10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2010

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             .

Commission File Number: 000-23193

APPLIED MICRO CIRCUITS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	94-2586591
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
215 Moffett Park Drive, Sunnyvale, CA	94089
(Address of principal executive offices)	(Zip code)

Registrant’s telephone number, including area code: (408) 542-8600

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

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

As of September 30, 2010, 64,511,863 shares of the registrant’s common stock, $0.01 par value per share, were issued and outstanding.

APPLIED MICRO CIRCUITS CORPORATION

INDEX

		Page
Part I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Balance Sheets at September 30, 2010 and March 31, 2010		3
	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2010 and 2009		4
	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2010 and 2009		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		38
Item 4.	Controls and Procedures		39
Part II. OTHER INFORMATION
Item 1.	Legal Proceedings		39
Item 1A.	Risk Factors		40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		55
Item 3.	Defaults Upon Senior Securities		55
Item 4.	(Removed and Reserved)		55
Item 5.	Other Information		56
Item 6.	Exhibits		56
Signatures			57

2

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except par value)

	September 30, 2010			March 31, 2010
	(unaudited)			(note)
ASSETS
Current assets:
Cash and cash equivalents	$	42,766		$	122,526
Short-term investments available-for-sale		139,802			84,117
Accounts receivable, net		22,612			22,892
Inventories		17,557			15,387
Other current assets		15,948			18,098
Total current assets		238,685			263,020
Property and equipment, net		29,633			25,879
Goodwill		13,739			—
Purchased intangibles, net		33,218			16,850
Other assets		9,130			10,295
Total assets	$	324,405		$	316,044
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,716		$	20,074
Accrued payroll and related expenses		7,849			4,682
Other accrued liabilities		11,226			9,606
Deferred revenue		1,637			808
Notes payable		580			—
Total current liabilities		42,008			35,170
Commitments and contingencies
Deferred tax liability		656			—
Contingent consideration		2,550			—
Stockholders’ equity:
Preferred stock, $0.01 par value:
Authorized shares — 2,000, none issued and outstanding		—			—
Common stock, $0.01 par value:
Authorized shares — 375,000 at September 30, 2010 and March 31, 2010
Issued and outstanding shares — 64,512 at September 30, 2010 and 65,404 at March 31, 2010		645			654
Additional paid-in capital		5,896,970			5,905,050
Accumulated other comprehensive income		3,870			2,430
Accumulated deficit		(5,622,294	)		(5,627,260	)
Total stockholders’ equity		279,191			280,874
Total liabilities and stockholders’ equity	$	324,405		$	316,044

Note: Amounts have been derived from the March 31, 2010 audited consolidated financial statements.

See Accompanying Notes to Condensed Consolidated Financial Statements

3

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Net revenues	$	65,953	$	49,232		$	126,763	$	94,284
Cost of revenues		23,435		23,796			45,920		45,971
Gross profit		42,518		25,436			80,843		48,313
Operating expenses:
Research and development		27,339		20,828			53,116		40,242
Selling, general and administrative		13,087		11,991			24,711		22,510
Amortization of purchased intangible assets		1,079		1,005			2,084		2,010
Restructuring charges (recoveries), net		164		(125	)		533		(279	)
Total operating expenses		41,669		33,699			80,444		64,483
Operating income (loss)		849		(8,263	)		399		(16,170	)
Interest income and other-than-temporary impairments, net		2,666		(1,534	)		4,581		(162	)
Other income (expense), net		436		(1,891	)		602		(1,674	)
Income (loss) from continuing operations before income taxes		3,951		(11,688	)		5,582		(18,006	)
Income tax expense (benefit)		376		(3,617	)		616		(7,136	)
Income (loss) from continuing operations		3,575		(8,071	)		4,966		(10,870	)
Income from discontinued operations and gain on sale of Storage Business, net of taxes		—		1,347			—		7,044
Net income (loss)	$	3,575	$	(6,724	)	$	4,966	$	(3,826	)
Basic income (loss) per share:
Income (loss) per share from continuing operations	$	0.05	$	(0.12	)	$	0.08	$	(0.16	)
Income per share from discontinued operations		0.00		0.02			0.00		0.10
Net income (loss) per share	$	0.05	$	(0.10	)	$	0.08	$	(0.06	)
Shares used in calculating basic income (loss) per share		65,752		66,469			65,879		66,270
Diluted income (loss) per share:
Income (loss) per share from continuing operations	$	0.05	$	(0.12	)	$	0.07	$	(0.16	)
Income per share from discontinued operations		0.00		0.02			0.00		0.10
Net income (loss) per share	$	0.05	$	(0.10	)	$	0.07	$	(0.06	)
Shares used in calculating diluted income (loss) per share		68,021		66,469			68,378		66,270

See Accompanying Notes to Condensed Consolidated Financial Statements

4

APPLIED MICRO CIRCUITS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Six Months Ended September 30,
	2010			2009
Operating activities:
Net income (loss)	$	4,966		$	(3,826	)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:
Depreciation		3,639			3,173
Amortization of purchased intangibles		7,432			8,856
Stock-based compensation expense:
Stock options		2,076			2,090
Restricted stock units		5,745			4,292
Other-than-temporary impairment of marketable securities		—			3,454
Impairment of strategic investment		—			2,000
Tax benefit from other comprehensive income		—			(4,007	)
Capitalization of prior years mask set costs		(1,177	)		—
Net (gain) loss on disposals of property		(320	)		24
Net gain on sale of storage business unit		—			(11,366	)
Changes in operating assets and liabilities, net of amounts acquired:
Accounts receivable		850			(3,738	)
Inventories		(2,170	)		6,720
Other assets		(1,515	)		(503	)
Accounts payable		321			(4,398	)
Accrued payroll and other accrued liabilities		2,503			(6,365	)
Deferred revenue		186			(1,723	)
Net cash provided by (used for) operating activities		22,536			(5,317	)
Investing activities:
Proceeds from sales and maturities of short-term investments		36,132			42,735
Purchases of short-term investments		(90,012	)		(33,093	)
Purchase of property and equipment		(5,987	)		(3,664	)
Proceeds from sale of property and equipment		345			—
Purchase of strategic equity investment		—			(1,000	)
Proceeds from sale of strategic equity investment		4,991			—
Proceeds from sale of storage business unit		—			21,527
Purchase of a business, net of cash acquired		(31,484	)		—
Net cash (used for) provided by investing activities		(86,015	)		26,505
Financing activities:
Net proceeds from issuances of common stock		4,036			1,767
Repurchases of common stock		(23,112	)		—
Funding of restricted stock units withheld for taxes		(2,361	)		(666	)
Funding of structured stock repurchase agreements		(10,000	)		(21,797	)
Funds received from structured stock repurchase agreements		15,512			12,044
Other		(356	)		(55	)
Net cash used for financing activities		(16,281	)		(8,707	)
Net (decrease) increase in cash and cash equivalents		(79,760	)		12,481
Cash and cash equivalents at the beginning of the period		122,526			99,337
Cash and cash equivalents at the end of the period	$	42,766		$	111,818
Supplementary cash flow disclosures:
Cash paid for income taxes	$	142		$	220

See Accompanying Notes to Condensed Consolidated Financial Statements

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include all the accounts of Applied Micro Circuits Corporation (“AMCC”, “APM”, “AppliedMicro” or the “Company”), its wholly-owned subsidiaries and entities which are variable interest entities (“VIE”) of which the Company is the primary beneficiary. A VIE is required to be consolidated by its primary beneficiary. The primary beneficiary is the party that absorbs a majority of the VIE’s anticipated losses and/or a majority of the expected returns. The Company has evaluated its strategic alliances for potential classification as variable interest entities by evaluating the sufficiency of each entity’s equity investment at risk to absorb losses and the Company’s share of the respective expected losses. The Company determined that it is the primary beneficiary of one variable interest entity and has included the accounts of this entity in the condensed consolidated financial statements (see Note 10). All significant intercompany balances and transactions have been eliminated in consolidation.

In the opinion of management, the unaudited interim condensed consolidated financial statements of the Company included herein have been prepared on a basis consistent with the March 31, 2010 audited consolidated financial statements and include all material adjustments, consisting of normal recurring adjustments, necessary to fairly present the information set forth therein. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2010. The Company’s results of operations for the three and six months ended September 30, 2010 are not necessarily indicative of future operating results.

As described in Note 9, the Company has classified the financial results of its 3ware storage adapter business as discontinued operations for all periods presented due to the sale of its 3ware storage adapter business to LSI Corporation on April 21, 2009. These notes to the Company’s condensed consolidated financial statements relate to continuing operations only, unless otherwise indicated.

During the three months ended June 30, 2010, the Company made a correction resulting in the recognition of an asset totaling $1.2 million for unamortized mask costs incurred in prior periods as it was determined that these costs represented pre-production costs instead of research and development (“R&D”) expenses. The unamortized costs will be amortized as cost of sales over a period of approximately three years. As part of this correction, we recognized a reduction to R&D expenses of approximately $1.2 million. The net adjustments to make the correction to capitalize mask costs were not material to any periods affected.

On September 17, 2010, the Company completed the purchase of TPack A/S (“TPack”) for approximately $32 million in cash and potential additional contingent consideration of up to $5 million that will be payable upon the attainment of certain milestones. For a complete discussion, see note 11, “Acquisition of TPack A/S”.

Use of Estimates

The preparation of financial statements in accordance with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to its capitalized mask sets, which affects its cost of goods sold and property and equipment or R&D expenses, if not capitalized; inventory valuation, warranty liabilities, and revenue reserves, which affects its revenues, cost of sales and gross margin; allowance for doubtful accounts, which affects its operating expenses; the unrealized losses or other-than-temporary impairments of its short-term investments available for sale, which affects its interest income (expense), net; the valuation of purchased intangibles and goodwill, which affects its amortization and impairments of purchased intangibles and impairments of goodwill; the valuation of restructuring liabilities, which affects the amount and timing of restructuring charges; the potential costs of litigation, which affects its operating expenses; the valuation of deferred income taxes, which affects its income tax expense (benefit); and stock-based compensation, which affects its gross margin and operating expenses. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Recent Accounting Pronouncements

In June 2009, the FASB issued SFAS No. 167, Amendments to FASB Interpretation No. 46(R) (“SFAS 167”). SFAS 167 was subsequently codified in December 2009 as ASU No. 2009-17, Improvements to Financial Reporting by Enterprises Involved With Variable Interest Entities (“ASU 2009-17”), which becomes effective the first annual reporting period after November 15, 2009 and will be effective for the Company in the fiscal year ending March 31, 2011. ASU 2009-17 amends ASC Topic 810 to require revised evaluations of whether entities represent variable interest entities, ongoing assessments of control over such entities, and additional disclosures of variable interests. The adoption of ASU 2009-17 did not have a material impact for the Company.

In April 2010, the FASB issued an amendment to ASC 605, Revenue Recognition, to provide guidance on defining a milestone and determining when it may be appropriate to apply the milestone method of revenue recognition for research or development transactions. This amendment to ASC 605 is effective on a prospective basis for milestones achieved in fiscal years, and interim periods within those years, beginning on or after June 15, 2010. Early adoption is permitted. This amendment is not expected to have a material impact for the Company.

2. CERTAIN FINANCIAL STATEMENT INFORMATION

Accounts receivable:

	September 30, 2010			March 31, 2010
	(In thousands)
Accounts receivable	$	23,937		$	23,607
Less: allowance for bad debts*		(1,325	)		(715	)
	$	22,612		$	22,892

* The increase is primarily from the TPack acquisition.

Inventories:

	September 30, 2010		March 31, 2010
	(In thousands)
Finished goods	$	13,538	$	12,888
Work in process		2,721		1,668
Raw materials		1,298		831
	$	17,557	$	15,387

Other current assets:

	September 30, 2010		March 31, 2010
	(In thousands)
Prepaid expenses+	$	10,874	$	7,882
Strategic investment*		—		5,369
Executive deferred compensation assets		3,220		3,213
Deposits		724		812
Other		1,130		822
	$	15,948	$	18,098

+ The increase is primarily due to a payment pursuant to a multi-year IP licensing agreement.

* The investee where the Company had a strategic investment, was acquired in April 2010 and the Company’s investment was liquidated.

7

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Property and equipment:

	Useful Life		September 30, 2010			March 31, 2010
	(In years)		(In thousands)
Machinery and equipment*		3-7	$	30,738		$	29,252
Leasehold improvements		1-15		10,418			9,931
Computers, office furniture and equipment		3-7		45,982			43,789
Buildings		31.5		2,756			2,756
Land		N/A		9,800			9,800
				99,694			95,528
Less: accumulated depreciation and amortization				(70,061	)		(69,649	)
			$	29,633		$	25,879

* Includes capitalized mask set costs.

Goodwill:

The change in carrying amount of goodwill during the six months ended September 30, 2010 was:

	September 30, 2010		March 31, 2010
	(In thousands)
Goodwill beginning balance	$	—	$	—
Goodwill related to TPack acquisition (see note 11)		13,739		—
	$	13,739	$	—

All goodwill acquired, prior to the Tpack acquisition, of approximately $4.4 billion was fully amortized or impaired by fiscal year ended March 31, 2009.

Purchased intangibles (in thousands):

	September 30, 2010							March 31, 2010
	Gross		Accumulated Amortization and Impairments			Net		Gross		Accumulated Amortization and Impairments			Net
Developed technology/IPR&D	$	441,400	$	(418,973	)	$	22,427	$	425,000	$	(413,625	)	$	11,375
Customer relationships		12,830		(5,414	)		7,416		6,330		(5,226	)		1,104
Patents/core technology rights/tradename		63,206		(59,831	)		3,375		62,305		(57,934	)		4,371
	$	517,436	$	(484,218	)	$	33,218	$	493,635	$	(476,785	)	$	16,850

From March 31, 2010 to September 30, 2010, the change in gross carrying amount of the amortized intangible assets was approximately $23.8 million, due to the acquisition of TPack (see Note 11).

8

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

As of September 30, 2010, the estimated future amortization expense of purchased intangible assets to be charged to cost of sales and operating expenses was as follows (in thousands):

	Cost of Sales*		Operating Expenses		Total
Fiscal years ending March 31,
2011 (remaining)	$	6,538	$	2,976	$	9,514
2012		3,450		2,785		6,235
2013		2,575		2,183		4,758
2014		2,575		1,574		4,149
2015 and Thereafter		6,340		1,272		7,612
Total	$	21,478	$	10,790	$	32,268

* The amounts do not include approximately $1.0 million in in-process research and development.

Other assets:

	September 30, 2010		March 31, 2010
	(In thousands)
Non-current portion of prepaid expenses	$	8,130	$	9,295
Strategic investment		1,000		1,000
	$	9,130	$	10,295

Strategic Investments

The Company has entered into certain equity investments in privately held businesses for the promotion of business and strategic objectives. The Company’s investments in equity securities of privately held businesses are accounted for under the cost method. Under the cost method, strategic investments in which the Company holds less than a 20% voting interest and on which the Company does not have the ability to exercise significant influence are carried at the lower of cost or cost reduced by other-than-temporary impairments, as appropriate. These investments are included in other assets on the Company’s condensed consolidated balance sheets. The Company periodically reviews these investments for other-than-temporary declines in fair value based on the specific identification method and writes down investments when an other-than-temporary decline has occurred.

9

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Short-term investments:

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instruments (in thousands):

	September 30, 2010								March 31, 2010
	Amortized Cost		Gross Unrealized				Estimated Fair Value		Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses						Gains		Losses
Cash	$	7,845	$	—	$	—	$	7,845	$	9,126	$	—	$	—	$	9,126
Cash equivalents		34,921		—		—		34,921		113,400		—		—		113,400
U.S. Treasury securities and agency bonds		7,178		56		—		7,234		4,024		1		3		4,022
Corporate bonds		8,905		124		11		9,018		11,086		92		23		11,155
Mortgage-backed and asset-backed securities*		26,017		432		200		26,249		13,076		285		114		13,247
Mutual funds		46,384		580		—		46,964		—		—		—		—
Closed-end bond funds		33,504		8,945		372		42,077		36,545		7,858		105		44,298
Preferred stock		7,285		975		—		8,260		10,664		731		—		11,395
	$	172,039	$	11,112	$	583	$	182,568	$	197,921	$	8,967	$	245	$	206,643
Reported as:
Cash and cash equivalents							$	42,766							$	122,526
Short-term investments available-for-sale								139,802								84,117
							$	182,568							$	206,643

* At September 30, 2010 and March 31, 2010, approximately $21.8 million and $9.6 million of the amounts presented were mortgage-backed securities, respectively.

The established guidelines for measuring fair value and expanded disclosures regarding fair value measurements are defined as a three-level valuation hierarchy for disclosure of fair value measurements as follows:

Level 1	—	Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2	—	Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.
Level 3	—	Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model. Valuation of instruments includes unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of assets or liabilities.

The following is a summary of cash, cash equivalents and available-for-sale investments by type of instruments measured at fair value on a recurring basis (in thousands):

	September 30, 2010								March 31, 2010
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Cash	$	7,845	$	—	$	—	$	7,845	$	9,126	$	—	$	—	$	9,126
Cash equivalents		34,921		—		—		34,921		113,400		—		—		113,400
U.S. Treasury securities and agency bonds		7,234		—		—		7,234		4,022		—		—		4,022
Corporate bonds		—		9,018		—		9,018		—		11,155		—		11,155
Mortgage-backed and asset-backed securities		—		26,249		—		26,249		—		13,247		—		13,247
Mutual funds		46,964		—		—		46,964		—		—		—		—
Closed-end bond funds		42,077		—		—		42,077		44,298		—		—		44,298
Preferred stock		—		8,260		—		8,260		—		11,395		—		11,395
	$	139,041	$	43,527	$	—	$	182,568	$	170,846	$	35,797	$	—	$	206,643

10

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

There were no significant transfers in and out of Level 1 and Level 2 fair value measurements during the period ended September 30, 2010.

The Company acquired certain intangible assets of approximately $23.8 million in connection with a business combination during the three months ended September 30, 2010. The fair value of the intangible asset was estimated using Level 3 inputs. See Note 11 for discussion of this business combination and the key inputs used in the valuation.

At September 30, 2010, the cost and estimated fair values of available-for-sale securities with stated maturities are U.S. Treasury securities and agency bonds, corporate bonds and mortgage-backed and asset-backed securities and the contractual maturities of such securities are as follows (in thousands):

	September 30, 2010				March 31, 2010
	Cost		Fair Value		Cost		Fair Value
Less than 1 year	$	3,761	$	3,740	$	9,931	$	9,829
Mature in 1 – 2 years		4,978		4,999		6,177		6,187
Mature in 3 – 5 years		9,274		9,286		—		—
Mature after 5 years		24,087		24,476		12,078		12,408
	$	42,100	$	42,501	$	28,186	$	28,424

The following is a summary of gross unrealized losses (in thousands):

	Less Than 12 Months of Unrealized Losses				12 Months or More of Unrealized Losses				Total
As of September 30, 2010	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities and agency bonds	$	—	$	—	$	—	$	—	$	—	$	—
Corporate bonds		1,663		11		—		—		1,663		11
Mortgage-backed and asset-backed securities		8,351		200		—		—		8,351		200
Closed-end bond funds		10,086		372		—		—		10,086		372
	$	20,100	$	583	$	—	$	—	$	20,100	$	583

	Less Than 12 Months of Unrealized Losses				12 Months or More of Unrealized Losses				Total
As of March 31, 2010	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
U.S. Treasury securities and agency bonds	$	4,012	$	3	$	—	$	—	$	4,012	$	3
Corporate bonds		1,850		23		—		—		1,850		23
Mortgage-backed and asset-backed securities		1,931		114		—		—		1,931		114
Closed-end bond funds		7,821		105		—		—		7,821		105
	$	15,614	$	245	$	—	$	—	$	15,614	$	245

Other-Than-Temporary Impairment

The Company assessed whether it intends to sell or it is more likely than not that it will be required to sell an available-for-sale debt instrument before recovery of its amortized cost basis less any current-period credit losses. For available-for-sale debt instruments that are considered other-than-temporarily impaired and that the Company does not intend to sell and will not be required to sell prior to recovery of the amortized cost basis, the Company separates the amount of the impairment into the amount that is credit related and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the debt instrument’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the opening debt instrument’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income (loss).

11

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Based on an evaluation of securities that have been in a loss position, the Company did not recognize an other-than-temporary impairment charge, for the three and six months ended September 30, 2010. The Company considered various factors which included its intent and ability to hold the underlying securities until its estimated recovery of amortized cost. The other-than-temporary impairment charge for the three and six months ended September 30, 2009 was approximately $3.3 million and $3.5 million, respectively. As of September 30, 2010, the Company also has $11.1 million in unrealized gains. The basis for computing realized gains or losses is by specific identification.

Other accrued liabilities:

	September 30, 2010		March 31, 2010
	(In thousands)
Executive deferred compensation	$	3,655	$	3,213
Employee related liabilities		1,743		2,052
Professional fees		733		1,114
Contingent consideration		600		—
Restructuring liabilities		599		583
Warranty		167		169
Other		3,729		2,475
	$	11,226	$	9,606

Warranty reserves:

The Company’s products typically carry a one year warranty. The Company establishes reserves for estimated product warranty costs at the time revenue is recognized. Although the Company engages in extensive product quality programs and processes, its warranty obligation is affected by product failure rates, use of materials and service delivery costs incurred in correcting any product failure. Should actual product failure rates, use of materials or service delivery costs differ from the Company’s estimates, additional warranty reserves could be required, which could reduce its gross margin.

The following table summarizes warranty reserve activity (in thousands):

	Three Months Ended September 30,						Six Months Ended September 30,
	2010			2009			2010			2009
Beginning balance	$	169		$	1,129		$	169		$	1,285
Charged to (reductions in) costs of revenues*		25			(877	)		41			(922	)
Charges incurred		(27	)		(26	)		(43	)		(137	)
Ending balance	$	167		$	226		$	167		$	226

* The reduction is primarily related to the sale of our 3ware storage adapter business to LSI Corporation.

Interest income and other-than-temporary impairments, net (in thousands):

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Interest income	$	1,564	$	1,511		$	3,085	$	3,169
Net realized gains on short-term investments		1,102		234			1,496		123
Impairments of marketable securities		—		(3,279	)		—		(3,454	)
	$	2,666	$	(1,534	)	$	4,581	$	(162	)

12

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Other income (expense), net (in thousands):

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Impairment of strategic investment	$	—	$	(2,000	)	$	—	$	(2,000	)
Net gain from disposal of property		297		—			305		—
Other		139		109			297		326
	$	436	$	(1,891	)	$	602	$	(1,674	)

Net income (loss) per share:

Shares used in basic net income (loss) per share are computed using the weighted average number of common shares outstanding during each period. Shares used in diluted net income (loss) per share includes the dilutive effect of common shares potentially issuable upon the exercise of stock options, vesting of restricted stock units (“RSUs”) and outstanding warrants. The reconciliation of shares used to calculate basic and diluted net income (loss) per share consists of the following (in thousands, except per share data):

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Net income (loss):
From continuing operations	$	3,575	$	(8,071	)	$	4,966	$	(10,870	)
From discontinued operations, net of taxes		—		1,347			—		7,044
Net income (loss)	$	3,575	$	(6,724	)	$	4,966	$	(3,826	)
Shares used in net income (loss) per share computation:
Weighted average common shares outstanding, basic		65,752		66,469			65,879		66,270
Net effect of dilutive common share equivalents		2,269		—			2,499		—
Weighted average common shares outstanding, diluted		68,021		66,469			68,378		66,270
Basic net income (loss) per share:
From continuing operations	$	0.05	$	(0.12	)	$	0.08	$	(0.16	)
From discontinued operations, net of taxes		—		0.02			—		0.10
Basic net income (loss) per share	$	0.05	$	(0.10	)	$	0.08	$	(0.06	)
Diluted net income (loss) per share:
From continuing operations	$	0.05	$	(0.12	)	$	0.07	$	(0.16	)
From discontinued operations, net of taxes		—		0.02			—		0.10
Diluted net income (loss) per share	$	0.05	$	(0.10	)	$	0.07	$	(0.06	)

The effect of anti-dilutive securities (comprised of options and restricted stock units ) totaling 3.7 million equivalent shares for both the three and six months ended September 30, 2010 and 6.2 million and 7.1 million equivalent shares for the three and six months ended September 30, 2009, respectively, have been excluded from the net income per share computation.

The effect of dilutive securities (comprised of options, restricted stock units and warrants) totaling 1.9 million and 1.3 million equivalent shares for the three and six months ended September 30, 2009, respectively, have been excluded from the net loss per share computation, as their impact would be anti-dilutive because the company has incurred losses in the periods presented.

13

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

3. RESTRUCTURING CHARGES

The Company recognizes restructuring costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Over the last several years, the Company has undertaken significant restructuring activities under several plans in an effort to reduce operating costs. A combined summary of the activity of the restructuring programs initiated by the Company is as follows (in thousands):

	Workforce Reduction			Facilities Consolidation and Operating Lease Commitments			Property and Equipment Impairments and Contract Cancellations			Total
Liability, March 31, 2009	$	1,568		$	1,074		$	1,500		$	4,142
Charged to continuing operations		666			—			359			1,025
Cash payments		(1,687	)		(759	)		(1,500	)		(3,946	)
Non-cash charges		—			—			(359	)		(359	)
Reductions to estimated liability		(154	)		(125	)		—			(279	)
Liability, March 31, 2010	$	393		$	190		$	—		$	583
Charged to continuing operations		453			112			—			565
Cash payments		(356	)		(161	)		—			(517	)
Reduction to estimated liability		(32	)		—			—			(32	)
Liability, September 30, 2010	$	458		$	141		$	—		$	599

The following table provides detailed activity related to the restructuring programs as of September 30, 2010 (in thousands):

	Workforce Reduction			Facilities Consolidation and Operating Lease Commitments			Property and Equipment Impairments and Contract Cancellations			Total
Prior Fiscal Years’ Completed Restructuring Programs:
Liability, March 31, 2009	$	94		$	282		$	—		$	376
Cash payments		—			(282	)		—			(282	)
Reductions to estimated liability		(94	)		—			—			(94	)
Liability, March 31, 2010	$	—		$	—		$	—		$	—
February 2009 Restructuring Program
Liability, March 31, 2009	$	1,474		$	792		$	1,500		$	3,766
Cash payments		(1,414	)		(477	)		(1,500	)		(3,391	)
Reductions to estimated liability		(60	)		(125	)		—			(185	)
Liability, March 31, 2010	$	—		$	190		$	—		$	190
Charged to continuing operations		—			90			—			90
Cash payments		—			(139	)		—			(139	)
Liability, September 30, 2010	$	—		$	141		$	—		$	141
January 2010 Restructuring Program
Charged to continuing operations	$	666		$	—		$	359		$	1,025
Cash payments		(273	)		—			—			(273	)
Non-cash charges		—			—			(359	)		(359	)
Liability, March 31, 2010	$	393		$	—		$	—		$	393
Charged to continuing operations		453			22			—			475
Cash payments		(356	)		(22	)		—			(378	)
Reduction to estimated liability		(32	)		—			—			(32	)
Liability, September 30, 2010	$	458		$	—		$	—		$	458

14

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Prior Fiscal Years’ Completed Restructuring Programs

The March 2008 restructuring program was implemented to reduce job redundancies and consisted of the elimination of 20 positions. As a result of the March 2008 restructuring program, the Company recorded a net charge of $1.6 million, consisting of $0.4 million for employee severances, $0.9 million for operating lease impairment and $0.3 million for an asset impairment. During fiscal 2009, the Company paid down part of its remaining liabilities related to this restructuring program and recorded a reversal for part of its liabilities which was no longer required to complete the restructuring activities. During fiscal 2010, the Company paid all remaining liabilities related to this restructuring program.

The September 2008 restructuring program was implemented to realign and focus the Company’s resources on its core competencies and consisted of the elimination of 30 positions. As a result of the September 2008 restructuring program, the Company recorded a net charge of $1.2 million to continuing operations and $0.1 million to discontinued operations. During fiscal 2009, the Company paid down part of its remaining liabilities related to this restructuring program. During fiscal 2010, the Company recorded a reversal of approximately $0.1 million for the remaining restructuring liability accrual, which was no longer required to complete the restructuring activities.

February 2009 Restructuring Program

The February 2009 restructuring program was implemented to reduce its expenses and excess capacity in response to the worsening economic conditions. The restructuring program consisted of the elimination of approximately 100 positions. As a result of the February 2009 restructuring program, the Company recorded a net charge of $7.8 million, consisting of $4.7 million for employee severances, $0.8 million for operating lease impairments, $1.5 million in contract cancellation charges for a cancelled project and $0.8 million for an asset impairment.

January 2010 Restructuring Program

The January 2010 restructuring program was implemented as part of the Company’s ongoing cost reduction efforts and to better align its global operations to achieve greater efficiencies. The Company moved some of its functions offshore, which will allow it to be much closer to its third party subcontract manufacturers, thus reducing costs by taking advantage of its global cost structure and improving efficiencies by eliminating the delays inherent in working in different time zones. The January 2010 restructuring plan includes eliminating or relocating 63 positions. As a result of the January 2010 restructuring program, the Company recorded a charge of $1.0 million, consisting of $0.6 million for employee severances and $0.4 million for an asset impairment in fiscal 2010. During the six months ended September 30, 2010, the Company recorded an additional charge of $0.4 million for employee severances. The Company expects to record additional charges of approximately $0.2 million for employee severances during the remainder of the fiscal year.

4. COMPREHENSIVE INCOME

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

	Three Months Ended September 30,						Six Months Ended September 30,
	2010			2009			2010			2009
Net income (loss)	$	3,575		$	(6,724	)	$	4,966		$	(3,826	)
Change in net unrealized gain on investments		204			3,837			1,634			10,293
Cumulative implementation reclassification for prior non-credit related other-than-temporary impairment charges		—			—			—			(1,134	)
Release upon disposition of investment with cumulative implementation reclassification for prior non-credit related other-than-temporary impairment charges		105			—			173			—
Foreign currency translation adjustment loss		(325	)		(16	)		(367	)		(112	)
	$	3,559		$	(2,903	)	$	6,406		$	5,221

15

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

5. STOCKHOLDERS’ EQUITY

Preferred Stock

The Certificate of Incorporation allows for the issuance of up to two million shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences, and the number of shares constituting any series of the designation of such series, without further vote or action by the stockholders.

Common Stock

At September 30, 2010, the Company had 375.0 million shares authorized for issuance and approximately 64.5 million shares issued and outstanding. At March 31, 2010, there were approximately 65.4 million shares issued and outstanding.

Employee Stock Purchase Plan

The Company has in effect an employee stock purchase plan under which 4.8 million shares of common stock was reserved for issuance. In August 2010, the Company’s stockholders approved the proposal to increase the number of shares reserved for issuance to 6.3 million shares. Under the terms of this plan, purchases are made semiannually and the purchase price of the common stock is equal to 85% of the fair market value of the common stock on the first or last day of the offering period, whichever is lower. During the six months ended September 30, 2010, 0.2 million shares were issued under this plan. During the fiscal year ended March 31, 2010, approximately 0.4 million shares were issued under this plan. At September 30, 2010, approximately 4.2 million shares had been issued under this plan and approximately 2.1 million shares were available for future issuance.

Stock Repurchase Program

In August 2004, the Board authorized a stock repurchase program for the repurchase of up to $200.0 million of the Company’s common stock. Under the program, the Company is authorized to make purchases in the open market or enter into structured stock repurchase agreements. In October 2008, the Board increased the stock repurchase program by $100.0 million. During the six months ended September 30, 2010, 2.1 million shares were repurchased on the open market at a weighted average price of $11.25 per share. During the fiscal year ended March 31, 2010, 1.1 million shares were repurchased on the open market at a weighted average price of $7.54 per share. From the time the program was first implemented in August 2004, the Company has repurchased on the open market a total of 12.0 million shares at a weighted average price of $11.28 per share. All repurchased shares were retired upon delivery to the Company.

The Company also utilizes structured stock repurchase agreements to buy back shares which are prepaid written put options on its common stock. The Company pays a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a pre-determined amount of cash or stock depending on the closing market price of its common stock on the expiration date of the agreement. Upon expiration of each agreement, if the closing market price of its common stock is above the pre-determined price, the Company will have its cash investment returned with a premium. If the closing market price is at or below the pre-determined price, the Company will receive the number of shares specified at the agreement inception. The Company considers the guidance in ASC Topic 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity and ASC Topic 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Any cash received, including the premium, is treated as additional paid-in capital on the balance sheet.

16

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

During the six months ended September 30, 2010, the Company entered into structured stock repurchase agreements totaling $10.0 million. For those agreements that had been settled during the six months ended September 30, 2010, the Company received $15.5 million in cash and 0.5 million in shares of its common stock at an effective purchase price of $10.01 per share from the settled structured stock repurchase agreements. During the fiscal year ended March 31, 2010, the Company entered into structured repurchase agreements totaling $41.8 million. For those agreements that settled during the fiscal year ended March 31, 2010, the Company received $27.8 million in cash and 0.7 million in shares of its common stock at an effective purchase price of $7.25 per share from the settled structured stock repurchase agreements. At September 30, 2010, the Company had no outstanding structured stock repurchase agreements. From the inception of the Company’s most recent stock repurchase program in August 2004, it entered into structured stock repurchase agreements totaling $267.5 million. Upon settlement of these agreements, as of September 30, 2010, the Company received $179.8 million in cash and 9.0 million shares of its common stock at an effective purchase price of $9.79 per share.

The table below is a plan-to-date summary of the Company’s repurchase program activity as of September 30, 2010 (in thousands, except per share data):

	Aggregate Price		Repurchased Shares		Average Price Per Share
Stock repurchase program
Authorized amount	$	300,000		—	$	—
Open market repurchases		135,155		11,981		11.28
Structured stock repurchase agreements*		100,517		8,962		11.22
Total repurchases	$	235,672		20,943	$	11.25
Available for repurchase	$	64,328

* The amounts above do not include gains of $12.8 million from structured stock repurchase agreements which settled in cash. The average price per share for structured stock repurchase agreements adjusted for gains from settlements in cash would have been $9.79 share and for total repurchases would have been $10.64 per share.

Stock Options

The Company has granted stock options to employees and non-employee directors under several plans. These option plans include two stockholder-approved plans (the 1992 Stock Option Plan and 1997 Directors’ Stock Option Plan) and four plans not approved by stockholders (the 2000 Equity Incentive Plan, Cimaron Communications Corporation’s 1998 Stock Incentive Plan assumed in the fiscal 1999 merger, and JNI Corporation’s 1997 and 1999 Stock Option Plans assumed in the fiscal 2004 merger). Certain other outstanding options were assumed through the Company’s various acquisitions.

In March 2007, the Company’s stockholders also approved the amendment and restatement of the 1992 Stock Option Plan (i) to expand the type of awards available under the plan, (ii) to rename the plan as the 1992 Equity Incentive Plan, (iii) to extend the plan’s expiration date until January 10, 2017, (iv) to increase the shares reserved under the plan by 2.3 million shares, (v) to serve as a successor plan to the 2000 Equity Incentive Plan, which is no longer used for equity awards, and (vi) to provide that any shares subject to stock awards under the 2000 Equity Incentive Plan that terminate or are forfeited or repurchased (other than options issued under the 2000 Equity Incentive Plan that were tendered in the stock option exchange, which occurred in May 2007) are added to the share reserve under the 1992 Equity Incentive Plan.

The Board has delegated administration of the Company’s equity plans to the Compensation Committee, which generally determines eligibility, vesting schedules and other terms for awards granted under the plans. Options under the plans expire not more than ten years from the date of grant and are generally exercisable upon vesting. Vesting generally occurs over four years. New hire grants generally vest and become exercisable at the rate of 25% on the first anniversary of the date of grant and ratably on a monthly basis over a period of 36 months thereafter; subsequent option grants to existing employees generally vest and become exercisable ratably on a monthly basis over a period of 48 months measured from the date of grant.

17

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

In May 2009, Dr. Gopi, our CEO, was awarded 300,000 stock options for “Extraordinary Accomplishment.” The Black-Scholes value of these stock options are $1.1 million. These options will vest only if Company performance milestones are satisfied; otherwise they will expire unvested. The first milestone for 75,000 shares will vest only if we achieve an annual revenue target of $270 million or more for any fiscal year from fiscal 2010 through fiscal 2013. The next milestone for another 75,000 shares will vest only if we achieve an annual revenue target of $310 million or more for any fiscal year from fiscal 2010 through fiscal 2013 or an annual revenue target of $350 million or more for fiscal 2014. The last milestone for 150,000 shares will vest only if we achieve an annual operating margin of 13.5% of annual revenue or higher in fiscal 2013 or 15% or higher for any fiscal year from fiscal 2010 through fiscal 2012. The Company evaluates the probability of achieving the milestones and adjusts any stock option expense accordingly under stock-based compensation expense.

At September 30, 2010 and March 31, 2010, there were no shares of common stock subject to repurchase. Options are granted at prices at least equal to fair value of the Company’s common stock on the date of grant.

Option activity under the Company’s stock incentive plans during the six months ended September 30, 2010 is set forth below:

	Number of Shares (in thousands)			Weighted Average Exercise Price Per Share
Outstanding at the beginning of the year		6,310		$	11.76
Granted		574			11.98
Exercised		(375	)		7.40
Forfeited		(673	)		11.44
Outstanding at the end of the period		5,836		$	12.10
Vested and expected to vest at the end of the period		5,681		$	12.20
Vested at the end of the period		3,799		$	14.15

At September 30, 2010, the weighted average remaining contractual term for options outstanding is 4.3 years and for options vested is 3.4 years.

The aggregate pretax intrinsic value of options exercised during the six months ended September 30, 2010 was $1.5 million. This intrinsic value represents the excess of the fair market value of the Company’s common stock on the date of exercise over the exercise price of such options.

The weighted average remaining contractual life and weighted average per share exercise price of options outstanding and of options exercisable as of September 30, 2010 were as follows (in thousands, except exercise prices and years):

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)		Number of Shares		Weighted Average Exercise Price
$  0.52 - $      7.12		1,215	$	6.07		5.30		349	$	5.61
7.13 -         8.56		1,297		7.94		5.93		652		7.92
8.57 -       12.84		1,711		12.25		3.99		1,187		12.33
12.85 -       19.60		1,167		14.51		3.05		1,165		14.51
19.61 -     152.25		446		33.85		1.76		446		33.85
$  0.52 - $  152.25		5,836	$	12.10		4.34		3,799	$	14.15

As of September 30, 2010, the aggregate pre-tax intrinsic value of options outstanding and exercisable was $2.9 million and options outstanding was $7.5 million. The aggregate pretax intrinsic values were calculated based on the closing price of the Company’s common stock of $10.00 on September 30, 2010.

18

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

Restricted Stock Units

The Company has granted restricted stock units pursuant to its 2000 Equity Incentive Plan as part of its regular annual employee equity compensation review program as well as to new hires. Restricted stock units are share awards that, upon vesting, will deliver to the holder shares of the Company’s common stock. Generally, restricted stock units vest ratably on a quarterly basis over four years from the date of grant. For employees hired after May 15, 2006, restricted stock units will vest on a quarterly basis over four years from the date of hire provided that no shares will vest during the first year, at the end of which the shares that would have vested during that year will vest and the remaining shares will vest over the remaining 12 quarters.

In May 2009, the Company issued three-year RSU grants, or “EBITDA Grants.” Vesting for the EBITDA Grants is subject to (i) the Company’s performance as measured by earnings before interest, taxes, depreciation and amortization (“EBITDA”), and (ii) individual performance as measured by the accomplishment of goals and objectives. For the fiscal year ended March 31, 2010, approximately 34% of the three-year performance pool vested because the Company’s performance exceeded its “stretch” EBITDA target. For the fiscal year ending March 31, 2011, up to 42% of the remaining three-year performance pool can vest. Approximately 21% can vest for “at plan” Company performance, 28% can vest for “stretch” Company performance and 42% can vest for “extraordinary” Company performance. The Company evaluates the probability of achieving the milestones and adjusts any RSU expense accordingly under stock-based compensation expense.

Restricted stock unit activity during the six months ended September 30, 2010 is set forth below:

	Restricted Stock Units Outstanding Number of Shares
	(in thousands)
Outstanding at the beginning of the year		3,687
Awarded		903
Vested		(1,281	)
Cancelled		(448	)
Outstanding at the end of the period		2,861

The weighted average remaining contractual term for the restricted stock units outstanding as of September 30, 2010 was 1.2 years.

Based on the closing price of the Company’s common stock of $10.00 on September 30, 2010, the total pretax intrinsic value of all outstanding restricted stock units on that date was $28.6 million.

The aggregate pretax intrinsic value of RSUs released during the six months ended September 30, 2010 was $13.6 million. This intrinsic value represents the fair market value of the Company’s common stock on the date of release.

Warrants

On May 17, 2009, the Company entered into agreements with Veloce Technologies, Inc. (“Veloce”) pursuant to which Veloce has agreed to perform development work for the Company on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of the Company’s common stock, which would vest upon the achievement of certain performance and time-based milestones.

19

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The warrant expires on July 15, 2014 and has an exercise price of $0.01. The first tranche is for 33% and will vest on the 12-month anniversary of the agreement date and the remaining 67% will vest 8% every three months beginning on the 15th month after the agreement date until the warrant is 100% vested provided that “certain milestones” are achieved by the 12-month anniversary of the agreement date. If at any time, Veloce achieves the “project milestone,” the warrant will vest 100% on the date the “project milestone” is achieved. Recognition of expense related to the warrant agreement is initially dependent upon the probability of “certain milestones” being achieved, which is based on consideration of several factors including the stage of development, nature and complexity of the technology being developed and the uncertainty involved in developing complex leading edge products. The Company assesses the probability of the “certain milestones” being achieved each reporting period. As of September 30, 2010, the milestones required for vesting to begin have not been achieved. The Company is currently in the process of renegotiating the terms and conditions of the Merger Agreement and related agreements with Veloce including, without limitation, the performance milestones, and expects to enter into formal amendments to these agreements with Veloce over the next few days or weeks.

6. STOCK-BASED COMPENSATION

The Company estimates the fair value of stock-based compensation on the date of grant using an option-pricing model. The Company uses the Black-Scholes option pricing model to estimate the fair value of its share-based payments, excluding RSUs, which uses the fair market value. The Black-Scholes model determines the fair value of share-based payment awards based on the stock price on the date of grant and is affected by assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting or hedging restrictions and are fully transferable. Although the fair value of stock options granted by the Company is estimated by the Black-Scholes model, the estimated fair value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

The fair value of the options granted during the three months ended September 30, 2010 and 2009 is estimated as of the grant date using the Black-Scholes option-pricing model assuming the weighted-average assumptions listed in the following table:

	Three Months Ended September 30,
	Employee Stock Options						Employee Stock Purchase Plans
	2010			2009			2010			2009
Expected life (years)		3.8			3.9			0.5			0.5
Risk-free interest rate		1.0	%		2.2	%		0.2	%		0.3	%
Volatility		56	%		54	%		57	%		53	%
Dividend yield		—	%		—	%		—	%		—	%
Weighted average fair value	$	5.25		$	3.73		$	3.70		$	2.59

The weighted average grant-date fair value per share of the restricted stock units awarded was $10.99 and $10.77 during the three and six months ended September 30, 2010, respectively, compared to $7.52 and $6.60 during the three and six months ended September 30, 2009, respectively. The weighted average fair value per share was calculated based on the fair market value of the Company’s common stock on the respective grant dates.

Effective April 1, 2010, the Company revised its estimated forfeiture rate used in determining the amount of stock-based compensation from 5.8% to 6.6% as a result of an increasing rate of forfeitures in recent periods, which the Company believes is indicative of the rate it will experience during the remaining vesting period of currently outstanding unvested grants.

20

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The following table summarizes stock-based compensation expense related to stock options and restricted stock units under ASC Topic 718-10 (in thousands):

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010			2009
Stock-based compensation expense by type of awards
Stock options (including employee stock purchase program)	$	1,087	$	1,053		$	2,083		$	2,088
Restricted stock units		2,871		2,751			5,754			4,344
Total stock-based compensation		3,958		3,804			7,837			6,432
Stock-based compensation expensed from (capitalized to) inventory, net		17		(37	)		(16	)		(50	)
Total stock-based compensation expense	$	3,975	$	3,767		$	7,821		$	6,382

The following table summarizes stock-based compensation expense as it relates to the Company’s statement of operations (in thousands):

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010			2009
Stock-based compensation expense by type of awards
Cost of revenues	$	163	$	180		$	348		$	304
Research and development		1,931		1,594			3,902			2,866
Selling, general and administrative		1,864		2,030			3,587			3,262
Total stock-based compensation	$	3,958	$	3,804		$	7,837		$	6,432
Stock-based compensation expensed from (capitalized to) inventory, net		17		(37	)		(16	)		(50	)
Total stock-based compensation expense	$	3,975	$	3,767		$	7,821		$	6,382

The amount of unearned stock-based compensation currently estimated to be expensed from now through fiscal 2015 related to unvested share-based payment awards at September 30, 2010 is $26.6 million. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately 2.2 years. If there are any modifications or cancellations of the underlying unvested securities, the Company may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense and unearned stock-based compensation will increase to the extent that the Company grants additional equity awards or assumes unvested equity awards in connection with acquisitions.

7. CONTINGENCIES

Legal Proceedings

The Company acquired JNI Corporation (“JNI”) in October 2003. In November 2001, a class action lawsuit was filed against JNI and the underwriters of its initial and secondary public offerings of common stock in the U.S. District Court for the Southern District of New York, case no. 01 Civ 10740 (SAS). The complaint alleges that defendants violated the Securities Exchange Act of 1934, as amended (the “Exchange Act”), in connection with JNI’s public offerings. This lawsuit is among more than 300 class action lawsuits pending in this District Court that have come to be known as the “IPO laddering cases.” Pursuant to In re Initial Public Offering Securities Litigation, No. 21 MC 92 (SAS), a settlement has been reached in all of the cases. On October 6, 2009, the Court issued an order granting final approval of the settlement and dismissing the case. The Court subsequently issued a final judgment. Several appeals of the settlement and judgment were filed between October 29 and November 4, 2009. Should the settlement be overturned on appeal and the final approval vacated, the Company’s liability, if any, could not be reasonably estimated at this time.

21

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

In 1993, the Company was named as a Potentially Responsible Party (“PRP”) along with more than 100 other companies that used an Omega Chemical Corporation waste treatment facility in Whittier, California. The Company is a member of a large group of PRPs, known as the Omega Chemical Site PRP Organized Group (“OPOG”) that has agreed to fund certain on-going remediation efforts at the Omega site. The U.S. Environmental Protection Agency (“EPA”) has alleged that Omega failed to properly treat and dispose of certain hazardous waste materials. On February 26, 2001 the U.S. District Court for the Central District of California approved a consent decree between the EPA and OPOG to study contamination and evaluate cleanup options at the Omega site. Under the terms of the consent decree, EPA agreed to supervise OPOG’s soil remedial investigation and feasibility study, groundwater treatment design and the installation of three groundwater monitoring wells downgradient from the Omega site. On January 22, 2009, the District Court ordered that the first and second amendments to the consent decree be entered and made part of the consent decree. The First Amendment expanded the scope of work to mitigate volatile organic compounds affecting indoor air quality at a roller rink neighboring the Omega site and, the Second Amendment added settling parties to the consent decree. On November 7, 2007, Angeles Chemical Company filed Angeles Chemical Company, Inc. et al. v. Omega Chemical PRP Group, LLC, et al., in the U.S. District Court for the Central District of California against OPOG for cost recovery and indemnification for future response costs resulting from an alleged regional groundwater contamination plume originating at the Omega site. On March 27, 2008, the Court granted OPOG’s motion to stay the action pending EPA’s determination of how to investigate and remediate the regional groundwater.

Tpack, the Company’s wholly owned subsidiary acquired in September 2010, is involved in a contractual dispute with Xtera Communications Inc. and its subsidiary Meriton Networks, Canada Inc. (collectively, “Xtera”). In August 2009, Xtera filed an action against Tpack in the United States District Court for the Eastern Division of Texas. In October 2010, the action was dismissed for lack of jurisdiction. A related lawsuit was brought by Tpack against Xtera in September 2009 in the Ontario Superior Court of Justice in Canada, which suit is still pending. Further actions may be initiated by Tpack or Xtera with respect to the subject matter of the foregoing cases. The Company does not currently anticipate that the Tpack/Xtera legal proceedings will have a material adverse effect on Tpack, the Company or their respective operations.

8. INCOME TAXES

The total amount of unrecognized tax benefits as of April 1, 2010, was $38.8 million, including interest and penalties. During the quarter ended September 30, 2010, additional unrecognized tax benefits of $40,000 were recorded. The Company does not foresee significant changes to its estimated amount of liability associated with its uncertain tax positions within the next twelve months.

The Company’s income tax expense consists of state taxes and foreign taxes. The federal statutory income tax rate was 35% for the three months ended September 30, 2010 and 2009. The Company’s income tax expense for the three and six months ended September 30, 2010 was $0.4 million and $0.6 million, respectively, as compared to an income tax benefit of $3.6 million and $7.3 million during the three and six months ended September 30, 2009, respectively. The increase in the income tax expense recorded for the three and six months ended September 30, 2010 compared to the three and six months ended September 30, 2009, was primarily related to discontinued operations and other comprehensive income benefits allocated to continuing operations for the three and six months ended September 30, 2009. The Company acquired TPack, headquartered in Denmark, on September 17, 2010. The Company is still in the process of evaluating the accompanying tax implications of the TPack acquisition.

The Company is subject to taxation in the U.S. and various state and foreign jurisdictions. The Company is currently under audit by the North Carolina Department of Revenue for fiscal years 2006 to 2008. Effectively, all of the Company’s historical tax years are subject to examination by the Internal Revenue Service and various state jurisdictions due to the generation of net operating loss and credit carryforwards. With few exceptions, the Company is no longer subject to foreign examinations by tax authorities for years before 2007.

9. SALE OF THE 3WARE STORAGE ADAPTER BUSINESS TO LSI CORPORATION

On April 5, 2009, the Company entered into a Purchase Agreement with LSI Corporation (“LSI”). Under the Purchase Agreement, the Company agreed to sell to LSI substantially all of the operating assets (other than patents) primarily used or held for use in its 3ware storage adapter business (the “Storage Business”) but retaining certain assets, including patents, cash, accounts receivable and accounts payable, even if related to the Storage Business (the “Transaction”). The assets sold included customer contracts, inventory, fixed assets, certain intellectual property and other assets, as well as rights to the name “3ware.”

The Company completed the Transaction on April 21, 2009. After adjustments for the level of inventory of $0.7 million and products in the channel of $0.8 million, the final adjusted price of the Transaction was approximately $21.5 million for a gain of $11.4 million. During the fiscal year ended March 31, 2010, the Company and LSI reached an agreement to end the warranty support portion of the Purchase Agreement. As a result of the Transaction, the Company decreased its number of full-time employees by 56.

The Company has reclassified the financial results of the 3ware storage adapter business as discontinued operations for all periods presented.

22

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

10. VELOCE

On May 17, 2009, the Company entered into agreements with Veloce pursuant to which Veloce has agreed to perform product development work for the Company on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of the Company’s common stock, which will vest upon the achievement of both certain performance and time-based milestones.

The Company has determined that Veloce, a California corporation, is a VIE by evaluating the sufficiency of the entity’s equity investment at risk to absorb losses and the Company’s share of respective expected losses and determined that the Company is the primary beneficiary of the VIE. The Company has included the accounts of Veloce in the consolidated financial statements and all significant intercompany balances and transactions have been eliminated in consolidation.

Under the merger agreement between the Company and Veloce, which has been approved by Veloce’s Board of Directors and stockholders, the Company also agreed to acquire Veloce if certain performance milestones and delivery schedules set forth under the merger and other agreements are achieved. The Company also has the unilateral option to acquire Veloce in the event Veloce fails to meet the milestones and delivery schedules. Should the Company acquire Veloce pursuant to the merger agreement, the purchase price payable by the Company is estimated to be in the range of approximately $5 million up to approximately $100 million, subject to adjustments. The final price would be based upon the achievement and timing of achieving multiple performance milestones and currently is not determinable. The form of consideration used for the merger, cash or the Company’s stock, would be determined by the Company at the time of the merger. The merger agreement contains customary representations, warranties and covenants and may be terminated upon mutual agreement of the parties or unilaterally by the Company or Veloce if the other party fails to meet certain conditions set forth in the agreement. The agreements permit the Company to appoint one individual to serve on Veloce’s Board of Directors and Board committees. The Company’s chief executive officer has been appointed to Veloce’s Board of Directors and as of September 30, 2010, the performance milestones and delivery schedules set forth under the merger and other agreements have not been achieved.

In addition, the Company has provided Veloce a promissory note of $1.5 million to be forgiven over eight quarters starting on March 31, 2011. If Veloce commits a material breach of the merger agreement, the outstanding principal amount of the note and accrued interest is due to the Company. If the Company commits a material breach of the merger agreement, the outstanding principal amount of the note and accrued interest is to be forgiven by the Company. The $1.5 million promissory note is eliminated in consolidation. The Company will pay Veloce $1.5 million per quarter for up to twelve consecutive quarters in order to assist Veloce in meeting its expenses to perform its obligations under the agreement and the Company will recognize the payments as research and development expenses when such operating costs have been incurred by Veloce. The Company recognized $2.3 million and $4.4 million as research and development expense during the three and six months ended September 30, 2010, respectively, compared to $1.5 million and $2.0 million during the three and six months ended September 30, 2009, respectively. During the six months ended September 30, 2010, the Company provided additional advances of $0.8 million to Veloce. The Company is currently in the process of renegotiating the terms and conditions of the Merger Agreement and related agreements with Veloce, including, without limitation, the development deliverables, performance milestones, delivery schedules and payment obligations thereunder, and expects to enter into formal amendments to these agreements with Veloce over the next few days or weeks.

11. ACQUISITION OF TPACK A/S.

On September 17, 2010, the Company acquired all of the shares of TPack, a limited liability company organized under the laws of Denmark. The Company believes the acquisition of TPack, a provider of silicon intellectual property for Mapping and Switching functions to leading telecom and networking equipment suppliers, will enable AppliedMicro to expand its presence and customer relationships in the rapidly growing OTN and Carrier Ethernet markets.

The total consideration paid at the closing of the transaction (the “Closing”) was approximately $32 million, exclusive of $0.5 million cash acquired. Following certain working capital adjustments, deductions for transaction expenses, including without limitation, those related to certain change in control bonuses owed by the shareholders to TPack’s employees, and indemnity escrow holdbacks of approximately $5 million, a balance of approximately $22.6 million was paid at the Closing to the former shareholders of TPack. The former TPack shareholders may also earn up to approximately $5 million in additional consideration, subject to the achievement of certain revenue and performance milestones by TPack during the 18 month period following the Closing. The Company recorded the initial fair value of the contingent consideration liability which was calculated based on a weighted probability assessment. The liability will continue to be measured at fair value at the end of each reporting period. In addition, we recorded acquisition related transaction costs of $0.9 million, which were included in selling, general and administrative expenses.

23

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

(unaudited)

The Company has calculated the fair value of the tangible and intangible assets acquired to allocate the purchase price as of the acquisition date. The excess of purchase price over the aggregate fair values was recognized as goodwill. Based upon these calculations, the preliminary purchase price of the transaction was allocated as follows (in thousands), and also includes the estimated amortization period of the acquired intangibles:

	Estimated Useful Life (In years)		Purchase price
Purchased intangible assets
Developed Technology		6	$	15,450
Existing customer contracts		5		4,000
Partner relationship		3		2,500
Trademarks and tradenames		3		650
Covenants not-to-compete		3		250
In-process R&D		—		950
Goodwill (non tax deductible)*				13,739
Deferred tax liability				(656	)
Contingent consideration (payable)				(3,150	)
Net liabilities			$	(1,699	)
Cash consideration				32,034
Contingent consideration				3,150
The total consideration issued in the acquisition			$	35,184

* The amount resulted primarily from our expectation of synergies from the integration of TPack product offerings with our product offerings

The fair values of the TPack intangible assets were determined using the income approach with significant inputs that are not observable in the market. Key assumptions included expected future cash flows and discount rates consistent with the assessment of risk. Purchased intangible assets, including IPR&D, are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used, or if that pattern cannot be reliably determined, using a straight-line amortization method.

The financial information in the table below summarizes the combined results of operations of the Company and TPack, on a proforma basis, as though the companies have been combined as of the beginning of the fiscal years of the periods presented. The proforma financial information is presented for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on April 1, 2010 or July 1, 2010 or of results that may occur in the future.

	Three Months Ended September 30,					Six Months Ended September 30,
	2010		2009			2010		2009
Net revenues	$	67,385	$	50,530		$	129,660	$	97,085
Net income (loss)		3,291		(7,082	)		4,067		(4,357	)

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

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

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

• Overview. This section provides an introductory overview and context for the discussion and analysis that follows in the MD&A.

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

• Results of operations. This section provides an analysis of our results of operations for the three and six months ended September 30, 2010 and 2009. A brief description is provided of transactions and events that impact the comparability of the results being analyzed.

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

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

The MD&A should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this report. This discussion contains forward-looking statements. These forward-looking statements are made as of the date of this report. Any statement that refers to an expectation, projection or other characterization of future events or circumstances, including the underlying assumptions, is a forward-looking statement. We use certain words and their derivatives such as “anticipate”, “believe”, “plan”, “expect”, “estimate”, “predict”, “intend”, “may”, “will”, “should”, “could”, “future”, “potential”, and similar expressions in many of the forward-looking statements. The forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs, and other assumptions made by us. These statements and the expectations, estimates, projections, beliefs and other assumptions on which they are based are subject to many risks and uncertainties and are inherently subject to change. We describe many of the risks and uncertainties that we face in Part II, Item 1A, “Risk Factors” and elsewhere in this report. Our actual results and actual events could differ materially from those anticipated in any forward-looking statement. Readers should not place undue reliance on any forward-looking statement.

OVERVIEW

Applied Micro Circuits Corporation (“AMCC”, “APM”, “AppliedMicro” or the “Company”) is a leader in semiconductor solutions for the enterprise, telecom and consumer/small medium business (“SMB”) markets. We design, develop, market and support high-performance low power ICs, which are essential for the processing, transporting and storing of information worldwide. In the telecom and enterprise markets, we utilize a combination of design expertise coupled with system-level knowledge and multiple technologies to offer IC products for wireline and wireless communications equipment such as wireless access points, wireless base stations, multi-function printers, enterprise and edge switches, blade servers, storage systems, gateways, core switches, routers, metro, long-haul, and ultra-long-haul transport platforms. In the consumer/SMB markets, we combine optimized software and system-level expertise with highly integrated semiconductors to deliver comprehensive reference designs and stand-alone semiconductor solutions for wireline and wireless communications equipment such as wireless access points, network attached storage, and residential and smart energy gateways. Our corporate headquarters are located in Sunnyvale, California. Sales and engineering offices are located throughout the world.

Our business had three reporting units, Process, Transport and Store. On April 21, 2009, we completed the sale of our 3ware storage adapter business, which was substantially all of the business of our Store reporting unit, to LSI Corporation to focus on our Process and Transport reporting units. We are a semiconductor company that possesses fundamental and differentiated intellectual property for high speed signal processing, packet based communications processors and telecommunications transport protocols. This intellectual property enables us to be a key player in the datacenter, enterprise and telecommunications applications. Our focus is on the OEMs and telecommunications companies that build and connect to datacenters. As of September 30, 2010, our business had two reporting units, Process and Transport.

25

On September 17, 2010, we completed the acquisition of TPack, a limited liability company organized under the laws of Denmark, in accordance with the terms and conditions of the stock purchase agreement dated August 17, 2010.

Since the start of fiscal 2009, we have invested a total of $226.0 million in the research and development of new products, including higher-speed, lower-power and lower-cost products, products that combine the functions of multiple existing products into single highly integrated products, and other products to complete our portfolio of communications products. These products, and our customers’ products for which they are intended, are highly complex. Due to this complexity, it often takes several years to complete the development and qualification of these products before they enter into volume production. Accordingly, we have not yet generated significant revenues from some of the products developed during this time period. In addition, downturns in the telecommunications market can severely impact our customers’ business and usually results in significantly less demand for our products than was expected when the development work commenced.

The following tables present a summary of our results of operations for the three and six months ended September 30, 2010 and 2009 (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount			% of  Net Revenue			Increase (Decrease)			% Change
Net revenues	$	65,953		100.0	%	$	49,232			100.0	%	$	16,721			34.0	%
Cost of revenues		23,435		35.5			23,796			48.3			(361	)		(1.5	)
Gross profit		42,518		64.5			25,436			51.7			17,082			67.2
Total operating expenses		41,669		63.2			33,699			68.4			7,970			23.7
Operating income (loss)		849		1.3			(8,263	)		(16.7	)		9,112			110.3
Interest and other income (expense), net		3,102		4.7			(3,425	)		(7.0	)		6,527			190.6
Income (loss) from continuing operations before income taxes		3,951		6.0			(11,688	)		(23.7	)		15,639			133.8
Income tax expense (benefit)		376		0.6			(3,617	)		(7.3	)		3,993			110.4
Income (loss) from continuing operations		3,575		5.4			(8,071	)		(16.4	)		11,646			144.3
Income from discontinued operations, net of taxes		—		—			1,347			2.7			(1,347	)		(100.0	)
Net income (loss)	$	3,575		5.4	%	$	(6,724	)		(13.7	)%	$	10,299			153.2	%

	Six Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount			% of  Net Revenue			Increase (Decrease)			% Change
Net revenues	$	126,763		100.0	%	$	94,284			100.0	%	$	32,479			34.4	%
Cost of revenues		45,920		36.2			45,971			48.8			(51	)		(0.1	)
Gross profit		80,843		63.8			48,313			51.2			32,530			67.3
Total operating expenses		80,444		63.5			64,483			68.4			15,961			24.8
Operating income (loss)		399		0.3			(16,170	)		(17.2	)		16,569			102.5
Interest and other income (expense), net		5,183		4.1			(1,836	)		(1.9	)		7,019			382.3
Income (loss) from continuing operations before income taxes		5,582		4.4			(18,006	)		(19.1	)		23,588			131.0
Income tax expense (benefit)		616		0.5			(7,136	)		(7.6	)		7,752			108.6
Income (loss) from continuing operations		4,966		3.9			(10,870	)		(11.5	)		15,836			145.7
Income from discontinued operations, net of taxes		—		—			7,044			7.5			(7,044	)		(100.0	)
Net income (loss)	$	4,966		3.9	%	$	(3,826	)		(4.0	)%	$	8,792			229.8	%

Net Revenues. We generate revenues primarily through sales of our IC products, embedded processors and printed circuit board assemblies to OEMs, such as Alcatel-Lucent, Ciena, Cisco, Brocade, Fujitsu, Hitachi, Huawei, Juniper, Ericsson, NEC, Nortel, Nokia Siemens Networks, and Tellabs, who in turn supply their equipment principally to communications service providers.

26

In July 2008, we entered into a Patent Purchase Agreement (the “Agreement”) with QUALCOMM Incorporated (“Qualcomm”). Pursuant to the Agreement, we agreed to sell a series of our patents, patent applications and associated rights related to certain technologies for an aggregate purchase price of $33.0 million. The purchase price is being paid over three years in equal quarterly payments of $3.0 million each beginning in the three months ended December 31, 2008 through March 31, 2011. Due to the nature of the payment terms, related revenue is being recorded as the payments are received.

In November 2009, we also entered into another Patent Purchase Agreement with Acacia Patent Acquisition LLC (“APAC”). Pursuant to this Agreement, we agreed to sell a series of our patents, patent applications and associated rights related to certain technologies for an aggregate purchase price of $2.5 million payable over two years and a 25% share of royalty payments for assignment of rights under the sale and or use of the patents. Due to the nature of the payment terms, related revenue is being recorded as the payments are received.

The demand for our products has been affected in the past, and may continue to be affected in the future, by various factors, including, but not limited to, the following:

• the timing, rescheduling or cancellation of significant customer orders and our ability, as well as the ability of our customers, to manage inventory corrections;

• the qualification, availability and pricing of competing products and technologies and the resulting effects on sales and pricing of our products.

• our ability to specify, develop or acquire, complete, introduce, and market new products and technologies in a cost effective and timely manner;

• the rate at which our present and future customers and end-users adopt our products and technologies in our target markets;

• general economic and market conditions in the semiconductor industry and communications markets;

• combinations of companies in our customer base, resulting in the combined company choosing our competitor’s IC standardization other than our supported product platforms;

• the gain or loss of one or more key customers, or their key customers, or significant changes in the financial condition of one or more of our key customers or their key customers; and

• our ability to meet customer demand due to capacity constraints at our suppliers.

For these and other reasons, our net revenue and results of operations for the three and six months ended September 30, 2010 and 2009 may not necessarily be indicative of future net revenue and results of operations.

Based on direct shipments, net revenues to customers that were equal to or greater than 10% of total net revenues were as follows:

	Three Months  Ended September 30,						Six Months  Ended September 30,
	2010			2009			2010			2009
Avnet (distributor)		30	%		28	%		31	%		26	%
Hon Hai (sub-contract manufacturer)		14	%		14	%		14	%		13	%
Flextronics (sub-contract manufacturer)		10	%		*			*			*

* Less than 10% of total net revenues for period indicated.

We expect that our largest customers will continue to account for a substantial portion of our net revenue for the foreseeable future.

27

Net revenues by geographic region were as follows (in thousands):

	Three Months Ended September 30,										Six Months Ended September 30,
	2010					2009					2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Amount		% of  Net Revenue			Amount		% of  Net Revenue
United States of America	$	22,159		33.6	%	$	17,428		35.4	%	$	40,630		32.1	%	$	32,968		35.0	%
Other North America		609		0.9			1,734		3.5			756		0.6			4,344		4.6
Europe		13,508		20.5			9,267		18.8			23,472		18.5			16,234		17.2
Asia		29,307		44.4			20,650		41.9			61,143		48.2			40,340		42.8
Other		370		0.6			153		0.4			762		0.6			398		0.4
	$	65,953		100.0	%	$	49,232		100.0	%	$	126,763		100.0	%	$	94,284		100.0	%

All of our revenues have been denominated in U.S. dollars.

Sale of the 3ware storage adapter business to LSI Corporation. We completed the sale of our 3ware storage adapter business (the “Transaction”), a significant portion of our overall storage business and substantially all of our Store reporting unit, to LSI Corporation on April 21, 2009. As a result, we now expect to generate all of our sales from our remaining business, Process and Transport, which will require us to grow our remaining business in order to achieve profitability. Under the Asset Purchase Agreement with LSI Corporation (the “Purchase Agreement”), which we entered on April 5, 2009, we sold substantially all of the operating assets (other than patents) of our 3ware storage adapter business. The assets sold included customer contracts, inventory, fixed assets, certain intellectual property and other assets, as well as rights to the name “3ware.” The purchase price, adjusted for the level of inventory and products in the channel at the closing of the Transaction, was approximately $21.5 million. The net gain recorded from this transaction during the fiscal year ended March 31, 2010 was $11.4 million. Unless otherwise specified, all amounts discussed in the Management’s discussion and analysis addresses only continuing operations.

Key non-GAAP measurements. We use certain non-GAAP metrics such as Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) to measure our performance. We define Adjusted EBITDA as net loss less interest income, income taxes, depreciation and amortization, stock-based compensation, amortization of intangibles and other one-time and/or non-cash items. The following table reconciles Adjusted EBITDA to the accompanying financial statements:

	Three Months Ended September 30,						Six Months Ended September 30,
	2010			2009			2010			2009
Net income (loss)	$	3,575		$	(6,724	)	$	4,966		$	(3,826	)
Interest and other income		(1,414	)		(1,708	)		(2,587	)		(3,472	)
Stock-based compensation expense		3,975			3,767			7,821			6,382
Amortization of intangibles		3,802			4,269			7,432			8,856
Acquisition transaction expenses		859			—			859			—
Restructuring charges (recoveries), net		164			(125	)		533			(279	)
Impairment of strategic investment		—			2,000			—			2,000
Impairment of marketable securities*		(1,688	)		3,133			(2,596	)		3,308
Depreciation and amortization		2,150			2,004			4,428			3,911
Income tax adjustment		376			(3,617	)		616			(7,136	)
Income from discontinued operations		—			(1,347	)		—			(7,044	)
Adjusted EBITDA	$	11,799		$	1,652		$	21,472		$	2,700

* For non-GAAP purposes, the impairment of marketable securities is not recognized until the securities are sold.

We believe that Adjusted EBITDA is a useful supplemental measure of our operation’s performance because it helps investors evaluate and compare the results of operations from period to period by removing the accounting impact of the company’s financing strategies, tax provisions, depreciation and amortization, restructuring charges, stock based compensation expense, discontinued operations and other operating items that are outside the Company’s ordinary course of business. We adjust for these excluded items because we believe that, in general, these items possess one or more of the following characteristics: their magnitude and timing is largely outside of the company’s control; they are unrelated to the ongoing operation of the business in the ordinary course; they are unusual or infrequent and the company does not expect them to occur in the ordinary course of business; or they are non-operational, or non-cash expenses involving stock option grants.

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Adjusted EBITDA is not a measure determined in accordance with generally accepted accounting principles in the United States, or GAAP, and should not be considered a substitute for operating income, net income or any other measure determined in accordance with GAAP. Adjusted EBITDA should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP. Adjusted EBITDA is used by our management as a measure of operating efficiency and overall financial performance for benchmarking against our peers and competitors and is used as a metric to determine the performance vesting of our three-year restricted stock unit grants issued in May 2009 (the “EBITDA Grants”) in the fiscal year ended March 31, 2010 and fiscal years ending March 31, 2011 and 2012. Management believes Adjusted EBITDA provides meaningful supplemental information regarding the underlying operating performance of our business. Management also believes that Adjusted EBITDA is useful to investors because it is frequently used by securities analysts, investors and other interested parties to evaluate the company.

The book-to-bill ratio is another metric commonly used by investors to compare and evaluate technology and semiconductor companies. The book-to-bill ratio is a demand-to-supply ratio that compares the total amount of orders received to the total amount of orders filled. This ratio tells whether the company has more orders than it delivered (if greater than 1), has the same amount of orders that it delivered (equals 1), or has less orders than it delivered (under 1). Though the ratio provides an indicator of whether orders are rising or falling, it does not consider the timing of, or if the order will result in future revenues. Our book-to-bill ratio at September 30, 2010 and 2009 was 0.9 and 1.1, respectively.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of net revenue and expenses in the reporting period. We regularly evaluate our estimates and assumptions related to: inventory valuation and capitalized mask set costs, which affect our cost of sales and gross margin; the valuation of purchased intangibles, which has in the past affected, and could in the future affect, our impairment charges to write down the carrying value of purchased intangibles and the amount of related periodic amortization expense recorded for definite-lived intangibles; the valuation of restructuring liabilities, which affects the amount and timing of restructuring charges; and an evaluation of other-than-temporary impairment of our investments, which affects the amount and timing of write-down charges. We also have other key accounting policies, such as our policies for stock-based compensation and revenue recognition, including the deferral of a portion of revenues on sales to distributors. The methods, estimates and judgments we use in applying these critical accounting policies have a significant impact on the results we report in our financial statements. We base our estimates and assumptions on historical experience and on various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from management’s estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements.

Inventory Valuation

Our policy is to value inventories at the lower of cost or market on a part-by-part basis. This policy requires us to make estimates regarding the market value of our inventories, including an assessment of excess or obsolete inventories. We determine excess and obsolete inventories based on an estimate of the future demand for our products within a specified time horizon, generally 12 months. The estimates we use for future demand are also used for near-term capacity planning and inventory purchasing and are consistent with our revenue forecasts. If our demand forecast is greater than our actual demand we may be required to take additional excess inventory charges, which would decrease gross margin and net operating results. For example, as of September 30, 2010, reducing our future demand estimate to six months could decrease our current inventory valuation by approximately $0.8 million or increasing our future demand forecast to 18 months could increase our current inventory valuation by approximately $0.1 million.

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Goodwill and Intangible Assets

The purchase method of accounting for acquisitions requires extensive use of accounting estimates and judgments to allocate the purchase price to the fair value of the net tangible and intangible assets acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests. The amounts and useful lives assigned to other intangible assets impact future amortization. Determining the fair values and useful lives of intangible assets requires the use of estimates and the exercise of judgment. While there are a number of different generally accepted valuation methods to estimate the value of intangible assets acquired, we primarily use the discounted cash flow method and the market comparison approach. These methods require significant management judgment to forecast the future operating results used in the analysis. In addition, other significant estimates are required such as residual growth rates and discount factors. The estimates we use to value and amortize intangible assets are consistent with the plans and estimates that we use to manage our business and are based on available historical information and industry estimates and averages. These judgments can significantly affect our net operating results.

In accordance with ASC Topic 350-10 (“ASC 350-10”) as it relates to Goodwill and Other Intangible Assets, the Company performs its annual impairment review at the reporting unit level each fiscal year or more frequently if the Company believes indicators of impairment are present. ASC 350-10 requires that goodwill and certain intangible assets be assessed for impairment using fair value measurement techniques. Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill. Goodwill is allocated to reporting units based upon the type of products under development by the acquired company, which initially generated the goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step of the goodwill impairment test is performed to measure the amount of impairment loss. The second step of the goodwill impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit. The fair value is determined using a combination of the discounted cash flow analysis and/or market comparisons. The determination of fair value requires significant judgment and estimates. The Company last recorded goodwill impairment charges in the year ended March 31, 2009 of $223.0 million to continuing operations and $41.2 million to discontinued operations. In conjunction with the TPack acquisition, we recorded $23.8 million in amortizable intangible assets and $13.7 million in goodwill.

We evaluate our long-lived assets such as property, plant and equipment and purchased intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying value of an asset or asset group may not be recoverable. The carrying value of an asset or asset group is not recoverable if the amount of undiscounted future cash flows the assets are expected to generate (including any net proceeds expected from the disposal of the asset) are less than its carrying value. When we identify an impairment has occurred, we reduce the carrying value of the assets to its comparable market value (if available and appropriate) or to its estimated fair value based on a discounted cash flow approach.

Intangible assets, such as purchased technology, are generally recorded in connection with a business acquisition. The value assigned to intangible assets is usually based on estimates and judgments regarding expectations for the success and life cycle of products and technology acquired. The fair value of the intangible assets was determined using the income approach. Key assumptions include the expected future cash flows, timing of expected future cash flows and discount rates consistent with the level of risk. We evaluate the useful lives of our intangible assets each reporting period to determine whether events and circumstances require revising the remaining period of amortization.

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Investments

We hold a variety of securities that have varied underlying investments. We review our investment portfolio periodically to assess for other-than-temporary impairment. We assess the existence of impairment of our investments in order to determine the classification of the impairment as “temporary” or “other-than-temporary”. The factors used to determine whether an impairment is temporary or other-than-temporary involve considerable judgment. The recent economic climate and volatile financial markets have created an environment in which it may be difficult to make accurate estimates and assumptions on which we base our judgments. The factors we consider in determining whether any individual impairment is temporary or other-than-temporary are primarily the length of the time and the extent to which the market value has been less than amortized cost, the nature of underlying assets (including the degree of collateralization), the financial condition, credit rating, market liquidity conditions and near-term prospects of the issuer. If the fair value of a debt security is less than its amortized cost basis at the balance sheet date, an assessment would have to be made as to whether the impairment is other-than-temporary. If we decided to sell the security, an other-than-temporary impairment shall be considered to have occurred. However, if we do not intend to sell the debt security, we shall consider available evidence to assess whether it more likely than not will be required to sell the security before the recovery of its amortized cost basis due to cash, working capital requirements, contractual or regulatory obligations indicate that the security will be required to be sold before a forecasted recovery occurs. If it is more likely than not that we are required to sell the security before recovery of its amortized cost basis, an other-than-temporary impairment is considered to have occurred. If we do not expect to recover the entire amortized cost basis of the security, we would not be able to assert that it will recover its amortized cost basis even if we do not intend to sell the security. Therefore, in those situations, an other-than-temporary impairment shall be considered to have occurred. Use of present value cash flow models to determine whether the entire amortized cost basis of the security will be recovered is expected. We will compare the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. An other-than-temporary impairment is said to have occurred if the present value of cash flows expected to be collected is less than the amortized cost basis of the security. In the three and six months ended September 30, 2010, we did not record any other-than-temporary impairment charges. For the three months ended September 30, 2010, we did not record an impairment charge in connection with other securities in a continuous loss position (fair value less than carrying value) with unrealized losses of $0.6 million as we believe that such unrealized losses are temporary. As of September 30, 2010, we also had $11.1 million in unrealized gains. For the three and six months ended September 30, 2009, we recorded other-than-temporary impairment charges of $3.3 million and $3.5 million, respectively.

Mask Costs

We incur material costs for the fabrication of masks used by our contract manufacturers to manufacture our products. If we determine, at the time the cost for the fabrication of masks are incurred, that technological feasibility of the product has been achieved, we consider the nature of these costs to be pre-production costs. Accordingly, such costs are capitalized as property and equipment under machinery and equipment and are amortized as cost of sales over approximately three years, representing the estimated production period of the product. If we determine, at the time fabrication mask costs are incurred, that either technological feasibility of the product has not occurred or that the mask is not reasonably expected to be used in production manufacturing or that the commercial feasibility of the product is uncertain, the related mask costs are expensed to R&D in the period in which the costs are incurred. We will also periodically assess capitalized mask costs for impairment. During the six months ended September 30, 2010, total mask costs of $4.5 million were incurred, of which $1.5 million was expensed as R&D expense because technological feasibility had not been achieved and the remaining $3.0 million was capitalized. During the three months ended September 30, 2010, mask cost of $3.0 million were incurred and capitalized.

During the three months ended June 30, 2010, we made a correction resulting in the recognition of an asset totaling $1.2 million for unamortized mask costs incurred in prior periods as it was determined that these costs represented pre-production costs instead of R&D expenses. The unamortized costs will be amortized as cost of sales over a period of approximately three years. As part of this correction we recognized a reduction to R&D expenses of approximately $1.2 million. Amortization of these capitalized mask set costs recognized as cost of sales during the three and six months ended September 30, 2010 was approximately $0.1 million and $0.3 million, respectively. The net adjustments to make the correction to capitalize mask costs were not material to any periods affected.

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Restructuring Charges

Over the last several years we have undertaken significant restructuring initiatives, which have required us to develop formalized plans for exiting certain business activities and reducing spending levels. We have had to record estimated expenses for employee severance, long-term asset write downs, lease cancellations, facilities consolidation costs, and other restructuring costs. Given the significance, and the timing of the execution, of such activities, this process is complex and involves periodic reassessments of estimates made at the time the original decisions were made. Our assumptions for exiting certain facilities, such as estimating sublease incomes, may differ from actual outcomes, which could result in the need to record additional costs or reduce estimated amounts previously charged to restructuring expense. Our policies require us to periodically evaluate the adequacy of the remaining liabilities under our restructuring initiatives. For the six months ended September 30, 2010, we recorded net restructuring charges of approximately $0.5 million associated with our restructuring actions. In the fiscal year ended March 31, 2010, we recorded net charges of $0.8 million for our restructuring activities to continuing operations.

Stock-Based Compensation Expense

All share-based payments, including grants of stock options, restricted stock units and employee stock purchase rights, are required to be recognized in our financial statements based on their respective grant date fair values. The fair value of each employee stock option and employee stock purchase right is estimated on the date of grant using an option pricing model that meets certain requirements. We currently use the Black-Scholes option pricing model to estimate the fair value of our share-based payments, excluding RSUs, which we use the fair market value. The fair values generated by the Black-Scholes model may not be indicative of the actual fair values of our stock-based awards as it does not consider certain factors important to stock-based awards, such as continued employment, periodic vesting requirements and limited transferability. The determination of the fair value of share-based payment awards utilizing the Black-Scholes model is affected by our stock price and a number of assumptions, including expected volatility, expected life, risk-free interest rate and expected dividends. We estimate the expected volatility of our stock options at grant date by equally weighting the historical volatility and the implied volatility of our stock over specific periods of time as the expected volatility assumption required in the Black-Scholes model. The expected life of the stock options is based on historical and other data including life of the option and vesting period. The risk-free interest rate assumption is the implied yield currently available on zero-coupon government issues with a remaining term equal to the expected term. The dividend yield assumption is based on our history and expectation of dividend payouts. The fair value of our restricted stock units is based on the fair market value of our common stock on the date of grant. Forfeitures are required to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ significantly from those estimated. We evaluate the assumptions used to value stock-based awards on a quarterly basis. If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. We currently estimate when and if performance-based grants will be earned. If the awards are not considered probable of achievement, no amount of stock-based compensation is recognized. If we consider the award to be probable, expense is recorded over the estimated service period. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will be increased or decreased. To the extent that we grant additional equity securities to employees or we assume unvested securities in connection with any acquisitions, our stock-based compensation expense will be increased by the additional unearned compensation resulting from those additional grants or acquisitions.

Revenue Recognition

We recognize revenue based on four basic criteria: 1) there is evidence that an arrangement exists; 2) delivery has occurred; 3) the fee is fixed or determinable; and 4) collectability is reasonably assured. We recognize revenue upon determination that all criteria for revenue recognition have been met. In addition, we do not recognize revenue until the applicable customer’s acceptance criteria have been met. The criteria are usually met at the time of product shipment, except for shipments to distributors with rights of return. The portion of revenue from shipments to distributors subject to rights of return is deferred until the agreed upon percentage of return or cancellation privileges lapse. Revenue from shipments to distributors without return rights is recognized upon shipment. In addition, we record reductions to revenue for estimated allowances such as returns not pursuant to contractual rights, competitive

pricing programs and rebates. These estimates are based on our experience with product returns and the contractual terms of the competitive pricing and rebate programs.

Shipping terms are generally FCA (Free Carrier) shipping point. If actual returns or pricing adjustments exceed our estimates, we would record additional reductions to revenue.

From time to time we generate revenue from the sale of our internally developed IP. We generally recognize revenue from the sale of IP when all basic criteria outlined above are met.

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Under the TPack acquisition, we will recognize revenue pursuant to the requirements under the authoritative guidance on software revenue recognition, and any applicable amendments or modifications. Revenues will consist of royalties based upon sales of our customer’s products that include our software, professional service revenue, and revenue relating to our maintenance contracts.

RESULTS OF OPERATIONS

Comparison of the Three and Six Months Ended September 30, 2010 to the Three and Six Months Ended September 30, 2009

Net Revenues. Net revenues for the three and six months ended September 30, 2010 were $65.9 million and $126.8 million, representing an increase of 34.0% and 34.4% from net revenues of $49.2 million and $94.3 million for the three and six months ended September 30, 2009, respectively. We classify our revenues into two categories based on the markets that the underlying products serve. The categories are Process and Transport. We use this information to analyze our performance and success in these markets. See the following tables (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase		% Change
Process	$	30,935		46.9	%	$	25,085		51.0	%	$	5,850		23.3	%
Transport		35,018		53.1			24,147		49.0			10,871		45.0
	$	65,953		100.0	%	$	49,232		100.0	%	$	16,721		34.0	%

	Six Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase		% Change
Process	$	60,418		47.7	%	$	50,165		53.2	%	$	10,253		20.4	%
Transport		66,345		52.3			44,119		46.8			22,226		50.4
	$	126,763		100.0	%	$	94,284		100.0	%	$	32,479		34.4	%

During the three and six months ended September 30, 2010, revenues recovered strongly as the overall market for semiconductor products continued to show improved growth trends. The year over year increase represents the recovery from the recessionary economic conditions and overall softness in demand that was observed during the prior years and the current pace of infrastructure build out. We expect revenues for the three months ending December 31, 2010 to be approximately $62 million, plus or minus $2 million. This decline is primarily driven by inventory corrections in the industry. Our future revenues could be impacted by the duration and the severity of such inventory corrections and other factors.

Gross Profit. The following table presents net revenues, cost of revenues and gross profit for the three and six months ended September 30, 2010 and 2009 (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase (Decrease)			% Change
Net revenues	$	65,953		100.0	%	$	49,232		100.0	%	$	16,721			34.0	%
Cost of revenues		23,435		35.5			23,796		48.3			(361	)		(1.5	)
Gross profit	$	42,518		64.5	%	$	25,436		51.7	%	$	17,082			67.2	%

	Six Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase (Decrease)			% Change
Net revenues	$	126,763		100.0	%	$	94,284		100.0	%	$	32,479			34.4	%
Cost of revenues		45,920		36.2			45,971		48.8			(51	)		(0.1	)
Gross profit	$	80,843		63.8	%	$	48,313		51.2	%	$	32,530			67.3	%

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The gross profit percentage for the three and six months ended September 30, 2010 increased to 64.5% and 63.8%, compared to 51.7% and 51.2% for the three and six months ended September 30, 2009, respectively. The increase in our gross profit percentage for the three and six months ended September 30, 2010 was primarily due to favorable product mix, higher licensing revenues, improved manufacturing yields and efficiencies and the overall impact of increased revenues.

The amortization of purchased intangible assets included in cost of revenues during the three and six months ended September 30, 2010 was $2.7 million and $5.3 million compared to $3.3 million and $6.9 million for the three and six months ended September 30, 2009, respectively. Based on the amount of capitalized purchased intangibles on the balance sheet as of September 30, 2010, we expect amortization expense for purchased intangibles charged to cost of revenues to be $6.5 million during the remainder of fiscal 2011, $3.5 million for fiscal 2012, $2.6 million for fiscal 2013, $2.6 million for fiscal 2014, $6.3 million for fiscal 2015 and thereafter. The expected amortization does not include $1.0 million of in-process R&D. Future acquisitions of businesses may result in substantial additional charges, which may impact the gross profit percentage in future periods.

Research and Development and Selling, General and Administrative Expenses. The following table presents research and development and selling, general and administrative expenses for the three and six months ended September 30, 2010 and 2009 (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase		% Change
Research and development	$	27,339		41.5	%	$	20,828		42.3	%	$	6,511		31.3	%
Selling, general and administrative	$	13,087		19.8	%	$	11,991		24.4	%	$	1,096		9.1	%

	Six Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase		% Change
Research and development	$	53,116		41.9	%	$	40,242		42.7	%	$	12,874		32.0	%
Selling, general and administrative	$	24,711		19.5	%	$	22,510		23.9	%	$	2,201		9.8	%

Research and Development. Research and development (“R&D”) expenses consist primarily of salaries and related costs (including stock-based compensation) of employees engaged in research, design and development activities, costs related to engineering design tools, subcontracting costs and facilities expenses. The increase in R&D expenses of 31.3% for the three months ended September 30, 2010, compared to the three months ended September 30, 2009 was primarily due to an increase of $3.1 million in personnel costs, $0.9 million in contractor cost, $0.5 million in printed circuit board cost, $0.3 million in product software interface cost, $0.3 million in stock-based compensation charges, $0.6 million in corporate service allocations and $0.5 million decrease in customer funded non-recurring engineering payments. The increase in R&D expenses of 32.0% for the six months ended September 30, 2010, compared to the six months ended September 30, 2009 was primarily due to an increase of $7.2 million in personnel costs primarily related to Veloce, $1.0 million in contractor costs, $1.0 million in stock-based compensation charges, $0.8 million in third party foundry costs, $0.6 million in technology access fees, $0.6 million in printed circuit board costs, $0.3 million in new processor core development costs and $1.2 million in corporate service allocations. We believe that a continued commitment to R&D is vital to our goal of maintaining a leadership position with innovative products. In addition to our internal R&D programs, our business strategy includes acquiring products, technologies or businesses from third parties. Future acquisitions of products, technologies or businesses may result in substantial additional on-going R&D costs.

Selling, General and Administrative. Selling, general and administrative (“SG&A”) expenses consist primarily of personnel related expenses, professional and legal fees, corporate branding and facilities expenses. The increase in SG&A expenses of 9.1% for the three months ended September 30, 2010 compared to the three months ended September 30, 2009 was primarily due to an increase of $1.0 million in external consultants and $0.4 million in personnel costs. The increase in SG&A expenses of 9.8% for the six months ended September 30, 2010 compared to the six months ended September 30, 2009 was primarily due to an increase of $1.5 million in external consultants, $0.8 million in personnel costs, $0.4 million in travel expenses and $0.3 million in stock-based compensation charges, offset by a decrease of $1.1 million in professional service fees. Future acquisitions of products, technologies or businesses may result in substantial additional on-going SG&A costs.

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Stock-Based Compensation. The following table presents stock-based compensation expense for the three months ended June 30, 2010 and 2009, which was included in the tables above (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase (Decrease)			% Change
Costs of revenues	$	180		0.3	%	$	143		0.3	%	$	37			25.9	%
Research and development		1,931		2.9			1,594		3.2			337			21.1
Selling, general and administrative		1,864		2.8			2,030		4.1			(166	)		(8.2	)
	$	3,975		6.0	%	$	3,767		7.7	%	$	208			5.5	%
	Six Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount		% of  Net Revenue			Increase			% Change
Costs of revenues	$	332		0.3	%	$	254		0.3	%	$	78			30.7	%
Research and development		3,902		3.1			2,866		3.0			1,036			36.1
Selling, general and administrative		3,587		2.8			3,262		3.5			325			10.0
	$	7,821		6.2	%	$	6,382		6.8	%	$	1,439			22.5	%

The amount of unearned stock-based compensation currently estimated to be expensed from now through fiscal 2015 related to unvested share-based payment awards at September 30, 2010 is $26.6 million. This expense relates to equity instruments already issued and will not be affected by our future stock price. Vesting of the EBITDA Grants is subject to (i) the Company’s performance as measured by earnings before interest, taxes, depreciation and amortization (“EBITDA”), and (ii) individual performance as measured by the accomplishment of goals and objectives. The weighted-average period over which the unearned stock-based compensation is expected to be recognized is approximately 2.2 years. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. Future stock-based compensation expense will increase to the extent that we grant additional equity awards. The value of these grants cannot be predicted at this time because it will depend on the number of share-based payments granted and the then current fair values.

Restructuring Charges. The restructuring charges recorded during the three and six months ended September 30, 2010 was primarily for employee severances.

Interest and Other Income (Expense) and Other-Than-Temporary Impairments, net. The following table presents interest and other income (expense) and other-than-temporary impairments, net for the three and six months ended September 30, 2010 and 2009 (dollars in thousands):

	Three Months Ended September 30,
	2010					2009
	Amount		% of  Net Revenue			Amount			% of  Net Revenue			Increase		% Change
Interest income (expense) and other-than-temporary impairments, net	$	2,666		4.0	%	$	(1,534	)		(3.1	)%	$	4,200		273.8	%
Other income (expense), net	$	436		0.7	%	$	(1,891	)		(3.8	)%	$	2,327		123.1	%

	Six Months Ended September 30,
	2010					2009
	Amount		% of Net Revenue			Amount			% of Net Revenue			Increase		% Change
Interest income (expense) and other-than-temporary impairments, net	$	4,581		3.6	%	$	(162	)		(0.2	)%	$	4,743		2927.8	%
Other income (expense), net	$	602		0.5	%	$	(1,674	)		(1.8	)%	$	2,276		136.0	%

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Interest and Other Income and Other-Than-Temporary Impairment, net. Interest income and other-than-temporary impairment, net of management fees and other-than-temporary impairment, reflects interest earned on cash and cash equivalents, short-term investments and marketable securities as well as realized gains and losses from the sale of short-term investments and impairment charges on investments, less interest expense. The increase in interest income and other-than-temporary impairment, net for the three and six months ended September 30, 2010, compared to the three and six months ended September 30, 2009 was primarily due to gains that were realized from the sale of securities in our investment portfolio in the current fiscal year and an other-than-temporary impairment charge of $3.3 million in the prior fiscal year. The increase in other income for the three and six months ended September 30, 2010, compared to the three and six months ended September 30, 2009 was primarily due to a $2.0 million impairment for a strategic investment in the prior fiscal year.

Income Taxes. The federal statutory income tax rate was 35% for the three and six months ended September 30, 2010 and 2009. The benefit recorded during the three and six months ended September 30, 2009, related primarily to the gains from discontinued operations, other comprehensive income and an increase in refundable tax credits. For the three and six months ended September 30, 2010, the Company had no gains or losses relating to discontinued operations and provided a provision relating to foreign and state taxes.

Discontinued Operations. We completed the sale of our 3ware storage adapter business (“Storage Business”) to LSI Corporation on April 21, 2009. Under the Purchase Agreement, we substantially sold all of the operating assets (other than patents) of our Storage Business. The assets sold included customer contracts, inventory, fixed assets, certain intellectual property and other assets, as well as rights to the name “3ware.” The purchase price for the Transaction was approximately $20.0 million, subject to adjustments based on the level of inventory and products in the channel at the closing of the Transaction. After adjustments for the level of inventory of $0.7 million and products in the channel of $0.8 million, the final adjusted price of the Transaction was approximately $21.5 million. During the fiscal year ended March 31, 2010, we reached an agreement with LSI Corporation to end the warranty support portion of the Purchase Agreement. We recorded a net gain of $11.4 million from the sale during the fiscal year ended March 31, 2010. During the fiscal year ended March 31, 2010, we recognized a tax charge of approximately $4.2 million to discontinued operations in connection with the sale of our 3ware storage adapter business and concurrently recorded the same amount as an income tax benefit to continuing operations.

FINANCIAL CONDITION AND LIQUIDITY

As of September 30, 2010, our principal source of liquidity consisted of $182.6 million in cash, cash equivalents and short-term investments. Working capital as of September 30, 2010 was $196.7 million. Total cash, cash equivalents, and short-term investments decreased by $24.1 million during the six months ended September 30, 2010, primarily due to the acquisition of a business for $31.5 million, repurchases of our common stock for $23.1 million and purchase of property and equipment of $6.0 million, offset by net cash provided by operations of $22.5 million, net structured stock repurchase proceeds of $5.5 million, proceeds from issuances of common stock of $4.0 million and proceeds from the sale of a strategic equity investment of $5.0 million. At September 30, 2010, we had contractual obligations not included on our balance sheet totaling $57.3 million, primarily related to facility leases, engineering design software tool licenses and non-cancelable inventory purchase commitments.

For the six months ended September 30, 2010, we generated $22.5 million of cash from our operations compared to using $5.3 million for the six months ended September 30, 2009. Our net income of $5.0 million for the six months ended September 30, 2010 included $17.7 million of non-cash charges consisting of $3.6 million of depreciation, $7.4 million of amortization of purchased intangibles, $7.8 million of stock-based compensation and a credit of $1.2 million related to the capitalization of prior years mask set costs. Our net loss of $3.8 million for the six months ended September 30, 2009 included $20.0 million of non-cash charges consisting of $3.2 million of depreciation, $8.9 million of amortization of purchased intangibles, $6.4 million of stock-based compensation, $3.5 million for marketable securities impairment and $2.0 million impairment of a strategic investment, offset by $4.0 million in tax benefit from other comprehensive income. The remaining change in operating cash flows for the six months ended September 30, 2010 primarily reflected decreases in accounts receivable and other assets and increases in inventories, accrued payroll and other accrued liabilities, deferred revenue and accounts payable. Our overall days sales outstanding was 33 days and 36 days for the three months ended September 30, 2010 and March 31, 2010, respectively.

We used $86.0 million of cash from our investing activities during the six months ended September 30, 2010, compared to generating $26.5 million during the six months ended September 30, 2009. During the six months ended September 30, 2010, we used $53.9 million for short-term investment activities, net, $6.0 million for the purchase of property and equipment and $31.5 million for the acquisition of a business, offset by proceeds of $5.0 million from the sale of a strategic equity investment. During the six months ended September 30, 2009, we generated net proceeds of $9.7 million from short-term investment activities and received proceeds of $21.5 million for the sale of our 3ware storage adapter business, offset by $3.7 million for the purchase of property, equipment and other assets and $1.0 million for the purchase of a strategic investment.

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We used $16.3 million of cash for our financing activities during the six months ended September 30, 2010, compared to using $8.7 million during the six months ended September 30, 2009. The major financing use of cash for the six months ended September 30, 2010 was the funding of our structured stock repurchase agreements for $10.0 million, $23.1 million for the repurchases of common stock, restricted stock units withheld for taxes of $2.4 million offset by proceeds of $15.5 million from the settlement of structured stock repurchase agreements and proceeds from issuances of common stock of $4.0 million. The major financing use of cash for the six months ended September 30, 2009 was the funding of our structured stock repurchase agreements for $21.8 million, offset by proceeds of $12.0 million from the settlement of structured stock repurchase agreements and $1.8 million from the issuances of our common stock.

In August 2004, our Board of Directors authorized a stock repurchase program for the repurchase of up to $200.0 million of our common stock. Under the program, we are authorized to make purchases in the open market or enter into structured agreements. In October 2008, our Board of Directors increased the stock repurchase program by $100.0 million. During the six months ended September 30, 2010, approximately 2.1 million shares were repurchased on the open market at a weighted average price of $11.25 per share. During the fiscal year ended March 31, 2010, 1.1 million shares were repurchased on the open market at a weighted average price of $7.54 per share. All repurchased shares are retired upon delivery to us.

We also utilize structured stock repurchase agreements to buy back shares which are prepaid written put options on our common stock. We pay a fixed sum of cash upon execution of each agreement in exchange for the right to receive either a pre-determined amount of cash or stock depending on the closing market price of our common stock on the expiration date of the agreement. Upon expiration of each agreement, if the closing market price of our common stock is above the pre-determined price, we will have our cash investment returned with a premium. If the closing market price is at or below the pre-determined price, we will receive the number of shares specified at the agreement inception. Any cash received, including the premium, is treated as additional paid in capital on the balance sheet.

During the six months ended September 30, 2010, we entered into structured stock repurchase agreements totaling $10.0 million. For those agreements that settled during the six months ended September 30, 2010, we received $15.5 million in cash and 0.5 million in shares of our common stock at an effective purchase price of $10.01 per share from the settled structured stock repurchase agreements. During the fiscal year ended March 31, 2010, we entered into structured stock repurchase agreements totaling $41.8 million. For those agreements that settled during the fiscal year ended March 31, 2010, we received $27.8 million in cash and 0.7 million shares of our common stock at an effective purchase price of $7.25 per share from the settled structured stock repurchase agreements. At September 30, 2010, we had approximately $64.3 million remaining available to repurchase shares under the stock repurchase program.

On May 17, 2009, we entered into agreements with Veloce, pursuant to which Veloce has agreed to perform product development work for us on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of our common stock, which will vest upon the achievement of both certain performance and time-based milestones.

Under the merger agreement between us and Veloce, we agreed to acquire Veloce if certain performance milestones and delivery schedules set forth under the merger and other agreements are achieved. We also have the unilateral option to acquire Veloce in the event Veloce fails to meet the milestones and delivery schedules. Should we acquire Veloce pursuant to the merger agreement, the purchase price is estimated to be in the range of approximately $5 million up to approximately $100 million, subject to adjustments. The final price would be based upon the achievement and timing of achieving multiple performance milestones and currently is not determinable. We will determine the form of consideration used for the merger, cash or our stock, at the time of the merger. The merger agreement contains customary representations, warranties and covenants and may be terminated upon mutual agreement of the parties or unilaterally by us or Veloce if the other party fails to meet certain conditions set forth in the agreement. The agreements permit us to appoint one individual to serve on Veloce’s Board of Directors and Board committees.

In addition, we provided Veloce a promissory note of $1.5 million to be forgiven over eight quarters starting on March 31, 2011. If Veloce commits a material breach of the merger agreement, the outstanding principal amount of the note and accrued interest is due to us. If we commit a material breach of the merger agreement, the outstanding principal amount of the note and accrued interest is to be forgiven by us. The promissory note is eliminated in consolidation. We will pay Veloce $1.5 million per quarter for up to twelve consecutive quarters in order to assist Veloce in meeting its expenses to perform its obligations under the agreement and we will recognize the payments as research and development expenses when incurred. During the six months ended September 30, 2010, we provided additional advances of $0.8 million to Veloce. We are currently in the process of renegotiating the terms and conditions of the Merger Agreement and related agreements with Veloce, including, without limitation, the development deliverables, performance milestones, delivery schedules and payment obligation, thereunder, and expects to enter into formal amendments to these agreement with Veloce over the next few days or weeks.

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On September 17, 2010, we acquired TPack, a limited liability company organized under the laws of Denmark, in accordance with the terms and conditions of the stock purchase agreement dated August 17, 2010. The total consideration paid at the closing of the transaction was approximately $32 million. The former TPack shareholders may also earn up to approximately $5 million in additional consideration, subject to the achievement of certain revenue and performance milestones by TPack within 18 months after the acquisition. Approximately $5 million was placed in escrow to secure the indemnification obligation of TPack. In addition, we recorded acquisition related transaction costs of $0.9 million, which were included in selling, general and administrative expense.

In July 2010, we entered into an agreement for a multi-year license with a leading semiconductor IP supplier, where the components of the licensed technology are expected to be delivered over multiple years. The Company does not regard the license as significant to its current business. We intend to use the license to develop new products. The aggregate licensing fees are approximately $18.1 million and are payable over five years. This is in addition to a technology license agreement we entered into in March 2010, for approximately $4.4 million which is payable over approximately one year.

The following table summarizes our contractual operating leases and other purchase commitments as of September 30, 2010 (in thousands):

	Operating Leases		Other Purchase Commitments		Total
Fiscal Years Ending March 31, 2011	$	8,003	$	44,426	$	52,429
2012		2,772		—		2,772
2013		2,080		—		2,080
2014		31		—		31
2015 and thereafter		—		—		—
Total minimum payments	$	12,886	$	44,426	$	57,312

The amount in the table above does not include an estimated $0.6 million as it relates to accounting for uncertainty in income taxes.

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

OFF-BALANCE SHEET ARRANGEMENTS

We did not have any off-balance sheet arrangements as of September 30, 2010 or March 31, 2009.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates and a decline in the stock market. The current turbulence in the U.S. and global financial markets has caused a decline in stock values across all industries. We are exposed to market risks related to changes in interest rates and foreign currency exchange rates.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income or loss. We have established guidelines relative to diversification and maturities that attempt to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of interest rate trends. We invest our excess cash in debt instruments of the U.S. Treasury, corporate bonds, mortgage-backed and asset backed securities, mutual funds and closed-end bond funds, with credit ratings as specified in our investment policy. We also have invested in preferred stocks, which pay quarterly fixed rate dividends. We generally do not utilize derivatives to hedge against increases in interest rates which decrease market values.

We are exposed to market risk as it relates to changes in the market value of our investments. At September 30, 2010, our investment portfolio included short-term securities classified as available-for-sale investments with an aggregate fair market value of $139.8 million and a cost basis of $129.4 million. These securities are subject to interest rate risk, as well as credit risk and liquidity risk, and will decline in value if interest rates increase or an issuer’s credit rating or financial condition is decreased.

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The following table presents the hypothetical changes in fair value of our short-term investments held at September 30, 2010 (in thousands):

	Valuation of Securities Given an Interest Rate Decrease of X Basis Points (“BPS”)						Fair Value as of September 30, 2010		Valuation of Securities Given an Interest Rate Increase of X Basis Points (“BPS”)
	(150 BPS)		(100 BPS)		(50 BPS)				50 BPS		100 BPS		150 BPS
Available-for-sale investments	$	144,597	$	142,996	$	141,371	$	139,802	$	138,128	$	136,603	$	135,170

The modeling technique used measures the change in fair market value arising from selected potential changes in interest rates. Market changes reflect immediate hypothetical parallel shifts in the yield curve of plus or minus 50 basis points, 100 basis points, and 150 basis points. While this modeling technique provides a measure of our exposure to market risk, the current economic turbulence could cause interest rates to shift by more than 150 basis points.

We also invest in equity instruments of private companies for business and strategic purposes. These investments are valued based on our historical cost, less any recognized impairments. The estimated fair values are not necessarily representative of the amounts that we could realize in a current transaction.

We generally conduct business, including sales to foreign customers, in U.S. dollars, and as a result, we have limited foreign currency exchange rate risk. However, we have periodically entered into forward currency exchange contracts to hedge our overseas monthly operating expenses when deemed appropriate. We did not enter into any forward currency exchange contract during the six months ended September 30, 2010. Gains and losses on foreign currency forward contracts that are designated and effective as hedges of anticipated transactions, for which a firm commitment has been attained, are deferred and included in the basis of the transaction in the same period that the underlying transaction is settled. Gains and losses on any instruments not meeting the above criteria are recognized in income or expenses in the consolidated statements of operations in the current period. The effect of an immediate 10% change in foreign exchange rates would not have a material impact on our financial condition or results of operations.

ITEM 4. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports we file or submit with the SEC pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, a control may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

As required by Exchange Act Rule 13a-15(b), we conducted an evaluation, under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2010. Based on the foregoing, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information set forth under Note 7 of Notes to Consolidated Financial Statements, included in Part I, Item 1 of this report, is incorporated herein by reference.

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ITEM 1A. RISK FACTORS

Before deciding to invest in us or to maintain or increase your investment, you should carefully consider the risks described below, in addition to the other information contained in this report and in our other filings with the SEC. We update our descriptions of the risks and uncertainties facing us in our periodic reports filed with the SEC. The risks and uncertainties described below and in our other filings are not the only ones facing us. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. If any of these known or unknown risks or uncertainties actually occurs, our business, financial condition and results of operations could be seriously harmed. In that event, the market price for our common stock could decline and you may lose all or part of your investment. The risks and uncertainties set forth below with an asterisk (“*”) next to the title contain changes to the description of the risks and uncertainties associated with our business as previously disclosed in Item 1A to our Annual Report on Form 10-K for the fiscal year ended March 31, 2010 filed with the SEC on May 11, 2010.

*If we are unable to timely develop new products or new generations and versions of our existing products to replace our current products, our operating results and competitive position will be materially harmed.

Our industry is characterized by intense competition, rapidly evolving technology and continually changing customer requirements. These factors could render our existing products obsolete. Accordingly, our ability to compete in the future will depend in large part on our ability to identify and develop new products or new generations and versions of our existing products that achieve market acceptance on a timely and cost-effective basis, and to respond to changing requirements. If we are unable to do so, our business, operating results and financial condition will be negatively affected.

The successful development and market acceptance of our products depend on a number of factors, including, but not limited to:

• our accurate prediction of changing customer requirements;

• timely development of new designs;

• timely qualification and certification of our products for use in electronic systems;

• commercial acceptance and production of the electronic systems into which our products are incorporated;

• availability, quality, price, performance, and size of our products relative to competing products and technologies;

• our customer service and support capabilities and responsiveness;

• successful development of relationships with existing and potential new customers;

• successful development of relationships with key developers of advanced digital semiconductors;

• changes in technology and industry standards; and

• rapidly changing consumer preferences.

In addition, on May 17, 2009, we entered into agreements with Veloce for them to perform product development work for us on an exclusive basis for up to five years for cash and other consideration, including a warrant to purchase shares of our common stock, which will vest upon the achievement of both performance and/or time-based milestones. Under the merger agreement with Veloce, we agreed to acquire Veloce if certain performance milestones and delivery schedules set forth under the merger and other agreements are achieved. We also have the unilateral option to acquire Veloce in the event Veloce fails to meet the milestones and delivery schedules. Should we acquire Veloce pursuant to the merger agreement, the purchase price is estimated to be in the range of approximately $5 million up to approximately $100 million, subject to adjustments. The final price would be based upon the achievement and timing of achieving multiple performance milestones and currently is not determinable. We also provided Veloce a promissory note of $1.5 million to be forgiven over eight quarters starting on March 31, 2011. We will also pay Veloce $1.5 million per quarter for up to twelve consecutive quarters in order to assist Veloce in meeting its expenses to perform its obligations under the agreement. During the six months ended September 30, 2010, we provided additional advances of $0.8 million to Veloce.

Our arrangement with Veloce may not result in the development of any new technologies or products. Moreover, products we have recently developed and which we are currently developing may not achieve market acceptance. If these products fail to achieve market acceptance, or if we fail to timely develop new products that achieve market acceptance, our business, financial condition and operating results will be materially harmed.

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

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We depend upon third parties to manufacture, assemble, package or test certain of our products. As a result, we are subject to risks associated with these third parties, including:

• reduced control over delivery schedules and quality;

• inadequate manufacturing yields and excessive costs;

• difficulties selecting and integrating new subcontractors;

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

• limited warranties on products supplied to us;

• potential increases in prices;

• potential instability in countries where third-party manufacturers are located; and

• potential misappropriation of our intellectual property.

Our outside foundries generally manufacture our products on a purchase order basis, and we have few long-term supply arrangements with these suppliers. We have less control over delivery schedules, manufacturing yields and costs than competitors with their own fabrication facilities. A manufacturing disruption experienced by one or more of our outside foundries or a disruption of our relationship with an outside foundry, including discontinuance of our products by that foundry, would negatively impact the production of certain of our products for a substantial period of time.

Our IC products are generally only qualified for production at a single foundry. These suppliers can allocate, and in the past have allocated, capacity to the production of other companies’ products while reducing deliveries to us on short notice. There is also the potential that they may discontinue manufacturing our products or go out of business. Because establishing relationships, designing or redesigning ICs, and ramping production with new outside foundries may take over a year, there is no readily available alternative source of supply for these products.

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

If the foundries or subcontractors we use to manufacture our products discontinue the manufacturing processes needed to meet our demands, or fail to upgrade their technologies needed to manufacture our products, we may be unable to deliver products to our customers, which could materially adversely affect our operating results. The transition to the next generation of manufacturing technologies at one or more of our outside foundries could be unsuccessful or delayed.

Our requirements typically represent a very small portion of the total production of the third-party foundries. As a result, we are subject to the risk that a producer will cease production of an older or lower-volume process that it uses to produce our parts. We cannot assure you that our external foundries will continue to devote resources to the production of parts for our products or continue to advance the process design technologies on which the manufacturing of our products are based. Each of these events could increase our costs, lower our gross margin, cause us to hold more inventories or materially impact our ability to deliver our products on time. As our volumes decrease with any third-party foundry, the likelihood of unfavorable pricing increases.

Some companies that supply our customers are similarly dependent on a limited number of suppliers to produce their products. These other companies’ products may be designed into the same networking equipment into which our products are designed. Our order levels could be reduced materially if these companies are unable to access sufficient production capacity to produce in volumes demanded by our customers because our customers may be forced to slow down or halt production on the equipment into which our products are designed.

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

As smaller line width geometry processes become more prevalent, we expect to integrate greater levels of functionality into our IC products and to transition our IC products to increasingly smaller geometries. This transition will require us to redesign certain products and will require us and our foundries to migrate to new manufacturing processes for our products.

We may not be able to achieve higher levels of design integration or deliver new integrated products on a timely basis. We periodically evaluate the benefits, on a product-by-product basis, of migrating to smaller geometry process technologies to reduce our costs and increase performance, and we have designed IC products to be manufactured at as little as .04 micron geometry processes. We have experienced some difficulties in shifting to smaller geometry process technologies and new manufacturing processes. These difficulties resulted in reduced manufacturing yields, delays in product deliveries and increased expenses. The transition to smaller

geometries is inherently more expensive and as we manufacture more products using smaller geometries, the incremental costs could have an adverse impact on our earnings. We may face similar difficulties, delays and expenses as we continue to transition our IC products to smaller geometry processes. We are dependent on our relationships with our foundries to transition to smaller geometry processes successfully. We cannot assure you that our foundries will be able to effectively manage the transition or that we will be able to maintain our relationships with our foundries. If we or our foundries experience significant delays in this transition or fail to implement this transition, our business, financial condition and results of operations could be materially and adversely affected.

The gross margins for our products could decrease rapidly or not increase as forecasted, which will negatively impact our operating results.

The gross margins for our solutions have historically declined over time. Factors that we expect to cause downward pressure on the gross margins for our products include competitive pricing pressures, the cost sensitivity of our customers, particularly in the higher-volume markets, new product introductions by us or our competitors, and other factors. From time to time, for strategic reasons, we may accept orders at less than optimal gross margins in order to facilitate the introduction of, or, market penetration of our new or existing products. To maintain acceptable operating results, we will need to offset any reduction in gross margins of our products by reducing costs, increasing sales volume, developing and introducing new products and developing new generations and versions of existing products on a timely basis. If the gross margins for our products decline or not increase as forecasted and we are unable to offset those reductions, our business, financial condition and operating results will be materially harmed.

*The current economic circumstances and uncertain political conditions could harm our revenues, operating results and financial condition.

The economies of the United States and other developed countries are currently coming out of a recession. We cannot predict either if this economic recovery will continue or retreat back into a recession.

The recent recession has caused a decline in our near term revenues and it will take some time to return to our previous levels. Our current operating plans are based on assumptions concerning levels of consumer and corporate spending. If global and domestic economic and market conditions persist or deteriorate, we may experience further material impacts on our business, operating results and financial condition which could result in a decline in the price of our common stock. If economic conditions worsen, we may have to implement additional cost reduction measures or delay certain research and development spending.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are generally classified as available-for-sale and, consequently, are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income. Our portfolio primarily includes fixed income securities, mutual funds and preferred stocks, the values of which are subject to market price volatility. The deterioration of these market prices has had an unfavorable impact on our portfolio and has caused us to record impairment charges to our earnings. During the fiscal years’ ended March 31, 2010 and 2009, we recorded other-than-temporary impairment charges of $4.1 million and $17.1 million, respectively. If the market prices continue to decline or securities continue to be in a loss position over time, we may recognize additional impairments in the fair value of our investments.

Adverse economic and market conditions could also harm our business by negatively affecting the parties with whom we do business, including our business partners, our customers and our suppliers. These conditions could impair the ability of our customers to pay for products they have purchased from us. As a result, allowances for doubtful accounts and write-offs of accounts receivable from our customers may increase. In addition, our suppliers may experience financial difficulties that could negatively affect their operations and their ability to supply us with the parts we need to manufacture our products.

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We have invested in privately-held companies, many of which can still be considered in startup or developmental stages. These investments are inherently risky as the market for the technologies or products they have under development are typically in the early stages and may never materialize. We could lose all or substantially all of the value of our investments in these companies and, in some cases, we have lost all or substantially all of the value of our investment in such entities.

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

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

• communications, information technology and semiconductor industry conditions;

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

• the reduction, rescheduling or cancellation of orders by customers, including as a result of slowing demand for our products or our customers’ products or over-ordering or double booking of our products or our customers’ products;

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

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

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

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

• competitive pressures on selling prices;

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

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

• fluctuations in manufacturing output, yields or other problems or delays in the fabrication, assembly, testing or delivery of our products or our customers’ products;

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

• the availability of external foundry capacity, contract manufacturing services, purchased parts and raw materials including packaging substrates;

• the availability of package and test vendor capacity;

• problems or delays that we and our foundries may face in shifting the design and manufacture of our future generations of IC products to smaller geometry process technologies and in achieving higher levels of design and device integration;

• the timing of meeting the specifications and expense recovery on non-recurring engineering projects;

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

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

• the product lifecycle and recoverability of capitalized architectural licenses, technology access fees and mask sets;

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

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

• the impact of potential one-time charges related to purchased intangibles;

• our ability to successfully integrate acquired companies, products and technologies;

• the impact on interest income of a significant use of our cash for an acquisition, stock repurchase or other purpose;

• the effects of changes in interest rates or credit worthiness on the value and yield of our short-term investment portfolio;

• costs associated with compliance with applicable environmental, other governmental or industry regulations including costs to redesign products to comply with those regulations or lost revenue due to failure to comply in a timely manner;

• the effects of changes in accounting standards;

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• costs associated with litigation, including without limitation, attorney fees, litigation judgments or settlements, relating to the use or ownership of intellectual property or other claims arising out of our operations;

• our ability to identify, hire and retain senior management and other key personnel;

• the effects of war, acts of terrorism or global threats, such as disruptions in general economic activity and changes in logistics and security arrangements; and

• global economic and industry conditions.

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

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

• the reduction, rescheduling or cancellation of customer orders;

• declines in the average selling prices of our products;

• delays when our customers are transitioning from old products to new products;

• a decrease in demand for our products or our customers’ products;

• a decline in the financial condition or liquidity of our customers or their customers;

• delays in the availability of our products or our customers’ products;

• the failure of our products to be qualified in our customers’ systems or certified by our customers;

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

• fabrication, test, product yield, or assembly constraints for our products that adversely affect our ability to meet our production obligations;

• the failure of one of our subcontract manufacturers to perform its obligations to us;

• our failure to successfully integrate acquired companies, products and technologies;

• shortages of raw materials or production capacity constraints that lead our suppliers to allocate available supplies or capacity to other customers, which may disrupt our ability to meet our production obligations; and

• global economic and industry conditions.

Our business is characterized by short-term orders and shipment schedules. Customer orders typically can be cancelled or rescheduled without significant penalty to the customer. Because we do not have substantial non-cancellable backlog, we typically plan our production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. Customer orders for our products typically have non-standard lead times, which make it difficult for us to predict revenues and plan inventory levels and production schedules. If we are unable to plan inventory levels and production schedules effectively, our business, financial condition and operating results could be materially harmed.

From time to time, in response to anticipated long lead times to obtain inventory and materials from our outside contract manufacturers, suppliers and foundries, we may order materials in advance of anticipated customer demand. This advance ordering has in the past and may in the future result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize, or other factors render our products less marketable. If we are forced to hold excess inventory or we incur unanticipated inventory write-downs, our financial condition and operating results could be materially harmed.

Our expense levels are relatively fixed in the short-term and are based on our expectations of future revenues. We have limited ability to reduce expenses quickly in response to any revenue shortfalls. Changes to production volumes and impact of overhead absorption may result in a decline in our financial condition or liquidity.

Our business substantially depends upon the continued growth of the technology sector and the Internet.

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The technology equipment industry is cyclical and has in the past experienced significant and extended downturns. The recent downturn was significant and we cannot predict if the current improvement is sustainable in the near future. A substantial portion of our business and revenue depends on the continued growth of the technology sector and the Internet. We sell our communications IC products primarily to communications equipment manufacturers that in turn sell their equipment to customers that depend on the growth of the Internet. The past downturn has caused a reduction in capital spending on information technology. While we are beginning to see indications of improvement, there are no guarantees that this growth will sustain, resulting in potential volatility. If there is another downturn, our business, operating results and financial condition may be materially harmed.

The loss of one or more key customers, the diminished demand for our products from a key customer, or the failure to obtain certifications from a key customer or its distribution channel could significantly reduce our revenues and profits.

A relatively small number of customers have accounted for a significant portion of our revenues in any particular period. We have no long-term volume purchase commitments from our key customers. One or more of our key customers may discontinue operations as a result of consolidation, liquidation or otherwise. Reductions, delays and cancellation of orders from our key customers or the loss of one or more key customers could significantly reduce our revenues and profits. We cannot assure you that our current customers will continue to place orders with us, that orders by existing customers will continue at current or historical levels or that we will be able to obtain orders from new customers.

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

• customers may stop incorporating our products into their own products with limited notice to us and may suffer little or no penalty as a result of such action;

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

• design wins (as explained below) with customers or prospective customers may not result in sales to such customers;

• the introduction of new products by customers may occur later or be less successful in the market than planned;

• we may successfully design a product to customer specifications but the customer may not be successful in the market;

• sales of customer product lines incorporating our products may rapidly decline or such product lines may be phased out;

• our agreements with customers typically are non-exclusive and do not require them to purchase a minimum quantity of our products;

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

• some of our OEM customers may develop products internally that would replace our products;

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

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

• the impact of terminating certain sales representatives or sales personnel as a result of a Company workforce reduction or otherwise; and

• some of our customers and prospective customers may become less viable or fail.

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

There is no guarantee that design wins will become actual orders and sales.

A “design win” occurs when a customer or prospective customer notifies us that our product has been selected to be integrated with the customer’s product. There can be delays of several months or more between the design win and when a customer initiates actual orders of our product. Following a design win, we will commit significant resources to the integration of our product into the customer’s product before receiving the initial order. Receipt of an initial order from a customer following a design win, however, is dependent on a number of factors, including the success of the customer’s product, and cannot be guaranteed. The design win may never result in an actual order or sale.

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*Any significant order cancellations or order deferrals could cause unplanned inventory growth resulting in excess inventory which may adversely affect our operating results.

Our customers may increase orders during periods of product shortages or cancel orders if their inventories are too high. Major inventory corrections by our customers are not uncommon and can last for significant periods of time and affect demand for our products. Customers may also cancel or delay orders in anticipation of new products or for other reasons. Cancellations or deferrals could cause us to hold excess inventory, which could reduce our profit margins by reducing sales prices, incurring inventory write-downs or writing off additional obsolete products.

The book-to-bill ratio is commonly used by investors to compare and evaluate technology and semiconductor companies. The book-to-bill ratio is a demand-to-supply ratio that compares the total amount of orders received to the total amount of orders filled. This ratio tells whether the company has more orders than it delivered (if greater than 1), has the same amount of orders that it delivered (equals 1), or has less orders than it delivered (under 1). Though the ratio provides an indicator of whether orders are rising or falling, it does not consider the timing of, or if the order will result in future revenues. Our book-to-bill ratio at September 30, 2010 and 2009 was 0.9 and 1.1, respectively.

The increasing lead times from our suppliers cause us to make commitments for inventory purchases earlier in our production cycle which in turn increases our risk of excess inventory. In addition, some of our suppliers are delivering based on allocations which in turn causes us to increase our inventory levels. We must balance our inventory levels between the risk of losing a significant customer to a competitor because we cannot meet our customer’s requirements and the risk of having excess inventory if a significant order is cancelled.

Inventory fluctuations could affect our results of operations and restrict our ability to fund our operations. Inventory management remains an area of focus as we balance the need to maintain strategic inventory levels to ensure competitive lead times, meet customer expectations and guard against the risk of inventory obsolescence because of changing technology and customer requirements.

We generally recognize revenue upon shipment of products to a customer. If a customer refuses to accept shipped products or does not pay for these products, we could miss future revenue projections or incur significant charges against our income, which could materially and adversely affect our operating results.

Our customers’ products typically have lengthy design cycles. A customer may decide to cancel or change its product plans, which could cause us to lose anticipated sales.

After we have developed and delivered a product to a customer, the customer will usually test and evaluate our product prior to designing its own equipment to incorporate our product. Our customers may need more than six months to test, evaluate and adopt our product and an additional nine months or more to begin volume production of equipment that incorporates our product. Due to this lengthy design cycle, we may experience significant delays from the time we increase our operating expenses and make investments in inventory until the time that we generate revenue from these products. It is possible that we may never generate any revenue from

these products after incurring such expenditures. Even if a customer selects our product to incorporate into its equipment, we cannot guarantee that the customer will ultimately market and sell its equipment or that such efforts by our customer will be successful. The delays inherent in this lengthy design cycle increases the risk that a customer will decide to cancel or change its product plans. Such a cancellation or change in plans by a customer could cause us to lose sales that we had anticipated. While our customers’ design cycles are typically long, some of our product life cycles tend to be short as a result of the rapidly changing technology environment in which we operate. As a result, the resources devoted to product sales and marketing may not generate material revenue for us, and from time to time, we may need to write off excess and obsolete inventory. If we incur significant marketing expenses and investments in inventory in the future that we are not able to recover, and we are not able to mitigate those expenses, our operating results could be adversely affected. In addition, if we sell our products at reduced prices in anticipation of cost reductions but still hold higher cost products in inventory, our operating results would be harmed.

An important part of our strategy is to focus on the markets for communications equipment. If we change strategy or are unable to further expand our share of these markets or react timely or properly to emerging trends, our revenues may not grow and could decline.

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

We expect a significant portion of our revenues to continue to be derived from sales of products based on current, widely accepted transmission standards. If the communications market evolves to new standards, we may not be able to successfully design and manufacture new products that address the needs of our customers or gain substantial market acceptance.

The sale of our 3ware storage adapter business to LSI Corporation marks a change in our strategy. This change, or any further changes we might make, could have a significant impact on our business, financial condition and results of operations while we are implementing our new strategy.

If we do not identify and pursue the correct emerging trends and align ourselves with the correct market leaders, we may not be successful and our business, financial condition and results of operations could be materially and adversely affected.

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

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

*Our business strategy contemplates the acquisition of other companies, products and technologies. Merger and acquisition activities involve numerous risks and we may not be able to address these risks successfully without substantial expense, delay or other operational or financial problems that could disrupt our business and harm our results of operations and financial condition.

Acquiring products, technologies or businesses from third parties or making additional investments in companies we have already have an interest in is part of our long-term business strategy. The risks involved with merger and acquisition activities include:

• potential dilution to our stockholders;

• use of a significant portion of our cash reserves;

• diversion of management’s attention from our core business;

• failure to integrate or potential loss of key employees, particularly those of the acquired organizations.

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

• amortization of acquired intangible assets and deferred compensation;

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

• adverse effects on existing business relationships with suppliers and customers;

• costs associated with acquisitions or mergers;

• difficulties associated with combining or integrating acquired companies, purchased operations, products or technologies;

• difficulties and risks associated with entering and competing in markets that are unfamiliar to us;

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

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

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In addition, in the event of any such investments or acquisitions, we could

• issue stock that would dilute our current stockholders’ percentage ownership;

• incur debt;

• assume liabilities;

• incur amortization or impairment expenses related to goodwill and other intangible assets; or

• incur large and immediate write-offs.

Any of these risks could materially harm our business, financial condition and results of operations.

As with past acquisitions, future acquisitions could adversely affect operating results. In particular, acquisitions may materially and adversely affect our results of operations because they may require large one-time charges or could result in increased debt or contingent liabilities, adverse tax consequences, substantial additional depreciation or deferred compensation charges. Our past purchase acquisitions required us to capitalize significant amounts of goodwill and purchased intangible assets. As a result of the slowdown in our industry and reduction of our market capitalization, we have been required to record significant impairment charges against these assets as noted in our financial statements. In the fiscal year ended March 31, 2009 we recorded a goodwill impairment charge of $223.0 million to continuing operations. The goodwill impaired was previously assigned to the Process and Transport reporting units in the amounts of $101.5 million, $121.5 million, respectively. In the fiscal years ended March 31, 2009 and 2008, we recorded goodwill impairment charges to discontinued operations of $41.1 million and $71.5 million, respectively, for the Store reporting unit. These market conditions continuously change and it is difficult to project how long these current uncertain economic conditions may last. These conditions have caused a decline in our near term revenues and it will take some time to ramp back up to our previous levels. Additionally, market values had deteriorated which has had an unfavorable impact on our valuations which are part of the goodwill and purchased intangible asset impairment tests. There can be no assurances that market conditions will not deteriorate further or that our market capitalization will not decline further. At September 30, 2010, we had $33.2 million of purchased intangible assets. We cannot assure you that we will not be required to take significant charges as a result of impairment to the carrying value of the purchased intangible assets, due to further adverse changes in market conditions.

On September 17, 2010, we completed the acquisition of TPack for $32 million in cash and potentially up to an additional $5 million if certain performance milestones are achieved. In conjunction with the acquisition, we recorded $23.8 million in amortizable intangible assets and $13.7 million in goodwill. If the financial forecasts and other assumptions used to evaluate the acquisition do not materialize as expected, we could incur an impairment charge for up to the entire value the intangible assets and goodwill.

We cannot assure you that we will be able to successfully integrate TPack’s business, products, technologies or personnel or any additional businesses, products, technologies or personnel that we might acquire.

Our industry and markets are subject to consolidation, which may result in stronger competitors, fewer customers and reduced demand.

There has been industry consolidation among communications IC companies, network equipment companies and telecommunications companies in the past. We expect this consolidation to continue as companies attempt to strengthen or hold their positions in evolving markets. Consolidation may result in stronger competitors, fewer customers and reduced demand, which in turn could have a material adverse effect on our business, operating results, and financial condition.

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

International sales account for a significant part of our revenues and may account for an increasing portion of our future revenues. The revenues we derive from international sales may be subject to certain risks, including:

• foreign currency exchange fluctuations;

• changes in regulatory requirements;

• tariffs, rising protectionism and other barriers;

• timing and availability of export licenses;

• political and economic instability;

• difficulties in staffing and managing foreign operations;

• difficulties in managing distributors;

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

• reduced or uncertain protection for intellectual property rights in some countries;

• longer payment cycles and difficulties to collect accounts receivable in some countries;

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

• potentially adverse tax consequences; and

• an uncertain economic condition that may trail any improvements in the United States.

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

Some of our customer purchase orders and agreements are governed by foreign laws, which may differ significantly from laws in the United States. As a result, our ability to enforce our rights under such agreements may be limited compared with our ability to enforce our rights under agreements governed by laws in the United States.

*Our portfolio of short-term investments are exposed to certain market risks.

We maintain an investment portfolio of various holdings, types of instruments and maturities. These securities are recorded on our consolidated balance sheets at fair value with unrealized gains or losses reported as a separate component of accumulated other comprehensive income (loss), net of tax. Our investment portfolio is exposed to market risks related to changes in interest rates and credit ratings of the issuers, as well as to the risks of default by the issuers and lack of overall market liquidity. Substantially all of these securities are subject to interest rate and credit rating risk and will decline in value if interest rates increase or one of the issuers’ credit ratings is reduced. Increases in interest rates or decreases in the credit worthiness of one or more of the issuers in our investment portfolio could have a material adverse impact on our financial condition or results of operations. During the fiscal years’ ended March 31, 2010 and 2009, we recorded $4.1 million and $17.1 million respectively, in write-downs in the carrying value of certain securities as we determined the decline in the fair value of these securities to be other-than-temporary. If there is a further deterioration in market conditions or there are additional losses incurred, we may be required to record a further decline in the carrying value of these securities resulting in further charges. At September 30, 2010, the unrealized losses on these securities, that were not written down as an other-than-temporary impairment charge, were approximately $0.6 million. If the fair value of any of these securities does not recover to at least the amortized cost of such security or we are unable to hold these securities until they recover, we may be required to record a decline in the carrying value of these securities.

Our restructuring activities could result in management distractions, operational disruptions and other difficulties.

Over the past several years, we have initiated several restructuring activities in an effort to reduce operating costs, including new restructuring initiatives announced in October 2008, February 2009 and January 2010. Employees whose positions were eliminated in connection with these restructuring activities may seek employment with our customers or competitors. Although each of our employees is required to sign a confidentiality agreement with us at the time of hire, we cannot guarantee that the confidential nature of our proprietary information will be maintained in the course of such future employment. Any additional restructuring efforts could divert the attention of our management away from our operations, harm our reputation and increase our expenses. We cannot guarantee that we will not undertake additional restructuring activities, that any of our restructuring efforts will be successful, or that we will be able to realize the cost savings and other anticipated benefits from our previous or future restructuring plans. In addition, if we continue to reduce our workforce, it may adversely impact our ability to respond rapidly to new growth opportunities.

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

The markets for our products are characterized by:

• rapidly changing technologies;

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• evolving and competing industry standards;

• changing customer needs;

• frequent introductions of new products and enhancements;

• increased integration with other functions;

• long design and sales cycles;

• short product life cycles; and

• intense competition.

To develop new products for the communications or other technology markets, we must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to develop technical and design expertise. We must have our products designed into our customers’ future products and maintain close working relationships with key customers in order to develop new products that meet customers’ changing needs. We must respond to changing industry standards, trends towards increased integration and other technological changes on a timely and cost-effective basis. Our pursuit of technological advances may require substantial time and expense and may ultimately prove unsuccessful. If we are not successful in adopting such advances, we may be unable to timely bring to market new products and our revenues will suffer.

Many of our products are based on industry standards that are continually evolving. Our ability to compete in the future will depend on our ability to identify and ensure compliance with these evolving industry standards. The emergence of new industry standards could render our products incompatible with products developed by major systems manufacturers. As a result, we could be required to invest significant time and effort and to incur significant expense to redesign our products to ensure compliance with relevant standards. If our products are not in compliance with prevailing industry standards or requirements, we could miss opportunities to achieve crucial design wins which in turn could have a material adverse effect on our business, operating results and financial condition.

The markets in which we compete are highly competitive, and we expect competition to increase in these markets in the future.

The markets in which we compete are highly competitive, and we expect that domestic and international competition will increase in these markets, due in part to deregulation, rapid technological advances, price erosion, changing customer preferences and evolving industry standards. Increased competition could result in significant price competition, reduced revenues, lower profit margins or loss of market share. Our ability to compete successfully in our markets depends on a number of factors, including:

• our ability to partner with OEM and channel partners who are successful in the market;

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

• product quality, interoperability, reliability, performance and certification;

• customer support;

• time-to-market;

• price;

• production efficiency;

• design wins;

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

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

• market acceptance of competitors’ products; and

• general economic conditions.

Our competitors may offer enhancements to existing products, or offer new products based on new technologies, industry standards or customer requirements that are available to customers on a more timely basis than comparable products from us or that have the potential to replace or provide lower cost alternatives to our products. The introduction of enhancements or new products by our competitors could render our existing and future products obsolete or unmarketable. We expect that certain of our competitors and other semiconductor companies may seek to develop and introduce products that integrate the functions performed by our IC products on a single chip, thus eliminating the need for our products. Each of these factors could have a material adverse effect on our business, financial condition and results of operations.

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In the transport communications IC markets, we compete primarily against companies such as Broadcom, Cortina, Netlogic, PMC-Sierra and Vitesse. In the embedded processor communications IC market, we compete with technology companies such as Freescale Semiconductor, Cavium and Intel. Many of these companies may have substantially greater financial, marketing and distribution resources than we have. Certain of our customers or potential customers have internal IC design or manufacturing capabilities with which we compete. We may also face competition from new entrants to our target markets, including larger technology companies that may develop or acquire differentiating technology and then apply their resources to our detriment. Any failure by us to compete successfully in these target markets would have a material adverse effect on our business, financial condition and results of operations.

Our operating results depend on manufacturing output and yields of our ICs and printed circuit board assemblies, which may not meet expectations.

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

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

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

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

The complexity of our products may lead to errors, defects and bugs, which could negatively impact our reputation with customers and result in liability.

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

We may also be required to make significant expenditures of capital and resources to resolve such problems. We cannot assure you that problems will not be found in new products after commencement of commercial production, despite testing by us, our suppliers or our customers. Any problem could result in:

• additional development costs;

• loss of, or delays in, market acceptance;

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

• claims by our customers or others against us; and

• loss of credibility with our current and prospective customers.

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

If our internal control over financial reporting is not considered effective, our business and stock price could be adversely affected.

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Section 404 of the Sarbanes-Oxley Act of 2002 requires us to evaluate the effectiveness of our internal control over financial reporting as of the end of each fiscal year, and to include a management report assessing the effectiveness of our internal control over financial reporting in our annual report on Form 10-K for that fiscal year. Section 404 also requires our independent registered public accounting firm to attest to and report on the effectiveness of our internal control over financial reporting.

Our management, including our chief executive officer and chief financial officer, does not expect that our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of control must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal control can provide absolute assurance that all control issues and instances of fraud involving a company have been, or will be, detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, our internal control over financial reporting may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Our management has concluded, and our independent registered public accounting firm has attested, that our internal control over financial reporting was effective as of March 31, 2010. We cannot assure you that we or our independent registered public accounting firm will not identify a material weakness in our internal control in the future. A material weakness in our internal control over financial reporting would require management and our independent registered public accounting firm to report our internal control as ineffective. If our internal control over financial reporting is not considered effective, we may experience a restatement like we have in the past of our financial statements and/or a loss of public confidence, either of which could have an adverse effect on our business and on the market price of our common stock.

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

Our future success depends to a significant extent upon the continued service of our senior management personnel and successful succession planning. The loss of key senior executives could have a material adverse effect on our business. There is intense competition for qualified personnel in the semiconductor industry; in particular design, product and test engineers, and we may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of our business, or to replace engineers or other qualified personnel who may leave our employment in the future. There may be significant costs associated with recruiting, hiring and retaining personnel. Periods of contraction in our business may inhibit our ability to attract and retain our personnel. Loss of the services of, or failure to recruit, key design engineers or other technical and management personnel could be significantly detrimental to our product development or other aspects of our business.

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

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

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

Several of our facilities, including our principal executive offices, are located in California. California has experienced prolonged energy alerts and blackouts caused by disruption in energy supplies. As a consequence, businesses and other energy consumers in California continue to experience substantially increased costs of electricity and natural gas. We are unsure whether energy alerts and blackouts will reoccur or how severe they may become in the future. Many of our customers and suppliers are also headquartered or have substantial operations in California. If we or any of our major customers or suppliers located in California experience a sustained disruption in energy supplies, our results of operations could be materially and adversely affected.

52

A significant portion of our manufacturing operations are located in Asia. These areas are subject to natural disasters such as earthquakes or floods. We do not have earthquake or business interruption insurance for these facilities, because adequate coverage is not offered at economically justifiable rates. A significant natural disaster or other catastrophic event could have a material adverse impact on our business, financial condition and operating results.

The effects of war, acts of terrorism or global threats, including, but not limited to, the outbreak of epidemic disease, could have a material adverse effect on our business, operating results and financial condition. The continued threat of terrorism and heightened security and military action in response to this threat, or any future acts of terrorism, may cause further disruptions to local and global economies and create further uncertainties. To the extent that such disruptions or uncertainties result in delays or cancellations of customer orders, or the manufacture or shipment of our products, our business, operating results and financial condition could be materially and adversely affected.

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

We are subject to a variety of federal, state and local governmental regulations related to the use, storage, discharge and disposal of toxic, volatile or otherwise hazardous chemicals used in our manufacturing process. Any failure to comply with present or future regulations could result in the imposition of fines, the suspension of production or a cessation of operations. These regulations could require us to acquire costly equipment or incur other significant expenses to comply with environmental regulations or clean up prior discharges. Since 1993, we have been named as a PRP along with more than 100 other companies that used Omega Chemical Corporation waste treatment facility in Whittier, California. The U.S. Environmental Protection Agency (“EPA”) has alleged that Omega failed to properly treat and dispose of certain hazardous waste material. We are a member of a large group of PRPs that has agreed to fund certain on-going remediation efforts at the Omega Chemical Corporation site. To date, our payment obligations with respect to these funding efforts have not been material, and although we believe that our future obligations to fund these efforts will not have a material adverse effect on our business, financial condition or operating results, we cannot guarantee this result. In 2007, the PRPs were sued by a downstream chemical company; that action has been stayed since March 2008 to allow for further delineation of the regional groundwater. In 2009, the U.S. Supreme Court decided U.S. v. Burlington Northern & Santa Fe Railway Co., 129 S.Ct. 1870, which determined that hazardous substance cleanup liability need not be joint and several in all cases. As a result of this decision, the liability is potentially divisible among the PRP at an earlier stage in superfund cases such as Omega. At this point we do not know and can not predict the full impact of this decision on our liability, however, to protect against an unfavorable impact, we have joined the recently formed Omega Allocation Committee in order to limit such exposure. Although we believe that we have been and currently are in material compliance with applicable environmental laws and regulations, we cannot guarantee that we are or will be in material compliance with these laws or regulations or that our future obligations to fund any remediation efforts, including those at the Omega Chemical Corporation site, will not have a material adverse effect on our business.

Environmental laws and regulations could cause a disruption in our business and operations.

We are subject to various state, federal and international laws and regulations governing the environment, including those restricting the presence of certain substances in electronic products and making manufacturers of those products financially responsible for the collection, treatment, recycling and disposal of certain products. Such laws and regulations have been passed in several jurisdictions in which we operate, including various European Union (“EU”) member countries. For example, the EU has enacted the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (“RoHS”) and the Waste Electrical and Electronic Equipment (“WEEE”) directives. RoHS prohibits the use of lead and other substances in semiconductors and other products put on the market after July 1, 2006. The WEEE directive obligates parties that place electrical and electronic equipment on the market in the EU to put a clearly identifiable mark on the equipment, register with and report to EU member countries regarding distribution of the equipment, and provide a mechanism to take back and properly dispose of the equipment. There can be no assurance that similar programs will not be implemented in other jurisdictions resulting in additional costs, possible delays in delivering products, and even the discontinuance of existing and planned future product replacements if the cost were to become prohibitive.

Any dispositions we make could disrupt our business and harm our results of operations and financial condition.

We may dispose of assets or businesses that represent a significant portion of our business. We completed the sale of our 3ware storage adapter business, a significant portion of our storage business, to LSI Corporation on April 21, 2009. As a result, we now expect to generate all of our sales from our remaining business, which we would be required to grow in order to achieve profitability. Economic and other factors may prevent us from growing our remaining business. If we fail to grow our remaining business, it could have a material adverse impact on our business, financial condition and operating results. Future dispositions may involve numerous risks, including:

• problems carving out or disposing of assets, operations, technologies and products;

53

• the disposal of such assets or businesses could have an unanticipated adverse effect on the remaining business;

• unanticipated costs;

• diversion of management’s attention from core ongoing operations;

• potential adverse effects on existing business relationships with suppliers and customers; and

• if we do not structure the disposition properly and scale expenses according to the size of the remaining business, we could continue to incur expenses that could be unsustainable given the scope of the remaining business.

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

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

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

We generally enter into confidentiality agreements with our employees, consultants and strategic partners. We also try to control access to and distribution of our technologies, documentation and other proprietary information. Despite these efforts, parties may attempt to copy, disclose, obtain or use our products, services or technology without our authorization. Also, former employees may seek employment with our business partners, customers or competitors and we cannot assure you that the confidential nature of our proprietary information will be maintained in the course of such future employment. Additionally, former employees or third parties could attempt to penetrate our network to misappropriate our proprietary information or interrupt our business. Because the techniques used by computer hackers to access or sabotage networks change frequently and generally are not recognized until launched against a target, we may be unable to anticipate these techniques. As a result, our technologies and processes may be misappropriated, particularly in foreign countries where laws may not protect our proprietary rights as fully as in the United States.

We could be harmed by litigation involving patents, proprietary rights or other claims.

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

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

From time to time, we may be involved in litigation relating to other claims arising out of our operations in the normal course of business. We cannot assure you that the ultimate outcome of any such matters will not have a material, adverse effect on our business, financial condition or operating results.

54

Our stock price is volatile.

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

• our anticipated or actual operating results;

• announcements or introductions of new products by us or our competitors;

• anticipated or actual operating results of our customers, peers or competitors;

• technological innovations or setbacks by us or our competitors;

• conditions in the semiconductor, communications or information technology markets;

• the commencement or outcome of litigation or governmental investigations;

• changes in ratings and estimates of our performance by securities analysts;

• announcements of merger or acquisition transactions;

• management changes;

• our inclusion in certain stock indices; and

• other events or factors.

The stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, particularly semiconductor companies. In some instances, these fluctuations appear to have been unrelated or disproportionate to the operating performance of the affected companies. Any such fluctuation could harm the market price of our common stock. In addition, the current decline of the financial markets and related factors beyond our control, including the credit and mortgage crisis in both the U.S. and worldwide, may cause our stock price to decline rapidly and unexpectedly.

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

Our board of directors has the authority to issue up to 2.0 million shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by our stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit our consummation of any merger, reorganization, sale of substantially all of our assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. The issuance of preferred stock could have a dilutive effect on our stockholders.

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

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. (REMOVED AND RESERVED)

None.

55

ITEM 5. OTHER INFORMATION

On October 27, 2010, the Board of Directors of the Company approved an amendment to the Company’s Bylaws, to be effective November 3, 2010, that includes a new Section 8.13 which provides that unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or the corporation’s certificate of incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine.

The Amended and Restated Bylaws of the Company reflecting this amendment are filed as Exhibit 3.2 to this report.

ITEM 6. EXHIBITS

2.1(1)+*	Agreement and Plan of Merger between the Company, Espresso Acquisition Corporation and Veloce Technologies, Inc., dated May 17, 2009.
2.2^*	Stock Purchase Agreement among the Company, TPack A/S, Slottsbacken Fund II KY, Slottsbaken Fund Two KB, Vaekstfonden and Novi A/S, and the Sellers’ Representative named therein, dated as of August 17, 2010.
2.3^	Amendment No. 1 to Stock Purchase Agreement by and among the Company and Vaekstfonden, as Sellers’ Representative, dated September 17, 2010.
3.1(2)	Amended and Restated Certificate of Incorporation of the Company.
3.2	Amended and Restated Bylaws of the Company.
4.1(3)	Specimen Stock Certificate.
10.65(4)	Employment agreement dated December 29, 2009 by and between the Company and William Caraccio.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company has furnished supplementally to the SEC copies of the omitted schedules.

^ Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

(1) Incorporated by reference to identically numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q/A (No. 000-23193) for the quarter ended June 30, 2009.

(2) Incorporated by reference to Exhibit 3.2 filed with the Company’s Registration Statement on Form S-1 (No. 333-37609) filed October 10, 1997, and as amended by Exhibit 3.3 filed with the Company’s Registration Statement on Form S-4 (No. 333-45660) filed September 12, 2000 and Exhibit 3.1 filed with the Company’s Current Report on Form 8-K on December 11, 2007.

(3) Incorporated by reference to identically numbered exhibit filed with the Company’s Registration Statement on Form S-1 (No. 333-37609) filed October 10, 1997, or with any amendments thereto.

(4) Incorporated by reference to identically numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q (No. 000-23193) for the quarter ended June 30, 2010.

56

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: November 3, 2010

APPLIED MICRO CIRCUITS CORPORATION
By:	/S/    ROBERT G. GARGUS
	Robert G. Gargus
	Senior Vice President and Chief Financial Officer
	(Duly Authorized Signatory and Principal Financial and Accounting Officer)

57

Exhibit Index

2.1(1)+*	Agreement and Plan of Merger between the Company, Espresso Acquisition Corporation and Veloce Technologies, Inc., dated May 17, 2009.
2.2^*	Stock Purchase Agreement among the Company, TPack A/S, Slottsbacken Fund II KY, Slottsbacken Fund Two KB, Vaekstfonden and Novi A/S, and the Sellers’ Representative named therein, dated as of August 17, 2010.
2.3^	Amendment No. 1 to Stock Purchase Agreement by and among the Company and Vaekstfonden, as Sellers’ Representative, dated September 17, 2010.
3.1(2)	Amended and Restated Certificate of Incorporation of the Company.
3.2	Amended and Restated Bylaws of the Company.
4.1(3)	Specimen Stock Certificate.
10.65(4)	Employment agreement dated December 29, 2009 by and between the Company and William Caraccio.
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

+ Confidential treatment has been granted with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

* Schedules have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company has furnished supplementally to the SEC copies of the omitted schedules.

^ Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

(1) Incorporated by reference to identically numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q/A (No. 000-23193) for the quarter ended June 30, 2009.

(2) Incorporated by reference to Exhibit 3.2 filed with the Company’s Registration Statement on Form S-1 (No. 333-37609) filed October 10, 1997, and as amended by Exhibit 3.3 filed with the Company’s Registration Statement on Form S-4 (No. 333-45660) filed September 12, 2000 and Exhibit 3.1 filed with the Company’s Current Report on Form 8-K on December 11, 2007.

(3) Incorporated by reference to identically numbered exhibit filed with the Company’s Registration Statement on Form S-1 (No. 333-37609) filed October 10, 1997, or with any amendments thereto.

(4) Incorporated by reference to identically numbered exhibit filed with the Company’s Quarterly Report on Form 10-Q (No. 000-23193) for the quarter ended June 30, 2010.

58

EX-2.2

Exhibit 2.2

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

|        Execution Version        |

STOCK PURCHASE AGREEMENT

among

APPLIED MICRO CIRCUITS CORPORATION,

as the Buyer,

TPACK A/S,

as the Company,

SLOTTSBACKEN FUND II KY,

SLOTTSBACKEN FUND TWO KB,

VÆKSTFONDEN

and

NOVI A/S,

as the Sellers,

and

VÆKSTFONDEN,

as the Sellers’ Representative

Dated as of August 17, 2010

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

TABLE OF CONTENTS

		Page
ARTICLE I	DEFINITIONS		1
Section 1.1	Certain Defined Terms		1
Section 1.2	Table of Definitions		9
ARTICLE II	PURCHASE AND SALE		11
Section 2.1	Purchase and Sale of the Shares		11
Section 2.2	Closing		11
Section 2.3	Adjustments to Base Purchase Price		12
Section 2.4	Sellers’ Representative		16
Section 2.5	Additional Consideration		17
Section 2.6	Withholding Taxes		20
Section 2.7	Spreadsheet		20
ARTICLE III	REPRESENTATIONS AND WARRANTIES OF THE SELLERS AND THE COMPANY		21
Section 3.1	Organization and Qualification		22
Section 3.2	Authority		23
Section 3.3	No Conflict; Required Filings and Consents		23
Section 3.4	Shares		24
Section 3.5	Capitalization		24
Section 3.6	Equity Interests		25
Section 3.7	Financial Statements; No Undisclosed Liabilities		25
Section 3.8	Absence of Certain Changes or Events		26
Section 3.9	Compliance with Law; Permits		27
Section 3.10	Litigation		27
Section 3.11	Employee Benefit Plans		28
Section 3.12	Labor and Employment Matters		29
Section 3.13	Title to, Sufficiency and Condition of Assets		30
Section 3.14	Real Property		31
Section 3.15	Intellectual Property		31
Section 3.16	Taxes		34
Section 3.17	Environmental Matters		35
Section 3.18	Material Contracts		36
Section 3.19	Affiliate Interests and Transactions		38
Section 3.20	Insurance		38
Section 3.21	Brokers		39
Section 3.22	Warranties		39

i

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

TABLE OF CONTENTS

(Continued)

		Page
Section 3.23	Suppliers; Distributors		39
Section 3.24	Accounts Receivable		40
Section 3.25	Bank Accounts		40
Section 3.26	Minute Books		40
Section 3.27	Disclosure		40
ARTICLE IV	REPRESENTATIONS AND WARRANTIES OF THE BUYER		40
Section 4.1	Organization		40
Section 4.2	Authority		40
Section 4.3	No Conflict; Required Filings and Consents		41
Section 4.4	Brokers		41
Section 4.5	Availability of Funds		42
ARTICLE V	COVENANTS		42
Section 5.1	Conduct of Business Prior to the Closing		42
Section 5.2	Covenants Regarding Information		45
Section 5.3	Exclusivity		45
Section 5.4	Plan Participant Agreements		46
Section 5.5	Notification of Certain Matters; Supplements to Disclosure Schedules		46
Section 5.6	Release of Obligations		47
Section 5.7	Resignations		47
Section 5.8	Confidentiality		47
Section 5.9	Consents and Filings; Further Assurances		48
Section 5.10	Public Announcements		49
Section 5.11	Retention Payments		50
Section 5.12	Transaction Expenses		50
Section 5.13	Non-Solicit; No Hire		51
Section 5.14	Customers; Suppliers		51
Section 5.15	280G		51
Section 5.16	Translation		51
Section 5.17	Key Supplier Agreement		52
Section 5.18	Warrant Termination Letters		52
Section 5.19	Post Closing Reorganization		52

ii

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

TABLE OF CONTENTS

(Continued)

		Page
ARTICLE VI	TAX MATTERS		52
Section 6.1	Tax Returns		52
Section 6.2	Buyer’ Use		53
Section 6.3	Transfer Taxes		53
Section 6.4	Certain Elections		54
ARTICLE VII	CONDITIONS TO CLOSING		54
Section 7.1	General Conditions		54
Section 7.2	Conditions to Obligations of the Sellers		54
Section 7.3	Conditions to Obligations of the Buyer		55
ARTICLE VIII	INDEMNIFICATION		57
Section 8.1	Survival of Representations and Warranties		57
Section 8.2	Indemnification by the Sellers		58
Section 8.3	Indemnification by the Buyer		59
Section 8.4	Procedures		60
Section 8.5	Limits on Indemnification		62
Section 8.6	Remedies Not Affected by Investigation, Disclosure or Knowledge		62
Section 8.7	Escrow Fund		62
Section 8.8	Exculpation of the Company		64
Section 8.9	Limitation on Types of Damages		64
Section 8.10	Exclusive Remedy		64
ARTICLE IX	TERMINATION		64
Section 9.1	Termination		64
Section 9.2	Effect of Termination		65
ARTICLE X	GENERAL PROVISIONS		66
Section 10.1	Fees and Expenses		66
Section 10.2	Amendment and Modification		66
Section 10.3	Waiver		66
Section 10.4	Notices		66
Section 10.5	Interpretation		67
Section 10.6	Entire Agreement		68

iii

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

TABLE OF CONTENTS

(Continued)

		Page
Section 10.7	No Third-Party Beneficiaries		68
Section 10.8	Governing Law		68
Section 10.9	Dispute Resolution		68
Section 10.10	Assignment; Successors		70
Section 10.11	Enforcement		70
Section 10.12	Currency		71
Section 10.13	Severability		71
Section 10.14	Waiver of Jury Trial		71
Section 10.15	Counterparts		71
Section 10.16	Facsimile Signature		71
Section 10.17	Time of Essence		71
Section 10.18	No Presumption Against Drafting Party		72

iv

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

EXHIBITS AND SCHEDULES

Exhibit A	Form of Appendix to Exit Transition Bonus Program
Exhibit B	Form of Escrow Agreement
Exhibit C	Disclosure Schedules
Exhibit D	Form of Warrant Termination Letter
Schedule C	Company Products in Development or Planning Stages
Schedule P	Plan Participants
Schedule T	Target Working Capital
Schedule W	Working Capital Example Calculation
Schedule 2.3(a)	Exceptions to Danish GAAP
Schedule 2.5(a)(iii)	Legal Matters Milestones
Schedule 2.5(a)(iv)	[* * *] Milestones
Schedule 2.5(a)(v)	[* * *] Product Revenue Milestone
Schedule 7.3(e)	Required Consents
Schedule 8.2(j)	Certain Legal Matters

i

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT, dated as of August 17, 2010 (this “Agreement”), is by and among APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the “Buyer”), SLOTTSBACKEN FUND II KY, SLOTTSBACKEN FUND TWO KB, VÆKSTFONDEN and NOVI A/S (collectively, the “Sellers”), Tpack A/S, a limited liability company (Aktieselskab) organized under the laws of Denmark (the “Company”), and VÆKSTFONDEN, as the Sellers’ Representative (as defined below).

RECITALS

A. The Sellers own 100% of the issued share capital of nominal DKK 96,296,014 (as adjusted for share splits, share dividends, combinations, and other recapitalizations occurring after the date hereof, the “Shares”) of the Company.

B. The Plan Participants are entitled to a portion of the consideration in connection with a sale of the Shares pursuant to the Plan Participant Agreements.

C. As an essential inducement for the Buyer to enter into this Agreement, concurrently with the execution and delivery of this Agreement the Key Employees have executed and delivered the Employment Agreements.

D. The Sellers wish to sell to the Buyer, and the Buyer wishes to purchase from the Sellers, the Shares upon the terms and subject to the conditions set forth herein.

AGREEMENT

In consideration of the foregoing and the mutual covenants and agreements herein contained, and intending to be legally bound hereby, the parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1 Certain Defined Terms. For purposes of this Agreement:

“Action” means (a) any written claim or demand by any Person, or any written claim or demand, action, suit, investigation or audit by any Governmental Authority or (b) any claim, demand, action, suit, inquiry or proceeding before any Governmental Authority or before any arbitration, formal mediation or similar proceeding.

“Adjusted Purchase Price” means the Base Purchase Price, as the same may be adjusted pursuant to Section 2.3(b).

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Acknowledgement Agreements” means the Appendix to Exit Transition Bonus Program, substantially in the form attached hereto as Exhibit A, to be executed by each Plan Participant, the Company and the Sellers prior to the Closing.

“Affiliate” means, with respect to any Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such first Person. For purposes of this Agreement, “control,” including the terms “controlled by” and “under common control with,” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, as general partner or managing member, by Contract or otherwise, including the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person.

“Ancillary Agreements” means the Employment Agreements, the Escrow Agreement, the Paying Agent Agreement and the Acknowledgement Agreements.

“Base Purchase Price” means US$32,000,000.

“Basket” means US$200,000.

“Business Day” means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in either San Francisco, California or in Copenhagen, Denmark.

“Closing Purchase Price” means the Adjusted Purchase Price, less the Estimated Transaction Costs.

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

“Company NRE” means NRE of the Business.

“Company Products” means (a) products of the Company as of the Closing Date (including, for the avoidance of doubt, hardware such as development boards) and (b) products in development by the Company and products planned and budgeted by the Company, each as set forth on Schedule C.

“Contract” means any contract, agreement, license or other binding arrangement, commitment or understanding, whether written or oral.

“Danish GAAP” means the provisions of the Danish Financial Statement Act governing reporting class B enterprises with the additional provisions of the Danish Financial Statement Act governing reporting class C enterprises.

“Danish Tax Act” means the Danish Corporation Tax Act of 2009, as amended.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Earnout Period” means the 18-month period commencing on October 1, 2010.

“Employment Agreements” means each of the Employment Agreements by and between the Company and each Key Employee, executed and delivered to the Buyer on or around the date hereof and to be effective as of the Closing.

“Encumbrance” means any charge, claim, limitation, condition, equitable interest, mortgage, lien, option, pledge, security interest, easement, encroachment, right of first refusal, adverse claim or restriction of any kind, including any restriction on transfer or other assignment, as security or otherwise, of or relating to use, quiet enjoyment, voting, transfer, receipt of income or exercise of any other attribute of ownership.

“Escrow Agent” means Deutsche Bank National Trust Company or such other escrow agent to be selected by mutual agreement of the Sellers’ Representative and the Buyer and such agent’s successor(s) under the Escrow Agreement.

“Escrow Agreement” means the Escrow Agreement to be entered into by the Buyer, the Sellers’ Representative and the Escrow Agent, substantially in the form attached hereto as Exhibit B, but with such modifications to which the Buyer and the Sellers’ Representative agree in writing in order to provide for the deposit, administration and distribution of the [* * *].

“Escrow Amount” means US$4,800,000.

“Escrow Fund” means the Escrow Amount deposited with the Escrow Agent, as such sum may be increased or decreased as provided in the Escrow Agreement.

“GAAP” means generally accepted accounting principles as in effect in the United States from time to time.

“Governmental Authority” means any United States, Danish or other non-United States or non-Danish federal, national, supranational, state, provincial, local or similar government, governmental, regulatory or administrative authority, branch, agency or commission or any court, tribunal, or judicial body (including any grand jury).

“Immediate Family” means, with respect to any specified natural person, such person’s spouse, parents, children and siblings, including adoptive relationships and relationships through marriage, or any other relative of such person that shares such person’s home.

“Intellectual Property” means all intellectual property rights of any kind or nature, including both statutory and common law rights, as applicable, arising under the law of any jurisdiction anywhere in the world, including all Marks, Patents, Registered Copyrights, unregistered copyrights, Domain Registrations, trade secrets and other confidential information, including confidential ideas, designs, concepts, compilations of information, methods, techniques, procedures, processes and other know-how, whether or not patentable; and rights of publicity.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Key Employees” shall mean each of Colin Macnab (Chief Executive Officer), Lars Pedersen (Chief Technology Officer), John Jørgensen (Vice President, Sales and Marketing), Hartvig Ekner (Vice President, R&D) and Daniel Temple (Senior Manager FPGA Development).

“Knowledge, to the Knowledge of the Company and words of similar import” means, the actual knowledge of any of: Hassan Parsa (Chairman), Agner Mark (Vice-Chairman), Gregory Borodathy (director), Ulrik Jørring (director), Thor Birkmand (director), Svend Tøttrup (Chief Financial Officer) and each Key Employee, in each case after reasonable inquiry.

“Law” means, with respect to any Person, any domestic or foreign, federal, state or local statute, law, ordinance, rule, regulation, order, writ, injunction, judgment, decree or other requirement of any Governmental Authority applicable to such Person or any of its properties, assets or Representatives.

“Leased Real Property” means all real property leased, subleased or licensed to the Company or the Subsidiary or which the Company or the Subsidiary otherwise has a right or option to use or occupy, together with all structures, facilities, fixtures, systems and improvements located thereon, or attached or appurtenant thereto, and all easements, rights and appurtenances relating to the foregoing.

“Losses” means, subject to Section 8.9 hereof, (a) any and all deficiencies, judgments, settlements, demands, claims, suits, actions or causes of action, assessments, liabilities, losses, damages (whether direct, indirect, incidental or consequential), diminution in value, Taxes, interest, fines and penalties and (b) costs, expenses (including reasonable legal, accounting and other costs and expenses of professionals) incurred in connection with investigating, defending, settling or satisfying any and all of the foregoing or any appeals therefrom.

“Material Adverse Effect” means any event, change, development, circumstance, occurrence, effect or state of facts that (a) is or could reasonably be expected to be materially adverse to the business, assets, liabilities, condition (financial or otherwise) or results of operations of the Company and the Subsidiary, taken as a whole or (b) materially impairs the ability of the Company or any of the Sellers to consummate, or prevents or materially delays, any of the transactions contemplated by this Agreement or the Ancillary Agreements or could reasonably be expected to do so; provided, however, that Material Adverse Effect shall not include any event, change, development, circumstance, occurrence, effect or state of facts (A) generally affecting the economy or the financial or securities markets in Denmark or in the global economy, (B) generally affecting the industry in which the Company and the Subsidiary operate, (C) resulting from any outbreak or escalation of hostilities or acts of war or terrorism (other than any of the

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

foregoing that renders physically substantially unusable or inaccessible the Company’s principle facility located in Herlev, Denmark), (D) relating to or arising in connection with any action expressly required to be taken or expressly prohibited from being taken pursuant to the terms and conditions of this Agreement or (E) related to or arising in connection with the public announcement or pendency of the transaction contemplated by this Agreement, including but not limited to possible disruption in the Company’s commercial relationships with its customers, partners, vendors or suppliers resulting therefrom, provided, that, with respect to clauses (A), (B) and (C), the impact of such event, change, development, circumstance, occurrence, effect or state of facts is not disproportionately adverse to the Company and the Subsidiary, taken as a whole.

“NRE” means engineering costs which are recovered from customers.

“Paying Agent” means Accura Advokatpartnerselskab.

“Paying Agent Agreement” means a Paying Agent Agreement to be entered into by the Buyer, the Sellers’ Representative and the Paying Agent, in a form reasonably acceptable to the Buyer and the Sellers’ Representative, but in any event consistent with the terms and conditions of this Agreement and the Plan Participant Agreements.

“Person” means an individual, corporation, partnership, limited liability company, limited liability partnership, syndicate, trust, association, organization or other entity, including any Governmental Authority, and including any successor, by merger or otherwise, of any of the foregoing.

“Per Share Closing Purchase Price” means (a) the Closing Purchase Price, less the Plan Participant Share of the Closing Purchase Price, less the Escrow Amount, less the [* * *], divided by (b) the issued share capital of the Company as of immediately prior to the Closing.

“Plan Participants” means certain employees, directors and consultants of the Company whose names are set forth on Schedule P hereto.

“Plan Participant Agreements” means that certain Exit Transition Bonus Program established by the Company and those certain agreements and appendixes between the Company and each Plan Participant, as amended by the Acknowledgment Agreements, pursuant to which each Plan Participant is entitled to a certain amount of the Closing Purchase Price, the Underpayment, if any, and the Final Additional Consideration, if any.

“Plan Participant Share” means, with respect to the payments of each of the Closing Purchase Price, the Underpayment, if any, and the Final Additional Consideration, if any, the aggregate amount that is payable to all of the Plan Participants under the Plan Participant Agreements with respect to each such payment, assuming for these purposes that all Plan Participants are then, and remain thereafter, fully vested in such amounts pursuant to their respective Plan Participant Agreements.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Potential 280G Benefits” shall mean any potential payments or benefits which may be made or provided to any person who, with respect to the Company, is a “disqualified individual” (as such term is defined in Section 280G of the Code) in connection with the transactions contemplated by this Agreement which could reasonably be expected to constitute a “parachute payment” (as defined in Section 280G(b)(2) of the Code).

“Pre-Closing Tax Period” means any Tax Period ending on or before the Closing Date and the portion of any Straddle Period ending on the Closing Date.

“Pre-Closing Taxes” shall mean, without duplication, all Taxes for which the Company or the Subsidiary are liable (a) with respect to any Pre-Closing Tax Period; (b) as a result of being a member of an affiliated, consolidated, combined, unitary or similar group prior to the Closing, (c) as a transferee or successor, by contract or pursuant to any Law, rule or regulation, which Taxes relate to an event or transaction occurring before the Closing; (d) arising out of or resulting from this Agreement, in each case together with any interest, penalties and additions to Tax with respect to any of the foregoing and any Losses incurred in connection with any of the foregoing. In the case of any Straddle Period: (x) any Property Taxes for the Pre-Closing Tax Period shall be equal to the amount of such Property Taxes for such entire Straddle Period multiplied by a fraction, the numerator of which is the number of days during the Straddle Period that are in the Pre-Closing Tax Period and the denominator of which is the number of days in the Straddle Period; and (y) all other Taxes for the Pre-Closing Tax Period shall be determined based on an actual closing of the books used to calculate such Taxes as if such Tax Period ended as of the close of business on the Closing Date (and for such purpose, the Tax Period of any partnership or other pass-through entity in which the Company holds a beneficial interest shall be deemed to terminate at such time). In the case of clause (y), exemptions, allowances or deductions that are calculated on an annual basis (including depreciation and amortization deductions computed as if the Closing Date was the last day of the Straddle Period) shall be allocated between the portion of the Straddle Period ending on the Closing Date and the portion of the Straddle Period thereafter in proportion to the number of days in each such portion.

“Property Taxes” means all personal or real property Taxes and any other levied or assessed on the value (or variation of value) of property.

“Pro Rata Portion” means, for each Seller, (a) the number of Shares held by such Seller as of immediately prior to the Closing, divided by (b) the total number of Shares held by all Sellers as of immediately prior to the Closing.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Related Party” with respect to any specified Person, means: (a) any Affiliate of such specified Person, or any director, executive officer, general partner or managing member of such Affiliate; (b) any Person who serves or within the past five years has served as a director, executive officer, partner, member or in a similar capacity of such specified Person; (c) any Immediate Family member of a Person described in the foregoing; or (d) any other Person who holds, individually or together with any Affiliate of such other Person and any member(s) of such Person’s Immediate Family, more than 5% of the outstanding voting equity or ownership interests of such specified Person.

“Representatives” with respect to any specified Person, means officers, directors, principals, employees, shareholders, members, managers, consultants, advisors, auditors, agents, bankers and other representatives.

“Return” means any and all returns, declarations, reports, statements, information returns, certificates, bills, schedules, documents, claims for refund or other written information of or with respect to any Tax which is supplied to or required to be supplied to any Governmental Authority (or to any third party to whom a Tax is required to be paid), including any and all attachments, amendments and supplements thereto.

“Revenue” means net revenue from (a) the sale or license of Company Products, (b) the sale of maintenance services with respect to Company Products, and (c) Company NRE, each as determined in accordance with GAAP and consistent with the Company’s accounting practices used prior to the Closing to prepare the Balance Sheet; provided, however, that in the event of a conflict between GAAP and such accounting practices, GAAP shall control; provided, further, that Revenue shall not include [* * *] Product Revenue (as defined in Schedule 2.5(a)(v)) that is taken into account in the calculation of additional consideration under Schedule 2.5(a)(v); and, provided, further, that in the event that any Company Product is combined with or incorporated into another Buyer product for resale rather than being sold on a “stand alone” basis (other than, for the avoidance of doubt, such combined or incorporated Company Products for which revenue is recognized as [* * *] Product Revenue (as defined in Schedule 2.5(a)(v))), there shall be taken into account as Revenue with respect to the Company Product an amount equal to the average selling price for such Company Product on a stand-alone basis for orders of similar quantities in the same fiscal quarter. For the avoidance of doubt, the Buyer may change the Company’s accounting practices following the Closing in its sole and absolute discretion, provided, that Revenue shall continue to be determined in a manner consistent with the Company’s accounting practices (to the extent not in conflict with GAAP) used prior to the Closing to prepare the Balance Sheet solely for purposes of determining whether Additional Consideration is payable pursuant to Section 2.5.

“Straddle Period” means any Tax Period beginning before the Closing Date and ending after the Closing Date.

“Subsidiary” means TPACK, Inc., a California corporation.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“Target Working Capital” means, for a given Closing Date, the amount set forth on Schedule T. For the avoidance of doubt, the parties intend that the Target Working Capital will vary depending on when the Closing Date occurs.

“Taxes” means: (a) all taxes and tax liabilities, whether actual or deferred, in respect of income taxes, corporate taxes, sales taxes, VAT, withholding taxes, stamp duties, share transfer taxes, capital gains taxes, payroll taxes, social security taxes, Property Taxes, surtaxes and all other taxes, assessments and public duties or similar charges of any kind, including any interest, penalties and additions imposed with respect to such amounts; charges of any kind whatsoever; (b) liability for the payment of any amounts of the type described in clause (a) as a result of being a member of an affiliated consolidated combined, unitary or aggregate group or as a result of transferee or successor liability or otherwise through operation of Law; and (c) liability for the payment of any amounts as a result of an express or implied obligation to indemnify any other Person with respect to the payment of any amounts of the type described in clause (a) or (b).

“Taxing Authority” means any Governmental Authority responsible for the assessment or collection or Taxes or the promulgation of rules or regulations pertaining to Taxes.

“Tax Period” means any period prescribed by any Governmental Authority for which a Return is required to be filed or a Tax is required to be paid.

“Transaction Expenses” means all fees and expenses payable by the Sellers, the Company or the Subsidiary in connection with the transactions contemplated by this Agreement and the Ancillary Agreements, including (a) fees and expenses payable to Pagemill Partners LLC, Accura Advokatpartnerselskab (including for its services as Paying Agent) and Pillsbury Winthrop Shaw Pittman LLP and any other attorneys, accountants, financial advisors and other professionals and bankers’, brokers’ or finders’ fees, excluding any such Persons engaged by the Buyer, and (b) fees and expenses of Deloitte LLP incurred in connection with the Translation.

“Translation” means the translation of the audited consolidated balance sheet of the Company and the Subsidiary as at December 31, 2009, and the related audited consolidated statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company and the Subsidiary, together with all related notes and schedules thereto, from compliance with Danish GAAP to compliance with GAAP, together with an audit report thereon of the Company’s independent auditors which will certify that such audit has been performed in accordance with US General Auditing and Accounting Standards (US GAAS).

“[* * *]” means an amount equal to (a) US $[* * *] being converted to US Dollars at the exchange rate in effect (as published in the Wall Street Journal) at the close of business on the Business Day that is three Business Days immediately prior to the Closing Date.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

“[* * *]” means the [* * *] as such [* * *].

“Warrants” means all warrants issued under any of (a) the general warrant program for 2002 (schedule 1 to the Company’s articles of association), (b) the general warrant program for 2003 (schedule 3 to the Company’s articles of association), (c) the general warrant program for 2004 (schedule 5 to the Company’s articles of association) or (d) the alternative warrant program for 2004 (schedule 6 to the Company’s articles of association).

“Warrant Termination Letter” means that certain letter from the Company to the holders of the Warrants in substantially the form attached hereto as Exhibit D.

“Working Capital” means current assets, less short-term liabilities, less long-term liabilities of the Company and the Subsidiary, each as determined in accordance with Danish GAAP applied on a basis consistent with the preparation of the Balance Sheet, however, with the exceptions to Danish GAAP listed in Schedule 2.3(a); provided, however, that liabilities of the Company will exclude Estimated Transaction Costs which are being paid as of the Closing and deducted from the Closing Purchase Price; and provided, further, that Working Capital shall not include any reserves for accrued vacation; and provided, further, that short-term liabilities shall include an accrual for all payroll, commissions, bonuses (including both performance and sales) and related payroll taxes earned through and including the Closing Date, with the accrual for bonuses being determined on a pro rata basis based on the number of days in the bonus period that have elapsed as of the Closing Date and assuming that one hundred percent of the target for such bonuses will be paid at the end of the applicable bonus periods; and provided, further, that the parties acknowledge and agree that “other receivables” is an estimate as of a given date based on the Company’s royalty recognition policies and that for purposes of calculating Closing Working Capital pursuant to Section 2.3(c) the Buyer’s Closing Balance Sheet shall include the “other receivables” that actually existed as of the Closing Date, to the extent determinable as of the delivery of the Closing Balance Sheet. By way of example only, the Working Capital of the Company and the Subsidiary as of August 31, 2010 would be as calculated on Schedule W based on the Sellers’ estimates as of the date hereof.

Section 1.2 Table of Definitions. The following terms have the meanings set forth in the Sections referenced below:

Definition	Location
[* * *]	8.7
[* * *]	8.7
[* * *] Product Revenue	Schedule 2.5(a)(v)
[* * *] Revenue Opportunity	Schedule 2.5(a)(v)
Additional Consideration	2.5(a)
Additional Consideration Milestones	2.5(a)

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Definition	Location
Additional Consideration Notice	2.5(b)
Adjustments Statement	2.3(c)
Agreement	Preamble
Balance Sheet	3.7(b)
Business	2.5(a)
Buyer	Preamble
Closing	2.2(a)
Closing A/R Schedule	2.3(a)
Closing Balance Sheet	2.3(c)
Closing Date	2.2(a)
Closing Working Capital	2.3(c)
Company	Preamble
Company Group Employees	5.13
Company Scheduled IP	3.15(a)
Confidential Information	5.8(b)
Confidentiality Agreement	5.8(a)
Current Lease Agreement	8.2(k)
Disclosure Schedules	Article III
Dispute	10.8
Dispute Notice	10.9(b)
Domain Registrations	3.15(a)
Environmental Laws	3.17(e)(i)
Environmental Permits	3.17(e)(ii)
Estimated A/R Schedule	2.3(a)
Estimated Adjustments Statement	2.3(a)
Estimated Closing Balance Sheet	2.3(a)
Estimated Transaction Costs	5.12
Estimated Working Capital	2.3(a)
Excess Working Capital	2.3(b)(i)
Excluded Dispute	10.9(g)
Final Additional Consideration	2.5(e)
Final Adjusted Purchase Price	2.3(f)
Final Closing Working Capital	2.3(f)
Financial Statements	3.7(a)
Fundamental Representations	8.1(a)
Indemnified Party	8.4(a)
Indemnifying Party	8.4(a)
Independent Accounting Firm	2.3(e)
Interim Financial Statements	3.7(a)
JAMS Streamlined Rules	10.9(b)
Legal Matters	Schedule 2.5(a)(iii)
Marks	3.15(a)
Material Contracts	3.18(a)

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Definition	Location
Memorandum	10.9(b)
Notice of Disagreement	2.3(d)
Notice of Objection	2.5(c)
Notifying Party	10.9(b)
Open Source Software	3.15(i)
Overpayment	2.3(g)
Patents	3.15(a)
Permits	3.9(b)
Permitted Encumbrances	3.13(a)
Plans	3.11(a)(ii)
Recalculated Adjustment	2.3(f)
Registered Copyrights	3.15(a)
Release Amount	8.7
Release Date	8.7
Responding Party	10.9(b)
Schedule of Expenses	5.12
Sellers	Preamble
Sellers’ Representative	2.4(a)
Shares	Recitals
Spreadsheet	2.7
Third Party Claim	8.4(a)
Underpayment	2.3(g)
Updated Spreadsheet	2.7
Working Capital Shortfall	2.3(b)(ii)

ARTICLE II

PURCHASE AND SALE

Section 2.1 Purchase and Sale of the Shares. Upon the terms and subject to the conditions of this Agreement, in reliance on the representations, warranties and covenants of the parties contained herein, at the Closing the Sellers shall sell, assign, transfer, convey and deliver the Shares to the Buyer, free and clear of all Encumbrances, and the Buyer shall purchase the Shares from the Sellers, for a per Share amount equal to the Per Share Closing Purchase Price.

Section 2.2 Closing.

(a) The sale and purchase of the Shares shall take place at a closing (the “Closing”) to be held at the offices of Accura Advokatpartnerselskab, Tuborg Boulevard 1, DK-2900 Hellerup, Denmark, at 9:00 a.m., Central European Time on the third Business Day following the satisfaction or, to the extent permitted by applicable Law, waiver of all conditions to the obligations of the parties set forth in Article VII (other than such

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

conditions as may, by their terms, only be satisfied at the Closing or on the Closing Date), or at such other place or at such other time or on such other date as the Sellers’ Representative and the Buyer mutually may agree in writing, but in any event not prior to August 30, 2010. The day on which the Closing takes place is referred to as the “Closing Date.”

(b) At the Closing, the Buyer shall deliver to each Seller, by wire transfer of immediately available funds to a bank account designated in writing by such Seller to the Buyer at least two Business Days prior to the Closing Date, an amount equal to the product of (a) the Per Share Closing Purchase Price, and (b) the number of Shares held by such Seller as of the Closing.

(c) At the Closing, the Company shall deliver a certified copy of the Company’s register of shareholders evidencing the due registration of the Buyer’s title to the Shares.

(d) At the Closing, the Buyer shall deliver to the Paying Agent, by wire transfer of immediately available funds to a bank account designated in writing by the Paying Agent to the Buyer at least two Business Days prior to the Closing Date, an amount equal to the Plan Participant Share of the Closing Purchase Price, as set forth in the Spreadsheet. Subject to the terms and conditions of the Plan Participant Agreements, such amount shall be used to satisfy the Sellers’ obligations to the Plan Participants under the Plan Participant Agreements with respect to the payment of the Closing Purchase Price and shall be paid to each Plan Participant in accordance with his or her Plan Participant Agreement.

(e) At the Closing, the Buyer shall pay the Estimated Transaction Costs by wire transfer of immediately available funds to the payees thereof in the amounts and to the accounts of such payees as set forth in the Schedule of Expenses.

(f) At the Closing, the Buyer shall deposit the Escrow Amount and the [* * *] with the Escrow Agent by wire transfer of immediately available funds, to be managed and paid out by the Escrow Agent pursuant to the terms of this Agreement and the Escrow Agreement.

Section 2.3 Adjustments to Base Purchase Price.

(a) Estimated Balance Sheet. At least three Business Days prior to the Closing Date, the Company shall prepare or cause to be prepared in good faith and delivered to the Buyer in form and substance reasonably acceptable to the Buyer an estimated consolidated balance sheet of the Company and the Subsidiary as of the close of business (Copenhagen time) on the Closing Date (the “Estimated Closing Balance Sheet”), together with a detailed schedule of Accounts Receivable of the Company and the Subsidiary estimated as of the Closing Date setting forth the name of each account debtor and the amount of the receivables associated with such account debtor (the “Estimated A/R

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Schedule”) and a written statement (the “Estimated Adjustments Statement”) of the Company setting forth in reasonable detail the Company’s good faith estimate of Working Capital as of the close of business on the Closing Date as reflected on the Estimated Closing Balance Sheet (the “Estimated Working Capital”). The Estimated Closing Balance Sheet, Estimated A/R Schedule and the Estimated Adjustments Statement shall be prepared in accordance with Danish GAAP applied on a basis consistent with the preparation of the Balance Sheet, however, with the exceptions to Danish GAAP listed in Schedule 2.3(a); provided, that no purchase accounting adjustments in respect of the transactions contemplated by this Agreement shall be made; and provided further, that the Estimated Working Capital shall be set forth in US Dollars and converted from Danish Kroner at an exchange rate of 0.188679 DKK/USD.

(b) Estimated Closing Date Adjustments.

(i) If the Estimated Working Capital exceeds the Target Working Capital by more than $150,000 (the amount of such excess over $150,000 being referred to herein as the “Excess Working Capital”), then the Base Purchase Price will be increased by the Excess Working Capital.

(ii) If the Estimated Working Capital is less than the Target Working Capital (the amount of such shortfall being referred to herein as the “Working Capital Shortfall”), then the Base Purchase Price will be reduced by the Working Capital Shortfall.

(iii) For the avoidance of doubt, if the Estimated Working Capital exceeds the Target Working Capital by less than $150,000, then the Base Purchase Price will not be adjusted.

(c) Delivery of Closing Balance Sheet. Within 60 days after the Closing Date, the Buyer shall prepare or cause to be prepared in good faith and delivered to the Sellers’ Representative a consolidated balance sheet of the Company and the Subsidiary as of the close of business (Copenhagen time) on the Closing Date (the “Closing Balance Sheet”), together with a detailed schedule of Accounts Receivable of the Company and the Subsidiary as of the Closing Date setting forth the name of each account debtor and the amount of the receivables associated with such account debtor (the “Closing A/R Schedule”) and a written statement (the “Adjustments Statement”) setting forth in reasonable detail Working Capital as of the Closing Date as reflected on the Closing Balance Sheet (the “Closing Working Capital”). The Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement shall be prepared in accordance with Danish GAAP applied on a basis consistent with the preparation of the Balance Sheet, however, with the exceptions to Danish GAAP listed in Schedule 2.3(a); provided, that no purchase accounting adjustments in respect of the transactions contemplated by this Agreement shall be made; and provided further, that the Closing Working Capital shall be set forth in US Dollars and converted from Danish Kroner at an exchange rate of 0.188679 DKK/USD.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(d) Notice of Disagreement. During the 15 Business Day period following the Sellers’ Representative’s receipt of the Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement, and thereafter until such items are finalized, the Buyer and the Company shall use their commercially reasonable efforts to provide the Sellers’ Representative and its Representatives with access to the working papers of the Buyer, the Company and the Subsidiary and their respective Representatives relating to the Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement, and the Buyer shall cooperate with the Sellers’ Representative and its Representatives to provide them with any other information used in preparing the Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement reasonably requested by the Sellers’ Representative or its Representatives. The Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement shall become final and binding on the 15th Business Day following delivery thereof, unless prior to the end of such period, the Sellers’ Representative delivers to the Buyer written notice of its disagreement (a “Notice of Disagreement”) specifying the nature and amount of any disputed item. The Sellers’ Representative shall be deemed to have agreed with all items and amounts in the Closing Balance Sheet, the Closing A/R Schedule and the Adjustments Statement not specifically referenced in the Notice of Disagreement, and such items and amounts shall not be subject to review in accordance with Section 2.3(e) or otherwise. Any Notice of Disagreement may reference only disagreements based on mathematical errors or based on amounts reflected on the Closing Balance Sheet not being calculated in accordance with this Section 2.3.

(e) Resolution. During the 10 Business Day period following delivery of a Notice of Disagreement by the Sellers’ Representative to the Buyer, the Sellers’ Representative and the Buyer in good faith shall seek to resolve in writing any differences that they may have with respect to the matters specified therein. During such 10 Business Day period, the Sellers’ Representative and the Buyer shall use commercially reasonable efforts to provide each other and their respective Representatives with access to their respective working papers relating to such Notice of Disagreement, and such parties and their respective Representatives shall cooperate with each other to provide each other with any other information reasonably requested that they possess with respect to the matters addressed in such Notice of Disagreement. Any disputed items resolved in writing between the Sellers’ Representative and the Buyer within such 10 Business Day period shall be final and binding with respect to such items, and if the Sellers’ Representative and the Buyer agree in writing on the resolution of each disputed item specified by the Sellers’ Representative in the Notice of Disagreement and the amount of the Closing Working Capital, the amount so determined shall be final and binding on the parties for all purposes hereunder. If the Sellers’ Representative and the Buyer have not resolved all such differences by the end of such 10 Business Day period, the Sellers’ Representative and the Buyer shall submit to the Independent Accounting Firm (as defined below), their information detailing their views as to the correct nature and amount of each item remaining in dispute and the amount of the Closing Working Capital, and the Independent Accounting Firm shall make a written determination as to each such disputed item and the amount of the Closing Working Capital, which determination shall be final and binding on

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

the parties for all purposes hereunder. The Independent Accounting Firm shall be authorized to resolve only those items remaining in dispute between the parties in accordance with the provisions of this Section 2.3 within the range of the difference between the Buyer’s position with respect thereto and the Sellers’ Representative’s position with respect thereto, as set forth in the Adjustments Statement and Notice of Disagreement, respectively. The determination of the Independent Accounting Firm shall be accompanied by a certificate of the Independent Accounting Firm that it reached such determination in accordance with the provisions of this Section 2.3. For purposes of this Section 2.3, the “Independent Accounting Firm” means a US-based international independent public accounting firm which is selected by mutual written agreement of the Sellers’ Representative and the Buyer. The Sellers’ Representative and the Buyer shall use their commercially reasonable efforts to cause the Independent Accounting Firm to render a written decision resolving the matters submitted to it within 20 Business Days following the submission thereof. Judgment may be entered upon the written determination of the Independent Accounting Firm in any court referred to in Section 10.9(h). The costs of any dispute resolution pursuant to this Section 2.3(e), including the fees and expenses of the Independent Accounting Firm and of any enforcement of the determination thereof, shall be borne by the party that is not the substantially prevailing party as to the matters in dispute, taken as a whole.

(f) Post Closing True-Up. The calculation of Closing Working Capital, as finally determined pursuant to Section 2.3(d) and/or 2.3(e), shall be referred to herein as “Final Closing Working Capital”. Immediately upon determination of the Final Closing Working Capital, the amount by which the Base Purchase Price would have been adjusted pursuant to Section 2.3(b) had the Estimated Working Capital equaled the Final Closing Working Capital at the time of the adjustment pursuant to Section 2.3(b) shall be calculated (the “Recalculated Adjustment”). A “Final Adjusted Purchase Price” shall be calculated by adjusting the Base Purchase Price by the Recalculated Adjustment.

(g) Post Closing Payment. If the Final Adjusted Purchase Price, as calculated pursuant to Section 2.3(f), exceeds the Adjusted Purchase Price (the amount of such excess being referred to herein as the “Underpayment”), the Buyer shall pay to the Paying Agent, for the benefit of and to be distributed to the Plan Participants in accordance with and subject to the terms and conditions of their respective Plan Participant Agreements and in satisfaction of the Sellers’ obligations under the Plan Participant Agreements, an aggregate amount equal to the Plan Participant Share of the Underpayment, as set forth in the Updated Spreadsheet. In addition, the Buyer shall pay to each Seller an amount equal to the product of (i) an amount equal to (x) the Underpayment, less (y) the Plan Participant Share of the Underpayment, and (ii) such Seller’s Pro Rata Portion. If the Adjusted Purchase Price exceeds the Final Adjusted Purchase Price (the amount of such excess being referred to herein as the “Overpayment”), the Buyer shall deliver written notice to the Escrow Agent and the Sellers’ Representative specifying the amount of such Overpayment, and the Escrow Agent shall pay such amount out of the Escrow Fund to the Buyer in accordance with the terms of the Escrow Agreement. Payments by the Buyer in respect of this Section 2.3(g) shall be made within three Business Days of delivery by the Sellers’ Representative of the Updated Spreadsheet by wire transfer of immediately available funds to an account specified by the party or parties entitled to such payment.

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pursuant to a Confidential Treatment Application filed with the Commission.

Section 2.4 Sellers’ Representative.

(a) The Sellers, without any further action on the part of any of them, consent to the appointment of Vækstfonden, as the representative of the Sellers (the “Sellers’ Representative”), as the attorney-in-fact for and on behalf of each such Seller, and the taking by the Sellers’ Representative of any and all actions and the making of any decisions required or permitted to be taken by each Seller under this Agreement, including, without limitation, the exercise of the power to (i) authorize delivery to the Buyer of the Escrow Fund, or any remaining portion thereof, in payment of the Sellers’ obligations pursuant to Section 2.3(g), (ii) authorize delivery to the Buyer of the Escrow Fund and/or [* * *], or any remaining portion thereof, in payment of indemnification claims by the Buyer and its Affiliates (including the Company and the Subsidiary) and the respective Representatives, successors and assigns of each of the foregoing pursuant to Article VIII, (iii) agree to, negotiate, enter into settlements and compromises of and comply with awards of arbitrators and, if applicable, orders of courts with respect to adjustments to the Base Purchase Price and/or Adjusted Purchase Price and/or indemnification claims and/or disputes relating to Additional Consideration, (iv) resolve any adjustments to the Base Purchase Price and/or Adjusted Purchase Price and/or indemnification claims and/or disputes relating to Additional Consideration, and (v) take all actions necessary in the judgment of the Sellers’ Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement. Accordingly, the Sellers’ Representative has authority and power to act on behalf of each Seller with respect to all matters related to this Agreement and the disposition, settlement or other handling of all indemnification claims, rights or obligations arising from and taken pursuant to this Agreement including, but not limited to, the authority and power to receive notices on behalf of the Sellers. Any notice provided to the Sellers’ Representative shall be deemed to have been provided to all the Sellers. The Sellers shall be bound by all actions taken by the Sellers’ Representative in connection with this Agreement, and the Buyer, the Company and the Escrow Agent shall be entitled to rely on any action or decision of the Sellers’ Representative.

(b) The Sellers’ Representative shall incur no liability with respect to any action taken or suffered by it in reliance upon any notice, direction, instruction, consent, statement or other document believed by it to be genuine and to have been signed by the proper Person (and shall have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except the Sellers’ Representative’s own willful misconduct or gross negligence. In all questions arising under this Agreement, the Sellers’ Representative may rely on the advice of counsel, and the Sellers’ Representative shall not be liable to Sellers for anything done, omitted or suffered in good faith by the Sellers’ Representative based on such advice.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(c) Sellers who in the aggregate hold at least a majority of the Shares prior to the Closing shall have the right at any time to remove the then-acting Sellers’ Representative and to appoint a successor Sellers’ Representative; provided, however, that neither such removal of the then acting Sellers’ Representative nor such appointment of a successor Sellers’ Representative shall be effective until the delivery to the Buyer and to the Escrow Agent of executed counterparts of a writing signed by Sellers’ holding such majority interest in the Shares with respect to such removal and appointment, together with an acknowledgment signed by the successor Sellers’ Representative appointed in such writing that he or she accepts the responsibility of successor Sellers’ Representative and agrees to perform and be bound by all of the provisions of this Agreement applicable to the Sellers’ Representative. Each successor Sellers’ Representative shall have all of the power, authority, rights, privileges and obligations conferred by this Agreement upon the original Sellers’ Representative, and the term “Sellers’ Representative” as used herein and in the Escrow Agreement shall be deemed to include any successor Sellers’ Representative.

Section 2.5 Additional Consideration.

(a) Additional Consideration Milestones. The Sellers shall become entitled to the applicable additional consideration specified below upon the attainment by the Company and the Subsidiary (including any successor entity) (together, the “Business”) during the Earnout Period of the applicable milestones (the “Additional Consideration Milestones”) set forth below:

(i) an aggregate amount equal to fifty percent (50%) of all Revenue earned by the Business in excess of US$9,400,000 during the Earnout Period, provided that the amount payable pursuant to this Section 2.5(a)(i) shall in no event exceed US$3,200,000;

(ii) an aggregate amount equal to US$400,000 in the event that the aggregate Revenue earned by the Business during the Earnout Period exceeds US$16,000,000;

(iii) an aggregate amount determined in accordance with Schedule 2.5(a)(iii);

(iv) up to US$400,000 in the aggregate upon the achievement of the milestones set forth on Schedule 2.5(a)(iv) hereto; and

(v) an aggregate amount of up to US$400,000 determined in accordance with Schedule 2.5(a)(v).

The amounts to which Sellers become entitled under this Section 2.5(a) shall be referred to herein as “Additional Consideration” and shall be paid out at the time and in accordance with the procedures set forth in Section 2.5(b)-(i). Notwithstanding anything in this Agreement to the contrary, in no event will Sellers become entitled to receive in the aggregate more than US$4,400,000 in Additional Consideration pursuant to Sections 2.5(a)(i), (ii), (iv) and (v) above.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(b) Additional Consideration Notice. The Buyer shall deliver notice to the Sellers’ Representative within 20 Business Days following the end of the Earnout Period (the “Additional Consideration Notice”), specifying the aggregate amount of Additional Consideration due and payable pursuant to Section 2.5(a) and showing on an item by item basis the amount of Additional Consideration due under each of subsections 2.5(a)(i) through (v).

(c) Dispute. During the 20 Business Day period following the Sellers’ Representative’s receipt of the Additional Consideration Notice, and thereafter until such items are finalized, the Buyer and the Company shall use their commercially reasonable efforts to provide the Sellers’ Representative and its Representatives with access to the working papers of the Buyer, the Company and the Subsidiary (or successors) relating to the determination of the Additional Consideration, and the Buyer shall cooperate with the Sellers’ Representative and its Representatives to provide them with any other information used to determine the Additional Consideration reasonably requested by the Sellers’ Representative or its Representatives. The Additional Consideration Notice shall become final and binding on the 20th Business Day following delivery thereof, unless prior to the end of such period, the Sellers’ Representative delivers to the Buyer written notice of its objection (a “Notice of Objection”) specifying the nature and amount of any disputed item. The Sellers’ Representative shall be deemed to have agreed with all items and amounts in the Additional Consideration Notice not specifically referenced in the Notice of Objection, and such items and amounts shall not be subject to review in accordance with Section 2.5(d) or otherwise.

(d) Resolution. During the 10 Business Day period following delivery of a Notice of Objection by the Sellers’ Representative to the Buyer, the Sellers’ Representative and the Buyer in good faith shall seek to resolve in writing any differences that they may have with respect to the matters specified therein. During such 10 Business Day period, the Sellers’ Representative and the Buyer shall use commercially reasonable efforts to provide each other and their respective Representatives with access to their respective working papers relating to such Notice of Objection, and such parties and their respective Representatives shall cooperate with each other to provide each other with any other information reasonably requested that they possess with respect to the matters addressed in such Notice of Objection. Any disputed items resolved in writing between the Sellers’ Representative and the Buyer within such 10 Business Day period shall be final and binding with respect to such items, and if the Sellers’ Representative and the Buyer agree in writing on the resolution of each disputed item specified by the Sellers’ Representative in the Notice of Objection and the amount of Additional Consideration due and payable, the amount so determined shall be final and binding on the parties for all purposes hereunder. If the Sellers’ Representative and the Buyer have not resolved all such differences by the end of such 10 Business Day period, the Dispute shall be settled in accordance with the dispute resolution provisions of Section 10.9.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(e) Set Off. Notwithstanding any other provision of this Section 2.5, the Buyer shall be entitled to set off, and not pay to Sellers, amounts otherwise payable pursuant to this Section 2.5, against (i) amounts due to the Buyer pursuant to Section 2.3 in connection with an Overpayment and (ii) amounts due to the Buyer for indemnification claims pursuant to Sections 8.2(d), 8.2(e), 8.2(f), 8.2(g) or 8.2(i) or indemnification claims pursuant to Section 8.2(a) for breach of any representation or warranty in the case of fraud, intentional misrepresentation or intentional breach or breach of any Fundamental Representation or any representation or warranty under Section 3.11. The Additional Consideration, as finally determined pursuant to Section 2.5(d), less the amount the Buyer shall be entitled to set off pursuant to this Section 2.5(e), shall be referred to herein as the “Final Additional Consideration”.

(f) Payment of Final Additional Consideration. Within 10 Business Days of the delivery by the Sellers’ Representative of the Updated Spreadsheet, the Buyer shall pay (i) to the Paying Agent, for the benefit of and to be distributed to the Plan Participants in accordance with and subject to the terms and conditions of their respective Plan Participant Agreements and in satisfaction of the Sellers’ obligations under the Plan Participant Agreements, an aggregate amount equal to the Plan Participant Share of the Final Additional Consideration, as set forth in the Updated Spreadsheet. In addition, the Buyer shall pay to each Seller an amount equal to the product of (x) an amount equal to (A) the Final Additional Consideration, less (B) the Plan Participant Share of the Final Additional Consideration, and (y) such Seller’s Pro Rata Portion. Payments in respect of this Section 2.5 by the Buyer shall be made by wire transfer of immediately available funds to an account specified by the Paying Agent or the applicable Seller, as the case may be.

(g) Additional Consideration as Purchase Price. The parties acknowledge and agree that the Business’s achievement of the Additional Consideration Milestones are material factors in determining the valuation of the Company by the Buyer. The Additional Consideration payable pursuant to this Section 2.5 does not constitute payment for services, but rather constitutes part of the purchase price payable by the Buyer in connection with the purchase of the Shares and shall be treated as such for all purposes, including for tax purposes.

(h) Additional Consideration Not Transferable. No Seller may sell, exchange, transfer or otherwise dispose of its right to receive any portion of the Additional Consideration. Any transfer in violation of this Section 2.5(h) shall be null and void and shall not be recognized by Buyer.

(i) Forfeited Amounts. Any Additional Consideration that is not earned by the Sellers pursuant to this Section 2.5 will be cancelled and deemed forfeited and retained permanently by the Buyer.

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pursuant to a Confidential Treatment Application filed with the Commission.

(j) Control over the Business; Access to Information.

(i) During the Earnout Period, the Buyer will operate the Business in a commercially reasonable manner, having regard to industry conditions and the financial condition and prospects of the Buyer and the Business (which may include discontinuing a portion of the Business), will determine appropriate prices for the Business’ products in its sole but reasonable discretion and will refrain from taking any action not in the ordinary course of business which has as a principal purpose the avoidance or reduction of the Additional Consideration payable under this Section 2.5.

(ii) Until the end of the Earnout Period, the Buyer shall deliver to the Sellers’ Representative a semi-annual update reviewing the status of each Additional Consideration Milestone. During the 20 Business Day period following the Sellers’ Representative’s receipt of such update, the Buyer and the Company shall use their commercially reasonable efforts to provide the Sellers’ Representative and its Representatives with access to the working papers of the Buyer, the Company and the Subsidiary (or successors) relating to the determination of the status of each Additional Consideration Milestone, including without limitation, production reports and projections, backlog ledgers, purchase orders, worksheets and computations for the period under review.

(iii) Other than as set forth in this Section 2.5(j), nothing shall be deemed to limit in any manner the Buyer’s control and operation of the Business following the Closing, which control and operation shall be in Buyer’s sole and absolute discretion, including without limitation with respect to: (i) subject to Section 2.5(j)(i), determining appropriate selling prices for the Business’ products; (ii) making all employment, personnel and staffing decisions related to the Business; (iii) controlling the prosecution, settlement and compromise of the Legal Matters (as defined in Schedule 2.5(a)(iii)); (iv) determining whether or not to make capital investments in the Business, provide credit support to the Business or provide guarantees of the obligations of the Business; and (v) selling, assigning or otherwise transferring the Business or its assets.

Section 2.6 Withholding Taxes. Each of the Buyer, the Paying Agent and the Escrow Agent shall be entitled to report, deduct and withhold or cause to be withheld from any amounts payable pursuant to this Agreement, the Plan Participant Agreements or the Escrow Agreement such amounts as it determines are required to be reported, deducted and withheld with respect to the making of such payment under any applicable Tax Law. To the extent that amounts are so deducted and withheld, such amounts shall be treated for all purposes of this Agreement and the Escrow Agreement (as applicable) as having been paid to the applicable Person in respect of whom such deduction and withholding was made.

Section 2.7 Spreadsheet. For purposes of effecting the payments contemplated by this Article II, at least three Business Days prior to the Closing Date, the Company will provide to the Buyer a spreadsheet (the “Spreadsheet” ) in a form

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

reasonably acceptable to the Buyer, which Spreadsheet will be certified on behalf of the Company by the Chief Executive Officer or Chief Financial Officer of the Company as complete, correct, and in accordance with this Agreement, the Company’s stock ledgers and other records and the Plan Participant Agreements, which shall separately list, as of the Closing, (i) all holders of outstanding capital stock of the Company and their respective addresses, the class, series (if applicable), and number of Shares held by such stockholders, the amount of cash payable to such holders pursuant to this Article II at Closing, such holders’ Pro Rata Portion of the Escrow Fund and the [* * *], and the amounts to be withheld from the consideration payable to each such stockholder, if any, including the type and amount of each Tax to be withheld, (ii) all Plan Participants, the Plan Participant Share of the Closing Purchase Price, the amount of cash payable to each Plan Participant pursuant to this Article II with respect to the Plan Participant Share of the Closing Purchase Price at Closing and the amount to be withheld from such payment to each such Plan Participant, including the type and amount of each Tax to be withheld and the amount of holiday allowance to be withheld, and (iii) such other information relevant thereto which the Buyer may reasonably request. Within three Business Days following determination of each of the Underpayment, if any, and the Final Additional Consideration, if any, the Sellers’ Representative will provide to the Buyer an update of the Spreadsheet (the “Updated Spreadsheet” ), which Updated Spreadsheet will be certified on behalf of the Sellers’ as complete, correct, and in accordance with this Agreement and the Plan Participant Agreements, which shall list, as of the date of the delivery thereof, the Plan Participant Share of the Underpayment, if any, or the Final Additional Consideration, if any, as applicable, the names of all Plan Participants, the amount of cash payable to each Plan Participant pursuant to this Article II with respect to the Plan Participant Share of the Underpayment, if any, or the Final Additional Consideration, if any, as applicable, and the amount to be withheld from each such payment to each such Plan Participant, including the type and amount of each Tax to be withheld and the amount of holiday allowance to be withheld. All amounts set forth in the Spreadsheet and the Updated Spreadsheets shall be expressed in US Dollars.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

OF THE SELLERS AND THE COMPANY

Except as set forth in the corresponding sections or subsections of the Disclosure Schedules attached hereto as Exhibit C (collectively, the “Disclosure Schedules”), with disclosure of any matters under any Schedule of the Disclosure Schedule being deemed to be disclosure under any other Schedule (whether or not specific cross references are given, but only to the extent that the applicability or relevance of such disclosure to such other Schedule is readily apparent on the face of the Disclosure Schedule), the Sellers and the Company (subject to Section 8.8) hereby jointly and severally represent and warrant to the Buyer as follows:

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pursuant to a Confidential Treatment Application filed with the Commission.

Section 3.1 Organization and Qualification.

(a) Each Seller is a legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and has full corporate power and authority to consummate the transactions contemplated by this Agreement.

(b) The Company is a limited liability company (Aktieselskab) duly organized, validly existing and in good standing under the laws of Denmark in accordance with the transcript from the Danish Commerce and Companies Agency attached as Schedule 3.1(b) to the Disclosure Schedules and the Subsidiary is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. All information on the Company and the Subsidiary subject to statutory registration with the Danish Commerce and Companies Agency has been duly and properly registered. Each of the Company and the Subsidiary (i) has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted and (ii) is duly qualified or licensed as a foreign corporation to do business, and is in good standing, in each jurisdiction where the character of the properties owned, leased or operated by it or the nature of its business makes such qualification or licensing necessary, except for any such failures to be so qualified or licensed and in good standing that, individually or in the aggregate, have not had and would not reasonably be expected to have a Material Adverse Effect.

(c) The Company has heretofore furnished to the Buyer a complete and correct copy of the certificate of incorporation and bylaws or equivalent organizational documents, each as amended to date, of the Company and the Subsidiary. Such certificates of incorporation and bylaws or equivalent organizational documents are in full force and effect. All resolutions of the Company and the Subsidiary have been registered with the Danish Commerce and Companies Agency and/or other relevant registries. Neither the Company nor the Subsidiary is in violation of any of the provisions of its certificate of incorporation or bylaws or equivalent organizational documents. The transfer books and minute books of the Company and the Subsidiary that have been delivered to the Buyer prior to the date hereof are true and complete.

(d) Neither the Company or the Subsidiary has suspended its payments, entered into liquidation, whether voluntary or compulsory, or taken any similar action in consequence of insolvency, and no application/petition for such action has been filed by the Company or the Subsidiary or any third party, and to the Knowledge of the Company, no risk of such action or petition exists. Neither the Company nor the Subsidiary are insolvent. For purposes of this Section 3.1(d), “insolvent” and “insolvency” shall have the meanings given to such terms under Danish GAAP.

(e) Only the persons specified in the rules on the power to bind the Company or the Subsidiary contained in the certificate of incorporation or equivalent organizational documents of the Company or the Subsidiary are and have been entitled to bind the Company or the Subsidiary. No Seller nor any third party has the power to bind the Company or the Subsidiary and no powers of attorney have been issued to any employee of the Company or the Subsidiary or any third party providing such Persons with the power to bind the Company or the Subsidiary.

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pursuant to a Confidential Treatment Application filed with the Commission.

Section 3.2 Authority. Each Seller and the Company has full corporate or other applicable power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which such Person is a party, to perform such Person’s obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. The execution, delivery and performance by each Seller and the Company of this Agreement and each of the Ancillary Agreements to which such Person is a party and the consummation by such Person of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate or other applicable action. This Agreement and each Ancillary Agreement to which such Person is a party has been duly executed and delivered by such Person. This Agreement and each Ancillary Agreement to which such Person is a party constitutes the legal, valid and binding obligations of such Person, enforceable against such Person in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 3.3 No Conflict; Required Filings and Consents.

(a) The execution, delivery and performance by each Seller and the Company of this Agreement and each of the Ancillary Agreements to which such Person is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not:

(i) conflict with or violate the certificate of incorporation or bylaws or equivalent organizational documents of such Person, if applicable, or the Company or the Subsidiary;

(ii) conflict with or violate any Law applicable to such Person, or the Company or the Subsidiary, or by which any property or asset of such Person, or the Company or the Subsidiary, is bound or affected; or

(iii) except as set forth in Schedule 3.3(a)(iii) of the Disclosure Schedules, conflict with, result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under, require any consent of any Person pursuant to, or give to others any rights of termination, acceleration or cancellation of, any Material Contract or any Contract to which a Seller is a party, except, with respect to the Sellers only, for any such conflicts, violations, breaches, defaults or other occurrences that do not, individually or in the aggregate, materially impair the ability of such Seller to consummate, or prevent or materially delay, any of the transactions contemplated by this Agreement or the Ancillary Agreements to which such Seller is a party or could reasonably be expected to do so.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(b) None of the Company, the Subsidiary, or any Seller is required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by such Person of this Agreement and each of the Ancillary Agreements to which such Person is a party or the consummation of the transactions contemplated hereby or thereby or in order to prevent the termination of any right, privilege, license or qualification of the Company or the Subsidiary, except for (i) such filings as may be required by any applicable federal or state securities or “blue sky” laws and (ii) as may be necessary as a result of any facts or circumstances relating to the Buyer.

(c) The withdrawal of Xena Networks APS from that certain Agreement on Project [* * *] between the Company, Højteknologifonden, Enigma and DTU, dated February 26, 2009, in connection with the transactions contemplated by this Agreement, would not affect the Company’s ability to recognize the entire economic value of such agreement.

Section 3.4 Shares. The Company’s share capital is held by the Sellers as set out in Schedule 3.4 of the Disclosure Schedules (which Schedule sets forth a complete and accurate description of the number of Shares held by each Seller and each Seller’s percentage ownership interest in the Company). Each Seller is the record and beneficial owner of the Shares to be transferred by such Seller pursuant to this Agreement, free and clear of all Encumbrances. Each Seller has the right, authority and power to sell, assign and transfer such Shares to the Buyer. Upon delivery to the Buyer of the Company’s register of shareholders evidencing due registration of the Buyer’s title to the Shares and the Buyer’s payment of the amounts set forth in Section 2.2(b), the Buyer shall acquire good, valid and marketable title to the Shares, free and clear of all Encumbrances other than Encumbrances created by the Buyer.

Section 3.5 Capitalization.

(a) The nominal share capital of the Company is DKK 96,296,014, consisting of 96,296,014 shares each having a nominal value of DKK 1.00 and all of which are issued.

(b) Schedule 3.5(b) of the Disclosure Schedules sets forth, for the Subsidiary, the amount of its authorized capital stock, the amount of its outstanding capital stock, the record and beneficial owners of its outstanding capital stock and the percentage interest represented by the Company’s ownership of the Subsidiary.

(c) Except for the Shares and the outstanding capital stock of the Subsidiary set forth on Schedule 3.5(b) of the Disclosure Schedules, neither the Company nor the Subsidiary has issued or agreed to issue any: options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any kind relating to the capital stock of the Company or the Subsidiary or obligating the Company or the Subsidiary to issue or sell any shares of capital stock of, or any other interest in, the

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Company or the Subsidiary. There are no outstanding contractual obligations of the Company or the Subsidiary to repurchase, redeem or otherwise acquire any shares of capital stock of the Company or the Subsidiary or to provide funds to, or make any investment in, any other Person. There are no agreements or understandings in effect with respect to the voting or transfer of any of the capital stock of the Company or the Subsidiary.

(d) Each outstanding share of capital stock or other equity or ownership interest of the Company and the Subsidiary is duly authorized, validly issued, fully paid and nonassessable and is free of preemptive rights, and in the case of the Subsidiary, each such share or other equity or ownership interest is owned by the Company, free and clear of all Encumbrances. All of the aforesaid shares or other equity or ownership interests have been offered, sold and delivered by the Company or the Subsidiary in compliance with all applicable federal and state securities laws.

(e) The Spreadsheet and Updated Spreadsheets, when delivered as provided in Section 2.7, will be accurate and complete.

Section 3.6 Equity Interests. Neither the Company nor the Subsidiary directly or indirectly owns any equity, partnership, membership or similar interest in, or any interest convertible into, exercisable for the purchase of or exchangeable for any such equity, partnership, membership or similar interest in, any Person, except the Company owns all of the equity in the Subsidiary.

Section 3.7 Financial Statements; No Undisclosed Liabilities.

(a) True and complete copies of the audited consolidated balance sheet of the Company and the Subsidiary as at December 31, 2009, December 31, 2008 and December 31, 2007, and the related audited consolidated statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company and the Subsidiary, together with all related notes and schedules thereto, accompanied by the reports thereon of the Company’s independent auditors (collectively referred to as the “Financial Statements”) and the unaudited consolidated balance sheet of the Company and the Subsidiary as at June 30, 2010, and the related consolidated statements of income, retained earnings, stockholders’ equity and changes in financial position of the Company and the Subsidiary for the six-month period then ended (collectively referred to as the “Interim Financial Statements”), are attached hereto as Schedule 3.7(a) of the Disclosure Schedules. Each of the Financial Statements and the Interim Financial Statements (i) are correct and complete in all material respects and have been prepared in accordance with the books and records of the Company and the Subsidiary, (ii) have been prepared in accordance with Danish GAAP (and with respect to revenue and revenue recognition only, GAAP) applied on a consistent basis throughout the periods covered (except as may be indicated in the notes thereto) and applicable Law on good accounting practices, subject, in the case of the Interim Financial Statements, to the exceptions contained in Schedule 2.3(a), and (iii) fairly present, in all material respects, the consolidated financial position,

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pursuant to a Confidential Treatment Application filed with the Commission.

results of operations and cash flows of the Company and the Subsidiary as at the respective dates thereof and for the respective periods indicated therein, except as otherwise noted therein and subject, in the case of the Interim Financial Statements, to normal and recurring year-end adjustments that will not, individually or in the aggregate, be material.

(b) Except as and to the extent adequately accrued or reserved against in the consolidated balance sheet of the Company and the Subsidiary as at June 30, 2010 (such balance sheet, together with all related notes and schedules thereto, the “Balance Sheet”) or as set forth in Schedule 3.7(b) of the Disclosure Schedules, neither the Company nor the Subsidiary has (i) any liability or obligation of any nature, whether accrued, absolute, contingent or otherwise, whether known or unknown and required by Danish GAAP to be reflected in a consolidated balance sheet of the Company and the Subsidiary or disclosed in the notes thereto or (ii) obligations to pay money that have actually been incurred or other financial liabilities, whether accrued, absolute, contingent or otherwise, whether known or unknown and whether or not required by Danish GAAP to be reflected in a consolidated balance sheet of the Company and the Subsidiary or disclosed in the notes thereto, except in each case for liabilities and obligations incurred in the ordinary course of business consistent with past practice since the date of the Balance Sheet, that are not, individually or in the aggregate, material to the Company or the Subsidiary.

(c) In connection with the presentation of the Financial Statements, the outside legal advisors to the Company and the Subsidiary have not issued any legal letter concerning material information not disclosed in the Financial Statements.

(d) The Company’s and the Subsidiary’s books and records:

(i) have been properly and carefully kept in conformity with applicable Law in force from time to time;

(ii) are complete, correct and properly arranged;

(iii) contain all material documents which must be or are usually kept by enterprises of the same nature as the Company and the Subsidiary; and

(iv) accurately and fairly reflect the activities and assets of the Company and the Subsidiary.

Section 3.8 Absence of Certain Changes or Events. Except as set forth on Schedule 3.8 of the Disclosure Schedules, since the date of the Balance Sheet: (a) the Company and the Subsidiary have conducted their businesses only in the ordinary course consistent with past practice; (b) there has not been any event, change, development, circumstance, occurrence, effect or state of facts that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect; (c) neither the

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pursuant to a Confidential Treatment Application filed with the Commission.

Company nor the Subsidiary has suffered any material loss, damage, destruction or other casualty affecting any of its material properties or assets, whether or not covered by insurance; and (d) none of the Company or the Subsidiary has taken any action that, if taken after the date of this Agreement, would constitute a breach of any of the covenants set forth in Section 5.1.

Section 3.9 Compliance with Law; Permits.

(a) Each of the Company and the Subsidiary is and has been in compliance in all material respects with all Laws applicable to it. None of the Company, the Subsidiary or any of its or their executive officers has received during the past five years, nor is there any basis for, any notice, order, complaint or other communication from any Governmental Authority or any other Person that the Company or the Subsidiary is not in compliance in any material respect with any Law applicable to it.

(b) Each of the Company and the Subsidiary is in possession of all permits, licenses, franchises, approvals, certificates, consents, waivers, concessions, exemptions, orders, registrations, notices or other authorizations of any Governmental Authority necessary for it to own, lease and operate its properties and to carry on its business in all material respects as currently conducted (the “Permits”). Each of the Company and the Subsidiary is and has been in compliance in all material respects with all such Permits. No suspension, cancellation, modification, revocation or nonrenewal of any Permit is pending or, to the Knowledge of the Company, threatened. The Company and the Subsidiary will continue to have the use and benefit of all Permits following consummation of the transactions contemplated hereby.

Section 3.10 Litigation. Except as set forth in Schedule 3.10 of the Disclosure Schedules, there are no outstanding, or to the Knowledge of the Company, threatened in writing, orders, judgments, injunctions, awards or decrees of any Governmental Authority against or involving the Company or the Subsidiary, any of its or their properties or assets, or against or involving any of their directors, officers or agents in their capacity as such. Except as set forth in Schedule 3.10 of the Disclosure Schedules, there are no Actions pending or, to the Knowledge of the Company, threatened, (a) against or involving the Company or the Subsidiary, any of its or their properties or assets, or against or involving any of their directors, officers, stockholders or agents in their capacity as such, or (b) seeking to prevent, hinder, modify, delay or challenge the transactions contemplated by this Agreement or the Ancillary Agreements. Except as set forth in Schedule 3.10 of the Disclosure Schedules, there is no Action by the Company or the Subsidiary pending, or which the Company or the Subsidiary has initiated or intends to initiate, against any other Person.

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Section 3.11 Employee Benefit Plans.

(a) Schedule 3.11(a) of the Disclosure Schedules sets forth a true and complete list of:

(i) all bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, profit sharing, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs, practices or arrangements, and all employment, termination, severance or other Contracts to which the Company and/or the Subsidiary and/or any Seller is a party, with respect to which the Company and/or the Subsidiary and/or any Seller has or could have any obligation or which are maintained, contributed to or sponsored by the Company and/or the Subsidiary and/or any Seller for the benefit of any current or former employee, consultant, officer or director of the Company or the Subsidiary; and

(ii) any Contracts between the Company or the Subsidiary and any employee, consultant, officer or director of the Company or the Subsidiary, including any Contracts relating in any way to a sale or other change in control of the Company or the Subsidiary (each of (i) and (ii), collectively, the “Plans”).

(b) Each Plan is in writing. The Company has furnished to the Buyer a true and complete copy of each such Plan and has delivered to the Buyer a true and complete copy of each material document prepared in connection with each such Plan, including any forms, opinions or letters with respect to each such Plan required to be filed under applicable Law or which are of a type customarily received from Governmental Authorities with respect to each such Plan. Neither the Company nor the Subsidiary has any express or implied commitment (A) to create, incur liability with respect to or cause to exist any other employee benefit plan, program or arrangement, (B) to enter into any Contract to provide compensation or benefits to any individual or (C) to modify, change or terminate any Plan.

(c) Except as disclosed in Schedule 3.11(c) of the Disclosure Schedules, none of the Plans: (i) provides for the payment of separation, severance, termination or similar-type benefits to any person; (ii) obligates the Company or the Subsidiary to pay separation, severance, termination or similar-type benefits solely or partially as a result of the transactions contemplated by this Agreement; or (iii) obligates the Company or the Subsidiary to make any payment or provide any benefit as a result of the transactions contemplated by this Agreement or (iv) have been met with claims for compensation from present and/or former employees including for insufficient employment Contracts according to the Laws of Denmark. None of the Plans provides for or promises retiree medical, disability or life insurance benefits to any current or former employee, officer or director of the Company or the Subsidiary. Each of the Plans is subject only to the Laws of Denmark or a political subdivision thereof.

(d) Each Plan (other than employment Contracts with employees of the Company) has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws, including the Danish Tax Act. Each employment Contract with employees of the Company has been drafted, implemented and operated in all respects in accordance with the terms and requirements of all applicable Laws, including the Danish Tax Act. Each of the Company and the Subsidiary has performed all

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obligations required to be performed by it and is not in any respect in default under or in violation under any Plan, nor to the Knowledge of the Company, is there any such default or violation by any other party to any Plan. No Action is pending or threatened with respect to any Plan, other than claims for benefits in the ordinary course of employment, and no fact or event exists that would give rise to any such Action.

(e) All contributions, premiums or payments required to be made with respect to any Plan have been made on or before their due dates. No Tax deduction that has been claimed has been challenged or disallowed by any Governmental Authority.

(f) No Plan is, to the Knowledge of the Company, the subject of an audit, investigation or examination by any Governmental Authority.

(g) Neither the Company nor the Subsidiary is a party to any Contract or Plan that (i) has resulted or would result, separately or in the aggregate, in connection with this Agreement or any change of control of the Company or the Subsidiary, in the payment of any “excess parachute payments” within the meaning of Section 280G of the Code or (ii) could obligate it to make any payments that will not be fully deductible under Section 162(m) of the Code.

Section 3.12 Labor and Employment Matters.

(a) A list of the employees of the Company and the Subsidiary broken down by employment categories (management, salaried employees, part-time employees, hourly workers, etc.) is attached as Schedule 3.12 of the Disclosure Schedules. All employees within the categories specified in Schedule 3.12 are subject to the terms of employment set forth in the standard forms of employment agreements previously provided to the Buyer; provided, that only employees working in research and development, which employees the Company believes hold positions of trust, are subject to the non-compete clause contained therein.

(b) Neither the Company nor the Subsidiary is a party to and/or has obligations under any labor or collective bargaining Contract that pertains to employees of the Company or the Subsidiary.

(c) There are no organizing activities or collective bargaining arrangements that could affect the Company or the Subsidiary pending or under discussion with any labor organization or group of employees of the Company or the Subsidiary.

(d) There is, and during the past five years there has been, no labor dispute, strike, controversy, slowdown, work stoppage or lockout pending or threatened against or affecting the Company or the Subsidiary. Neither the Company nor the Subsidiary is a member of any employer’s association.

(e) To the Knowledge of the Company, neither the Company nor the Subsidiary has engaged or is engaging in any unfair labor practice. No unfair labor practice or labor charge or other complaint is pending or threatened with respect to the Company or the Subsidiary before any Governmental Authority.

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pursuant to a Confidential Treatment Application filed with the Commission.

(f) The Company and the Subsidiary have withheld and paid to the appropriate Governmental Authority or are holding for payment not yet due to such Governmental Authority all amounts required to be withheld from employees of the Company or the Subsidiary and, to the Knowledge of the Company, are currently not liable for any arrears of wages, Taxes, penalties or other sums deemed to be a failure to comply with any applicable Laws relating to any of the Company’s or the Subsidiary’s employment relationships. Except for accrued holiday allowance and the month in which the Closing occurs, the Company and the Subsidiary have paid in full to all their respective employees or adequately accrued in accordance with Danish GAAP for all wages, salaries, commissions, bonuses, benefits and all other sums to be paid in the ordinary course of employment and due to or on behalf of such employees. Accrued holiday allowance and all such wages, salaries, commissions, bonuses, benefits and all other sums for the month in which the Closing occurs will be accrued as a current liability in the Estimated Working Capital.

Section 3.13 Title to, Sufficiency and Condition of Assets.

(a) The Company and the Subsidiary have good and valid title to or a valid leasehold interest in all of their material tangible assets, including all of the assets reflected on the Balance Sheet or acquired in the ordinary course of business since the date of the Balance Sheet, except those sold or otherwise disposed of since the date of the Balance Sheet in the ordinary course of business consistent with past practice. The assets owned or leased by the Company and the Subsidiary constitute all of the assets necessary for the Company and the Subsidiary to carry on their respective businesses as currently conducted. None of the assets owned or leased by the Company or the Subsidiary is subject to any Encumbrance, other than (i) liens for current taxes and assessments not yet past due, (ii) mechanics’, workmen’s, repairmen’s, warehousemen’s and carriers’ liens arising in the ordinary course of business of the Company or the Subsidiary, (iii) any such matters of record, Encumbrances and other imperfections of title that do not, individually or in the aggregate, materially impair the continued ownership, use and operation of the assets to which they relate in the business of the Company and the Subsidiary as currently conducted and (iv) Encumbrances listed on Schedule 3.13 of the Disclosure Schedule (collectively, “Permitted Encumbrances”).

(b) All tangible assets owned or leased by the Company or the Subsidiary have been maintained in all material respects in accordance with generally accepted industry practice, are in all material respects in good operating condition and repair, ordinary wear and tear excepted.

This Section 3.13 does not relate to real property or interests in real property, such items being the subject of Section 3.14, or to Intellectual Property, such items being the subject of Section 3.15.

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Section 3.14 Real Property.

(a) Owned Property. The Company and the Subsidiary do not now own and have never owned any real property.

(b) Schedule 3.14(b) of the Disclosure Schedules lists the street address of each parcel of Leased Real Property and the identity of the lessor, lessee and current occupant (if different from lessee) of each such parcel of Leased Real Property. The Company or the Subsidiary have a valid leasehold estate in all Leased Real Property, free and clear of all Encumbrances, other than Permitted Encumbrances. All leases in respect of the Leased Real Property are in full force and effect, neither the Company nor the Subsidiary has received any written notice of a breach of default thereunder, and no event has occurred that, with notice or lapse of time or both, would constitute a material breach or default thereunder by the Company or the Subsidiary. To the Knowledge of the Company, no parcel of Leased Real Property is subject to any governmental decree or order to be sold or is being condemned, expropriated or otherwise taken by any public authority with or without payment of compensation therefore, nor has any such condemnation, expropriation or taking been proposed. All leases of Leased Real Property shall remain valid and binding in accordance with their terms following the Closing.

Section 3.15 Intellectual Property.

(a) Schedule 3.15(a). of the Disclosure Schedules contains a complete and accurate list of each (i) United States or foreign registered trademark or service mark or any pending application therefor (“Marks”), (ii) United States or foreign patent or patent application (collectively, “Patents”), (iii) United States or foreign registered copyrights or pending applications for registration of copyrights (“Registered Copyrights”), and (iv) Internet domain name registration (collectively “Domain Registrations”), in each case, owned by or exclusively licensed to the Company or the Subsidiary (collectively, “Company Scheduled IP”). The Company and the Subsidiary are the sole and exclusive owners of, or have the exclusive right to use and commercially exploit without consideration, all Company Scheduled IP (other than any Company Scheduled IP that is identified in Schedule 3.15(a) of the Disclosure Schedules as being exclusively licensed to the Company) and all other Intellectual Property purportedly owned by the Company or the Subsidiary, free and clear of all Encumbrances (other than Permitted Encumbrances). No other Person has any ownership interest in any of the Intellectual Property owned by the Company or the Subsidiary. Except for “off-the-shelf” Microsoft software products, the Intellectual Property that is owned by or licensed to the Company and the Subsidiary, and will be owned and licensed to the Company and the Subsidiary immediately following the Closing, is and will be sufficient for the conduct of the respective businesses of the Company and the Subsidiary after the Closing in the same manner as such businesses were conducted before the Closing in all material respects.

(b) All registered Marks, Registered Copyrights, Patents and Domain Registrations set forth on Schedule 3.15(b) of the Disclosure Schedules are subsisting and,

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to the Knowledge of the Company, valid and enforceable, and such Schedule sets forth, as applicable: (i) the name of the owner thereof; (ii) the jurisdictions by or in which it has been issued or registered, and (iii) the registration number thereof. Except as disclosed in Schedule 3.15(b) of the Disclosure Schedules, the Company has not received any written or, to Knowledge of the Company, oral notice or claim challenging the validity or enforceability of any of such registered Marks, Registered Copyrights, Patents or Domain Registrations or alleging any misuse thereof.

(c) To the Knowledge of the Company, the Company and the Subsidiary have not infringed, violated or misappropriated, and are not infringing, violating or misappropriating, the Intellectual Property of any other Person. No Action is pending or, to the Knowledge of the Company, threatened based on an allegation that the Company or the Subsidiary has infringed, violated or misappropriated the Intellectual Property of any other Person, and except as disclosed in Schedule 3.15(c) of the Disclosure Schedules, neither the Company nor the Subsidiary has received any written or, to Knowledge of the Company, oral notice or claim notice or claim asserting that any such infringement, violation or misappropriation use is or may be occurring or has or may have occurred, nor to the Knowledge of the Company, is there a reasonable basis for any claim that the Company or the Subsidiary has infringed, violated or misappropriated the Intellectual Property of any other Person; provided that the Company makes no representation as to the extent to which it has investigated possible infringement of its Intellectual Property by third parties. No Intellectual Property owned by or, to the Knowledge of the Company, exclusively licensed to the Company or the Subsidiary is the subject of any outstanding order, writ, injunction, award, judgment, decision, directive, decree, ruling or assessment of any Governmental Authority restricting the use or exploitation thereof by the Company or the Subsidiary or restricting the licensing or disposition thereof by the Company or the Subsidiary to any Person.

(d) To the Knowledge of the Company, no Intellectual Property owned by or exclusively licensed to the Company or the Subsidiary thereof has been infringed, violated, misappropriated in any material respect, or otherwise challenged or threatened. Except as disclosed in Schedule 3.15(d) of the Disclosure Schedules, no Mark or Patent owned by or, to the Knowledge of the Company, exclusively licensed to the Company or the Subsidiary is currently involved in any interference, reissue, re-examination, opposition, invalidation or cancellation proceeding and, to the Knowledge of the Company, no such proceeding is threatened.

(e) Except as disclosed in Schedule 3.15(a) of the Disclosure Schedules and except for non-exclusive and non-transferable (i) internal use licenses or (ii) licenses in connection with sales of Company Products, in each case which have been granted to customers or end users (either directly or indirectly) of the Company or the Subsidiary in the ordinary course of business, the Company has not granted any licenses or other rights to any third party with respect to any Intellectual Property owned by or exclusively licensed to the Company or the Subsidiary.

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pursuant to a Confidential Treatment Application filed with the Commission.

(f) The Company and the Subsidiary have taken commercially reasonable steps to protect their rights in Intellectual Property and at all times have maintained the confidentiality of all information that constitutes or constituted a trade secret of the Company or the Subsidiary. All Intellectual Property used in the conduct of the businesses of the Company and the Subsidiary that was created or developed by current or former employees, consultants or contractors of the Company or the Subsidiary has been assigned in writing to or is owned by operation of Law exclusively by the Company or the Subsidiary.

(g) Except as disclosed in Schedule 3.15(g) of the Disclosure Schedules, the Company and the Subsidiary have not transferred ownership of, or granted any exclusive license with respect to, any Intellectual Property that is or was used in the conduct of their businesses. To the Knowledge of the Company, no loss or expiration of any of the material Intellectual Property used by the Company or the Subsidiary in the conduct of their business is pending or threatened or reasonably foreseeable other than the scheduled expiration of the term of license agreements under which Intellectual Property is licensed to the Company or the Subsidiary and the expiration of the statutory term of any Company Scheduled IP.

(h) Except as set forth in Schedule 3.15(h) of the Disclosure Schedules, to the Knowledge of the Company, the execution, delivery and performance by the Company and the Sellers of this Agreement, and the consummation of the transactions contemplated hereby, will not give rise to any right of any third party to terminate or otherwise modify any of the Company’s or the Subsidiary’ rights or obligations under, any agreement under which a license of Intellectual Property is granted by or to the Company or the Subsidiary or cause the loss or impairment of the Company’s or the Subsidiary’s rights or obligations thereunder.

(i) Except as set forth in Schedule 3.15(i) of the Disclosure Schedules, all use of any “open source”, “freeware”, “shareware” or other freely available software, including any software that is licensed under the GNU GPL and the GNU LGPL (“Open Source Software”), is in full compliance with all of the licenses applicable thereto, including all copyright notice and attribution requirements. No Open Source Software that is used by the Company or the Subsidiary in the conduct of their businesses is distributed or otherwise made available to any third party.

(j) Except as disclosed in Schedule 3.15(j) of the Disclosure Schedules, no source code of any software owned by the Company or the Subsidiary has been licensed or otherwise provided to another Person and all such source code at all times has been safeguarded and protected as a trade secret of the Company or one of the Subsidiary. The software owned by and, to the Knowledge of the Company, licensed to the Company or the Subsidiary is free of any disabling codes or instructions, and any virus or other intentionally created, undocumented contaminant that may, or may be used to, access, modify, delete, damage or disable any of the Company’s or the Subsidiary’ systems or software or that may result in material damage thereto. The Company and the Subsidiary have taken reasonable steps and implemented reasonable procedures to ensure that its internal computer systems used in connection with its business are free from all such disabling codes or instructions and such contaminants.

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pursuant to a Confidential Treatment Application filed with the Commission.

(k) To the Knowledge of the Company, except as disclosed in Schedule 3.15(k) of the Disclosure Schedules, no government funding, facilities or resources of a university, college, other educational institution or research center or funding from third parties was used in the development of the Intellectual Property owned by or exclusively licensed to the Company or the Subsidiary and no Governmental Authority, university, college, other educational institution or research center has any claim or right in or to such Intellectual Property.

Section 3.16 Taxes.

(a) All Returns required to be filed by the Company and the Subsidiary have been correctly prepared and duly and timely filed with the appropriate Governmental Authorities. All information contained in such Returns was all complete and accurate when prepared and continues to be complete and accurate. Schedule 3.16(a) of the Disclosure Schedules sets forth each jurisdiction where the Company and the Subsidiary will be required to file a Return following the Closing with respect to any Tax Period beginning prior to the Closing, including the type of Return and the type of Tax required to be paid. The Company has previously delivered or made available to the Buyer true, correct and complete copies of (i) all audit reports, letter rulings (in Danish “bindende svar”), technical advice memoranda and similar documents issued by a Taxing Authority relating to Taxes with respect to the Company or the Subsidiary and (ii) all income tax Returns and other material Returns filed by or on behalf of the Company and the Subsidiary. Each of the Company and the Subsidiary is and has been in compliance with all applicable Law pertaining to Taxes. No Person has a power of attorney with respect to Tax matters of the Company or the Subsidiary. The Company has not elected Danish cross-border tax consolidation (in Danish “international sambeskatning”).

(b) All notices required to be given for all Tax purposes and information contained in such notices was all complete and accurate when prepared.

(c) All Pre-Closing Taxes have to the effect they have fallen due prior hereto, been fully and timely paid and, with respect to Pre-Closing Taxes that have not fallen due prior hereto, provisions will be provided for as current liabilities in Final Closing Working Capital.

(d) No Taxing Authority is or will be entitled to payment of Pre-Closing Taxes other than such Taxes as may be sufficiently and specifically provided for as current liabilities in Final Closing Working Capital.

(e) No claim has been made by any Taxing Authority to the effect that the Company or the Subsidiary did not file a Return that it was required to file.

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pursuant to a Confidential Treatment Application filed with the Commission.

(f) Except as disclosed in Schedule 3.16(f) of the Disclosure Schedules the Company and the Subsidiary are not the subject of or involved in any Tax inquiry, audit, dispute or other proceeding, and to the Knowledge of the Company there are no circumstances which may give rise to any such event. There is no waiver of the statute of limitations with respect to Taxes currently in effect.

(g) There are no Encumbrances for Taxes, other than Permitted Encumbrances, upon the assets of the Company or the Subsidiary.

(h) All Taxes required by Law to be withheld or collected by the Company or the Subsidiary have been duly withheld or collected and, to the extent required, have been timely paid to the proper Taxing Authority. Each of the Company and the Subsidiary has properly requested, received and retained all necessary exemption certificates and other documentation supporting any claimed exemption or waiver of Taxes on sales or other transactions as to which such entity otherwise would have been obligated to collect or withhold Taxes.

(i) Schedule 3.16(i) of the Disclosure Schedules sets forth all jurisdictions in which the Company and the Subsidiary are subject to Tax, are engaged in business or have a permanent establishment.

(j) No Taxes are required to be withheld by the Company or the Subsidiary with respect to payments to Sellers pursuant to this Agreement or the Escrow Agreement.

(k) Neither the Company nor the Subsidiary (i) has liability for Taxes of any other Person, (ii) is a party to any agreement with any Person with respect to Taxes, or (iii) has received or applied for any ruling from a Governmental Authority with respect to Taxes.

(l) All charges for goods or service made between the Company and the Subsidiary satisfied all material transfer pricing requirements under applicable Law.

(m) Notwithstanding the provisions in this Section 3.16 the Sellers do not provide representations and warranties in respect of the amount of basket losses or Tax losses to be carried forward by the Company and the Subsidiary for tax purposes.

Section 3.17 Environmental Matters.

(a) Each of the Company and the Subsidiary is and has been in compliance in all material respects with all applicable Environmental Laws. None of the Company, the Subsidiary or any of its or their executive officers has received during the past five years any communication or complaint from a Governmental Authority or other Person alleging that the Company or the Subsidiary has any liability under any Environmental Law or is not in compliance with any Environmental Law. There is no pending or, to the Knowledge of the Company, threatened investigation by any Governmental Authority, nor any pending or, to the Knowledge of the Company, threatened Action with respect to the Company or the Subsidiary relating to any Environmental Law.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(b) Except as disclosed on Schedule 3.17 of the Disclosure Schedules, to the Knowledge of the Company, no soil on property currently or formerly leased or owned by the Company or the Subsidiary is polluted. None of the Company or the Subsidiary have polluted any soil on property currently or formerly leased or owned by the Company or the Subsidiary. Except as disclosed on Schedule 3.17 of the Disclosure Schedules, to the Knowledge of the Company, no property currently leased or owned by the Company or the Subsidiary is charted in accordance with the Danish Soil Pollution Act (in Danish: “Jordforureningsloven”), nor was any such property charted in accordance with the Danish Soil Pollution Act or registered in accordance with the Danish Waste Deposit Act (in Danish: “Affaldsdepotloven”) then in force in the period prior to the time when the Company or the Subsidiary sold the property or terminated the lease.

(c) Neither the Company nor the Subsidiary have granted or issued any guarantee or exclusion of liability for real property owned or used by the Company or the Subsidiary in the operation of their activities to a former or existing owner of such real property.

(d) Each of the Company and the Subsidiary holds all Environmental Permits necessary to carry on its respective business as currently conducted, and is and has been in material compliance therewith. Neither the execution, delivery or performance of this Agreement nor the consummation of the transactions contemplated hereby will (i) require any notice to or consent of any Governmental Authority or other Person pursuant to any applicable Environmental Law or Environmental Permit or (ii) subject any Environmental Permit to suspension, cancellation, modification, revocation or nonrenewal.

(e) For purposes of this Agreement:

(i) “Environmental Laws” means: any Laws of any Governmental Authority relating to pollution or protection of the environment, health, safety or natural resources.

(ii) “Environmental Permits” means all Permits under any Environmental Law.

Section 3.18 Material Contracts.

(a) Except as set forth in Schedule 3.18(a) of the Disclosure Schedules, neither the Company nor the Subsidiary is a party to or is or has assets that are bound by any Contract of the following nature (such Contracts as are required to be set forth in Schedule 3.18(a) of the Disclosure Schedules being “Material Contracts”):

(i) any Contract that involves a dollar amount in excess of $100,000 or extends for a period of 12 months or more and involves a dollar amount in excess of $50,000;

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(ii) any employment or service Contract (x) with employees; (y) with agents who were paid in excess of $50,000 by the Company or the Subsidiary over the preceding 12 months; or (z) with consultants who are entitled to be paid in excess of $50,000 for any given project over the life of such project;

(iii) any Contract with sales or other agents, brokers, suppliers, manufacturers, distributors or dealers involving dollar amounts in excess of $50,000;

(iv) any partnership, collaboration, joint development or joint venture Contract;

(v) any lease or other occupancy or use Contract, or any options or rights of first refusal to purchase assets or properties in or relating to the business of the Company or the Subsidiary;

(vi) any lease Contract of tangible personal property with a value in excess of $50,000;

(vii) any Contract with distributors, sales representatives, sales agents, other third-party sellers or customers, giving the Company’s counterparty the right to renegotiate or require a reduction in price or refund of payments previously made in connection with the business of the Company or the Subsidiary, other than rights of return under the Company’s warranty policies provided to the Buyer;

(viii) any Contract for the borrowing or lending of money and any guaranty Contract or other evidence of indebtedness, including mortgages, other grants of security interests, guarantees or notes;

(ix) any Contract required to be disclosed under Section 3.18(a)(i) that contains any provisions requiring the Company or the Subsidiary to indemnify any other party thereto;

(x) any Contract for the sale of goods or services to any Governmental Authority;

(xi) any Contract granting any Person an Encumbrance on any of the assets of the Company or the Subsidiary;

(xii) any Plans, including those listed on Schedule 3.11(a) of the Disclosure Schedule;

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(xiii) any collective bargaining or labor union Contracts to which the Company or the Subsidiary is a party;

(xiv) any non-competition Contract relating to the business of the Company or the Subsidiary or the assets of the Company or the Subsidiary or any other Contract restricting the Company’s or the Subsidiary’s right to conduct their respective businesses at any time, in any manner or at any place in the world, or the expansion thereof to other geographical areas, customers, suppliers or lines of business;

(xv) any currently effective confidentiality Contracts other than those embodied in other Material Contracts listed under the other provisions of this Section 3.18;

(xvi) any Contracts with customers;

(xvii) any inbound or outbound license agreements with respect to Intellectual Property; or

(xviii) any Contract relating to settlement of any Action within the past three years.

(b) Each Material Contract is a legal, valid, binding and enforceable agreement and is in full force and effect. Except as disclosed in Schedule 3.18(b) of the Disclosure Schedules, none of the Company or the Subsidiary or, to the Knowledge of the Company, any other party is in breach or violation of, or (with or without notice or lapse of time or both) default under, any Material Contract, nor has the Company or the Subsidiary received any claim of any such breach, violation or default. The Company has delivered or made available to the Buyer true and complete copies of all Material Contracts, including any amendments thereto.

Section 3.19 Affiliate Interests and Transactions.

(a) No Related Party of the Company or the Subsidiary owns, directly or indirectly, any equity or other financial or voting interest in any supplier, licensor, lessor, distributor, independent contractor or customer of the Company or the Subsidiary or their business.

(b) Except for this Agreement, the Employment Agreements and as set forth on Schedule 3.19(b) of the Disclosure Schedules, there are no Contracts between the Company or the Subsidiary, on the one hand, and any Related Party of the Company or the Subsidiary, on the other hand.

Section 3.20 Insurance. Schedule 3.20 of the Disclosure Schedules sets forth a true and complete list of all casualty, directors and officers liability, general liability, product liability and all other types of insurance of any kind maintained with respect to the Company or the Subsidiary, together with the carriers and liability limits for each such

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pursuant to a Confidential Treatment Application filed with the Commission.

policy and any outstanding claim thereunder. All such policies are in full force and effect and no application therefor included a material misstatement or omission. All premiums with respect thereto have been paid to the extent due. Neither the Company nor the Subsidiary has received notice of default under any such policies, and has not received notice of any pending or threatened termination or cancellation, coverage limitation or reduction or premium increase with respect to any such policy.

Section 3.21 Brokers. Except for Pagemill Partners LLC, the fees of which will be paid by the Sellers, no broker, finder, investment banker or other Person is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of any of the Sellers or the Company or the Subsidiary.

Section 3.22 Warranties. Except as set forth in Schedule 3.22(a) of the Disclosure Schedules, neither the Company nor the Subsidiary has given any warranties or indemnities relating to products or technology sold or services rendered by the Company or the Subsidiary. The Financial Statements and Interim Financial Statements reflect and provide in accordance with Danish GAAP adequate reserves in respect of all warranties or indemnities relating to such products, technology or services. Except as set forth in Schedule 3.22(b) of the Disclosure Schedules, neither the Company nor the Subsidiary has received a written claim within the last three years for or based upon breach of product or service warranty or guaranty or similar claim, strict liability in tort, negligent design of product, negligent provision of services or any other allegation of liability, including or arising from the materials, design, testing, manufacture, packaging, labeling (including instructions for use), or sale of its products or from the provision of its services, other than ordinary course returns of product for service, replacement or repair.

Section 3.23 Suppliers; Distributors.

(a) Except as set forth in Schedule 3.23(a) of the Disclosure Schedules, neither the Company nor the Subsidiary has received any notice, oral or written, or has any Knowledge that any significant supplier, including, without limitation, any sole source supplier, shall not sell raw materials, supplies, merchandise and other goods to the Company or the Subsidiary at any time after the Closing on terms and conditions substantially similar to those used in its current sales to the Company or the Subsidiary, subject only to general and customary price increases, unless comparable raw materials, supplies, merchandise or other goods are readily available from other sources on comparable terms and conditions.

(b) Except as set forth in Schedule 3.23(b) of the Disclosure Schedules, neither the Company nor the Subsidiary has received any notice, oral or written, or has any Knowledge that any distributors, sales representatives, sales agents, other third-party sellers or customers that individually account for greater than $50,000 in sales revenue over the 12 month period preceding the date hereof shall not sell, market or purchase the products or services of the Company or the Subsidiary at any time after the Closing on terms and conditions substantially similar to those used in the current sales, distribution and customer contracts of the Company or the Subsidiary.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

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Section 3.24 Accounts Receivable. Except as set forth in Schedule 3.24 of the Disclosure Schedules, all of the accounts and notes receivable of the Company and the Subsidiary set forth on the Financial Statements and Interim Financial Statements (net of the applicable reserves reflected therein) represent sales actually made or transactions actually effected in the ordinary course of business for goods or services delivered or rendered to unaffiliated customers in bona fide arm’s length transactions.

Section 3.25 Bank Accounts. Schedule 3.25 of the Disclosure Schedules sets forth a true and complete list of (a) all bank accounts or safe deposit boxes under the control or for the benefit of the Company or the Subsidiary, (b) the names of all persons authorized to draw on or have access to such accounts and safe deposit boxes and (c) all outstanding powers of attorney or similar authorizations granted by the Company or the Subsidiary, copies of which have been furnished to the Buyer.

Section 3.26 Minute Books. The minutes of the proceedings of meetings and written actions of the Board of Directors and stockholders of the Company and the Subsidiary provided to the Buyer are the only minutes of the Company and the Subsidiary as of the date of this Agreement and contain accurate summaries of all meetings and actions by written consent of the Board of Directors (or committees thereof) of the Company and the Subsidiary and of all meetings and actions by written consent of the stockholders of the Company and the Subsidiary, since the time of incorporation of the Company or the Subsidiary (including any predecessor entities), as applicable.

Section 3.27 Disclosure. None of the representations or warranties of the Sellers or the Company contained in this Agreement or any Ancillary Agreement and none of the information contained in any schedule, certificate, or other document delivered pursuant hereto or thereto contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF THE BUYER

The Buyer hereby represents and warrants to the Sellers as follows:

Section 4.1 Organization. The Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware and has full corporate power and authority to own, lease and operate its properties and to carry on its business as it is now being conducted.

Section 4.2 Authority. The Buyer has full corporate power and authority to execute and deliver this Agreement and each of the Ancillary Agreements to which it is a party, to perform its obligations hereunder and thereunder and to consummate the

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transactions contemplated hereby and thereby. The execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Agreements to which it is a party and the consummation by the Buyer of the transactions contemplated hereby and thereby have been duly and validly authorized by all necessary corporate action. This Agreement and each of the Ancillary Agreements to which the Buyer is a party has been, duly and validly executed and delivered by the Buyer. This Agreement and each of the Ancillary Agreements to which the Buyer is a party constitutes the legal, valid and binding obligations of the Buyer, enforceable against the Buyer in accordance with their respective terms, except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting creditors’ rights generally and by general principles of equity.

Section 4.3 No Conflict; Required Filings and Consents.

(a) The execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Agreements to which the Buyer is a party, and the consummation of the transactions contemplated hereby and thereby, do not and will not:

(i) conflict with or violate the certificate of incorporation or bylaws of the Buyer;

(ii) conflict with or violate any Law applicable to the Buyer; or

(iii) result in any breach of, constitute a default (or an event that, with notice or lapse of time or both, would become a default) under or require any consent of any Person pursuant to, any Contract to which the Buyer is a party, except for any such conflicts, violations, breaches, defaults or other occurrences that do not, individually or in the aggregate, materially impair the ability of the Buyer to consummate, or prevent or materially delay, any of the transactions contemplated by this Agreement or the Ancillary Agreements to which the Buyer is a party or could reasonably be expected to do so.

(b) The Buyer is not required to file, seek or obtain any notice, authorization, approval, order, permit or consent of or with any Governmental Authority in connection with the execution, delivery and performance by the Buyer of this Agreement and each of the Ancillary Agreements to which the Buyer is a party or the consummation of the transactions contemplated hereby or thereby, except for (i) such filings as may be required by any applicable federal or state securities or “blue sky” laws, and (ii) as may be necessary as a result of any facts or circumstances relating to the Buyer.

Section 4.4 Brokers. Except for Signal Hill Capital Group LLC, no broker, finder, investment banker or other Person is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated hereby based upon arrangements made by or on behalf of the Buyer.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Section 4.5 Availability of Funds. The Buyer has sufficient funds to satisfy its obligations as specified in Article II of this Agreement.

ARTICLE V

COVENANTS

Section 5.1 Conduct of Business Prior to the Closing. Between the date of this Agreement and the Closing, unless the Buyer shall otherwise agree in writing, the Company and the Subsidiary shall conduct their businesses only in the ordinary course of business consistent with past practice, and shall use their commercially reasonable efforts to preserve substantially intact their business organization and assets, keep available the services of their current officers, employees and consultants and preserve their current relationships with customers, suppliers and other Persons with which the Company or the Subsidiary has significant business relations to the end that their goodwill and ongoing businesses shall be unimpaired at the Closing. By way of amplification and not limitation and except as set forth in the Disclosure Schedules (with specific reference to the applicable subsection below), between the date of this Agreement and the Closing, the Company shall not, and the Sellers shall cause each of the Company and the Subsidiary not to, do or propose to do, directly or indirectly, any of the following without the prior written consent of the Buyer:

(a) amend or otherwise change the certificate of incorporation, bylaws or equivalent organizational documents of the Company or the Subsidiary;

(b) issue, deliver, sell, pledge, dispose of or otherwise subject to any Encumbrance (i) any shares of capital stock, any other voting securities or any equity equivalents of the Company or the Subsidiary, or any options, warrants, convertible securities or other rights of any kind to acquire any such shares, voting securities or equity equivalents, or (ii) any properties or assets of the Company or the Subsidiary, other than sales or transfers of inventory in the ordinary course of business consistent with past practice;

(c) (i) declare, set aside or pay any dividends on, or make any other actual, constructive or deemed distributions in respect of, any of the shares of capital stock of the Company or the Subsidiary, or otherwise make any payments to holders of such shares in their capacity as such, (ii) split, combine or reclassify any of the shares of capital stock of the Company or the Subsidiary or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for such shares, or (iii) purchase, redeem or otherwise acquire any shares of capital stock of the Company or the Subsidiary or any other securities thereof or any rights, warrants or options to acquire any such shares or other securities;

(d) acquire any corporation, partnership, limited liability company, other business organization or division thereof or any material amount of assets, or enter into any joint development, strategic alliance, exclusive dealing, noncompetition or similar Contract;

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(e) adopt a plan of complete or partial liquidation, dissolution, merger, consolidation, restructuring, recapitalization or other reorganization of the Company or the Subsidiary, or otherwise alter the Company’s or the Subsidiary’s corporate structure;

(f) other than drawing down an aggregate of up to $50,000 on lines of credit in effect as of the date hereof, incur any indebtedness for borrowed money or issue any debt securities or assume, guarantee or endorse, or otherwise become responsible for, the obligations of any Person;

(g) create or form a subsidiary or make any loans, advances or capital contributions to, or other investments in, any Person;

(h) amend, waive, modify or consent to the termination of any Material Contract required to be disclosed under Section 3.18(a)(i), (iii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xi), (xii), (xiii), (xiv), (xvi), (xvii) or (xviii), or amend, waive, modify or consent to the termination of the Company’s or the Subsidiary’s rights thereunder, or enter into any Contract that would be such a Material Contract if entered into as of the date hereof;

(i) authorize, or make any commitment with respect to, any single capital expenditure that is in excess of $25,000 or capital expenditures that are, in the aggregate, in excess of $50,000 for the Company and the Subsidiary taken as a whole;

(j) purchase any real property;

(k) knowingly violate in any material respect or knowingly fail to perform in any material respect any obligation or duty imposed by any applicable Law;

(l) hire additional employees, consultants or other independent contractors, increase the compensation payable or to become payable or the benefits provided to directors, officers or employees of the Company or the Subsidiary, or grant any severance or termination payment to, loan or advance any amount to, any director, officer or employee of the Company or the Subsidiary, or establish, adopt, enter into or amend, or take action to enhance in any material respect or accelerate any rights or benefits under, any Plan;

(m) enter into any Contract or any other transaction with any Related Party of the Company or the Subsidiary;

(n) make any change in any method of accounting or accounting practice or policy;

(o) make, change or revoke any material election in respect of Taxes; including any election to change the Tax status of the Company or the Subsidiary, adopt or

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change any accounting method in respect of Taxes; enter into any Tax allocation agreement, Tax sharing agreement, Tax indemnity agreement or closing or similar agreement; file or cause to be filed any amended Return; consent to any extension or waiver of the limitation period applicable to any claim or assessment in respect of Taxes; except to the extent required by Law and disclosed to the Buyer prior to the Closing Date, take any position or adopt any Tax accounting method that is inconsistent with methods used in preparing or filing Returns for similar Taxes in prior periods; file or cause to be filed a material claim for refund of Taxes previously paid; or grant any power of attorney with respect to Taxes;

(p) commence any Action with respect to any material Tax liability or settle or compromise any Tax liability;

(q) commence any Action (other than those covered by (p) above) or settle or compromise any other Actions;

(r) fail to file in a timely manner any Returns that become due or fail to pay any Taxes that become due;

(s) pay, discharge or satisfy any claim, liability or obligation (absolute, accrued, asserted or unasserted, contingent or otherwise), other than the payment, discharge or satisfaction, in the ordinary course of business consistent with past practice, of liabilities reflected or reserved against on the Balance Sheet or subsequently incurred in the ordinary course of business consistent with past practice;

(t) cancel, compromise, waive or release any right or claim other than in the ordinary course of business consistent with past practice;

(u) permit the lapse of any existing policy of insurance relating to the business or assets of the Company or the Subsidiary;

(v) permit the disclosure of any material Intellectual Property or other material intangible asset used in the business of the Company or the Subsidiary, other than under appropriate non-disclosure agreements;

(w) permit the abandonment or lapse of any right relating to Intellectual Property or any other intangible asset used in the business of the Company or the Subsidiary;

(x) sell or license to any third party any of the Intellectual Property or other intangible assets used in the business of the Company or the Subsidiary, other than non-exclusive licenses in the ordinary course of business;

(y) accelerate the collection of or discount any accounts receivable, delay the payment of accounts payable or defer expenses, reduce inventories or otherwise increase cash on hand, except in the ordinary course of business consistent with past practice;

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

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(z) enter into any formal or informal Contract, or otherwise make a commitment to do any of the foregoing.

Section 5.2 Covenants Regarding Information. From the date hereof until the Closing Date, the Company shall, and the Sellers shall cause the Company and the Subsidiary to, afford the Buyer and its Representatives complete access (including for inspection and copying) at all reasonable times to the Representatives, properties, offices, plants and other facilities, books and records of the Company and the Subsidiary, and shall furnish the Buyer with such financial, operating and other data and information as the Buyer may reasonably request; provided, however, that the Buyer shall not have access to any trade secrets or material Intellectual Property of the Company and the Subsidiary before the Closing.

Section 5.3 Exclusivity. The Sellers and the Company agree that between the date of this Agreement and the earlier of the Closing and the termination of this Agreement, the Company and the Sellers shall not, and shall take all action necessary to ensure that none of the Company, the Subsidiary or any of their respective Affiliates or Representatives shall:

(a) solicit, assist, initiate, consider, encourage, make or accept any proposals, offers or inquiries from any Person (other than the Buyer and its Affiliates) (i) relating to any direct or indirect acquisition or purchase of all or any portion of the capital stock or securities convertible into or exchangeable for the capital stock of the Company or the Subsidiary or direct or indirect sale or exclusive license of assets of the Company or the Subsidiary, other than inventory to be sold in the ordinary course of business consistent with past practice, (ii) to enter into any merger, consolidation or other business combination relating to the Company or the Subsidiary, (iii) to enter into a recapitalization, reorganization or any other extraordinary business transaction involving or otherwise relating to the Company or the Subsidiary, or (iv) to enter into any partnership or joint venture with or investment in the Company or the Subsidiary; or

(b) participate in any discussions, conversations, negotiations or other communications regarding, or furnish to any other Person (other than the Buyer and its Affiliates) any information with respect to, or otherwise cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any other Person to seek to do any of the actions set forth in Section 5.3(a).

The Company and the Sellers immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any of the actions set forth in Section 5.3(a). The Company and the Sellers shall notify the Buyer promptly, but in any event within 48 hours, if any such proposal or offer, or any inquiry or other

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contact with any Person with respect thereto, is made. Any such notice to the Buyer shall indicate in reasonable detail the identity of the Person making such proposal, offer, inquiry or other contact and the terms and conditions of such proposal, offer, inquiry or other contact. The Company and the Sellers shall not, and the Sellers shall cause the Company and the Subsidiary not to, release any Person from, or waive any provision of, any confidentiality or standstill agreement to which the Sellers or the Company or the Subsidiary is a party, without the prior written consent of the Buyer.

Section 5.4 Plan Participant Agreements. The Sellers shall use commercially reasonable efforts to cause each Plan Participant to execute and deliver an Acknowledgement Agreement agreeing to the terms and conditions thereof. Each Seller shall execute a counterpart of each Acknowledgement Agreement agreeing to the terms thereof, including, without limitation, assuming the Company’s obligations thereunder and discharging the Company from all obligations relating thereto. The Sellers agree to cause the Paying Agent to distribute the Plan Participant Share of the Closing Purchase Price, the Plan Participant Share of the Underpayment, if any, and the Plan Participant Share of the Final Additional Consideration, if any, to the Plan Participants in accordance with the terms of the Plan Participant Agreements, and to make all withholdings from such payments (including for Taxes and holiday allowance) required to be withheld by applicable Law. In the event that the Sellers or the Paying Agent withhold amounts pursuant to the Plan Participant Agreements, including without limitation, on account of a portion of the Sellers’ proceeds being placed into the Escrow Fund and [* * *], such withheld amounts shall be held, distributed and forfeited in a manner consistent with the Plan Participant Agreements, including without limitation, being subject to forfeiture only at the same time and in the same proportionate amount as the portion of the Sellers’ proceeds placed into the Escrow Fund or [* * *], as the case may be, that are then subject to forfeiture.

Section 5.5 Notification of Certain Matters; Supplements to Disclosure Schedules.

(a) The Sellers’ Representative (to its actual knowledge) and the Company shall give prompt written notice to the Buyer of (i) any event, change, development, circumstance, occurrence, effect or state of facts the occurrence or non-occurrence of which would cause any representation or warranty of any of the Sellers or the Company contained in this Agreement or any Ancillary Agreement to be untrue or inaccurate in any material respect, if made on or immediately following the date of such event, change, development, circumstance, occurrence, effect or state of facts, (ii) the occurrence of any Material Adverse Effect, (iii) any failure of the Sellers, the Company, the Subsidiary or any of their respective Affiliates to comply with or satisfy any covenant or agreement to be complied with or satisfied by it hereunder or any event or condition that would otherwise result in the nonfulfillment of any of the conditions to Buyer’s obligations hereunder, (iv) any notice or other communication from any Person alleging that the consent of such Person is or may be required in connection with the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement or (v) any Action pending or, to the Knowledge of the Company, threatened against a party or the parties relating to the transactions contemplated by this Agreement or any Ancillary Agreement.

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(b) The Company and the Sellers’ Representative shall supplement the information set forth on the Disclosure Schedules with respect to any matter now existing or hereafter arising that, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedules or that is necessary to correct any information in the Disclosure Schedules or in any representation or warranty of any of the Sellers or the Company which has been rendered inaccurate thereby promptly following discovery thereof. No such supplement shall be deemed to cure any breach of any representation or warranty made in this Agreement or have any effect for purposes of determining the satisfaction of the conditions set forth in Section 7.3, the compliance by the Company or any Seller with any covenant set forth herein or the Buyer’s rights to indemnification pursuant to Section 8.2.

Section 5.6 Release of Obligations. The Sellers, on or prior to the Closing, shall execute and deliver to the Company, for the benefit of the Company and the Subsidiary, a general release and discharge, in form and substance satisfactory to the Buyer, releasing and discharging the Company and the Subsidiary from any and all obligations, including without limitation, to pay or indemnify the Sellers, guarantee or secure their obligations or otherwise hold them harmless pursuant to any Contract (other than this Agreement and the Ancillary Agreements) entered into prior to the Closing, effective at the Closing.

Section 5.7 Resignations. The Company will deliver at or prior to the Closing the resignations, effective as of the Closing Date, of (a) all of the members of the board of directors of the Company and the Subsidiary, effective as of the Closing, and (b) all of the officers of the Company and the Subsidiary that the Buyer specifies in writing to the Company prior to the Closing Date.

Section 5.8 Confidentiality.

(a) Each of the parties shall hold, and shall cause its Representatives to hold, in confidence all documents and information furnished to it by or on behalf of the other party in connection with the transactions contemplated hereby pursuant to the terms of the Non Disclosure Agreement dated January 29, 2010, as amended, between the Buyer and the Company (the “Confidentiality Agreement”), which shall continue in full force and effect until the Closing Date, at which time such Confidentiality Agreement and the obligations of the parties under this Section 5.8(a) shall terminate. If for any reason this Agreement is terminated prior to the Closing Date, the Confidentiality Agreement shall nonetheless continue in full force and effect in accordance with its terms.

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(b) From and after the date hereof, the Sellers shall not, and shall cause their respective Affiliates and Representatives not to, use for its or their own benefit or divulge or convey to any third party, any Confidential Information; provided, however, that the Sellers or their respective Affiliates may furnish such portion (and only such portion) of the Confidential Information as such Person reasonably determines it is legally obligated to disclose if: (i) it receives a request to disclose all or any part of the Confidential Information under the terms of a subpoena, civil investigative demand or order issued by a Governmental Authority; (ii) to the extent not inconsistent with such request, it notifies the Buyer of the existence, terms and circumstances surrounding such request and consults with the Buyer on the advisability of taking steps available under applicable Law to resist or narrow such request; (iii) it exercises its commercially reasonable efforts to obtain an order or other reliable assurance that confidential treatment will be accorded to the disclosed Confidential Information; and (iv) disclosure of such Confidential Information is required to prevent such Person from being held in contempt or becoming subject to any other penalty under applicable Law. For purposes of this Agreement, “Confidential Information” consists of all information and data relating to the Company or the Subsidiary (including any information relating to the plans of the Buyer and its Affiliates relating thereto), the Buyer or any of its Affiliates, this Agreement, the Ancillary Agreements, the transactions contemplated hereby or thereby or the terms hereof or thereof, other than, in each case, data or information that is or becomes available to the public other than as a result of a breach of this Section, and whether furnished or disclosed to a party hereunder prior to or after the date hereof.

Section 5.9 Consents and Filings; Further Assurances.

(a) The Company, the Sellers and the Buyer shall use all commercially reasonable efforts to take, or cause to be taken, all appropriate action to do, or cause to be done, all things necessary, proper or advisable under applicable Law or otherwise to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements as promptly as practicable, including to (i) obtain from Governmental Authorities and other Persons all consents, approvals, authorizations, qualifications and orders as are necessary for the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements, (ii) promptly make all necessary filings, and thereafter make any other required submissions, with respect to this Agreement required under any applicable Law and (iii) have vacated, lifted, reversed or overturned any order, decree, ruling, judgment, injunction or other action (whether temporary, preliminary or permanent) that is then in effect and that enjoins, restrains, conditions, makes illegal or otherwise restricts or prohibits the consummation of the transactions contemplated by this Agreement and the Ancillary Agreements. In furtherance and not in limitation of the foregoing, the Company and the Sellers shall permit the Buyer reasonably to participate in the defense and settlement of any Action relating to this Agreement or the transactions contemplated hereby, and the Company and the Sellers shall not settle or compromise any such Action without the Buyer’s written consent. Notwithstanding anything herein to the contrary, the Buyer shall not be required by this Section to take or agree to undertake any action, including entering into any consent decree, hold separate order or other arrangement, that would (A) require the divestiture of any assets of the Buyer, the Company or any of their respective Affiliates,

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(B) limit the Buyer’s freedom of action with respect to, or its ability to consolidate and control, the Company and the Subsidiary or any of their assets or businesses or any of the Buyer’s or its Affiliates’ other assets or businesses or (C) limit the Buyer’s ability to acquire or hold, or exercise full rights of ownership with respect to, the Shares.

(b) The Sellers shall or shall cause the Company and the Subsidiary to give promptly such notice to third parties and obtain such third party consents and estoppel certificates as the Buyer may in its sole discretion deem necessary or desirable in connection with the transactions contemplated by this Agreement and the Ancillary Agreements. The Buyer shall cooperate with and assist the Sellers in giving such notices and obtaining such consents and estoppel certificates; provided, however, that the Buyer shall have no obligation to give any guarantee or other consideration of any nature in connection with any such notice, consent or estoppel certificate or consent to any change in the terms of any agreement or arrangement that the Buyer in its sole discretion may deem adverse to the interests of the Buyer or the Company or the Subsidiary.

(c) The Sellers and the Buyer agree that, in the event that any consent, approval or authorization necessary or desirable to preserve for the Company or the Subsidiary any right or benefit under any lease, license, commitment or other Contract to which the Company or the Subsidiary, as applicable, is a party is not obtained prior to the Closing, the Sellers will, subsequent to the Closing, cooperate with the Buyer, the Company or the Subsidiary, as applicable, in attempting to obtain such consent, approval or authorization as promptly thereafter as practicable.

(d) From time to time after the Closing, and for no further consideration, each of the parties shall, and shall cause its Affiliates to, execute, acknowledge and deliver such assignments, transfers, consents, assumptions and other documents and instruments and take such other actions as may be necessary or desirable to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements.

Section 5.10 Public Announcements. Following the date hereof, none of the Company, the Sellers or any of their respective Affiliates or Representatives shall issue any press release or make any public statement prior to obtaining the Buyer’s written approval, which approval shall not be unreasonably withheld, conditioned or delayed, except that no such approval shall be necessary to the extent disclosure may be required by applicable Law; provided, however, that following the Closing (a) the Company and its respective Affiliates and Representatives may make any press release or public statement; (b) the Sellers and their respective Affiliates and Representatives may make any press release or public statement if it contains only such information as has already been disclosed by the Buyer or any of its Affiliates or Representatives; and (c) the Sellers and their respective Affiliates and Representatives may make a press release or public statement not covered by clause (b) upon the prior written consent of the Buyer, such consent not to be unreasonably withheld, conditioned or delayed. Notwithstanding the foregoing, the parties agree that the Sellers and their respective Affiliates may (i) share

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information concerning the transaction on a confidential basis with their respective financial, accounting and legal advisors and (ii) provide to their respective partners, investors and Affiliates in confidential reports information concerning such Seller or Affiliate’s purchase price of (cost basis in) Company shares and the net and gross proceeds resulting from the transaction.

Section 5.11 Retention Payments. Following the Closing Date and subject to approval by the Buyer’s Board of Directors, the Buyer will grant equity based awards to then current employees of the Company and the Subsidiary, which equity based awards shall have an aggregate grant date fair market value of approximately $[* * *], with the actual value being determined by the Buyer in its sole discretion, but in any event no less than $[* * *]. The equity based awards to be granted pursuant to this Section 5.11: (a) shall be in the form customarily granted by the Buyer to its own employees and subject to the terms and conditions of Buyer’s standard equity compensation plans and related equity grant documentation, in each case with such modifications as are reasonably necessary to comply with applicable Law, (b) shall be allocated among employees of the Company and the Subsidiary in the manner determined by the Buyer in its sole discretion, (c) shall be granted only to current employees of the Company as of the date of grant and (d) may be subject to such additional conditions as the Buyer may reasonably impose, including the execution of employment agreements and related documentation satisfactory to the Buyer. The equity based awards described herein shall be subject in all cases to compliance with applicable Law, including the securities laws of Denmark.

Section 5.12 Transaction Expenses. Within three Business Days prior to the Closing Date, the Sellers’ Representative shall provide to the Buyer an itemized schedule (the “Schedule of Expenses”) containing a good faith estimate of the Transaction Expenses theretofore incurred (whether or not invoiced) and that are expected to be incurred as of or otherwise in connection with the transactions contemplated hereby and to be unpaid as of the Closing before giving effect to the payment of Transaction Expenses by the Buyer pursuant to Section 2.2(g) (the “Estimated Transaction Costs”), together with a certificate of an officer of the Sellers’ Representative certifying on behalf of the Sellers’ Representative as to the accuracy and completeness of the Schedule of Expenses. The Schedule of Expenses shall set forth the names of the parties to which Estimated Transactions Costs are owed, the amounts owed to each such party and the wire transfer instructions for the account of each such party to which Estimated Transaction Costs will be paid. The Estimated Transaction Costs shall be expressed both in the local currency in which they are payable and in United States Dollars and, to the extent payable other than in US Dollars, converted at the exchange rate in effect (as published in the Wall Street Journal) at the close of business on the Business Day that is three Business Days immediately prior to the Closing Date. The Sellers hereby assume, and agree to thereafter pay when due and discharge, all obligations and liabilities related to the Transaction Expenses, either as a deduction to the Closing Purchase Price or pursuant to Article VIII.

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Section 5.13 Non-Solicit; No Hire. For a period of six months following the Closing, each Seller shall not, and shall use its commercially reasonable efforts to cause its Representatives and any majority owned Affiliates not to, directly or indirectly through any Person in which such Seller, majority owned Affiliate or Representative is actively involved (including without limitation, as a director or officer of a portfolio company), anywhere in the world:

(a) solicit, induce or recruit any person who at any time on or after the date of this Agreement is a Company Group Employee (as hereinafter defined) to leave his or her employment with the Company and the Subsidiary; provided, that the foregoing shall not prohibit a general solicitation to the public of general advertising or similar methods of solicitation by search firms not specifically directed at Company Group Employees.

(b) hire any Company Group Employee, without the prior written consent of the Buyer.

For purposes of this Section 5.13, “Company Group Employees” means, collectively, officers, directors and employees of the Company and the Subsidiary and persons acting under any management, service, consulting or similar Contract with any of the foregoing.

Section 5.14 Customers; Suppliers. Prior to the Closing, the Company and the Sellers shall use commercially reasonable efforts to facilitate meetings between customers and suppliers of the Company and the Subsidiary on the one hand and the Buyer and its Representatives on the other hand which are reasonably requested by the Buyer. Notwithstanding any provision of this Agreement to the contrary, prior to the Closing, the Buyer and its respective Affiliates and Representatives shall not contact any of the customers or suppliers of the Company without the written consent of the Company (such written consent not to be unreasonably withheld, conditioned or delayed).

Section 5.15 280G. Prior to the Closing, the Company shall deliver to the Buyer its calculation of Potential 280G Benefits and shall use its best efforts to (a) subject all Potential 280G Benefits to stockholder approval (including obtaining waivers from “disqualified individuals” (as such term is defined in the Treasury Regulations promulgated under Section 280G of the Code) where necessary), (b) submit for stockholder approval, as described in Section 280G(b)(5) of the Code and Regulations §1.280G-1 thereunder, all Potential 280G Benefits, and (c) obtain such stockholder approval for all Potential 280G Benefits or, if the requisite stockholder approval is not obtained, provide for the agreed waiver from any “disqualified individuals” and reductions of appropriate amounts of Potential 280G Benefits by “disqualified individuals” so that no amounts are subject to the deduction limitations of Section 280G of the Code and the excise tax under Section 4999 of the Code.

Section 5.16 Translation. From and after the date hereof, the Sellers shall use their best efforts to take such steps as the Buyer reasonably determines to be necessary with respect to the Translation in order for the Translation to be completed within sixty

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pursuant to a Confidential Treatment Application filed with the Commission.

days following the Closing. From and after the date hereof, the Sellers shall use their commercially reasonable best efforts to cause employees of the Company from whom the Company’s independent auditors request management representation letters in connection with the Translation to provide such letters.

Section 5.17 Key Supplier Agreement. Prior to the Closing, the Buyer shall use its commercially reasonable best efforts to facilitate the entering into by the Company, the Buyer and [* * *] of a binding Contract substantially consistent with that certain Memorandum of Understanding, dated [* * *], among the Company, the Buyer and [* * *]; provided, however, that the Buyer shall have no obligation to give any consideration to [* * *] in order to accomplish the foregoing.

Section 5.18 Warrant Termination Letters. From and after the date hereof (including, for the avoidance of doubt, following the Closing), the Sellers shall use their best efforts to cause each holder of a Warrant to execute and deliver a Warrant Termination Letter; provided, however, that the Sellers shall have no obligation to give any consideration to any holder of Warrants in order to accomplish the foregoing.

Section 5.19 Post Closing Reorganization. From and after the Closing and prior to the undertaking of any extraordinary corporate event (including a merger, reorganization, consolidation or liquidation of the Company (or its successors)) the principal purpose of which is to effect the termination or cancellation of the Warrants or the share capital issued upon the exercise thereof, the Buyer shall obtain the approval of the Sellers’ Representative (such approval not to be unreasonably withheld, conditioned or delayed) as to the structuring and implementation of such extraordinary corporate event to the extent related to the preservation of Tax attributes (including NOLs).

ARTICLE VI

TAX MATTERS

Section 6.1 Tax Returns.

(a) Returns for Tax Periods Ending on or Before the Closing Date. The Sellers’ Representative shall timely prepare or cause to be prepared all Returns required to be filed by or with respect to the Company and the Subsidiary for all periods ending on or prior to the Closing Date, other than any United States income tax Returns. The Sellers’ Representative shall pay or cause to be paid, from sources other than the Escrow Fund, all Taxes shown as due with respect to all such Returns. For the avoidance of doubt, the Sellers shall not incur any payment obligation for Taxes which have been sufficiently and specifically identified as a current liability in Final Closing Working Capital. All such Returns shall be prepared in a manner consistent with past practice except as otherwise required by applicable Law. The Sellers’ Representative shall provide such Returns to the Buyer in a form ready for filing no less than fourteen (14) Business Days prior to the due date thereof. The Sellers’ Representative shall make such changes to such Returns as the

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Buyer may reasonably request. The Sellers’ Representative shall provide any such revised Returns to the Buyer in a form ready for execution no less than three (3) Business Days prior to the due date thereof and the Buyer shall file or cause such Returns (as so changed, if applicable) to be filed.

(b) Straddle Period Returns. The Buyer shall prepare or cause to be prepared and timely file or cause to be timely filed all Returns relating to Straddle Periods. The Buyer shall provide such Returns to, and make such reasonable changes as may be requested by, the Sellers’ Representative, consistent with the obligations of the Sellers’ Representative set forth in Section 6.1(a) with respect to Returns for periods ending on or prior to the Closing Date. The Buyer shall pay or cause to be paid all Taxes due with respect to all Returns relating to Straddle Periods, provided, that the Sellers’ Representative shall reimburse the Buyer, from sources other than the Escrow Fund, for all Pre-Closing Taxes shown as due with respect to all such Returns except to the extent the liability for such Taxes was reflected as a liability in the calculation of Final Closing Working Capital. All such Returns shall be prepared in a manner consistent with past practice except as otherwise required by applicable Law.

(c) Cooperation and Assistance. The Buyer and the Sellers’ Representative shall provide each other with such cooperation and assistance as may be reasonably requested and at the requesting party’s expense (but only with respect to out-of-pocket third party costs reasonably incurred) in connection with the preparation of any Return, any audit or other examination by any Taxing Authority, or any judicial or administrative proceedings relating to liability for Taxes for which the Company or the Subsidiary are liable, and until the seventh (7^th) anniversary of the Closing Date, each will retain and provide the others with any records or information which may be necessary for such Return audit, or examination, proceedings or determination. The Buyer and the Sellers’ Representative further agree, upon reasonable request and at the sole cost of the requesting Person, to (i) use their commercially reasonable efforts to obtain any certificate or other document from any Governmental Authority or any other Person with respect to Taxes and (ii) take any other actions reasonably requested, in each case, as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, Taxes arising out of this Agreement).

Section 6.2 Buyer’ Use. Nothing in this Agreement shall be construed to require the Buyer to make any additional payment to the Sellers for the use of any Tax credit (including any excess foreign tax credits), Tax deduction, net operating loss or other Tax attribute of the Company or the Subsidiary.

Section 6.3 Transfer Taxes. All transfer, documentary, sales, use, real property gains, stamp, registration, and other such Taxes incurred in connection with this Agreement shall be paid by the Sellers. The Sellers’ Representative and the Buyer shall cooperate in its preparation and filing of all necessary Returns and other documentation with respect to all such Taxes.

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Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

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pursuant to a Confidential Treatment Application filed with the Commission.

Section 6.4 Certain Elections. In no event may the Sellers’ Representative or the Sellers make or permit to be made any election with respect to Taxes (other than elections made in the ordinary course of business consistent with past practices of the Company) that could have an affect on the Tax attributes of the Company or the Subsidiary in any period ending on or following the Closing Date without the advance prior written consent of the Buyer.

ARTICLE VII

CONDITIONS TO CLOSING

Section 7.1 General Conditions. The respective obligations of the Buyer and the Sellers to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions, any of which may, to the extent permitted by applicable Law, be waived in writing by the Buyer or the Sellers’ Representative in its sole discretion (provided, that such waiver shall only be effective as to the obligations of such party, and in the case of a waiver by the Sellers’ Representative, the Sellers):

(a) No Injunction or Prohibition. No Action shall have been taken and no Law shall have been enacted or deemed applicable to the transactions contemplated by this Agreement or the Ancillary Agreements, and no temporary or permanent restraining order or preliminary or permanent injunction or other order shall have been issued by, any Governmental Authority, that in effect would enjoin, restrain, condition, make illegal or otherwise prohibit the consummation of the transactions contemplated by this Agreement or any Ancillary Agreement.

Section 7.2 Conditions to Obligations of the Sellers. The obligations of the Sellers to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions, any of which may be waived in writing by the Sellers’ Representative in its sole discretion:

(a) Representations and Warranties. The representations and warranties of the Buyer contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto shall be true and correct in all material respects both when made and as of the Closing Date, or in the case of representations and warranties that are made as of a specified date, such representations and warranties shall be true and correct in all material respects as of such specified date.

(b) Covenants. The Buyer shall have performed all obligations and agreements and complied with all covenants and conditions required by this Agreement to be performed or complied with by it prior to or at the Closing, in all material respects.

(c) Escrow Agreement. The Buyer and the Escrow Agent shall have entered into the Escrow Agreement.

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(d) Paying Agent Agreement. Prior to the Closing, the Buyer shall enter into the Paying Agent Agreement.

Section 7.3 Conditions to Obligations of the Buyer. The obligations of the Buyer to consummate the transactions contemplated by this Agreement shall be subject to the fulfillment, at or prior to the Closing, of each of the following conditions, any of which may be waived in writing by the Buyer in its sole discretion:

(a) Representations and Warranties. The representations and warranties of the Sellers and the Company contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto shall be true and correct both when made and as of the Closing Date, or in the case of representations and warranties that are made as of a specified date, such representations and warranties shall be true and correct as of such specified date, except to the extent that the failure to be true and correct, individually or in the aggregate, has not had or could not reasonably be expected to have a Material Adverse Effect; provided, however, for purposes of this Section 7.3(a) the representations and warranties of the Sellers and the Company shall be construed as if they did not contain any qualification that refers to materiality, Material Adverse Effect or words of similar import and without giving effect to subsequent supplements or updates to the Disclosure Schedules.

(b) Covenants. The Company and the Sellers shall have performed all obligations and agreements and complied with all covenants and conditions required by this Agreement to be performed or complied with by them prior to or at the Closing, in all material respects.

(c) No Material Adverse Effect. There shall not have occurred any event, change, development, circumstance, occurrence, effect or state of facts that, individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect.

(d) Compliance Certificate. The Buyer shall have received a Compliance Certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company to the effect that the conditions specified in subsections (a), (b) and (c) of this Section 7.3 have been satisfied.

(e) Consents and Approvals. All authorizations, consents, orders and approvals of all Governmental Authorities and officials and all third party consents and estoppel certificates listed on Schedule 7.3(e) shall have been obtained and shall be reasonably satisfactory in form and substance to the Buyer.

(f) Employment Agreements. Each of the Employment Agreements shall remain in full force and effect, and no Key Employee’s employment with the Company shall have terminated, as of the Closing.

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(g) Key Supplier. The Company and [* * *] shall have entered into a binding Contract substantially consistent with that certain Memorandum of Understanding, dated [* * *], among the Company, the Buyer and [* * *], and such binding Contract shall remain in full force and effect, and shall not have been repudiated by the Company or [* * *] as of the Closing.

(h) Escrow Agreement. The Sellers’ Representative and the Escrow Agent shall have entered into the Escrow Agreement.

(i) Resignations. The Buyer shall have received letters of resignation from the members of the board of directors elected by the general meeting of the Company and the Subsidiary and from any officers of the Company or the Subsidiary designated by the Buyer, with such letters containing irrevocable waivers by such Persons of any and all claims against the Company and the Subsidiary (other than those arising under this Agreement or the Ancillary Agreements).

(j) Schedule of Transaction Expenses. The Sellers’ Representative shall have delivered to the Buyer the Schedule of Expenses and Estimated Transaction Costs.

(k) Exercise of Warrants. No warrants (including the Warrants) shall have been exercised; provided, however, that if any warrants are exercised prior to the Closing Date, this condition can be satisfied to the extent thereof, if the Spreadsheet and all other allocations, calculations, payments and determinations contemplated by Article II are amended to take account thereof, and the Person exercising the same either (i) executes a counterpart of this Agreement or (ii) is subject to an effective drag along provision contained in a shareholders’ agreement of the Company binding upon such Person, and, in each case, whose share capital is delivered to the Buyer on or before the Closing on the same basis as the Sellers, all to the Buyer’s satisfaction in its sole discretion.

(l) Spreadsheet. The Company shall have delivered to the Buyer the Spreadsheet.

(m) Acknowledgement Agreements. An Acknowledgement Agreement for each Plan Participant shall have been executed by such Plan Participant, the Company and each Seller and delivered to the Buyer.

(n) Register of Shareholders. The Company shall have delivered a certified copy of the Company’s register of shareholders evidencing the due registration of the Buyer’s title to the Shares.

(o) Certificate of CFO of the Company. The Buyer shall have received a certificate, validly executed by the CFO of the Company, certifying as to (i) the terms and effectiveness of the Company’s certificate of incorporation and bylaws or equivalent organizational documents, (ii) the valid adoption of resolutions of the board of directors of

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the Company approving the sale and transfer of the Shares under clauses 4.4 and 4.7 of the Company’s articles of association, (iii) the valid adoption of resolutions of the board of directors and shareholders of the Company approving this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, and (iv) the incumbency of the executive officers of the Company.

(p) Release. Each of the Sellers shall have delivered to the Buyer the general release described in Section 5.6.

(q) Paying Agent Agreement. Prior to the Closing, the Sellers’ Representative and the Paying Agent shall enter into the Paying Agent Agreement.

(r) Power of Attorney. Prior to the Closing, the Sellers shall have provided documentation reasonably acceptable to the Buyer evidencing the due authorization of each of (i) Mr. Henri Agren and Mr. Markus Pauli to execute a Power of Attorney on behalf of Slottsbacken Fund II KY to appoint Mr. Thor Birkmand as Slottsbacken Fund II KY’s attorney-in-fact for all purposes under this Agreement and (ii) Mr. Ramsey Brufer, Ms. Charlotte Mark, Mr. Magnus Floding and a representative of Sjätte AP-fonden to execute a Power of Attorney on behalf of Slottsbacken Fund Two KB to appoint Mr. Thor Birkmand as Slottsbacken Fund Two KB’s attorney-in-fact for all purposes under this Agreement.

ARTICLE VIII

INDEMNIFICATION

Section 8.1 Survival of Representations and Warranties . The representations and warranties of the Sellers, the Company and the Buyer contained in this Agreement and any schedule, certificate or other document delivered pursuant hereto shall survive the Closing until the date that is eighteen (18) months following the Closing Date; provided, however, that:

(a) the representations and warranties set forth in Sections 3.1, 3.2, 3.4, 3.5, 3.6, 4.1 and 4.2 (collectively, the “Fundamental Representations”), and any representation in the case of fraud, intentional misrepresentation or intentional breach, shall survive indefinitely; and

(b) the representations and warranties set forth in Section 3.11 and 3.16 shall survive until the close of business on the 120th day following the expiration of the applicable statute of limitations (giving effect to any waiver, mitigation or extension thereof).

No Indemnified Party shall make a claim for indemnification under Section 8.2(a) or Section 8.3(a), as the case may be, for breach by an Indemnifying Party of a particular representation or warranty after the expiration of the survival period thereof specified in this Section 8.1, except that if a claim is made hereunder prior to the expiration of the survival period for such representation and warranty, such representation and warranty shall survive as to such claim until such claim has been finally resolved.

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Section 8.2 Indemnification by the Sellers. From and after the Closing, the Sellers shall, (i) jointly and severally to the extent that the claim is recoverable from the Escrow Fund, (ii) subject to the final sentence of Section 8.7(a), jointly and severally with respect to Section 8.2(e) until the fifth anniversary of the Closing Date and (iii) severally in proportion to their Pro Rata Portions to the extent that the claim (other than a claim pursuant to Section 8.2(e) prior to the fifth anniversary of the Closing Date) is recoverable directly from the Sellers following exhaustion of the Escrow Fund and/or [* * *], save, defend, indemnify and hold harmless the Buyer and its Affiliates (including the Company and the Subsidiary) and the respective Representatives, successors and assigns of each of the foregoing from and against any and all Losses actually incurred, sustained or suffered by any of the foregoing as a result of, arising out of or relating to:

(a) any breach of any representation or warranty made by the Sellers or the Company contained in this Agreement (other than Section 3.16) or any schedule, certificate or other document delivered pursuant hereto (without, in each case, giving effect to any limitations or qualifications thereto, including materiality, Material Adverse Effect or Knowledge set forth therein or subsequent supplements or updates to the Disclosure Schedules);

(b) any breach of any covenant or agreement by the Sellers, or with respect to breaches prior to the Closing, by the Company or the Subsidiary, in each case contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto;

(c) any Transaction Expenses in excess of the Estimated Transaction Costs;

(d) the Plan Participant Agreements, the assumption by the Sellers of the Company’s obligations thereunder and the payments under this Agreement and the Paying Agent Agreement with respect thereto, including without limitation, any Actions by the Plan Participants and any Taxes related to any of the foregoing;

(e) the Warrants, including [* * *];

(f) Pre-Closing Taxes (except to the extent the liability therefor was reflected as a liability in the calculation of Final Closing Working Capital) and any breach of any representation or warranty in Section 3.16;

(g) any Action seeking reimbursement from or repayment by the Company of funding received from the Danish National Advanced Technology Foundation (in Danish “Højteknologifonden”) under the funding agreement of 26 February 2009 owing to actions or omissions by the Company, the Subsidiary, the Sellers or any of their respective Affiliates or Representatives prior to the Closing;

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(h) the Legal Matters (as defined in Schedule 2.5(a)(iii)), but only to the extent in excess of the aggregate amount actually recovered by the Company from the opposing parties in connection therewith;

(i) the amount by which the Company’s refund of withholding Taxes from the German Taxing Authorities received within the 120 day period following the Closing Date which are based on royalty payments received from Infineon Technologies AG (or Lantiq, the purchaser of Infineon’s Wireline business) under a licensing agreement between the Company and Infineon Technologies AG falls short of DKK 750,000;

(j) certain legal matters set forth in Schedule 8.2(j); and

(k) the termination by the landlord of that certain Lease Agreement, between the Company and Arbejdmarkedets tillægspension / ATP Ejendomme A/S, dated February 9, 2005 (as amended) (the “Current Lease Agreement”), but only to the extent such termination arises out of the failure to obtain such landlord’s consent under the Current Lease Agreement to the transactions contemplated by this Agreement, and with such Losses to be measured as follows: (i) the costs and expenses incurred by the Company and/or the Buyer in connection with moving the Company’s headquarters to a reasonably comparable facility, plus (ii) an amount equal to (x) the rent payable at such facility over the period from the commencement of the lease of such facility until October 1, 2015, less (y) the rent payable at the Company’s current facility over the period from the commencement of the lease of such reasonably comparable facility until October 1, 2015, provided that in no event can the Losses pursuant to this Section 8.2(k) be negative.

Section 8.3 Indemnification by the Buyer. From and after the Closing, the Buyer shall save, defend, indemnify and hold harmless the Sellers and their respective Representatives, successors and assigns from and against any and all Losses actually incurred, sustained or suffered by any of the foregoing as a result of, arising out of or relating to:

(a) any breach of any representation or warranty made by the Buyer contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto (without, in each case, giving effect to any limitations or qualifications as to materiality, Material Adverse Effect or knowledge set forth therein); and

(b) any breach of any covenant or agreement by the Buyer, or with respect to breaches following the Closing, by the Company or the Subsidiary, in each case contained in this Agreement or any schedule, certificate or other document delivered pursuant hereto.

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Section 8.4 Procedures.

(a) A party that is entitled to indemnification under Section 8.2 or 8.3 is referred to herein as the “Indemnified Party” and a party that is obligated to provide indemnification under Section 8.2 or 8.3 is referred to herein as the “Indemnifying Party”. In order for an Indemnified Party to be entitled to any indemnification provided for under this Agreement in respect of, arising out of or involving a Loss by or a claim or demand made by any Person (including a Governmental Authority) against the Indemnified Party (a “Third Party Claim”), such Indemnified Party shall deliver notice thereof to the Indemnifying Party against whom indemnity is sought with reasonable promptness after receipt by such Indemnified Party of written notice of the Third Party Claim and shall provide the Indemnifying Party with such information with respect thereto as the Indemnifying Party may reasonably request. The failure to provide such notice, however, shall not release the Indemnifying Party from any of its obligations under this Article VIII except to the extent that the Indemnifying Party is materially prejudiced by such failure.

(b) If the Indemnifying Party acknowledges in writing its obligation to indemnify the Indemnified Party against any and all Losses that may result from a Third Party Claim pursuant to the terms of this Agreement, the Indemnifying Party shall have the right, upon written notice to the Indemnified Party within 15 days of receipt of notice from the Indemnified Party of the commencement of such Third Party Claim, to assume the defense thereof at the expense of the Indemnifying Party (which expenses shall not be applied against any indemnity limitation herein) with counsel selected by the Indemnifying Party and reasonably satisfactory to the Indemnified Party; provided, however, that the Indemnifying Party will not have the right to assume or continue control of such defense if the claim (1) seeks non-monetary relief, (2) involves criminal allegations, or (3) involves a claim which, upon reasonable determination by the Indemnified Party, the Indemnifying Party failed or is failing to diligently prosecute or defend. The Indemnifying Party shall be liable for the fees and expenses of counsel employed by the Indemnified Party for any period during which the Indemnifying Party has not assumed the defense thereof. If the Indemnifying Party does not expressly elect to assume the defense of such Third Party Claim within the time period and otherwise in accordance with the first sentence of this Section 8.4(b) or is barred from assuming or continuing such defense by this Section 8.4(b), the Indemnified Party shall have the sole right to assume the defense of and to settle such Third Party Claim. If the Indemnifying Party assumes the defense of such Third Party Claim, the Indemnified Party shall have the right to employ separate counsel and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the Indemnified Party unless (i) the employment of such counsel shall have been specifically authorized in writing by the Indemnifying Party or (ii) the named parties to the Third Party Claim (including any impleaded parties) include both the Indemnified Party and the Indemnifying Party, and the Indemnified Party shall have been advised by such counsel that there are one or more legal defenses available to it that are different from or additional to those available to the Indemnifying Party (in each such case, the fees and expenses of such counsel shall be at the expense of the Indemnifying Party). If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnified Party

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shall, at the Indemnifying Party’s expense, cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party all witnesses, pertinent records, materials and information in the Indemnified Party’s possession or under the Indemnified Party’s control relating thereto as is reasonably required by the Indemnifying Party. If the Indemnifying Party assumes the defense of any Third Party Claim, the Indemnifying Party shall not, without the prior written consent of the Indemnified Party (such consent not to be unreasonably withheld, conditioned or delayed), enter into any settlement or compromise or consent to the entry of any judgment with respect to such Third Party Claim.

(c) The indemnification required hereunder in respect of a Third Party Claim shall be made by prompt payment by the Indemnifying Party of the amount of actual Losses in connection therewith, as and when bills are received by the Indemnifying Party or Losses incurred have been notified to the Indemnifying Party.

(d) The Indemnifying Party shall not be entitled to require that any Action be made or brought against any other Person before Action is brought or claim is made against it hereunder by the Indemnified Party.

(e) In the event any Indemnified Party should have a claim against any Indemnifying Party hereunder that does not involve a Third Party Claim being asserted against or sought to be collected from such Indemnified Party, the Indemnified Party shall deliver notice of such claim with reasonable promptness to the Indemnifying Party. The failure to provide such notice, however, shall not release the Indemnifying Party from any of its obligations under this Article VIII except to the extent that the Indemnifying Party is materially prejudiced by such failure and shall not relieve the Indemnifying Party from any other obligation or liability that it may have to the Indemnified Party or otherwise than pursuant to this Article VIII. If the Indemnifying Party does not notify the Indemnified Party within 10 Business Days following its receipt of such notice that the Indemnifying Party disputes its liability to the Indemnified Party hereunder, such claim specified by the Indemnified Party in such notice shall be conclusively deemed a liability of the Indemnifying Party hereunder and the Indemnifying Party shall pay the amount of such liability to the Indemnified Party on demand. If the Indemnifying Party agrees that it has an indemnification obligation but asserts that it is obligated to pay a lesser amount than that claimed by the Indemnified Party, the Indemnifying Party shall pay such lesser amount promptly to the Indemnified Party, without prejudice to or waiver of the Indemnified Party’s claim for the difference.

(f) Notwithstanding the provisions of Section 10.9, each Indemnifying Party hereby consents to the nonexclusive jurisdiction of any court in which an Action in respect of a Third Party Claim is brought against any Indemnified Party for purposes of any claim that an Indemnified Party may have under this Agreement with respect to such Action or the matters alleged therein and agrees that process may be served on each Indemnifying Party with respect to such claim anywhere.

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Section 8.5 Limits on Indemnification. Notwithstanding anything to the contrary contained in this Agreement: (a) the Sellers shall not be liable for any claim for indemnification pursuant to Section 8.2(a), 8.2(f) and 8.2(j), unless and until the aggregate amount of indemnifiable Losses which may be recovered from the Sellers pursuant to Section 8.2(a), 8.2(f) and 8.2(j) equals or exceeds the Basket, in which case the Sellers shall only be liable for the amount of such Losses which exceed the Basket, (b) the maximum aggregate amount of indemnifiable Losses which may be recovered from the Sellers pursuant to Section 8.2(a), 8.2(b), 8.2(c), 8.2(f), 8.2(h), 8.2(j) and 8.2(k) shall be an amount equal to the Escrow Amount, (c) the maximum aggregate liability of each Seller under this Article VIII (including for indemnifiable Losses described in (b) above) shall not exceed its Pro Rata Portion of an amount equal to (i) the Base Purchase Price, plus (ii) the Final Additional Consideration, if any, (d) the Buyer shall not be liable for any claim for indemnification pursuant to Section 8.3(a), unless and until the aggregate amount of indemnifiable Losses which may be recovered from the Buyer pursuant to Section 8.3(a) equals or exceeds the Basket, in which case the Buyer shall only be liable for the amount of such Losses which exceed the Basket and (e) the maximum aggregate amount of indemnifiable Losses which may be recovered from the Buyer pursuant to Section 8.3(a) and 8.3(b) shall be an amount equal to the Escrow Amount; provided, however, that the foregoing clauses (a), (b), (d) and (e) shall not apply to the untruth or breach of any representation or warranty made in any Fundamental Representation, any representation or warranty under Section 3.11 or in the event of fraud, intentional misrepresentation or intentional breach; and provided, further, that the foregoing clause (c) shall not apply for the benefit of a Seller in the event of fraud, intentional misrepresentation or intentional breach by such Seller.

Section 8.6 Remedies Not Affected by Investigation, Disclosure or Knowledge. If the transactions contemplated hereby are consummated, the Buyer expressly reserves the right to seek indemnity or other remedy for any Losses arising out of or relating to any breach of any representation, warranty or covenant contained herein, notwithstanding any investigation by, disclosure to or knowledge of such party in respect of any fact or circumstances that reveals the occurrence of any such breach, whether before or after the execution and delivery hereof.

Section 8.7 Escrow Fund.

(a) The Buyer hereby agrees that in the case of any indemnification claims under Section 8.2(a), 8.2(b), 8.2(c), 8.2(h), 8.2(j) and 8.2(k), its sole recourse shall be against the Escrow Fund, to the extent of the amount then held in the Escrow Fund; provided, however, that subject to Section 8.5(c) (to the extent applicable), the foregoing limitation shall not apply to indemnification claims relating to Losses arising out of or relating to the untruth or breach of any representation or warranty made in any Fundamental Representation, any representation or warranty under Section 3.11 or in the event of fraud, intentional misrepresentation or intentional breach. The Buyer also hereby agrees that it shall first seek a remedy from the Escrow Fund, to the extent of the amount then held in the Escrow Fund, with respect to any indemnification claim asserted

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hereunder before seeking to recover any Losses directly from a Seller. The Buyer also hereby agrees that the [* * *] shall be available solely to satisfy indemnification claims under Section 8.2(e) and that it shall first seek a remedy from the [* * *], to the extent of the amount then held in the [* * *], with respect to any indemnification claim asserted under Section 8.2(e) before seeking to recover any Losses under Section 8.2(e) from the Escrow Fund or, subject to the immediately preceding sentence, directly from a Seller.

(b) As soon as reasonably practicable following the date that is eighteen (18) months following the Closing Date (the “Release Date”), the Escrow Agent shall release the Escrow Fund to the extent not previously used to satisfy an Overpayment pursuant to Section 2.3(g) or indemnification claims against the Sellers pursuant to this Article VIII, less the amount of any pending indemnification claims pursuant to this Article VIII as of such date (the “Release Amount”). The Escrow Agent shall distribute to each Seller an amount equal to such Seller’s Pro Rata Portion of the Release Amount. As promptly as practicable following the resolution of all pending indemnification claims which were outstanding as of the Release Date, the Escrow Agent shall distribute to each Seller an amount equal to such Seller’s Pro Rata Portion of, the excess, if any, of (x) the amount so withheld with respect to such pending indemnification claims as of the Release Date, over (y) the amount used to satisfy the indemnification obligations of the Sellers pursuant to this Article VIII with respect to such pending indemnification claims.

(c) As soon as reasonably practicable following the receipt by the Buyer of [* * *], the Buyer shall deliver written instruction to the Escrow Agent (with a copy to the Sellers’ Representative) directing the Escrow Agent to distribute to each Seller, as soon as reasonably practicable following receipt of such instruction, from the [* * *], an amount equal to such Seller’s Pro Rata Portion of the US Dollar equivalent of [* * *]. Such US Dollar equivalent shall be determined using the exchange rate in effect (as published in the Wall Street Journal) at the close of business on the Business Day that is three Business Days immediately prior to the Closing Date. As soon as reasonably practicable following the date that is the fifth anniversary of the Closing Date (the “[* * *]”), the Escrow Agent shall release the [* * *] to the extent not previously used to satisfy indemnification claims against the Sellers pursuant to Section 8.2(e) and to the extent not previously released pursuant to the first sentence of this Section 8.7(c), less the amount of any pending indemnification claims pursuant to Section 8.2(e) as of such date (the “[* * *]”). The Escrow Agent shall distribute to each Seller an amount equal to such Seller’s Pro Rata Portion of the [* * *]. As promptly as practicable following the resolution of all pending indemnification claims which were outstanding as of the [* * *], the Escrow Agent shall distribute to each Seller out of the [* * *] an amount equal to such Seller’s Pro Rata Portion of, the excess, if any, of (x) the amount so withheld with respect to such pending indemnification claims as of the [* * *], over (y) the amount used to satisfy the indemnification obligations of the Sellers pursuant to Section 8.2(e) with respect to such pending indemnification claims.

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Section 8.8 Exculpation of the Company. Notwithstanding any provision of this Agreement to the contrary or any right or remedy provided by any Law, principle of equity, common law, judicial decision or otherwise, from and after the Closing and in recognition of the facts that the Sellers owned and controlled the Company until the time of the Closing and the Buyer will own and control the Company immediately after the Closing (a) the Company shall not be liable to the Sellers in any manner or based on any legal theory or equitable principle, including contribution, on account of, or with respect to, the breach by the Company of any of the representations, warranties, covenants and agreements made by the Company in this Agreement made or to be performed on or prior to the Closing and (b) the Sellers’ liability for indemnification pursuant to this Article VIII shall not be affected on account of the exoneration of the Company’s liability as described in clause (a) of this sentence.

Section 8.9 Limitation on Types of Damages. NOTWITHSTANDING ANYTHING TO THE CONTRARY ELSEWHERE IN THIS AGREEMENT, NO PARTY (OR ANY OF ITS AFFILIATES) SHALL, IN ANY EVENT, BE LIABLE FOR ANY CONSEQUENTIAL, PUNITIVE, SPECIAL, EXEMPLARY OR OTHER SIMILAR DAMAGES, WHETHER PURSUANT TO THIS ARTICLE VIII OR OTHERWISE, PROVIDED THAT ANY INDEMNIFIED PARTY MAY RECOVER FROM ANY INDEMNIFYING PARTY FOR INDEMNIFIABLE LOSSES UNDER THIS ARTICLE VIII THAT INCLUDE ANY OF THE FOREGOING TYPES OF DAMAGES TO THE EXTENT SUCH LOSSES ARE RECOVERED BY A THIRD PARTY AGAINST SUCH INDEMNIFIED PARTY.

Section 8.10 Exclusive Remedy. Except in the case of (i) fraud, intentional misrepresentation or intentional breach, (ii) as provided in any other provisions of this Agreement expressly granting post-Closing rights and remedies other than indemnification pursuant to this Article VIII or (iii) claims for injunctive or other equitable relief for the enforcement of the covenants of the parties, the remedies provided in this Article VIII shall be the exclusive remedies of the parties hereto after the Closing in connection with the transactions contemplated by this Agreement, including without limitation any breach or non-performance of any representation, warranty, covenant or agreement contained herein.

ARTICLE IX

TERMINATION

Section 9.1 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by mutual written consent of the Buyer, on the one hand, and the Sellers’ Representative, on the other;

(b) (i) by the Sellers’ Representative, if the Buyer breaches or fails to perform in any respect any of their representations, warranties or covenants contained in this Agreement and such breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 7.2, (B) cannot be or has not been cured within 15 days following delivery by the Sellers’ Representative of written notice of such breach or failure

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to perform and (C) has not been waived by the Sellers’ Representative or (ii) by the Buyer, if any of the Sellers or the Company, breach or fail to perform in any respect any of their representations, warranties or covenants contained in this Agreement and such breach or failure to perform (A) would give rise to the failure of a condition set forth in Section 7.3, (B) cannot be or has not been cured within 15 days following delivery by the Buyer of written notice of such breach or failure to perform and (C) has not been waived by the Buyer;

(c)(i) by the Sellers’ Representative, if any of the conditions set forth in Section 7.1 or Section 7.2 shall have become incapable of fulfillment prior to the 30^th day following the date hereof or (ii) by the Buyer, if any of the conditions set forth in Section 7.1 or Section 7.3 shall have become incapable of fulfillment prior to the 30^th day following the date hereof; provided, that the right to terminate this Agreement pursuant to this Section 9.1(c) shall not be available if the failure of the party so requesting termination to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of such condition to be satisfied on or prior to such date;

(d) by either the Sellers’ Representative or the Buyer if the Closing shall not have occurred by the 30^th day following the date hereof; provided, that the right to terminate this Agreement under this Section 9.1(d) shall not be available if the failure of the party so requesting termination to fulfill any obligation under this Agreement shall have been the cause of, or shall have resulted in, the failure of the Closing to occur on or prior to such date; or

(e) by either the Sellers’ Representative or the Buyer in the event that any Governmental Authority shall have issued an order, decree or ruling or taken any other action restraining, enjoining or otherwise prohibiting the transactions contemplated by this Agreement or any of the Ancillary Agreements and such order, decree, ruling or other action shall have become final and nonappealable; provided, that the party so requesting termination shall have used its commercially reasonable efforts, in accordance with Section 5.9, to have such order, decree, ruling or other action vacated.

The party seeking to terminate this Agreement pursuant to this Section 9.1 (other than Section 9.1(a)) shall give prompt written notice of such termination to the other parties.

Section 9.2 Effect of Termination. In the event of termination of this Agreement as provided in Section 9.1, this Agreement shall forthwith become void and there shall be no liability on the part of any party except (a) for the provisions of Sections 3.21 and 4.4 relating to broker’s fees and finder’s fees, Section 5.8 relating to confidentiality, Section 5.10 relating to public announcements, Section 10.1 relating to fees and expenses, Section 10.4 relating to notices, Section 10.7 relating to third-party beneficiaries, Section 10.8 relating to governing law, Section 10.9 relating to submission to jurisdiction and this Section 9.2, which shall survive such termination, and (b) that nothing herein shall relieve any party from liability for any breach of this Agreement prior to such termination of this Agreement.

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ARTICLE X

GENERAL PROVISIONS

Section 10.1 Fees and Expenses. Except as otherwise provided herein, all fees and expenses incurred in connection with or related to this Agreement and the Ancillary Agreements and the transactions contemplated hereby and thereby shall be paid by the party incurring such fees or expenses, whether or not such transactions are consummated; provided, that if the transactions contemplated hereby are consummated, Transaction Expenses shall be borne by the Sellers, either as a deduction to the Closing Purchase Price or pursuant to Article VIII, and not by the Company or the Subsidiary. In the event of termination of this Agreement, the obligation of each party to pay its own expenses will be subject to any rights of such party arising from a breach of this Agreement by the other.

Section 10.2 Amendment and Modification. This Agreement may not be amended, modified, waived or supplemented in any manner, whether by course of conduct or otherwise, except by an instrument in writing specifically designated as an amendment hereto, signed by the Sellers’ Representative and the Buyer, and any such amendment, modification, waiver or supplement shall be binding upon all parties to this Agreement.

Section 10.3 Waiver. Except as otherwise set forth herein, no failure or delay of either party in exercising any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such right or power, or any course of conduct, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the parties hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have hereunder. Except as otherwise set forth herein, any agreement on the part of a party to any waiver shall be valid only if set forth in a written instrument executed and delivered by a duly authorized officer on behalf of such party. For the avoidance of doubt, any waiver by the Securityholder Representative shall be binding upon each Seller.

Section 10.4 Notices. All notices and other communications hereunder shall be in writing and shall be deemed duly given (a) on the date of delivery if delivered personally, or if by facsimile, upon written confirmation of receipt by facsimile, (b) on the first Business Day following the date of dispatch if delivered utilizing a next-day service by a recognized next-day courier or (c) on the earlier of confirmed receipt or the fifth Business Day following the date of mailing if delivered by registered or certified mail, return receipt requested, postage prepaid. All notices hereunder shall be delivered to the addresses set forth below, or pursuant to such other instructions as may be designated in writing by the party to receive such notice:

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(i) if to the Sellers or the Sellers’ Representative, to:

Vækstfonden

Strandvejen 104A, 3.,DK-2900 Hellerup, Denmark

Attention: Legal Department

Facsimile: +45 3529 8635

with a copy (which shall not constitute notice) to:

Slottsbacken Funds, c/o Nordic Growth

Store Strandstræde 19, 2., DK-1255 Copenhagen K,

Denmark

Facsimile: +45 7020 6653

and

Accura Advokatpartnerselskab

Tuborg Boulevard 1, DK-2900 Hellerup, Denmark

Attention: Kåre Stolt, Attorney-at-Law

Facsimile: +45 3945 2801

(ii) if to the Buyer, to:

Applied Micro Circuits Corporation

215 Moffet Park Drive

Sunnyvale, CA 94089

Attention: General Counsel

Facsimile: (408) 542-8604

with a copy (which shall not constitute notice) to:

Gibson Dunn & Crutcher LLP

1881 Page Mill Road

Palo Alto, CA 94304

Attention: Russell C. Hansen, Esq.

Facsimile: (650) 849-5333

Section 10.5 Interpretation. When a reference is made in this Agreement to a Section, Article, Exhibit or Schedule such reference shall be to a Section, Article, Exhibit or Schedule of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement or in any Exhibit or Schedule are for convenience of reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. All words used in this Agreement will be construed to be of such gender or number as the circumstances require. Any capitalized terms used in any Exhibit or Schedule but not otherwise defined therein shall have the meaning as defined in this

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Agreement. All Exhibits and Schedules annexed hereto or referred to herein are hereby incorporated in and made a part of this Agreement as if set forth herein. The word “including” and words of similar import when used in this Agreement will mean “including, without limitation,” unless otherwise specified.

Section 10.6 Entire Agreement. This Agreement (including the Exhibits and Schedules hereto), the Ancillary Agreements and the Confidentiality Agreement constitute the entire agreement, and supersede all prior written agreements, arrangements, communications and understandings and all prior and contemporaneous oral agreements, arrangements, communications and understandings between the parties with respect to the subject matter hereof and thereof. Notwithstanding any oral agreement or course of action of the parties or their Representatives to the contrary, no party to this Agreement shall be under any legal obligation to enter into or complete the transactions contemplated hereby unless and until this Agreement shall have been executed and delivered by each of the parties.

Section 10.7 No Third-Party Beneficiaries. Except as provided in Article VIII, nothing in this Agreement, express or implied, is intended to or shall confer upon any Person other than the parties and their respective successors and permitted assigns any legal or equitable right, benefit or remedy of any nature under or by reason of this Agreement.

Section 10.8 Governing Law. This Agreement and any and all disputes, controversies, or claims arising out of, or relating to this Agreement or any of the Ancillary Agreements or the validity, interpretation, breach or termination thereof (each, a “Dispute”) shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without regard to the laws of any other jurisdiction that might be applied because of the conflicts of laws principles of the State of Delaware.

Section 10.9 Dispute Resolution.

(a) Except as set forth in Section 10.9(g), each Dispute shall be resolved in accordance with the arbitration procedures set forth in this Agreement.

(b) Each Dispute shall be subject to binding arbitration conducted in San Francisco, California, or such other location upon which the parties may mutually agree in writing, before a single neutral arbitrator in an arbitration by JAMS under its Streamlined Arbitration Rules and Procedures (revised version adopted July 15, 2009) (“JAMS Streamlined Rules”), which rules can be viewed at www.jamsadr.com. The JAMS Streamlined Rules will govern all aspects of the arbitration except as modified by this Section 10.9. If a party (the “Notifying Party”) wishes to submit a Dispute to JAMS, the Notifying Party shall deliver a written notice (a “Dispute Notice”) together with a copy of this Section 10.9 to the other party (the “Responding Party”) and to JAMS. In the event that either party commences a Dispute by delivering a Dispute Notice, the other party may assert any counter claims it may have. Following receipt by the Responding Party of the

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Dispute Notice, if any, the parties shall promptly meet (but in no event later than ten Business Days from the date of receipt by the Responding Party of the Dispute Notice) to agree on the rights of the respective parties with respect to each of such claims identified by the Dispute Notice. If the parties should so agree on a resolution of such dispute or disputes, a written memorandum (the “Memorandum”), setting forth such agreement, shall be prepared and signed by both parties. If the parties are unable to come to an agreement, the Dispute shall be resolved by the binding arbitration procedures set forth in this Section 10.9.

(c) The sole arbitrator, who shall be selected in accordance with the JAMS Streamlined Rules, shall be a retired or former judge of any Federal court appointed under Article III of the United States Constitution or any trial court of general jurisdiction or higher court in the State of California. Eligible arbitrator candidates shall not be limited to those candidates who are listed on the JAMS “List of Neutrals”.

(d) The arbitration shall be governed by the United States Arbitration Act, 9 U.S.C. §§ 1-16. The arbitrator shall apply Delaware substantive law to the proceeding.

(e) Unless the parties agree otherwise, the arbitration hearing under JAMS Streamlined Rule 17 will commence within 60 days of the date of the JAMS Commencement Letter described in Streamlined Rule 5, and the arbitration hearing will not last more than four 7-hour days (with the hearing time equally divided between the parties). The Arbitrator will issue the award under Streamlined Rule 19(a) within seven calendar days of the last day of the arbitration hearing (rather than the 30 calendar days provided for under JAMS Streamlined Rule 19(a)).

(f) The arbitrator shall prepare in writing and provide to the parties an award including factual findings and the reasons on which the decision is based. Notwithstanding anything in Section 10.9(h) to the contrary, the award and decision of the arbitrator shall be final and binding and may be submitted to any court having jurisdiction solely for the purpose of confirmation of the award and entry of judgment. Any controversy concerning whether a Dispute is an arbitrable dispute shall be determined by the arbitrator. The parties intend that this agreement to arbitrate be valid, specifically enforceable and irrevocable.

(g) The following matters are excluded from the arbitration requirements of this Section 10.9 (each, an “Excluded Dispute”): (i) a cross-claim pursuant to an indemnification obligation set forth in this Agreement in a proceeding filed by a third party; (ii) any Dispute arising under Section 2.3, which shall be resolved in accordance with the terms of Section 2.3, (iii) any formal proceedings commenced to avoid expiration of any applicable limitations period, to preserve a superior position with respect to other creditors or to seek temporary or preliminary injunctive relief and (iv) a claim for injunctive relief pursuant to Section 10.11.

69

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

(h) Except to the extent set forth in Section 8.4(f), each of the parties irrevocably agrees that any Excluded Dispute brought by any other party shall be brought and determined in any California state or federal court sitting in the city of San Francisco, California, and each of the parties hereby irrevocably submits to the exclusive jurisdiction of the aforesaid courts for itself and with respect to its property, generally and unconditionally, with regard to any such Excluded Dispute. Each of the parties agrees not to commence any Excluded Dispute in any other jurisdiction, other than actions in any court of competent jurisdiction to enforce any judgment, decree or award rendered by any such court in San Francisco as described herein or by the arbitrator as set forth in Section 10.9(f). Each of the parties further agrees that notice as provided herein shall constitute sufficient service of process and the parties further waive any argument that such service is insufficient. Each of the parties hereby irrevocably and unconditionally waives, and agrees not to assert, by way of motion or as a defense, counterclaim or otherwise, in any Excluded Dispute, (i) any claim that it is not personally subject to the jurisdiction of the courts in San Francisco as described herein for any reason, (ii) that it or its property is exempt or immune from jurisdiction of any such court or from any legal process commenced in such courts (whether through service of notice, attachment prior to judgment, attachment in aid of execution of judgment, execution of judgment or otherwise), and (iii) that (x) the suit, action or proceeding in any such court is brought in an inconvenient forum, (y) the venue of such suit, action or proceeding is improper, or (z) this Agreement, or the subject matter hereof, may not be enforced in or by such courts.

(i) The costs of any resolution pursuant to this Section 10.9, and of any enforcement of the determination thereof, shall be borne by the party that is not the substantially prevailing party as to the matters in dispute, taken as a whole, as determined by the arbitrator, or in the case of a Dispute which is permitted to be brought before a court pursuant to this Section 10.9, by such court.

Section 10.10 Assignment; Successors. Neither this Agreement nor any of the rights, interests or obligations under this Agreement may be assigned or delegated, in whole or in part, by operation of law or otherwise, by any party without the prior written consent of the other parties hereto, and any such assignment without such prior written consent shall be null and void; provided, however, that the Buyer may assign this Agreement (a) to any Affiliate of the Buyer or (b) to any other Person in connection with a sale of the Company, in each case without the prior consent of any other parties hereto; and provided further, that no assignment or delegation shall limit or reduce the assignor’s obligations hereunder. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective heirs, administrators, successors and permitted assigns.

Section 10.11 Enforcement. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. Accordingly, each of the parties shall be entitled to specific performance of the terms hereof, including an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms

70

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

and provisions of this Agreement, this being in addition to any other remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives (a) any defense in any action for specific performance that a remedy at law would be adequate and (b) any requirement under any law to post security as a prerequisite to obtaining equitable relief.

Section 10.12 Currency. All references to “Dollars,” “US Dollars,” “USD,” “US$” and “$”in this Agreement refer to United States Dollars, which is the currency used for all purposes in this Agreement, except where otherwise specified.

Section 10.13 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of Law, or public policy, all other terms, conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic and legal substance of the transactions contemplated hereby are not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, a court or arbitrator may modify this Agreement so as to effect the original intent of the parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated by this Agreement may be consummated as originally contemplated to the fullest extent possible.

Section 10.14 Waiver of Jury Trial. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.

Section 10.15 Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same instrument and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

Section 10.16 Facsimile Signature. This Agreement may be executed by facsimile or other electronically delivered signature and such a signature shall constitute an original for all purposes.

Section 10.17 Time of Essence. Time is of the essence with regard to all dates and time periods set forth or referred to in this Agreement.

71

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

Section 10.18 No Presumption Against Drafting Party. Each party acknowledges that each party to this Agreement has been represented by counsel in connection with this Agreement and the transactions contemplated by this Agreement. Accordingly, any rule of Law or any legal decision that would require interpretation of any claimed ambiguities in this Agreement against the drafting party has no application and is expressly waived.

[The remainder of this page is intentionally left blank.]

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“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

IN WITNESS WHEREOF, the parties have executed (or in the case of a party that is not a natural person, caused to be executed by their respective officers thereunto duly authorized) this Agreement as of the date first written above.

BUYER:
APPLIED MICRO CIRCUITS CORPORATION
By:	/s/ Robert G. Gargus
	Name:	Robert G. Gargus
	Title:	CFO

[Signature page to Stock Purchase Agreement]

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

IN WITNESS WHEREOF, the parties have executed (or in the case of a party that is not a natural person, caused to be executed by their respective officers thereunto duly authorized) this Agreement as of the date first written above.

THE COMPANY:
TPACK A/S
By:	/s/ Colin Macnab		/s/ Agner N. Mark	/s/ Thor Birkmand
	Name:	Colin Macnab	Agner N. Mark	Thor Birkmand
	Title:	CEO

SELLERS:
SLOTTSBACKEN FUND II KY
By:	/s/ Thor M. Birkmand
	Name:	Thor M. Birkmand
	Title:	Investment Manager
SLOTTSBACKEN FUND TWO KB
By:	/s/ Thor M. Birkmand
	Name:	Thor M. Birkmand
	Title:	Investment Manager
VÆKSTFONDEN
By:	/s/ Ulrik Jørring		/s/ Anders Markuardt
	Name:	Ulrik Jørring	Anders Markuardt
	Title:	Senior Vice President	Head of Legal Dept.
NOVI A/S
By:	/s/ Kåre Stolt
	Name:	Kåre Stolt
	Title:	Senior Partner According to power of attorney

[Signature page to Stock Purchase Agreement]

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked

“[* * *]” and has been filed separately with the Securities and Exchange Commission

pursuant to a Confidential Treatment Application filed with the Commission.

IN WITNESS WHEREOF, the parties have executed (or in the case of a party that is not a natural person, caused to be executed by their respective officers thereunto duly authorized) this Agreement as of the date first written above.

SELLERS’ REPRESENTATIVE
VÆKSTFONDEN
By:	/s/ Ulrik Jørring		/s/ Anders Markuardt
	Name:	Ulrik Jørring	Anders Markuardt
	Title:	Senior Vice President	Head Of Legal Dept.

[Signature page to Stock Purchase Agreement]

EX-2.3

Exhibit 2.3

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “[* * *]” and has

been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment

Application filed with the Commission.

AMENDMENT NO. 1 TO

STOCK PURCHASE AGREEMENT

THIS AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT (“Amendment”) is made as of September 17, 2010, by and among APPLIED MICRO CIRCUITS CORPORATION, a Delaware corporation (the “Buyer”) and VÆKSTFONDEN, as the Sellers’ Representative (the “Sellers’ Representative”), on behalf of itself and SLOTTSBACKEN FUND II KY, SLOTTSBACKEN FUND TWO KB, VÆKSTFONDEN and NOVI A/S (collectively, the “Sellers”).

WHEREAS, the Buyer, the Sellers, Tpack A/S, a limited liability company (Aktieselskab) organized under the laws of Denmark (the “Company”), and the Sellers’ Representative entered into that certain Stock Purchase Agreement, dated August 17, 2010 (the “Stock Purchase Agreement”);

WHEREAS, pursuant to the terms and conditions of this Amendment, the Buyer and the Sellers’ Representative, on behalf of itself and the Sellers, desire to amend the Stock Purchase Agreement in the manner set forth herein; and

WHEREAS, Section 10.2 of the Stock Purchase Agreement provides that the Stock Purchase Agreement may be amended by an instrument in writing specifically designated as an amendment signed by the Sellers’ Representative and the Buyer, and any such amendment shall be binding upon all parties to the Stock Purchase Agreement.

NOW, THEREFORE, in consideration of the promises and conditions contained herein, the parties hereby agree to amend the Stock Purchase Agreement as follows:

1. Section 2.2(d) of the Stock Purchase Agreement is hereby amended to add the following sentences at the end of that Section:

(a) Notwithstanding the foregoing, the Paying Agent may pay amounts withheld by the Paying Agent from the Plan Participant Share of the Closing Purchase Price pursuant to the Plan Participant Agreements with respect to the Escrow Amount and/or [* * *] to the Sellers following the Closing; provided, however, that the Sellers each hereby agree that to the extent such amounts are paid to the Sellers, then any distribution from the Escrow Fund and/or [* * *], as the case may be, under this Agreement and the Escrow Agreement shall not be paid to the Sellers until the amounts due to the Plan Participants under the Plan Participant Agreements with respect to such distribution are paid in full either (i) directly by the Sellers to the Plan Participants or (ii) deducted from the amount being distributed from the Escrow Fund and/or [* * *], as the case may be, and paid to the Plan Participants by the Paying Agent prior to payment of such distribution by the Paying Agent to the Sellers. The Sellers hereby covenant and agree to cause the Paying Agent to distribute amounts received in connection with distributions from the Escrow Fund and [* * *] in accordance with this Section 2.2(d).

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “[* * *]” and has

been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment

Application filed with the Commission.

2. All existing references in the Stock Purchase Agreement to “Updated Spreadsheet” are hereby replaced with the words “Updated Post Closing Spreadsheet”.

3. Section 2.7 of the Stock Purchase Agreement is hereby amended as follows:

(a) The final sentence of Section 2.7 is hereby deleted.

(b) The following is hereby added to the end of Section 2.7:

“Within three Business Days prior to each of the Release Date, the release of any [* * *] following receipt of any [* * *] and the [* * *], if any, the Sellers’ Representative will provide to the Buyer an update of the Spreadsheet (the “Updated Escrow Spreadsheet,” and together with the Updated Post Closing Spreadsheet, the “Updated Spreadsheets”), which Updated Escrow Spreadsheet will be certified on behalf of the Sellers as complete, correct, and in accordance with this Agreement and the Plan Participant Agreements, which shall list, as of the date of the delivery thereof, (i) the amounts withheld by the Paying Agent from the Plan Participant Share of the Closing Purchase Price (on a Plan Participant by Plan Participant basis) pursuant to the Plan Participant Agreements with respect to the Escrow Amount or the [* * *], as the case may be, (ii) the amount payable by the Sellers to each Plan Participant pursuant to the Plan Participant Agreements with respect to the applicable release of amounts from the Escrow Fund or [* * *], as the case may be, and (iii) the amount payable to each Seller with respect to the applicable release of amounts from the Escrow Fund or [* * *], as the case may be, after taking into account a reduction for the amounts payable under (ii) above. All amounts set forth in the Spreadsheet or the Updated Spreadsheets shall be expressed in US Dollars.”

4. Section 8.2 of the Stock Purchase Agreement is hereby amended as follows:

(a) Deleting the word “and” at the end of subsection (j).

(b) Deleting the “.” at the end of subsection (k) and replacing it with “; and”.

(c) Adding the following new subsection (l) after existing subsection (k):

“(l) any Actions by Peter Viereck with respect to exit bonus payment obligations arising out of or relating to his Contract of Employment, dated January 7, 2005, any addendums thereto, the related Termination Agreement, dated April 20, 2009, or other agreements; provided, however; that the first US$50,000 in indemnifiable Losses under this Section 8.2(l) shall be borne equally by the Sellers on the one hand and the Buyer on the other hand, with Losses borne by the Buyer not being recoverable under this Section 8.2 and Losses above the first

2

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “[* * *]” and has

been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment

Application filed with the Commission.

US$50,000 being borne fully by the Sellers; and provided, further, that, such Losses borne by the Buyer will count for purposes of determining when and if the aggregate amount of indemnifiable Losses under Section 8.2(a), 8.2(f) and 8.2(j) equals or exceeds the Basket (even though, for the avoidance of doubt, Losses under this Section 8.2(l) are not subject to the Basket).”

5. Section 8.5(b) of the Stock Purchase Agreement is hereby amended as follows:

(a) Deleting the word “and” immediately following the word “8.2(j)” and replacing it with “,”.

(b) Adding the words “and 8.2(l)” immediately after the word “8.2(k)”.

6. Section 8.7(a) of the Stock Purchase Agreement is hereby amended as follows:

(a) Deleting the word “and” immediately following the word “8.2(j)” and replacing it with “,”.

(b) Adding the words “and 8.2(l)” immediately after the word “8.2(k)”.

7. The second and third sentence of Section 8.7(b) of the Stock Purchase Agreement are hereby deleted and replaced with the following:

(a) “The Escrow Agent shall distribute to the Paying Agent the Release Amount, to be paid out by the Paying Agent in accordance with the applicable Updated Escrow Spreadsheet delivered in connection with the Release Date. As promptly as practicable following the resolution of all pending indemnification claims which were outstanding as of the Release Date, the Escrow Agent shall distribute to the Paying Agent an amount equal to the excess, if any, of (x) the amount so withheld with respect to such pending indemnification claims as of the Release Date, over (y) the amount used to satisfy the indemnification obligations of the Sellers pursuant to this Article VIII with respect to such pending indemnification claims, to be paid out by the Paying Agent in accordance with the applicable Updated Escrow Spreadsheet delivered in connection with the Release Date.”

8. Section 8.7(c) of the Stock Purchase Agreement is hereby deleted and replaced with the following:

(a) “As soon as reasonably practicable following the receipt by the Buyer of [* * *], the Buyer shall deliver written instruction to the Escrow Agent (with a copy to the Sellers’ Representative) directing the Escrow Agent to distribute to the Paying Agent, as soon as reasonably practicable following receipt of such instruction, from the [* * *], an amount equal to [* * *] Notwithstanding the foregoing, the Sellers’ Representative hereby agrees, on behalf of itself and

3

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “[* * *]” and has

been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment

Application filed with the Commission.

each Seller, that the Buyer need not deliver written instruction described in the prior sentence more than once per month. Any such released amounts shall be paid out by the Paying Agent in accordance with the applicable Updated Escrow Spreadsheet delivered in connection with such release of amounts from the [* * *]. As soon as reasonably practicable following the date that is the fifth anniversary of the Closing Date (the “[* * *]”), the Escrow Agent shall release the [* * *] to the extent not previously used to satisfy indemnification claims against the Sellers pursuant to Section 8.2(e) and to the extent not previously released pursuant to the first sentence of this Section 8.7(c), less the amount of any pending indemnification claims pursuant to Section 8.2(e) as of such date (the “[* * *]”). The Escrow Agent shall distribute to the Paying Agent an amount equal to the [* * *] to be paid out by the Paying Agent in accordance with the applicable Updated Escrow Spreadsheet delivered in connection with the [* * *]. As promptly as practicable following the resolution of all pending indemnification claims which were outstanding as of the [* * *], the Escrow Agent shall distribute to the Paying Agent out of the [* * *] an amount equal to the excess, if any, of (x) the amount so withheld with respect to such pending indemnification claims as of the [* * *], over (y) the amount used to satisfy the indemnification obligations of the Sellers pursuant to Section 8.2(e) with respect to such pending indemnification claims, to be paid out by the Paying Agent in accordance with the applicable Updated Escrow Spreadsheet delivered in connection with the Release Date.”

9. Except as expressly set forth in this Amendment, the terms and conditions of the Stock Purchase Agreement shall remain in full force and effect and shall not be amended hereby.

[Remainder of page intentionally left blank.]

4

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted in places marked “[* * *]” and has

been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment

Application filed with the Commission.

IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first above written.

BUYER:
APPLIED MICRO CIRCUITS CORPORATION
By:	/s/    L. William Caraccio
	Name:	L. William Caraccio
	Title:	VP
SELLERS’ REPRESENTATIVE
VÆKSTFONDEN
By:	/s/    Ulrik Jørring
	Name:	Ulrik Jørring
	Title:	Senior VP
By:	/s/    Anders Markuardt
	Name:	Anders Markuardt
	Title:	Head of Legal

SIGNATURE PAGE TO

AMENDMENT NO. 1 TO STOCK PURCHASE AGREEMENT

EX-3.2

Exhibit 3.2

AMENDED AND RESTATED BYLAWS

OF

APPLIED MICRO CIRCUITS CORPORATION

Table of Contents

		Page
ARTICLE 1	CORPORATE OFFICES	1
1.1	REGISTERED OFFICE	1
1.2	OTHER OFFICES	1
ARTICLE 2	MEETINGS OF STOCKHOLDERS	1
2.1	PLACE OF MEETINGS	1
2.2	ANNUAL MEETING	1
2.3	ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER BUSINESS	1
2.4	SPECIAL MEETING	6
2.5	NOTICE OF STOCKHOLDERS’ MEETINGS; AFFIDAVIT OF NOTICE	7
2.6	QUORUM	7
2.7	ADJOURNED MEETING; NOTICE	8
2.8	CONDUCT OF BUSINESS	8
2.9	VOTING	8
2.10	WAIVER OF NOTICE	8
2.11	RECORD DATE FOR STOCKHOLDER NOTICE; VOTING	8
2.12	PROXIES	9
2.13	RECORD DATE FOR ACTION BY WRITTEN CONSENT	9
2.14	INSPECTORS OF WRITTEN CONSENTS	10
2.15	EFFECTIVENESS OF WRITTEN CONSENTS	10
ARTICLE 3	DIRECTORS	10
3.1	POWERS	10
3.2	NUMBER OF DIRECTORS	10
3.3	ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS	10
3.4	RESIGNATION AND VACANCIES	11
3.5	PLACE OF MEETINGS; MEETINGS BY TELEPHONE	12
3.6	REGULAR MEETINGS	12
3.7	SPECIAL MEETINGS; NOTICE	12
3.8	QUORUM	12

-i-

Table of Contents

(continued)

		Page
3.9	WAIVER OF NOTICE	13
3.10	BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING	13
3.11	FEES AND COMPENSATION OF DIRECTORS	13
3.12	APPROVAL OF LOANS TO OFFICERS	13
3.13	REMOVAL OF DIRECTORS	13
3.14	CHAIRMAN OF THE BOARD OF DIRECTORS	14
ARTICLE 4	COMMITTEES	14
4.1	COMMITTEES OF DIRECTORS	14
4.2	COMMITTEE MINUTES	14
4.3	MEETINGS AND ACTION OF COMMITTEES	14
ARTICLE 5	OFFICERS	15
5.1	OFFICERS	15
5.2	APPOINTMENT OF OFFICERS	15
5.3	SUBORDINATE OFFICERS	15
5.4	REMOVAL AND RESIGNATION OF OFFICERS	15
5.5	VACANCIES IN OFFICES	15
5.6	CHIEF EXECUTIVE OFFICER	15
5.7	PRESIDENT	16
5.8	VICE PRESIDENTS	16
5.9	SECRETARY	16
5.10	CHIEF FINANCIAL OFFICER	16
5.11	REPRESENTATION OF SHARES OF OTHER CORPORATIONS	17
5.12	AUTHORITY AND DUTIES OF OFFICERS	17
ARTICLE 6	INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS	17
6.1	INDEMNIFICATION OF DIRECTORS AND OFFICERS	17
6.2	INDEMNIFICATION OF OTHERS	17
6.3	PAYMENT OF EXPENSES IN ADVANCE	18
6.4	INDEMNITY NOT EXCLUSIVE	18
6.5	INSURANCE	18

-ii-

Table of Contents

(continued)

		Page
6.6	CONFLICTS	18
ARTICLE 7	RECORDS AND REPORTS	18
7.1	MAINTENANCE OF RECORDS	18
7.2	INSPECTION BY DIRECTORS	19
ARTICLE 8	GENERAL MATTERS	19
8.1	CHECKS	19
8.2	EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS	19
8.3	STOCK CERTIFICATES; PARTLY PAID SHARES	19
8.4	SPECIAL DESIGNATION ON CERTIFICATES	20
8.5	LOST CERTIFICATES	20
8.6	CONSTRUCTION; DEFINITIONS	20
8.7	DIVIDENDS	20
8.8	FISCAL YEAR	21
8.9	SEAL	21
8.10	TRANSFER OF STOCK	21
8.11	STOCK TRANSFER AGREEMENTS	21
8.12	REGISTERED STOCKHOLDERS	21
8.13	FORUM FOR ADJUDICATION OF DISPUTES	21
ARTICLE 9	AMENDMENTS	22

-iii-

AMENDED AND RESTATED BYLAWS

OF

APPLIED MICRO CIRCUITS CORPORATION

ARTICLE 1

CORPORATE OFFICES

1.1 REGISTERED OFFICE. The registered office of the corporation shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is Incorporating Services Limited.

1.2 OTHER OFFICES. The Board of Directors may at any time establish other offices at any place or places where the corporation is qualified to do business.

ARTICLE 2

MEETINGS OF STOCKHOLDERS

2.1 PLACE OF MEETINGS. Meetings of the stockholders of the corporation may be held at such place, either within or without the State of Delaware, as may be determined from time to time by the Board of Directors. The Board of Directors may, in its sole discretion, determine that the meeting shall not be held at any place, but may instead be held solely by means of remote communication as provided under the General Corporation Law of Delaware.

2.2 ANNUAL MEETING. The annual meeting of stockholders shall be held on such date, time and place, if any, either within or without the State of Delaware, as may be designated by resolution of the Board of Directors each year. At the meeting, directors shall be elected and any other proper business may be transacted.

2.3 ADVANCE NOTICE OF STOCKHOLDER NOMINEES AND OTHER BUSINESS.

(a) At an annual meeting, only such business shall be conducted as is a proper matter for stockholder action under Delaware law and as shall have been properly brought before the meeting. To be properly brought before an annual meeting, a matter must be: (i) brought before the annual meeting and specified pursuant to the corporation’s notice of meeting of stockholders given by or at the direction of the Board of Directors; (ii) brought before the annual meeting specifically by or at the direction of the Board of Directors; or (iii) otherwise properly brought before the annual meeting by any stockholder of the corporation who was a stockholder of record (and, with respect to any beneficial owner, if different, on whose behalf such business is proposed, only if such beneficial owner was the beneficial owner of shares of the corporation) at the time of giving the stockholder’s notice provided for in Section 2.3(b) of these Bylaws, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 2.3 of these Bylaws. Clause (iii) of this Section 2.3(a) shall be the exclusive means for a stockholder to make nominations and submit other business (other than matters properly included in the corporation’s notice of meeting of stockholders and proxy statement under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “1934 Act”)) before an annual meeting of stockholders.

1

(b) At an annual meeting of stockholders, the following procedures shall apply in order for a matter to be properly brought before the annual meeting by a stockholder.

(i) For nominations for election as directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 2.3(a) of these Bylaws, the stockholder must deliver written notice to the secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 2.3(b)(iii) of these Bylaws and must update and supplement such written notice on a timely basis as set forth in Section 2.3(c) of these Bylaws. Such stockholder’s notice shall set forth: (A) as to each nominee such stockholder proposes to nominate at the meeting: (1) the name, age, business address and residence address of such nominee, (2) the principal occupation or employment of such nominee, (3) the class and number of shares of each class of capital stock of the corporation which are owned of record and beneficially by such nominee, (4) the date or dates on which such shares were acquired and the investment intent of such acquisition, and (5) such other information concerning such nominee as would be required to be disclosed in a proxy statement soliciting proxies for the election of such nominee as a director in an election contest (even if an election contest is not involved) or that is otherwise required to be disclosed pursuant to Section 14 of the 1934 Act and the rules and regulations promulgated thereunder (including such person’s written consent to being named as a nominee and to serving as a director if elected); and (B) the information required by Section 2.3(b)(iv) of these Bylaws. With respect to each nominee such stockholder proposes to nominate at the meeting, the written notice shall be accompanied by a questionnaire, representation and agreement as required by Section 2.3(e) of these Bylaws completed and signed by such proposed nominee. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as an independent director of the corporation or that could be material to a reasonable stockholder’s understanding of the independence, or lack thereof, of such proposed nominee.

(ii) For business other than nominations for election as directors to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of Section 2.3(a) of these Bylaws, the stockholder must deliver written notice to the secretary at the principal executive offices of the corporation on a timely basis as set forth in Section 2.3(b)(iii) of these Bylaws and must update and supplement such written notice on a timely basis as set forth in Section 2.3(c) of these Bylaws. Such stockholder’s notice shall set forth: (A) as to each matter such stockholder proposes to bring before the meeting: (1) a brief description of the business desired to be brought before the meeting, (2) the reasons for conducting such business at the meeting, and (3) any material interest of any Proponent (as defined below) in such business (including any anticipated benefit of such business to any Proponent, which is material to any Proponent individually or to the Proponents in the aggregate other than solely as a result of its or their ownership of the corporation’s capital stock); and (B) the information required by Section 2.3(b)(iv) of these Bylaws.

(iii) To be timely, the written notice required by Section 2.3(b)(i) or 2.3(b)(ii) of these Bylaws must be received by the secretary at the principal

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executive offices of the corporation not later than the close of business on the ninetieth (90^th) day nor earlier than the close of business on the one hundred twentieth (120^th) day prior to the first anniversary of the preceding year’s annual meeting; provided, however, that, in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the first anniversary of the preceding year’s annual meeting, for notice by the stockholder to be timely, such stockholder’s written notice must be so received by the secretary not earlier than the close of business on the one hundred twentieth (120^th) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90^th) day prior to such annual meeting or the tenth (10^th) day following the day on which public announcement of the date of such meeting is first made. Notwithstanding the foregoing, in no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period for the giving of a stockholder’s notice as described above.

(iv) The written notice required by Section 2.3(b)(i) or 2.3(b)(ii) of these Bylaws shall also set forth, as of the date of the notice and as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (each, a “Proponent” and collectively, the “Proponents”): (A) the name and address of each Proponent (including, if applicable, the name and address that appear on the corporation’s books); (B) the class, series and number of shares of the corporation that are owned beneficially and of record by each Proponent; (C) a description of any agreement, arrangement or understanding (whether oral or in writing) with respect to such nomination or proposal between or among any Proponent and any of its affiliates or associates, and any others (including their names) acting in concert, or otherwise under the agreement, arrangement or understanding, with any of the foregoing; (D) a representation that the Proponents are holders of record or beneficial owners, as the case may be, of shares of the corporation entitled to vote at the meeting and intend to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice (with respect to a notice under Section 2.3(b)(i) of these Bylaws) or to propose the business that is specified in the notice (with respect to a notice under Section 2.3(b)(ii) of these Bylaws); (E) a representation as to whether the Proponents intend to deliver a proxy statement and form of proxy to holders of a sufficient number of the corporation’s voting shares to elect such nominee or nominees (with respect to a notice under Section 2.3(b)(i) of these Bylaws) or to carry such proposal (with respect to a notice under Section 2.3(b)(ii) of these Bylaws); (F) to the extent known by any Proponent, the name and address of any other stockholder supporting the proposal on the date of such stockholder’s notice; and (G) a description of all Derivative Transactions (as defined below) by each Proponent during the previous twelve (12) month period, including the date of any such Derivative Transaction and the class, series and number of securities involved in, and the material economic terms of, any such Derivative Transaction.

For purposes of Sections 2.3 and 2.4 of these Bylaws, a “Derivative Transaction” means any agreement, arrangement, interest or understanding entered into by, on behalf of or for the benefit of any Proponent or any of its affiliates or associates, whether record or beneficial:

(w) the value of which is derived in whole or in part from the value of any class or series of shares or other securities of the corporation,

(x) which otherwise provides any direct or indirect opportunity to gain or share in any gain derived from a change in the value of securities of the corporation,

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(y) the effect or intent of which is to mitigate loss or manage risk or benefit of security value or price changes, or

(z) which provides the right to vote or to increase or decrease the voting power of such Proponent or any of its affiliates or associates with respect to any securities of the corporation,

which agreement, arrangement, interest or understanding may include, without limitation, any option, warrant, debt position, note, bond, convertible security, swap, stock appreciation right, short position (for purposes hereof, a person or entity shall be deemed to have a short position in a security of the corporation if such person or entity, directly or indirectly, through any contract, arrangement, relationship, understanding or otherwise, has the opportunity to profit or share in any profit derived from any decrease in the value of such security), profit interest, hedge, right to dividends, voting agreement, performance-related fee or arrangement to borrow or lend shares (whether or not subject to payment, settlement, exercise or conversion in any such class or series), and any proportionate interest of such Proponent in the securities of the corporation held, directly or indirectly, by any general or limited partnership, or any limited liability company, of which such Proponent is a general partner or managing member or, directly or indirectly, beneficially owns an interest in such general partner or managing member.

(c) A stockholder providing the written notice required by Section 2.3(b)(i) or 2.3(b)(ii) of these Bylaws shall update and supplement such notice in writing, if necessary, so that the information provided or required to be provided in such notice is true and correct in all material respects as of (i) the record date for the meeting and (ii) as of the date that is five (5) business days prior to the date of the meeting and, in the event of any adjournment or postponement thereof, five (5) business days prior to the date to which such meeting is adjourned or postponed (or such lesser number of days prior to the date of such adjourned or postponed meeting as is reasonably practicable under the circumstances). In the case of an update and supplement pursuant to clause (i) of this Section 2.3(c), such update and supplement shall be received by the secretary at the principal executive offices of the corporation not later than five (5) business days after the record date for the meeting. In the case of an update and supplement pursuant to clause (ii) of this Section 2.3(c), such update and supplement shall be delivered to, or mailed and received by, the secretary at the principal executive offices of the corporation not later than two (2) business days prior to the date of the meeting, and, in the event of any adjournment or postponement thereof, two (2) business days prior to the date to which such meeting is adjourned or postponed (or such lesser number of days prior to the date of such adjourned or postponed meeting as is reasonably practicable under the circumstances).

(d) Notwithstanding anything in Section 2.3(b)(iii) of these Bylaws to the contrary, in the event that the number of directors to be elected is increased and there is no public announcement naming all of the nominees for election or specifying the size of the increased Board of Directors made by the corporation at least ten (10) days before the last day a stockholder may deliver a notice of nomination in accordance with Section 2.3(b)(iii) of these Bylaws, a stockholder’s notice required by Section 2.3 of these Bylaws and which complies with the requirements in Section 2.3(b)(i) of these Bylaws, other than the timing requirements in Section 2.3(b)(iii) of these Bylaws, shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be received by the secretary

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at the principal executive offices of the corporation not later than the close of business on the tenth (10^th) day following the day on which such public announcement is first made by the corporation.

(e) To be eligible to be a nominee for election or re-election as a director pursuant to a nomination under clause (iii) of Section 2.3(a) of these Bylaws, such nominee or a person on his or her behalf must deliver (in accordance with the time periods prescribed for delivery of notice under Section 2.3(b)(iii) or 2.3(d) of these Bylaws, as applicable) to the secretary at the principal executive offices of the corporation a written questionnaire with respect to the background and qualification of such nominee and the background of any other person or entity on whose behalf the nomination is being made (which questionnaire shall be provided by the secretary upon written request) and a written representation and agreement (in the form provided by the secretary upon written request) that such person (i) is not and will not become a party to (A) any agreement, arrangement or understanding with, and has not given any commitment or assurance to, any person or entity as to how such person, if elected as a director, will act or vote on any issue or question (a “Voting Commitment”) that has not been disclosed to the corporation in the questionnaire or (B) any Voting Commitment that could limit or interfere with such person’s ability to comply, if elected as a director, with such person’s fiduciary duties under applicable law; (ii) is not and will not become a party to any agreement, arrangement or understanding with any person or entity other than the corporation with respect to any direct or indirect compensation, reimbursement or indemnification in connection with service or action as a director that has not been disclosed in the questionnaire; (iii) in such person’s individual capacity and on behalf of any person or entity on whose behalf the nomination is being made, would be in compliance, if elected as a director, and will comply with, all applicable publicly disclosed corporate governance, conflict of interest, confidentiality and stock ownership and trading policies and guidelines of the corporation; and (iv) if elected, will tender prior to being nominated for re-election as a director pursuant to clause (i), (ii) or (iii) of Section 2.3(a) of these Bylaws, an irrevocable resignation effective upon (A) such person’s failure to receive the required vote for re-election at the next meeting at which such person would face re-election and (B) acceptance of such resignation by the Board of Directors, in accordance with the corporation’s Governance Guidelines of the Board of Directors (or other policy of the Board of Directors).

(f) A person shall not be eligible for election or re-election as a director unless the person is nominated either in accordance with clause (i), (ii) or (iii) of Section 2.3(a) of these Bylaws. Except as otherwise required by law, the chairman of the meeting shall have the power and duty to determine whether a nomination for election as a director or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. Notwithstanding anything in these Bylaws to the contrary, unless otherwise required by law, if a stockholder intending to make a nomination for election as a director at a meeting pursuant to Section 2.3(b)(i) of these Bylaws or to propose business at a meeting pursuant to Section 2.3(b)(ii) of these Bylaws does not provide the information in the stockholder’s notice required under Section 2.3(b)(i) or 2.3(b)(ii), as applicable, within the applicable time periods specified in Section 2.3 of these Bylaws (including any update and supplement required under

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Section 2.3(c) of these Bylaws), or the stockholder (or a qualified representative of the stockholder) does not appear at the meeting to make such nomination or to propose such business, or the Proponents shall not have acted in accordance with the representation required under Section 2.3(b)(iv)(E) of these Bylaws, such nomination or proposal shall not be presented for stockholder action at the meeting and shall be disregarded, as determined by the chairman of the meeting as described above, notwithstanding that proxies in respect of such nominations or such business may have been solicited or received.

(g) In order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholders’ meeting, a stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to proposals or nominations for election as directors to be considered by the stockholders at any annual meeting of stockholders pursuant to Section 2.3(a)(iii) of these Bylaws.

(h) For purposes of Sections 2.3 and 2.4 of these Bylaws,

(i) “public announcement” shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act; and

(ii) “affiliates” and “associates” shall have the meanings set forth in Rule 405 under the Securities Act of 1933, as amended (the “1933 Act”).

2.4 SPECIAL MEETING.

(a) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes as is a proper matter for stockholder action under Delaware law, by (i) the Chairman of the Board of Directors, (ii) the President of the corporation, or (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption).

(b) The Board of Directors shall determine the time and place, if any, of any special meeting of stockholders. Upon determination of the time and place, if any, of such meeting, the secretary shall cause a notice of meeting to be given to the stockholders entitled to vote, in accordance with the provisions of Section 2.5 of these Bylaws. No business may be transacted at such special meeting other than as specified in the corporation’s notice of meeting.

(c) Nominations of persons for election as directors may be made at a special meeting of stockholders at which directors are to be elected (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws, who shall be entitled to vote at the meeting,

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and who delivers written notice to the secretary of the corporation setting forth the information required by Section 2.3(b)(i) of these Bylaws. In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors, any such stockholder of record may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation’s notice of meeting, if the stockholder’s notice required by Section 2.3(b)(i) (and that includes the information and other items required by Section 2.3(b)(i)) shall be received by the secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120^th) day prior to such special meeting and not later than the close of business on the later of (A) the ninetieth (90^th) day prior to such meeting or (B) the tenth (10^th) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. The stockholder shall also update and supplement such information as required under Section 2.3(c). Notwithstanding the foregoing, in no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period for the giving of a stockholder’s notice as described above.

(d) A stockholder must also comply with all applicable requirements of the 1934 Act and the rules and regulations thereunder with respect to matters set forth in this Section 2.4. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation’s proxy statement pursuant to Rule 14a-8 under the 1934 Act; provided, however, that any references in these Bylaws to the 1934 Act or the rules and regulations thereunder are not intended to and shall not limit the requirements applicable to proposals or nominations for election as directors to be considered by the stockholders at any special meeting of stockholders pursuant to Section 2.4(c) of these Bylaws.

2.5 NOTICE OF STOCKHOLDERS’ MEETINGS; AFFIDAVIT OF NOTICE. Except as otherwise provided by law, notice, given in writing or by electronic transmission, of each meeting of stockholders shall be given in accordance with this Section 2.5 of these Bylaws not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, if any, date, and hour of the meeting, in the case of a special meeting, the purpose or purposes for which the meeting is called and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at any such meeting.

Written notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at his address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

2.6 QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certificate of incorporation. If, however, such quorum is not present or represented at any meeting of the stockholders, then either (a) the chairman of the meeting or (b) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the

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meeting, until a quorum is present or represented. At such adjourned meeting at which a quorum is present or represented, any business may be transacted that might have been transacted at the meeting as originally noticed.

2.7 ADJOURNED MEETING; NOTICE. When a meeting is adjourned to another time or place, if any, unless these Bylaws otherwise require, notice need not be given of the adjourned meeting if the time and place, if any, thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business that might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

2.8 CONDUCT OF BUSINESS. The chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including the manner of voting and the conduct of business.

2.9 VOTING.

(a) The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of Section 2.11 of these Bylaws, subject to the provisions of Sections 217 and 218 of the General Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors and joint owners of stock and to voting trusts and other voting agreements).

(b) Except as may be otherwise provided in the certificate of incorporation, each stockholder shall be entitled to one vote for each share of capital stock held by such stockholder.

2.10 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, notice may be waived in writing, signed by the person entitled to notice thereof, or by electronic transmission by such person, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person, by remote communication, if applicable, or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than sixty (60) nor less than ten (10) days before the date of such meeting, nor more than sixty (60) days prior to any other action. If the Board of Directors does not so fix a record date:

(a) The record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held.

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(b) The record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting.

2.12 PROXIES. Each stockholder entitled to vote at a meeting of stockholders may authorize another person or persons to act for such stockholder by a written proxy, signed by the stockholder and filed with the secretary of the corporation, but no such proxy shall be voted or acted upon after three (3) years from its date, unless the proxy provides for a longer period. A proxy shall be deemed signed if the stockholder’s name is placed on the proxy (whether by manual signature, typewriting, telegraphic transmission or otherwise) by the stockholder or the stockholder’s attorney-in-fact. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212(e) of the General Corporation Law of Delaware.

2.13 RECORD DATE FOR ACTION BY WRITTEN CONSENT. In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date (unless a record date has previously been fixed by the Board of Directors pursuant to the first sentence of this Section 2.13). If no record date has been fixed by the Board of Directors pursuant to the first sentence of this Section 2.13 or otherwise within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal executive office, or to any officer or agent of the corporation having custody of the books in which proceedings of meetings of stockholders are recorded. Delivery shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by applicable law, the

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record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be the close of business on the date on which the Board of Directors adopts the resolution taking such prior action.

2.14 INSPECTORS OF WRITTEN CONSENTS. In the event of the delivery, in the manner provided by Section 2.13, to the corporation of the requisite written consents to take corporate action and/or any related revocation or revocations, the corporation shall engage independent inspectors of elections for the purpose of performing a ministerial review of the validity of the consents and revocations. For the purpose of permitting the inspectors to perform such review, no action by written consent without a meeting shall be effective until such date as the independent inspectors certify to the corporation that the consents delivered to the corporation in accordance with Section 2.13 represent at least the minimum number of votes that would be necessary to take the corporate action under applicable law, the certificate of incorporation and these Bylaws. Nothing contained in this Section 2.14 shall in any way be construed to suggest or imply that the Board of Directors or any stockholder shall not be entitled to contest the validity of any consent or revocation thereof, whether before or after such certification by the independent inspectors, or take any other action (including, without limitation, the commencement, prosecution, or defense of any litigation with respect thereto, and the seeking of injunctive relief in such litigation).

2.15 EFFECTIVENESS OF WRITTEN CONSENTS. Every written consent shall bear that date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated written consent received in accordance with Section 2.13, a written consent or consents signed by a sufficient number of holders to take such action, under applicable law, the certificate of incorporation and these Bylaws, are delivered to the corporation in the manner prescribed in Section 2.13.

ARTICLE 3

DIRECTORS

3.1 POWERS. Subject to the provisions of the General Corporation Law of Delaware and any limitations in the certificate of incorporation or these Bylaws relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the Board of Directors.

3.2 NUMBER OF DIRECTORS. The authorized number of directors constituting the entire Board of Directors shall be fixed by a resolution of the Board of Directors. No reduction of the authorized number of directors shall have the effect of removing any director before such director’s term of office expires.

3.3 ELECTION, QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. Except as provided in Section 3.4 of these Bylaws and in the case of a “Contested Election” (as defined below), directors shall be elected by the vote of the majority of the votes cast with respect to that director’s election to hold office until the next annual meeting.

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Directors need not be stockholders unless so required by the certificate of incorporation or these Bylaws, wherein other qualifications for directors may be prescribed. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. For purposes of this Section 3.3, a “majority of votes cast” means that the number of votes “for” a director’s election must exceed the number of votes “withheld” from (or “against”) that director’s election. Abstentions and broker non-votes will not count as votes cast with respect to that director’s election.

If the number of nominees for any election of directors exceeds the number of directors to be elected (a “Contested Election”), the nominees receiving a plurality of the votes cast by holders of shares entitled to vote in the election at a meeting at which a quorum is present shall be elected.

Elections of directors need not be by written ballot.

3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon written notice to the attention of the secretary of the corporation. When one or more directors so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office as provided in this section in the filling of other vacancies.

Unless otherwise provided in the certificate of incorporation or these Bylaws:

(a) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

(b) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected.

If at any time, by reason of death or resignation or other cause, the corporation should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these Bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of Delaware.

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole board (as constituted immediately prior to any such increase), then the Court of Chancery may, upon application of any stockholder or stockholders holding at least ten (10) percent of the total number of the shares at the time

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outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the General Corporation Law of Delaware as far as applicable.

3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of the corporation may hold meetings, both regular and special, either within or outside the State of Delaware.

Unless otherwise restricted by the certificate of incorporation or these Bylaws, members of the Board of Directors, or any committee designated by the Board of Directors, may participate in a meeting of the Board of Directors, or any committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the board.

3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of Directors for any purpose or purposes may be called at any time by the chairman of the board, the president, any vice president, the secretary or any two (2) directors.

Notice of the time and place of all special meetings of the Board of Directors shall be delivered orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty-four (24) hours before the date and time of the meeting. If notice is sent by US mail, it shall be sent by first class mail, charges prepaid, at least four (4) days before the date of the meeting. Any oral notice given personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate it to the director. The notice need not specify the purpose or the place of the meeting, if the meeting is to be held at the principal executive office of the corporation.

3.8 QUORUM. At all meetings of the Board of Directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum is not present at any meeting of the Board of Directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present.

A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

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3.9 WAIVER OF NOTICE. Whenever notice is required to be given under any provision of the General Corporation Law of Delaware or of the certificate of incorporation or these Bylaws, a waiver thereof, in writing or by electronic transmission, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the directors, or members of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation or these Bylaws.

3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Unless otherwise restricted by the certificate of incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee thereof, may be taken without a meeting if all members of the board or committee, as the case may be, consent thereto in writing or by electronic transmission, and such writing or writings or transmission or transmissions are filed with the minutes of proceedings of the Board of Directors or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

3.11 FEES AND COMPENSATION OF DIRECTORS. Unless otherwise restricted by the certificate of incorporation or these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. No such compensation shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor.

3.12 APPROVAL OF LOANS TO OFFICERS. Except as otherwise prohibited by applicable law, the corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute.

3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, by the certificate of incorporation or by these Bylaws, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that if the stockholders of the corporation are entitled to cumulative voting, if less than the entire Board of Directors is to be removed, no director may be removed without cause if the votes cast against his removal would be sufficient to elect him if then cumulatively voted at an election of the entire Board of Directors.

No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

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3.14 CHAIRMAN OF THE BOARD OF DIRECTORS. The corporation may also have, at the discretion of the Board of Directors, a chairman of the Board of Directors who shall not be considered an officer of the corporation.

ARTICLE 4

COMMITTEES

4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors or in the Bylaws of the corporation, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (a) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the Board of Directors as provided in Section 151(a) of the General Corporation Law of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (b) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of Delaware, (c) recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation’s property and assets, (d) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (e) amend the Bylaws of the corporation; and, unless the board resolution establishing the committee, the Bylaws or the certificate of incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of Delaware.

4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required.

4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these Bylaws, with such changes in the context of such provisions as are necessary to substitute the committee and its members for the Board of

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Directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the Board of Directors or by resolution of the committee, that special meetings of committees may also be called by resolution of the Board of Directors and that notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board of Directors may adopt rules for the government of any committee not inconsistent with the provisions of these Bylaws.

ARTICLE 5

OFFICERS

5.1 OFFICERS. The officers of the corporation shall be a chief executive officer, a president, a secretary, and a chief financial officer. The corporation may also have, at the discretion of the Board of Directors, one or more vice presidents, one or more assistant secretaries, one or more assistant treasurers, and any such other officers as may be appointed in accordance with the provisions of Section 5.3 of these Bylaws. Any number of offices may be held by the same person.

5.2 APPOINTMENT OF OFFICERS. The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Sections 5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors, subject to the rights, if any, of an officer under any contract of employment.

5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or empower the chief executive officer or the president to appoint, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these Bylaws or as the Board of Directors may from time to time determine.

5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board of Directors at any regular or special meeting of the board or, except in the case of an officer chosen by the Board of Directors, by any officer upon whom such power of removal may be conferred by the Board of Directors.

Any officer may resign at any time by giving written notice to the attention of the secretary of the corporation. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice; and, unless otherwise specified in that notice, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the corporation under any contract to which the officer is a party.

5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the corporation shall be filled by the Board of Directors.

5.6 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board, if any, the chief

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executive officer of the corporation shall, subject to the control of the Board of Directors, have general supervision, direction, and control of the business and the officers of the corporation. He or she shall preside at all meetings of the stockholders and, in the absence or nonexistence of a chairman of the board, at all meetings of the Board of Directors and shall have the general powers and duties of management usually vested in the office of chief executive officer of a corporation and shall have such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.7 PRESIDENT. Subject to such supervisory powers, if any, as may be given by the Board of Directors to the chairman of the board (if any) or the chief executive officer, the president shall have general supervision, direction, and control of the business and other officers of the corporation. He or she shall have the general powers and duties of management usually vested in the office of president of a corporation and such other powers and duties as may be prescribed by the Board of Directors or these Bylaws.

5.8 VICE PRESIDENTS. In the absence or disability of the chief executive officer and president, the vice presidents, if any, in order of their rank as fixed by the Board of Directors or, if not ranked, a vice president designated by the Board of Directors, shall perform all the duties of the president and when so acting shall have all the powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them respectively by the Board of Directors, these Bylaws, the president or the chairman of the board.

5.9 SECRETARY. The secretary shall keep or cause to be kept, at the principal executive office of the corporation or such other place as the Board of Directors may direct, a book of minutes of all meetings and actions of directors, committees of directors, and stockholders. The minutes shall show the time and place of each meeting, the names of those present at directors’ meetings or committee meetings, the number of shares present or represented at stockholders’ meetings, and the proceedings thereof.

The secretary shall keep, or cause to be kept, at the principal executive office of the corporation or at the office of the corporation’s transfer agent or registrar, as determined by resolution of the Board of Directors, a share register, or a duplicate share register, showing the names of all stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates evidencing such shares, and the number and date of cancellation of every certificate surrendered for cancellation.

The secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors required to be given by law or by these Bylaws. He or she shall keep the seal of the corporation, if one be adopted, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the Board of Directors or by these Bylaws.

5.10 CHIEF FINANCIAL OFFICER. The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of accounts of the properties and business transactions of the corporation, including accounts of its assets, liabilities, receipts, disbursements, gains, losses, capital retained earnings, and shares. The

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books of account shall at all reasonable times be open to inspection by any director. The chief financial officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositories as may be designated by the Board of Directors. He or she shall disburse the funds of the corporation as may be ordered by the Board of Directors, shall render to the president, the chief executive officer, or the directors, upon request, an account of all his or her transactions as chief financial officer and of the financial condition of the corporation, and shall have other powers and perform such other duties as may be prescribed by the Board of Directors or the Bylaws.

5.11 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of the board, the chief executive officer, the president, any vice president, the chief financial officer, the secretary or assistant secretary of this corporation, or any other person authorized by the Board of Directors or the chief executive officer or the president or a vice president, is authorized to vote, represent, and exercise on behalf of this corporation all rights incident to any and all shares of any other corporation or corporations standing in the name of this corporation. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by the person having such authority.

5.12 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing authority and duties, all officers of the corporation shall respectively have such authority and perform such duties in the management of the business of the corporation as may be designated from time to time by the Board of Directors.

ARTICLE 6

INDEMNIFICATION OF DIRECTORS,

OFFICERS, EMPLOYEES, AND OTHER AGENTS

6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS. The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, indemnify each of its directors and officers against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.1, a “director” or “officer” of the corporation includes any person (a) who is or was a director or officer of the corporation, (b) who is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.2 INDEMNIFICATION OF OTHERS. The corporation shall have the power, to the maximum extent and in the manner permitted by the General Corporation Law of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including attorneys’ fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with any proceeding, arising by reason of the fact that such person is or was an agent of the corporation. For purposes of this Section 6.2, an

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“employee” or “agent” of the corporation (other than a director or officer) includes any person (a) who is or was an employee or agent of the corporation, (b) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust or other enterprise, or (c) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation.

6.3 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any action or proceeding for which indemnification is required pursuant to Section 6.1 or for which indemnification is permitted pursuant to Section 6.2 following authorization thereof by the Board of Directors shall be paid by the corporation in advance of the final disposition of such action or proceeding upon receipt of an undertaking by or on behalf of the indemnified party to repay such amount if it shall ultimately be determined that the indemnified party is not entitled to be indemnified as authorized in this Article 6.

6.4 INDEMNITY NOT EXCLUSIVE. The indemnification provided by this Article 6 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any Bylaw, agreement, vote of shareholders or disinterested directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office, to the extent that such additional rights to indemnification are authorized in the certificate of incorporation.

6.5 INSURANCE. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or her and incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability under the provisions of the General Corporation Law of Delaware.

6.6 CONFLICTS. No indemnification or advance shall be made under this Article 6, except where such indemnification or advance is mandated by law or the order, judgment or decree of any court of competent jurisdiction, in any circumstance where it appears:

(a) That it would be inconsistent with a provision of the certificate of incorporation, these Bylaws, or an agreement in effect at the time of the accrual of the alleged cause of the action asserted in the proceeding in which the expenses were incurred or other amounts were paid, which prohibits or otherwise limits indemnification; or

(b) That it would be inconsistent with any condition expressly imposed by a court in approving a settlement.

ARTICLE 7

RECORDS AND REPORTS

7.1 MAINTENANCE OF RECORDS. The corporation shall, either at its principal executive offices or at such place or places as designated by the Board of Directors, keep a

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record of its stockholders listing their names and addresses and the number and class of shares held by each stockholder, a copy of these Bylaws as amended to date, accounting books, and other records.

7.2 INSPECTION BY DIRECTORS. Any director shall have the right to examine the corporation’s stock ledger, a list of its stockholders, and its other books and records for a purpose reasonably related to his or her position as a director. The Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a director is entitled to the inspection sought. The Court may summarily order the corporation to permit the director to inspect any and all books and records, the stock ledger, and the stock list and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limitations or conditions with reference to the inspection, or award such other and further relief as the Court may deem just and proper.

ARTICLE 8

GENERAL MATTERS

8.1 CHECKS. From time to time, the Board of Directors shall determine by resolution which person or persons may sign or endorse all checks, drafts, other orders for payment of money, notes or other evidences of indebtedness that are issued in the name of or payable to the corporation, and only the persons so authorized shall sign or endorse those instruments.

8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of Directors, except as otherwise provided in these Bylaws, may authorize any officer or officers, or agent or agents, to enter into any contract or execute any instrument in the name of and on behalf of the corporation; such authority may be general or confined to specific instances. Unless so authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount.

8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of a corporation shall be represented by certificates, provided that the Board of Directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation.

Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by, or in the name of the corporation by the chairman or vice-chairman of the Board of Directors, or the chief executive officer or the president or vice-president, and by the chief financial officer or an assistant treasurer, or the secretary or an assistant secretary of such corporation representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a

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certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he or she were such officer, transfer agent or registrar at the date of issue.

The corporation may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, upon the books and records of the corporation in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the corporation shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.

8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and cancelled at the same time. The corporation may issue a new certificate of stock or uncertificated shares in the place of any certificate previously issued by it, alleged to have been lost, stolen or destroyed, and the corporation may require the owner of the lost, stolen or destroyed certificate, or the owner’s legal representative, to give the corporation a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the General Corporation Law of Delaware shall govern the construction of these Bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

8.7 DIVIDENDS. The directors of the corporation, subject to any restrictions contained in (a) the General Corporation Law of Delaware or (b) the certificate of incorporation, may declare and pay dividends upon the shares of its capital stock. Dividends may be paid in cash, in property, or in shares of the corporation’s capital stock.

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The directors of the corporation may set apart out of any of the funds of the corporation available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve. Such purposes shall include but not be limited to equalizing dividends, repairing or maintaining any property of the corporation, and meeting contingencies.

8.8 FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors and may be changed by the Board of Directors.

8.9 SEAL. The corporation may adopt a corporate seal, which may be altered at pleasure, and may use the same by causing it or a facsimile thereof, to be impressed or affixed or in any other manner reproduced.

8.10 TRANSFER OF STOCK. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer, it shall be the duty of the corporation to issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction in its books.

8.11 STOCK TRANSFER AGREEMENTS. The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the General Corporation Law of Delaware.

8.12 REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner, shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

8.13 FORUM FOR ADJUDICATION OF DISPUTES. Unless the corporation consents in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware shall be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of the corporation, (ii) any action asserting a claim for breach of a fiduciary duty owed by any director, officer or other employee of the corporation to the corporation or the corporation’s stockholders, (iii) any action asserting a claim arising pursuant to any provision of the General Corporation Law of Delaware or the corporation’s certificate of incorporation or Bylaws, or (iv) any action asserting a claim governed by the internal affairs doctrine.

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ARTICLE 9

AMENDMENTS

The Bylaws of the corporation may be adopted, amended or repealed by the stockholders entitled to vote; provided, however, that the corporation may, in its certificate of incorporation, confer the power to adopt, amend or repeal Bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal Bylaws.

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EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Dr. Paramesh Gopi, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Applied Micro Circuits Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Paramesh Gopi

Dr. Paramesh Gopi

President and Chief Executive Officer

Date: November 3, 2010

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Robert G. Gargus, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Applied Micro Circuits Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ ROBERT G. GARGUS

Robert G. Gargus,

Senior Vice President and Chief Financial Officer

Dated: November 3, 2010

EX-32.1

Exhibit 32.1

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350, as adopted), Dr. Paramesh Gopi, Chief Executive Officer of Applied Micro Circuits Corporation (the “Company”), hereby certifies that, to the best of his knowledge:

1. This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (“SEC”) or its staff upon request.

This certification accompanies the Report to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

/s/ Paramesh Gopi

Dr. Paramesh Gopi

President and Chief Executive Officer

Dated: November 3, 2010

EX-32.2

Exhibit 32.2

CERTIFICATION

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C.§ 1350, as adopted), Robert G. Gargus, Chief Financial Officer of Applied Micro Circuits Corporation (the “Company”), hereby certifies that, to the best of his knowledge:

1. This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2010 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission (“SEC”) or its staff upon request.

This certification accompanies the Report to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act (whether made before or after the date of the Report), irrespective of any general incorporation language contained in such filing.

/s/ ROBERT G. GARGUS

Robert G. Gargus,

Senior Vice President and Chief Financial Officer

Dated: November 3, 2010