Exhibit 10.5

 

APPLIED MICRO CIRCUITS CORPORATION

1997 DIRECTORS’ STOCK OPTION PLAN

 

Amended January 21, 2004

 

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

 

All options granted hereunder shall be nonstatutory stock options.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

--------------------------------------------------------------------------------

subsequently repurchased by the Company, such Shares shall not in any event be
returned to the Plan and shall not become available for future grant under the
Plan.

 

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

 

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

 

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

 

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

 

(ii) An Outside Director shall be automatically granted an Option to purchase
75,000 Shares (the “First Option”) on the date on which such person first
becomes an Outside Director, whether through election by the stockholders of the
Company or appointment by the Board of Directors to fill a vacancy.

 

(iii) Each Outside Director shall be automatically granted an Option to purchase
50,000 Shares (a “Subsequent Option”) on April 1 of each calendar year, provided
that, on such date, he or she shall have served on the Board for at least six
(6) months prior to the date of such Annual Meeting.

 

(iv) Notwithstanding the provisions of subsections (ii) and (iii) hereof, in the
event that a grant would cause the number of Shares subject to outstanding
Options plus the number of Shares previously purchased upon exercise of Options
to exceed the Pool, then each such automatic grant shall be for that number of
Shares determined by dividing the total number of Shares remaining available for
grant by the number of Outside Directors receiving an Option on such date on the
automatic grant date. Any further grants shall then be deferred until such time,
if any, as additional Shares become available for grant under the Plan through
action of the stockholders to increase the number of Shares which may be issued
under the Plan or through cancellation or expiration of Options previously
granted hereunder.

 

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

 

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

 

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

 

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

 

(3) the First Option shall become exercisable in installments cumulatively as to
 1/36th of the Shares subject to the First Option on each monthly anniversary of
the date of grant of the Option.

 

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

 

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

 

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

 

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

 

2

--------------------------------------------------------------------------------

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

 

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

 

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

 

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

 

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

 

6. Term of Plan; Effective Date. The Plan became effective on November 24, 1997.
It shall continue in effect for a term of ten (10) years unless sooner
terminated under Section 13 of the Plan.

 

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

 

8. Exercise Price and Consideration.

 

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

 

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

 

3

--------------------------------------------------------------------------------

system or exchange on the date of grant of the Option (or, in the event that the
Common Stock is not traded on such date, on the immediately preceding trading
date), as reported in The Wall Street Journal.

 

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

 

9. Exercise of Option.

 

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

 

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

 

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

 

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

 

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

 

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

 

4

--------------------------------------------------------------------------------

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

 

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

 

11. Adjustments Upon Changes in Capitalization; Corporate Transactions.

 

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

 

(b) Corporate Transactions. In the event of (i) a dissolution or liquidation of
the Company, (ii) a sale of all or substantially all of the Company’s assets,
(iii) a merger or consolidation in which the Company is not the surviving
corporation, or (iv) any other capital reorganization in which more than fifty
percent (50%) of the shares of the Company entitled to vote are exchanged, the
Company shall give to the Eligible Director, at the time of adoption of the plan
for liquidation, dissolution, sale, merger, consolidation or reorganization,
either a reasonable time thereafter within which to exercise the Option,
including Shares as to which the Option would not be otherwise exercisable,
prior to the effectiveness of such liquidation, dissolution, sale, merger,
consolidation or reorganization, at the end of which time the Option shall
terminate, or the right to exercise the Option, including Shares as to which the
Option would not be otherwise exercisable (or receive a substitute option with
comparable terms), as to an equivalent number of shares of stock of the
corporation succeeding the Company or acquiring its business by reason of such
liquidation, dissolution, sale, merger, consolidation or reorganization.

 

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

 

13. Amendment and Termination of the Plan.

 

(a) Amendment and Termination. The Board may amend or terminate the Plan from
time to time in such respects as the Board may deem advisable; provided that, to
the extent necessary and desirable to comply with

 

5

--------------------------------------------------------------------------------

Rule 16b-3 under the Exchange Act (or any other applicable law or regulation),
the Company shall obtain approval of the stockholders of the Company to Plan
amendments to the extent and in the manner required by such law or regulation.
Notwithstanding the foregoing, the provisions set forth in Section 4 of this
Plan (and any other Sections of this Plan that affect the formula award terms
required to be specified in this Plan by Rule 16b-3) shall not be amended more
than once every six months, other than to comport with changes in the Code, the
Employee Retirement Income Security Act of 1974, as amended, or the rules
thereunder.

 

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

 

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

 

15. Reservation of Shares. The Company, during the term of this Plan, will at
all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. Inability of the Company to
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company’s counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.

 

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

 

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

 

6