 (455) 121,694
Issuance of stock, net
of issuance costs...... 24,010 240 814,740 -- -- -- -- 814,980
Issuance of common
stock under employee
stock purchase plans... 524 6 2,498 -- -- -- -- 2,504
Issuance of stock
pursuant to exercise of
stock options.......... 6,366 63 10,313 -- -- -- -- 10,376
Repurchase of
restricted stock....... (112) -- (11) -- -- -- -- (11)
Amortization of
deferred compensation.. -- -- -- 611 -- -- -- 611
Elimination of deferred
compensation related to
stock options
forfeited.............. -- -- (69) 69 -- -- -- --
Tax benefit of
disqualifying
dispositions........... -- -- 15,159 -- -- -- -- 15,159
Comprehensive income:
Net income............. -- -- -- -- -- 48,625 -- 48,625
Unrealized loss on
short-term investments,
net of tax............. -- -- -- -- (133) -- -- (133)
----------
Total comprehensive
income................. -- -- -- -- -- -- -- 48,492
------- ------ ---------- --------- ------ --------- ----- ----------
Balance, March 31,
2000.................... 243,684 $2,437 $ 943,293 $ (1,443) $ (166) $ 70,139 $(455) $1,013,805
Issuance of stock
related to purchase
acquisitions........... 46,232 462 4,775,395 -- -- -- (47) 4,775,810
Issuance of common
stock under employee
stock purchase plans... 299 3 6,653 -- -- -- -- 6,656
Issuance of stock
pursuant to exercise of
stock options.......... 9,727 97 64,917 -- -- -- -- 65,014
Repurchase of
restricted stock....... (120) (1) (8) -- -- -- -- (9)
Deferred compensation
related to stock
options and restricted
stock assumed as a
result of
acquisitions........... -- -- -- (438,845) -- -- -- (438,845)
Amortization of
deferred compensation.. -- -- -- 79,848 -- -- -- 79,848
Elimination of deferred
compensation related to
stock options
forfeited.............. -- -- (11,546) 11,546 -- -- -- --
Tax benefit of
disqualifying
dispositions........... -- -- 168,978 -- -- -- -- 168,978
Payment on notes....... -- -- -- -- -- -- 455 455
Comprehensive income:
Net loss............... -- -- -- -- -- (436,215) -- (436,215)
Foreign currency
translation loss....... -- -- -- -- (73) -- -- (73)
Unrealized gain on
short-term investments,
net of tax............. -- -- -- -- 2,677 -- -- 2,677
----------
Total comprehensive
loss................... -- -- -- -- -- -- -- (433,611)
------- ------ ---------- --------- ------ --------- ----- ----------
Balance, March 31,
2001.................... 299,822 $2,998 $5,947,682 $(348,894) $2,438 $(366,076) $ (47) $5,238,101
======= ====== ========== ========= ====== ========= ===== ==========
</TABLE>
F-5
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
-----------------------------------
1999 2000 2001
--------- ----------- -----------
<S> <C> <C> <C>
Operating Activities
Net income (loss)....................... $ 17,133 $ 48,625 $ (436,215)
Adjustment to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization........... 7,045 8,039 16,135
Write-offs of inventories............... 180 701 172
Amortization of purchased intangibles
and inventory fair value adjustment.... -- -- 361,022
Acquired in-process research and
development............................ -- -- 202,100
Amortization of deferred compensation... 860 611 79,848
Tax benefit of disqualifying
dispositions........................... 4,209 15,159 168,978
Loss on disposals of property........... 221 -- --
Adjustment for change in Cimaron year
end.................................... (1,341) -- --
Changes in operating assets and
liabilities:
Accounts receivables................... (7,096) (6,184) (42,272)
Inventories............................ (1,808) (1,813) (11,601)
Other assets........................... (678) (7,417) (9,621)
Accounts payable....................... (84) 3,687 16,416
Accrued payroll and other accrued
liabilities........................... 4,495 2,170 31,956
Deferred income taxes.................. (691) 425 (178,550)
Deferred revenue....................... (434) 1,337 1,403
--------- ----------- -----------
Net cash provided by operating
activities.......................... 22,011 65,340 199,771
Investing Activities
Proceeds from sales and maturities of
investments............................ 187,787 1,847,446 2,773,758
Purchase of investments................. (199,394) (2,559,018) (3,088,500)
Repayments and (advances) on notes
receivable from officers and
employees.............................. 262 786 (18)
Purchase of property, equipment and
other assets........................... (16,490) (22,753) (78,217)
Cash received from purchase
acquisitions, net of cash paid and
merger expenses........................ -- -- 14,325
--------- ----------- -----------
Net cash used for investing
activities.......................... (27,835) (733,539) (378,652)
Financing Activities
Proceeds from issuance of common stock,
net.................................... 9,062 827,860 71,670
Repurchase of common stock.............. -- (11) (9)
Payments on notes receivable from
stockholders........................... 46 -- 455
Payments on capital lease obligations... (2,110) (1,214) (779)
Payments on long-term debt.............. (792) (1,864) (4,288)
Proceeds from equipment financed under
capital leases......................... 2,342 -- --
Issuance of long-term debt.............. 4,346 -- --
Other................................... -- -- (73)
--------- ----------- -----------
Net cash provided by financing
activities.......................... 12,894 824,771 66,976
--------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................... 7,070 156,572 (111,905)
Cash and cash equivalents at beginning of
year..................................... 6,460 13,530 170,102
--------- ----------- -----------
Cash and cash equivalents at end of year.. $ 13,530 $ 170,102 $ 58,197
--------- ----------- -----------
Supplemental disclosure of cash flow
information:
Cash paid for:
Interest............................... $ 542 $ 634 $ 403
========= =========== ===========
Income taxes........................... $ 4,274 $ 12,273 $ 3,943
========= =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Business
The Company designs, develops, manufactures and markets high-performance,
high-bandwidth silicon solutions for the world's optical networks.
Basis of Presentation
On September 9, 1999, March 23, 2000, and October 30, 2000, the Company
effected two-for-one stock splits (in the form of 100% stock dividends);
accordingly, all prior share, per share, common stock, and stock option
amounts in these financial statements have been restated to reflect the stock
splits.
The consolidated financial statements include all the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Cash, Cash Equivalents and Short-Term Investments
Cash and cash equivalents consist of money market type funds and highly
liquid debt instruments with original maturities of three months or less at
the date of acquisition. Short-term investments consist of United States
Treasury notes, obligations of U.S. government agencies, State, Municipal and
County governments notes and bonds and corporate bonds. The Company maintains
its excess cash in financial institutions with strong credit ratings and has
not experienced any significant losses on its investments.
The Company classifies its short-term investments as "Available-for-Sale"
and records such assets at the estimated fair value with unrealized gains and
losses excluded from earnings and reported, net of tax, in comprehensive
income (loss). The basis for computing realized gains or losses is by specific
identification.
The following is a summary of available-for-sale securities (in thousands):
<TABLE>
<CAPTION>
Gross
Unrealized
Amortized ------------- Estimated
Cost Gains Losses Fair Value
--------- ------ ------ ----------
<S> <C> <C> <C> <C>
At March 31, 2001:
U.S. treasury securities and obligations
of U.S. government agencies.............. $ 26,984 $ 109 $ 5 $ 27,088
State, Municipal and County government
notes and bonds.......................... 388,689 1,510 -- 390,199
U.S. corporate debt securities............ 654,418 2,304 113 656,609
---------- ------ ---- ----------
$1,070,091 $3,923 $118 $1,073,896
========== ====== ==== ==========
At March 31, 2000:
U.S. treasury securities and obligations
of U.S. government agencies.............. $ 25,942 $ -- $118 $ 25,824
State, Municipal and County government
notes and bonds.......................... 397,645 30 14 397,661
U.S. corporate debt securities............ 361,132 26 194 360,964
---------- ------ ---- ----------
$ 784,719 $ 56 $326 $ 784,449
========== ====== ==== ==========
</TABLE>
F-7
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Available-for-sale securities by contractual maturity are as follows (in
thousands):
<TABLE>
<CAPTION>
March 31,
2001
----------
<S> <C>
Due in one year or less.......................................... $ 860,737
Due after one year through two years............................. 146,269
Greater than two years........................................... 66,890
----------
$1,073,896
==========
</TABLE>
Strategic Equity and Convertible Debt Investments
The Company enters into certain equity investments for the promotion of
business and strategic objectives, and typically does not attempt to reduce or
eliminate the inherent market risks on these investments. These strategic
investments are classified separately as strategic equity and convertible debt
investments, totaling $28.0 million at March 31, 2001. The strategic equity
and convertible debt instruments are valued at cost because the Company does
not have the ability to exercise significant influence over the investees'
operations and financial policies.
Fair Value of Financial Instruments
The carrying value of cash equivalents, short-term investments, accounts
receivable, accounts payable, accrued liabilities and long-term debt
approximates fair value.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist principally of available-for-sale
securities and trade receivables. The Company believes that the credit risk in
its trade receivables is mitigated by the Company's credit evaluation process,
relatively short collection terms and dispersion of its customer base. The
Company generally does not require collateral and has not experienced
significant losses on trade receivables from any particular customer or
geographic region for any period presented.
The Company invests its excess cash in debt instruments of the U.S.
Treasury, governmental agencies and corporations with strong credit ratings.
The Company has established guidelines relative to diversification and
maturities that attempt to maintain safety and liquidity. These guidelines are
periodically reviewed and modified to take advantage of trends in yields and
interest rates. The Company has not experienced any significant losses on its
cash equivalents or short-term investments.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles 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 assessing the collectibility of accounts receivable, the use
and recoverability of inventory, estimates to complete engineering contracts,
costs of future product returns under warranty and provisions for
contingencies expected to be incurred. Actual results could differ from those
estimates.
Inventories
Inventories are stated at the lower of cost (determined on a first-in,
first-out basis) or market. The Company's inventory valuation process is done
on a part-by-part basis. Lower of cost or market adjustments, specifically
identified on a part-by-part basis, reduce the carrying value of the related
inventory and take into
F-8
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
consideration reductions in sales prices, excess inventory levels and obsolete
inventory. Once established, these adjustments are considered permanent and
are not reversed until the related inventory is sold or disposed.
Additionally, in fiscal 2001, the Company has established general reserves to
cover exposure related to the economic slowdown.
Property and Equipment
Property and equipment are stated at cost and depreciated over the
estimated useful lives of the assets (3 to 7 years) using the straight line
method. Leasehold improvements are stated at cost and amortized over the
useful life of the asset. Property and equipment under capital leases are
recorded at the net present value of the minimum lease payments and are
amortized over the useful life of the assets.
Impairment of Long-Lived Assets
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of", the Company records impairment losses on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amounts. SFAS No. 121 also addresses the accounting
for long-lived assets that are expected to be disposed of. Through March 31,
2001, the Company has not experienced any such impairments.
Advertising Cost
Advertising costs are expensed as incurred.
Revenues
Revenues related to product sales are generally recognized when title and
risk of loss passes, which is generally when the products are shipped to the
customer. Recognition of revenues and the related cost of revenues on
shipments to distributors that are subject to terms of sale allowing for price
protection and right of return on products unsold by the distributor are
deferred until the distributor's ability to return the products or its rights
to price protection lapse or have been limited. Revenues on engineering design
contracts are recognized using the percentage-of-completion method based on
actual cost incurred to date compared to total estimated costs of the project.
Deferred revenue represents both the margin on shipments of products to
distributors that will be recognized when the distributors ship the products
to their customers or the right of return has lapsed and billings in excess
and estimated earnings on uncompleted engineering design contracts.
Warranty Reserves
Estimated expenses for warranty obligations are accrued as revenue is
recognized. Reserve estimates are adjusted periodically to reflect actual
experience.
Research and Development
Research and development costs are expensed as incurred. Substantially all
research and development expenses are related to new product development,
designing significant improvements to existing products and new process
development.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee and director stock
F-9
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
options because the alternative fair value accounting provided for under SFAS
No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), requires the
use of option valuation models that were not developed for use in valuing
employee and director stock options. Under SFAS 123, compensation cost is
determined using the fair value of stock-based compensation determined as of
the grant date and is recognized over the periods in which the related
services are rendered. The statement also permits companies to elect to
continue using the current implicit value accounting method specified in APB
25 to account for stock-based compensation and disclose in the footnotes to
the financial statements the pro forma effect of using the fair value method
for its stock based compensation.
Segments of a Business Enterprise
FASB Statement No. 131 ("Statement No. 131"), "Disclosures about Segments
of an Enterprise and Related Information", establishes standards for the way
that public business enterprises report information about operating segments
in annual consolidated financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports. Statement No. 131 also establishes standards for related
disclosures about products and services, geographic areas and major customers.
The Company operates in one segment.
Recent Accounting Pronouncements
In September 2000, the Emerging Issues Task Force issued EITF 00-23 "Issues
Related to the Accounting for Stock Compensation under APB 25 and FASB
Interpretation No. 44", ("EITF 00-23"). EITF 00-23 addresses, among other
things, the treatment of the tax benefits realized from the exercise of
certain stock options assumed in an acquisition. The Company has made certain
adjustments to the value of goodwill recorded in its purchase acquisitions in
accordance with this guidance.
In March 2000, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 44 ("Interpretation"), "Accounting for Certain
Transactions Involving Stock Compensation--An Interpretation of Accounting
Principles Board Opinion No. 25", clarifying the guidance for certain stock
compensation issues, including the treatment of unvested stock and stock
options issued in purchase business combinations. The Interpretation requires
that unvested stock and stock options granted by the acquiring Company in
exchange for unvested stock and stock options held by employees of the target
company be accounted for at fair value and such amount be recorded as deferred
compensation by the acquiring company. Accordingly, the Company recorded
approximately $2.4 million, $43.4 million, $391.8 million and $1.2 million in
deferred compensation in conjunction with the acquisitions of YuniNetworks,
SiLUTIA, MMC and RTC, respectively (Note 2). Additionally, the Interpretation
requires companies to value vested options at fair value and include such
value in the determination of the total value of consideration issued in a
transaction.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements", which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. The Company
adopted SAB 101 in the quarter ending March 31, 2001. The adoption of SAB 101
did not have an impact on the Company's results of operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which establishes accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
Management does not believe this will have a material effect on the Company's
operations. Implementation of this standard has recently been delayed by the
FASB for a 12-month period. The Company will now adopt SFAS 133 as required
for its first quarterly filing of fiscal year 2002.
F-10
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Reclassification
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Earnings (Loss) Per Share
Shares used in basic earnings (loss) per share are computed using the
weighted average number of common shares outstanding during each period.
Shares used in diluted earnings (loss) per share include the dilutive effect
of common shares potentially issuable upon the exercise of stock options. The
reconciliation of shares used to calculate basic and diluted earnings (loss)
per share consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March
31,
-----------------------
1999 2000 2001
------- ------- -------
<S> <C> <C> <C>
Shares used in basic earnings (loss) per share
computations-weighted average common shares
outstanding........................................... 196,112 215,640 267,363
Net effect of dilutive common share equivalents based
on treasury stock method.............................. 23,328 22,664 --
------- ------- -------
Shares used in diluted earnings (loss) per share
computations.......................................... 219,440 238,304 267,363
======= ======= =======
</TABLE>
Because the Company incurred a loss in the year ended March 31, 2001, the
effect of dilutive securities totaling 22,260 equivalent shares have been
excluded from the loss per share computation as their impact would be
antidilutive.
2. Acquisitions
Fiscal 2001 Acquisitions
The Company completed a number of acquisitions in fiscal 2001 using the
purchase method of accounting. The accompanying consolidated financial
statements include the results of operations of each company acquired from the
date of acquisition. The acquired companies are as follows:
MMC Networks, Inc.--On October 25, 2000, the Company acquired MMC, a
fabless semiconductor company that provides network processors, traffic
management and switch fabric ICs. Under the terms of the merger agreement, in
exchange for all of the outstanding stock of MMC, the Company issued
41,392,404 shares of its common stock and assumed options to purchase
7,981,595 shares of its common stock.
YuniNetworks, Inc.--On June 8, 2000, the Company completed the acquisition
of YuniNetworks, a developer of scalable switch fabric ICs. Under the terms of
the merger agreement, in exchange for all YuniNetworks' shares of common and
preferred stock, the Company issued 4,048,646 shares of its common stock and
assumed options to purchase 225,776 shares of its common stock. Pursuant to a
separate agreement, AMCC purchased 10% of the YuniNetworks' shares held by the
majority stockholder of YuniNetworks for $8.9 million in cash.
Other--The Company also completed the acquisitions of pBaud, Chameleon,
SiLUTIA and RTC for a total purchase price of $73.2 million.
In connection with these transactions, the Company conducted independent
valuations of the intangible assets acquired in order to allocate the purchase
price in accordance with Accounting Principles Board Opinion No. 16. The
Company has allocated the excess purchase price over the fair value of net
tangible assets acquired to the following identifiable intangible assets:
developed core and existing technology, assembled workforce,
F-11
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
acquired in-process research and development ("IPR&D"), and
trademarks/tradenames. The total purchase price was allocated as follows (in
thousands):
<TABLE>
<CAPTION>
MMC YuniNetworks Other Total
---------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Net tangible assets
(liabilities).................. $ 126,866 $ 2,118 $(1,457) $ 127,527
In-process research &
development.................... 176,700 21,800 3,600 202,100
Goodwill and other intangibles.. 4,128,686 192,365 42,935 4,363,986
Deferred tax liabilities........ (301,129) -- (16,420) (317,549)
Deferred compensation........... 391,821 2,488 44,536 438,845
Purchased inventory fair value
adjustment..................... 26,907 -- -- 26,907
---------- -------- ------- ----------
Total consideration............. $4,549,851 $218,771 $73,194 $4,841,816
========== ======== ======= ==========
</TABLE>
Total consideration issued in the purchase acquisitions is as follows (in
thousands):
<TABLE>
<CAPTION>
MMC YuniNetworks Other Total
---------- ------------ ------- ----------
<S> <C> <C> <C> <C>
Value of securities issued.......... $3,919,108 $197,545 $62,356 $4,179,009
Assumption of options............... 578,093 11,467 7,288 596,848
---------- -------- ------- ----------
4,497,201 209,012 69,644 4,775,857
Cash paid and merger fees........... 52,650 9,759 3,550 65,959
---------- -------- ------- ----------
$4,549,851 $218,771 $73,194 $4,841,816
========== ======== ======= ==========
</TABLE>
In accordance with EITF 00-23 which was issued in September 2000, the
amount of goodwill has been adjusted for certain tax benefits related to the
exercise of stock options assumed through our acquisitions. The total
adjustment to goodwill related to these totaled $21.4 million for the year
ended March 31, 2001.
The purchased inventory fair value adjustment represents the difference
between the carrying value of work in process and finished goods inventory and
the estimated selling price of the related inventory at the date of
acquisition. This adjustment was fully charged to cost of sales in the year
ended March 31, 2001 as the related inventory was sold.
The related purchased IPR&D for each of the above acquisitions represents
the present value of the estimated after-tax cash flows expected to be
generated by the purchased technology, which, at the acquisition dates, had
not yet reached technological feasibility. The cash flow projections for
revenues were based on estimates of relevant market sizes and growth factors,
expected industry trends, the anticipated nature and timing of new product
introductions by the Company and its competitors, individual product sales
cycles and the estimated life of each product's underlying technology.
Estimated operating expenses and income taxes were deducted from estimated
revenue projections to arrive at estimated after-tax cash flows. Projected
operating expenses include cost of goods sold, marketing and selling expenses,
general and administrative expenses, and research and development, including
estimated costs to maintain the products once they have been introduced into
the market and are generating revenue. The remaining identified intangibles,
including goodwill, will be amortized on a straight-line basis over lives
ranging from one to six years.
F-12
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The following unaudited pro forma summary presents the consolidated results
of operations of the Company, excluding acquired IPR&D charges above, as if
the acquisitions had occurred at the beginning of each period presented and
does not purport to be indicative of what would have occurred had the
acquisition been made as of that date or of the results which may occur in the
future (in thousands).
<TABLE>
<CAPTION>
Year Ended March
31,
--------------------
2000 2001
--------- ---------
<S> <C> <C>
Net sales.............................................. $ 227,315 $ 508,092
--------- ---------
Net loss............................................... $(843,530) $(849,414)
========= =========
Basic loss per share................................... $ (3.91) $ (3.18)
========= =========
</TABLE>
Fiscal 1999 Acquisitions
In March 1999, the Company acquired all of the outstanding common stock and
common stock equivalents of Cimaron Communications Corporation ("Cimaron") in
exchange for approximately 24 million shares of the Company's common stock.
Cimaron also designs and develops high-bandwidth silicon solutions for the
world's communications equipment manufacturers. The acquisition was accounted
for using the pooling-of-interests method of accounting. Prior to the
combination, Cimaron had a fiscal year end of December 31. In recording the
business combination, Cimaron's results of operations for the fiscal year
ended December 31, 1998 were combined with AMCC's for the fiscal year ended
March 31, 1999. Cimaron's net sales and net loss for the three- month period
ended March 31, 1999 were $110,000 and $(1,341,000), respectively. Cimaron's
results of operations and cash flows for the three-month period ended March
31, 1999 have been added directly to the retained earnings and cash flows of
AMCC and excluded from reported fiscal 1999 results of operations.
In April 1998, the Company acquired Ten Mountains Design which designs and
develops high bandwidth analog devices for communications equipment suppliers
and optical module manufacturers. The financial statements include the results
of operations for Ten Mountains Design from the date of acquisition.
Net goodwill and other acquisition-related intangibles at fiscal years
ending March 31 were as follows (in thousands):
<TABLE>
<CAPTION>
Life in Years 2000 2001
------------- ----- ----------
<S> <C> <C> <C>
Goodwill..................................... 1-6 $ -- $3,708,191
Developed core technology.................... 5 -- 268,836
Other intangibles............................ 3-5 -- 31,413
----- ----------
$ -- $4,008,440
===== ==========
</TABLE>
Other intangibles include items such as trademarks and workforce-in-place.
The total balances presented above are net of accumulated amortization of
$334.1 million at March 31, 2001.
During 2001, the Company recorded acquisition-related purchase
consideration of $438.8 million as deferred stock-based compensation. This
amount represents the portion of the purchase consideration related to shares
issued contingent on continued employment of certain employee stockholders and
the intrinsic value of stock options assumed that are earned as future
services are provided by the employees. The compensation is being recognized
over the related vesting period. The related expenses are identified with
research and development, cost of sales and selling, general and
administration depending on the function of the individual employee providing
services. However, for presentation purposes, the amounts have been footnoted
on the face of the income statement and excluded from the functional line
items.
F-13
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Certain Financial Statement Information
<TABLE>
<CAPTION>
March 31,
------------------
2000 2001
-------- --------
<S> <C> <C>
Inventories (in thousands):
Finished goods.......................................... $ 2,666 $ 16,363
Work in process......................................... 6,966 14,560
Raw materials........................................... 1,293 1,817
-------- --------
$ 10,925 $ 32,740
======== ========
Property and equipment (in thousands):
Machinery and equipment................................. $ 46,302 $ 70,358
Leasehold improvements.................................. 8,352 18,292
Computers, office furniture and equipment............... 20,743 73,181
Land.................................................... 4,881 22,122
-------- --------
80,278 183,953
Less accumulated depreciation and amortization.......... (42,436) (71,000)
-------- --------
$ 37,842 $112,953
======== ========
Other accrued liabilities (in thousands):
Income taxes payable.................................... $ 839 $ 12,564
Other................................................... 5,609 18,019
-------- --------
$ 6,448 $ 30,583
======== ========
</TABLE>
Cost of sales includes certain amortization of purchased intangibles and
other acquisition-related charges as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended
March 31,
-------------------
1999 2000 2001
----- ----- -------
<S> <C> <C> <C>
Amortization of developed core technology.............. $ -- $ -- $25,280
Amortization of purchased inventory fair value
adjustment (see Note 2)............................... -- -- 26,907
----- ----- -------
$ -- $ -- $52,187
===== ===== =======
</TABLE>
The cost and accumulated amortization of machinery and equipment under
capital leases at March 31, 2001 were approximately $3.1 million and $1.7
million, respectively ($10.5 million and $8.7 million, at March 31, 2000,
respectively). Amortization of assets held under capital leases is included
with depreciation expense.
During the years ended March 31, 1999, 2000 and 2001, the Company earned
interest income of $3,992,000, $13,506,000 and $55,852,000, respectively, and
incurred interest expense of $542,000, $634,000 and $403,000, respectively.
4. Long-Term Debt
The Company has various term notes, with monthly payments totaling $64,000
including interest, payable over 60 months, at interest rates between 6.5% and
7.35%. At March 31, 2001, approximately $1.9 million was outstanding on the
notes.
F-14
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Principal maturities of the notes payable at March 31, 2001 are as follows
(in thousands):
<TABLE>
<CAPTION>
Year ending March 31,
<S> <C>
2002................................................................ $ 668
2003................................................................ 714
2004................................................................ 502
------
$1,884
======
</TABLE>
5. Stockholders' Equity
Authorized shares
On August 29, 2000, the Company's stockholders approved an increase in the
number of authorized shares of common stock to 630 million.
Stock Options and Other Stock Awards
The Company has in effect several stock-based plans under which non-
qualified and incentive stock options have been granted to employees and non-
employee board members. At March 31, 2001, approximately 54.5 million stock
options were outstanding and 25.7 million shares were available for future
grant under these plans.
The Board of Directors determines eligibility, vesting schedules and
exercise prices for options granted under the plans. Options and other stock
awards under the plans expire not more than ten years from the date of grant
and are either exercisable immediately after the date of grant and subject to
certain repurchase rights by the Company until such ownership rights have
vested, or exercisable upon vesting. Vesting generally occurs over four to
five years. At March 31, 2000 and 2001, 1.1 million and 2.0 million shares of
common stock were subject to repurchase, respectively. Options are granted at
prices at least equal to fair value of the Company's common stock on the date
of grant.
Pro forma information regarding net income and net income per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
statement. The fair value of the options was estimated at the date of grant
using the Black Scholes method.
The fair value of options granted in 1999, 2000 and 2001 reported below has
been estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions.
<TABLE>
<CAPTION>
Fiscal Year
Ended March
31,
----------------
1999 2000 2001
---- ---- ----
<S> <C> <C> <C>
Expected life (in years)................................... 4.5 4.0 4.0
Risk-free interest rate.................................... 6.0% 6.0% 6.0%
Volatility................................................. .89 .82 1.33
Dividend yield............................................. 0% 0% 0%
</TABLE>
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options that have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the
opinion of management, the
F-15
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
existing models do not necessarily provide a reliable single measure of the
fair value of its options. The weighted average estimated fair value of
employee stock options granted during 1999, 2000 and 2001, including options
assumed through acquired companies, was $2.64, $20.14 and $52.86 per share,
respectively. For purposes of pro forma disclosures, the estimated fair value
of the options is amortized to expense over the options' vesting periods. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
Fiscal Year Ended March
31,
-------------------------
1999 2000 2001
(In thousands, except per share amounts) ------- ------- ---------
<S> <C> <C> <C>
Pro forma net income (loss)...................... $13,202 $19,385 $(681,862)
Pro forma basic earnings (loss) per share........ $ 0.07 $ 0.09 $ (2.55)
Pro forma diluted earnings (loss) per share...... $ 0.06 $ 0.08 $ (2.55)
</TABLE>
A summary of the Company's stock option activity, including those issued
outside of the plans, and related information are as follows (shares in
thousands):
<TABLE>
<CAPTION>
March 31,
-----------------------------------------------------
1999 2000 2001
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 21,460 $0.86 21,388 $ 2.02 40,566 $22.16
Granted and assumed.... 12,162 2.31 27,596 31.76 24,580 47.90
Exercised.............. (10,520) 0.15 (6,366) 1.63 (9,727) 6.68
Forfeited.............. (1,714) 1.04 (2,052) 4.83 (953) 39.83
------- ----- ------ ------ ------ ------
Outstanding at end of
year................... 21,388 $2.02 40,566 $22.16 54,466 $36.22
======= ===== ====== ====== ====== ======
Vested at end of year... 5,428 $0.91 7,798 $ 4.20 13,757 $23.02
======= ===== ====== ====== ====== ======
</TABLE>
The following is a further breakdown of the options outstanding at March
31, 2001 (shares in thousands):
<TABLE>
<CAPTION>
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Range of Exercise Prices Outstanding Life Price Exercisable Price
------------------------ ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 0.03 - $ 3.44 6,873 6.59 $ 1.70 4,115 $ 1.42
$ 3.45 - $ 6.48 8,522 7.98 $ 5.85 2,625 $ 5.78
$ 6.49 - $ 22.97 7,926 8.38 $14.75 2,149 $13.56
$22.98 - $ 35.98 6,845 8.89 $31.91 1,704 $33.17
$35.99 - $ 53.88 7,973 9.53 $50.97 562 $48.25
$53.89 - $ 69.25 5,531 9.47 $65.16 296 $59.40
$69.26 - $ 70.44 7,338 8.95 $70.43 1,704 $70.43
$70.45 - $104.25 3,458 9.40 $84.61 602 $75.24
----------------- ------ ---- ------ ------ ------
$ 0.03 - $104.25 54,466 8.58 $36.22 13,757 $23.02
================= ====== ==== ====== ====== ======
</TABLE>
Employee Stock Purchase Plans
The Company has in effect various employee stock purchase plans under which
6.6 million shares of common stock have been reserved for issuances. Under the
terms of the plans, purchases are made semiannually and the purchase price of
the common stock is equal to 85% of the fair market value of the common stock
on the first or last day of the offering period, whichever is lower. At March
31, 2001, approximately 4.2 million shares had been issued under the plans and
approximately 2.4 million shares were available for future issuance.
F-16
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Common Shares Reserved for Future Issuance
At March 31, 2001, the Company has the following shares of common stock
reserved for issuance upon the exercise of equity instruments (in thousands):
<TABLE>
<S> <C>
Stock Options:
Issued and outstanding.............................................. 54,466
Authorized for future grants........................................ 25,699
Stock purchase plans.................................................. 2,443
------
82,608
======
</TABLE>
6. Income Taxes
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March
31,
------------------------
1999 2000 2001
------- ------- -------
<S> <C> <C> <C>
Current:
Federal.......................................... $ 9,860 $21,966 $ --
Foreign.......................................... -- -- 202
State............................................ 1,064 2,976 308
------- ------- -------
Total current.................................. 10,924 24,942 510
Deferred:
Federal.......................................... (362) 65 (1,392)
State............................................ (329) 360 (199)
------- ------- -------
Total deferred................................. (691) 425 (1,591)
------- ------- -------
$10,233 $25,367 $(1,081)
======= ======= =======
</TABLE>
The provision for income taxes reconciles to the amount computed by
applying the federal statutory rate (35%) to income before income taxes as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------------
1999 2000 2001
------------ ------------ --------------
$ % $ % $ %
------- --- ------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C>
Tax at federal statutory rate....... $ 9,578 35% $25,897 35% $(153,053) 35%
In-process research and
development........................ -- -- -- -- 70,735 (16)
Goodwill............................ -- -- -- -- 106,152 (24)
Foreign sales corporation........... (387) (1) (873) (1) -- --
Tax exempt interest................. -- -- (312) -- (8,231) 2
State taxes, net of federal
benefit............................ 478 1 2,294 3 3,042 (1)
Federal tax credits................. (1,216) (5) (2,122) (3) (17,000) 4
State tax credits................... -- -- (1,097) (2) (5,760) 1
Merger costs and deferred
compensation....................... 763 3 213 -- 2,841 (1)
Other............................... 1,017 4 1,367 2 193 --
------- --- ------- --- --------- ---
$10,233 37% $25,367 34% $ (1,081) --
======= === ======= === ========= ===
</TABLE>
F-17
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the Company's deferred tax assets and liabilities
for federal and state income taxes are as shown below (in thousands):
<TABLE>
<CAPTION>
March 31,
----------------------
1999 2000 2001
------ ------ --------
<S> <C> <C> <C>
Deferred tax assets:
Inventory write-downs and other reserves......... $1,850 $2,433 $ 14,470
Net operating loss carryforwards................. 1,719 -- 127,531
Capitalization of inventory and research and
development costs............................... 313 405 2,208
Research and development credit carryforwards.... 298 1,364 29,126
State income taxes............................... 47 140 --
Other credit carryforwards....................... 447 -- 1,235
------ ------ --------
Total deferred tax assets........................ 4,674 4,342 174,570
Deferred tax liabilities:
Depreciation and amortization.................... 101 194 547
Purchase accounting.............................. -- -- 266,466
------ ------ --------
Total deferred tax liabilities................... 101 194 267,013
------ ------ --------
Net deferred tax assets (liabilities)............ $4,573 $4,148 $(92,443)
====== ====== ========
</TABLE>
At March 31, 2001, the Company has federal and state research and
development tax credit carryforwards of approximately $22.0 million and $10.0
million, respectively, which will begin to expire in 2019 unless previously
utilized. The Company also has federal and state net operating loss
carryforwards of approximately $352.0 million and $95.0 million, respectively,
which will begin to expire in 2012 and 2004, respectively.
7. Commitments
The Company leases certain of its facilities under long-term operating
leases, which expire at various dates through 2010. The lease agreements
frequently include renewal provisions, which require the Company to pay taxes,
insurance and maintenance costs and contain escalation clauses based upon
increases in the Consumer Price Index or defined rent increases. The Company
also leases certain engineering design software tools under non-cancellable
operating leases expiring through 2003.
Annual future minimum lease payments, including machinery and equipment
under capital leases as of March 31, 2001 are as follows (in thousands):
<TABLE>
<CAPTION>
Operating Capital
Fiscal Year Ending March 31, Leases Leases
---------------------------- --------- -------
<S> <C> <C>
2002....................................................... $22,285 $ 691
2003....................................................... 15,144 449
2004....................................................... 9,159 679
2005....................................................... 7,880 --
2006....................................................... 3,943 --
Thereafter................................................. 6,979 --
------- ------
Total minimum lease payments............................. $65,390 1,819
=======
Less amount representing interest............................ 173
------
Present value of remaining minimum capital lease payments
(including current portion of $596)......................... $1,646
======
</TABLE>
F-18
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Rent expense (including short-term leases and net of sublease income) for
the years ended March 31, 1999, 2000, and 2001 was $1.4 million, $1.6 million
and $3.7 million, respectively.
8. Employee Retirement Plan
Effective January 1, 1986, the Company established a 401(k) defined
contribution retirement plan (the "Retirement Plan") covering all full-time
employees with greater than three months of service. The Retirement Plan
provides for voluntary employee contributions from 1% to 20% of annual
compensation, subject to a maximum limit allowed by Internal Revenue Service
guidelines. The Company may contribute such amounts as determined by the Board
of Directors. Employer contributions vest to participants at a rate of 20% per
year of service, provided that after five years of service all past and
subsequent employer contributions are 100% vested. The Company has an
additional plan that it sponsors. This plan was assumed through the
acquisition of MMC. The total contributions under both plans charged to
operations totaled $573,000, $677,000 and $1.2 million for the years ended
March 31, 1999, 2000 and 2001, respectively.
9. Significant Customer and Geographic Information
During the years ended March 31, 1999, 2000, and 2001, 19%, 26% and 10%,
respectively, of net revenues were from Nortel. In 1999, 2000 and 2001,
Insight Electronics, a domestic distributor, accounted for 13%, 17% and 19% of
net revenues, respectively. Additionally, in 1999, Raytheon Systems Co.
accounted for 16% of net revenues. No other customer accounted for more than
10% of revenues in any fiscal year.
Net revenues by geographic region were as follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Year Ended March
31,
--------------------------
1999 2000 2001
-------- -------- --------
<S> <C> <C> <C>
Net revenues:
North America................................... $ 79,771 $132,119 $337,644
Europe and Israel............................... 18,136 28,980 56,807
Asia............................................ 7,093 11,253 41,092
-------- -------- --------
$105,000 $172,352 $435,543
======== ======== ========
</TABLE>
10. Contingencies
Starting in April 2001, a series of similar federal complaints were filed
against the Company and its chief executive officer, chief financial officer
and certain other executive officers and directors of the Company. These
complaints, allege essentially identical violations of the Securities Exchange
Act of 1934 (the "1934 Act"). The Complaints have been brought as purported
shareholder class actions under Sections 10(b) and 20(a) of the 1934 Act and
Rule 10b-5 promulgated thereunder and seek monetary damages on behalf of the
shareholder class. In general, the Complaints allege that the Company and the
individual defendants misrepresented the Company's financial prospects for the
fourth quarter of fiscal 2001 to inflate the value of the Company's stock. We
anticipate that the Complaints pending in federal court will be consolidated
into a single proceeding. In addition, in May 2001, certain individuals filed
derivative actions against the directors and certain executive officers in the
California State Courts. These state court derivative complaints allege
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 time period from November 2000 through February 2001. The
Company has not yet responded to any of these lawsuits, and no discovery has
been conducted. The Company believes that the allegations in each of these
actions are without merit and intends to defend the actions vigorously. The
actions have been tendered to the Company's insurance carriers.
F-19
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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.
11. Related Party Transactions
In August 2000, the Company made a strategic equity investment of $10
million in Raza Foundries which is included in the total strategic equity
investments of $28 million as of March 31, 2001. The Chief Executive Officer
and Chairman of the Board of Directors of Raza Foundries is a member of the
Company's Board of Directors.
F-20
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.3
<SEQUENCE>2
<FILENAME>dex103.txt
<DESCRIPTION>1992 STOCK OPTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.3
APPLIED MICRO CIRCUITS CORPORATION
1992 STOCK OPTION PLAN
Amended April 18, 2001
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.
1.
<PAGE>
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "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.
(l) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(m) "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.
(n) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
(p) "Optioned Stock" means the Common Stock subject to an Option.
(q) "Optionee" means an Employee or Consultant who receives an
Option.
(r) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1992 Stock Option Plan.
(t) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
2.
<PAGE>
(u) "Subsidiary" means 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 14 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.
(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 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
3.
<PAGE>
(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 wit Section 2(k) 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 for use under the Plan; 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 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 written 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 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.
4.
<PAGE>
(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
(A) 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 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.
5.
<PAGE>
(B) 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 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 (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 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, 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
6.
<PAGE>
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 9(b) above, in the event of termination of an Optionee's or 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 (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 (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. 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 and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
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 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
7.
<PAGE>
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 writing 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 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.
8.
<PAGE>
(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 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.
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 in writing and signed by the Optionee and the
Company.
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
9.
<PAGE>
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 written agreements in such
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.
10.
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
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.
1. Nature of the Option. This Option is intended by the Company and the
--------------------
Optionee to be Nonqualified 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.
---
2. 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.
3. 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:
(i) Right to Exercise.
-----------------
(a) 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(g) of the Plan
and shall recommence upon Optionee's return to the employ of the Company.
(b) This Option may not be exercised for a fraction of a share
or for an amount less than 100 shares.
(c) 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).
(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.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
executing the Stock Option Notice of Exercise in the form attached hereto as
Exhibit A (the "Exercise Notice ") which shall state Optionee's election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder'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. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company or
<PAGE>
the Secretary's designee. The Exercise Notice shall be accompanied by payment of
the exercise price. This Option shall be deemed to be exercised upon receipt by
the Company of such Exercise Notice accompanied by the exercise price.
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.
4. Optionee's Representations. 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.
5. 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) surrender of other shares of Common Stock of the Company at a
value equal to the exercise price of the Shares as to which the Option is being
exercised; or
(iv) delivery of a property 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.
6. 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.
7. 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 thirty (30) 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. 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.
2
<PAGE>
8. 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 twelve (12) 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.
9. 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 twelve (12)
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.
10. 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
and may be exercised during the lifetime of Optionee only by him. The terms of
this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised on or before the
--------------
Expiration Date set forth in the Notice of Exercise and may be exercised during
such term only in accordance with the Plan and the terms of this Option.
12. 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 grant
date 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
3
<PAGE>
(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.
APPLIED MICRO CIRCUITS CORPORATION
a Delaware corporation
By:
_____________________________________________
David M. Rickey
Title: President and CEO
THIS SPACE INTENTIONALLY
LEFT BLANK - SIGNATURE OF
OPTIONEE ON FOLLOWING PAGE
4
<PAGE>
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.
Optionee acknowledges receipt of a copy of the Plan and certain related
information and represents that Optionee is familiar with the terms and
provisions of these documents, and hereby accepts this Option subject to all of
those terms and provisions. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated: _________________
_______________________________
[Name]
Residence Address:
5
<PAGE>
STOCK OPTION 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:
<TABLE>
<CAPTION>
Type of Number of
Option Option Option Shares Being Option Price Tax Due* Total Amount
Number Date ISO/NQ Purchased (Per Share) (if applicable) Due AMCC
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*AMCC is required to withhold taxes when employees exercise an NQ. 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 ________________________
6
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.5
<SEQUENCE>3
<FILENAME>dex105.txt
<DESCRIPTION>1997 DIRECTORS' STOCK OPTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.5
APPLIED MICRO CIRCUITS CORPORATION
1997 DIRECTORS' STOCK OPTION PLAN
Amended April 18, 2001
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.
----------------
1.
<PAGE>
(m) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(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.
2.
<PAGE>
(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 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;
3.
<PAGE>
(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.
(e) Suspension or Termination of Option. If the President or his or
-----------------------------------
her designee reasonably believes that an Optionee has committed an act of
misconduct, the President may suspend the Optionee's right to exercise any
option pending a determination by the Board of Directors (excluding the Outside
Director accused of such misconduct). If the Board of Directors (excluding the
Outside Director accused of such misconduct) determines an Optionee has
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, or if an
Optionee makes an unauthorized disclosure of any Company trade secret or
confidential information, engages in any conduct constituting unfair
competition, induces any Company customer to breach a contract with the Company
or induces any principal for whom the Company acts as agent to terminate such
agency relationship, neither the Optionee nor his or her estate shall be
entitled to exercise any option whatsoever. In making such determination, the
Board of Directors (excluding the Outside Director accused of such 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.
4.
<PAGE>
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 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.
5.
<PAGE>
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 of the Company, 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.
Notwithstanding the foregoing, if an Outside Director ceases to serve as a
Director due to a voluntary resignation, then he or she may exercise any Option
granted to him or her after April 1, 2000 at any time during the term of such
Option and to the extent that he or she was entitled to exercise such Option at
the date of such termination.
(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 not exceeding twelve (12) months 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:
-----------------
(i) During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6)
6.
<PAGE>
months 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 lesser 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.
(ii) Three (3) months after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within six (6) months
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 had accrued at the date of termination.
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 qualified
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 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
7.
<PAGE>
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
8.
<PAGE>
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.
9.
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
-----------------------------------
1. Grant of Option. The Board of Directors of the Company hereby grants
---------------
to the Optionee named in the Notice of Stock Option Grant attached as Part I of
this Agreement (the "Optionee"), an option (the "Option") to purchase a number
-------- ------
of Shares, as set forth in the Notice of Stock Option Grant, at the exercise
price per share set forth in the Notice of Stock Option 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 Nonstatutory Stock 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 Stock Option Grant
and the applicable provisions of the Plan and this Nonstatutory Stock 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
Nonstatutory Stock Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
--------- ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares. This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and 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 the 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 the Optionee:
(a) cash;
<PAGE>
(b) check;
(c) 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
(d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
4. 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 the
Optionee or a transferee permitted by Section 10 of the Plan. The terms of the
Plan and this Nonstatutory Stock Option Agreement shall be binding upon the
executors, administrators, heirs, successors and assigns of the Optionee.
5. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Nonstatutory Stock Option
Agreement.
6. Tax Consequences. Set forth below is a brief summary of certain
----------------
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercising the Option. Since this Option does not qualify as an
---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise. The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.
(b) Disposition of Shares. If the Optionee holds the Option Shares
---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes. The long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 28% if the Shares are held
more than one year but less than 18 months after exercise and at 20% if the
Shares are held more than 18 months after exercise.
-2-
<PAGE>
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement. Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.
APPLIED MICRO CIRCUITS CORPORATION
_____________________________ By:__________________________________
Optionee
Title:_______________________________
-3-
<PAGE>
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Nonstatutory Stock 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 Nonstatutory Stock Option Agreement,
the undersigned hereby agrees to be irrevocably bound by the terms and
conditions of the Plan and this Nonstatutory Stock 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 Nonstatutory Stock Option Agreement.
________________________________________
Spouse of Optionee
<PAGE>
EXHIBIT A
---------
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 Nonstatutory Stock 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: __________________________
Address: __________________________
__________________________
__________________________
Signed: __________________________
Date: __________________________
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.24
<SEQUENCE>4
<FILENAME>dex1024.txt
<DESCRIPTION>1998 EMPLOYEE STOCK PURCHASE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.24
APPLIED MICRO CIRCUITS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
Amended on April 18, 2001
The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Applied Micro Circuits Corporation (the "Plan").
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company. It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended. The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.
2. Definitions.
-----------
(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) "Compensation" shall mean all base straight time gross earnings
------------
including payments for overtime, shift premium, sales department
commissions/bonus plan, but excluding all other bonuses and reimbursements.
(f) "Continuous Status as an Employee" shall mean the absence of any
--------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.
(g) "Contributions" shall mean all amounts credited to the account of
-------------
a participant pursuant to the Plan.
(h) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
(i) "Employee" shall mean any person, including an Officer, who is
--------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.
1.
<PAGE>
(j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended.
(k) "Purchase Date" shall mean the last day of each Purchase Period of
-------------
the Plan.
(l) "Offering Date" shall mean the first business day of each Offering
-------------
Period of the Plan.
(m) "Offering Period" shall mean, for Offering Periods beginning
---------------
before February 1, 2001, a period of twelve (12) months, and for Offering
Periods beginning on or after February 1, 2001, a period of twenty-four (24)
months, commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a) and as otherwise determined by the
Board of Directors with respect to any particular Offering Period.
(n) "Officer" shall mean a person who is an officer of the Company
-------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(o) "Plan" shall mean this Employee Stock Purchase Plan.
----
(p) "Purchase Period" shall mean a period of six (6) months within an
---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).
(q) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock as defined in Section 7(b) on the
Offering Date or on the Purchase Date, whichever is lower, provided, however,
that, in the event (i) the Company's stockholders approve an increase in the
number of shares available for issuance under the Plan, and (ii) all or a
portion of such additional shares are to be issued with respect to one or more
Offering Periods that are underway at the time of such stockholder approval
("Additional Shares"), and (iii) the Fair Market Value of a share of Common
Stock on the date of such approval (the "Approval Date Fair Market Value") is
higher than the Fair Market Value on the Offering Date for any such Offering
Period, then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market
Value of a share of Common Stock on the Purchase Date, whichever is lower.
(r) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or
2.
<PAGE>
any other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any subsidiary of
the Company, or (ii) if such option would permit his or her rights to purchase
stock under all employee stock purchase plans (described in Section 423 of the
Code) of the Company and its Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock
(determined at the time such option is granted) for any calendar year in which
such option is outstanding at any time.
4. Offering Periods and Purchase Periods.
--------------------------------------
(a) Offering Periods. The Plan shall be implemented by a series of
----------------
Offering Periods with new Offering Periods commencing on or about February 1 and
August 1 of each year (or at such other time or times as may be determined by
the Board of Directors). Except as otherwise determined by the Board of
Directors, Offering Periods beginning before February 1, 2001 shall be of twelve
(12) months duration, and Offering Periods beginning on or after February 1,
2001 shall be of twenty-four (24) months duration. The first Offering Period
shall commence on the date that the Company's stockholders first approve the
Plan and will continue until July 31, 1999. The Plan shall continue until
terminated in accordance with Section 19 hereof. The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected. Eligible employees may
not participate in more than one Offering Period under the Plan at a time.
(b) Purchase Periods. Except as otherwise determined by the Board of
----------------
Directors, each Offering Period beginning before February 1, 2001 shall consist
of two (2) consecutive purchase periods of six (6) months duration, and each
Offering Period beginning on or after February 1, 2001 shall consist of four (4)
consecutive purchase periods of six (6) months duration. The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period. A
Purchase Period commencing on February 1 shall end on the next July 31. A
Purchase Period commencing on August 1 shall end on the next January 31. The
first Purchase Period shall commence on the date that the Plan is first approved
by the Company's stockholders and shall end on January 31, 1999. The Board of
Directors of the Company shall have the power to change the duration and/or
frequency of Purchase Periods with respect to future purchases without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Purchase Period to be affected.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering. The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 20%) to be paid
as Contributions pursuant to the Plan.
3.
<PAGE>
(b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.
6. Method of Payment of Contributions.
----------------------------------
(a) At the time a participant files his or her subscription agreement,
the participant shall elect to have payroll deductions made on each payday
during the Offering Period in an amount not less than one percent (1%) and not
more than twenty percent (20%) of such participant's Compensation on each such
payday. All payroll deductions made by a participant shall be credited to his
or her account under the Plan. A participant may not make any additional
payments into such account.
(b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, during the Offering Period may increase or
decrease the rate of his or her Contributions during such Offering Period by
completing and filing with the Company a new subscription agreement; provided,
however, that no participant may effect more than one increase or decrease
during a Purchase Period. The change in rate shall be effective as of the
beginning of the next pay period following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
pay period.
(c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period as is necessary to comply with the limitations provided in such Sections.
Payroll deductions shall re-commence at the rate provided in such participant's
subscription Agreement at such time as will comply with such Sections, unless
terminated by the participant as provided in Section 10.
7. Grant of Option.
---------------
(a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however, that the maximum number of
shares an Employee may purchase during each Purchase Period shall be 4,000
shares, and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 7(b).
(b) The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the
4.
<PAGE>
immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the fair market value per share shall be the closing price
on such exchange on such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as reported in
The Wall Street Journal; provided, however, that for Offering Periods beginning
on or after April 18, 2001, the fair market value of the Company's Common Stock
on the first day of each such Offering Period shall be determined by the Board
in its discretion based on the closing price of the Common Stock on the last
market trading day prior to such date, as reported by the National Association
of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the fair market value per share shall be the closing price
on such exchange on the last market trading day prior to such date, as reported
in The Wall Street Journal (the "Fair Market Value").
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account. The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date. No
fractional shares shall be purchased. Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10. Any other monies left over in a participant's account after a
Purchase Date, including amounts that would have purchased shares in excess of
the maximum allowed under Section 7(a), shall be returned to the Participant.
During his or her lifetime, a participant's option to purchase shares hereunder
is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Purchase Date of each
--------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option or the deposit of such number of shares with the broker
selected by the Company for administration of Plan stock purchases, as
determined by the Company.
10. Voluntary Withdrawal; Termination of Employment.
-----------------------------------------------
(a) A participant may withdraw all but not less than all of the
Contributions credited to his or her account under the Plan at any time at least
five (5) business days prior to each Purchase Date by giving written notice to
the Company in the form provided for by the Company. All of the participant's
Contributions credited to his or her account will be paid to him or her promptly
after receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of shares will be made during the Offering Period.
5.
<PAGE>
(b) Upon termination of the participant's Continuous Status as an
Employee (as defined in Section 2(f) hereof) prior to the Purchase Date of an
Offering Period for any reason, including retirement or death, the Contributions
credited to his or her account will be returned to him or her or, in the case of
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.
(c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.
(d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.
11. Automatic Withdrawal. If the Fair Market Value of the shares on a
--------------------
Purchase Date during an Offering Period (other than the last Purchase Date of
such Offering Period) is less than the Fair Market Value of the shares on the
Offering Date for such Offering Period, then every participant shall
automatically (i) be withdrawn from such Offering Period at the close of such
Purchase Date and after the acquisition of shares for such Purchase Period, and
(ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.
12. Interest. No interest shall accrue on the Contributions of a
--------
participant in the Plan.
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 11,200,000 shares
subject to adjustment upon changes in capitalization of the Company as provided
in Section 19. If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable. In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
6.
<PAGE>
14. Administration. The Board, or a committee named by the Board, shall
--------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan. The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.
16. Transferability. Neither Contributions credited to a participant's
---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.
17. Use of Funds. The Company may use all Contributions received or held
------------
by the Company under the Plan for any corporate purpose, and the Company shall
not be obligated to segregate such Contributions.
18. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization; Corporate Transactions.
------------------------------------------------------------------
7.
<PAGE>
(a) Adjustment. Subject to any required action by the shareholders of the
----------
Company, the number of shares of Common Stock covered by each option under the
Plan which has not yet been exercised and the number of shares of Common Stock
which have been authorized for issuance under the Plan but have not yet been
placed under option (collectively, the "Reserves"), as well as the price per
share of Common Stock covered by each option under the Plan which has not yet
been exercised, 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 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 issue
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 Offering Period will terminate immediately prior
to the consummation of such proposed action, unless otherwise provided by the
Board. In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
each option under the Plan 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 Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
Purchase Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in Section 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.
The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by
8.
<PAGE>
each outstanding option, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, and in the event of the
Company being consolidated with or merged into any other corporation.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19, no such
termination may affect options previously granted, provided that an Offering
Period may be terminated by the Board on a Purchase Date if the Board determines
that the termination of the Plan is in the best interests of the Company and the
shareholders or if continuation of an Offering Period would cause the Company to
incur adverse accounting charges resulting from a change in the generally
accepted accounting rules applicable to such plans. Except as provided in
Section 19, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participant. In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain shareholder approval in such a
manner and to such a degree as so required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, 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.
9.
<PAGE>
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 applicable provisions of law.
23. Term of Plan; Effective Date. The Plan shall become effective upon
----------------------------
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company. It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.
24. Additional Restrictions of Rule 16b-3. The terms and conditions of
-------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
10.
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_______ Original Application
_______ Change in Payroll Deduction Rate
_______ Change in Beneficiary(ies) Offering Date ___________
1. I, ________________________, hereby elect to participate in the APPLIED
MICRO CIRCUITS CORPORATION 1998 Employee Stock Purchase Plan (the "Plan") for
the Offering Period beginning on ______________, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.
2. I elect to have Contributions in the amount of _____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period. (Please note that no fractional
percentages are permitted).
3. I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement. I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account. I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan. I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.
4. I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan. I also
understand that I can increase or decrease the rate of my Contributions to not
less than 1% and to not more than 20% of my Compensation on one occasion only
for an increase in the rate and on one occasion only for a decrease in the rate
during any Purchase Period by completing and filing a new Subscription
Agreement. Such increase or decrease will take effect as of the beginning of
the calendar month following the date of filing of the new Subscription
Agreement, if filed at least five (5) business days prior to the beginning of
such month. Further, I may change the rate of deductions for future Offering
Periods by filing a new Subscription Agreement, and any such change will be
effective as of the beginning of the next Offering Period. In addition, I
acknowledge that, unless I discontinue my participation in the Plan as provided
in Section 10 of the Plan, my election will continue to be effective for each
successive Offering Period.
1.
<PAGE>
5. I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "APPLIED MICRO CIRCUITS CORPORATION 1998
Employee Stock Purchase Plan." I understand that my participation in the Plan
is in all respects subject to the terms of the Plan.
6. I understand that shares purchased for me under the Plan will be issued and
deposited with Salomon Smith Barney, where an account will be automatically
established for me as a plan participant.
7. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:
NAME: (Please print) _____________________________________
(First) (Middle) (Last)
_____________________ _____________________________________
(Relationship) (Address)
_____________________________________
8. I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.
I hereby agree to notify the Company in writing within 30 days after
--------------------------------------------------------------------
the date of any such disposition, and I will make adequate provision for
- ------------------------------------------------------------------------
federal, state or other tax withholding obligations, if any, which arise upon
- -----------------------------------------------------------------------------
the disposition of the Common Stock. The Company may, but will not be obligated
- -----------------------------------
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.
9. If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date. The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.
2.
<PAGE>
I understand that this tax summary is only a summary and is subject to
----------------------------------------------------------------------
change. I further understand that I should consult a tax advisor concerning the
- ------
tax implications of the purchase and sale of stock under the Plan.
10. I hereby agree to be bound by the terms of the Plan. The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.
SIGNATURE: __________________________________
SOCIAL SECURITY #: __________________________
DATE: _______________________________________
SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):
__________________________________________
(Signature)
__________________________________________
(Print name)
3.
<PAGE>
APPLIED MICRO CIRCUITS CORPORATION
1998 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
I, __________________________, hereby elect to withdraw my participation in
the APPLIED MICRO CIRCUITS CORPORATION 1998 Employee Stock Purchase Plan (the
"Plan") for the Offering Period _________. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.
I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.
The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.
Dated:___________________
__________________________________
Signature of Employee
__________________________________
Social Security Number
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.26
<SEQUENCE>5
<FILENAME>dex1026.txt
<DESCRIPTION>1998 STOCK INCENTIVE PLAN (CIMARON)
<TEXT>
<PAGE>
EXHIBIT 10.26
CIMARON COMMUNICATIONS CORPORATION
1998 STOCK INCENTIVE PLAN
(as amended by Applied Micro Circuits Corporation on June 18, 1999 and August 3,
1999)
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.
1.
<PAGE>
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "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.
(1) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an incentive stock option under Section 422 of the Code.
(m) "Option" means a stock option granted pursuant to the Plan.
------
(n) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(o) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(p) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "Plan" means this 1992 Stock Option Plan.
----
(r) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(s) "Subsidiary" means 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 14 of
-------------------------
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 8,130,920/1/ shares of Common Stock. The shares may be
authorized, but unissued, or reacquired Common Stock.
______________________
/1/ As adjusted for 100% stock dividends effected in September 1999, March 2000
and October 2000.
2.
<PAGE>
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(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options
may from time to time be granted hereunder;
3.
<PAGE>
(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 for use under the Plan;
(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 the 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 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.
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 of Shares acquired upon
exercise of an Option have been owned by the Optionee for more than
4.
<PAGE>
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 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 (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 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, 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 or 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
5.
<PAGE>
termination (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 (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. Options 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 and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
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").
6.
<PAGE>
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing 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
7.
<PAGE>
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 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 in writing and signed 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.
8.
<PAGE>
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 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 written agreements in such
----------
form as the Board shall approve from time to time.
9.
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.33
<SEQUENCE>6
<FILENAME>dex1033.txt
<DESCRIPTION>2000 EQUITY INCENTIVE PLAN
<TEXT>
<PAGE>
EXHIBIT 10.33
Applied Micro Circuits Corporation
2000 Equity Incentive Plan
Adopted March 9, 2000
Amended April 18, 2001
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.
1.
<PAGE>
(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 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) "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.
(o) "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
2.
<PAGE>
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.
(p) "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.
(q) "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 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.
(r) "Option" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(s) "Option Agreement" means a written 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.
(t) "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.
(u) "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.
(v) "Plan" means this Applied Micro Circuits Corporation 2000 Equity
Incentive Plan.
(w) "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.
(x) "Securities Act" means the Securities Act of 1933, as amended.
(y) "Stock Award" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(z) "Stock Award Agreement" means a written 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.
(aa) "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.
3.
<PAGE>
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 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
4.
<PAGE>
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.
(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
5.
<PAGE>
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 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.
(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
6.
<PAGE>
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 a Nonstatutory Stock Option. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock Option does not provide for transferability, then the
Nonstatutory Stock Option shall not be transferable except by will or by the
laws of descent and distribution and shall be exercisable during the lifetime of
the Optionholder only by the Optionholder. Notwithstanding the foregoing, the
Optionholder may, by delivering written 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 a period of thirty (30) days 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.
(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
7.
<PAGE>
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.
8.
<PAGE>
(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.
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.
9.
<PAGE>
(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 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.
10.
<PAGE>
(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 written assurances satisfactory to the Company as to 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 written 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
11.
<PAGE>
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) Change in Control--Dissolution or Liquidation. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) Change in Control--Asset Sale, Merger, Consolidation or Reverse
Merger. 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 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, any surviving corporation or acquiring
corporation shall assume any Stock Awards outstanding under the Plan or shall
substitute similar stock awards (including an award to acquire the same
consideration paid to the shareholders in the transaction described in this
subsection 11(c) for those outstanding under the Plan). In the event any
surviving corporation or acquiring corporation refuses to assume such Stock
Awards or to substitute similar stock awards for those outstanding under the
Plan, then the Stock Awards shall terminate if not exercised (if applicable) at
or prior to such event. With respect to any other Stock Awards outstanding under
the Plan, such Stock Awards shall terminate if not exercised (if applicable)
prior to such event.
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.
12.
<PAGE>
(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 in writing.
(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 in writing.
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 written consent of the Participant.
14. Effective Date of Plan.
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.
13.
<PAGE>
Applied Micro Circuits Corporation
2000 Equity Incentive Plan
Stock Option Agreement
(Nonstatutory Stock Options)
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 either that 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,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"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
1
<PAGE>
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.
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) thirty (30) days after the termination of your Continuous Service
for any reason other than your Disability or death, provided that if during any
part of such thirty (30) day period 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 of thirty (30) days after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) twelve (12) months after your death if you die either 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 delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
2
<PAGE>
(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, and is exercisable during your life only
by you. Notwithstanding the foregoing, by delivering written 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. Option not a Service Contract. 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
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
3
<PAGE>
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
given in writing and 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.
4
<PAGE>
Table Of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
1. Purposes........................................................ 1
2. Definitions..................................................... 1
3. Administration.................................................. 4
4. Shares Subject to the Plan...................................... 5
5. Eligibility..................................................... 5
6. Option Provisions............................................... 6
7. Provisions of Stock Awards other than Options................... 9
8. Covenants of the Company........................................ 10
9. Use of Proceeds from Stock...................................... 10
10. Miscellaneous................................................... 10
11. Adjustments upon Changes in Stock............................... 12
12. Amendment of the Plan and Stock Awards.......................... 12
13. Termination or Suspension of the Plan........................... 13
14. Effective Date of Plan.......................................... 13
15. Choice of Law................................................... 13
</TABLE>
i
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-10.37
<SEQUENCE>7
<FILENAME>dex1037.txt
<DESCRIPTION>MMC NETWORKS 1997 STOCK OPTION PLAN
<TEXT>
<PAGE>
EXHIBIT 10.37
MMC NETWORKS, INC.
1997 STOCK PLAN
1. Purposes of the Plan. The purposes of this Stock Plan are:
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees as shall
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means a committee of Directors appointed by the Board
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
(g) "Company" means MMC Networks, Inc., a Delaware corporation.
(h) "Consultant" means any person, including an advisor, engaged by
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
1.
<PAGE>
(k) "Employee" means any person, including Officers and Directors,
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, on the 181st day of such leave any Incentive Stock
Option held by the Optionee shall cease to be treated as an Incentive Stock
Option and shall be treated for tax purposes as a Nonstatutory Stock Option.
Neither service as a Director nor payment of a director's fee by the Company
shall be sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(m) "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 Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, 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 exchange or system 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 regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
2.
<PAGE>
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means an agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Option Exchange Program" means a program whereby outstanding
Options are surrendered in exchange for Options with a lower exercise price.
(u) "Optioned Stock" means the Common Stock subject to an Option or
Stock Purchase Right.
(v) "Optionee" means the holder of an outstanding Option or Stock
Purchase Right granted under the Plan.
(w) "Parent" means a "parent corporation," whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(x) "Plan" means this 1997 Stock Plan.
(y) "Restricted Stock" means shares of Common Stock acquired
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(z) "Restricted Stock Purchase Agreement" means a written agreement
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(aa) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(bb) "Section 16(b)" means Section 16(b) of the Exchange Act.
(cc) "Service Provider" means an Employee, Director or Consultant.
(dd) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 13 of the Plan.
(ee) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ff) "Subsidiary" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3.
<PAGE>
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 (a) 3,000,000/1/ as adjusted for 100% stock dividend effected
in October 2000 Shares, including the Shares which have been reserved but
unissued under the Company's 1993 Stock Plan (as amended) (the "1993 Plan") as
of the date of stockholder approval of this Plan, (b) any Shares returned to the
1993 Plan as a result of termination of options under the 1993 Plan, plus (iii)
an annual increase to be added on the date of each annual meeting of the
stockholders, beginning with the 1999 annual meeting of the stockholders, equal
to the lesser of (i) 2,000,000/1/ as adjusted for 100% stock dividend effected
in October 2000 Shares, (ii) five percent (5%) of the outstanding Shares on such
date or (iii) a lesser amount determined by the Board. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. The Plan may be
administered by different Committees with respect to different groups of Service
Providers.
(ii) Section 162(m). To the extent that the Administrator
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan, and in the case of a Committee, subject to 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;
/1/ As adjusted for 100% stock dividend effected in October 2000.
4.
<PAGE>
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions include, but are not limited to, the
exercise price, the time or times when Options or Stock Purchase Rights may be
exercised (which may be based on performance criteria), any vesting acceleration
or waiver of forfeiture restrictions, and any restriction or limitation
regarding any Option or Stock Purchase Right or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(x) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. 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. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
5.
<PAGE>
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year
of the Company, Options to purchase more than 600,000/1/ as adjusted for 100%
stock dividend effected in October 2000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 600,000/1/ as
adjusted for 100% stock dividend effected in October 2000 Shares which shall not
count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
/1/ As adjusted for 100% stock dividend effected in October 2000.
6.
<PAGE>
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
effective upon its adoption by the Board. It shall continue in effect for a term
of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option 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 determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(1) granted to an Employee who, at the time the Incentive
Stock 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 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 Employee other than an Employee
described in paragraph (A) immediately above, 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 determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the method
of payment. In
7.
<PAGE>
the case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) 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 (B) 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;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives: (i) written
or electronic notice of exercise (in accordance with the Option Agreement) from
the person entitled to exercise the Option, and (ii) full payment for the Shares
with respect to which the Option is exercised. Full payment may consist of any
consideration and method of payment authorized by the Administrator and
permitted by the Option Agreement and the Plan. Shares issued upon exercise of
an Option shall be issued in the name of the Optionee or, if requested by the
Optionee, in the name of the Optionee and his or her spouse. Until the Shares
are issued (as evidenced by the appropriate entry on the books of the Company or
of a duly authorized transfer agent of the Company), 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. The Company shall
issue (or cause to be issued) such Shares promptly after the Option is
exercised.
8.
<PAGE>
No adjustment will be made for a dividend or other right for which the record
date is prior to the date the Shares are issued, except as provided in Section
13 of the Plan.
Exercising an Option in any manner shall decrease the number of Shares
thereafter 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 Relationship as a Service Provider. If an Optionee
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall remain exercisable for twelve (12) months following the Optionee's
termination. If, on the date of termination, the Optionee is not vested as to
his or her entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
the Option may be exercised within such period of time as is specified in the
Option Agreement (but in no event later than the expiration of the term of such
Option as set forth in the Notice of Grant), by the Optionee's estate or by a
person who acquires the right to exercise the Option by bequest or inheritance,
but only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
9.
<PAGE>
(e) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock Purchase Agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
determined otherwise by the Administrator, an Option or Stock Purchase Right 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 and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
10.
<PAGE>
(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 and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, 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 or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully 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 in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right
11.
<PAGE>
to purchase or receive, for each Share of Optioned Stock subject to the Option
or Stock Purchase Right immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger or sale of assets is not solely common stock of the successor
corporation or its Parent, the Administrator may, with the consent of the
successor corporation, provide for the consideration to be received upon the
exercise of the Option or Stock Purchase Right, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right, to be solely common stock of the
successor corporation or its Parent equal in fair market value to the per share
consideration received by holders of Common Stock in the merger or sale of
assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall be
provided to each Optionee 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 terminate the Plan.
(b) Stockholder Approval. The Company shall obtain stockholder
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right 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.
12.
<PAGE>
17. Inability to Obtain Authority. 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. 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.
19. Stockholder Approval. The Plan shall be subject to approval by the
stockholders of the Company within twelve (12) months after the date the Plan is
adopted. Such stockholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
13.
<PAGE>
MMC NETWORKS, INC.
1997 STOCK PLAN
STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________
Date of Grant _________________________
Vesting Commencement Date _________________________
Exercise Price per Share $________________________
Total Number of Shares Granted _________________________
Total Exercise Price $________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________
-1-
<PAGE>
Vesting Schedule:
----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates.]
Termination Period:
------------------
This Option may be exercised for [three months] after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for one year after Optionee ceases to be a Service Provider.
In no event shall this Option be exercised later than the Term/Expiration Date
as provided above.
II. AGREEMENT
---------
1. Grant of Option. The Plan Administrator of the Company hereby grants to
---------------
the Optionee named in the Notice of Grant attached as Part I of this Agreement
(the "Optionee") an option (the "Option") to purchase the 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 Plan, which is incorporated herein by reference. Subject to Section
15(c) of 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.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
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.
(b) Method of Exercise. This Option is exercisable by delivery of an
------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise
-2-
<PAGE>
the Option, the number of Shares in respect of which the Option is being
exercised (the "Exercised Shares"), and such other representations and
agreements as may be required by the Company pursuant to the provisions of the
Plan. The Exercise Notice shall be completed by the Optionee and delivered to
the Chief Financial Officer of the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option unless
such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the 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 the Optionee:
(a) cash;
(b) check; or
(c) consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan.
4. 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 and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of the Plan and this Option Agreement shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
5. 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.
6. Tax Consequences. Some of the federal tax consequences relating to this
----------------
Option, as of the date of this Option, are set forth below. THIS SUMMARY IS
NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.
THE OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR
DISPOSING OF THE SHARES.
(a) Exercising the Option.
---------------------
-3-
<PAGE>
(i) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
(ii) Incentive Stock Option. If this Option qualifies as an
----------------------
ISO, the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
(b) Disposition of Shares.
---------------------
(i) NSO. If the Optionee holds NSO Shares for at least one
---
year, any gain realized on disposition of the Shares will be treated as long-
term capital gain for federal income tax purposes.
(ii) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the Optionee
-------------------------------------------------
sells or otherwise disposes of any of the Shares acquired pursuant to an ISO on
or before the later of (i) two
-4-
<PAGE>
years after the grant date, or (ii) one year after the exercise date, the
Optionee shall immediately notify the Company in writing of such disposition.
The Optionee agrees that he or she may be subject to income tax withholding by
the Company on the compensation income recognized from such early disposition of
ISO Shares by payment in cash or out of the current earnings paid to the
Optionee.
7. Entire Agreement; Governing Law. The Plan is incorporated herein by
-------------------------------
reference. The Plan and this Option Agreement constitute the entire agreement
of the parties with respect to the subject matter hereof and supersede in their
entirety all prior undertakings and agreements of the Company and Optionee with
respect to the subject matter hereof, and may not be modified adversely to the
Optionee's interest except by means of a writing signed by the Company and
Optionee. This agreement is governed by the internal substantive laws, but not
the choice of law rules, of California.
8. NO GUARANTEE OF CONTINUED SERVICE. OPTIONEE ACKNOWLEDGES AND AGREES
---------------------------------
THAT THE VESTING OF SHARES PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED
ONLY BY CONTINUING AS A SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT
THROUGH THE ACT OF BEING HIRED, BEING GRANTED AN OPTION OR PURCHASING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT, THE
TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH HEREIN DO
NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT AS A
SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND SHALL
NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: MMC NETWORKS, INC.
-5-
<PAGE>
_____________________________ ______________________________________
Signature By
_____________________________ ______________________________________
Print Name Title
_____________________________
Residence Address
_____________________________
-6-
<PAGE>
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
-7-
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21.1
<SEQUENCE>8
<FILENAME>dex211.txt
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
AMCC (Barbados) Limited, a Barbados Corporation
AMCC (UK) Limited
AMCC France s.a.r.l.
AMCC Italia S.r.l.
AMCC Deutschland GmbH
AMCC Japan Co., Ltd.
Applied Micro Circuits Corporation Canada
AMCC Sales Corporation
AMCC China, Inc.
AMCC Switching Corporation
MMC Networks, Inc.
MMC Israel, Ltd.
AMCC Interconnect Corporation
AMCC Raleigh Design Center
MMC Networks U.K. Limited
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23.1
<SEQUENCE>9
<FILENAME>dex231.txt
<DESCRIPTION>ACCOUNTANT'S CONSENT
<TEXT>
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-40905) pertaining to the 1997 Employee Stock Purchase Plan,
in the Registration Statement (Form S-8 No. 333-47185) pertaining to the 1982
Employee Incentive Stock Option Plan, the 1992 Employee Stock Option Plan and
the 1997 Directors' Stock Option Plan, in the Registration Statement (Form S-8
No. 333-76767) pertaining to the 1998 Employee Stock Purchase Plan, in the
Registration Statement (Form S-8 No. 333-74787) pertaining to the 1998 Cimaron
Communications Corporation Stock Incentive Plan, in the Registration
Statements (Form S-3 No. 333-35404 and Form S-3 No. 333-46586) pertaining to
the registration of shares of Applied Micro Circuits Corporation Common Stock,
in the Registration Statement (Form S-8 No. 333-41572) pertaining to the
YuniNetworks, Inc. 1999 Equity Incentive Plan, in the Registration Statement
(Form S-8 No. 333-46584) pertaining to the SiLUTIA, Inc. 1999 Stock Option
Plan, in the Registration Statement (Form S-8 No. 333- 48914) pertaining to
the MMC Networks, Inc. 1993 Stock Plan, the MMC Networks, Inc. 1997 Stock
Plan, the MMC Networks, Inc. 1997 Director Option Plan and the MMC Networks,
Inc. 1997 Employee Stock Purchase Plan, in the Registration Statement (Form S-
8 No. 333-53282) pertaining to the 2000 Equity Incentive Plan, and in the
Registration Statement (Form S-8 No. 333-57202) pertaining to the Raleigh
Technology Corp. Equity Compensation Plan of our report dated April 20, 2001,
with respect to the consolidated financial statements and schedule of Applied
Micro Circuits Corporation included in the Annual Report on Form 10-K for the
year ended March 31, 2001.
Ernst & Young LLP
San Diego, California
May 18, 2001
</TEXT>
</DOCUMENT>
</SEC-DOCUMENT>
-----END PRIVACY-ENHANCED MESSAGE-----