UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a)

of the Securities Exchange Act of 1934

(Amendment No.     )

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Applied Micro Circuits Corporation

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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INVITATION TO FISCAL 2006 ANNUAL MEETING OF STOCKHOLDERS

DATE: Friday, March 9, 2007

TIME: 11:00 a.m.

PLACE: AMCC Corporate Headquarters

215 Moffett Park Drive, Sunnyvale, California 94089

February 2, 2007

Dear Stockholders:

Please join me at the Annual Meeting of Stockholders of Applied Micro Circuits Corporation on March 9, 2007. At the annual meeting, we will ask you to approve a proposed exchange of certain outstanding stock options for a reduced number of restricted stock units to be granted under our 2000 Equity Incentive Plan, as well as the amendment and restatement of our 1992 Stock Option Plan.

We believe these proposals are important components of our strategy for rationalizing our equity incentive plan structure and updating our equity compensation practices We previously sent you a proxy statement covering these proposals for a special meeting of stockholders that was originally scheduled to be held on May 31, 2006. After being adjourned several times due to the review of our stock option grant practices and related accounting, the special meeting was cancelled, and we are now submitting these proposals for approval at the annual meeting.

In addition, we will ask you at the annual meeting to approve a series of amendments to our Certificate of Incorporation to effect a reverse stock split of our common stock at a reverse split ratio between 1-for-2 and 1-for-4, which we believe may be desirable for several reasons outlined in the accompanying proxy statement. If approved, the proposed reverse stock split would only be effected upon a determination by our Board of Directors, at any time before the first anniversary of the annual meeting, that the reverse stock split is in our stockholders’ best interests.

Finally, we will submit two routine matters for approval at the annual meeting: the election of six directors and the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending March 31, 2007.

In addition to the formal items of business, at the annual meeting I will review our major developments over the past year and share with you our plans for the future. You will have the opportunity to ask questions and express your views to our senior management. Members of the Board of Directors will also be present.

Whether or not you are able to attend the annual meeting in person, it is important that your shares be represented. You can vote your shares using the Internet or a toll-free telephone number, or by completing and returning the enclosed proxy card by mail. Instructions on each of these voting methods are outlined in the accompanying proxy statement. Please vote as soon as possible.

Sincerely yours,

KAMBIZ HOOSHMAND

President and Chief Executive Officer

APPLIED MICRO CIRCUITS CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MARCH 9, 2007

To the Stockholders of Applied Micro Circuits Corporation:

The annual meeting of stockholders of Applied Micro Circuits Corporation will be held at our corporate headquarters located at 215 Moffett Park Drive, Sunnyvale, California 94089 on Friday, March 9, 2007, at 11:00 a.m., local time, for the following purposes:

1.    To elect six directors.

2.    To approve a proposed exchange of certain outstanding stock options for a reduced number of restricted stock units to be granted under our 2000 Equity Incentive Plan.

3.    To approve the amendment and restatement of our 1992 Stock Option Plan, thereafter to be referred to as our 1992 Equity Incentive Plan.

4.    To approve amendments to our Certificate of Incorporation to effect a reverse stock split of our common stock pursuant to which any whole number of outstanding shares between two and four would be combined into one share of common stock and to authorize our Board of Directors to select and file one such amendment.

5.    To ratify the selection of Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2007.

6.    To conduct any other business properly brought before the meeting.

These items of business are more fully described in the proxy statement accompanying this notice.

The record date for the annual meeting is January 12, 2007. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

By Order of the Board of Directors,

Cynthia J. Moreland

Secretary

Sunnyvale, California

February 2, 2007

IMPORTANT

YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN THE ENCLOSED PROXY, OR VOTE OVER THE TELEPHONE OR THE INTERNET AS INSTRUCTED IN THESE MATERIALS, AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR YOUR CONVENIENCE. EVEN IF YOU HAVE VOTED BY PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN A PROXY ISSUED IN YOUR NAME FROM THAT RECORD HOLDER.

THANK YOU FOR ACTING PROMPTLY.

TABLE OF CONTENTS

	Page
Questions and Answers about these Proxy Materials and Voting	1
Proposal 1—Election of Directors	6
Corporate Governance	9
Stockholder Communications with the Board of Directors	10
Governance and Nominating Committee Evaluation of Board Nominees	11
Board Meetings and Attendance	12
Board Committees	13
Report of the Compensation Committee	15
Compensation Committee Interlocks and Insider Participation	18
Report of the Audit Committee	19
Proposal 2—Approval of Stock Option Exchange Program	20
Proposal 3—Approval of Amendment and Restatement of 1992 Stock Option Plan	26
Proposal 4—Approval of Amendments to the Certificate of Incorporation to Effect a Reverse Stock Split	35
Proposal 5—Ratification of Selection of Independent Registered Public Accounting Firm	41
Audit and Other Fees	41
Principal Holders of Common Stock	43
Security Ownership of Management and Directors	44
Section 16(a) Beneficial Ownership Reporting Compliance	45
Equity Compensation Plan Information	46
Compensation of Directors	48
Compensation of Executive Officers	49
Employment, Severance and Change of Control Agreements	53
Certain Transactions	56
Performance Graph—Comparison of Five-Year Cumulative Total Return	57
Certain Matters Relating to Proxy Materials	58
Available Information	58
Other Matters	59
Appendix A—1992 Equity Incentive Plan (Proposal 3)	A-1
Appendices B-1 to B-3—Forms of Certificate of Amendment to Effect Various Reverse Stock Splits (Proposal 4)	B-1

APPLIED MICRO CIRCUITS CORPORATION

PROXY STATEMENT

FOR ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD ON MARCH 9, 2007

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

Why am I receiving these materials?

Applied Micro Circuits Corporation (sometimes referred to as “AMCC”) sent you this proxy statement and the enclosed proxy card because our Board of Directors is soliciting your proxy to vote at our fiscal 2006 annual meeting of stockholders to be held on March 9, 2007. You are invited to attend the annual meeting, and we request that you vote on the proposals described in this proxy statement. You do not need to attend the meeting to vote your shares. You may simply complete, sign and return your proxy card or follow the instructions below to submit your proxy over the telephone or on the Internet.

We intend to mail this proxy statement and accompanying proxy card on or about February 2, 2007 to all stockholders of record entitled to vote at the annual meeting.

Why has the annual meeting been delayed?

On September 14, 2006, we announced that following an internal review of our stock option grant practices and related accounting, our Audit Committee had concluded that we used incorrect measurement dates for certain historic stock option grants and that we expected to restate our financial statements accordingly. We filed our restated financial statements, as well as our annual report on Form 10-K for the year ended March 31, 2006 and our quarterly reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006, with the Securities and Exchange Commission, or SEC, on January 10, 2007. We decided to delay our fiscal 2006 annual meeting until after the internal review of our stock option grant practices and related accounting had been completed and we had filed our restated financial statements and brought current our delayed SEC filings.

What am I voting on?

There are five matters scheduled for a vote:

• Proposal 1, the election of six directors;

• Proposal 2, the approval of a proposed exchange of certain outstanding stock options for a reduced number of restricted stock units to be granted under our 2000 Equity Incentive Plan;

• Proposal 3, the approval of the amendment and restatement of our 1992 Stock Option Plan, thereafter to be referred to as our 1992 Equity Incentive Plan;

• Proposal 4, the approval of amendments to our Certificate of Incorporation to effect a reverse stock split of our common stock pursuant to which any whole number of outstanding shares between two and four would be combined into one share of common stock and to authorize our Board of Directors to select and file one such amendment; and

• Proposal 5, the ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm for our fiscal year ending March 31, 2007.

Haven’t I already received a proxy statement covering matters similar to Proposals 2 and 3?

Yes. We previously sent you a proxy statement covering matters similar to Proposals 2 and 3 for a special meeting of stockholders that was originally scheduled to be held on May 31, 2006. After being adjourned several times due to the review of our stock option grant practices and related accounting, the special meeting was cancelled, and we are now submitting Proposals 2 and 3 for approval at the annual meeting.

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Why are you seeking approval of Proposals 2 and 3?

Proposals 2 and 3 are important components of our strategy for rationalizing our equity incentive plan structure and updating our equity compensation practices. We believe that the stock option exchange program if approved by you will permit us:

• to meaningfully reduce the option “overhang” represented by outstanding options that have high exercise prices, no longer incentivize their holders to remain as our employees, and may be viewed by investors as potentially dilutive; and

• to re-incentivize the employees who participate in the stock option exchange program by issuing them restricted stock units that generally will vest over a period of two years following the exchange if they remain with us.

Likewise, we believe that the amendment and restatement of the 1992 Equity Incentive Plan if approved by you will permit us to significantly update our equity incentive practices to use restricted stock units and other forms of equity awards that have the potential to be more effective incentives for our employees while allowing us to incur less dilution.

If Proposal 3 is approved, the 1992 Equity Incentive Plan will serve as a successor to the 2000 Equity Incentive Plan and we will thereafter no longer issue equity awards under the 2000 Equity Incentive Plan or any of our other equity incentive plans except for the 1992 Equity Incentive Plan (with the exception of any restricted stock units to be granted from the 2000 Equity Incentive Plan in exchange for the stock options surrendered pursuant to the exchange program).

Why are you considering a reverse stock split as described in Proposal 4?

We believe that a reverse stock split may be desirable for several reasons, including the following:

• a higher stock price resulting from the reverse stock split would return our stock price to a level that we believe is more consistent with other major widely-owned companies and may meet investing guidelines for certain institutional investors and investment funds that are prevented from investing in our common stock at its current price levels;

• since many investors pay commissions based on the number of shares traded, a higher stock price resulting from the reverse stock split would result in such investors paying lower commissions to trade a fixed dollar amount of our stock than they would if our stock price were lower;

• the combination of increased interest from institutional investors and investment funds and potentially lower transaction costs could ultimately improve the trading liquidity for our common stock; and

• a decrease in our outstanding shares would make it easier to reflect changes in our quarterly and annual results of operations, whether up or down, in our earnings per share calculations, resulting in increased visibility for our earnings per share and changes in our earnings per share.

If the reverse stock split is implemented, how will I be affected as a stockholder?

After the proposed reverse stock split, each stockholder will continue to own the same percentage of AMCC stock as he or she did prior to the proposed reverse stock split. As a result of the proposed reverse stock split, the total number of shares of our common stock outstanding will be reduced, and all stockholders will own a reduced number of shares of our common stock. Proportionate voting rights and other rights and preferences of the holders of our common stock will not be affected by the proposed reverse stock split. For example, a holder of 2% of the voting power of our outstanding shares of common stock immediately prior to the reverse stock split would continue to hold 2% of the voting power of our outstanding shares of common stock immediately after the reverse stock split. The number of stockholders of record will not be affected by the proposed reverse stock split

(except to the extent that any stockholder holds only a fractional share interest and receives cash for such interest after the proposed reverse stock split). The number of authorized shares of common stock will not be reduced in

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the event of a reverse split ratio of 1-for-2 and will not be reduced proportionately in the event of a reverse split ratio of 1-for-3 or 1-for-4. The proposed reverse stock split will also reduce the number of shares of common stock available for issuance under our equity incentive plans and issuable upon exercise of outstanding stock options, restricted stock units and Employee Stock Purchase Plan rights in proportion to the reverse stock split ratio, and will effect a proportionate increase in the exercise price of such outstanding stock options and Employee Stock Purchase Plan rights. No fractional shares of common stock will be issued as a result of the proposed reverse stock split. Instead, stockholders who otherwise would be entitled to receive fractional shares will be entitled to receive cash in lieu of fractional shares based upon the closing sales price of our common stock on the effective date of the reverse stock split as reported on the Nasdaq Global Select Market.

Who can vote at the annual meeting?

Only stockholders of record at the close of business on January 12, 2007 will be entitled to vote at the annual meeting. On this record date, there were 281,906,732 shares of common stock outstanding and entitled to vote.

Am I a stockholder of record?

If at the close of business on January 12, 2007 your shares were registered directly in your name with our transfer agent, Computershare Investor Services, LLC, then you are a stockholder of record.

What if my AMCC shares are not registered directly in my name but are held in street name?

If at the close of business on January 12, 2007 your shares were held in an account at a brokerage firm, bank, dealer, or other similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares in your account.

If I am a stockholder of record of AMCC shares, how do I cast my vote?

If you are a stockholder of record, you may vote in person at the annual meeting, vote by proxy using the enclosed proxy card, vote by proxy over the telephone, or vote by proxy on the Internet. The procedures for voting are as follows:

• To vote in person, come to the annual meeting, and we will give you a ballot when you arrive.

• To vote by proxy using the enclosed proxy card, complete, sign and date your proxy card and return it promptly in the envelope provided.

• To vote by proxy over the telephone, dial the toll-free phone number listed on your proxy card under the heading “Vote by Phone” using a touch-tone phone and follow the recorded instructions. You will be asked to provide the company number and control number from your proxy card.

• To vote on the Internet, go to http://www.proxyvote.com to complete an electronic proxy card. You will be asked to provide the company number and control number from your proxy card.

If you vote by proxy, your vote must be received by 11:59 p.m. Eastern Time on March 8, 2007 to be counted.

We provide Internet proxy voting to allow you to vote your shares on-line, with procedures designed to ensure the authenticity and correctness of your proxy vote instructions. However, please be aware that you must bear any costs associated with your Internet access, such as usage charges from Internet access providers and telephone companies.

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No matter which procedure you choose, for Proposal 1, the election of directors, you may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your vote from any nominee you specify. For each of the remaining proposals and any other matter to be voted on at the meeting, you may vote “For” or “Against” or abstain from voting. Whether or not you plan to attend the meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the meeting and vote in person if you have already voted by proxy.

If I am a beneficial owner of AMCC shares, how do I vote?

If you are a beneficial owner of shares held in street name, you should have received a proxy card and voting instructions with these proxy materials from the organization that is the record owner of your shares rather than from us. Simply complete and mail that proxy card to ensure that your vote is counted. Alternatively, you may vote by telephone or over the Internet as instructed by that organization. To vote in person at the annual meeting, you must obtain a valid proxy from that organization. To request the requisite proxy form, follow the instructions from your broker included with these proxy materials or contact your broker.

How are votes counted?

Votes will be counted by the inspector of election appointed for the annual meeting, who will separately count “For,” “Withhold” and “Against” votes, abstentions and broker non-votes. Abstentions will be counted towards the presence of a quorum and the vote total for each proposal and will have the same effect as “Against” votes. A “broker non-vote” occurs when a stockholder of record, such as a broker, holding shares for a beneficial owner does not vote on a particular item because the stockholder of record does not have discretionary voting power with respect to that item and has not received voting instructions from the beneficial owner. Broker non-votes will be counted towards the presence of a quorum but will not be counted towards the vote total for any proposal.

How many votes are needed to approve each proposal?

• For Proposal 1, the election of directors, the six nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected.

• To be approved, Proposal 4, the amendments to our Certificate of Incorporation to effect a reverse stock split of our common stock, must receive a “For” vote from the majority of the shares outstanding on the record date. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have the same effect as an “Against” vote.

• To be approved, the remaining proposals must receive a “For” vote from the majority of the shares present at the annual meeting or represented by proxy. If you “Abstain” from voting, it will have the same effect as an “Against” vote. Broker non-votes will have no effect on the outcome of the vote.

Proposals 2 and 3 both relate to equity incentive practices. Is the approval of one of these proposals contingent or dependent on the approval of the other?

No. The approval of Proposal 2 is not contingent or dependent on the approval of Proposal 3, nor is the approval of Proposal 3 contingent or dependent on the approval of Proposal 2.

How many votes do I have?

On each matter to be voted upon, you have one vote for each share of our common stock that you owned as of the close of business on January 12, 2007.

What is the quorum requirement?

A quorum of stockholders is necessary to hold a valid meeting. A quorum will be present if at least a majority of the outstanding shares are present at the meeting or represented by proxy. At the close of business on the record date for the meeting, there were 281,906,732 shares outstanding and entitled to vote. Thus 140,953,367 shares must be present at the meeting or represented by proxy to have a quorum.

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Your shares will be counted towards the quorum only if you submit a valid proxy or vote at the meeting. If there is no quorum, a majority of the votes present at the meeting or represented by proxy may adjourn the meeting to another date.

What does it mean if I receive more than one proxy card?

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

What if I return a proxy card but do not make specific choices?

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted “For” the election of all six nominees for director and “For” each of the remaining proposals. If any other matter is properly presented at the meeting, your proxy (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

Can I change my vote after submitting my proxy?

Yes. You can revoke your proxy at any time before the final vote at the meeting. You may revoke your proxy in any one of three ways:

• You may submit another properly completed proxy card with a later date.

• You may send a written notice that you are revoking your proxy to our Secretary (Attn: Secretary, Applied Micro Circuits Corporation, 215 Moffett Park Drive, Sunnyvale, California 94089).

• You may attend the annual meeting and vote in person. Simply attending the annual meeting will not, by itself, revoke your proxy. Remember that if you are a beneficial owner of AMCC shares and wish to vote in person at the annual meeting, you must obtain a valid proxy from the organization that is the record owner of your shares (such as your broker).

How can I find out the results of the voting at the annual meeting?

Preliminary voting results will be announced at the annual meeting. Final voting results will be published in our annual report on Form 10-K for fiscal 2007, which ends March 31, 2007.

Who is paying for this proxy solicitation?

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

We have engaged The Proxy Advisory Group, LLC, to assist in the solicitation of proxies and provide related advice and informational support, for a services fee and the reimbursement of customary disbursements that are not expected to exceed $15,000 in the aggregate.

When are stockholder proposals due for the next annual meeting?

To be considered for inclusion in the proxy materials for our fiscal 2007 annual meeting, your proposal must be submitted in writing to our Secretary (Attn: Secretary, Applied Micro Circuits Corporation, 215 Moffett Park Drive, Sunnyvale, California 94089) by a reasonable time before we begin to print and mail such proxy materials. Stockholders wishing to submit proposals or director nominations that are not to be included in the proxy materials for our fiscal 2007 annual meeting must do so after the close of business on the 120^th day prior to such annual meeting, but not later than the close of business on the 90^th day prior to such annual meeting (or, if later, the 10^th day following the day on which public announcement of the date of the annual meeting is first made). You are also advised to review our Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations.

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PROPOSAL 1

ELECTION OF DIRECTORS

Our Board of Directors currently consists of nine directors. Six of our current directors, Cesar Cesaratto, Kambiz Y. Hooshmand, Niel Ransom, Fred Shlapak, Arthur B. Stabenow and Julie H. Sullivan, Ph.D., have been nominated for election at the annual meeting. Three of our current directors, Murray A. Goldman, Ph.D., Harvey P. White and David B. Wright, have not been nominated for election, and their terms will end at the annual meeting.

Nominees proposed for election as directors are listed below. Directors will hold office until the next annual meeting. Four of the six current directors who have been nominated for election, Messrs. Cesaratto, Hooshmand and Stabenow and Dr. Sullivan, were elected by our stockholders at our last annual meeting. The remaining directors who have been nominated for election, Messrs. Ransom and Shlapak, were appointed by the Board of Directors since our last annual meeting. Each individual nominated for election has agreed to serve if elected. We have no reason to believe that any nominee will be unable to serve.

The following information was provided by the nominees:

CESAR CESARATTO Chairman of the Board
Age:	59
Director Since:	2002
Principal Occupation:	Retired
Recent Business Experience:	Various executive positions with Nortel Networks Corporation, a communications equipment manufacturing company, spanning component and product development, operations, sales and marketing (from 1970 to May 2001). His most recent position was President Wireless Systems for Europe Middle East and Africa.
Other Directorships:	Gennum Corporation
Committee Memberships:	Chairman of the Governance and Nominating Committee, Member of the Compensation Committee
KAMBIZ Y. HOOSHMAND
Age:	45
Director Since:	2005
Principal Occupation:	President and Chief Executive Officer of AMCC since March 2005
Recent Business Experience:	Various executive positions with Cisco Systems, a communications equipment manufacturing company, spanning Multi-Service Switching, DSL, Carrier Core and Multi-Service, and Optical and Broadband Transport business units (April 1996 to March 2005). His most recent position at Cisco was Vice President and General Manager of Cisco’s Optical and Broadband Transport Technology group.

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NIEL RANSOM
Age:	57
Director Since:	2006
Principal Occupation:	President of Ransomshire Associates
Recent Business Experience:	Various management positions with Alcatel, a telecommunications company (1997 to 2005), including most recently as Chief Technology Officer
Other Directorships:	ECI Telecom, Teknovus and Overture Networks
Committee Memberships:	Member of the Compensation Committee
FRED SHLAPAK
Age:	63
Director Since:	2006
Principal Occupation:	Retired
Recent Business Experience:	Various executive positions with Motorola Corporation, a communications equipment manufacturing company, from 1971 to his retirement in 2004. His most recent position prior to retirement was President and Chief Executive Officer of the Semiconductor Products Sector at Motorola Corporation.
Other Directorships:	Tundra Semiconductor Corporation and Gennum Corporation
Committee Memberships:	Member of the Audit Committee (effective as of the annual meeting)
ARTHUR B. STABENOW
Age:	68
Director Since:	1988
Principal Occupation:	Retired
Recent Business Experience:	Chairman, President and Chief Executive Officer of Micro Linear Corporation, a communications equipment manufacturing company (April 1986 to January 1999)
Other Directorships:	Zoran, Inc.
Committee Memberships:	Chairman of the Compensation Committee, Member of the Audit Committee and the Governance and Nominating Committee

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JULIE H. SULLIVAN, PH. D.
Age:	49
Director Since:	2005
Principal Occupation:	Provost and Vice President for Academic Affairs at University of San Diego since July 2005
Recent Business Experience:	Professor at the University of California, San Diego, Rady School of Management (July 2003 to July 2005), Interim Dean and Senior Associate Dean at the University of North Carolina at Chapel Hill, Kenan-Flagler Business School (July 1998 to June 2003)
Committee Memberships:	Member of the Audit Committee; Chair of the Audit Committee and Member of the Governance and Nominating Committee (effective as of the annual meeting)

Required Vote and Governance and Nominating Committee Recommendation

Directors are elected by a plurality of the votes properly cast in person or by proxy. The six nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the six named nominees. If any nominee becomes unavailable for election as a result of an unexpected occurrence, your shares will be voted for the election of a substitute nominee selected by the Governance and Nominating Committee of the Board of Directors.

THE GOVERNANCE AND NOMINATING COMMITTEE OF THE BOARD OF DIRECTORS

RECOMMENDS A VOTE IN FAVOR OF EACH NAMED NOMINEE.

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CORPORATE GOVERNANCE

We have long upheld a set of basic beliefs to guide our actions, including the belief that business should be conducted with the highest standards of ethical behavior. This belief governs our interaction with our customers, suppliers, employees and investors.

We are committed to continuously improve our governance process to meet and exceed all regulatory requirements. The following corporate governance profile highlights some of the initiatives undertaken by our Board of Directors:

Independent Directors

• At least two-thirds of our Board members must meet our standards and Nasdaq’s independence standards. All of our directors are independent under these standards, except for Kambiz Y. Hooshmand who is employed by us.

• Our independent directors regularly meet in executive session to discuss matters of interest to them without management present.

Independent Chairman of the Board

• Our Chairman of the Board is an independent director. The Chairman coordinates, develops the agenda for, and moderates Board meetings, acts as a liaison between the independent directors and management on sensitive issues, coordinates the independent directors’ annual evaluations of the performance of the Chief Executive Officer and Chief Financial Officer and provides the evaluations to the Compensation Committee in connection with its annual evaluation of the officers’ performance, provides recommendations as to the membership of the various Board Committees, as well as selection of the Committee Chairs, and retains such counsel or consultants as the Chairman of the Board deems necessary to perform his or her responsibilities.

Governance and Nominating Committee

• Our Governance and Nominating Committee has adopted a charter that can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

• In accordance with its charter, our Governance and Nominating Committee establishes effective corporate governance processes, including oversight of the appointment of new directors, Board committee structure and membership, Board compensation and Chief Executive Officer succession planning.

• Every Governance and Nominating Committee member is an independent director under Nasdaq listing standards.

Compensation Committee

• The charter of our Compensation Committee can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

• In accordance with its charter, the Compensation Committee reviews and approves all executive compensation matters.

• Every Compensation Committee member is an independent director under Nasdaq listing standards.

Audit Committee

• Our Audit Committee has established policies that comply with the corporate reform laws for auditor independence.

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• The Audit Committee charter can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

• Our Board of Directors has determined that each of the current members of the Audit Committee qualifies as an “audit committee financial expert” in accordance with applicable SEC rules and that each is independent under Nasdaq listing standards.

• Our Audit Committee has adopted a policy and procedures for the pre-approval of all audit and non-audit services to be rendered by our independent registered public accounting firm, Ernst & Young LLP. Under the policy, the Audit Committee generally pre-approves specified services in defined categories up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of our independent registered public accounting firm or on a case-by-case basis for specific tasks before engagement. Our Audit Committee has delegated the pre-approval of services to its Chairman who is required to report each pre-approval to the full Audit Committee no later than its next meeting.

• Ernst & Young LLP, our independent registered public accounting firm, reports directly to the Audit Committee, which meets at least quarterly with such firm without management present.

Corporate Governance Guidelines

• Our Board has adopted a set of Guidelines that cover a broad range of corporate governance issues including director qualification and responsibility. The Guidelines can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

Code of Business Conduct and Ethics

• Our Board has also adopted a Code of Business Conduct and Ethics for us that all directors, executive officers and employees (including our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions) must review and abide by.

• Our Code of Business Conduct and Ethics includes policies on regulatory compliance, conflicts of interest and confidentiality.

• Our Code of Business Conduct and Ethics can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

• We will promptly disclose on our corporate website, http://www.amcc.com, (i) the nature of any amendment to our Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions and (ii) the nature of any waiver, including an implicit waiver, from a provision of our Code of Business Conduct and Ethics that is granted to one of these specified officers and the name of the person who is granted the waiver.

STOCKHOLDER COMMUNICATIONS WITH THE BOARD OF DIRECTORS

Stockholders wishing to communicate with our Board of Directors may send a written communication addressed to the Secretary at our principal executive offices. Communications also may be sent by e-mail to the following address: board@amcc.com. The Secretary will promptly forward the communication to the Board. This policy is contained in the Guidelines that can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance.

In addition, we have a formal policy regarding attendance by members of our Board of Directors at our annual meeting of stockholders. Board members are invited to, and are expected to attend, the annual meeting. This policy is contained in the Guidelines that can be found in the Investor Relations section of our corporate website, http://www.amcc.com, under Corporate Governance. All of the directors who were members of the Board at the time, other than Mr. Wright, attended the fiscal 2005 annual meeting of stockholders.

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GOVERNANCE AND NOMINATING COMMITTEE EVALUATION OF BOARD NOMINEES

Our Bylaws contain provisions which address the process by which a stockholder may nominate an individual to stand for election to the Board of Directors at our annual meeting of stockholders. The Governance and Nominating Committee will consider director candidates recommended by our stockholders. Stockholders who wish to recommend individuals for consideration by the Governance and Nominating Committee to become nominees for election to the Board at our annual meeting of stockholders may do so by delivering at least 120 days prior to the anniversary date of the mailing of our proxy statement for our last annual meeting of stockholders a written recommendation to the Governance and Nominating Committee c/o the Secretary at our principal executive offices. Each submission must set forth:

• the name and address of each AMCC stockholder on whose behalf the submission is made;

• the number of AMCC shares that are owned beneficially by such stockholder;

• the full name of the proposed candidate;

• a description of the proposed candidate’s business experience for at least the previous five years;

• complete biographical information for the proposed candidate; and

• a description of the proposed candidate’s qualifications as a director.

Each submission must be accompanied by the written consent of the proposed candidate to be named as a nominee and to serve as a director if elected.

To date, we have not received any recommendations from stockholders requesting that the Governance and Nominating Committee consider a candidate for inclusion among the Governance and Nominating Committee’s slate of nominees in our proxy statement.

The Governance and Nominating Committee believes that candidates for director should have certain minimum qualifications, including the highest personal and professional integrity and values, an inquiring and independent mind, practical wisdom and mature judgment. In evaluating director nominees, the Governance and Nominating Committee considers the following factors:

• recognized achievement and reputation;

• an ability to contribute to some aspect of our activities; and

• the willingness to make the commitment of time and effort required of an AMCC director.

The Governance and Nominating Committee’s goal is to assemble a Board of Directors with the skills and characteristics that taken together will assure a strong Board with experience and expertise in corporate governance.

The Governance and Nominating Committee is responsible for reviewing periodically with the Board, including the Chief Executive Officer, the appropriate skills and characteristics required of new Board members in the context of the current makeup of the Board.

Other than the foregoing, there are no stated minimum criteria for director nominees, although the Governance and Nominating Committee may also consider such other factors as it may deem are in the best interests of us and our stockholders. The Governance and Nominating Committee does, however, believe it appropriate for at least one, and, preferably, several, members of the Board to meet the criteria for an “audit committee financial expert” as defined by SEC rules, and that two-thirds of the members of the Board meet independent director standards. The Governance and Nominating Committee also believes it is appropriate for certain key members of our management to participate as members of the Board.

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The Governance and Nominating Committee identifies nominees by first evaluating the current members of the Board of Directors willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination, balancing the value of continuity of service by existing members of the Board with that of obtaining a new perspective. If any member of the Board does not wish to continue serving on the Board or if the Governance and Nominating Committee decides not to re-nominate a member for re-election, the Governance and Nominating Committee identifies the desired skills and experience of a new nominee in light of the criteria above. The Governance and Nominating Committee then uses its network of contacts to compile a list of candidates, but may also engage, if it deems appropriate, a professional search firm.

BOARD MEETINGS AND ATTENDANCE

Board Meetings in Fiscal 2006:  6

Board Committees: Three standing committees: Audit, Compensation, Governance and Nominating

Total Committee Meetings in Fiscal 2006:  30

Fiscal 2006 Attendance:  Each current Board member attended 75% or more of the meetings of the Board and the committees on which he served, held during the period for which he was a director or committee member.

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BOARD COMMITTEES

The following table provides additional information regarding the committees of our Board of Directors during fiscal 2006:

Name of Committee and Members	Principal Functions of the Committee	Meetings in fiscal 2006
Audit Harvey P. White, Chairman Arthur B. Stabenow Julie H. Sullivan, Ph.D. Effective as of the annual meeting, Mr. White will no longer serve on the Audit Committee, Mr. Shlapak will become a member of the Audit Committee and Dr. Sullivan will become Chair of the Audit Committee.	•      Has direct responsibility for the appointment, evaluation, compensation, retention and oversight of the work of our independent registered public accounting firm. Such firm reports directly to the Committee, and the Committee’s responsibilities include: the resolution of disagreements between management and such firm regarding financial reporting and the pre-approval of all audit and non-audit services provided by such firm. •      Receives periodic reports from our independent registered public accounting firm and management regarding such firm’s independence and other matters. Recommends appropriate action to ensure such firm’s independence. •      Reviews with management and our independent registered public accounting firm our quarterly and annual financial statements and other financial disclosures, the adequacy of internal controls and major issues regarding accounting principles and practices. •      Reviews and approves the scope of the audit at the outset and reviews the performance of our independent registered public accounting firm and any audit problems or difficulties encountered.	11
Compensation Arthur B. Stabenow, Chairman Cesar Cesaratto Murray A. Goldman, Ph.D. David B. Wright In July 2006, the Compensation Committee was reconstituted to consist of Messrs. Stabenow, Cesaratto and Ransom.	•      Approves remuneration arrangements for all of our executive officers, including base salaries, salary increases, incentive compensation plans and awards. Reviews the reasonableness and appropriateness of all such compensation. •      Adopts and oversees the administration of incentive compensation and executive stock plans and determines awards granted to executive officers and employees under such plans.	14

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Name of Committee and Members	Principal Functions of the Committee	Meetings in fiscal 2006
	•      Advises the Board on the reasonableness and appropriateness of executive compensation plans and levels, generally, including whether these effectively serve the interests of us and our stockholders by creating appropriate incentives for high levels of individual and company performance. •      Has authority to engage an executive compensation consultant and other advisors.
Governance and Nominating Cesar Cesaratto, Chairman Arthur B. Stabenow Harvey P. White Effective as of the annual meeting, Mr. White will no longer serve on the Governance and Nominating Committee and Dr. Sullivan will become a member of the Governance and Nominating Committee.	•      Makes recommendations to the Board regarding the composition of the Board and its Committees, including size and qualifications for membership. •      Recommends candidates for election to the Board at the annual meeting. •      Advises the Board on appropriate compensation for outside directors. •      Advises the Board on corporate governance matters. •      Has sole authority to engage a search firm to identify director candidates. •      Evaluates the performance of the members of the Board of Directors. •      Evaluates the effectiveness of the meetings of the Board, including agendas, meeting materials, meeting structure and organization, schedule of meetings and minutes.	5

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REPORT OF THE COMPENSATION COMMITTEE¹

The Compensation Committee of the Board has responsibility for administering and approving all elements of compensation for our executive officers. It also grants equity awards to executive officers under our equity incentive plans and it administers our employee equity incentive and employee stock purchase plans. The Committee has direct responsibility to review and approve the corporate goals and objectives relevant to the Chief Executive Officer’s compensation, evaluates the CEO’s performance in light of these goals and objectives, and determines and approves the CEO’s compensation level based on the evaluation. The Committee’s charter reflects these various responsibilities, and the Committee and the Board periodically review and revise the charter.

The Board determines the Committee’s membership. All members of the committee are independent in accordance with Nasdaq listing standards. The Committee meets at scheduled times during the year, and it may also meet telephonically if a need arises, and it may consider and take action by written consent. The Committee Chairman reports on Committee actions and recommendations at Board meetings. Executive officers who are also directors are not present during voting or deliberations involving their own compensation.

General Compensation Philosophy

Under the supervision of the Compensation Committee, our compensation policy is designed to attract, motivate and retain qualified key executives. It is our objective to reward our executives for advancing our business strategies and aligning our interests with those of our shareholders. Each executive’s compensation is dependent upon our performance as well as upon the executive’s individual performance. Accordingly, executive officer compensation packages are comprised of three elements: (i) base salary, (ii) variable bonus payable in cash if earned and (iii) equity awards. All elements of executive compensation are reviewed at least annually to ensure they are comparable with similarly situated executives at peer companies and meet our current strategies and needs.

The principal factors that were taken into account by the Compensation Committee to establish each of the three primary components of the compensation package provided to the executive officers are described below.

Base Salary

In setting executive officer base salaries, the Compensation Committee considers a number of factors, including benchmark data from nationally recognized surveys of similar high-technology companies that compete with us for executive officers. The Compensation Committee reviews proxy data on executive compensation for peer companies that include semiconductor and computer component companies operating in similar markets. In addition, the Compensation Committee evaluates corporate performance relative to our competitors and our success in meeting our financial objectives when determining executive base salaries. Annually, each executive officer’s base salary is reviewed on the basis of the individual’s qualifications and relevant experience, their contribution and performance for the prior year, and the compensation levels of executives at similar high-technology companies. The Compensation Committee currently uses as a guideline the 62 ¹/2 percentile of the surveyed group for comparison purposes when setting salaries. Base salary is generally reviewed once each year, but is not necessarily adjusted every year.

Variable Bonus

The executive variable bonus plan is based on our achievement of certain financial performance measures, including revenue- and operating income-based measures. A pre-determined formula, which takes into account

¹ This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any of our filings under the Securities Act of 1933, or the 1933 Act, or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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operating profitability against the annual plan approved by the Board, is used to determine the bonus pool. The individual executive officer’s share of the bonus pool is based upon a bonus percent target for each class of executive that was established as a result of survey and proxy benchmarking data from peer companies. The Compensation Committee currently uses as a guideline the 62 ¹/2 percentile of the surveyed group for comparison purposes when setting bonus targets. The Compensation Committee also takes into consideration each officer’s performance during the prior fiscal year when determining variable bonus awards. No executives have been awarded a variable bonus since fiscal 2001.

On March 30, 2006, our Board of Directors approved a bonus program pursuant to which substantially all employees would be eligible to be paid incentive compensation for fiscal 2007. Bonuses under the program will be awarded only if we achieve certain minimum profitability levels.

For officers, the program provides for a bonus target equal to a percentage of each participant’s annual base salary as follows:

Title	Target Percentage of Base Salary
Chief Executive Officer	75	%
Senior Vice Presidents	50	%
All other Vice Presidents	34	%

Under the bonus program, after the completion of the 2007 fiscal year, the officers will be eligible for a bonus of up to twice the applicable target amount. The determination of the actual bonus will be based 70% on the achievement of weighted operating plan objectives, including revenue, gross margin, operating profitability and asset management objectives, and 30% on the achievement of pre-established individual objectives. All executive bonuses are subject to review and approval by the Compensation Committee.

Equity Awards

The goal of our long-term, equity awards is to align the interests of executive officers and employees with our stockholders. Equity awards are intended to focus the attention of the executive officers on our long-term performance and to motivate them to maximize stockholder value. The Compensation Committee determines the appropriate equity award to executive officers based on the individual’s position and responsibilities with us, his or her performance and contribution since the last equity award, and market grant practices among peer high-technology companies.

In the case of stock options granted to executive officers, each option grant allows the executive officer to acquire shares of common stock at a fixed price per share. The options typically vest in periodic installments over a four-year period contingent upon the executive officer’s continued employment with us. Accordingly, the options will provide a return to the executive officer only if he or she remains in our service so the options can vest, and then only if the market price of the common stock appreciates over the option’s premium price during the option term. For fiscal 2006, at least 33% of the annual stock awards granted to each executive officer have had exercise prices set at 110% premium of the fair market value of the common stock at the date of grant or have had other performance-based characteristics.

During fiscal year 2007, executives received additional grants of stock options. These grants were intended to retain executives and to furnish additional motivation by (a) accelerating vesting in the event of “stretch” achievement versus the Annual Operating Plan and (b) providing for cliff vesting upon the achievement of both 20% quarter over prior year quarter growth and 20% pre-tax profit in any quarter before fiscal year 2010 (the “20/20 goal”), with a provision for termination of the options if the goal is not achieved by fiscal year 2010.

In May 2006, we began granting restricted stock units to our employees. Each restricted stock unit represents an unfunded right to receive one share of our common stock on a fixed settlement date, which is the date on which the restricted stock unit vests. The restricted stock units typically vest in periodic installments over

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a four-year period from the date the restricted stock units are granted, contingent upon the employee’s continued employment. A participant is not required to pay any monetary consideration to receive shares of our common stock upon settlement of his or her restricted stock units.

The Compensation Committee will continue to monitor the equity program carefully and seek to introduce additional compensation practices to promote long-term performance-based focus in our executive officers.

Compensation for Kambiz Y. Hooshmand

Since March 2005, Kambiz Y. Hooshmand has served as our President and Chief Executive Officer and as a member of our Board of Directors. The material terms of Mr. Hooshmand’s compensation package are as follows:

Base Salary:    Mr. Hooshmand receives an annual base salary of $400,000 and serves on our Board of Directors without any additional compensation.

Cash Incentive:    Mr. Hooshmand is eligible for a target bonus of 75% of his base salary dependent on the achievement of corporate and personal objectives to be set annually by the Compensation Committee.

Long Term Incentive:    On March 21, 2005 Mr. Hooshmand received an option to purchase 2,200,000 shares of our common stock with an exercise price of $3.21 and an option to purchase 550,000 shares with an exercise price of $3.53 for his role as Chief Executive Officer and President. These options vested as to 25% of the grant upon his completion of one year of service and the remaining 75% of the grant vest 1/48^th each month thereafter. On June 2, 2005, Mr. Hooshmand received a performance-based option to purchase 250,000 shares of our common stock with an exercise price of $2.98. These options become 100% vested and exercisable only upon the achievement of certain revenue and operating income objectives agreed upon with the Compensation Committee. On April 28, 2006 Mr. Hooshmand received an option to purchase 375,000 shares of our common stock with an exercise price of $3.67 which vests if we achieve specific revenue and non-GAAP pre-tax profit targets in any fiscal quarter before fiscal 2010, an option to purchase 375,000 shares of our common stock with an exercise price of $3.67 which vests in 48 equal monthly installments beginning one month after the grant date, an option to purchase 187,500 shares with an exercise price of $3.67 which vests in 48 equal monthly installments beginning one month after the grant date (provided that if we achieve specific stretch goals under our fiscal 2007 operating plan, the vesting of the option will accelerate such that the option will be fully exercisable at the end of two years instead of four years) and an option to purchase 187,500 shares with an exercise price of $4.037 which vests in 48 equal monthly installments beginning one month after the grant date (provided that if we achieve specific stretch goals under our fiscal 2007 operating plan, the vesting of the option will accelerate such that the option will be fully exercisable at the end of two years instead of four years). Mr. Hooshmand does not receive any additional stock option awards for his participation on our Board of Directors.

Housing Payment:    In February 2006, we agreed to pay Mr. Hooshmand a one-time payment of approximately $317,000 to be used by him exclusively for the purchase of a residence in the San Diego area and to cover the related federal, state or local taxes payable by Mr. Hooshmand.

Severance Benefits:    If we terminate Mr. Hooshmand’s employment without cause or Mr. Hooshmand terminates his employment for good reason, we will pay him a separation payment equal to 18 months’ base salary, less applicable withholdings and deductions, and a pro-rated portion of a $300,000 bonus. He will also be provided with certain medical and dental benefits for one year after his termination date. In addition, Mr. Hooshmand’s unvested stock options will immediately vest as if he had completed an additional 24 months of service with us and the options will be exercisable for an additional 24 months after the date of termination (or, if earlier, on the original expiration date of such option). If Mr. Hooshmand’s employment is terminated by us or he resigns for good reason within 12 months following a change of control, he will also receive the foregoing severance benefits. In addition, in the event Mr. Hooshmand voluntarily leaves his employment, or is

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terminated by us for cause, during the 18-month period following the initial disbursement of the housing payment described above, then Mr. Hooshmand shall be required to reimburse us for the full amount of the housing payment.

Tax Deductibility

The Compensation Committee has considered the impact of Section 162(m) of the Internal Revenue Code, which disallows a deduction for any publicly held corporation for individual compensation exceeding $1 million in any taxable year for the Chief Executive Officer and four most highly compensated executive officers unless such compensation meets the requirements for the “performance based compensation.” As the cash compensation paid by us to each of our executives is expected to be below $1 million and the Compensation Committee believes that options granted under our 1992 Stock Option Plan to such officers will meet the requirements for qualifying as performance based compensation, the Compensation Committee believes that Section 162(m) will not affect the tax deductions available to us with respect to the compensation of our executives. It is the Compensation Committee’s policy to qualify to the extent reasonable our executive officer compensation for deductibility under applicable tax law. However, we may, from time to time, pay compensation to our officers that may not be deductible.

Arthur B. Stabenow, Chairman

Cesar Cesaratto

Murray A. Goldman, Ph.D.

L. Wayne Price

David B. Wright

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During portions of fiscal 2006, Messrs. Stabenow, Cesaratto, Price and Wright and Dr. Goldman served on the Compensation Committee. Since July 2006, the Compensation Committee has consisted of Messrs. Stabenow, Cesaratto and Ransom. None of these directors has at any time been an officer or employee of ours or any of our subsidiaries. We have entered into customary indemnification agreements with each of these directors as described in “Certain Transactions” below. None of our executive officers currently serves, or has served during the last completed fiscal year, on the compensation committee or board of directors of any other entity that has one or more executive officers serving as a member of our Board of Directors or Compensation Committee.

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REPORT OF THE AUDIT COMMITTEE²

The Audit Committee is comprised solely of independent directors, in accordance with Nasdaq listing standards and it operates under a written charter adopted by the Board. The Audit Committee reviews and assesses the adequacy of its charter on an annual basis.

The Audit Committee oversees our financial reporting process on behalf of the Board. The purpose of the Audit Committee, as more fully described in its charter, is the general oversight of our financial reporting, internal control and audit functions. Management is responsible for the preparation, presentation and integrity of our financial statements, accounting principles, and design of internal controls and disclosure controls and procedures to ensure compliance with accounting standards, applicable laws and regulations. Ernst & Young LLP, our independent registered public accounting firm, is responsible for performing an independent audit of our consolidated financial statements in accordance with generally accepted auditing standards.

Among other matters, the Audit Committee monitors the activities and performance of our independent registered public accounting firm, including the audit scope, external audit fees, auditor independence matters and the extent to which such firm may be retained to perform non-audit services. The Audit Committee has ultimate authority and responsibility to select, evaluate and, when appropriate, replace our independent registered public accounting firm. The Audit Committee also reviews the results of the audit work with regard to the adequacy and appropriateness of our financial, accounting and internal controls.

In fulfilling its oversight responsibilities, the Audit Committee has reviewed and discussed the audited consolidated financial statements in our annual report on Form 10-K with management including a discussion of the quality, not just acceptability, of the accounting principles, reasonableness of significant judgments, and clarity of disclosures in the financial statements.

The Audit Committee reviewed with our independent registered public accounting firm, who are responsible for expressing an opinion on the conformity of those audited financial statements with U.S. generally accepted accounting principles, its judgments as to the quality, not just acceptability, of the accounting principles, reasonableness of significant judgments, and clarity of disclosures in the financial statements. In addition, such firm represented that its presentations included the matters required to be discussed with the Audit Committee by Statement on Auditing Standards No. 61, as amended, “Communication with Audit Committees.”

Our independent registered public accounting firm also provided the Audit Committee with the written disclosures required by Independence Standards Board Standard No. 1, “Independence Discussions with Audit Committees,” and the Audit Committee discussed with our independent registered public accounting firm that firm’s independence.

In reliance on the Audit Committee’s reviews and discussions with management and our independent registered public accounting firm, the Audit Committee recommended that the Board include the audited consolidated financial statements in our annual report on Form 10-K for the fiscal year ended March 31, 2006.

Harvey P. White, Chairman

Arthur B. Stabenow

Julie H. Sullivan, Ph.D.

² This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any of our filings under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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PROPOSAL 2

APPROVAL OF STOCK OPTION EXCHANGE PROGRAM

On January 11, 2007, our Board of Directors authorized, subject to stockholder approval, a stock option exchange program that will permit our eligible employees to exchange outstanding stock options with exercise prices equal to or greater than $4.90 per share for a reduced number of restricted stock units to be granted under our 2000 Equity Incentive Plan, or the 2000 Plan. The $4.90 threshold is intended to ensure that only outstanding stock options that are appropriately “out of the money” are eligible for the exchange program. Our Board of Directors authorized our Compensation Committee to adjust the threshold for options eligible to participate in the exchange program if there is a significant change in the market price for our common stock preceding the commencement of the exchange program.

If approved by the stockholders, the exchange program will be open to all persons that as of the commencement of the exchange program are employed by us and those of our subsidiaries that are designated for participation by the Compensation Committee of our Board of Directors. However, members of our Board of Directors and our executive officers will not be eligible to participate in the exchange program.

The exchange ratios of shares subject to eligible options cancelled to restricted stock units issued will generally range from 2.5-to-1 to 20-to-1. These exchange ratios are intended to result in the issuance of restricted stock units that have a fair value approximately equal to the fair value of the cancelled options they replace as of the date of the exchange offer, determined using an option valuation model. Our Compensation Committee retains the discretion to adjust the exchange ratios if there is a significant change in the market price for our common stock preceding the commencement of the exchange program.

Each restricted stock unit issued in the exchange program will represent an unfunded right to receive one share of our common stock on a specified future date when the restricted stock unit vests through the participant’s continued employment. The restricted stock units will be generally subject to vesting semi-annually over two years from the date the restricted stock units are issued, which is expected to be shortly after the date the exchange program is completed.

We believe that the exchange program if approved by the stockholders will permit us:

• to meaningfully reduce the option “overhang” represented by outstanding options that have high exercise prices, no longer incentivize their holders to remain as our employees, and may be viewed by investors as potentially dilutive; and

• to re-incentivize the employees who participate in the exchange program by issuing them restricted stock units that will vest over a period of two years following the exchange if they remain with us.

The exchange program is an important component in our strategy for rationalizing our equity incentive plan structure and updating our compensation practices.

Background

Historically, we have regularly granted stock options to virtually all of our employees. When our Compensation Committee approves the grant of a stock option, it establishes the exercise price that the employee must pay to purchase shares of common stock when the option is exercised. The exercise price per share is typically equal to or greater than the market price of a share of our common stock on the date the option is granted. Thus, an employee receives value only if he or she exercises an option and later sells the purchased shares at a price that exceeds the option’s exercise price.

Like many technology companies, our stock price has experienced a significant decline during the last several years. In the late 1990’s, communication service providers began investing in data networks to meet the

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rapidly growing demands of their customers. During this period of rapid expansion, communication equipment suppliers placed increased orders with us and their other suppliers to ensure that they had the components needed to fulfill the expected growth in demand for networking equipment. This resulted in inventory levels expanding at the equipment suppliers, contract manufacturers, distributors, and component suppliers like us. This environment changed suddenly at the beginning of 2001. Many of the communication service providers decreased capital expenditures on networking equipment and many of the emerging carriers were unable to attract sufficient customers and failed. Due to this downturn, we experienced a significant drop in sales and orders of our products and a sharp increase in order cancellations during fiscal 2002 and 2003. Our stock price declined dramatically.

Since this downturn, we have undertaken a number of initiatives intended to improve our performance and, in turn, increase our stock price. For example, we implemented significant restructuring activities in an effort to reduce operating costs and focus on profitable growth opportunities. In an effort to diversify our customer base and markets that we serve, we have also made several acquisitions. We acquired JNI Corporation, a provider of hardware and software products that are critical elements of storage networks, in 2003, purchased assets and licensed intellectual property associated with IBM’s PowerPRS switch fabric product line and its 400 series of embedded PowerPC^® standard products in 2003 and 2004, acquired 3ware, Inc., a provider of high-performance, high-capacity storage solutions, in 2004 and acquired Quake Technologies, Inc., a leading vendor of 10 Gigabit Ethernet PHY technology, in 2006. Each of these acquisitions has presented challenges for us in integrating the acquired business and operations and successfully realizing the value of the acquisition. In 2005, we instituted significant changes with the hiring of a new Chief Executive Officer and a number of senior executive officers. Under this new leadership, we are pursuing a strategy of providing the essential building blocks for the processing, transporting and storing of information worldwide.

These efforts have not yet achieved their intended effect, and as a result, our stock price has remained at relatively low levels. Consequently, many of our employees hold options with exercise prices significantly higher than the current market price of our common stock. As of December 31, 2006, eligible employees held options for approximately 11,307,875 shares with exercise prices ranging from $4.90 per share to $87.24 per share, while the closing price of our common stock on the Nasdaq Global Select Market on January 29, 2007 was [$            ] per share. We believe that these “out of the money” options are no longer effective as performance and retention incentives, and that to enhance long-term stockholder value we need to maintain competitive employee compensation and incentive programs. An equity stake in the success of the company is a critical component of these programs. We believe the exchange program will provide us with an opportunity to restore for eligible employees the ability to participate economically in our future growth and success.

Many of the eligible options have been out of the money for an extended period of time and, therefore, have not been exercised by our employees. As a result, we have developed a significant stock option “overhang” consisting of options which we believe are not serving their intended purpose of incentivizing employees. If this Proposal 2 is approved by our stockholders and we implement the exchange program, eligible options surrendered under the program will be returned to the applicable plan pursuant to which they were originally granted. If Proposal 3 is approved by our stockholders, we will discontinue the issuance of stock awards under any of these plans other than our 1992 Equity Incentive Plan following the completion of the exchange program. Assuming that only options with exercise prices equal to or greater than $4.90 per share are eligible to participate in the exchange program, that 100% of eligible employees participate in the exchange program, and that the exchange ratios described in the table set forth under “Exchange Ratios” below are applied, eligible options covering approximately 11,307,875 shares as of December 31, 2006 would be surrendered and cancelled, while approximately 2,566,867 restricted stock units would be issued, resulting in a net reduction of approximately 8,741,008 shares.

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Description of the Exchange Program

Implementation of the Exchange Program

Our Board of Directors authorized the exchange program on January 11, 2007, upon the recommendation of the Compensation Committee of our Board of Directors and subject to stockholder approval. Upon the commencement of the exchange program, eligible employees holding eligible options will receive a written offer to exchange that will set forth the precise terms and timing of the exchange program. Eligible employees will be given at least 20 business days to elect to surrender their eligible options in exchange for restricted stock units. At or before commencement of the exchange program, we will file the offer to exchange with the SEC as part of a tender offer statement on Schedule TO. Eligible employees, as well as stockholders and members of the public, will be able to obtain the offer to exchange and other documents filed by us with the SEC free of charge from the SEC’s website at www.sec.gov.

Eligible Options

As of December 31, 2006, options for approximately 52,911,455 shares of our common stock were outstanding under all of our equity incentive plans at a weighted average exercise price of $5.46 per share and with a weighted average remaining life of 5.73 years. Of these, options to purchase approximately 11,307,875 shares of common stock, having exercise prices equal to or greater than $4.90, are held by eligible employees and would be eligible for exchange under the exchange program. If 100% of the eligible options are exchanged and restricted stock units are granted in accordance with the exchange ratios described under “Exchange Ratios” below, the number of shares underlying outstanding options and the restricted stock units granted under the exchange program would be reduced by approximately 8,741,008 shares, or approximately 3.1% of the number of shares of our common stock issued and outstanding as of December 31, 2006.

As of December 31, 2006, options for approximately 41,603,580 shares of our common stock that were ineligible for the exchange program were outstanding under all of our equity incentive plans at a weighted average exercise price of $4.68 per share and with a weighted average remaining life of 5.98 years.

Eligible Employees

The exchange program will be open to all persons that as of the commencement of the exchange program are employed by us and those of our subsidiaries that are designated for participation by the Compensation Committee of our Board of Directors. However, members of our Board of Directors and our executive officers will not be able to participate. We may exclude employees in certain non-U.S. jurisdictions from the exchange program if local law or administrative considerations would make their participation infeasible or impractical. The total number of shares underlying eligible options and the maximum number of restricted stock units that may be issued with respect to such eligible options as set forth in this Proposal 2 assume that no such employees will be excluded from the exchange program.

In addition to being employed as of the commencement of the exchange program, an employee must continue to be employed by us or one of our designated subsidiaries on the date the surrendered options are cancelled and restricted stock units are granted in exchange for them. Any employee holding eligible options who elects to participate in the exchange program but whose employment terminates for any reason prior to the grant of the restricted stock units, including voluntary resignation, retirement, involuntary termination, layoff, death or disability, will retain his or her eligible options subject to their existing terms. As of December 31, 2006, eligible options were held by approximately 286 eligible employees.

Exchange Ratios

Our intent is to establish exchange ratios that will result in the issuance of restricted stock units in the exchange program with a fair value approximately equal to the fair value of the stock options surrendered in the exchange program. We calculated the fair value of the eligible options using the Black-Scholes option valuation

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model, a common method used for estimating the fair value of a stock option. For this purpose, we used the following factors: (i) the option’s exercise price; (ii) an assumed value of $3.60 per share of our common stock; (iii) an expected volatility of our common stock price of 54.9%; (iv) a term equal to the lesser of (A) the remaining contractual life of the stock option and (B) a fixed expected term of 4.44 years; (v) risk-free interest rates ranging from 4.73% to 5.15% (depending on the term of the option); and (vi) no expected dividends. We then established seven exchange ratios based on the average Black-Scholes value of the eligible options having exercise prices within a specified range for each ratio, as compared to the assumed fair market value of one share of our common stock underlying a restricted stock unit to be issued in the exchange program. For this purpose, we assumed a fair market value of $3.60 per share.

The following table sets forth the seven exchange ratios as well as the total number of shares underlying eligible options for each ratio (as of December 31, 2006) and the maximum number of restricted stock units that may be issued with respect to such eligible options in the exchange program:

Exercise Price Range	Weighted Average Exercise Price		Weighted Average Remaining Life	Total Shares Underlying Options	Exchange Ratio: Option Shares per Restricted Stock Unit	Total Restricted Stock Units to be Granted(1)
$4.90 – $5.50	$	5.03	6.65	1,794,460	2.5 to 1	717,784
$5.51 – $6.25	$	5.72	6.75	2,685,544	3.2 to 1	839,233
$6.26 – $7.00	$	6.53	3.55	4,797,899	5.5 to 1	872,345
$7.01 – $10.00	$	8.16	5.28	93,623	6 to 1	15,604
$10.01 – $15.00	$	12.47	3.03	645,052	12 to 1	53,754
$15.01 – $20.00	$	17.80	3.28	214,950	15 to 1	14,330
$20.01 and above	$	23.68	4.00	1,076,347	20 to 1	53,817
				11,307,875		2,566,867

(1) Assuming 100% participation in the exchange program.

The total number of restricted stock units a participating employee will receive with respect to a surrendered eligible option will be determined by multiplying the number of shares underlying the surrendered option by the applicable exchange ratio and rounding to the nearest whole share. For example, if an eligible employee holds an option to purchase 1,000 shares of our common stock at an exercise price of $5.00 per share, he or she would be entitled to exchange that option for 400 restricted stock units (i.e., after applying the applicable 2.5 to 1 exchange ratio set forth in the table above).

Compensation Committee Adjustment

Our Board of Directors authorized our Compensation Committee to adjust the threshold for options eligible to participate in the exchange program if there is a significant change in the market price for our common stock preceding the commencement of the exchange program. Our Compensation Committee also retains the discretion to adjust the exchange ratios if there is a significant change in the market price of our common stock preceding the commencement of the exchange program in comparison to the average market price used in determining the exchange ratios set forth in the table above. If our Compensation Committee does adjust the exchange ratios, it will do so to cause the offer to exchange to result in the issuance of restricted stock units having a fair value approximately equal to the fair value of the stock options surrendered, determined using the same valuation methodologies as were used to determine the exchange ratios set forth in the table above.

Election to Participate

Participation in the exchange program will be voluntary. Eligible employees will have an election period of at least 20 business days from the commencement of the offer to exchange in which to determine whether they wish to participate.

Vesting of Restricted Stock Units

Restricted stock units issued in the exchange program will be completely unvested at the time they are granted and will become vested on the basis of the participant’s continued employment with us or one of our

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subsidiaries. The restricted stock units generally will vest in equal semi-annual installments over two years measured from the date of grant, regardless of the extent to which the corresponding eligible options were vested upon surrender. A participant in the exchange program will forfeit any restricted stock units received that remain unvested at the time his or her employment with us or one of our subsidiaries terminates for any reason. Under the terms of the 2000 Plan, all stock awards, including restricted stock units, held by persons whose service with us has not terminated generally have one year of additional vesting in the event of certain change-of-control transactions.

Other Terms and Conditions of Restricted Stock Units

Restricted stock units issued in the exchange program will be granted pursuant to the 2000 Plan. Each restricted stock unit represents an unfunded right to receive one share of our common stock on a fixed settlement date, which is the date on which the restricted stock unit vests. A participant is not required to pay any monetary consideration to receive shares of our common stock upon settlement of his or her restricted stock units. However, employees generally will recognize taxable income upon settlement of the restricted stock units that is subject to income and employment tax withholding. All other terms and conditions of the restricted stock units issued in the exchange program will be substantially the same as those that apply generally to restricted stock units granted under the 2000 Plan.

Potential Modification to Exchange Program Terms to Comply with Governmental Requirements

The terms of the exchange program will be described in an offer to exchange that will be filed with the SEC. Although we do not anticipate that the staff of the SEC will require us to materially modify the terms of the offer to exchange, it is possible that we may need to alter the terms of the exchange program to comply with comments from the staff. We may exclude employees who are located outside of the United States from the exchange program if local law or administrative considerations would make their participation infeasible or impractical. It is possible that we may need to make modifications to the terms of the exchange program offered to any employees in countries outside the United States to comply with local requirements, or as a result of tax or accounting considerations.

U.S. Federal Income Tax Consequences

The exchange of eligible options for restricted stock units pursuant to the exchange program should be treated as a non-taxable exchange and neither we nor any of our employees should recognize any income for U.S. federal income tax purposes upon the surrender of eligible options and the grant of restricted stock units. The tax consequences for participating non-U.S. employees may differ from the U.S. federal income tax consequences described in the preceding sentence.

Accounting Treatment

As of April 1, 2006, we have adopted the provisions of Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (Revised), or SFAS 123(R), on accounting for share-based payments. Under SFAS 123(R), we will recognize the incremental compensation cost of the restricted stock units granted in the exchange. The incremental compensation cost will be measured as the excess, if any, of the fair value of each award of restricted stock units granted to employees in exchange for surrendered stock options, measured as of the date the restricted stock units are granted, over the fair value of the stock options surrendered in exchange for the restricted stock units, measured immediately prior to the cancellation. This incremental compensation cost will be recognized ratably over the vesting period of the restricted stock units. In the event that any of the restricted stock units are forfeited prior to their vesting due to termination of employment, the compensation cost for the forfeited restricted stock units will not be recognized.

New Plan Benefits

Because the decision whether to participate in the exchange program is completely voluntary, we are not able to predict which or how many employees will elect to participate, how many eligible options will be

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surrendered for exchange, or how many restricted stock units may be issued. As indicated above, members of our Board of Directors and our executive officers are not eligible to participate in the exchange program.

Effect on Stockholders

We have designed the proposed exchange program in a manner intended to ensure that the value of the options surrendered in the exchange program is approximately equal to the value of the restricted stock units granted in the exchange program. The exchange program is intended to restore competitive and appropriate equity incentives for our employees and those of our subsidiaries and to reduce our existing overhang. While we cannot predict which or how many employees will elect to participate in the exchange program, assuming that 100% of eligible employees participate in the exchange program and that the exchange ratios described in the table set forth under “Exchange Ratios” above are applied, eligible options covering approximately 11,307,875 shares as of December 31, 2006 would be surrendered and cancelled, while approximately 2,566,867 restricted stock units would be issued, resulting in a reduction in our overhang of approximately 8,741,008 shares.

Required Vote and Board of Directors Recommendation

Approval of Proposal 2 requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the annual meeting. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes. Broker non-votes will have no effect on the outcome of the vote.

Our Board of Directors believes that approval of Proposal 2 is in our best interests and the best interests of our stockholders for the reasons stated above.

OUR BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 2.

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PROPOSAL 3

APPROVAL OF AMENDMENT AND RESTATEMENT OF 1992 STOCK OPTION PLAN

On January 11, 2007, our Board of Directors authorized, subject to stockholder approval, the amendment and restatement of our 1992 Stock Option Plan, or the 1992 Plan, to do the following:

• expand the type and nature of awards available for grant under the 1992 Plan;

• rename the 1992 Plan as the “1992 Equity Incentive Plan”;

• extend the expiration date for the 1992 Plan until January 10, 2017;

• increase the share reserve under the 1992 Plan by 9,000,000 shares;

• serve as a successor to the 2000 Plan and provide that no additional equity awards shall be granted under the 2000 Plan (with the exception of any restricted stock units to be granted from the 2000 Plan in exchange for the stock options surrendered pursuant to the exchange program described in Proposal 2); and

• provide that any shares subject to stock awards under the 2000 Plan that terminate or are forfeited or repurchased and would otherwise be returned to the share reserve under the 2000 Plan will instead be added to the share reserve under the 1992 Plan. Shares subject to any stock options under the 2000 Plan that are surrendered in the exchange program described in Proposal 2 would not be added to the share reserve under the 1992 Plan if this Proposal 3 is approved.

We believe that the amendment and restatement of the 1992 Plan if approved by you will permit us to significantly update our equity incentive practices to use restricted stock units and other forms of equity awards that have the potential to be more effective incentives for our employees while allowing us to incur less dilution. The amendment and restatement of the 1992 Plan is an important component in our strategy for rationalizing our equity incentive plan structure and updating our compensation practices.

Description of the Amended and Restated 1992 Equity Incentive Plan

The material features of the amended and restated 1992 Plan are outlined below. This summary is qualified in its entirety by reference to the complete text of the amended and restated 1992 Plan. Stockholders are urged to read the actual text of the amended and restated 1992 Plan in its entirety, which is appended to this proxy statement as Appendix A.

Background and Purpose

The terms of the 1992 Plan provide for the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, other stock-related awards, and performance awards that may be settled in cash, stock, or other property.

The purpose of the 1992 Plan is to provide a means by which employees, directors, and consultants may be given an opportunity to purchase our common stock to assist us in retaining the services of such persons, to secure and retain the services of persons capable of filling such positions, and to provide incentives for such persons to exert maximum efforts for our success.

Shares Available for Awards

If this Proposal 3 is approved, the total number of shares of our common stock reserved for issuance under the 1992 Plan will consist of:

• the number of shares subject to outstanding stock awards and the number of shares available for future grant under the 1992 Plan as of the date of the annual meeting; plus

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• an additional 9,000,000 shares; plus

• the number of shares subject to any stock awards under the 2000 Plan that terminate or are forfeited or repurchased and would otherwise be returned to the share reserve under the 2000 Plan. Shares subject to any stock options under the 2000 Plan that are surrendered in the exchange program described in Proposal 2 would not be added to the share reserve under the 1992 Plan if this Proposal 3 is approved.

As of December 31, 2006, options to purchase approximately 20,493,237 shares were outstanding and 21,535,025 shares were available for future grant under the 1992 Plan. If Proposal 2 is approved and we implement the exchange program consistent with our current assumptions, up to approximately 1,312,748 shares subject to outstanding options (as of December 31, 2006) could be returned to the 1992 Plan and become available for future grant under the 1992 Plan as a result of the completion of the exchange program. If Proposal 3 is approved, an additional 9,000,000 shares will become available for future grant under the 1992 Plan and up to approximately 27,646,588 additional shares subject to outstanding options and restricted stock units under the 2000 Plan (as of December 31, 2006) could become available for future grant under the 1992 Plan (in the case of options, to the extent they are not surrendered in the exchange program and thereafter terminate or are forfeited prior to exercise, and in the case of restricted stock units, to the extent they terminate or are forfeited prior to vesting).

Eligibility

The persons eligible to receive awards under the 1992 Plan consist of our employees, directors and consultants. However, incentive stock options, or ISOs, may be granted under the 1992 Plan only to our employees, including our officers who are employees.

Administration

The 1992 Plan is administered by our Board of Directors, which may in turn delegate authority to administer the plan to a committee. Our Board of Directors has delegated administration of the 1992 Plan to our Compensation Committee. Subject to the terms of the 1992 Plan, our Compensation Committee determines recipients, the numbers and types of stock awards to be granted and the terms and conditions of the stock awards, including the period of their exercisability and vesting. Subject to the limitations set forth below, our Compensation Committee also determines the exercise price of options granted under the 1992 Plan. Subject to the terms of the 1992 Plan, our Compensation Committee may delegate to one or more of our officers the authority to grant stock awards to our non-officer employees. Such officer would be able to grant only the total number of stock awards specified by our Compensation Committee and such officer would not be allowed to grant a stock award to himself or herself.

Stock Options

Stock options will be granted pursuant to stock option agreements. Generally, the exercise price for an option cannot be less than 100% of the fair market value of the common stock subject to the option on the date of grant. Options granted under the 1992 Plan will vest at the rate specified in the option agreement. A stock option agreement may provide for early exercise, prior to vesting. Unvested shares of our common stock issued in connection with an early exercise may be repurchased by us.

In general, the term of stock options granted under the 1992 Plan may not exceed ten years. Unless the terms of an optionholder’s stock option agreement provide for earlier or later termination, if an optionholder’s service relationship with us, or any affiliate of ours, ceases due to disability or death, the optionholder, or his or her beneficiary, may exercise any vested options for up to 12 months, after the date the service relationship ends. If an optionholder’s service relationship with us, or any affiliate of ours, ceases for any reason other than disability or death, the optionholder may exercise any vested options for up to 90 days after the date the service relationship ends, unless the terms of the stock option agreement provide for a longer or shorter period to exercise the option. In no event may an option be exercised after its expiration date.

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Acceptable forms of consideration for the purchase of our common stock issued under the 1992 Plan will be determined by our Compensation Committee and may include cash, common stock previously owned by the optionholder, payment through a broker assisted exercise or a net exercise feature, or other legal consideration approved by our Compensation Committee.

Generally, an optionholder may not transfer a stock option other than by will or the laws of descent and distribution or a domestic relations order. However, to the extent permitted under the terms of the applicable stock option agreement, an optionholder may designate a beneficiary who may exercise the option following the optionholder’s death.

Limitations

The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by an optionholder during any calendar year under all of our stock plans may not exceed $100,000. The options or portions of options that exceed this limit are treated as nonstatutory stock options, or NSOs. No ISO may be granted to any person who, at the time of the grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied:

• the option exercise price must be at least 110% of the fair market value of the stock subject to the option on the date of grant; and

• the term of any ISO award must not exceed five years from the date of grant.

In addition, no employee may be granted options or stock appreciation rights under the 1992 Plan covering more than 5,000,000 shares of our common stock in any calendar year.

Restricted Stock Awards

Restricted stock awards will be granted pursuant to restricted stock award agreements. A restricted stock award may be granted in consideration for the recipient’s past or future services performed for us or an affiliate of ours. Shares of our common stock acquired under a restricted stock award may be subject to forfeiture to us in accordance with a vesting schedule to be determined by our Compensation Committee. Generally, except for restricted stock awards that (i) are granted to non-employee directors or (ii) vest based on the satisfaction of performance goals (which will vest over a performance period not less than one year), restricted stock awards will vest over a time period not less than three years, except in the event of certain change-of-control transactions. Rights to acquire shares of our common stock under a restricted stock award may be transferred only upon such terms and conditions as are set forth in the restricted stock award agreement.

Restricted Stock Unit Awards

Restricted stock unit awards will be granted pursuant to restricted stock unit award agreements. Payment of any purchase price may be made in any form permitted under applicable law; however, we will settle a payment due to a recipient of a restricted stock unit award by delivery of shares of our common stock, by cash, by a combination of cash and stock as deemed appropriate by our Compensation Committee, or in any other form of consideration determined by our Compensation Committee and set forth in the restricted stock unit award agreement. Dividend equivalents may be credited in respect of shares of our common stock covered by a restricted stock unit award. Restricted stock unit awards may be subject to vesting in accordance with a vesting schedule to be determined by our Compensation Committee. Generally, except for restricted stock unit awards that (i) are granted to non-employee directors or (ii) vest based on the satisfaction of performance goals (which will vest over a performance period not less than one year), restricted stock unit awards will vest over a time period not less than three years, except in the event of certain change-of-control transactions. Except as otherwise provided in the applicable restricted stock unit award agreement, restricted stock units that have not vested will be forfeited upon the participant’s termination of continuous service for any reason.

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Stock Appreciation Rights

Stock appreciation rights will be granted through a stock appreciation rights agreement. Each stock appreciation right is denominated in common stock share equivalents. The strike price of each stock appreciation right will be determined by our Compensation Committee or its authorized committee, but shall in no event be less than 100% of the fair market value of the stock subject to the stock appreciation right at the time of grant. Our Compensation Committee may also impose any restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. Stock appreciation rights may be paid in our common stock or in cash or any combination of the two, or any other form of legal consideration approved by our Compensation Committee. If a stock appreciation right recipient’s relationship with us, or any affiliate of ours, ceases for any reason, the recipient may exercise any vested stock appreciation right up to 90 days from cessation of service, unless the terms of the stock appreciation right agreement provide that the right may be exercised for a longer or shorter period.

Performance Awards

The 1992 Plan provides for the grant of two types of performance awards: performance stock awards and performance cash awards. Performance awards may be granted, vest or be exercised based upon the attainment during a certain period of time of certain performance goals. All of our employees, directors and consultants are eligible to receive performance awards under the 1992 Plan. The length of any performance period, the performance goals to be achieved during the performance period, and the measure of whether and to what degree such performance goals have been attained shall be determined by our Compensation Committee. The maximum amount to be granted to any individual in a calendar year attributable to such performance awards may not exceed 3,000,000 shares of our common stock in the case of performance stock awards, or $5,000,000 in the case of performance cash awards.

In granting a performance award, our Compensation Committee will set a period of time, or a performance period, over which the attainment of one or more performance goals will be measured for the purpose of determining whether the award recipient has a vested right in or to such performance award. Within the time period prescribed by Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code (typically before the 90th day of a performance period), our Compensation Committee will establish the performance goals, based upon one or more pre-established performance criteria enumerated in the 1992 Plan and described below. As soon as administratively practicable following the end of the performance period, our Compensation Committee will certify (in writing) whether the performance goals have been satisfied.

Performance goals under the 1992 Plan shall be determined by the our Compensation Committee, based on one or more of the following performance criteria: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity; (vi) return on assets, investment, or capital employed; (vii) operating margin; (viii) gross margin; (ix) operating income; (x) net income (before or after taxes); (xi) net operating income; (xii) net operating income after tax; (xiii) pre-tax profit; (xiv) operating cash flow; (xv) sales or revenue targets; (xvi) increases in revenue or product revenue; (xvii) expenses and cost reduction goals; (xviii) improvement in or attainment of working capital levels; (xix) economic value added (or an equivalent metric); (xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share price performance; (xxiv) debt reduction; (xxv) implementation or completion of projects or processes; (xxvi) customer satisfaction; (xxvii); stockholders’ equity; and (xxviii) to the extent that an award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Compensation Committee.

Other Stock Awards

Other forms of stock awards valued in whole or in part with reference to our common stock may be granted either alone or in addition to other stock awards under the 1992 Plan. Our Compensation Committee will have sole and complete authority to determine the persons to whom and the time or times at which such other stock

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awards will be granted, the number of shares of our common stock to be granted and all other conditions of such other stock awards. Other forms of stock awards may be subject to vesting in accordance with a vesting schedule to be determined by our Compensation Committee. Generally, except for other forms of stock awards that (i) are granted to non-employee directors or (ii) vest based on the satisfaction of performance goals (which will vest over a performance period not less than one year), other forms of stock awards will vest over a time period not less than three years, except in the event of certain change-of-control transactions.

Changes to Capital Structure

In the event that there is a specified type of change in our capital structure not involving the receipt of consideration by us, such as a stock split or stock dividend, the number of shares reserved under the 1992 Plan and the number of shares and exercise price or strike price, if applicable, of all outstanding stock awards will be appropriately adjusted.

Corporate Transactions

In the event of certain corporate transactions, all outstanding stock awards under the 1992 Plan may be assumed, continued or substituted for by any surviving entity, and in such event, such awards will become entitled to one year of additional vesting. If the surviving entity elects not to assume, continue or substitute for such awards, the vesting of such stock awards held by persons whose service with us has not terminated generally will be accelerated in full and such stock awards will terminate if and to the extent not exercised at or prior to the effective time of the corporate transaction and our repurchase rights will generally lapse.

Plan Amendments

Our Compensation Committee will have the authority to amend or terminate the 1992 Plan. However, no amendment or termination of the plan will adversely affect any rights under awards already granted to a participant unless agreed to by the affected participant. We will obtain stockholder approval of any amendment to the 1992 Plan as required by applicable law.

U.S. Federal Income Tax Consequences

The information set forth below is a summary only and does not purport to be complete. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any recipient may depend on his or her particular situation, each recipient should consult the recipient’s tax adviser regarding the federal, state, local, and other tax consequences of the grant or exercise of an award or the disposition of stock acquired as a result of an award. The 1992 Plan is not qualified under the provisions of Section 401(a) of the Code, and is not subject to any of the provisions of the Employee Retirement Income Security Act of 1974. Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income.

Nonstatutory Stock Options

Generally, there is no taxation upon the grant of an NSO where the option is granted with an exercise price equal to the fair market value of the underlying stock on the grant date. On exercise, an optionee will recognize ordinary income equal to the excess, if any, of the fair market value on the date of exercise of the stock over the exercise price. If the optionee is employed by us or one of our affiliates, that income will be subject to withholding tax. The optionee’s tax basis in those shares will be equal to their fair market value on the date of exercise of the option, and the optionee’s capital gain holding period for those shares will begin on that date.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the optionee.

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Incentive Stock Options

The 1992 Plan provides for the grant of stock options that qualify as “incentive stock options,” as defined in Section 422 of the Code. Under the Code, an optionee generally is not subject to ordinary income tax upon the grant or exercise of an ISO. If the optionee holds a share received on exercise of an ISO for more than two years from the date the option was granted and more than one year from the date the option was exercised, which is referred to as the required holding period, the difference, if any, between the amount realized on a sale or other taxable disposition of that share and the holder’s tax basis in that share will be long-term capital gain or loss.

If, however, an optionee disposes of a share acquired on exercise of an ISO before the end of the required holding period, which is referred to as a disqualifying disposition, the optionee generally will recognize ordinary income in the year of the disqualifying disposition equal to the excess, if any, of the fair market value of the share on the date the ISO was exercised over the exercise price. However, if the sales proceeds are less than the fair market value of the share on the date of exercise of the option, the amount of ordinary income recognized by the optionee will not exceed the gain, if any, realized on the sale. If the amount realized on a disqualifying disposition exceeds the fair market value of the share on the date of exercise of the option, that excess will be short-term or long-term capital gain, depending on whether the holding period for the share exceeds one year.

For purposes of the alternative minimum tax, the amount by which the fair market value of a share of stock acquired on exercise of an ISO exceeds the exercise price of that option generally will be an adjustment included in the optionee’s alternative minimum taxable income for the year in which the option is exercised. If, however, there is a disqualifying disposition of the share in the year in which the option is exercised, there will be no adjustment for alternative minimum tax purposes with respect to that share. If there is a disqualifying disposition in a later year, no income with respect to the disqualifying disposition will be included in the optionee’s alternative minimum taxable income for that year. In computing alternative minimum taxable income, the tax basis of a share acquired on exercise of an ISO is increased by the amount of the adjustment taken into account with respect to that share for alternative minimum tax purposes in the year the option is exercised.

We are not allowed an income tax deduction with respect to the grant or exercise of an ISO or the disposition of a share acquired on exercise of an ISO after the required holding period. If there is a disqualifying disposition of a share, however, we are allowed a deduction in an amount equal to the ordinary income includible in income by the optionee, subject to Section 162(m) of the Code and provided that amount constitutes an ordinary and necessary business expense for us and is reasonable in amount, and either the employee includes that amount in income or we timely satisfy our reporting requirements with respect to that amount.

Restricted Stock Awards

Generally, the recipient of a restricted stock award will recognize ordinary compensation income at the time the stock is received equal to the excess, if any, of the fair market value of the stock received over any amount paid by the recipient in exchange for the stock. If, however, the stock is not vested when it is received (for example, if the employee is required to work for a period of time in order to have the right to sell the stock), the recipient generally will not recognize income until the stock becomes vested, at which time the recipient will recognize ordinary compensation income equal to the excess, if any, of the fair market value of the stock on the date it becomes vested over any amount paid by the recipient in exchange for the stock. A recipient may, however, file an election with the Internal Revenue Service, within 30 days of his or her receipt of the stock award, to recognize ordinary compensation income, as of the date the recipient receives the award, equal to the excess, if any, of the fair market value of the stock on the date the award is granted over any amount paid by the recipient in exchange for the stock.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock awards will be the amount paid for such shares plus any ordinary income recognized either when the stock is received or when the stock becomes vested.

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Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

Stock Appreciation Rights

We may grant under the 1992 Plan stock appreciation rights separate from any other award or in tandem with other awards under the 1992 Plan.

Where the rights are granted with a strike price equal to the fair market value of the underlying stock on the grant date and where the recipient may only receive the appreciation inherent in the stock appreciation rights in shares of our common stock, the recipient will recognize ordinary compensation income equal to the fair market value of the stock received upon such exercise. If the recipient may receive the appreciation inherent in the stock appreciation rights in cash or other property and the stock appreciation right has been structured to conform to the requirements of Section 409A of the Code, then the cash will be taxable as ordinary compensation income to the recipient at the time that the cash is received.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code, and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock appreciation right.

Restricted Stock Units

Generally, the recipient of a stock unit structured to conform to the requirements of Section 409A of the Code or an exception to Section 409A of the Code will recognize ordinary compensation income at the time the stock is delivered equal to the excess, if any, of the fair market value of the shares of our common stock received over any amount paid by the recipient in exchange for the shares of our common stock. To conform to the requirements of Section 409A of the Code, the shares of our common stock subject to a stock unit award may only be delivered upon one of the following events: a fixed calendar date (or dates), separation from service, death, disability or a change of control. If delivery occurs on another date, unless the stock units qualify for an exception to the requirements of Section 409A of the Code, in addition to the tax treatment described above, the recipient will owe an additional 20% tax and interest on any taxes owed.

The recipient’s basis for the determination of gain or loss upon the subsequent disposition of shares acquired from stock units, will be the amount paid for such shares plus any ordinary income recognized when the stock is delivered.

Subject to the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of a tax reporting obligation, we will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the recipient of the stock award.

Section 162 Limitations

Section 162(m) of the Code denies a deduction to any publicly held corporation for compensation paid to certain “covered employees” in a taxable year to the extent that compensation to such covered employee exceeds $1 million. It is possible that compensation attributable to stock awards, when combined with all other types of compensation received by a covered employee from us, may cause this limitation to be exceeded in any particular year. For purposes of Section 162(m) of the Code, the term “covered employee” means our chief executive officer and our four highest compensated officers as of the end of a taxable year as disclosed in our SEC filings. Please see the Summary Compensation Table below for a current listing of covered employees.

Certain kinds of compensation, including qualified “performance-based” compensation, are disregarded for purposes of the Section 162(m) of the Code deduction limitation. In accordance with United States treasury

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regulations issued under Section 162(m) of the Code, compensation attributable to certain stock awards will qualify as performance-based compensation if the award is granted by a committee of our Board of Directors consisting solely of “outside directors” and the stock award is granted (or exercisable) only upon the achievement (as certified in writing by the committee) of an objective performance goal established in writing by the committee while the outcome is substantially uncertain, and the material terms of the 1992 Plan under which the award is granted is approved by stockholders. A stock option or stock appreciation right may be considered “performance-based” compensation as described in the previous sentence or by meeting the following requirements: the incentive compensation plan contains a per-employee limitation on the number of shares for which stock options and stock appreciation rights may be granted during a specified period, the material terms of the plan are approved by the shareholders, and the exercise price of the option or right is no less than the fair market value of the stock on the date of grant.

The regulations under Section 162(m) of the Code require that the directors who serve as members of the committee must be “outside directors.” The 1992 Plan provides that directors serving on the committee may be “outside directors” within the meaning of Section 162(m) of the Code. This limitation would exclude from the committee directors who are (i) current employees of ours or one of our affiliates, (ii) former employees of ours or one of our affiliates who are receiving compensation for past services to us or one of our affiliates (other than benefits under a tax-qualified pension plan), (iii) current and former officers of ours or one of our affiliates, (iv) directors currently receiving direct or indirect remuneration from us or one of our affiliates in any capacity other than as a director, and (v) any other person who is not otherwise considered an “outside director” for purposes of Section 162(m) of the Code. The definition of an “outside director” under Section 162(m) of the Code is generally narrower than the definition of a “non-employee director” under Rule 16b-3 of the 1934 Act. Our Compensation Committee is currently comprised solely of “outside directors” within the meaning of Section 162(m) of the Code.

New Plan Benefits

The amended and restated 1992 Plan will become effective if and when this Proposal 3 is approved by our stockholders. The Board of Directors approved the 1992 Plan on January 11, 2007, and subject to stockholder approval of the 1992 Plan, options to purchase shares of common stock will be granted under the 1992 Plan to certain individuals set forth in the table below.

1992 Equity Incentive Plan

Name and Position	Number of Shares Subject to Options
Non-executive director group(1)	260,000

(1) On the second day following our release of earnings for each fiscal year, by standing resolution of the Board of Directors each of our non-employee directors (there are currently eight, of which five have been nominated for election at the annual meeting) is automatically granted under the 1992 Plan an option to purchase 50,000 shares of our common stock and our Chairman of the Board (who has been nominated for election at the annual meeting) is automatically granted an option to purchase 10,000 additional shares. These resolutions may be modified at any time at the discretion of the Board of Directors to change the number of shares or other terms of the awards or to discontinue the automatic grants. The number of shares set forth in the table does not include shares subject to options granted on the date an optionee first becomes a non-employee director (or, if our trading window is closed under our insider trading policy on such date, on the first day our trading window is open following the date the optionee first becomes a non-employee director). Such grants, which are made at the discretion of the Board of Directors, have typically been for options to purchase 75,000 shares. Please see “Compensation of Directors—Stock Options” for more information on the terms of options granted to non-employee directors.

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Required Vote and Board of Directors Recommendation

Approval of Proposal 3 requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the annual meeting. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes. Broker non-votes will have no effect on the outcome of the vote.

Our Board of Directors believes that approval of Proposal 3 is in our best interests and the best interests of our stockholders for the reasons stated above.

OUR BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 3.

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PROPOSAL 4

APPROVAL OF AMENDMENTS TO THE CERTIFICATE OF INCORPORATION

TO EFFECT A REVERSE STOCK SPLIT³

On November 20, 2006, our Board of Directors authorized, subject to stockholder approval, the amendment of our Certificate of Incorporation to effect a reverse stock split of all outstanding shares of our common stock at a reverse split ratio between 1-for-2 and 1-for-4. At the annual meeting, you will be asked to approve a series of amendments to our Certificate of Incorporation pursuant to which any whole number of outstanding shares between and including two and four would be combined and converted into one share of our common stock, and to authorize the Board of Directors to select and file only one such amendment, and to abandon each amendment not selected by the Board of Directors. The Board of Directors may also elect not to effect any reverse stock split. If this Proposal 4 is approved, at any time before the first anniversary of the annual meeting, the Board of Directors will have the authority pursuant to Section 242(c) of the Delaware General Corporation Law to elect, at its sole discretion and as it determines to be in our stockholders’ best interests, whether to implement a reverse stock split, and if so, the number of whole shares of our common stock from two to four shares that will be combined and converted into one share. The Board of Directors believes that stockholder approval of this discretionary authority, rather than a specified reverse split ratio, provides the Board of Directors with the necessary flexibility to react to changing market conditions and is in our stockholders’ best interests.

The forms of the proposed amendments to our Certificate of Incorporation are appended to this proxy statement as Appendices B-1 to B-3. In the event this Proposal 4 is approved and the Board of Directors elects to effect a reverse stock split, the amendment that is filed will contain the number of shares selected by the Board of Directors within the limits set forth in this Proposal 4 to be combined and converted into one share of our common stock.

Reasons for the Reverse Stock Split

Our Board of Directors believes that a reverse stock split may be desirable for the following reasons:

• Increased, more attractive share price.    The anticipated increase in our stock price resulting from the reverse stock split would return our stock price to a level that we believe is more consistent with other major widely-owned companies. The higher stock price may also meet investing guidelines for certain institutional investors and investment funds that are currently prevented under their guidelines from investing in our common stock at its current price levels.

• Reduced stockholder transaction costs.    Our stockholders may benefit from relatively lower trading costs associated with a higher stock price. Many investors pay commissions based on the number of shares traded when they buy or sell our common stock. If our stock price were higher, such investors would pay lower commissions to trade a fixed dollar amount of our stock than they would if our stock price were lower.

• Improved trading liquidity.    The combination of increased interest from institutional investors and investment funds and potentially lower transaction costs could ultimately improve the trading liquidity for our common stock.

• Increased earnings per share visibility.    A decrease in our outstanding shares would result in increased visibility for our earnings per share and changes in our earnings per share. For example, if our weighted average number of shares outstanding was 300,000,000, each $3 million of net income would result in

³ With the exception of the anticipated post-reverse stock split share numbers and stock prices set forth in this Proposal 4, numbers set forth in this proxy statement do not reflect the effect of the proposed reverse stock split.

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$0.01 of earnings per share; net income of less than $1.5 million would result in no earnings per share as a result of rounding. If we implemented a reverse stock split at a 1-for-3 ratio and reduced the weighted average number of shares outstanding to 100,000,000, each $1 million of net income would result in $0.01 of earnings per share, making it easier to reflect changes in our quarterly and annual results of operations, whether up or down, in our earnings per share calculations.

Board Discretion to Implement the Reverse Stock Split

If this Proposal 4 is approved, the proposed reverse stock split would only be effected upon a determination by the Board of Directors, at any time before the first anniversary of the annual meeting, that a reverse stock split (with a reverse stock split ratio determined by the Board of Directors as described above) is in our stockholders’ best interests. The determination by the Board of Directors as to whether the reverse split will be effected will be based upon certain factors, including the existing and expected marketability and liquidity of our common stock, prevailing market conditions, the recent trading history of our common stock and the likely effect on the market price of our common stock. If the Board of Directors determines to effect the reverse stock split, the Board of Directors will consider those factors in selecting the specific reverse split ratio.

Notwithstanding approval of this Proposal 4, at any time before the first anniversary of the annual meeting, the Board of Directors may, in its sole discretion and as permitted under Section 242(c) of the Delaware General Corporation Law, abandon all of the proposed amendments to our Certificate of Incorporation and determine not to effect the reverse stock split. If the Board of Directors fails to elect to implement the reverse stock split prior to the first anniversary of the annual meeting, stockholder approval would again be required before we could implement a reverse stock split.

Certain Risks Associated with the Reverse Stock Split

Our total market capitalization immediately after the proposed reverse stock split may be lower than immediately before the proposed reverse stock split.

There are numerous factors and contingencies that could affect our stock price following the proposed reverse stock split, including the status of the market for AMCC stock at the time, our reported results of operations in future periods, and general economic, market and industry conditions. Accordingly, the market price of our common stock may not be sustainable at the direct arithmetic result of the reverse stock split (for example, based on the closing price of our common stock on the Nasdaq Global Select Market on January 29, 2007 of [$            ] per share, if our Board of Directors decided to implement the reverse stock split at a 1-for-4 ratio, the direct arithmetic result of the reverse stock split would be a post-split market price for our common stock of [$            ] per share). If the market price of our common stock declines after the reverse stock split, our total market capitalization (the aggregate value of all of our outstanding common stock at the then existing market price) after the split will be lower than before the split.

If the reverse stock split is implemented, the resulting per share price may not attract institutional investors or investment funds and may not satisfy the investing guidelines of such investors, and consequently, the trading liquidity of our common stock may not improve.

While we believe that a higher stock price may help generate investor interest in our common stock, the reverse stock split may not result in a stock price that will attract institutional investors or investment funds or satisfy the investing guidelines of institutional investors or investment funds. As a result, the trading liquidity of our common stock may not necessarily improve.

A decline in the market price of our common stock after the reverse stock split may result in a greater percentage decline than would occur in the absence of the split, and the liquidity of our common stock could be adversely affected following such a split.

If the reverse stock split is implemented and the market price of our common stock declines, the percentage decline may be greater than would occur in the absence of the split. The market price of our common stock will,

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however, also be based on our performance and other factors, which are unrelated to the number of shares of common stock outstanding. Furthermore, the liquidity of our common stock could be adversely affected by the reduced number of shares of common stock that would be outstanding after the reverse stock split.

The reverse stock split may result in some stockholders owning “odd lots” that may be more difficult to sell or require greater transaction costs per share to sell.

The reverse stock split may result in some shareholders owning “odd lots” of less than 100 shares of our common stock on a post-split basis. Odd lots may be more difficult to sell, or require greater transaction costs per share to sell, than shares in “board lots” of even multiples of 100 shares.

Effect on Existing Shares of Common Stock

If this Proposal 4 is approved and the Board of Directors elects to effect a reverse stock split, the number of issued and outstanding shares of common stock would be reduced in proportion to the reverse split ratio determined by the Board of Directors within the limits set forth in this proposal. As a result, after the effective date of a reverse stock split, each stockholder would own a reduced number of shares of our common stock. The proposed reverse stock split would affect all of our stockholders uniformly and would not affect any stockholder’s percentage ownership interest in AMCC, except to the extent that the reverse stock split results in any of our stockholders owning a fractional share as described below. Proportionate voting rights and other rights and preferences of the holders of our common stock would not be affected by a reverse stock split (other than as a result of the payment of cash in lieu of fractional shares).

Effect on Authorized but Unissued Shares of Common Stock

Currently, we are authorized to issue up to a total of 630,000,000 shares of common stock, of which 281,826,071 shares were outstanding on December 31, 2006. Immediately following the reverse stock split, the total authorized number of shares of common stock will remain 630,000,000 in the event of a reverse split ratio of 1-for-2, be reduced to 500,000,000 in the event of a reverse split ratio of 1-for-3 or be reduced to 375,000,000 in the event of a reverse split ratio of 1-for-4. Accordingly, although the proposed reverse stock split will not affect the rights of stockholders or any stockholder’s proportionate equity interest in AMCC, subject to the treatment of fractional shares, the number of authorized shares of common stock will not be reduced in the event of a split ratio of 1-for-2 and the total authorized number of shares of common stock will not be reduced proportionately in the event of 1-for-3 or 1-for-4 reverse split ratios. This will increase significantly the ability of the Board of Directors to issue authorized and unissued shares of common stock without further stockholder action. The issuance in the future of such additional authorized shares may have the effect of diluting the earnings per share and book value per share, as well as the stock ownership and voting rights, of the currently outstanding shares of common stock. At this time, we do not have any agreements or commitments to acquire any business, or engage in any investment opportunity, involving the issuance of additional shares of our common stock, or otherwise to issue additional shares of our common stock, except as contemplated by Proposals 2 and 3 or in our other SEC filings.

In addition, the effective increase in the number of authorized but unissued shares of common stock resulting from the proposed reverse stock split may be construed as having an anti-takeover effect by permitting the issuance of shares to purchasers who might oppose a hostile takeover bid or oppose any efforts to amend or repeal certain provisions of our Certificate of Incorporation or Bylaws. Management could issue additional shares of our common stock to resist or frustrate a proposed merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction that would provide an above-market premium to stockholders and that is favored by a majority of our stockholders.

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The following table contains approximate information relating to our common stock under each of the proposed reverse stock split ratios based on share information as of December 31, 2006, and without giving effect to the stock option exchange program described in Proposal 2 or the share reserve increase under the 1992 Plan described in Proposal 3 (in thousands):

	Pre-Split	1-for-2	1-for-3	1-for-4
Authorized	630,000	630,000	500,000	375,000
Less: Outstanding	281,826	140,913	93,942	70,456
Reserved for future issuance pursuant to outstanding stock options	52,867	26,434	17,622	13,217
Reserved for future issuance upon vesting of outstanding restricted stock units	104	52	35	26
Reserved for future issuance pursuant to equity compensation plans (other than pursuant to outstanding stock options or restricted stock units)	57,046	28,523	19,015	14,261
Authorized and unreserved	238,157	434,079	369,386	277,040

Effect on Authorized but Unissued Shares of Preferred Stock

Currently, we are authorized to issue up to a total of 2,000,000 shares of preferred stock, none of which are issued and outstanding or reserved for future issuance. Immediately following the reverse stock split, the total authorized number of shares of preferred stock will remain 2,000,000. As is currently the case, following the reverse stock split the Board of Directors will have the authority to issue shares of the authorized but unissued 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. In addition, the issuance of preferred stock could have a dilutive effect on our stockholders.

Effect on Equity Compensation Plans and Par Value

The proposed reverse stock split would reduce the number of shares of common stock available for issuance under our equity compensation plans, including the 1992 Plan, the 2000 Plan and our Employee Stock Purchase Plan, in proportion to the reverse split ratio selected by the Board of Directors. The reverse stock split would also reduce the number of shares of common stock issuable upon exercise of our outstanding stock options, restricted stock units and Employee Stock Purchase Plan rights in proportion to the ratio of the reverse stock split, and would proportionally increase the exercise price of such outstanding stock options and Employee Stock Purchase Plan rights. In connection with a reverse stock split, the as-adjusted number of shares of common stock issuable upon exercise of outstanding stock options, restricted stock units and Employee Stock Purchase Plan rights would be rounded down to the nearest whole share and no payment would be made in respect of such rounding, and the as-adjusted exercise price for outstanding stock options would be rounded up to the nearest whole cent. The par value per share of our common stock would remain unchanged at $0.01 per share after a reverse stock split.

Effect on Registration and Stock Trading

Our common stock is currently registered under Section 12(g) of the 1934 Act and we are subject to the periodic reporting and other requirements of the 1934 Act. The proposed reverse stock split will not affect the registration of our common stock under the 1934 Act.

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If the proposed reverse stock split is implemented, our common stock will continue to be reported on the Nasdaq Global Select Market under the symbol “AMCC” (although the letter “D” will be added to the end of the trading symbol for a period of 20 trading days to indicate that the reverse stock split has occurred).

Effective Date

The proposed reverse stock split would become effective on the date of filing of a Certificate of Amendment to our Certificate of Incorporation with the Secretary of State of the State of Delaware. The forms of the proposed amendments to our Certificate of Incorporation are appended to this proxy statement as Appendices B-1 to B-3. Except as explained below with respect to fractional shares, on the effective date of the reverse stock split, shares of common stock issued and outstanding will be combined and converted, automatically and without any action on the part of the stockholders, into new shares of common stock in accordance with the reverse stock split ratio determined by the Board of Directors within the limits set forth in this Proposal 4.

Payment for Fractional Shares

No fractional shares of common stock will be issued as a result of the proposed reverse stock split. Instead, stockholders who otherwise would be entitled to receive fractional shares, upon surrender to the transfer agent of such certificates representing such fractional shares, will be entitled to receive cash in an amount equal to the product obtained by multiplying (i) the closing sales price of our common stock on the effective date as reported on the Nasdaq Global Select Market by (ii) the amount of the fractional share. This amount would be issued to the stockholder in the form of a check in accordance with the exchange procedures outlined under “Exchange of Stock Certificates” below.

Holders of as many as three shares of our common stock (if we were to implement a 1-for-4 reverse stock split) would be eliminated as a result of the payment of fractional shares in lieu of any fractional share interest in connection with the reverse stock split. The exact number of stockholders that would be eliminated as a result of the payment of fractional shares in lieu of the issuance of any fractional share interests will depend upon the reverse stock split ratio and the number of stockholders that hold a number of shares less than the reverse stock split ratio. As of December 31, 2006, there were approximately 699 stockholders of record of our common stock. As a result of a reverse stock split assuming the maximum reverse split ratio of 1-for-4, we estimate that cashing out fractional stockholders could potentially reduce the number of stockholders of record by approximately 17 as of December 31, 2006.

Exchange of Stock Certificates

If this Proposal 4 is approved by the stockholders at the annual meeting and the Board of Directors elects to effect a reverse stock split, as soon as practicable after the effective date, stockholders will be notified that the reverse stock split has been effected. Our transfer agent would act as the “exchange agent” for purposes of implementing the exchange of stock certificates. Holders of pre-split shares will be asked to surrender to the exchange agent certificates representing pre-split shares in exchange for certificates representing post-split shares in accordance with the procedures to be set forth in a letter of transmittal to be sent by us. No new certificates will be issued to a stockholder until such stockholder has surrendered such stockholder’s outstanding certificate(s) together with the properly completed and executed letter of transmittal to the exchange agent. Stockholders should not destroy any stock certificate and should not submit any certificates until requested to do so.

Accounting Consequences

The par value per share of our common stock would remain unchanged at $0.01 per share after a reverse stock split. As a result, on the effective date of the reverse stock split, the stated capital on our balance sheet attributable to the common stock would be reduced proportionally, based on the exchange ratio of the reverse

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stock split, from its present amount, and the additional paid-in capital account would be credited with the amount by which the stated capital is reduced. The per share common stock net income or loss and net book value will be increased because there will be fewer shares of our common stock outstanding. We do not anticipate that any other accounting consequences would arise as a result of the reverse stock split.

No Appraisal Rights

Under the Delaware General Corporation Law, our stockholders are not entitled to appraisal rights with respect to the reverse stock split described in this Proposal 4, and we will not independently provide our stockholders with any such rights.

U.S. Federal Income Tax Consequences

The following is a summary of important tax considerations of the proposed reverse stock split. It addresses only stockholders who hold the pre-reverse split shares and post-reverse split shares as capital assets. It does not purport to be complete and does not address stockholders subject to special rules, such as financial institutions, tax-exempt organizations, insurance companies, dealers in securities, mutual funds, foreign stockholders, stockholders who hold the pre-reverse split shares as part of a straddle, hedge or conversion transaction, stockholders who hold the pre-reverse split shares as qualified small business stock within the meaning of Section 1202 of the Code, stockholders who are subject to the alternative minimum tax provisions of the Code and stockholders who acquired their pre-reverse split shares pursuant to the exercise of employee stock options or otherwise as compensation. This summary is based upon current law, which may change, possibly even retroactively. It does not address tax considerations under state, local, foreign and other laws. We have not obtained a ruling from the Internal Revenue Service or an opinion of legal or tax counsel with respect to the consequences of the reverse stock split. Each stockholder is advised to consult his or her tax advisor as to his or her own situation.

The reverse stock split is intended to constitute a reorganization within the meaning of Section 368 of the Code. Assuming the reverse split qualifies as a reorganization, a stockholder generally will not recognize gain or loss on the reverse stock split, except to the extent of cash, if any, received in lieu of a fractional share interest in the post-reverse split shares. The aggregate tax basis of the post-split shares received will be equal to the aggregate tax basis of the pre-split shares exchanged therefor (excluding any portion of the holder’s basis allocated to fractional shares), and the holding period of the post-split shares received will include the holding period of the pre-split shares exchanged.

A holder of the pre-split shares who receives cash will generally recognize gain or loss equal to the difference between the portion of the tax basis of the pre-split shares allocated to the fractional share interest and the cash received. Such gain or loss will be a capital gain or loss and will be short term if the pre-split shares were held for one year or less and long term if held more than one year.

No gain or loss will be recognized by us as a result of the reverse stock split.

Required Vote and Board of Directors Recommendation

Approval of Proposal 4 requires the affirmative vote of a majority of the shares outstanding on the record date for the annual meeting. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes. Broker non-votes will have the same effect as “Against” votes.

Our Board of Directors believes that approval of Proposal 4 is in our best interests and the best interests of our stockholders for the reasons stated above.

OUR BOARD OF DIRECTORS RECOMMENDS

A VOTE IN FAVOR OF PROPOSAL 4.

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PROPOSAL 5

RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Audit Committee of the Board of Directors has selected Ernst & Young LLP as our independent registered public accounting firm for the fiscal year ending March 31, 2007 and has further directed us to submit the selection of such firm for ratification by the stockholders at the annual meeting. Ernst & Young LLP has audited our financial statements since our inception in 1980. Representatives of Ernst & Young LLP are expected to be present at the annual meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of Ernst & Young LLP as our independent registered public accounting firm. However, the Audit Committee is submitting the selection of Ernst & Young LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent registered public accounting firm at any time during the year if it determines that such a change would be in our best interests and the best interests of our stockholders.

AUDIT AND OTHER FEES

The following tables set forth the aggregate fees billed by Ernst & Young LLP for the services indicated for the fiscal year ended March 31:

	2006		2005
Audit	$	707,634	$	606,900
Audit Related		62,784		89,042
Tax		20,535		50,868
All Other		1,500		1,500
Total	$	792,453	$	748,310

Audit Fees.    Audit fees include the audit of our financial statements including the audit of our internal control over financial reporting for the fiscal year and the review of our interim financial statements.

Audit Related Fees.    Audit related fees include fees for among other things, accounting consultations, acquisition-related work and statutory required audits in certain locations outside the United States where we have operations.

Tax Fees.    Tax fees consist of tax preparation services for employees on foreign assignment, technical tax advice on U.S. and international tax matters, assistance with foreign income tax return preparation, transfer pricing analysis, assistance with local tax authority documentation and reporting requirements for tax compliance purposes, consultation regarding tax implications of acquisitions and assistance with tax audit defense matters.

All Other Fees.    Other fees consist of a subscription to Ernst & Young Online, a proprietary knowledge management and research system.

All fees described above were approved by the Audit Committee. The Audit Committee has determined the rendering of the tax consulting services by Ernst & Young LLP is compatible with maintaining that firm’s independence.

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Pre-Approval Policies and Procedures

Our Audit Committee has adopted a policy and procedures for the pre-approval of all audit and non-audit services to be rendered by our independent registered public accounting firm, Ernst & Young LLP. Under the policy, the Audit Committee generally pre-approves specified services in defined categories up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of our independent registered public accounting firm or on a case-by-case basis for specific tasks before engagement. Our Audit Committee has delegated the pre-approval of services to its Chairman who is required to report each pre-approval to the full Audit Committee no later than its next meeting.

Required Vote and Audit Committee Recommendation

Approval of Proposal 5 requires the affirmative vote of a majority of the shares present or represented by proxy and entitled to vote at the annual meeting. Abstentions will be counted toward the tabulation of votes cast on the proposal and will have the same effect as “Against” votes. Broker non-votes will have no effect on the outcome of the vote.

THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 5.

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PRINCIPAL HOLDERS OF COMMON STOCK

The following table sets forth the only person who, to our knowledge, owned beneficially as of December 31, 2006, more than 5% of the outstanding shares of our common stock:

Name and Address	Number of Shares	Percent of Total(1)
Dimensional Fund Advisors, Inc.(2)	22,388,280	7.9	%
1299 Ocean Avenue
11th Floor
Santa Monica, CA 90401

(1) The percentage is based on 281,826,071 shares of common stock outstanding on December 31, 2006.

(2) According to a Schedule 13G filed with the SEC on February 6, 2006, as updated by a Schedule 13F filed with the SEC on October 30, 2006. Dimensional Fund Advisors, Inc. holds investment power and voting power over these securities, but funds managed by Dimensional Fund Advisors, Inc. have ownership of the securities.

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SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS

The following table shows the beneficial ownership, reported to us as of December 31, 2006, of our common stock, including shares as to which a right to acquire ownership exists (by the exercise of stock options) within the meaning of Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, or the 1934 Act, of each of our current directors; each of the following individuals, or the Named Executive Officers: our Chief Executive Officer as of March 31, 2006, our other four other most highly compensated executive officers as of March 31, 2006, and two former executive officers that were no longer serving as executive officers as of March 31, 2006; and all of our current directors and executive officers as a group.

Name(1)	Number of Shares(2)	Percent of Total(3)
Cesar Cesaratto(4)	310,000	*
Murray A. Goldman, Ph.D.(5)	83,334	*
Kambiz Y. Hooshmand(6)	1,473,960	*
Niel Ransom	—	—
Fred Shlapak(7)	18,750	*
Arthur B. Stabenow(8)	647,593	*
Julie H. Sullivan, Ph.D.(9)	91,667	*
Harvey P. White(10)	501,667	*
David B. Wright(11)	97,917	*
Robert G. Gargus(12)	196,876	*
Onchuen D. Lau(13)	298,792	*
Barbara Murphy(14)	245,180	*
Faye Pairman	–—	—
Brian F. Wilkie(15)	280,918	*
All current executive officers and directors as a group (16 persons)(16)	4,383,956	1.53	%

* Less than one percent.

(1) The address for our executive officers and directors is: c/o Applied Micro Circuits Corporation, 215 Moffett Park Drive, Sunnyvale, California 94089.

(2) The persons named in this table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and except as indicated in the other footnotes to this table.

(3) In computing the number of shares beneficially owned by a person and the percentage ownership of that person, shares of common stock subject to options held by that person that are exercisable within 60 days after December 31, 2006 are deemed outstanding. Such shares are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Applicable percentages are based on 281,826,071 shares of common stock outstanding on December 31, 2006.

(4) Includes 310,000 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(5) Includes 83,334 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(6) Includes 1,473,960 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(7) Includes 18,750 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(8) Includes 391,667 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(9) Includes 91,667 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(10) Includes 491,667 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

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(11) Includes 97,917 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(12) Includes 196,876 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(13) Includes 294,792 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(14) Includes 245,180 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(15) Includes 280,918 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

(16) Includes 4,111,632 shares of common stock issuable upon the exercise of options that are exercisable within 60 days of December 31, 2006.

SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the 1934 Act requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required during the fiscal year ended March 31, 2006, all Section 16(a) filing requirements applicable to our reporting persons were timely made.

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EQUITY COMPENSATION PLAN INFORMATION

The following table provides certain information regarding our equity compensation plans in effect as of March 31, 2006:

Plan Category	Number of shares to be issued upon exercise of outstanding options (a)	Weighted-average exercise price of outstanding options (b)		Number of shares remaining available for future issuance under equity compensation plans (excluding securities in column (a)) (c)
Equity compensation plans approved by stockholders(1)	22,053,259	$	5.98	28,464,325
Equity compensation plans not approved by stockholders(2)	29,869,964		5.74	35,582,130
Total(3)(4)	51,923,223		5.84	64,046,455

(1) Includes 9,198,676 shares available for future issuance under our 1998 Employee Stock Purchase Plan.

(2) Includes the 2000 Plan, our 1998 Stock Incentive Plan (assumed in our acquisition of Cimaron Communications Corporation) and our 1997 and 1999 Stock Option Plans (assumed in our acquisition of JNI Corporation). See the plan descriptions below.

(3) Excludes options assumed through acquisitions in which we did not assume the related equity incentive plan; at March 31, 2006, such options to purchase 2,172,728 shares were outstanding with a weighted-average exercise price of $5.26 per share.

(4) If Proposal 3 is approved, the 1992 Plan will serve as a successor to the 2000 Plan and we will thereafter no longer issue equity awards under the 2000 Plan or any of our other equity incentive plans except for the 1992 Plan (with the exception of any restricted stock units to be granted from the 2000 Plan in exchange for the stock options surrendered pursuant to the exchange program).

Equity Compensation Plans Not Approved by Stockholders

In March 2000, we adopted the 2000 Plan. We have reserved a total of 62,000,000 shares for the grant of NSOs, stock bonuses and rights to purchase restricted stock to our employees, directors and consultants under the 2000 Plan. At December 31, 2006, options and restricted stock units covering 27,646,588 shares were outstanding and 32,096,725 shares were available for future grant under the 2000 Plan. Assuming that only options with exercise prices equal to or greater than $4.90 per share are eligible to participate in the exchange program, that 100% of eligible employees participate in the exchange program, and that the exchange ratios described in the table set forth under “Exchange Ratios” in Proposal 2 above are applied, eligible options under the 2000 Plan covering approximately 9,568,212 shares as of December 31, 2006 would be surrendered and cancelled, while approximately 2,566,867 restricted stock units would be issued from the 2000 Plan in exchange for the surrendered options.

In connection with our acquisition of Cimaron in March 1999, we assumed options and other stock awards granted under Cimaron’s 1998 Stock Incentive Plan covering 7,470,456 shares of common stock. The terms of the plan provide for the grant of NSOs, restricted stock, or other stock based awards to employees, officers, directors, consultants, and advisors. At March 31, 2006, 3,976 shares were outstanding and 3,355,535 shares were available for future grant under the 1998 Stock Incentive Plan.

In connection with our acquisition of JNI in October 2003, we assumed options granted under JNI’s 1997 and 1999 Stock Option Plans covering 2,318,297 shares of common stock, and the 1,778,606 shares remaining available for future grant under these plans were added to the share reserve under the 1992 Plan, a stockholder approved plan. At March 31, 2006, 24,869 shares were outstanding under the JNI plans and 2,258,813 shares were available for future grant under the 1992 Plan from the assumed JNI plans.

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Our Board of Directors or a committee thereof determines eligibility, vesting schedules and exercise prices for options granted under the plans. Options and other stock awards under the plans and other options granted or assumed without obtaining approval of our stockholders 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 us until such ownership rights have vested, or are exercisable upon vesting. Vesting generally occurs over four years, subject in certain cases to acceleration upon the occurrence of specified events. Options are granted at prices at least equal to the fair market value of our common stock on the date of grant. None of these plans was required to be approved by our stockholders at the time the plan was implemented and these plans were therefore never submitted to stockholders for approval.

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COMPENSATION OF DIRECTORS

Directors’ compensation is only paid to non-employee directors.

Board of Directors Annual Retainer:  $12,000

Chairman of the Board Annual Retainer:  $24,000

Audit Committee Chairman Annual Retainer:  $16,000

Compensation Committee and Governance & Nominating Committee Chairmen Annual Retainer:  $12,000

Committee Member Annual Retainer:  $8,000

Meeting fees:  $2,000 per Board of Directors meeting attended and $500 per telephonic Board of Directors meeting attended, $1,000 per Committee meeting attended and $500 per telephonic Committee meeting attended.

Additional fees:  We have also authorized payment of a fee of $500 per meeting attended by members of our Enterprise Risk Management Committee who are non-employee directors, a fee of $1,000 per meeting attended by the chairman of our Compensation Committee with our independent compensation consultant and a fee of $500 per in-person or telephonic meeting attended by members of our Audit Committee related to our review of our historical stock option grant practices and related accounting.

Expenses:  Reasonable travel-related expenses are reimbursed for attendance at Board and Committee Meetings.

Aggregate Directors Compensation:  In the fiscal year ended March 31, 2006, the total compensation paid to all non-employee directors as a group was $408,978.

Stock Options:  Each person who becomes one of our non-employee directors is granted a stock option to purchase 75,000 shares of common stock on the date on which the optionee first becomes a non-employee director unless our trading window is closed under our insider trading policy, in which case such option is granted on the first day our trading window is open following the date the optionee first becomes a non-employee director. The exercise price of each stock option granted is equal to the fair market value of one share of common stock on the date of grant. Options granted become exercisable or “vest” in 36 equal monthly installments following the date the director is first elected.

On the second day following our release of earnings for each fiscal year, each non-employee director is granted an option to purchase 50,000 shares of common stock if on such date, he or she has served on our Board for at least six months. The Chairman of the Board is granted an additional option to purchase 10,000 shares of common stock on such date. The exercise price of each stock option granted is equal to the fair market value of one share of common stock on the date of grant. Options granted vest in 12 equal monthly installments following the date of grant.

In the event of a dissolution or liquidation, a sale of all or substantially all of our assets, a merger or consolidation in which we are not the surviving corporation, or any other capital reorganization in which more than 50% of our shares entitled to vote are exchanged, either:

• the director will be given a reasonable time within which to exercise the option, including as to any otherwise unvested shares prior to the effectiveness of such event after which the option will terminate, or

• the director will be given the right to exercise the option, including as to any otherwise unvested shares, for an equivalent number of shares of stock of the acquiring or surviving corporation.

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COMPENSATION OF EXECUTIVE OFFICERS

The following table shows, for the fiscal years ended March 31, 2006, 2005 and 2004, the compensation awarded or paid to, or earned by, each of the Named Executive Officers:

Summary Compensation Table

		Annual Compensation			Other Annual Compensation ($)		Long-Term Compensation Awards	All Other Compensation ($)(2)
							Securities Underlying Options/ SARs(#)
Name and Principal Position	Year	Salary       ($)(1)	Bonus ($)
Kambiz Y. Hooshmand(3)	2006	401,538	300,000	(4)	96,265	(5)	250,000	320,032
President and Chief Executive Officer	2005	13,849	—		—		2,750,000	—
Robert G. Gargus(6)	2006	110,577	—		—		350,000	—
Senior Vice President, Chief Financial Officer and Chief Accounting Officer
Onchuen D. Lau(7)	2006	214,000	100,000	(8)	—		650,000	—
Senior Vice President and General Manager, ICP Business Unit
Barbara Murphy	2006	199,314	1,200		—		62,000	2,000
Vice President and General Manager, Storage Business
Faye Pairman(9)	2006	247,620	—		—		200,000	—
Former Senior Vice President and General Manager, Storage Business	2005	244,604	—		—		75,000	—
Brian F. Wilkie(10)	2006	190,731	121,500	(8)	—		60,000	1,806
Former Vice President and General Manager of Embedded Products	2005	157,889	90,000	(8)	—		235,000	2,000

(1) Includes the officers’ pre-tax contributions to our 401(k) plan.

(2) Includes our matching contributions under our 401(k) plan, annual premiums paid by us on a term life insurance policy and a payment made by us in lieu of the reimbursement of certain closing costs as provided in an amendment to Mr. Hooshmand’s employment agreement. See “Employment, Severance and Change of Control Agreements.”

(3) Mr. Hooshmand’s employment with us commenced in March 2005.

(4) Guaranteed bonus payable per Mr. Hooshmand’s employment agreement. See “Employment, Severance and Change of Control Agreements.”

(5) Includes relocation expenses of $96,265 paid by us.

(6) Mr. Gargus’ employment with us commenced in October 2005.

(7) Mr. Lau’s employment with us commenced in May 2005.

(8) Fixed bonus paid per employment agreement.

(9) Ms. Pairman’s employment with us terminated in February 2006.

(10) Mr. Wilkie served as our Vice President and General Manager of Embedded Products until September 2005 when he was named our Vice President and Assistant General Manager, ICP Business Unit.

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Option Grants In Last Fiscal Year

The following table shows information regarding options granted to the Named Executive Officers for fiscal 2006 and hypothetical gains on those options based on 5% or 10% annual compound stock price appreciation during the ten-year option term. All the grants were made under the 1992 Plan or the 2000 Plan. No stock appreciation rights were granted to any of the Named Executive Officers during fiscal 2006.

	Individual Grants				Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term(1)
	Number of Securities Underlying Options Granted (#)	% of Total Options Granted to Employees in Fiscal Year	Exercise Price ($/Sh)(2)	Expiration Date
Name					5% ($)	10% ($)
Kambiz Y. Hooshmand	250,000	2.6874	2.98	6/2/15	486,526	1,187,338
Robert G. Gargus	234,500 115,500	2.5208 1.2416	2.82 3.10	10/10/15 10/10/15	415,882 172,266	1,053,926 486,527
Onchuen D. Lau	234,500 115,500 99,000 201,000	2.5208 1.2416 1.0642 2.1607	2.86 3.15 2.64 2.40	5/31/15 5/31/15 10/28/15 10/28/15	421,781 174,708 125,665 303,379	1,068,875 493,428 354,913 768,821
Barbara Murphy	62,000	0.6665	2.98	9/29/10	51,046	112,798
Faye Pairman	134,000 66,000	1.4405 0.7095	2.40 2.64	10/28/15 10/28/15	202,253 83,777	512,548 236,609
Brian F. Wilkie	60,000	0.6450	2.98	9/29/10	49,399	109,159

(1) The 5% and 10% assumed annual rates of compounded stock price appreciation are prescribed by the rules and regulations of the SEC and do not represent our estimate or projection of the future trading prices of our common stock. Unless the market price of the common stock appreciates over the option term, no value will be realized from these option grants. Actual gains, if any, on stock option exercises are dependent on numerous factors, including, without limitation, our future performance, overall business and market conditions, and the optionee’s continued employment with us throughout the entire vesting period, which factors are not reflected in this table.

(2) The exercise price may be paid in cash or in shares of common stock valued at the fair market value on the exercise date. Options may also be exercised, to the extent permissible under applicable law and our policy, through a cashless exercise procedure pursuant to which the optionee provides irrevocable instructions to a brokerage firm to sell the purchased shares and to remit to us, out of the sale proceeds, an amount equal to the exercise price plus all applicable withholding taxes.

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The foregoing table does not include options granted to the Named Executive Officers after March 31, 2006, the end of our fiscal year. In connection with its annual review of officer compensation, on April 4, 2006 the Compensation Committee granted to each of the Named Executive Officers the options set forth below, effective as of April 28, 2006, the second trading day following the public disclosure of the financial results for our fourth fiscal quarter, which were announced on April 26, 2006:

	Individual Grants
Name	Number of Securities Underlying Options Granted (#)		Exercise Price ($/Sh)		Expiration Date
Kambiz Y. Hooshmand	375,000	(1)	$	3.67	4/27/16
	375,000	(2)	$	3.67	4/27/16
	187,500	(3)	$	3.67	4/27/16
	187,500	(3)	$	4.037	4/27/16
Robert G. Gargus	117,500	(1)	$	3.67	4/27/16
	117,500	(4)	$	3.67	4/27/16
	75,000	(4)	$	3.67	4/27/16
	75,000	(4)	$	4.037	4/27/16
	58,750	(5)	$	3.67	4/27/16
	58,750	(5)	$	4.037	4/27/16
Onchuen D. Lau	100,000	(1)	$	3.67	4/27/16
	100,000	(4)	$	3.67	4/27/16
	50,000	(5)	$	3.67	4/27/16
	50,000	(5)	$	4.037	4/27/16
Barbara Murphy	60,000	(1)	$	3.67	4/27/16
	60,000	(2)	$	3.67	4/27/16
	30,000	(3)	$	3.67	4/27/16
	30,000	(3)	$	4.037	4/27/16
	15,000	(2)	$	3.67	4/27/16
	15,000	(2)	$	4.037	4/27/16
Faye Pairman	—			—	—
Brian F. Wilkie	22,500	(1)	$	3.67	4/27/16
	22,500	(2)	$	3.67	4/27/16
	11,250	(3)	$	3.67	4/27/16
	11,250	(3)	$	4.037	4/27/16

(1) The option becomes exercisable only if we achieve specific revenue and non-GAAP pre-tax profit targets in any fiscal quarter before fiscal 2010. If such targets are not achieved in any fiscal quarter before fiscal 2010, the option will expire.

(2) The option vests in 48 equal monthly installments beginning one month after the grant date.

(3) The option vests in 48 equal monthly installments beginning one month after the grant date; provided, however, if we achieve specific stretch goals under our fiscal 2007 operating plan, the vesting of the option will accelerate such that the option will be fully exercisable at the end of two years instead of four years.

(4) The option vests in 48 equal monthly installments beginning one month after the grant date but only becomes exercisable on the first anniversary of the optionee’s commencement of employment, at which time all vested installments become exercisable.

(5) The option vests in 48 equal monthly installments beginning one month after the grant date but only becomes exercisable on the first anniversary of the optionee’s commencement of employment, at which time all vested installments become exercisable; provided, however, if we achieve specific stretch goals under our fiscal 2007 operating plan, the vesting of the option will accelerate such that the option will be fully exercisable at the end of two years instead of four years.

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Aggregated Option Exercises In Last Fiscal Year And

Fiscal Year End Option Values

The following table shows certain information regarding options exercised during fiscal 2006 and options held at March 31, 2006 by the Named Executive Officers. We had no stock appreciation rights outstanding during fiscal 2006.

Name	Options Exercised During Fiscal 2006		Options Held at Fiscal Year End
	Shares Acquired on Exercise (#)	Value Realized ($)	Number of Securities Underlying Unexercised Options Exercisable/Unexercisable (#)	Value of Unexercised In-the-Money Options Exercisable/Unexercisable ($)
Kambiz Y. Hooshmand	—	—	687,500/2,312,500	547,113/1,913,838
Robert G. Gargus	—	—	0/350,000	0/404,929
Onchuen D. Lau	—	—	0/650,000	0/867,707
Barbara Murphy	—	—	133,836/116,369	418,388/271,380
Faye Pairman	627,816	2,136,891	14,313/0	6,626/0
Brian F. Wilkie	—	—	92,750/42,250	59,350/44,116

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EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS

In March 2005, we entered into a letter agreement with Kambiz Y. Hooshmand, pursuant to which Mr. Hooshmand serves as our President and Chief Executive Officer. Under the agreement, Mr. Hooshmand receives a base salary at an annual rate of $400,000. The agreement also provides that Mr. Hooshmand is eligible to participate in any annual bonus program that our Compensation Committee may establish. For the first year of his employment Mr. Hooshmand received a guaranteed bonus of $300,000. In March 2005, Mr. Hooshmand was granted a stock option to purchase 2,750,000 shares of our common stock. The option has a term of ten years and vests over a four-year period. Twenty percent of the 2,750,000 share stock option grant was priced at a 10% premium to the fair market value of our common stock on the grant date. The remaining 80% of the 2,750,000 share stock option grant was priced at the fair market value of our common stock on the grant date. Mr. Hooshmand was granted an additional stock option to purchase 250,000 shares in June 2005. The 250,000 share stock option grant was priced at fair market value on the grant date and will vest and become exercisable only upon the achievement of revenue and operating income objectives. Mr. Hooshmand is eligible for our standard medical, dental and life insurance benefits, 401(k) plan and our deferred compensation plan. We also pay for a supplemental life insurance policy with a face value of $2 million for the benefit of Mr. Hooshmand’s designated beneficiary. The agreement also provided for the reimbursement of his relocation and temporary living expenses (including tax reimbursement for any taxable income realized upon such reimbursement) along with other benefits commensurate with those offered to our other executive officers. Pursuant to the agreement, if we terminate Mr. Hooshmand’s employment without cause or if Mr. Hooshmand terminates his employment for good reason, we will pay a separation payment equal to 18 months’ base salary, less applicable withholdings and deductions. We will also pay Mr. Hooshmand a pro rata portion of a $300,000 bonus. In such event, Mr. Hooshmand’s 2,750,000 share stock option grant will immediately vest as if he had completed an additional 24 months of service with us and will be exercisable for an additional 24 months after the date of termination (or, if earlier, on the original expiration date of such option). If Mr. Hooshmand’s employment is terminated by us or he resigns for good reason within 12 months following a change of control, he will also receive the foregoing severance benefits.

In February 2006, we entered into an amendment to our letter agreement with Mr. Hooshmand pursuant to which in lieu of the reimbursement of up to $160,000 in closing costs pursuant to the letter agreement, we agreed to pay Mr. Hooshmand a one-time payment of approximately $317,000 to be used by him exclusively for the purchase of a residence in the San Diego area and to cover the related federal, state or local taxes payable by Mr. Hooshmand. The amendment further provides that in the event Mr. Hooshmand voluntarily leaves his employment with us, or is terminated by us for “cause” (as defined in the agreement), during the 18-month period following the initial disbursement of the payment, then Mr. Hooshmand shall be required to reimburse us for the full amount of the payment.

In September 2005, we entered into a letter agreement with Robert G. Gargus, pursuant to which Mr. Gargus serves as our Senior Vice President, Chief Financial Officer and Chief Accounting Officer. Under the agreement, Mr. Gargus receives a base salary at an annual rate of $250,000. The agreement also provides that Mr. Gargus is eligible to participate in any annual bonus program that our Compensation Committee may establish. In October 2005, Mr. Gargus was granted a stock option to purchase an aggregate of 350,000 shares of our common stock. The option has a term of ten years and vests over a four-year period. Thirty-three percent of the stock option grant was priced at a 10% premium to the fair market value of our common stock on the grant date. The remaining 67% of the stock option grant was priced at the fair market value of our common stock on the grant date. Mr. Gargus is eligible for our standard medical, dental and life insurance benefits, 401(k) plan and our deferred compensation plan. Pursuant to the agreement, if we undergo a change in control, and Mr. Gargus’ employment is terminated within 12 months of such change in control, Mr. Gargus will receive a separation payment equal to 12 months’ base salary, less applicable withholdings and deductions. In addition, Mr. Gargus’ stock option grant will immediately vest as if he had completed an additional 12 months of service with us, and will be exercisable for an additional 15 months after the date of termination, provided Mr. Gargus has completed

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up to seven years of employment with us, or for an additional 24 months after the date of termination, provided Mr. Gargus has completed seven or more years of service with us (or in each case, on the original expiration date of such option, if earlier).

In April 2005, we entered into a letter agreement with Onchuen D. Lau, pursuant to which Mr. Lau serves as our Senior Vice President and General Manager, ICP Business Unit. Under the agreement, Mr. Lau receives a base salary at an annual rate of $260,000. The agreement also provides that Mr. Lau is eligible to participate in any annual bonus program that our Compensation Committee may establish. For the first year of his employment Mr. Lau is entitled to receive a guaranteed bonus of $50,000, paid after the close of our fiscal 2006. Pursuant to the agreement, Mr. Lau also received a $100,000 signing bonus, which Mr. Lau must reimburse to us if he voluntarily terminates his employment with us within 12 months of his hire date. In May 2005, Mr. Lau was granted a stock option to purchase an aggregate of 350,000 shares of our common stock. The option has a term of ten years and vests over a four-year period. Thirty-three percent of the stock option grant was priced at a 10% premium to the fair market value of our common stock on the grant date. The remaining 67% of the stock option grant was priced at the fair market value of our common stock on the grant date. Mr. Lau is eligible for our standard medical, dental and life insurance benefits, 401(k) plan and our deferred compensation plan.

In March 2004, we entered into an Employment and Non-Solicitation Agreement with Barbara Murphy, pursuant to which Ms. Murphy serves as our Vice President and General Manager, Storage Business. Pursuant to the agreement, Ms. Murphy receives a base salary at an annual rate of $220,000. The agreement provides that if we terminate Ms. Murphy without cause or she resigns with good reason, she is entitled to receive a lump sum severance payment equal to 6 months base salary, reimbursement of her medical insurance premiums for 6 months after the termination of employment and 12 months vesting credit on the stock options previously granted by 3Ware and assumed by us when we acquired 3Ware, subject to Ms. Murphy’s agreement to abide by the surviving terms of her confidentiality agreements and her execution of a full general release in favor of us.

In May 2004, we entered into an Employment and Non-Solicitation Agreement with Brian F. Wilkie, pursuant to which Mr. Wilkie served as our Vice President and General Manager of Embedded Products until September 2005 when he was named our Vice President and Assistant General Manager, ICP Business Unit. The agreement provided that Mr. Wilkie would receive an annual base salary of $190,000 and a quarterly bonus of $30,000 for the three-year term of the agreement. Pursuant to the agreement, if we terminate Mr. Wilkie’s employment without cause or Mr. Wilkie resigns with good reason, we will pay him a lump sum severance payment equal to the remaining quarterly bonus amounts that he would have received during the remainder of the term of the agreement provided Mr. Wilkie abides by the surviving terms of his confidentiality agreements and executes a full general release in our favor.

In March 2004, we entered into an Employment and Non-Solicitation Agreement with Faye Pairman, pursuant to which Ms. Pairman served as our Senior Vice President and General Manager, Storage Business prior to the termination of her employment. The agreement provided that Ms. Pairman received an annual base salary of $252,000. Ms. Pairman’s employment with us terminated in February 2006. Pursuant to the agreement, upon termination of her employment Ms. Pairman received a lump sum severance payment equal to 12 months base salary, reimbursement of her medical insurance premiums for 12 months after the termination of employment and 24 months vesting credit on the stock options previously granted by 3Ware and assumed by us when we acquired 3Ware, subject to Ms. Pairman’s agreement to abide by the surviving terms of her confidentiality agreements and her execution of a full general release in favor of us.

We offer a nonqualified deferred compensation plan to a select group of our management or highly compensated employees. The deferred compensation plan enables employees to make a pre-tax elective deferral in excess of those permitted under our 401(k) plan. The Named Executive Officers are eligible to participate in this plan. In accordance with the terms of the deferred compensation plan, in the case of a change in control, all participants’ accounts would be distributed in a lump sum payment as soon as administratively possible. Participants in the deferred compensation plan must elect how their funds will be distributed upon retirement or termination of employment prior to contributing to the plan.

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In accordance with the terms of our equity incentive plans, if we enter into certain change-of-control transactions, any option granted to purchase shares of common stock held by a person whose service with us has not terminated generally 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 year after the date of the change-of-control transaction. This would apply to options granted to any of the Named Executive Officers. Our stock option plans provide for a post-termination exercise period upon retirement or termination of employment.

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CERTAIN TRANSACTIONS

We have entered into indemnification agreements with our officers and directors containing provisions that may require us, among other things, to indemnify our officers and directors against certain liabilities that may arise by reason of their status or service as officers or directors (other than liabilities arising from willful misconduct of a culpable nature) and to advance their expenses incurred as a result of any proceeding against them as to which they could be indemnified.

We believe that the transactions set forth in this section were made on terms no less favorable to us than could have been obtained from unaffiliated third parties. All future transactions between us and our officers, directors, principal stockholders and affiliates will be approved by a majority of the Board, including a majority of the independent and disinterested outside directors on the Board, and will be on terms no less favorable to us than could be obtained from unaffiliated third parties.

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PERFORMANCE GRAPH

COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN⁴

The below graph compares the five-year cumulative total return for AMCC common stock with the comparable cumulative return of four indices. The graph assumes $100 invested on March 31, 2001, in AMCC common stock and $100 invested at that same time in each of the other indexes. The comparison assumes that all dividends are reinvested. The stock price performance on the following graph is not necessarily indicative of future stock price performance.

	3/31/2001	3/31/2002	3/31/2003	3/31/2004	3/31/2005	3/31/2006
S & P Index	100.00	100.24	75.42	101.91	108.72	121.46
Nasdaq US	100.00	100.78	73.97	109.18	109.90	129.60
Nasdaq Electronic	100.00	106.13	61.22	106.76	85.40	97.02
Nasdaq—Telecommunications Stocks	100.00	54.15	40.04	54.29	59.59	61.15
AMCC Common Stock	100.00	48.48	19.76	34.61	19.88	24.67

⁴ This section is not “soliciting material,” is not deemed “filed” with the SEC and is not to be incorporated by reference in any of our filings under the 1933 Act or the 1934 Act whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

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CERTAIN MATTERS RELATING TO PROXY MATERIALS

The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single set of proxy materials addressed to those stockholders. This process, which is commonly referred to as “householding,” potentially means extra convenience for stockholders and cost savings for companies.

This year, a number of brokers with account holders who are AMCC stockholders will be “householding” our proxy materials. A single set of proxy materials will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be “householding” communications to your address, “householding” will continue until you are notified otherwise or until you revoke your consent. If, at any time, you no longer wish to participate in “householding” and would prefer to receive a separate proxy statement and annual report, please notify your broker. If you are holding a physical stock certificate, direct your written request to Computershare Trust Company, N.A., Marta De La Torre, Relationship Manager, 250 Royall Street, Canton, MA 02021. Stockholders who currently receive multiple copies of proxy materials at their address and would like to request “householding” of their communications should contact their broker or Computershare Trust Company, N.A.

AVAILABLE INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may inspect and copy such material at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. You may also obtain copies of these documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the operation of the public reference facilities. You also can find our SEC filings at the SEC’s website at www.sec.gov.

The SEC allows us to incorporate by reference, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is deemed to be part of this proxy statement, except for any information superseded by information in this proxy statement. This proxy statement incorporates by reference the information in Item 8, “Financial Statements and Supplementary Data,” and in part (b) of Item 10, “Directors and Executive Officers of the Registrant,” in our annual report on Form 10-K for the fiscal year ended March 31, 2006.

A copy of our annual report on Form 10-K for the fiscal year ended March 31, 2006 is available without charge upon written request to: Investor Relations, Applied Micro Circuits Corporation, 215 Moffett Park Drive, Sunnyvale, CA 94089 or is available on line at www.amcc.com.

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OTHER MATTERS

The Board of Directors knows of no other matters that will be presented for consideration at the annual meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on such matters in accordance with their best judgment.

By Order of the Board of Directors

Cynthia J. Moreland

Secretary

February 2, 2007

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APPENDIX A

APPLIED MICRO CIRCUITS CORPORATION

AMENDED AND RESTATED

1992 EQUITY INCENTIVE PLAN

APPROVED BY BOARD ON: JANUARY 11, 2007

APPROVED BY STOCKHOLDERS: MARCH 9, 2007

TERMINATION DATE: JANUARY 10, 2017

1. GENERAL.

(a) Amendment and Restatement of Prior Plans.    This Plan was adopted by the Board on the Adoption Date to be effective as provided in Section 11 on the Effective Date. The Plan is intended as an amendment and restatement of the Applied Micro Circuits Corporation 1992 Stock Option Plan (the “1992 Option Plan”) and a continuation of and successor to the Applied Micro Circuits Corporation 2000 Equity Incentive Plan (the “2000 Plan”) (together, the “Prior Plans”). Following the Effective Date of this Plan, no additional stock awards shall be granted under the Prior Plans (other than restricted stock unit awards granted under the 2000 Plan in exchange for outstanding options as part of the option exchange program that the Company proposes to implement subject to obtaining stockholder approval at an annual meeting of stockholders of the Company held in 2007 (the “Exchange Program”)). Any shares remaining available for issuance pursuant to the exercise of options or settlement of stock awards under the Prior Plans shall be added to the share reserve of this Plan and available for issuance pursuant to Stock Awards granted hereunder. All outstanding stock awards granted under the Prior Plans shall remain subject to the terms of the Prior Plans, except that the Board may elect to extend one or more of the features of the Plan to stock awards granted under the Prior Plans. Any shares subject to outstanding stock awards granted under the Prior Plans that expire or terminate for any reason prior to exercise or settlement shall be added to the share reserve of this Plan and become available for issuance pursuant to Stock Awards granted hereunder. All Stock Awards granted subsequent to the Effective Date of this Plan shall be subject to the terms of this Plan.

(b) Eligible Award Recipients.    The persons eligible to receive Awards are Employees, Directors and Consultants.

(c) Available Awards.    The Plan provides for the grant of the following Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Restricted Stock Awards, (iv) Restricted Stock Unit Awards, (v) Stock Appreciation Rights, (vi) Performance Stock Awards, (vii) Performance Cash Awards, and (viii) Other Stock Awards.

(d) General Purpose.    The Company, by means of the Plan, seeks to secure and retain the services of the group of persons eligible to receive Awards as set forth in Section 1(b), to provide incentives for such persons to exert maximum efforts for the success of the Company and any Affiliate and to provide a means by which such eligible recipients may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Stock Awards.

2. ADMINISTRATION.

(a) Administration by Board.    The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee or Committees, as provided in Section 2(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 (A) which of the persons eligible under the Plan shall be granted Awards; (B) when and how each Award shall be granted; (C) what type or combination of types of Award

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shall be granted; (D) the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash or Common Stock pursuant to a Stock Award; and (E) 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 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 or in the written terms of a Performance Cash Award, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Award fully effective.

(iii) To settle all controversies regarding the Plan and Awards granted under it.

(iv) To accelerate the time at which a Stock Award may first be exercised or the time during which an Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Award stating the time at which it may first be exercised or the time during which it will vest.

(v) To suspend or terminate the Plan at any time. 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 affected Participant.

(vi) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan or Stock Awards granted under the Plan into compliance therewith, subject to the limitations, if any, of applicable law. However, except as provided in Section 9(a) relating to Capitalization Adjustments, stockholder approval shall be required for any amendment of the Plan that either (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (D) materially extends the term of the Plan, or (E) expands the types of Awards available for issuance under the Plan, but only to the extent required by applicable law or listing requirements. Except as provided above, rights under any Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.

(vii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (i) 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 Covered Employees, (ii) Section 422 of the Code regarding Incentive Stock Options or (iii) Rule 16b-3.

(viii) To approve forms of Award Agreements for use under the Plan and to amend the terms of any one or more Awards or stock awards granted under the Prior Plans, including, but not limited to, amendments to provide terms more favorable than previously provided in the Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that, the Participant’s rights under any Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the affected Participant, and (ii) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, and without the affected Participant’s consent, the Board may amend the terms of any one or more Awards if necessary to maintain the qualified status of the Award as an Incentive Stock Option or to bring the Award into compliance with Section 409A of the Code and the related guidance thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date.

(ix) 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 and that are not in conflict with the provisions of the Plan or Awards.

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(x) To adopt such procedures and sub-plans as are necessary or appropriate to permit or facilitate participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States.

(c) Delegation to Committee.

(i) General.    The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration of the Plan is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee 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 retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

(ii) Section 162(m) and Rule 16b-3 Compliance.    In the sole discretion of the Board, the Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or the Committee, in its sole discretion, may (A) delegate to a Committee of Directors who need not be Outside Directors the authority to grant Awards to eligible persons who are either (I) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (II) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, or (B) delegate to a Committee of Directors who need not be 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) Delegation to an Officer.    The Board may delegate to one or more Officers the authority to do one or both of the following (i) designate Employees who are not Officers to be recipients of Options (and, to the extent permitted by Delaware law, other Stock Awards) and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding anything to the contrary in this Section 2(d), the Board may not delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to Section 13(v)(ii) below.

(e) 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.

(f) Cancellation and Re-Grant of Stock Awards.    Neither the Board nor any Committee shall have the authority to: (i) reprice any outstanding Stock Awards under the Plan, or (ii) cancel and re-grant any outstanding Stock Awards under the Plan, unless the stockholders of the Company have approved such an action within twelve (12) months prior to such an event.

3. SHARES SUBJECT TO THE PLAN.

(a) Share Reserve.    Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards after the Effective Date shall not exceed [                                                                                                                           (                  )] shares of Common Stock (such number consisting of (i) the number of shares remaining available for issuance under the 1992 Option Plan as of the Effective Date, (ii) an additional Nine Million (9,000,000) shares to be approved by the stockholders at the annual meeting of stockholders of the Company scheduled to be held on

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March 9, 2007 as part of the approval of this Plan, and (iii) the number of shares subject to outstanding stock awards under the 1992 Option Plan as of the Effective Date), plus the number of shares added to the reserve pursuant to subsection 3(b). For clarity, the limitation in this subsection 3(a) is a limitation in the number of shares of the Common Stock that may be issued pursuant to the Plan. Accordingly, this subsection 3(a) does not limit the granting of Stock Awards except as provided in subsection 7(a). Shares may be issued in connection with a merger or acquisition as permitted by NASD Rule 4350(i)(1)(A)(iii) or, if applicable, NYSE Listed Company Manual Section 303A.08, or AMEX Company Guide Section 711 and such issuance shall not reduce the number of shares available for issuance under the Plan. Furthermore, if a Stock Award (i) expires or otherwise terminates without having been exercised in full or (ii) is settled in cash (i.e., the holder of the Stock Award receives cash rather than stock), such expiration, termination or settlement shall not reduce (or otherwise offset) the number of shares of the Common Stock that may be issued pursuant to the Plan.

(b) Additions to the Share Reserve.    The share reserve under the Plan also shall be increased from time to time by a number of shares equal to the number of shares of Common Stock that (i) are issuable pursuant to options or stock awards outstanding under the 2000 Plan as of the Effective Date of the Plan and restricted stock unit awards granted under the 2000 Plan in exchange for outstanding options that are surrendered as part of the Exchange Program and (ii) but for this provision, would otherwise have reverted to the share reserve of the 2000 Plan pursuant to the provisions thereof; provided, however, that those shares of Common Stock issuable pursuant to options outstanding under the 2000 Plan that are surrendered as part of the Exchange Program shall not increase the share reserve of this Plan.

(c) Reversion of Shares to the Share Reserve.    If any shares of Common Stock issued pursuant to a Stock Award are forfeited back to the Company because of the failure to meet a contingency or condition required to vest such shares in the Participant, then the shares which are forfeited shall revert to and again become available for issuance under the Plan. Also, any shares reacquired by the Company pursuant to subsection 8(g) or as consideration for the exercise of an Option shall again become available for issuance under the Plan. Notwithstanding the provisions of this subsection 3(c), any such shares shall not be subsequently issued pursuant to the exercise of Incentive Stock Options.

(d) Incentive Stock Option Limit.    Notwithstanding anything to the contrary in this Section 3(d), subject to the provisions of Section 9(a) relating to Capitalization Adjustments the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options granted after the Effective Date shall be One Hundred Million (100,000,000) shares of Common Stock.

(e) Section 162(m) Limitation on Annual Grants.    Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted during any calendar year Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value of the Common Stock on the date the Stock Award is granted covering more than Five Million (5,000,000) shares of Common Stock.

(f) Source of Shares.    The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company.

4. ELIGIBILITY.

(a) Eligibility for Specific Stock Awards.    Incentive Stock Options may be granted only to employees of the Company or a parent corporation or subsidiary corporation (as such terms are defined in Code Sections 424(e) and (f)). Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

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(b) Ten Percent Stockholders.    A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(c) Consultants.    A Consultant shall be eligible for the grant of a Stock Award only if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“Form S-8”) is 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, because the Consultant is a natural person, or because of any other rule governing the use of Form S-8.

5. OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option. The provisions of separate Options need not be identical; provided, however, that each Option Agreement shall include (through incorporation of provisions hereof by reference in the Option Agreement or otherwise) the substance of each of the following provisions:

(a) Term.    Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Option Agreement.

(b) Exercise Price.    Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise price of each 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, an Option may be granted with an exercise price lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option if such Option is granted pursuant to an assumption or substitution for another option in a manner consistent with the provisions of Section 424(a) of the Code (whether or not such options are Incentive Stock Options).

(c) Consideration.    The purchase price of Common Stock acquired pursuant to the exercise of an Option shall be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to utilize a particular method of payment. The methods of payment permitted by this Section 6(c) are:

(i) by cash, check, bank draft or money order payable to the Company;

(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, 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;

(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;

(iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issued upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of

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Common Stock will no longer be outstanding under an Option and will not be exercisable thereafter to the extent that (A) shares are used to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

(v) in any other form of legal consideration that may be acceptable to the Board.

(d) Transferability of Options.    The Board may, in its sole discretion, impose such limitations on the transferability of Options as the Board shall determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options shall apply:

(i) Restrictions on Transfer.    An 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; provided, however, that the Board may, in its sole discretion, permit transfer of the Option in a manner consistent with applicable tax and securities laws upon the Optionholder’s request.

(ii) Domestic Relations Orders.    Notwithstanding the foregoing, an Option may be transferred pursuant to a domestic relations order, provided, however, that an Incentive Stock Option may be deemed to be a Nonqualified Stock Option as a result of such transfer.

(iii) Beneficiary Designation.    Notwithstanding the foregoing, to the extent permitted under the terms of the applicable Option Agreement, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise 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 vest and therefore become exercisable in periodic installments that may or may not be equal. The Option may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 5(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.    Except as otherwise provided in the applicable Option Agreement or other agreement between the Optionholder and the Company, in the event that 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 of Continuous Service) but only within such period of time ending on the earlier of (i) the date ninety (90) 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 of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(g) Extension of Termination Date.    An Optionholder’s Option Agreement may 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 applicable period of time after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option as set forth in the Option Agreement.

(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 of Continuous Service), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination of

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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 of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(i) Death of Optionholder.    In the event that (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, or (ii) the Optionholder dies within the period (if any) specified in the

Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than 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, if applicable, by a person designated to exercise the option upon the Optionholder’s death, but only within the period ending on the earlier of (A) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (B) the expiration of the term of such Option as set forth in the Option Agreement. If, after the Optionholder’s death, the Option is not exercised within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(j) Non-Exempt Employees.    No Option granted to an Employee that is a non-exempt employee for purposes of the Fair Labor Standards Act shall be first exercisable for any shares of Common Stock until at least six months following the date of grant of the Option. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay.

6. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a) Restricted Stock Awards.    Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical, provided, however, that each Restricted Stock Award 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 Restricted Stock Award may be awarded in consideration for (A) past or future services actually or to be rendered to the Company or an Affiliate, or (B) any other form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting.    Shares of Common Stock awarded under the Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board. Generally, except for Restricted Stock Awards (A) granted to Non-Employee Directors, or (B) that vest based on the satisfaction of Performance Goals (which shall vest over a Performance Period not less than one (1) year), no Restricted Stock Award shall vest at a rate more favorable to the Participant than over a three (3)-year period measured from the date of grant, except upon a Corporate Transaction in which such Restricted Stock Award is not assumed or continued, or upon an event related to a Change in Control.

(iii) Termination of Participant’s Continuous Service.    In the event a Participant’s Continuous Service terminates, the Company may receive via a forfeiture condition, any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.

(iv) Transferability.    Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in

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the Restricted Stock Award Agreement, as the Board shall determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.

(b) Restricted Stock Unit Awards.    Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical, provided, however, that each Restricted Stock Unit Award Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

(i) Consideration.    At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting.    At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate. Generally, except for Restricted Stock Unit Awards (x) granted to Non-Employee Directors, or (y) that vest based on the satisfaction of Performance Goals (which shall vest over a Performance Period not less than one (1) year), no Restricted Stock Unit Award shall vest at a rate more favorable to the Participant than over a three (3)-year period measured from the date of grant, except upon a Corporate Transaction in which such Restricted Stock Unit Award is not assumed or continued, or upon an event related to a Change in Control.

(iii) Payment.    A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.

(iv) Additional Restrictions.    At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.

(v) Dividend Equivalents.    Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.

(vi) Termination of Participant’s Continuous Service.    Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

(vii) Compliance with Section 409A of the Code.    Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Restricted Stock Unit Award will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit Award. For example, such restrictions may include, without limitation, a requirement that any Common Stock that is to be issued in a year following the year in which the Restricted Stock Unit Award vests must be issued in accordance with a fixed pre-determined schedule.

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(c) Stock Appreciation Rights.    Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone Stock Awards or in tandem with other Stock Awards. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical; provided, however, that each Stock Appreciation Right Agreement shall include (through incorporation of the provisions hereof by reference in the Agreement or otherwise) the substance of each of the following provisions:

(i) Term.    No Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Appreciation Right Agreement.

(ii) Strike Price.    Each Stock Appreciation Right will be denominated in shares of Common Stock equivalents. The strike price of each Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock equivalents subject to the Stock Appreciation Right on the date of grant.

(iii) Calculation of Appreciation.    The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of shares of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price that will be determined by the Board at the time of grant of the Stock Appreciation Right.

(iv) Vesting.    At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its sole discretion, deems appropriate.

(v) Exercise.    To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vi) Payment.     The appreciation distribution in respect to a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vii) Termination of Continuous Service.    In the event that a Participant’s Continuous Service terminates, the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination) but only within such period of time ending on the earlier of (A) the date ninety (90) days following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement), or (B) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate.

(viii) Compliance with Section 409A of the Code.    Notwithstanding anything to the contrary set forth herein, any Stock Appreciation Rights granted under the Plan that are not exempt from the requirements of Section 409A of the Code shall contain such provisions so that such Stock Appreciation Rights will comply with the requirements of Section 409A of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right. For example, such restrictions may include, without limitation, a requirement that a Stock Appreciation Right that is to be paid wholly or partly in cash must be exercised and paid in accordance with a fixed pre-determined schedule.

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(d) Performance Awards.

(i) Performance Stock Awards.    A Performance Stock Award is a Stock Award that may be granted, may vest, or may be exercised based upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in its sole discretion. The maximum number of shares that may be granted to any Participant in a calendar year attributable to Stock Awards described in this Section 6(d)(i) shall not exceed Three Million (3,000,000) shares of Common Stock. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.

(ii) Performance Cash Awards.    A Performance Cash Award is a cash award that may be granted upon the attainment during a Performance Period of certain Performance Goals. A Performance Cash Award may also require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in its sole discretion. The maximum value that may be granted to any Participant in a calendar year attributable to cash awards described in this Section 6(d)(i) shall not exceed Five Million dollars ($5,000,000). The Board may provide for or, subject to such terms and conditions as the Board may specify, may permit a Participant to elect for, the payment of any Performance Cash Award to be deferred to a specified date or event. The Committee may specify the form of payment of Performance Cash Awards, which may be cash or other property, or may provide for a Participant to have the option for his or her Performance Cash Award, or such portion thereof as the Board may specify, to be paid in whole or in part in cash or other property. In addition, to the extent permitted by applicable law and the applicable Award Agreement, the Board may determine that Common Stock authorized under this Plan may be used in payment of Performance Cash Awards, including additional shares in excess of the Performance Cash Award as an inducement to hold shares of Common Stock.

(e) Other Stock Awards.    Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards. Generally, except for Other Stock Awards (x) granted to Non-Employee Directors, or (y) that vest based on the satisfaction of Performance Goals (which shall vest over a Performance Period not less than one (1) year), no Other Stock Award shall vest at a rate more favorable to the Participant than over a three (3)-year period measured from the date of grant, except upon a Corporate Transaction in which such Other Stock Award is not assumed or continued, or upon an event related to a Change in Control.

7. 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 reasonably 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; and provided that this undertaking shall not require the Company to grant Stock Awards in any jurisdiction outside the United States if the Company determines, in

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its discretion, that compliance with local securities laws is unduly burdensome. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that 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.

(c) No Obligation to Notify.    The Company shall have no duty or obligation to any holder of a Stock Award to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock Award.

8. MISCELLANEOUS.

(a) Use of Proceeds from Sales of Common Stock.    Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

(b) Corporate Action Constituting Grant of Stock Awards.    Corporate action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant.

(c) Stockholder 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 exercised the Stock Award pursuant to its terms and the Participant shall not be deemed to be a stockholder of record until the issuance of the Common Stock pursuant to such exercise has been entered into the books and records of the Company.

(d) No Employment or Other Service Rights.    Nothing in the Plan, any Stock Award Agreement or other instrument executed thereunder or in connection with any Award granted pursuant to the Plan 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.

(e) Incentive Stock Option $100,000 Limitation.    To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).

(f) 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

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foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (x) the issuance of the shares 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 (y) 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.

(g) Withholding Obligations.    Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to an 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) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Award; (iii) withholding cash from an Award settled in cash; or (iv) by such other method as may be set forth in the Award Agreement.

(h) Electronic Delivery.    Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically or posted on the Company’s intranet.

(i) Deferrals.    To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee. The Board is authorized to make deferrals of Stock Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of employment or retirement, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.

(j) Compliance with Section 409A of the Code.    To the extent that the Board determines that any Award granted under the Plan is subject to Section 409A of the Code, the Award Agreement evidencing such Award shall incorporate the terms and conditions necessary to avoid the consequences specified in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Board determines that any Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Board may adopt such amendments to the Plan and the applicable Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (i) exempt the Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Award, or (ii) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance, including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date.

9. ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

(a) Capitalization Adjustments.    In the event of a Capitalization Adjustment, the Board shall appropriately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a), (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(d), (iii) the class(es) and maximum number of securities that may

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be awarded to any person pursuant to Section 3(d) and 6(d)(i) , and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive.

(b) Dissolution or Liquidation.    Except as otherwise provided in the Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than Stock Awards consisting of vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

(c) Corporate Transaction.    The following provisions shall apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the holder of the Stock Award or unless otherwise expressly provided by the Board at the time of grant of a Stock Award.

(i) Acceleration of Vesting and Exercisability.    In the event of a Corporate Transaction, each outstanding Stock Award shall vest and, if applicable, become immediately exercisable for the number of shares of Common Stock that would otherwise be vested and exercisable under the terms of the Stock Award one (1) year after the date of such transaction.

(ii) Stock Awards May Be Assumed.    Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction, any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor’s parent company, if any), in connection with such Corporate Transaction. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. The terms of any assumption, continuation or substitution shall be set by the Board in accordance with the provisions of Section 2.

(iii) Stock Awards Held by Current Participants.    Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated prior to the effective time of the Corporate Transaction (referred to as the “Current Participants”), the vesting of such Stock Awards (and, if applicable, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction) be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse (contingent upon the effectiveness of the Corporate Transaction).

(iv) Stock Awards Held by Persons other than Current Participants.    Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation

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or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by persons other than Current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of vested and outstanding shares of Common Stock not subject to the Company’s right of repurchase) shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction; provided, however, that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall not terminate and may continue to be exercised notwithstanding the Corporate Transaction.

(v) Payment for Stock Awards in Lieu of Exercise.    Notwithstanding the foregoing, in the event a Stock Award will terminate if not exercised prior to the effective time of a Corporate Transaction, the Board may provide, in its sole discretion, that the holder of such Stock Award may not exercise such Stock Award but will instead receive a payment, in such form as may be determined by the Board, equal in value to the excess, if any, of (A) the value of the property the holder of the Stock Award would have received upon the exercise of the Stock Award, over (B) any exercise price payable by such holder in connection with such exercise.

(d) Change in Control.    A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant, but in the absence of such provision, no such acceleration shall occur.

10. TERMINATION OR SUSPENSION OF THE PLAN.

(a) Plan Term.    Unless sooner terminated by the Board pursuant to Section 2, the Plan shall automatically terminate on the day before the tenth (10th) anniversary of the date the Plan is adopted by the Board or approved by the stockholders of the Company, whichever is earlier. No Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

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

11. EFFECTIVE DATE OF PLAN.

This Plan shall become effective on the Effective Date. Prior to the Effective Date, the Prior Plans are unaffected by the Plan, and Stock Awards shall continue to be granted from the Prior Plans. If the Plan has not been approved by the stockholders of the Company by the first anniversary of the Adoption Date, the adoption of the Plan shall be null and void and the Prior Plans shall continue unaffected by the adoption of the Plan. If the Plan is so approved, (i) the Prior Plans shall be deemed merged into the Plan and to cease their separate existence and (ii) outstanding options and other awards granted pursuant to the Prior Plans shall automatically become Stock Awards. Notwithstanding that the Prior Plans are merged into the Plan, the terms of the Prior Plans shall continue to govern any Stock Awards granted prior to the Effective Date.

12. CHOICE OF LAW.

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

13. DEFINITIONS.    As used in the Plan, the definitions contained in this Section 13 shall apply to the capitalized terms indicated below:

(a) “Adoption Date” means January 11, 2007, the date the Plan was adopted by the Board.

(b) “Affiliate” means, at the time of determination, any “parent” or “subsidiary” as such terms are defined in Rule 405 of the Securities Act. The Board shall have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

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(c) “Award” means a Stock Award or a Performance Cash Award.

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

(e) “Capitalization Adjustment” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Effective Date 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. Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a transaction “without receipt of consideration” by the Company.

(f) “Change in Control” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the “Subject Person”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

(iv) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

(v) individuals who, on the date this Plan is adopted by the Board, are members of the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the members of the Board;

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(provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board).

For clarity, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply.

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

(h) “Committee” means a committee of one (1) or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).

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

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

(k) “Consultant” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, shall not cause a Director to be considered a “Consultant” for purposes of the Plan.

(l) “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. 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 service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service. For example, a change in status from an employee of the Company to a consultant to an Affiliate or to a Director shall not constitute an interruption of Continuous Service. To the extent permitted by law, 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. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

(m) “Corporate Transaction” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;

(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;

(iii) the consummation of a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or

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(iv) the consummation of a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

(n) “Covered Employee” shall have the meaning provided in Section 162(m)(3) of the Code and the regulations promulgated thereunder.

(o) “Director” means a member of the Board.

(p) “Disability” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, as provided in Sections 22(e)(3) and 409A(a)(2)(c)(i) of the Code.

(q) “Effective Date” means the effective date of this Plan document, which is the date of the annual meeting of stockholders of the Company held on March 9, 2007, provided this Plan is approved by the Company’s stockholders at such meeting.

(r) “Employee” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.

(s) “Entity” means a corporation, partnership, limited liability company or other entity.

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

(u) “Exchange Act Person” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date of the Plan as set forth in Section 11, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.

(v) “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, 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 the exchange with the greatest volume of trading in the Common Stock) on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. Unless otherwise provided by the Board, if there is no closing sales price (or closing bid if no sales were reported) for the Common Stock on the date of determination, then the Fair Market Value shall be the closing sales price (or closing bid if no sales were reported) on the last preceding date for which such quotation exists.

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

(w) “Incentive Stock Option” means an Option that is intended to be, and qualifies as, an “incentive stock option” within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

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(x) “Non-Employee Director” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate 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 for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(y) “Nonstatutory Stock Option” means any Option that does not qualify as an Incentive Stock Option.

(z) “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.

(aa) “Option” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

(bb) “Option Agreement” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

(cc) “Optionholder” means a person to whom an Option is granted pursuant to the Plan or, if permitted under the terms of this Plan, such other person who holds an outstanding Option.

(dd) “Other Stock Award” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(d).

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

(ff) “Outside Director” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

(gg) “Own,” “Owned,” “Owner,” “Ownership” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

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

(ii) “Performance Cash Award” means an award of cash granted pursuant to the terms and conditions of Section 6(d)(ii).

(jj) “Performance Criteria” means the one or more criteria that the Board shall select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that shall be used to

A-18

establish such Performance Goals may be based on any one of, or combination of, the following: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization; (iv) total stockholder return; (v) return on equity; (vi) return on assets, investment, or capital employed; (vii) operating margin; (viii) gross margin; (ix) operating income; (x) net income (before or after taxes); (xi) net operating income; (xii) net operating income after tax; (xiii) pre-tax profit; (xiv) operating cash flow; (xv) sales or revenue targets; (xvi) increases in revenue or product revenue; (xvii) expenses and cost reduction goals; (xviii) improvement in or attainment of working capital levels; (xix) economic value added (or an equivalent metric); (xx) market share; (xxi) cash flow; (xxii) cash flow per share; (xxiii) share price performance; (xxiv) debt reduction; (xxv) implementation or completion of projects or processes; (xxvi) customer satisfaction; (xxvii) stockholders’ equity; and (xxviii) to the extent that an Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement or the written terms of a Performance Cash Award. The Board shall, in its sole discretion, define the manner of calculating the Performance Criteria it selects to use for such Performance Period.

(kk) “Performance Goals” means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. At the time of the grant of any Award, the Board is authorized to determine whether, when calculating the attainment of Performance Goals for a Performance Period: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; and (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals.

(ll) “Performance Period” means the period of time selected by the Board over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Stock Award or a Performance Cash Award. Performance Periods may be of varying and overlapping duration, at the sole discretion of the Board.

(mm) “Performance Stock Award” means a Stock Award granted under the terms and conditions of Section 6(d)(i).

(nn) “Plan” means this Applied Micro Circuits Corporation Amended and Restated 1992 Equity Incentive Plan.

(oo) “Restricted Stock Award” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).

(pp) “Restricted Stock Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(qq) “Restricted Stock Unit Award” means an unfunded right to receive shares of Common Stock at a future date which is granted pursuant to the terms and conditions of Section 6(b).

(rr) “Restricted Stock Unit Award Agreement” means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan.

A-19

(ss) “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.

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

(uu) “Stock Appreciation Right” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 6(c).

(vv) “Stock Appreciation Right Agreement” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan.

(ww) “Stock Award” means any right to receive Common Stock granted under the Plan, including an Incentive Stock Option, a Nonstatutory Stock Option, a Restricted Stock Award, a Restricted Stock Unit Award, a Stock Appreciation Right, a Performance Stock Award or any Other Stock Award.

(xx) “Stock Award Agreement” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(yy) “Subsidiary” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).

(zz) “Ten Percent Stockholder” 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 any Affiliate.

A-20

APPENDIX B

APPENDIX B-1

CERTIFICATE OF AMENDMENT OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

APPLIED MICRO CIRCUITS CORPORATION

(2-for-1 Ratio)

APPLIED MICRO CIRCUITS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify:

FIRST:    The name of the corporation is APPLIED MICRO CIRCUITS CORPORATION. The date on which the corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware is February 6, 1987.

SECOND:    This Certificate of Amendment amends certain provisions of the Amended and Restated Certificate of Incorporation, as amended (the “Restated Certificate”), and has been duly adopted by the Board of Directors of the corporation acting in accordance with the provisions of Section 242 of the DGCL, and further adopted in accordance with the provisions of Sections 211 and 242 of the DGCL by the stockholders of the Corporation and shall become effective on                     .

THIRD:    Article IV of the Restated Certificate of Incorporation to read in its entirety as follows:

“(A) This Corporation is authorized to issue 632,000,000 shares of its Capital Stock, which shall be divided into two classes known as Common Stock and Preferred Stock, respectively.

(B) The total number of shares of Common Stock which this Corporation is authorized to issue is 630,000,000 with a par value of $0.01 per share. Effective as of             , Eastern time, on the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware, each two shares of Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one share of Common Stock. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder’s fractional share based upon the closing sales price of the Common Stock as reported on The Nasdaq Global Select Market as of the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware. The total number of shares of Preferred Stock which this Corporation is authorized to issue is 2,000,000 with a par value of $0.01 per share. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is hereby authorized, within the limitations and restrictions prescribed by law or stated in this Certificate of Incorporation, and by filing a certificate pursuant to applicable law of the State of Delaware, to provide for the issuance of Preferred Stock in series and (i) to establish from time to time the number of shares to be included in each such series; (ii) to fix the voting powers, designations, powers, preferences and relative, participating, optional or other rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to, the fixing or alteration of the dividend rights, dividend rate, conversion rights, conversion rates, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of Preferred Stock; and (iii) to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.”

IN WITNESS WHEREOF, Applied Micro Circuits Corporation. has caused this Certificate of Amendment to be signed by its Chief Executive Officer and President as of                     ,             .

APPLIED MICRO CIRCUITS CORPORATION
By:
	Kambiz Hooshmand
	Chief Executive Officer and President

B-1

APPENDIX B-2

CERTIFICATE OF AMENDMENT OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

APPLIED MICRO CIRCUITS CORPORATION

(3-for-1 Ratio)

APPLIED MICRO CIRCUITS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify:

FIRST:    The name of the corporation is APPLIED MICRO CIRCUITS CORPORATION. The date on which the corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware is February 6, 1987.

SECOND:    This Certificate of Amendment amends certain provisions of the Amended and Restated Certificate of Incorporation, as amended (the “Restated Certificate”), and has been duly adopted by the Board of Directors of the corporation acting in accordance with the provisions of Section 242 of the DGCL, and further adopted in accordance with the provisions of Sections 211 and 242 of the DGCL by the stockholders of the Corporation and shall become effective on                     .

THIRD:    Article IV of the Restated Certificate of Incorporation to read in its entirety as follows:

“(A) This Corporation is authorized to issue 502,000,000 shares of its Capital Stock, which shall be divided into two classes known as Common Stock and Preferred Stock, respectively.

(B) The total number of shares of Common Stock which this Corporation is authorized to issue is 500,000,000 with a par value of $0.01 per share. Effective as of             , Eastern time, on the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware, each three shares of Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one share of Common Stock. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder’s fractional share based upon the closing sales price of the Common Stock as reported on The Nasdaq Global Select Market as of the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware. The total number of shares of Preferred Stock which this Corporation is authorized to issue is 2,000,000 with a par value of $0.01 per share. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is hereby authorized, within the limitations and restrictions prescribed by law or stated in this Certificate of Incorporation, and by filing a certificate pursuant to applicable law of the State of Delaware, to provide for the issuance of Preferred Stock in series and (i) to establish from time to time the number of shares to be included in each such series; (ii) to fix the voting powers, designations, powers, preferences and relative, participating, optional or other rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to, the fixing or alteration of the dividend rights, dividend rate, conversion rights, conversion rates, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of Preferred Stock; and (iii) to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.”

IN WITNESS WHEREOF, Applied Micro Circuits Corporation. has caused this Certificate of Amendment to be signed by its Chief Executive Officer and President as of                     ,             .

APPLIED MICRO CIRCUITS CORPORATION
By:
	Kambiz Hooshmand
	Chief Executive Officer and President

B-2

APPENDIX B-3

CERTIFICATE OF AMENDMENT OF

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF

APPLIED MICRO CIRCUITS CORPORATION

(4-for-1 Ratio)

APPLIED MICRO CIRCUITS CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the “DGCL”), does hereby certify:

FIRST:    The name of the corporation is APPLIED MICRO CIRCUITS CORPORATION. The date on which the corporation’s original Certificate of Incorporation was filed with the Secretary of State of the State of Delaware is February 6, 1987.

SECOND:    This Certificate of Amendment amends certain provisions of the Amended and Restated Certificate of Incorporation, as amended (the “Restated Certificate”), and has been duly adopted by the Board of Directors of the corporation acting in accordance with the provisions of Section 242 of the DGCL, and further adopted in accordance with the provisions of Sections 211 and 242 of the DGCL by the stockholders of the Corporation and shall become effective on                     .

THIRD:    Article IV of the Restated Certificate of Incorporation to read in its entirety as follows:

“(A) This Corporation is authorized to issue 377,000,000 shares of its Capital Stock, which shall be divided into two classes known as Common Stock and Preferred Stock, respectively.

(B) The total number of shares of Common Stock which this Corporation is authorized to issue is 375,000,000 with a par value of $0.01 per share. Effective as of             , Eastern time, on the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware, each four shares of Common Stock issued and outstanding shall, automatically and without any action on the part of the respective holders thereof, be combined and converted into one share of Common Stock. No fractional shares shall be issued and, in lieu thereof, any holder of less than one share of Common Stock shall be entitled to receive cash for such holder’s fractional share based upon the closing sales price of the Common Stock as reported on The Nasdaq Global Select Market as of the date the Certificate of Amendment that includes this paragraph is filed with the Secretary of State of the State of Delaware. The total number of shares of Preferred Stock which this Corporation is authorized to issue is 2,000,000 with a par value of $0.01 per share. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors of this Corporation is hereby authorized, within the limitations and restrictions prescribed by law or stated in this Certificate of Incorporation, and by filing a certificate pursuant to applicable law of the State of Delaware, to provide for the issuance of Preferred Stock in series and (i) to establish from time to time the number of shares to be included in each such series; (ii) to fix the voting powers, designations, powers, preferences and relative, participating, optional or other rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to, the fixing or alteration of the dividend rights, dividend rate, conversion rights, conversion rates, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of Preferred Stock; and (iii) to increase or decrease the number of shares of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of any series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series.”

IN WITNESS WHEREOF, Applied Micro Circuits Corporation. has caused this Certificate of Amendment to be signed by its Chief Executive Officer and President as of                     ,             .

APPLIED MICRO CIRCUITS CORPORATION
By:
	Kambiz Hooshmand
	Chief Executive Officer and President

B-3

APPLIED MICRO CIRCUITS CORPORATION

PROXY CARD

The Annual Meeting of Stockholders of Applied Micro Circuits Corporation, a Delaware corporation (the “Company”), will be held at the Company’s corporate headquarters located at 215 Moffett Park Drive, Sunnyvale, California 94089 on Friday, March 9, 2007, at 11:00 a.m., local time, for the purposes stated on the reverse side. The undersigned hereby appoints Kambiz Y. Hooshmand and Robert G. Gargus, or either of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote as designated below all of the shares of Common Stock of Applied Micro Circuits Corporation that the undersigned is entitled to vote at the Annual Meeting of Stockholders.

THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED BY THE UNDERSIGNED STOCKHOLDER. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION TO THE BOARD OF DIRECTORS OF EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE AND FOR EACH OF THE REMAINING PROPOSALS. IF ANY OTHER MATTER IS PROPERLY PRESENTED AT THE ANNUAL MEETING, THIS PROXY WILL BE VOTED IN THE BEST JUDGMENT OF THE PROXIES.

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)

APPLIED MICRO CIRCUITS CORPORATION INVESTOR RELATIONS 215 MOFFETT PARK DRIVE SUNNYVALE, CA 94089 VOTE BY INTERNET—www.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form.   ELECTRONIC DELIVERY OF FUTURE SHAREHOLDER COMMUNICATIONS If you would like to reduce the costs incurred by Applied Micro Circuits Corporation in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access shareholder communications electronically in future years.   VOTE BY PHONE—1-800-690-6903 Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the meeting date. Have your proxy card in hand when you call and then follow the instructions.   VOTE BY MAIL Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Applied Micro Circuits Corporation, c/o ADP, 51 Mercedes Way, Edgewood, NY 11717.

TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:	AMCC1	KEEP THIS PORTION FOR YOUR RECORDS
		DETACH AND RETURN THIS PORTION ONLY

THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.

APPLIED MICRO CIRCUITS CORPORATION
	THE GOVERNANCE AND NOMINATING COMMITTEE RECOMMENDS A VOTE “FOR” EACH OF THE NOMINEES LISTED BELOW
	1.    To elect as Directors of Applied Micro Circuits Corporation the nominees listed below.		For All	Withhold All	For All Except	To withhold authority to vote, mark “For All Except” and write the nominee’s number on the line below.
	01) Cesar Cesaratto	04) Fred Shlapak	¨	¨	¨
	02) Kambiz Y. Hooshmand	05) Arthur B. Stabenow
	03) Niel Ransom	06) Julie H. Sullivan, Ph.D.
							For	Against	Abstain
	THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSALS 2 THROUGH 4
	2.    To approve a proposed exchange of certain outstanding stock options for a reduced number of restricted stock units to be granted under the Company’s 2000 Equity Incentive Plan.						¨	¨	¨
	3.    To approve the amendment and restatement of the Company’s 1992 Stock Option Plan, thereafter to be referred to as the Company’s 1992 Equity Incentive Plan.						¨	¨	¨
	4.    To approve amendments to the Company’s Certificate of Incorporation to effect a reverse stock split of its common stock pursuant to which any whole number of outstanding shares between two and four would be combined into one share of common stock and to authorize the Company’s Board of Directors to select and file one such amendment.						¨	¨	¨
	THE AUDIT COMMITTEE RECOMMENDS A VOTE “FOR” PROPOSAL 5
	5.    To ratify the selection of Ernst & Young LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 31, 2007.						¨	¨	¨
	6.    To conduct any other business properly brought before the meeting.
	These items of business are more fully described in the proxy statement accompanying this notice. The record date for the annual meeting is January 12, 2007. Only stockholders of record at the close of business on that date may vote at the meeting or any adjournment thereof.

	Yes	No
Please indicate if you plan to attend this meeting	¨	¨

Signature [PLEASE SIGN WITHIN BOX] Date Signature (Joint Owners) Date