APPLIED MICRO CIRCUITS CORP, DEF 14A, 1998-06-15

APPLIED MICRO CIRCUITS CORP
DEF 14A, 1998-06-15
SEMICONDUCTORS & RELATED DEVICES

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SCHEDULE 14A
(RULE 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Filed by the Registrant [X]

Filed by a Party other than the Registrant [_]

Check the appropriate box:

[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))

[X] Definitive Proxy Statement

[_] Definitive Additional Materials

[_] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12

APPLIED MICRO CIRCUITS CORPORATION
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(Name of Registrant as Specified In Its Charter)

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

Payment of Filing Fee (Check the appropriate box):

[X] No fee required

[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):

(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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[_] Fee paid previously with preliminary materials.

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[_] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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APPLIED MICRO CIRCUITS CORPORATION

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

TO BE HELD AUGUST 4, 1998

The Annual Meeting of Stockholders (the "Annual Meeting") of Applied Micro
Circuits Corporation, a Delaware corporation (the "Company"), will be held at
the principal executive offices of the Company, located at 6290 Sequence
Drive, San Diego, CA 92121 on Tuesday, August 4, 1998, at 10:00 a.m., local
time, for the following purposes:

1. To elect six (6) directors of the Company to serve until the next Annual
Meeting of Stockholders or until their respective successors are elected
and qualified (Proposal No. 1);

2. To approve the Company's 1998 Employee Stock Purchase Plan and to
reserve up to 400,000 shares of Common Stock for issuance thereunder
(Proposal No. 2);

3. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending March 31, 1999
(Proposal No. 3); and

4. To transact such other business as may properly come before the Annual
Meeting and any adjournment or postponement thereof.

The foregoing items of business, including the nominees for directors, are
more fully described in the Proxy Statement which is attached and made a part
of this Notice.

The Board of Directors has fixed the close of business on June 8, 1998 as
the record date for determining the stockholders entitled to notice of and to
vote at the Annual Meeting and any adjournment or postponement thereof.

All stockholders are cordially invited to attend the Annual Meeting in
person. However, whether or not you expect to attend the Annual Meeting in
person, you are urged to mark, date, sign and return the enclosed proxy card
as promptly as possible in the postage-prepaid envelope provided to ensure
your representation and the presence of a quorum at the Annual Meeting. If you
send in your proxy card and then decide to attend the Annual Meeting to vote
your shares in person, you may still do so. Your proxy is revocable in
accordance with the procedures set forth in the Proxy Statement.

By Order of the Board of Directors,

/s/ JOEL O. HOLLIDAY
Joel O. Holliday
Secretary

San Diego, California
June 15, 1998

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IMPORTANT
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED
EXPENSE OF RE-ISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING AND
SO DESIRE, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.

THANK YOU FOR ACTING PROMPTLY.
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APPLIED MICRO CIRCUITS CORPORATION
6290 SEQUENCE DRIVE
SAN DIEGO, CA 92121

PROXY STATEMENT

GENERAL

This Proxy Statement is furnished in connection with the solicitation by the
Board of Directors (the "Board") of Applied Micro Circuits Corporation a
Delaware corporation (the "Company"), of proxies in the enclosed form for use
in voting at the Annual Meeting of Stockholders (the "Annual Meeting") to be
held at the principal executive offices of the Company, located at 6290
Sequence Drive, San Diego, CA 92121 Tuesday, August 4, 1998, at 10:00 a.m.,
local time, and any adjournment or postponement thereof.

This Proxy Statement, the enclosed proxy card, the Company's Annual Report
to Stockholders for the fiscal year ended March 31, 1998, including financial
statements, and the Company's Annual Report on Form 10-K were first mailed to
stockholders entitled to vote at the meeting on or about June 19, 1998.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company (Attention:
Joel O. Holliday) a written notice of revocation or a duly executed proxy
bearing a later date, or by attending the Annual Meeting and voting in person.

RECORD DATE; VOTING SECURITIES

The close of business on June 8, 1998 has been fixed as the record date (the
"Record Date") for determining the holders of shares of Common Stock of the
Company entitled to notice of and to vote at the Annual Meeting. At the close
of business on the Record Date, the Company had approximately 22,784,553
shares of Common Stock outstanding and held of record by approximately 820
stockholders.

VOTING AND SOLICITATION

Each outstanding share of Common Stock on the Record Date is entitled to one
vote on all matters. Shares of Common Stock may not be voted cumulatively.

Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. The nominees for election as directors at the Annual
Meeting will be elected by a plurality of the votes of the shares of Common
Stock present in person or represented by proxy at the meeting. All other
matters submitted to the stockholders will require the affirmative vote of a
majority of shares present in person or represented by proxy at a duly held
meeting at which a quorum is present as required under Delaware law for
approval of proposals presented to stockholders. In general, Delaware law also
provides that a quorum consists of a majority of the shares entitled to vote
and present in person or represented by proxy. The Inspector will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum and as negative votes for purposes of
determining the approval of any matter submitted to the stockholders for a
vote. Any proxy which is returned using the form of proxy enclosed and which
is not marked as to a particular item will be voted FOR the election of
directors, FOR approval of the 1998 Employee Stock Purchase Plan and the
reservation of Common Stock for issuance thereunder, FOR ratification of the
appointment of the designated independent auditors, and as the proxy holders
deem advisable on other matters that may come before the meeting, as the case
may be with respect to the item not marked. If a broker indicates on the
enclosed proxy or its substitute that it does not have discretionary authority
as to certain shares to vote on a particular matter ("broker non-votes"),
those shares will not be considered as present with respect to that matter.
The Company believes that the tabulation procedures to be followed by the
Inspector are consistent with the general statutory requirements in Delaware
concerning voting of shares and determination of a quorum.
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The solicitation of proxies will be conducted by mail and the Company will
bear all attendant costs. These costs will include the expense of preparing
and mailing proxy solicitation materials for the Annual Meeting and
reimbursements paid to brokerage firms and others for their expenses incurred
in forwarding solicitation materials regarding the Annual Meeting to
beneficial owners of the Company's Common Stock. The Company may conduct
further solicitation personally, telephonically or by facsimile through its
officers, directors and employees, none of whom will receive additional
compensation for assisting with the solicitation.

PROPOSAL NO. 1

ELECTION OF DIRECTORS

NOMINEES

At the Annual Meeting, the stockholders will elect six directors to serve
until the next Annual Meeting of Stockholders or until their respective
successors are elected and qualified. In the event any nominee is unable or
unwilling to serve as a director at the time of the Annual Meeting, the
proxies may be voted for the balance of those nominees named and for any
substitute nominee designated by the present Board or the proxy holders to
fill such vacancy, or for the balance of the nominees named without nomination
of a substitute, or the size of the Board may be reduced in accordance with
the Bylaws of the Company. The Board has no reason to believe that any of the
persons named below will be unable or unwilling to serve as a nominee or as a
director if elected.

Assuming a quorum is present, the six nominees receiving the highest number
of affirmative votes of shares entitled to be voted for them will be elected
as directors of the Company for the ensuing year. Unless marked otherwise,
proxies received will be voted FOR the election of each of the six nominees
named below. In the event that additional persons are nominated for election
as directors, the proxy holders intend to vote all proxies received by them in
such a manner as will ensure the election of as many of the nominees listed
below as possible, and, in such event, the specific nominees to be voted for
will be determined by the proxy holders.

The names of the nominees, their ages as of March 31, 1998 and certain other
information about them are set forth below:

<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
- --------------- --- ----------------------------------------------- --------------
<S> <C> <C> <C>
David M. Rickey......... 42 President, Chief Executive Officer and Director 1996
William K. Bowes, Jr.
(1).................... 71 Director 1980
R. Clive Ghest (2)...... 60 Director 1997
Franklin P. Johnson, Jr.
(1)(2)................. 69 Director 1980
Roger A. Smullen, Sr.
(1).................... 62 Chairman of the Board of Directors 1982
Arthur B. Stabenow (2).. 59 Director 1988
</TABLE>
- --------
(1) Member of Audit Committee
(2) Member of Compensation Committee

There are no family relationships among any of the directors or executive
officers of the Company.

David M. Rickey has served as President, Chief Executive Officer and
Director since February 1996. From August 1993 to May 1995, Mr. Rickey served
as the Company's Vice President of Operations. From May 1995 to February 1996,
Mr. Rickey served as Vice President of Operations at NexGen, a semiconductor
company. Previously, for eight years, Mr. Rickey was employed by Northern
Telecom United, a telecommunications manufacturer, where he led the wafer fab
engineering and manufacturing operations in both Ottawa, Canada and San Diego,
California. Mr. Rickey has earned B.S. degrees from both Marrietta College
(summa cum laude) and Columbia University. In addition, Mr. Rickey received an
M.S. in Material Science and Engineering from Stanford University.

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William K. Bowes, Jr. has served as a director of the Company since April
1980. He has been a general partner of U.S. Venture Partners, a venture
capital investment entity, since July 1981. Mr. Bowes serves as a director of
Amgen, Inc., XOMA Corporation, Lynx Therapeutics, Inc. and one privately-held
U.S. Venture Partners portfolio company. Mr. Bowes holds a B.A. from Stanford
University and an M.B.A. from Harvard Business School.

R. Clive Ghest has served as a director of the Company since July 1997.
Since January 1997, Mr. Ghest has been a principal of Ghest Associates
Consulting. Mr. Ghest was the Vice President of Business Development at
Advanced Micro Devices Inc. from February 1986 to December 1996. He has more
than 35 years of experience in various capacities in the computer,
communications and semiconductor industries. Mr. Ghest holds an M.S.E.E. from
the University of Santa Clara and an Hons. B.Sc. from the University of
London.

Franklin P. Johnson, Jr. has served as a director of the Company since April
1980. He is the general partner of Asset Management Partners, a venture
capital limited partnership. In addition, Mr. Johnson is a general partner of
the general partner of Asset Management Associates, a venture capital limited
partnership, and several private companies. Mr. Johnson has been a private
venture capital investor for more than five years. Mr. Johnson is also
Chairman of the Board of Boole and Babbage, Inc., and a director of Amgen,
Inc. and IDEC Pharmaceuticals Corporation. Mr. Johnson holds a B.S. from
Stanford University and an M.B.A. from Harvard Business School.

Roger A. Smullen has served as the Chairman of the Company's Board of
Directors since October 1982. Mr. Smullen served as Acting Vice President,
Operations of the Company from August 1997 through October 1997. From April
1983 until April 1987, Mr. Smullen served as the Company's Chief Executive
Officer. Previously, he was Senior Vice President of Operations of Intersil
Inc.'s semiconductor division. In 1967, Mr. Smullen co-founded National
Semiconductor Corporation, a manufacturer of integrated circuits. Prior to
that, he was director of integrated circuits at Fairchild Semiconductor
Corporation, a manufacturer of integrated circuits. Mr. Smullen is currently a
director of Micro Linear Corporation, a manufacturer of integrated circuits.
He holds a B.S. in mechanical engineering from the University of Minnesota.

Arthur B. Stabenow has served as a director of the Company since July 1988.
Mr. Stabenow has been Chairman, President and Chief Executive Officer of Micro
Linear Corporation, a manufacturer of integrated circuits, since April 1986.
Mr. Stabenow has over 35 years of experience in the semiconductor industry.
From January 1979 to March 1986, he was employed as a vice president and
general manager at National Semiconductor Corporation. Mr. Stabenow is
currently a director of Zoran, Inc. and Micro Linear Corporation. Mr. Stabenow
holds an M.B.A. from the University of New Haven.

MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS

During the period from March 31, 1997 through March 31, 1998 (the "last
fiscal year"), the Board met eighteen (18) times. No director attended fewer
than 75% of the aggregate number of meetings of the Board and meetings of the
committees of the Board on which he serves. The Board has an Audit Committee
and a Compensation Committee. The Board does not have a nominating committee
or a committee performing the functions of a nominating committee. Although
there are no formal procedures for stockholders to nominate persons to serve
as directors, the Board will consider nominations from stockholders, which
should be addressed to Joel O. Holliday at the Company's address set forth
above.

The Audit Committee consists of directors Smullen, Bowes and Johnson, three
of the Company's non-employee directors, and held one (1) meeting during the
last fiscal year. The Audit Committee recommends the engagement of the firm of
certified public accountants to audit the financial statements of the Company
and monitors the effectiveness of the audit effort, the Company's financial
and accounting organization and its system of internal accounting controls.

The Compensation Committee consists of directors Johnson, Stabenow and
Ghest, and held three (3) meetings during the last fiscal year. Its functions
are to establish and administer the Company's policies regarding annual
executive salaries and cash incentives and long-term equity incentives. The
Compensation Committee administers the Company's 1982 Stock Option Plan, the
1992 Stock Option Plan, the 1997 Directors' Stock Option Plan, the 1997
Employee Stock Purchase Plan, and if approved by stockholders, the 1998
Employee Stock Purchase Plan.

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COMPENSATION OF DIRECTORS

Directors currently receive no cash fees for services provided in that
capacity, but are reimbursed for out-of-pocket expenses incurred in connection
with attendance at meetings of the Board. The Company's 1997 Directors' Stock
Option Plan (the "Directors' Plan") provides that each person who becomes a
nonemployee director of the Company will be granted a nonstatutory stock
option to purchase 12,500 shares of Common Stock on the date on which the
optionee first becomes a nonemployee director of the Company. Thereafter, on
April 1 each year (starting in 2000 for nonemployee directors who were serving
as of the date of the closing of the initial public offering, which was
declared effective on November 24, 1997), each nonemployee director will be
granted an option to purchase 12,500 shares of Common Stock if on such date,
he or she has served on the Company's Board of Directors for at least six
months.

RECOMMENDATION OF THE BOARD:

THE BOARD RECOMMENDS A VOTE FOR
THE ELECTION OF ALL NOMINEES NAMED ABOVE.

PROPOSAL NO. 2

APPROVAL OF THE 1998 EMPLOYEE STOCK PURCHASE PLAN

At the Annual Meeting, the Company's stockholders are being asked to approve
the 1998 Employee Stock Purchase Plan (the "1998 Purchase Plan") and to
authorize 400,000 shares of Common Stock for issuance thereunder. The
following is a summary of principal features of the 1998 Purchase Plan. The
summary, however, does not purport to be a complete description of all the
provisions of the 1998 Purchase Plan. Any stockholder of the Company who
wishes to obtain a copy of the actual plan document may do so upon written
request to the Vice President of Finance at the Company's principal offices in
San Diego, California.

GENERAL

The 1998 Purchase Plan was adopted by the Board of Directors in May 1998.
The Board of Directors has initially reserved 400,000 shares of Common Stock
for issuance under the 1998 Purchase Plan.

The 1998 Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify as an "employee stock purchase plan" under
Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). The
1998 Purchase Plan is not a qualified deferred compensation plan under Section
401(a) of the Internal Revenue Code and is not subject to the provisions of
the Employee Retirement Income Security Act of 1974 ("ERISA").

PURPOSE

The primary purpose of the 1998 Purchase Plan is to attract and retain the
best available personnel for the Company in order to promote the success of
the Company's business and to facilitate the ownership of the Company's stock
by employees.

ADMINISTRATION

The 1998 Purchase Plan may be administered by the Board of Directors or a
committee of members of the Board appointed by the Board. The 1998 Purchase
Plan, when approved, will be administered by the Compensation Committee of the
Board of Directors. All questions of interpretation of the 1998 Purchase Plan
are determined by the Compensation Committee, and its decisions are final and
binding upon all participants. Members of the Board of Directors who are
eligible employees are permitted to participate in the 1998 Purchase Plan,
provided that any such eligible member may not vote on any matter affecting
the administration of the 1998 Purchase Plan or the grant of any option
pursuant to it, or serve on a committee appointed to administer the 1998
Purchase Plan. No charges for administrative or other costs will be made
against the payroll deductions of a participant in the 1998 Purchase Plan.
Members of the Board of Directors receive no additional compensation for their
services in connection with the administration of the 1998 Purchase Plan.

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ELIGIBILITY

Any employee of the Company or its subsidiaries as of the offering date who
completes a subscription agreement on the form provided by the Company is
eligible to participate in the 1998 Purchase Plan, except for any employee who
beneficially owns five percent or more of the outstanding stock of the Company
or is customarily employed for less than 20 hours per week or less than five
months per year.

OFFERING DATES

The 1998 Purchase Plan is implemented by a series of offerings, each for a
twelve-month period. The offering periods commence on or about February 1 and
August 1 of each year. The first offering shall commence on the date the Plan
is first approved by the Company's stockholders and continue until July 31,
1999. The Board of Directors may alter the duration of the offering periods
without stockholder approval if such change is announced at least 15 days
prior to the scheduled beginning of the first offering period to be affected.

PURCHASE PERIODS

Each offering period shall consist of two (2) 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 the Plan is first approved by the Company's stockholders
and continue until January 31, 1999. The Board of Directors may alter the
duration and/or frequency of purchase periods with respect to future purchases
without stockholder approval if such change is announced at least 15 days
prior to the scheduled beginning of the first purchase period to be affected.

TERMS OF OPTIONS

(a) Participation in the Plan. Eligible employees become participants in the
1998 Purchase Plan by delivering to the Company a subscription agreement
authorizing payroll deductions prior to the applicable offering date.

(b) Purchase Price. The purchase price per share at which shares are sold
under the 1998 Purchase Plan is the lower of 85% of the fair market value of
the Common Stock on the date of commencement of the offering period or 85% of
the fair market value of the Common Stock on the purchase date. The fair
market value of the Common Stock on a given date is generally the closing
sales price on the Nasdaq National Market on the last trading date prior to
the date of determination.

(c) Payment of Purchase Price; Payroll Deductions. The contributions to
purchase shares are accumulated by payroll deductions during the offering
period. The deductions may not be less than 1% and may not be more than 20% of
a participant's eligible compensation. A participant may increase or decrease
his or her participation in the 1998 Purchase Plan once in either direction
during any offering period.

All payroll deductions are credited to the participant's account under the
1998 Purchase Plan and are deposited with the general funds of the Company.
All payroll deductions received or held by the Company may be used by the
Company for any corporate purpose. No interest accrues on the payroll
deductions of a participant in the Plan.

(d) Purchase of Stock; Exercise of Option. By executing a subscription
agreement to participate in the 1998 Purchase Plan, the participant is
entitled to have shares placed under option. The maximum number of shares
placed under option to a participant in any one purchase period is 500 shares
of Common Stock until changed by the Board of Directors.

Unless the participant's participation is discontinued, each participant's
option for the purchase of shares will be exercised automatically at the end
of the purchase period at the applicable price. Participants pay no
commissions on Common Stock purchased under the 1998 Purchase Plan. However,
if a participant decides to sell the Common Stock, the participant can expect
to be charged a fee or commission if he or she uses an agent, such as a stock
broker.

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However, no participant is permitted to subscribe for shares under the 1998
Purchase Plan if immediately after the grant of the option the participant
would own stock and/or hold outstanding options to purchase stock possessing
5% or more of the total combined voting power or value of all classes of stock
of the Company or of any of its subsidiaries (including stock which may be
purchased under the 1998 Purchase Plan) nor is any participant granted an
option which would permit the participant to buy pursuant to the 1998 Purchase
Plan more than $25,000 worth of stock (determined at the fair market value of
the shares at the time the option is granted) in any calendar year.
Furthermore, if the number of shares which would otherwise be placed under
option at the beginning of an offering period exceeds the number of shares
then available under the 1998 Purchase Plan, a pro rata allocation of the
available shares will be made in as equitable a manner as is practicable.

(e) Withdrawal. The participant's interest in a given offering may be
terminated in whole, but not in part, by signing and delivering to the Company
a notice of withdrawal from the 1998 Purchase Plan at least five days prior to
the end of a purchase period.

Any withdrawal by the participant of accumulated payroll deductions for a
given offering automatically terminates the participant's interest in that
offering. In effect, the participant is given an option which may or may not
be exercised during the twelve-month offering period. By executing the
subscription agreement, the participant is not obligated to make the stock
purchases; rather the subscription agreement is merely an election by the
participant to place shares under option. Unless the participant's
participation is discontinued, the option for the purchase of shares will be
exercised automatically at the end of the purchase period, and the maximum
number of full shares purchasable with such participant's accumulated payroll
deductions will be purchased for the participant at the applicable price.

In the event that a participant fails to remain in the continuous employment
of the Company as described in the 1998 Purchase Plan, such participant will
be deemed to have elected to withdraw from the 1998 Purchase Plan and the
payroll deductions credited to such participant's account will be returned to
such participant.

A participant's withdrawal from an offering does not have any effect upon
such participant's eligibility to participate in subsequent offerings under
the Plan.

(f) Termination of Employment. Termination of a participant's employment for
any reason, including retirement or death, prior to the termination of the
offering period cancels his or her participation in the 1998 Purchase Plan
immediately. In such event, the payroll deductions credited to the
participant's account will be returned to such participant, or in the case of
death, to the person or persons entitled thereto as specified in the
participant's subscription agreement.

(g) Nontransferability. No rights or accumulated payroll deductions of a
participant under the 1998 Purchase Plan may be pledged, assigned or
transferred for any reason and any such attempt may be treated by the Company
as an election to withdraw from the 1998 Purchase Plan.

(h) Capital Changes/Acceleration of Option. In the event any change is made
in the Company's capitalization, such as a stock split or stock dividend,
which results in an increase or decrease in the number of outstanding shares
of Common Stock without receipt of consideration by the Company, appropriate
adjustments will be made in the shares subject to purchase and in the purchase
price per share, as well as in the number of shares available for issuance
under the 1998 Purchase Plan.

In the event of the proposed dissolution or liquidation of the Company, the
current offering period(s) will terminate immediately prior to the
consummation of such proposed action, unless otherwise provided by the Board
of Directors. 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 1998 Purchase 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(s) then in progress
by setting a new exercise date.

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(i) Reports. Individual accounts will be maintained for each participant in
the Plan. Each participant will receive after the end of the six-month
purchase period a report of such participant's account setting forth the total
amount of payroll deductions accumulated, the per share purchase price, the
number of shares purchased and the remaining cash balance, if any.

AMENDMENT AND TERMINATION OF THE 1998 PURCHASE PLAN

The Board of Directors may at any time and for any reason amend or terminate
the 1998 Purchase Plan, but no amendment or termination is allowed if it would
impair the rights of any participant under any grant previously made, without
his or her consent, provided that an offering period may be terminated by the
Board of Directors on a purchase date if the Board of Directors determines
that the termination of the Plan is in the best interests of the Company and
the stockholders 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. In addition, the
Company must obtain stockholder approval of any amendment to the 1998 Purchase
Plan in such a manner and to the extent necessary to comply with Rule 16b-3
under the Exchange Act and/or Section 423 of the Code (or any other applicable
law or regulation). If not earlier terminated, the 1998 Purchase Plan will
continue in effect until the earlier of 2008 or when all of the shares of
Common Stock reserved for issuance under this Plan have been issued.

FEDERAL INCOME TAX ASPECTS OF THE 1998 PURCHASE PLAN

THE FOLLOWING IS A BRIEF SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON THE PARTICIPANTS AND THE COMPANY WITH RESPECT TO THE PURCHASE OF SHARES
UNDER THE 1998 PURCHASE PLAN. THIS SUMMARY DOES NOT PURPORT TO BE COMPLETE AND
DOES NOT ADDRESS THE FEDERAL INCOME TAX CONSEQUENCES TO TAXPAYERS WITH SPECIAL
TAX STATUS. IN ADDITION, THIS SUMMARY DOES NOT DISCUSS THE PROVISIONS OF THE
INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE
PARTICIPANT MAY RESIDE, AND DOES NOT DISCUSS ESTATE, GIFT OR OTHER TAX
CONSEQUENCES OTHER THAN INCOME TAX CONSEQUENCES. THE COMPANY ADVISES EACH
PARTICIPANT TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING THE TAX
CONSEQUENCES OF PARTICIPATION IN THE 1998 PURCHASE PLAN AND FOR REFERENCE TO
APPLICABLE PROVISIONS OF THE CODE.

The 1998 Purchase Plan and the right of participants to make purchases
thereunder are intended to qualify under the provisions of Sections 421 and
423 of the Code. Under these provisions, no income will be recognized by a
participant prior to disposition of shares acquired under the 1998 Purchase
Plan.

If the shares are sold or otherwise disposed of (including by way of gift)
more than two years after the first day of the offering period during which
shares were purchased (the "Offering Date"), a participant will recognize as
ordinary income at the time of such disposition the lesser of (a) the excess
of the fair market value of the shares at the time of such disposition over
the purchase price of the shares or (b) 15% of the fair market value of the
shares on the first day of the offering period. Any further gain or loss upon
such disposition will be treated as long-term capital gain or loss. If the
shares are sold for a sale price less than the purchase price, there is no
ordinary income and the participant has a capital loss for the difference.

If the shares are sold or otherwise disposed of (including by way of gift)
before the expiration of the two-year holding period described above, the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income to the participant. This
excess will constitute ordinary income in the year of sale or other
disposition even if no gain is realized on the sale or a gift of the shares is
made. The balance of any gain or loss will be treated as capital gain or loss
and will be treated as long-term capital gain or loss if the shares have been
held more than one year.

In the case of a participant who is subject to Section 16(b) of the Exchange
Act, the purchase date for purposes of calculating such participant's
compensation income and beginning of the capital gain holding period may be
deferred for up to six months under certain circumstances. Such individuals
should consult with their personal tax advisors prior to buying or selling
shares under the 1998 Purchase Plan.

7
<PAGE>

The ordinary income reported under the rules described above, added to the
actual purchase price of the shares, determines the tax basis of the shares
for the purpose of determining capital gain or loss on a sale or exchange of
the shares.

The Company is entitled to a deduction for amounts taxed as ordinary income
to a participant only to the extent that ordinary income must be reported upon
disposition of shares by the participant before the expiration of the two-year
holding period described above.

RESTRICTIONS ON RESALE

Certain officers and directors of the Company may be deemed to be
"affiliates" of the Company as that term is defined under the Securities Act.
The Common Stock acquired under the 1998 Purchase Plan by an affiliate may be
reoffered or resold only pursuant to an effective registration statement or
pursuant to Rule 144 under the Securities Act or another exemption from the
registration requirements of the Securities Act.

REQUIRED VOTE

The approval of the 1998 Purchase Plan and the reservation of 400,000 shares
for issuance requires the affirmative vote of the holders of a majority of the
shares of the Company's Common Stock present at the Annual Meeting in person
or by proxy and entitled to vote and constituting at least a majority of the
required quorum.

THE BOARD RECOMMENDS A VOTE FOR APPROVAL OF THE AMENDMENT TO THE 1998 EMPLOYEE
STOCK PURCHASE PLAN.

PROPOSAL NO. 3

RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS

Ernst & Young LLP has served as the Company's independent auditors since
1980 and has been appointed by the Board to continue as the Company's
independent auditors for the fiscal year ending March 31, 1999. In the event
that ratification of this selection of auditors is not approved by a majority
of the shares of Common Stock voting at the Annual Meeting in person or by
proxy, the Board will reconsider its selection of auditors.

A representative of Ernst & Young LLP is expected to be present at the
Annual Meeting. This representative will have an opportunity to make a
statement and will be available to respond to appropriate questions.

RECOMMENDATION OF THE BOARD:

THE BOARD RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING MARCH 31, 1999.

8
<PAGE>

COMMON STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information that has been provided to the
Company with respect to beneficial ownership of shares of the Company's Common
Stock as of May 15, 1998 for (i) each person who is known by the Company to
own beneficially more than five percent of the outstanding shares of Common
Stock, (ii) each director of the Company, (iii) each of the executive officers
named in the Summary Compensation Table of this proxy statement (the "Named
Executive Officers"), and (iv) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL PERCENT OF COMMON
NAME AND ADDRESS OWNERSHIP(1) STOCK(1)(2)
---------------- -------------------- -----------------
<S> <C> <C>
David M. Rickey (3)..................... 871,666 3.83
Joel O. Holliday (4).................... 472,136 2.07
Roger A. Smullen (5).................... 542,026 2.38
Thomas L. Tullie (6).................... 159,165 *
Anil K. Bedi (7)........................ 172,054 *
Laszlo V. Gal (8)....................... 155,520 *
William K. Bowes, Jr., including shares
held by affiliates of U.S. Venture
Partners (9)........................... 790,225 3.48
Franklin P. Johnson, Jr., including
shares held by Asset Management
Partners (10).......................... 299,783 1.32
Arthur B. Stabenow (11)................. 86,663 *
R. Clive Ghest (12)..................... 50,000 *
Sequoia Capital (13).................... 1,199,992 5.28
3000 Sand Hill Road
Menlo Park, CA 94025
All directors and executive officers as
a group (10 persons) (14).............. 3,599,238 15.85%
--------- -----
</TABLE>
- --------
* Less than 1%.
(1) The persons named in this table have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them,
subject to community property laws where applicable and except as
indicated in the other footnotes to this table.
(2) In computing the number of shares beneficially owned by a person and the
percentage ownership of that person, shares of Common Stock subject to
options or warrants held by that person that are currently exercisable or
exercisable within 60 days after May 15, 1998 are deemed outstanding. Such
shares, however, are not deemed outstanding for the purpose of computing
the percentage ownership of any other person. Applicable percentages are
based on 22,706,843 shares of Common Stock outstanding on May 15, 1998,
together with applicable options for such stockholders.
(3) Includes 363,889 shares that are subject to repurchase by the Company.
Includes 5,000 shares of Common Stock issuable upon the exercise of vested
options.
(4) Includes 358,039 shares held in the name of Joel O. Holliday and Rosanne
R. Holliday, Co-Trustees of the Joel O. Holliday Family Trust dated April
1, 1985 and 56,666 shares held in the name of the Holliday Children 1985
Trust. Includes 57,431 shares of Common Stock issuable upon the exercise
of immediately exercisable options, of which 40,277 are subject to
repurchase rights in favor of the Company. Mr. Holliday disclaims
beneficial ownership of the shares held of record by the Holliday Children
1985 Trust.
(5) Includes 39,582 shares of Common Stock that are subject to repurchase by
the Company. Includes 1,250 shares of Common Stock issuable upon the
exercise of vested options.
(6) Includes 90,277 shares that are subject to repurchase by the Company.
Includes 2,500 shares of Common Stock issuable upon the exercise of vested
options.
(7) Includes 10,000 shares held in the name of Anjuli Bedi Irrevocable Trust
dated March 13, 1997 and 142,054 shares of Common Stock issuable upon the
exercise of immediately exercisable options, of which 130,416 are subject
to repurchase rights in favor of the Company.

9
<PAGE>

(8) Represents Common Stock issuable upon the exercise of immediately
exercisable options, of which 133,888 shares are subject to repurchase
rights in favor of the Company.
(9) William K. Bowes, Jr., a director of the Company, holds 5,901 shares of
Common Stock directly. In addition, Mr. Bowes holds immediately exercisable
options to purchase 63,332 shares of Common Stock, of which 29,167 shares
are subject to repurchase rights in favor of the Company. In addition, Mr.
Bowes is a partner of the general partner of U.S. Venture Partners, which
holds 393,374 shares, and U.S. Venture Partners III, which holds 327,616
shares. Mr. Bowes disclaims beneficial ownership of the shares held by U.S.
Venture Partners and U.S. Venture Partners III, except to the extent of his
pecuniary interest therein.
(10) Includes 63,332 shares of Common Stock issuable upon the exercise of
immediately exercisable options, of which 29,167 shares are subject to
repurchase rights in favor of the Company. Mr. Johnson is the general
partner of Asset Management Partners, which holds 236,449 shares. Mr.
Johnson disclaims beneficial ownership with respect to the shares held by
Asset Management Partners, except to the extent of his pecuniary interest
therein.
(11) Includes 26,364 shares that are subject to repurchase by the Company.
(12) Represents shares of Common Stock issuable upon exercise of immediately
exercisable options, of which 34,722 shares are subject to repurchase
rights in favor of the Company.
(13) Includes 1,142,856 shares held by Sequoia Capital Growth Fund and 57,136
shares held by Sequoia Technology Partners III.
(14) Includes 540,419 shares issuable upon the exercise of immediately
exercisable options, of which 397,637 shares are subject to repurchase
rights in favor of the Company. Also includes 520,112 shares that have
been issued and are subject to repurchase rights in favor of the Company.

10
<PAGE>

COMPENSATION OF EXECUTIVE OFFICERS

The following table shows the compensation earned by (a) the individual who
served as the Company's Chief Executive Officer during the fiscal year ended
March 31, 1998, (b) the four other most highly compensated individuals who
served as an executive officer of the Company during the fiscal year ended
March 31, 1998; and (c) the compensation received by each such individual for
the Company's two preceding fiscal years.

SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
----------------------- OTHER ANNUAL UNDERLYING ALL OTHER
FISCAL SALARY COMPENSATION OPTIONS COMPENSATION
NAME & PRINCIPAL POSITION YEAR ($)(1) BONUS ($) ($)(2) (#)(3) ($)
- ------------------------- ------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
David M. Rickey.......... 1998 300,014 212,900(4) -- 146,666 3,120(5)
President and Chief 1997 277,215 61,500(6) 131,358(7) -- 3,120(5)
Executive Officer 1996 26,443 -- 143,387(8) 800,000 --

Joel O. Holliday......... 1998 170,204 77,000(4) -- 63,333 --
Vice President, Finance 1997 162,208 41,500(6) -- 33,333 --
and Administration, 1996 151,804 -- -- -- --
Treasurer, Chief
Financial Officer and
Secretary

Thomas Tullie............ 1998 198,626(9) 52,000(4) 73,333 --
Vice President, Sales 1997 124,934(10) 60,500(11) 38,863(12) 133,333 --
1996 -- -- -- -- --

Anil Bedi................ 1998 178,644 52,000(4) -- 55,000 --
Vice President, 1997 106,346 56,500(10) -- 206,666 --
Marketing 1996 -- -- -- -- --

Laszlo Gal............... 1998 184,007 52,000(4) -- 41,666 --
Vice President, 1997 22,885(13) 46,500(10) -- 206,666 --
Engineering 1996 -- -- -- -- --
</TABLE>
- --------
(1) Includes pre-tax contributions to the AMCC 401(k) Plan.
(2) Excludes annual compensation which, for any named executive officer, did
not in aggregate exceed the lesser of $50,000 or 10 percent of such named
executive officer's total annual salary and bonus for that year.
(3) Options granted in a given fiscal year may include grants based on the
officer's performance in the prior fiscal year. See "Option Grants in
Last Fiscal Year" and "Compensation Committee Report on Executive
Compensation."
(4) Includes Fiscal Year 1998 bonus paid in April 1998 (Fiscal 1999).
(5) Includes annual premiums in the amount of $3,120 paid by the Company on a
term life insurance policy.
(6) Includes Fiscal Year 1997 bonus paid in April 1997 (Fiscal 1998).
(7) Includes $73,024 paid to Mr. Rickey in the form of relocation expenses
and a matching contribution in the amount of $2,652 that the Company made
on Mr. Rickey's behalf to the AMCC 401(k).
(8) Includes $143,387 paid to Mr. Rickey as a sign-on bonus.
(9) Includes commissions earned by Mr. Tullie in the amount of $63,914 and a
referral bonus in the amount of $2,000. Fourth Quarter Fiscal 1998
commissions have not been paid as of this printing.
(10) Includes commissions earned by Mr. Tullie in the amount of $38,396, of
which $25,191 was paid to Mr. Tullie in fiscal 1997 and $13,205 was paid
to Mr. Tullie in fiscal 1998.
(11) Includes a sign-on bonus and Fiscal Year 1997 bonus paid in April 1997
(Fiscal 1998).
(12) Includes a matching contribution in the amount of $565 that the Company
made on Mr. Tullie's behalf to the AMCC 401(k) Plan and $38,298 paid to
Mr. Tullie for relocation expenses.
(13) Mr. Gal joined the Company in January 1997, and his annualized base
salary for the fiscal year ended March 31, 1997 year was $175,000.

11
<PAGE>

EMPLOYMENT, SEVERANCE AND CHANGE OF CONTROL AGREEMENTS

In January 1996, the Company entered into a letter agreement with David M.
Rickey, the Company's President and Chief Executive Officer. This agreement
entitles Mr. Rickey to a salary of $275,000 per year and term life insurance
purchased by the Company for the benefit of Mr. Rickey's estate. Pursuant to
the terms of the agreement, if the Company enters into certain change-of-
control transactions, the vesting of Mr. Rickey's options to purchase shares
of the Company's Common Stock will accelerate. In addition, the agreement
provides that if the Company is acquired and the per share value of the
Company's Common Stock is less than $3.00 per share, the Company will
compensate Mr. Rickey for the difference between $3.00 per share and the per
share merger or sale price determined by the Company's Board of Directors. The
letter agreement provides that Mr. Rickey's employment is at will and
terminable by the Company or Mr. Rickey for any reason, with or without cause,
and with or without notice. See "Transactions with Management."

12
<PAGE>

OPTION GRANTS IN LAST FISCAL YEAR

The following table provides certain information with respect to stock
options granted to the Named Executive Officers in the last fiscal year. In
addition, as required by Securities and Exchange Commission rules, the table
sets forth the hypothetical gains that would exist for the options based on
assumed rates of annual compound stock price appreciation during the option
term.

INDIVIDUAL GRANTS(1)
-------------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
NUMBER OF OF TOTAL OPTIONS ANNUAL RATES OF STOCK
SECURITIES GRANTED EXERCISE PRICE APPRECIATION
UNDERLYING TO EMPLOYEES OR BASE FOR OPTION TERM(2)
OPTIONS IN FISCAL PRICE EXPIRATION ----------------------
NAME GRANTED (#) YEAR(%)(3) ($/SH)(4) DATE 5% ($) 10% ($)
---- ----------- ---------------- --------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
David M. Rickey......... 66,666(5) 4.11 .525 4/9/07 22,011 55,780
80,000 4.94 23.625 3/27/08 1,188,611 3,012,173

Joel O. Holliday........ 33,333(5) 2.06 .525 4/9/07 11,006 27,890
30,000 1.85 23.625 3/27/08 445,729 1,129,565

Thomas Tullie........... 33,333(5) 2.06 .525 4/9/07 11,006 27,890
40,000 2.47 23.625 3/27/08 594,305 1,506,087

Anil Bedi............... 20,000(5) 1.23 .525 4/9/07 6,603 16,734
35,000 2.16 23.625 3/27/08 520,017 1,317,826

Laszlo Gal.............. 6,666(5) .41 .525 4/9/07 2,201 5,577
35,000 2.16 23.625 3/27/08 520,017 1,317,826
</TABLE>
- --------
(1) Consists of options granted pursuant to the Company's 1992 Stock Option
Plan (the "1992 Plan").
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by the rules of the SEC. There can be no assurance that the
actual stock price appreciation over the ten-year option term will be at
the assumed 5% and 10% levels or at any other defined level. Unless the
market price of the Common Stock appreciates over the option term, no
value will be realized from the option grants made to the Named Officers.
(3) Options to purchase an aggregate of 1,798,873 shares of Common Stock of
the Company were granted during fiscal year ended March 31, 1998, of which
options to purchase 1,618,873 shares were granted to employees.
(4) The exercise price and tax withholding obligations related to exercise may
be paid by delivery of shares that are already owned or by offset of the
underlying shares, subject to certain conditions.
(5) Option granted in April 1997 in connection with the named executive
officer's performance in fiscal year ended March 31, 1997.

13
<PAGE>

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information with respect to stock
options exercised by the Named Executive Officers during the fiscal year ended
March 31, 1998. In addition, the table sets forth the number of shares covered
by stock options as of the fiscal year ended March 31, 1998, and the value of
"in-the-money" stock options, which represents the positive spread between the
exercise price of a stock option and the market price of the shares subject to
such option at the end of the fiscal year ended March 31, 1998.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY
SHARES YEAR END (#) OPTIONS AT
ACQUIRED ON VALUE EXERCISABLE/ FISCAL YEAR END ($)
NAME EXERCISE (#) REALIZED($) UNEXERCISABLE(3)(4) EXERCISABLE/UNEXERCISABLE(5)
---- ----------- ----------- ------------------- ----------------------------
<S> <C> <C> <C> <C>
David M. Rickey......... 866,666 0(1) 0 / 80,000 -- / --
Joel O. Holliday........ 61,108 2,500(1) 55,556 / 30,000 $1,220,843 / --
Roger A. Smullen........ 86,666 39,000(1) 0 / 20,000 -- / --
Thomas Tullie........... 166,666 57,813(1) 0 / 40,000 -- / --
Anil Bedi............... 72,000 1,054,200(2) 154,666 / 35,000 3,398,785 / --
Laszlo Gal.............. -- -- 213,332 / 35,000 4,687,971 / --
</TABLE>
- --------
(1) There was no public trading market for the Company's Common Stock as of
the date of exercise. Accordingly, this value has been calculated based on
the Board of Directors' determination of the fair market value of the
Company's stock as of the date of exercise minus the applicable per share
exercise price.
(2) This value has been calculated based on the fair market value of the
Company's Common Stock as of the date of exercise as determined by the
closing price of the Company's stock on the Nasdaq National Market as of
the date of exercise minus the applicable per share exercise price.
(3) No stock appreciation rights (SARs) were outstanding during fiscal 1998.
(4) Options granted prior to March 27, 1998 under the 1982 Stock Option Plan
(the "1982 Plan") and 1992 Plan are generally immediately exercisable, but
subject to a right of repurchase pursuant to the vesting schedule of each
such grant. Options granted on or after March 27, 1998 are exercisable
only as to those shares that are vested. Accordingly, the table reflects
those options that are exercisable, not those options that are vested.
(5) Based on the $22.50 per share closing price of the Company's Common Stock
on The Nasdaq National Market on March 31, 1998, less the exercise price
of the options.

COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION

Notwithstanding anything to the contrary set forth in any of the Company's
filings under the Securities Act of 1933 or the Securities Exchange Act of
1934 that might incorporate future filings, including this Proxy Statement, in
whole or in part, the following report and the Stock Performance Graph which
follows shall not be deemed to be incorporated by reference into any such
filings.

The following is a report of the Compensation Committee of the Board of
Directors (the "Committee") describing the compensation policies applicable to
the Company's executive officers during the fiscal year ended March 31, 1998.
The Committee is responsible for establishing and monitoring the general
compensation policies and compensation plans of the Company, as well as the
specific compensation levels for executive officers. It also makes
recommendations to the Board of Directors concerning the granting of options
or grants options under the Company's 1992 Stock Option Plan. Executive
officers who are also directors have not participated in deliberations or
decisions involving their own compensation.

GENERAL COMPENSATION POLICY

Under the supervision of the Board of Directors, the Company's compensation
policy is designed to attract, motivate and retain qualified key executives
critical to the Company's growth and long-term success. It is the objective of
the Board of Directors to have a portion of each executive's compensation
contingent upon the

14
<PAGE>

Company's performance as well as upon the individual's personal performance.
Accordingly, each executive officer's compensation package is comprised of
three elements: (i) base salary which reflects individual performance and
expertise, (ii) variable bonus payable in cash and tied to the achievement of
certain annual performance goals and (iii) stock options which are designed to
align the long-term interests of the executive officers with the Company's
stockholders.

The summary below describes in more detail the factors which the Board of
Directors considers in establishing each of the three primary components of
the compensation package provided to the executive officers.

BASE SALARY

Base salary ranges are established based on benchmark data from high-tech
companies which compete with the Company for business and executive talent.
The level of base salary within the ranges is established primarily on the
basis of the individual's qualifications and relevant experience, the
strategic goals for which he or she has responsibility, and the compensation
levels of executives at similarly situated companies. Base salary is generally
adjusted once each year based on individual performance and position within
the salary range.

VARIABLE BONUS

Cash bonuses are awarded on an annual basis to executive officers on the
basis of their success in achieving designated individual goals and the
Company's success in achieving specific company-wide goals, such as revenue
growth and earnings growth.

STOCK OPTIONS

The Company has utilized its stock option plans to provide executives and
other key employees with incentives to maximize long-term stockholder values.
Stock options are designed to give the recipient an equity stake in the
Company and thereby closely align his or her interests with those of the
Company's stockholders. Factors considered in making such awards include the
individual's position and responsibilities with the Company, his or her
performance, his or her length of service, and his or her existing holdings of
unvested option shares. For executive officers, the Board of Directors takes
into consideration the accomplishments of each executive officer against
annual goals and his or her existing holdings of unvested options.

Each option grant allows the executive officer to acquire shares of Common
Stock at a fixed price per share (the fair market value on the date of grant)
over a specified period of time (up to 10 years from the date of grant). The
options typically vest in periodic installments over a four year period,
contingent upon the executive officer's continued employment with the Company.
Accordingly, the option will provide a return to the executive officer only if
he or she remains in the Company's service, and then only if the market price
of the Common Stock appreciates over the option term.

15
<PAGE>

COMPENSATION OF THE CHIEF EXECUTIVE OFFICER

David M. Rickey has served as the Company's President and Chief Executive
Officer since February 1996. His base salary for the period February 1996 to
February 1997 was $275,000. On February 12, 1997, Mr. Rickey's salary was
increased to $300,000.

The factors discussed above in "Base Salaries," "Variable Bonus," and "Stock
Options" were also applied in establishing the amount of Mr. Rickey's salary
and stock option grant. Significant factors in establishing Mr. Rickey's
compensation upon hire were his seventeen years in the semiconductor industry
and his previous experience as vice president of operations with AMCC from
June 1993 to May 1995. Subsequent increases in base salary have been based on
his performance and contributions to Company growth and success.

DEDUCTIBILITY OF EXECUTIVE COMPENSATION

The Committee has considered the impact of Section 162(m) of the Internal
Revenue Code adopted under the Omnibus Budget Reconciliation Act of 1993,
which section disallows a deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO
and four other most highly compensated executive officers, respectively,
unless such compensation meets the requirements for the "performance-based"
exception to Section 162(m). As the cash compensation paid by the Company to
each of its executive officers is expected to be below $1 million and the
Committee believes that options granted under the Company's 1992 Stock Option
Plan to such officers will meet the requirements for qualifying as
performance-based, the Committee believes that Section 162(m) will not affect
the tax deductions available to the Company with respect to the compensation
of its executive officers. It is the Committee's policy to qualify, to the
extent reasonable, its executive officers' compensation for deductibility
under applicable tax law. However, the Company may from time to time pay
compensation to its executive officers that may not be deductible.

COMPENSATION COMMITTEE:
Franklin P. Johnson
Arthur B. Stabenow
R. Clive Ghest

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee of the Board of Directors currently consists of
Messrs. Johnson, Stabenow and Ghest. None of these directors has at any time
been an officer or employee of the Company or any subsidiary of the Company.
During fiscal 1998, prior to the completion of the Company's initial public
offering, David M. Rickey and Roger A. Smullen served as members of the
Compensation Committee of the Company's Board of Directors. In connection with
the initial public offering, the Compensation Committee was reconstituted to
consist of Messrs. Johnson, Stabenow and Ghest. Mr. Smullen was a member of
the Board of Directors of Micro Linear Corporation during fiscal 1998, and
continues to serve on such Board. Arthur B. Stabenow, the Chairman, President
and Chief Executive Officer of Micro Linear Corporation, served as a member of
the Compensation Committee of the Board of Directors of AMCC during fiscal
1998, and continues to serve on such Committee. No other interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company, nor has such an interlocking relationship existed in the past.

TRANSACTIONS WITH MANAGEMENT

16
<PAGE>

share, the Company will compensate Mr. Rickey for the difference between $3.00
per share and the per share merger or sale price determined by the Company's
Board of Directors. The letter agreement provides that Mr. Rickey's employment
is at will and terminable by the Company or Mr. Rickey for any reason, with or
without cause, and with or without notice.

In February 1996, the Company entered into a loan arrangement with Mr.
Rickey, pursuant to which the Company loaned to Mr. Rickey $150,000 ("Note No.
1") and $53,000 ("Note No. 2") at an annual interest rate of 5.32%. Note No. 1
was a full recourse, unsecured real estate bridge loan with accrued interest
and principal payable upon the earlier of February 12, 1999 or the sale of the
house in which Mr. Rickey lived prior to relocating to San Diego to accept
employment as the Company's President and Chief Executive Officer. Note No. 2
was the reinstatement of a loan which had been made previously to Mr. Rickey
in connection with the exercise of incentive stock options while serving as
Vice President, Manufacturing for the Company. Note No. 2 was a full recourse,
unsecured promissory note with accrued interest and principal payable no later
than February 12, 1999. Note No. 1 and Note No. 2 may be declared payable in
full by the Company in the event that Mr. Rickey ceases to be employed by the
Company. In May 1996, the Company entered into a loan agreement with Mr.
Rickey pursuant to which the Company loaned $750,000 ("Note No. 3") to Mr.
Rickey at an interest rate of 5.76% per annum compounded annually. The
proceeds of the loan were used to exercise options granted by Mr. Rickey's
former employer, which were expiring as a result of Mr. Rickey's termination
of employment with the former employer in order to join the Company. The loan
is evidenced by a non-recourse promissory note, which is secured by 46,500
shares of Common Stock of Advanced Micro Devices, Inc. The principal and
accrued interest on Note No. 3 are due and payable in full on May 1, 1999,
unless accelerated in whole or in part in the event of (i) a default under the
loan agreement or pledge agreement for Note No. 3, (ii) a default in payment
under Note No. 3 or any other promissory note issued to the Company by Mr.
Rickey, (iii) the voluntary or involuntary termination of Mr. Rickey's
employment with the Company or (iv) the sale of any portion of the Common
Stock securing Note No. 3. Each of Note No. 1, Note No. 2 and Note No. 3 were
approved by the Board of Directors of the Company pursuant to the approval of
Mr. Rickey's offer of employment with the Company. In September 1996, Mr.
Rickey repaid approximately $142,000 of the principal on Note No. 1, and in
April 1997, Mr. Rickey delivered a full recourse, unsecured promissory note
with a principal amount of $12,392 and an interest rate of 5.91% per annum in
payment of the balance of the amount owing under Note No. 1. The current
aggregate principal balance outstanding under such note and Notes No. 2 and
No. 3 is $815,392. Mr. Rickey is current in his payments under all such notes.

In July 1997, Mr. Rickey exercised stock options granted under the 1992
Plan. In payment of the purchase price for the exercised shares, Mr. Rickey
delivered full recourse promissory notes in principal amounts of approximately
$400,000, $20,000 and $35,000 bearing interest at rates of 5.98%, 5.98% and
6.54%, respectively. The notes and accrued interest thereon are payable in
full in February 2000, February 2000 and April 2001, respectively.

In February 1998, the Company entered into a loan agreement with Laszlo Gal,
the Company's Vice President, Engineering, pursuant to which the Company
loaned to Mr. Gal $100,000 (the "Gal Note") at an interest rate of 5.54% per
annum compounded annually. The Gal Note is a full recourse loan and is secured
by a second deed of trust on Mr. Gal's residence (the "Property"). The
principal and accrued interest on the Gal Note are due and payable in full on
February 19, 2001, unless accelerated in whole or in part in the event of
(i) a default under the loan agreement for the Gal Note, (ii) a default in
payment under the Gal Note, (iii) the voluntary or involuntary termination of
Mr. Gal's employment with the Company, (iv) a declaration of bankruptcy by
Mr. Gal or (v) a sale or any other transfer of the Property. The Gal Note was
approved by the Board of Directors of the Company. The current aggregate
principal balance outstanding under the Gal Note is $100,000.

In February 1998, the Company entered into a loan agreement with Anil K.
Bedi pursuant to which the Company loaned $150,000 (the "Bedi Note") to Mr.
Bedi at an interest rate of 5.54% per annum compounded annually. The Bedi Note
is a full recourse loan and is secured by an option held by Mr. Bedi that is
exercisable for 174,666 shares of Common Stock (the "Option Shares"). The
principal and accrued interest on the Bedi

17
<PAGE>

Note are due and payable in full on August 18, 1999, unless accelerated in
whole or in part in the event of (i) the voluntary or involuntary termination
of Mr. Bedi's employment with the Company, (ii) the transfer of the Option
Shares, (iii) a failure to pay any amount under the Bedi Note, (iv) the
commencement of any bankruptcy proceedings against Mr. Bedi, (v) any
assignment of the Option Shares for the benefit of Mr. Bedi's creditors or
(vi) any other uncured breach of Mr. Bedi's representations, warranties or
obligations under the Bedi Note. The Bedi Note was approved by the Board of
Directors of the Company. The current aggregate principal balance outstanding
under the Bedi Note is $150,000.

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

The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties.

18
<PAGE>

STOCK PERFORMANCE GRAPH

The following graph compares the cumulative total stockholder return data
for the Company's stock since November 25, 1997 (the date on which the
Company's stock was first registered under Section 12 of the Securities
Exchange Act of 1934, as amended) to the cumulative return over such period of
(i) The Nasdaq National Market Composite Index and (ii) the Nasdaq Electronic
Components Stock Index. The graph assumes that $100 was invested in the Common
Stock of the Company and in each of the comparative indices on November 25,
1997, the date on which the Company completed the initial public offering of
its Common Stock. The graph further assumes that such amount was initially
invested in the Common Stock of the Company at a per share price of $8.00, the
price to which such stock was first offered to the public by the Company on
the date of its initial public offering, and reinvestment of any dividends.
The stock price performance on the following graph is not necessarily
indicative of future stock price performance.

[PERFORMANCE GRAPH APPEARS HERE]

<TABLE>
<CAPTION>
11/25/97 3/31/98
-------- -------
<S> <C> <C>
Applied Micro Circuits Corporation....................... 100 281
Nasdaq Electronic Components............................. 100 99
Nasdaq Market............................................ 100 115
</TABLE>

19
<PAGE>

DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING

Proposals of stockholders intended to be presented at the Company's 1999
Annual Meeting of Stockholders must be received by Joel O. Holliday, Applied
Micro Circuits Corporation, 6290 Sequence Drive, San Diego, California 92121,
no later than February 16, 1999.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

Section 16(a) of the Exchange Act requires the Company's directors,
executive officers and persons who own more than 10% of the Company's Common
Stock (collectively, "Reporting Persons") to file with the Securities and
Exchange Commission ("SEC") initial reports of ownership and changes in
ownership of the Company's Common Stock. Reporting Persons are required by SEC
regulations to furnish the Company with copies of all Section 16(a) reports
they file. To the Company's knowledge, based solely on its review of the
copies of such reports received or written representations from certain
Reporting Persons that no other reports were required, the Company believes
that during its fiscal year ended March 31, 1998, all Reporting Persons
complied with all applicable filing requirements except that William Bowes
failed to timely file a Form 4 Statement of Changes in Beneficial Ownership.

AVAILABILITY OF CERTAIN DOCUMENTS REFERRED TO HEREIN

THIS PROXY STATEMENT REFERS TO CERTAIN DOCUMENTS OF THE COMPANY THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS ARE AVAILABLE TO ANY
PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT IS
DELIVERED, UPON ORAL OR WRITTEN REQUEST, WITHOUT CHARGE, DIRECTED TO JOEL O.
HOLLIDAY, APPLIED MICRO CIRCUITS CORPORATION, 6290 SEQUENCE DRIVE, SAN DIEGO,
CALIFORNIA 92121, TELEPHONE NUMBER (619) 450-9333. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, SUCH REQUESTS SHOULD BE MADE BY JULY 15, 1998.

OTHER MATTERS

The Board of Directors knows of no other business that will be presented to
the Annual Meeting. If any other business is properly brought before the
Annual Meeting, proxies in the enclosed form will be voted in respect thereof
as the proxy holders deem advisable.

It is important that the proxies be returned promptly and that your shares
be represented. Stockholders are urged to mark, date, execute and promptly
return the accompanying proxy card in the enclosed envelope.

By Order of the Board of Directors,

/s/ JOEL O. HOLLIDAY
Joel O. Holliday
Secretary

June 15, 1998
San Diego, California

20
<PAGE>

APPLIED MICRO CIRCUITS CORPORATION

1998 EMPLOYEE STOCK PURCHASE PLAN

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.
----

(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.
<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 a period of twelve (12) months
---------------
commencing on February 1 and August 1 of each year, except for the first
Offering Period as set forth in Section 4(a).

(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 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

-2-
<PAGE>

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 of twelve (12) months duration, 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). 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. Each Offering Period shall consist of two (2)
----------------
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, 1998. 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.

(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.

-3-
<PAGE>

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 an Offering 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 which is scheduled to end during the current calendar year that the
aggregate of all payroll deductions accumulated with respect to such Offering
Period and any other Offering Period ending within the same calendar year equal
$21,250. Payroll deductions shall re-commence at the rate provided in such
participant's subscription Agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, 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 500 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 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

-4-
<PAGE>

traded on such date, on the immediately preceding trading 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.

(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.

-5-
<PAGE>

(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 the
--------------------
first Purchase Date of an 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 400,000 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.

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

-6-
<PAGE>

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.
------------------------------------------------------------------

(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

-7-
<PAGE>

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 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

-8-
<PAGE>

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.

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

-9-
<PAGE>

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)
_______ Change in Designated Broker 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 Offering Period by completing and filing a new Subscription Agreement
with such increase or decrease taking 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.

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

<PAGE>

Purchase Plan." I understand that my participation in the Plan is in all
respects subject to the terms of the Plan.

6. Shares purchased for me under the Plan should be issued in the name(s)
of (name of employee or employee and spouse only):
__________________________________________

__________________________________________

and sent to the following (check only one):

______ BancAmerica Robertson Stephens - Steve Stovall, Broker, 555
California Street, Suite 2600, San Francisco, CA 94104, TEL: (415)
676-2898, FAX: (415) 676-2611

Account Number _______________________________

______ Cowen & Company - Private Client Group, Matthew G. Casey,
Broker, Four Embarcadero Center, Suite 1200, San Francisco, CA 94111,
TEL (415)646-7394 or (800)858-9316, FAX (415)646-7316, E-MAIL
[email protected]
----------------

Account Number _______________________________

______ My home address as follows:

_____________________________________________

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

-2-
<PAGE>

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.

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
<PAGE>

PROXY PROXY
APPLIED MICRO CIRCUITS CORPORATION

PROXY FOR ANNUAL MEETING TO BE HELD ON AUGUST 4, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby appoints David M. Rickey and Joel O. Holliday, or
either of them, as proxies, each with the power to appoint his substitute, to
represent and to vote all the shares of common stock of Applied Micro Circuits
Corporation ("AMCC"), which the undersigned would be entitled to vote, at the
Annual Meeting of Stockholders of AMCC to be held on August 4, 1998 and at any
adjournments thereof, subject to the directions indicated on the reverse side
hereof.

In their discretion, the Proxies are authorized to vote upon any other
matter that may properly come before the meeting or any adjournments thereof.

THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE SPECIFICATIONS MADE, BUT IF
NO CHOICES ARE INDICATED, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL
---
NOMINEES AND FOR THE PROPOSALS LISTED ON THE REVERSE SIDE.
---

IMPORTANT--This Proxy must be signed and dated on the reverse side.

- --------------------------------------------------------------------------------
THIS IS YOUR PROXY
YOUR VOTE IS IMPORTANT!

Dear Stockholder:

We cordially invite you to attend the Annual Meeting of Stockholders of
Applied Micro Circuits Corporation to be held at 10:00 a.m. local time on
Tuesday, August 4, 1998 at 6290 Sequence Drive, San Diego, California 92121.

Please read the proxy statement which describes the proposals and presents
other important information, and complete, sign and return your proxy promptly
in the enclosed envelope.

Directions from the San Diego Airport

[MAP]
1. Take Interstate 5 North

2. Merge onto 52 East

3. Merge onto 805 North

4. Exit Mira Mesa Blvd., turn right

5. Turn left on Sequence Drive

6. AMCC is on the left side.

4156--Applied Micro Circuits Corporation

<PAGE>

[ ]

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1-3
---
For All
1. ELECTION OF DIRECTORS -- For Withhold Except
Nominees: William K. Bowes, Jr., [_] [_] [_]
R. Clive Ghest, Franklin P. Johnson, Jr.,
David M. Rickey, Roger M. Smullen, Sr.,
Arthur B. Stabenow

-----------------------------------------
(Except nominee(s) written above)

For Against Abstain
2. Proposal to approve the Company's 1998 [_] [_] [_]
Employee Stock Purchase Plan.

For Against Abstain
3. Proposal to ratify Ernst & Young LLP as [_] [_] [_]
independent auditors.

If you plan to attend the Annual Meeting please mark this box [_]

Dated:________________, 1998

Signature _____________________________________________________________________

Name (printed) ________________________________________________________________

Title _________________________________________________________________________
Important: Please sign exactly as name appears on this proxy. When signing as
attorney, executor, trustee, guardian, corporate officer, etc., please indicate
full title.

- -------------------------------------------------------------------------------
FOLD AND DETACH HERE

4156 -- APPLIED MICRO CIRCUITS CORPORATION