Document:

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                                                                    EXHIBIT 10.5

                      APPLIED MICRO CIRCUITS CORPORATION

                       1997 DIRECTORS' STOCK OPTION PLAN

                            Amended April 18, 2001

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

          All options granted hereunder shall be nonstatutory stock options.

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

          (a) "Board" shall mean the Board of Directors of the Company.
               -----

          (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
               ----

          (c) "Common Stock" shall mean the Common Stock of the Company.
               ------------

          (d) "Company" shall mean Applied Micro Circuits Corporation, a
               -------
Delaware corporation.

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

          (f) "Director" shall mean a member of the Board.
               --------

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

          (h) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
               ------------
amended.

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

          (j) "Optioned Stock" shall mean the Common Stock subject to an Option.
               --------------

          (k) "Optionee" shall mean an Outside Director who receives an Option.
               --------

          (l) "Outside Director" shall mean a Director who is not an Employee.
               ----------------

                                       1.
<PAGE>

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

          (n) "Plan" shall mean this 1997 Directors' Stock Option Plan.
               ----

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

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

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

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

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

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

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

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

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

                                       2.

<PAGE>

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

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

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

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

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

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

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

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

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

                                       3.
<PAGE>

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

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

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

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

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

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

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

                                       4.
<PAGE>

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

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

     8.   Exercise Price and Consideration.
          ---------------------------------

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

          (b) Fair Market Value.  The fair market value shall be determined by
              -----------------
the Board; provided, however, that where there is a public market for the Common
           --------  -------
Stock, the fair market value per Share shall be the mean of the bid and asked
prices of the Common Stock in the over-the-counter market on the date of grant,
as reported in The Wall Street Journal (or, if not so reported, as otherwise
               ------------------------
reported by the National Association of Securities Dealers Automated Quotation
("Nasdaq") System) or, in the event the Common Stock is traded on the Nasdaq
National Market or listed on a stock exchange, the fair market value per Share
shall be the closing price on such system or exchange on the date of grant of
the Option (or, in the event that the Common Stock is not traded on such date,
on the immediately preceding trading date), as reported in The Wall Street
                                                           ---------------
Journal.  With respect to any Options granted hereunder concurrently with the
-------
initial effectiveness of the Plan, the fair market value shall be the Price to
Public as set forth in the final prospectus relating to such initial public
offering.

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

     9.   Exercise of Option.
          -------------------

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

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

                                       5.
<PAGE>

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

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

          (b) Termination of Status as a Director.  If an Outside Director
              -----------------------------------
ceases to serve as a Director, he or she may, but only within ninety (90) days
after the date he or she ceases to be a Director of the Company, exercise his or
her Option to the extent that he or she was entitled to exercise it at the date
of such termination. Notwithstanding the foregoing, in no event may the Option
be exercised after its term set forth in Section 7 has expired. To the extent
that such Outside Director was not entitled to exercise an Option at the date of
such termination, or does not exercise such Option (which he or she was entitled
to exercise) within the time specified herein, the Option shall terminate.
Notwithstanding the foregoing, if an Outside Director ceases to serve as a
Director due to a voluntary resignation, then he or she may exercise any Option
granted to him or her after April 1, 2000 at any time during the term of such
Option and to the extent that he or she was entitled to exercise such Option at
the date of such termination.

          (c) Disability of Optionee.  Notwithstanding Section 9(b) above, in
              ----------------------
the event a Director is unable to continue his or her service as a Director with
the Company as a result of his or her total and permanent disability (as defined
in Section 22(e)(3) of the Code), he or she may, but only within six (6) months
(or such other period of time not exceeding twelve (12) months as is determined
by the Board) from the date of such termination, exercise his or her Option to
the extent he or she was entitled to exercise it at the date of such
termination. Notwithstanding the foregoing, in no event may the Option be
exercised after its term set forth in Section 7 has expired. To the extent that
he or she was not entitled to exercise the Option at the date of termination, or
if he or she does not exercise such Option (which he or she was entitled to
exercise) within the time specified herein, the Option shall terminate.

          (d) Death of Optionee.  In the event of the death of an Optionee:
              -----------------

              (i)  During the term of the Option who is, at the time of his or
her death, a Director of the Company and who shall have been in Continuous
Status as a Director since the date of grant of the Option, the Option may be
exercised, at any time within six (6)

                                       6.
<PAGE>

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

              (ii)  Three (3) months after the termination of Continuous Status
as a Director, the Option may be exercised, at any time within six (6) months
following the date of death, by the Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of termination.
Notwithstanding the foregoing, in no event may the option be exercised after its
term set forth in Section 7 has expired.

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

     11.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
          -------------------------------------------------------------------

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

          (b) Corporate Transactions.  In the event of (i) a dissolution or
              ----------------------
liquidation of the Company, (ii) a sale of all or substantially all of the
Company's assets, (iii) a merger or consolidation in which the Company is not
the surviving corporation, or (iv) any other capital reorganization in which
more than fifty percent (50%) of the shares of the Company entitled to vote are
exchanged, the Company shall give to the Eligible Director, at the time of
adoption of the plan for liquidation, dissolution, sale, merger, consolidation
or reorganization, either a reasonable time thereafter within which to exercise
the Option, including Shares as to which the

                                       7.
<PAGE>

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

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

     13.  Amendment and Termination of the Plan.
          -------------------------------------

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

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

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

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

                                       8.
<PAGE>

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

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

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

                                       9.
<PAGE>

                      APPLIED MICRO CIRCUITS CORPORATION

                      NONSTATUTORY STOCK OPTION AGREEMENT
                      -----------------------------------

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

     2.  Exercise of Option.
         ------------------

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

          (b) Method of Exercise.  This Option is exercisable by delivery of an
              ------------------
exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
                                         ---------       ---------------
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
                                                     ----------------
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan.  The Exercise Notice shall be signed by
the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company.  The Exercise Notice shall be accompanied by payment
of the aggregate Exercise Price as to all Exercised Shares.  This Option shall
be deemed to be exercised upon receipt by the Company of such fully executed
Exercise Notice accompanied by such aggregate Exercise Price.

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

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

          (a) cash;
<PAGE>

          (b) check;

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

          (d) surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.

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

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

     6.  Tax Consequences.  Set forth below is a brief summary of certain
         ----------------
federal and California tax consequences relating to this Option under the law in
effect as of the date of grant.  THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE
TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE.  OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.

          (a) Exercising the Option.  Since this Option does not qualify as an
              ---------------------
incentive stock option under Section 422 of the Code, the Optionee may incur
regular federal and California income tax liability upon exercise.  The Optionee
will be treated as having received compensation income (taxable at ordinary
income tax rates) equal to the excess, if any, of the fair market value of the
Exercised Shares on the date of exercise over their aggregate Exercise Price.

          (b) Disposition of Shares.  If the Optionee holds the Option Shares
              ---------------------
for more than one year, gain realized on disposition of the Shares will be
treated as long-term capital gain for federal and California income tax
purposes.  The long-term capital gain will be taxed for federal income tax and
alternative minimum tax purposes as a maximum rate of 28% if the Shares are held
more than one year but less than 18 months after exercise and at 20% if the
Shares are held more than 18 months after exercise.

                                      -2-
<PAGE>

     By your signature and the signature of the Company's representative below,
you and the Company agree that this Option is granted under and governed by the
terms and conditions of the Plan and this Nonstatutory Stock Option Agreement.
Optionee has reviewed the Plan and this Nonstatutory Stock Option Agreement in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Nonstatutory Stock Option Agreement and fully understands all
provisions of the Plan and Nonstatutory Stock Option Agreement.  Optionee hereby
agrees to accept as binding, conclusive and final all decisions or
interpretations of the Administrator upon any questions relating to the Plan and
Nonstatutory Stock Option Agreement.

                                    APPLIED MICRO CIRCUITS CORPORATION

_____________________________       By:__________________________________
Optionee
                                    Title:_______________________________

                                      -3-
<PAGE>

                               CONSENT OF SPOUSE
                               -----------------

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

                                    ________________________________________
                                    Spouse of Optionee
<PAGE>

                                   EXHIBIT A
                                   ---------

                               NOTICE OF EXERCISE
                               ------------------

To:  Applied Micro Circuits Corporation

Attn:  Stock Option Administrator

Subject:  Notice of Intention to Exercise Stock Option
          --------------------------------------------

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

     Grant Number:          ________________________________________

     Date of Purchase:      ________________________________________

     Number of Shares:      ________________________________________

     Purchase Price:        ________________________________________

     Method of Payment of
     Purchase Price:        ________________________________________

     Social Security No.:   ________________________________________

     The shares should be issued as follows:

          Name:      __________________________

          Address:   __________________________

                     __________________________

                     __________________________

          Signed:    __________________________

          Date:      __________________________<PAGE>

                                                                   EXHIBIT 10.24

                      APPLIED MICRO CIRCUITS CORPORATION

                       1998 EMPLOYEE STOCK PURCHASE PLAN
                           Amended on April 18, 2001

     The following constitute the provisions of the 1998 Employee Stock Purchase
Plan of Applied Micro Circuits Corporation (the "Plan").

     1.  Purpose.  The purpose of the Plan is to provide employees of the
         -------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company.  It is the intention of the Company to have the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Internal
Revenue Code of 1986, as amended.  The provisions of the Plan shall,
accordingly, be construed so as to extend and limit participation in a manner
consistent with the requirements of that section of the Code.

     2.  Definitions.
         -----------

          (a) "Board" shall mean the Board of Directors of the Company.
               -----

          (b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
               ----

          (c) "Common Stock" shall mean the Common Stock of the Company.
               ------------

          (d) "Company" shall mean Applied Micro Circuits Corporation, a
               -------
Delaware corporation.

          (e) "Compensation" shall mean all base straight time gross earnings
               ------------
including payments for overtime, shift premium, sales department
commissions/bonus plan, but excluding all other bonuses and reimbursements.

          (f) "Continuous Status as an Employee" shall mean the absence of any
               --------------------------------
interruption or termination of service as an Employee.  Continuous Status as an
Employee shall not be considered interrupted in the case of a leave of absence
agreed to in writing by the Company, provided that such leave is for a period of
not more than 90 days or reemployment upon the expiration of such leave is
guaranteed by contract or statute.

          (g) "Contributions" shall mean all amounts credited to the account of
               -------------
a participant pursuant to the Plan.

          (h) "Designated Subsidiaries" shall mean the Subsidiaries which have
               -----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.

          (i) "Employee" shall mean any person, including an Officer, who is
               --------
customarily employed for at least twenty (20) hours per week and more than five
(5) months in a calendar year by the Company or one of its Designated
Subsidiaries.

                                       1.
<PAGE>

          (j) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
               ------------
amended.

          (k) "Purchase Date" shall mean the last day of each Purchase Period of
               -------------
the Plan.

          (l) "Offering Date" shall mean the first business day of each Offering
               -------------
Period of the Plan.

          (m) "Offering Period" shall mean, for Offering Periods beginning
               ---------------
before February 1, 2001, a period of twelve (12) months, and for Offering
Periods beginning on or after February 1, 2001, a period of twenty-four (24)
months, commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a) and as otherwise determined by the
Board of Directors with respect to any particular Offering Period.

          (n) "Officer" shall mean a person who is an officer of the Company
               -------
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.

          (o) "Plan" shall mean this Employee Stock Purchase Plan.
               ----

          (p) "Purchase Period" shall mean a period of six (6) months within an
               ---------------
Offering Period, except for the first Purchase Period as set forth in Section
4(b).

          (q) "Purchase Price" shall mean an amount equal to 85% of the Fair
               --------------
Market Value of a share of Common Stock as defined in Section 7(b) on the
Offering Date or on the Purchase Date, whichever is lower, provided, however,
that, in the event (i) the Company's stockholders approve an increase in the
number of shares available for issuance under the Plan, and (ii) all or a
portion of such additional shares are to be issued with respect to one or more
Offering Periods that are underway at the time of such stockholder approval
("Additional Shares"), and (iii) the Fair Market Value of a share of Common
Stock on the date of such approval (the "Approval Date Fair Market Value") is
higher than the Fair Market Value on the Offering Date for any such Offering
Period, then in such instance the Purchase Price with respect to Additional
Shares shall be 85% of the Approval Date Fair Market Value or the Fair Market
Value of a share of Common Stock on the Purchase Date, whichever is lower.

          (r) "Subsidiary"  shall mean a corporation, domestic or foreign, of
               ----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.

     3.  Eligibility.
         -----------

          (a) Any person who is an Employee as of the Offering Date of a given
Offering Period shall be eligible to participate in such Offering Period under
the Plan, subject to the requirements of Section 5(a) and the limitations
imposed by Section 423(b) of the Code.

          (b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after the
grant, such Employee (or

                                       2.
<PAGE>

any other person whose stock would be attributed to such Employee pursuant to
Section 424(d) of the Code) would own stock and/or hold outstanding options to
purchase stock possessing five percent (5%) or more of the total combined voting
power or value of all classes of stock of the Company or of any subsidiary of
the Company, or (ii) if such option would permit his or her rights to purchase
stock under all employee stock purchase plans (described in Section 423 of the
Code) of the Company and its Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) of fair market value of such stock
(determined at the time such option is granted) for any calendar year in which
such option is outstanding at any time.

     4.  Offering Periods and Purchase Periods.
         --------------------------------------

          (a) Offering Periods.  The Plan shall be implemented by a series of
              ----------------
Offering Periods with new Offering Periods commencing on or about February 1 and
August 1 of each year (or at such other time or times as may be determined by
the Board of Directors).  Except as otherwise determined by the Board of
Directors, Offering Periods beginning before February 1, 2001 shall be of twelve
(12) months duration, and Offering Periods beginning on or after February 1,
2001 shall be of twenty-four (24) months duration.  The first Offering Period
shall commence on the date that the Company's stockholders first approve the
Plan and will continue until July 31, 1999.  The Plan shall continue until
terminated in accordance with Section 19 hereof.  The Board of Directors of the
Company shall have the power to change the duration and/or the frequency of
Offering Periods with respect to future offerings without shareholder approval
if such change is announced at least fifteen (15) days prior to the scheduled
beginning of the first Offering Period to be affected.  Eligible employees may
not participate in more than one Offering Period under the Plan at a time.

          (b) Purchase Periods.  Except as otherwise determined by the Board of
              ----------------
Directors, each Offering Period beginning before February 1, 2001 shall consist
of two (2) consecutive purchase periods of six (6) months duration, and each
Offering Period beginning on or after February 1, 2001 shall consist of four (4)
consecutive purchase periods of six (6) months duration.  The last day of each
Purchase Period shall be the "Purchase Date" for such Purchase Period.  A
Purchase Period commencing on February 1 shall end on the next July 31.  A
Purchase Period commencing on August 1 shall end on the next January 31.  The
first Purchase Period shall commence on the date that the Plan is first approved
by the Company's stockholders and shall end on January 31, 1999.  The Board of
Directors of the Company shall have the power to change the duration and/or
frequency of Purchase Periods with respect to future purchases without
shareholder approval if such change is announced at least fifteen (15) days
prior to the scheduled beginning of the first Purchase Period to be affected.

     5.  Participation.
         -------------

          (a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement on the form provided by the Company and
filing it with the Company's payroll office prior to the applicable Offering
Date, unless a later time for filing the subscription agreement is set by the
Board for all eligible Employees with respect to a given offering.  The
subscription agreement shall set forth the percentage of the participant's
Compensation (which shall be not less than 1% and not more than 20%) to be paid
as Contributions pursuant to the Plan.

                                       3.
<PAGE>

          (b) Payroll deductions shall commence on the first payroll following
the Offering Date and shall end on the last payroll paid on or prior to the last
Purchase Period of the Offering Period to which the subscription agreement is
applicable, unless sooner terminated by the participant as provided in Section
10.

     6.  Method of Payment of Contributions.
         ----------------------------------

          (a) At the time a participant files his or her subscription agreement,
the participant shall elect to have payroll deductions made on each payday
during the Offering Period in an amount not less than one percent (1%) and not
more than twenty percent (20%) of such participant's Compensation on each such
payday.  All payroll deductions made by a participant shall be credited to his
or her account under the Plan.  A participant may not make any additional
payments into such account.

          (b) A participant may discontinue his or her participation in the Plan
as provided in Section 10, or, during the Offering Period may increase or
decrease the rate of his or her Contributions during such Offering Period by
completing and filing with the Company a new subscription agreement; provided,
however, that no participant may effect more than one increase or decrease
during a Purchase Period.  The change in rate shall be effective as of the
beginning of the next pay period following the date of filing of the new
subscription agreement, if the agreement is filed at least ten (10) business
days prior to such date and, if not, as of the beginning of the next succeeding
pay period.

          (c) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period as is necessary to comply with the limitations provided in such Sections.
Payroll deductions shall re-commence at the rate provided in such participant's
subscription Agreement at such time as will comply with such Sections, unless
terminated by the participant as provided in Section 10.

     7.  Grant of Option.
         ---------------

          (a) On the Offering Date of each Offering Period, each eligible
Employee participating in such Offering Period shall be granted an option to
purchase on each Purchase Date a number of shares of the Company's Common Stock
determined by dividing such Employee's Contributions accumulated prior to such
Purchase Date and retained in the participant's account as of the Purchase Date
by the applicable Purchase Price; provided however, that the maximum number of
shares an Employee may purchase during each Purchase Period shall be 4,000
shares, and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 13. The fair market value of a share
of the Company's Common Stock shall be determined as provided in Section 7(b).

          (b) The fair market value of the Company's Common Stock on a given
date shall be determined by the Board in its discretion based on the closing
price of the Common Stock for such date (or, in the event that the Common Stock
is not traded on such date, on the

                                       4.
<PAGE>

immediately preceding trading date), as reported by the National Association of
Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the fair market value per share shall be the closing price
on such exchange on such date (or, in the event that the Common Stock is not
traded on such date, on the immediately preceding trading date), as reported in
The Wall Street Journal; provided, however, that for Offering Periods beginning
on or after April 18, 2001, the fair market value of the Company's Common Stock
on the first day of each such Offering Period shall be determined by the Board
in its discretion based on the closing price of the Common Stock on the last
market trading day prior to such date, as reported by the National Association
of Securities Dealers Automated Quotation (Nasdaq) National Market or, if such
price is not reported, the mean of the bid and asked prices per share of the
Common Stock as reported by Nasdaq or, in the event the Common Stock is listed
on a stock exchange, the fair market value per share shall be the closing price
on such exchange on the last market trading day prior to such date, as reported
in The Wall Street Journal (the "Fair Market Value").

     8.  Exercise of Option.  Unless a participant withdraws from the Plan as
         ------------------
provided in paragraph 10, his or her option for the purchase of shares will be
exercised automatically on each Purchase Date of an Offering Period, and the
maximum number of full shares subject to the option will be purchased at the
applicable Purchase Price with the accumulated Contributions in his or her
account.  The shares purchased upon exercise of an option hereunder shall be
deemed to be transferred to the participant on the Purchase Date.   No
fractional shares shall be purchased.  Any payroll deductions accumulated in a
participant's account which are not sufficient to purchase a full share shall be
retained in the participant's account for the subsequent Purchase Period or
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10.  Any other monies left over in a participant's account after a
Purchase Date, including amounts that would have purchased shares in excess of
the maximum allowed under Section 7(a), shall be returned to the Participant.
During his or her lifetime, a participant's option to purchase shares hereunder
is exercisable only by him or her.

     9.  Delivery.  As promptly as practicable after each Purchase Date of each
         --------
Offering Period, the Company shall arrange the delivery to each participant, as
appropriate, of a certificate representing the shares purchased upon exercise of
his or her option or the deposit of such number of shares with the broker
selected by the Company for administration of Plan stock purchases, as
determined by the Company.

     10.  Voluntary Withdrawal; Termination of Employment.
          -----------------------------------------------

          (a) A participant may withdraw all but not less than all of the
Contributions credited to his or her account under the Plan at any time at least
five (5) business days prior to each Purchase Date by giving written notice to
the Company in the form provided for by the Company.  All of the participant's
Contributions credited to his or her account will be paid to him or her promptly
after receipt of his or her notice of withdrawal and his or her option for the
current period will be automatically terminated, and no further Contributions
for the purchase of shares will be made during the Offering Period.

                                       5.
<PAGE>

          (b) Upon termination of the participant's Continuous Status as an
Employee (as defined in Section 2(f) hereof) prior to the Purchase Date of an
Offering Period for any reason, including retirement or death, the Contributions
credited to his or her account will be returned to him or her or, in the case of
his or her death, to the person or persons entitled thereto under Section 14,
and his or her option will be automatically terminated.

          (c) In the event an Employee fails to remain in Continuous Status as
an Employee of the Company for at least twenty (20) hours per week during the
Offering Period in which the employee is a participant, he or she will be deemed
to have elected to withdraw from the Plan and the Contributions credited to his
or her account will be returned to him or her and his or her option terminated.

          (d) A participant's withdrawal from an offering will not have any
effect upon his or her eligibility to participate in a succeeding offering or in
any similar plan which may hereafter be adopted by the Company.

     11.  Automatic Withdrawal.  If the Fair Market Value of the shares on a
          --------------------
Purchase Date during an Offering Period (other than the last Purchase Date of
such Offering Period) is less than the Fair Market Value of the shares on the
Offering Date for such Offering Period, then every participant shall
automatically (i) be withdrawn from such Offering Period at the close of such
Purchase Date and after the acquisition of shares for such Purchase Period, and
(ii) be enrolled in the Offering Period commencing on the first business day
subsequent to such Purchase Period.

     12.  Interest.  No interest shall accrue on the Contributions of a
          --------
participant in the Plan.

     13.  Stock.
          -----

          (a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be 11,200,000 shares
subject to adjustment upon changes in capitalization of the Company as provided
in Section 19.  If the total number of shares which would otherwise be subject
to options granted pursuant to Section 7(a) on the Offering Date of an Offering
Period exceeds the number of shares then available under the Plan (after
deduction of all shares for which options have been exercised or are then
outstanding), the Company shall make a pro rata allocation of the shares
remaining available for option grant in as uniform a manner as shall be
practicable and as it shall determine to be equitable.  In such event, the
Company shall give written notice of such reduction of the number of shares
subject to the option to each Employee affected thereby and shall similarly
reduce the rate of Contributions, if necessary.

          (b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.

          (c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.

                                       6.
<PAGE>

     14.  Administration.  The Board, or a committee named by the Board, shall
          --------------
supervise and administer the Plan and shall have full power to adopt, amend and
rescind any rules deemed desirable and appropriate for the administration of the
Plan and not inconsistent with the Plan, to construe and interpret the Plan, and
to make all other determinations necessary or advisable for the administration
of the Plan.  The composition of the committee shall be in accordance with the
requirements to obtain or retain any available exemption from the operation of
Section 16(b) of the Exchange Act pursuant to Rule 16b-3 promulgated thereunder.

     15.  Designation of Beneficiary.
          --------------------------

          (a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to the end of a
Purchase Period but prior to delivery to him or her of such shares and cash.  In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death prior to the Purchase Date of an Offering Period.
If a participant is married and the designated beneficiary is not the spouse,
spousal consent shall be required for such designation to be effective.

          (b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice.  In the event of
the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such shares and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such shares and/or cash to the spouse or to any
one or more dependents or relatives of the participant, or if no spouse,
dependent or relative is known to the Company, then to such other person as the
Company may designate.

     16.  Transferability.  Neither Contributions credited to a participant's
          ---------------
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution, or as provided in Section 15) by the participant.  Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 10.

     17.  Use of Funds.  The Company may use all Contributions received or held
          ------------
by the Company under the Plan for any corporate purpose, and the Company shall
not be obligated to segregate such Contributions.

     18.  Reports.  Individual accounts will be maintained for each participant
          -------
in the Plan.  Statements of account will be given to participating Employees
promptly following the Purchase Date, which statements will set forth the
amounts of Contributions, the per share purchase price, the number of shares
purchased and the remaining cash balance, if any.

     19.  Adjustments Upon Changes in Capitalization; Corporate Transactions.
          ------------------------------------------------------------------

                                       7.
<PAGE>

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

     (b)  Corporate Transactions.  In the event of the proposed dissolution or
          ----------------------
liquidation of the Company, the Offering Period will terminate immediately prior
to the consummation of such proposed action, unless otherwise provided by the
Board. In the event of a proposed sale of all or substantially all of the assets
of the Company, or the merger of the Company with or into another corporation,
each option under the Plan shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation, unless the Board determines, in the exercise of its sole
discretion and in lieu of such assumption or substitution, to shorten the
Offering Period then in progress by setting a new Purchase Date (the "New
Purchase Date"). If the Board shortens the Offering Period then in progress in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify each participant in writing, at least ten (10) days prior
to the New Purchase Date, that the Purchase Date for his or her option has been
changed to the New Purchase Date and that his or her option will be exercised
automatically on the New Purchase Date, unless prior to such date he or she has
withdrawn from the Offering Period as provided in Section 10. For purposes of
this paragraph, an option granted under the Plan shall be deemed to be assumed
if, following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation and the participant, provide
for the consideration to be received upon exercise of the option to be solely
common stock of the successor corporation or its parent equal in fair market
value to the per share consideration received by holders of Common Stock and the
sale of assets or merger.

  The Board may, if it so determines in the exercise of its sole discretion,
also make provision for adjusting the Reserves, as well as the price per share
of Common Stock covered by

                                       8.
<PAGE>

each outstanding option, in the event that the Company effects one or more
reorganizations, recapitalizations, rights offerings or other increases or
reductions of shares of its outstanding Common Stock, and in the event of the
Company being consolidated with or merged into any other corporation.

     20.  Amendment or Termination.
          ------------------------

          (a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan.  Except as provided in Section 19, no such
termination may affect options previously granted, provided that an Offering
Period may be terminated by the Board on a Purchase Date if the Board determines
that the termination of the Plan is in the best interests of the Company and the
shareholders or if continuation of an Offering Period would cause the Company to
incur adverse accounting charges resulting from a change in the generally
accepted accounting rules applicable to such plans.  Except as provided in
Section 19, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participant.  In addition, to the
extent necessary to comply with Rule 16b-3 under the Exchange Act, or under
Section 423 of the Code (or any successor rule or provision or any applicable
law or regulation), the Company shall obtain shareholder approval in such a
manner and to such a degree as so required.

          (b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been adversely affected, the Board
(or its committee) shall be entitled to change the Offering Periods and Purchase
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.

     21.  Notices.  All notices or other communications by a participant to the
          -------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.

     22.  Conditions Upon Issuance of Shares.  Shares shall not be issued with
          ----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Exchange Act, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.

                                       9.
<PAGE>

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

     23.  Term of Plan; Effective Date.  The Plan shall become effective upon
          ----------------------------
the earlier to occur of its adoption by the Board of Directors or its approval
by the shareholders of the Company.  It shall continue in effect for a term of
twenty (20) years unless sooner terminated under Section 20.

     24.  Additional Restrictions of Rule 16b-3.  The terms and conditions of
          -------------------------------------
options granted hereunder to, and the purchase of shares by, persons subject to
Section 16 of the Exchange Act shall comply with the applicable provisions of
Rule 16b-3.  This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.

                                      10.
<PAGE>

                       APPLIED MICRO CIRCUITS CORPORATION

                       1998 EMPLOYEE STOCK PURCHASE PLAN
                             SUBSCRIPTION AGREEMENT

_______ Original Application
_______ Change in Payroll Deduction Rate
_______ Change in Beneficiary(ies)                     Offering Date ___________

     1.  I, ________________________, hereby elect to participate in the APPLIED
MICRO CIRCUITS CORPORATION 1998 Employee Stock Purchase Plan (the "Plan") for
the Offering Period beginning on ______________, and subscribe to purchase
shares of the Company's Common Stock in accordance with this Subscription
Agreement and the Plan.

     2.  I elect to have Contributions in the amount of _____% of my
Compensation, as those terms are defined in the Plan, applied to this purchase.
I understand that this amount must not be less than 1% and not more than 20% of
my Compensation during the Offering Period.  (Please note that no fractional
percentages are permitted).

     3.  I hereby authorize payroll deductions from each paycheck during the
Offering Period at the rate stated in Item 2 of this Subscription Agreement.  I
understand that all payroll deductions made by me shall be credited to my
account under the Plan and that I may not make any additional payments into such
account.  I understand that all payments made by me shall be accumulated for the
purchase of shares of Common Stock at the applicable purchase price determined
in accordance with the Plan.  I further understand that, except as otherwise set
forth in the Plan, shares will be purchased for me automatically on the Purchase
Date of each Offering Period unless I otherwise withdraw from the Plan by giving
written notice to the Company for such purpose.

     4.  I understand that I may discontinue at any time prior to the Purchase
Date my participation in the Plan as provided in Section 10 of the Plan.  I also
understand that I can increase or decrease the rate of my Contributions to not
less than 1% and to not more than 20% of my Compensation on one occasion only
for an increase in the rate and on one occasion only for a decrease in the rate
during any Purchase Period by completing and filing a new Subscription
Agreement.  Such increase or decrease will take effect as of the beginning of
the calendar month following the date of filing of the new Subscription
Agreement, if filed at least five (5) business days prior to the beginning of
such month.  Further, I may change the rate of deductions for future Offering
Periods by filing a new Subscription Agreement, and any such change will be
effective as of the beginning of the next Offering Period.  In addition, I
acknowledge that, unless I discontinue my participation in the Plan as provided
in Section 10 of the Plan, my election will continue to be effective for each
successive Offering Period.

                                      1.
<PAGE>

     5.  I have received a copy of the Company's most recent description of the
Plan and a copy of the complete "APPLIED MICRO CIRCUITS CORPORATION 1998
Employee Stock Purchase Plan."  I understand that my participation in the Plan
is in all respects subject to the terms of the Plan.

6.  I understand that shares purchased for me under the Plan will be issued and
deposited with Salomon Smith Barney, where an account will be automatically
established for me as a plan participant.

     7.  In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due to me under the Plan:

NAME:  (Please print)            _____________________________________
                                 (First)       (Middle)        (Last)

_____________________            _____________________________________
(Relationship)                   (Address)

                                 _____________________________________

     8.   I understand that if I dispose of any shares received by me pursuant
to the Plan within 2 years after the Offering Date (the first day of the
Offering Period during which I purchased such shares) or within 1 year after the
Purchase Date, I will be treated for federal income tax purposes as having
received ordinary compensation income at the time of such disposition in an
amount equal to the excess of the fair market value of the shares on the
Purchase Date over the price which I paid for the shares, regardless of whether
I disposed of the shares at a price less than their fair market value at the
Purchase Date. The remainder of the gain or loss, if any, recognized on such
disposition will be treated as capital gain or loss.

          I hereby agree to notify the Company in writing within 30 days after
          --------------------------------------------------------------------
the date of any such disposition, and I will make adequate provision for
------------------------------------------------------------------------
federal, state or other tax withholding obligations, if any, which arise upon
-----------------------------------------------------------------------------
the disposition of the Common Stock.  The Company may, but will not be obligated
-----------------------------------
to, withhold from my compensation the amount necessary to meet any applicable
withholding obligation including any withholding necessary to make available to
the Company any tax deductions or benefits attributable to the sale or early
disposition of Common Stock by me.

     9.   If I dispose of such shares at any time after expiration of the 2-year
and 1-year holding periods, I understand that I will be treated for federal
income tax purposes as having received compensation income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of the
shares at the time of such disposition over the purchase price which I paid for
the shares under the option, or (2) 15% of the fair market value of the shares
on the Offering Date.  The remainder of the gain or loss, if any, recognized on
such disposition will be treated as capital gain or loss.

                                      2.
<PAGE>

     I understand that this tax summary is only a summary and is subject to
     ----------------------------------------------------------------------
change.  I further understand that I should consult a tax advisor concerning the
------
tax implications of the purchase and sale of stock under the Plan.

     10.  I hereby agree to be bound by the terms of the Plan.  The
effectiveness of this Subscription Agreement is dependent upon my eligibility to
participate in the Plan.

SIGNATURE: __________________________________

SOCIAL SECURITY #: __________________________

DATE: _______________________________________

SPOUSE'S SIGNATURE (necessary
if beneficiary is not spouse):

__________________________________________
(Signature)

__________________________________________
(Print name)

                                      3.
<PAGE>

                      APPLIED MICRO CIRCUITS CORPORATION

                       1998 EMPLOYEE STOCK PURCHASE PLAN

                             NOTICE OF WITHDRAWAL

     I, __________________________, hereby elect to withdraw my participation in
the APPLIED MICRO CIRCUITS CORPORATION 1998 Employee Stock Purchase Plan (the
"Plan") for the Offering Period _________. This withdrawal covers all
Contributions credited to my account and is effective on the date designated
below.

     I understand that all Contributions credited to my account will be paid to
me within ten (10) business days of receipt by the Company of this Notice of
Withdrawal and that my option for the current period will automatically
terminate, and that no further Contributions for the purchase of shares can be
made by me during the Offering Period.

     The undersigned further understands and agrees that he or she shall be
eligible to participate in succeeding offering periods only by delivering to the
Company a new Subscription Agreement.

Dated:___________________

                                    __________________________________
                                    Signature of Employee

                                    __________________________________
                                    Social Security Number

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