-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3f05kTMUJ5dU9ZmV+R8HBbD5SqS0q9R29aAWGlab41FU8HXH/B09Uqn1aLo/Plg /e0VNJZAYPNhA948ychPgQ== /in/edgar/work/20000622/0000912057-00-029410/0000912057-00-029410.txt : 20000920 0000912057-00-029410.hdr.sgml : 20000920 ACCESSION NUMBER: 0000912057-00-029410 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000622 FILER: COMPANY DATA: COMPANY CONFORMED NAME: EXAR CORP CENTRAL INDEX KEY: 0000753568 STANDARD INDUSTRIAL CLASSIFICATION: [3674 ] IRS NUMBER: 941741481 STATE OF INCORPORATION: DE FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-14225 FILM NUMBER: 659098 BUSINESS ADDRESS: STREET 1: 2222 QUME DR STREET 2: PO BOX 49007 CITY: SAN JOSE STATE: CA ZIP: 95131 BUSINESS PHONE: 4084346400 MAIL ADDRESS: STREET 1: 48720 KATO RD CITY: FREMONT STATE: CA ZIP: 94538-1167 10-K 1 a10-k.txt 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO______ Commission File No. 0-14225 EXAR CORPORATION (Exact Name of registrant as specified in its charter) Delaware 94-1741481 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) (Identification No.) 48720 Kato Road, Fremont, CA 94538 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (510) 668-7000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK (Title of Class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the Registrant as of May 31, 2000 was $1,284,230,475 based on the last sales price reported for such date. The number of shares outstanding of the Registrant's Common Stock was 18,679,716 as of May 31, 2000. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Definitive Proxy Statement filed not later than 120 days after the close of the fiscal year are incorporated in Part III of this report. 1 PART I Except for the historical information contained herein, the following discussion contains forward looking statements that involve risks and uncertainties. The Company's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in this section under the heading entitled "Risk Factors," as well as in the section entitled "Management's Discussion and Analysis of Financial Condition and Results of Operations." ITEM 1 BUSINESS OVERVIEW Exar Corporation ("Exar" or the "Company") designs, develops and markets high-performance, high-bandwidth mixed-signal (analog and digital) silicon solutions for the worldwide communications infrastructure. The Company uses its high-speed, analog and mixed-signal design expertise, system-level knowledge and standard CMOS process technologies to offer integrated circuits, or ICs, for the communications markets that address asynchronous transmission standards, such as T/E carrier and ATM. The Company is leveraging this expertise to develop products based on optical transmission standards, such as SONET/SDH. Additionally, Exar provides solutions for the serial communications market as well as the video and imaging markets. Exar's major customers include Alcatel, Cisco, Hewlett-Packard, Lucent, Nokia and Tellabs. INDUSTRY BACKGROUND Communications technology has evolved from simple analog voice signals transmitted over networks of copper telephone lines to complex analog and digital voice and data signals transmitted over hybrid networks of media, such as copper, coaxial and fiber optic cables. This evolution has been driven by large increases in the number of users and the complexity and variety of the data transmitted over networks, resulting from: - the substantial growth in the Internet and its transformation from a text-based medium to a multimedia platform containing pictures, video and sound; - the growth of wireless communications; and - the increased demand for remote network access and higher speed, higher bandwidth communication between local area networks, or LANs, and wide area networks, or WANs. The majority of installed communications systems were designed to transmit only voice communications, and are therefore inadequate for the high-bandwidth transmission of both voice and data. As a result, new equipment is being deployed to augment existing transmission media and increase their bandwidth. Access to the public network is typically based on asynchronous technologies, such as T/E carrier over copper wire. The demand for greater bandwidth is driving a migration from lower-speed T1/E1 to higher-speed T3/E3 transmission rates. The T1/E1 standard permits the transmission of data at 1.5 Mbps/2.0 Mbps, and the T3/E3 standard permits the transmission of data at 45 Mbps/34 Mbps. The backbone of the public network is built on an optical fiber transmission medium that employs synchronous technologies such as SONET/SDH. Similar to the utilization of faster transmission rates over copper wire, SONET/SDH protocols such as OC-3 (155 Mbps) and OC-12 (622 Mbps) are being upgraded to OC-48 (2.5 Gbps) and OC-192 (10 Gbps) to increase the bandwidth over a single optical fiber. To address the evolving requirements of communications networks, OEMs must develop and introduce increasingly sophisticated systems at a rapid rate. To achieve the performance and functionality required of these systems, communications OEMs utilize increasingly complex communications ICs, which now account for a significant portion of the value-added proprietary content of these systems. As a result of the rapid pace of new equipment introductions, the proliferation of transmission standards, and the difficulty of designing and producing these ICs, equipment suppliers are increasingly outsourcing the design and production of the ICs incorporated into their systems. 2 These trends have created a significant opportunity for IC suppliers that can design cost-effective solutions for high-speed communications. The worldwide T/E carrier IC market has experienced steady growth, and Dataquest estimates that it will reach $616 million by 2003. The ATM IC market is expected to grow at a compound annual growth rate of 28%, from $309 million in 1998 to nearly $1.1 billion in 2003, according to Dataquest. The SONET/SDH IC market reached $510 million in 1998, and Dataquest expects that it will grow at a compound annual growth rate of 22% to $922 million by 2002. The key ICs contained in a typical communications system include physical interface, access control, channel processor, bus interface and switch fabric devices. The physical interface device consists of a transmitter and receiver that, when integrated, is called a transceiver. Transceivers interface with the physical transmission media, such as copper wire or optical fiber. Most of these high-speed, mixed-signal ICs convert parallel digital inputs into a single analog bit stream that is up to 32 times faster than the original signal. Transceivers therefore serve as a bridge between analog transmission media and the digital devices that process data. Access control circuits are digital ICs that format, or frame, the data and perform error checking. The bus interface manages the transfer of data along numerous channels between elements, such as the channel processor and the switch fabric, which work together to shape, route and control the data. Because physical interface and access control ICs interface with the transmission media and are critical to increasing bandwidth, these ICs must offer high-speed and robust performance. Therefore, communications equipment OEMs seek IC suppliers that possess extensive analog and digital expertise to provide high-speed, mixed-signal solutions to bridge the analog physical world and the digital computing environment. This must be coupled with system-level expertise so that a supplier can quickly bring to market high-performance, highly-reliable ICs with optimal feature sets. THE EXAR SOLUTION Exar designs, develops and markets high-performance, high-bandwidth mixed-signal ICs for use in the worldwide communications infrastructure. The Company's analog and mixed-signal design expertise, combined with its systems understanding, enables the Company to provide physical interface and access control solutions for WAN communications equipment. Exar currently offers ICs based upon the T/E carrier and ATM transmission standards and is leveraging its expertise to develop products based upon the SONET/SDH transmission standards. In addition, the Company provides solutions for the serial communications market and the video and imaging markets. Exar believes its products offer its customers the following benefits: - increased bandwidth through the integration of multiple channels on a single device; - reduced system noise/jitter to improve data integrity; - reduced overall system cost through the integration of multiple functions on a single device; and - accelerated time to market by allowing them to focus on core competencies and outsource standards-based solutions. Key elements of the Company's solution include: LEADING ANALOG AND MIXED-SIGNAL DESIGN EXPERTISE. Exar has over 28 years of experience in developing analog and mixed-signal ICs. As a result, the Company has developed a significant base of knowledge in these areas and a library of design elements. For example, the Company believes that it has particularly strong expertise in the design of high-speed, low-jitter phase lock loops, which are key elements in Exar's mixed-signal transceiver products. As a result, Exar can provide its customers with products that typically exceed standard specifications and allow them flexibility in designing other parts of their systems. BROAD PRODUCT OFFERINGS. Exar offers a variety of physical interface and access control products based upon the T1/E1, T3/E3 and ATM transmission standards. Exar is currently developing multiple channel products for each transmission standard enabling its customers to minimize board space and overall cost in multi-port applications. The Company is also developing products based upon SONET/SDH standards. 3 COMPREHENSIVE SOLUTIONS TO ENHANCE SYSTEM INTEGRATION. The combination of Exar's design and system level expertise allows it to provide a solution that encompasses hardware, software and applications support. Using its solutions, Exar believes that OEMs can efficiently integrate the Company's devices into their systems, better leverage their development resources and reduce their time to market. COMPELLING PRICE/PERFORMANCE SOLUTIONS. The Company uses its systems expertise and its analog, digital and mixed-signal design techniques to architect high-performance products based on standard CMOS process technologies. Exar believes that these CMOS processes are proven, stable, predictable and able to meet the application speed and power/performance requirements at a lower price point than other semiconductor manufacturing processes. STRATEGY Exar's objective is to be the leading provider of high-performance, high-bandwidth IC solutions for the worldwide communications infrastructure. To achieve this objective, Exar employs the following strategies: FOCUS ON HIGH-GROWTH COMMUNICATIONS MARKETS. Exar targets high-growth communications markets, including T/E carrier, ATM and SONET/SDH. The Company has built substantial expertise in the areas of analog and mixed-signal design, systems architecture and applications support. Exar believes that the integration of these capabilities enables the Company to develop solutions addressing the high-bandwidth requirements of communications systems OEMs. LEVERAGE ANALOG AND MIXED-SIGNAL DESIGN EXPERTISE TO PROVIDE INTEGRATED SYSTEM LEVEL SOLUTIONS. Utilizing Exar's strong analog and mixed-signal design expertise, the Company can integrate mixed-signal physical interface devices with digital access control devices. The Company is currently developing products that integrate transceivers with framers on a single IC and are exploring opportunities to integrate other functions. These configurations would enable OEMs to use less board space and reduce their overall system cost. EXPAND THE COMPANY'S REVENUE CONTENT PER SYSTEM. Exar's analog and mixed signal design expertise has enabled the Company to build what it believes to be a technological lead and a strong market position in T3/E3 transceivers. The Company is leveraging this lead and its established customer relationships to capture design wins for its access control products, thereby increasing the Company's overall revenue content per system. STRENGTHEN AND EXPAND STRATEGIC OEM RELATIONSHIPS. Exar's customer base includes Alcatel, Cisco, Lucent, Nokia and Tellabs. To promote the early adoption of its solutions, the Company actively seeks collaborative relationships with strategic OEMs during product development. The Company believes that OEMs recognize the value of its early involvement because designing their system products in parallel with the Company's development can accelerate their time to market. In addition, Exar believes that collaborative relationships help the Company to obtain early design wins and to reduce the risk of market acceptance of its new products. LEVERAGE BROAD PRODUCT PORTFOLIO TO ACCELERATE COMMUNICATIONS PRODUCT DEVELOPMENT. Exar believes it has developed a strong presence in the serial communications market as well as the video and imaging markets, where the Company has leading industry customers, proven technological capabilities and a strong product portfolio. The Company's design expertise has enabled it to offer a diverse portfolio of both industry standard and proprietary universal asynchronous receiver transmitters, or UARTs. The Company also has established important customer relationships in Taiwan for its high-performance, low-power video products and continues to work closely with key customers such as Hewlett-Packard for its imaging products. Exar's sales to these markets provide the Company with resources to invest in and accelerate its communications product development. USE STANDARD CMOS PROCESS TECHNOLOGIES TO PROVIDE COMPELLING PRICE/PERFORMANCE SOLUTIONS. Exar primarily designs its products to be manufactured using standard CMOS processes. The Company believes that these processes are proven, stable and predictable and benefit from the extensive semiconductor manufacturing infrastructure devoted to CMOS processes. Therefore, the Company believes that it can achieve a given level of performance at a lower cost than others employing alternative processes. 4 LEVERAGE FABLESS SEMICONDUCTOR MODEL. Exar has longstanding relationships with world-class third-party assembly, test and wafer foundries to manufacture the Company's ICs. The Company's fabless approach allows it to avoid substantial capital spending, obtain competitive pricing, reduce time to market, reduce technology and product risks, and facilitate the migration of the Company's products to new process technologies, which reduce costs and optimize performance. By leveraging the fabless model, Exar can focus on its core competencies of IC design and development. PRODUCTS Exar designs, develops and markets high-performance, high-bandwidth physical interface and access control solutions for the worldwide communications infrastructure. The Company's current IC products for the communications market are designed to respond to the growing demand for high-speed networking equipment based on transmission standards such as T/E carrier, ATM and SONET/SDH. The Company also designs, develops and markets IC products that address the needs of the serial communications market and the video and imaging markets. Exar uses its design methodologies to develop products ranging from application specific standard products, or ASSPs, designed for industry-wide applications, to semi-custom solutions for specific customer applications. These complementary products enable the Company to offer a range of solutions for its customers' applications. COMMUNICATIONS Exar's products for T/E carrier, ATM and SONET/SDH applications include high-speed analog, digital and mixed-signal physical interface and access control ICs. The physical interface ICs consist of a transmitter and receiver that, when integrated, is called a transceiver chip. Transceivers interface with the physical transmission media. Most of these high-speed, mixed-signal ICs convert parallel digital inputs into a single analog bit stream that is up to 32 times faster than the original signal. Access control circuits are digital circuits that format, or frame, the data and perform error checking. The figure below illustrates where the Company products are employed within WAN equipment. TYPES OF COMMUNICATIONS ICs USED IN WAN EQUIPMENT [GRAPHIC] Exar's communications products include transmitters and receivers, transceivers, framers, ATM user network interfaces, or ATM UNIs, a jitter attenuator and an M13 multiplexer. These products are used in SONET/SDH multiplexers, private branch exchanges (PBX), central office switches and digital cross connects. The Company introduced in early 1999 and began volume production in October 1999 its second generation physical interface solution, an integrated single chip transceiver. Subsequently, the Company announced a dual channel and triple channel version of this transceiver that meets the same performance levels while requiring less board space and lower overall power in multi-port applications. The Company recently introduced its integrated, single IC jitter attenuator, a proprietary solution that allows OEMs to meet difficult jitter tolerance specifications while reducing overall system costs. Exar's access control products include framers, ATM UNIs and an M13 multiplexer. These newer products are achieving greater market acceptance as Exar's strong transceiver products have allowed it to compete for adjacent component opportunities. The Company also supplies a family 5 of V.35 transceiver and multiprotocol products used for high-speed data transmission, primarily in networking equipment such as routers and bridges. The following table describes some of the Company's key communications products:
- ------------------------------------------------------------------------------------------------------------------------------------ PRODUCT DESCRIPTION APPLICATIONS - ------------------------------------------------------------------------------------------------------------------------------------ T3/E3/STS-1 1-channel/2-channel transceiver and T3/E3/STS-1 1-channel receiver and transmitter SONET/SDH multiplexers and digital cross connects - ------------------------------------------------------------------------------------------------------------------------------------ T3/E3 jitter attenuator Multiplexers, switches and digital cross connects - ------------------------------------------------------------------------------------------------------------------------------------ T3/E3 M13 multiplexer Multiplexers, frame relay and Internet access switches - ------------------------------------------------------------------------------------------------------------------------------------ T3/E3 framer Multiplexers and digital cross connects - ------------------------------------------------------------------------------------------------------------------------------------ T3/E3 ATM UNIs ATM switches/routers/hubs - ------------------------------------------------------------------------------------------------------------------------------------ 4-channel E1 transceiver and framer Routers, Internet access equipment, frame relay and ATM switches/routers/hubs - ------------------------------------------------------------------------------------------------------------------------------------ Multi-channel E1 transceivers Multiplexers, frame relay and ATM switches/routers/hubs - ------------------------------------------------------------------------------------------------------------------------------------ T1/E1 clock adaptors Frame relay access devices and remote access servers - ------------------------------------------------------------------------------------------------------------------------------------ Multiprotocol serial interface Multiplexers, access equipment and routers - ------------------------------------------------------------------------------------------------------------------------------------ V.35 serial interface Multiplexers, access equipment and routers - ------------------------------------------------------------------------------------------------------------------------------------
The Company expects to introduce a number of new communications ICs in the current fiscal year to provide an expanded line of T/E carrier products as well as SONET/SDH products. The T/E carrier products are expected to include multi-channel transceivers, framers and ATM UNIs. SONET/SDH product introductions are expected to start at the OC-48 (2.5 Gbps) rate, and subsequently introduce OC-3 (155 Mbps) and OC-12 (622 Mbps) products. SERIAL COMMUNICATIONS UARTs convert data streams from parallel to serial, enabling a serial data stream to communicate with a central processing unit, or CPU. Exar sells its UART products to the remote access, data collection, industrial automation and handheld/mobile markets. Many of these products include high performance features, such as automated flow control and large First-In First-Out, or FIFO, buffers. The Company has designed a highly integrated quad, or four channel, UART with FIFO circuitry, which the Company believes is the de facto industry standard for quad FIFO UARTs used in multi-channel networking applications. The following table describes the Company's key serial communications products:
- ------------------------------------------------------------------------------------------------------------------------------------ PRODUCT DESCRIPTION APPLICATIONS - ------------------------------------------------------------------------------------------------------------------------------------ 8-channel PCI UART with 64 byte FIFO PCI interface for network control management - ------------------------------------------------------------------------------------------------------------------------------------ 8-channel UART with 64 byte FIFO Network management, remote access servers and point of sale systems - ------------------------------------------------------------------------------------------------------------------------------------ Single/Dual/Quad channel UART with 128 byte FIFO Process control systems - ------------------------------------------------------------------------------------------------------------------------------------ Single/Quad channel UART with 64 byte FIFO Personal digital assistants and GPS - ------------------------------------------------------------------------------------------------------------------------------------ Single/Dual/Quad channel UART with 16 byte FIFO Hub management, high-speed modems and PC I/O cards - ------------------------------------------------------------------------------------------------------------------------------------
6
Dual channel UART with 8 byte FIFO Process control systems, switches and serial port equipment - ------------------------------------------------------------------------------------------------------------------------------------ Dual channel UART with 16 byte FIFO Process control systems, switches and serial port equipment - ------------------------------------------------------------------------------------------------------------------------------------ Dual channel UART Serial port equipment - ------------------------------------------------------------------------------------------------------------------------------------
During the current fiscal year, the Company expects to expand its family of PCI multi-channel UARTs to include quad channel as well as dual channel devices. VIDEO AND IMAGING The video market is composed of several segments, including digital still cameras, or DSCs, PC video cameras, security cameras, camcorders and digital camcorders. Among these applications, one of the fastest growing segments is DSCs, which Dataquest forecasts will grow from 6.2 million units in 1999 to 13.0 million units in 2003. To create images that are more comparable to film cameras and include features such as steady-shot and digital zoom, DSCs and digital camcorders are requiring higher resolution and higher speed data acquisition subsystems, also known as analog front ends, or AFEs, and analog-to-digital converters, or ADCs. Exar supplies high-performance ADCs and integrated AFEs for products such as DSCs, digital copiers, scanners and multifunctional peripherals, or MFPs, which incorporate scanning, faxing and copying functions in a single integrated system. The Company uses advanced design techniques and process technologies to integrate low-power converter architectures with surrounding analog functions, reducing total system cost. The following table describes some of the Company's key video and imaging products:
- ---------------------------------------------------------------------------------------------------------------------------------- PRODUCT DESCRIPTION APPLICATIONS - ---------------------------------------------------------------------------------------------------------------------------------- 10bit/18 or 27 Msps AFEs DSCs, camcorders and video conferencing - ---------------------------------------------------------------------------------------------------------------------------------- 3-channel 12, 14 or 16bit/6 or 12 Msps AFEs Scanners, MFPs and digital color copiers - ---------------------------------------------------------------------------------------------------------------------------------- 10bit/20 or 40 Msps ADC High-end DSCs and broadcast video - ---------------------------------------------------------------------------------------------------------------------------------- 8bit/6 Msps ADC Video boards, scanners and battery powered devices - ---------------------------------------------------------------------------------------------------------------------------------- 8, 10 or 12 bit serial input DAC (digital-to-analog converter) Voltage control and power control for wireless equipment - ----------------------------------------------------------------------------------------------------------------------------------
During the current fiscal year, the Company plans to focus its product development efforts on video applications, specifically for DSCs and digital camcorders. These applications require higher resolution and speed. Key planned product introductions include 12bit/24 Msps and 10bit/45 Msps AFEs in single and dual channel configurations. SALES AND CUSTOMERS Exar markets its products in the United States through 25 independent sales representatives and four independent, non-exclusive distributors, as well as through the Company's own direct sales force. The Company currently has sales support offices in or near Atlanta, Boston, Chicago, Dallas, Los Angeles and Fremont. The Company is represented internationally by 26 sales representatives and distributors. In addition, the Company is represented in Europe by its wholly-owned subsidiaries, Exar Ltd. and Exar SARL, and in the Asia/Pacific Region by its wholly-owned subsidiaries, Exar Japan and Exar Taiwan. 7 Some of the Company's larger customers include the following:
- ------------------------------------------------------------------------------------------------------------------ COMMUNICATIONS SERIAL COMMUNICATIONS VIDEO AND IMAGING - ------------------------------------------------------------------------------------------------------------------ - - Alcatel Alsthom S.A. - Cisco Systems, Inc. - Eastman Kodak Company - - Cisco Systems, Inc. - Digi International, Inc. - Hewlett-Packard Company - - Lucent Technologies, Inc. - LM Ericsson Telephone Co. - Hitachi, Ltd. - - Marconi Communications Plc. - Pitney Bowes, Inc. - Logitech International S.A. - - Nokia Corporation - Symbol Technologies, Inc. - Microtek International, Inc. - - Tellabs, Inc. - NEC Corporation - Pretek Electronics Corp. - ------------------------------------------------------------------------------------------------------------------
Through the fiscal year ended March 31, 2000, no single customer accounted for more than 10% of the Company's sales. MANUFACTURING Exar outsources all of its fabrication and assembly, as well as the majority of its testing operations. This fabless manufacturing model allows the Company to focus on its core competencies of product design and development. The Company uses world-class independent wafer foundries, such as Chartered Semiconductor Manufacturing, or Chartered, and Taiwan Semiconductor Manufacturing Company, or TSMC. Chartered and TSMC manufacture all of the Company's CMOS products. Rohm Co. Ltd. manufactures all of the Company's Bipolar products and Chartered manufactures most of the Company's BiCMOS products. The Company does not have long term supply agreements with Chartered or TSMC. The Company's supply agreement with Rohm expires in 2006. The majority of the Company's current products are implemented in standard CMOS. The Company uses CMOS manufacturing processes to take advantage of that technology's lower power consumption, cost-effectiveness, foundry availability and ever-increasing speed. Currently, most of the Company's new product development is being implemented in CMOS. Wafers are usually shipped to the Company's subcontractors in Asia for wafer test and assembly, where they are cut into individual die and packaged. Most of the Company's assembly work is performed by independent contractors in Hong Kong, Indonesia, the Philippines and Japan. Following assembly, final test and quality assurance is performed either at the Company's Fremont, California facility or at its subcontractors' facilities in Asia. The Company conducts electrical testing of both wafers and packaged ICs. The combination of various functions makes the test process for analog and mixed-signal devices particularly difficult. Test operations require the programming, maintenance and use of sophisticated computer-based test systems and complex automatic handling systems. RESEARCH AND DEVELOPMENT Exar believes that the continued introduction of new products in its target markets is essential to its growth. As of March 31, 2000, the Company's research and development staff consisted of 110 employees, 60 of whom hold advanced engineering degrees. The Company has successfully recruited 24 engineers during the fiscal year ended March 31, 2000, while experiencing minimal attrition. Over the next year, EXAR will seek to significantly increase the Company's engineering headcount to add more design and application personnel. In the fiscal year ended March 31, 2000, the Company's communications research and development spending increased 59.4% over the previous fiscal year. To support its growth, Exar intends to continue spending approximately 20% of revenue on research and development activities. COMPETITION The semiconductor industry is intensely competitive and is characterized by rapid technological change and a history of price reduction as production efficiencies are achieved in successive generations of products. Although the market for analog 8 and mixed-signal integrated circuits is generally characterized by longer product life cycles and less dramatic price reductions than the market for digital integrated circuits, the Company faces substantial competition in each market in which the Company participates. Competition in the Company's markets is based principally on technical innovation, product features, timely introduction of new products, quality and reliability, performance, price, technical support and service. The Company believes that it competes favorably in all of these areas. Because the IC markets are highly fragmented, the Company generally encounters different competitors in its various market areas. Competitors with respect to the Company's communications products include Conexant, PMC-Sierra and TranSwitch. In addition, the expansion of the Company's communications product portfolio may in the future bring it into competition with other established communications IC companies, such as Applied Micro Circuits Corp. and Vitesse. Competitors in the Company's other markets include Analog Devices, Philips and Texas Instruments. BACKLOG Exar defines backlog to include OEM orders and distributor orders for which a delivery schedule has been specified for product shipment occurring primarily during the succeeding six months. At March 31, 2000, Exar's backlog was approximately $20.6 million, compared with $12.4 million at March 31, 1999. The increase in the Company's backlog was primarily due to the growth in orders for communication devices. Sales are made pursuant to purchase orders for current delivery of standard items or agreements covering purchases over a period of time, which are frequently subject to revision and cancellation. Lead times for the release of purchase orders depend upon the scheduling practices of the individual customer, and the rate of bookings varies from month to month. In addition, Exar's distributor agreements generally permit the return of up to 10% of the purchases annually for purposes of stock rotation and also provide for credits to distributors in the event Exar reduces the price of any product. Because of the possibility of changes in delivery schedules, quantity actually purchased, cancellations of orders, distributor returns or price reductions, Exar's backlog as of any particular date may not be representative of actual sales for any succeeding period. Customers can cancel a significant portion of their backlog at their discretion without substantial penalty. INTELLECTUAL PROPERTY RIGHTS The Company has 71 patents issued and 17 patent applications pending in the U.S. The Company has 10 patents issued and 24 patent applications pending in various foreign countries. None of the Company's domestic and foreign patents that have been issued will expire in the near future unless the Company chooses not to pay renewal fees. To protect the Company's intellectual property, the Company also relies on a combination of mask work registrations, trademarks, copyrights, trade secrets, employee and third-party nondisclosure agreements and licensing arrangements. The Company has also entered into license agreements from time to time to gain access to externally developed products or technologies. There can be no assurance that others will not independently develop substantially equivalent intellectual property or otherwise gain access to the Company's trade secrets or intellectual property, or disclose such intellectual property or trade secrets, or that the Company can meaningfully protect its intellectual property. Furthermore, there can be no assurance that the Company's pending patent applications or any future applications will be approved, or that any issued patents will provide the Company with competitive advantages, or will not be challenged by third parties, or that if challenged, will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on the Company's ability to do business. Furthermore, there can be no assurance that others will not independently develop similar products, duplicate the Company's products, or design around any patents that may be issued to the Company. The Company cannot be sure that its products or technologies do not infringe patents that may be granted in the future pursuant to pending patent applications or that the Company's products do not infringe any patents or proprietary rights of third parties. From time to time, the Company receives communications from third parties alleging patent infringement. In the event that any relevant claims of third-party patents are upheld as valid and enforceable, the Company could be prevented from selling the Company's products or could be required to obtain licenses from the owners of these patents or be required to redesign the Company's products to avoid infringement. The Company cannot assure you that licenses would be available to the Company on acceptable terms, or at all, or that the Company would be successful in any attempts to redesign its 9 products or processes to avoid infringement. The Company's failure to obtain these licenses or to redesign the Company's products could harm its business. EMPLOYEES As of March 31, 2000, the Company employed 276 full-time employees, with 46 in administration, 110 in engineering and product development, 45 in operations and 75 in marketing and sales. Of the 110 engineering and product development employees, 60 hold advanced degrees. The Company's ability to attract, motivate and retain qualified personnel is essential to its continued success. None of the Company's employees is represented by a collective bargaining agreement, nor has the Company ever experienced any work stoppage. The Company believes its employee relations are good. FACILITIES Exar's executive offices, marketing and sales, research and development and engineering operations are located in Fremont, California in two buildings that the Company owns consisting of approximately 151,000 square feet. The Company also owns approximately 5.3 acres of undeveloped property adjacent to its headquarters, which is presently being held for future office expansion. The Company leases additional space for sales offices in Foxboro, Massachusetts; Atlanta, Georgia; Plano, Texas; Palatine, Illinois; Irvine, California; Kawasaki, Japan; Velizy, France; East Sussex, England; Remseck and Munich, Germany; and Taipei, Taiwan. 10 MANAGEMENT The names of the Company's executive officers and directors, and their ages as of March 31, 2000, are as follows:
NAME AGE POSITION - ---- --- -------- Donald L. Ciffone, Jr................... 44 Chief Executive Officer, President and Director Michael Class........................... 42 Vice President, Worldwide Sales Roubik Gregorian........................ 50 Chief Technology Officer, Senior Vice President/General Manager, Communications Division Ronald W. Guire......................... 51 Executive Vice President, Chief Financial Officer, Secretary and Director Susan J. Hardman........................ 38 Vice President, Corporate Marketing Thomas W. Jones......................... 52 Vice President, Reliability and Quality Assurance Thomas R. Melendrez..................... 46 Corporate Vice President, General Counsel Stephen W. Michael...................... 53 Vice President, Operations Division John Sramek............................. 49 Vice President and General Manager, Video and Imaging Division Raimon L. Conlisk....................... 77 Chairman of the Board of Directors Frank P. Carrubba....................... 62 Director James E. Dykes.......................... 62 Director Richard Previte......................... 65 Director
DONALD L. CIFFONE, JR. joined Exar as Chief Executive Officer and President in October 1996 and was appointed director at that time. From August 1996 to October 1996, Mr. Ciffone was Executive Vice President of Toshiba America, the U.S. semiconductor subsidiary of Toshiba Semiconductor. Prior to joining Toshiba, he served from 1991 to 1996 in a variety of senior management positions at VLSI Technology, Inc. From 1978 to 1991, Mr. Ciffone held a variety of marketing and operations positions at National Semiconductor, Inc. Mr. Ciffone holds an M.B.A. from the University of Santa Clara. MICHAEL CLASS joined Exar as Director of Western Area Sales in 1996. In January 1998, he was promoted to the position of Vice President, North American/European Sales and was promoted to Vice President, Worldwide Sales in July, 1999. Mr. Class has over 20 years of experience in the semiconductor industry, most recently with IC Works, Inc. as Area Sales Manager for Western U.S. and Canada. Prior to joining IC Works, Mr. Class held various sales management positions with Intel Corporation and VLSI from 1979 to 1995. He holds a B.S. in Electrical Engineering from Lehigh University and an M.B.A. from LaSalle University. ROUBIK GREGORIAN joined Exar in March 1995 as Vice President, Startech Division, when the Company acquired Startech Semiconductor, Inc., where he served as President. He was appointed Chief Technology Officer and Vice President of the Communications Division in June 1996, and to his current position as Chief Technology Officer, Senior Vice President/General Manager, Communications Division, in June 1998. Prior to joining Startech in 1994, Dr. Gregorian was Vice President of Research and Development and Chief Technology Officer for Sierra Semiconductor, Inc. Dr. Gregorian has been issued 16 patents and received his M.S.E.E. and Ph.D. in Electrical Engineering from the University of California at Los Angeles, as well as an M.S.E.E. from Tehran University. RONALD W. GUIRE joined Exar in July 1984 and has been a director since June 1985. He has served as Chief Financial Officer since May 1985 and Executive Vice President since July 1995. Mr. Guire is also Chairman of the Board of Xetel Corporation, an electronics contract manufacturer. Mr. Guire was a partner in the certified public accounting firm of Graubart & Co. from 1979 until he joined Exar in July 1984. Mr. Guire holds a B.S. in Accounting from California College of Commerce. SUSAN J. HARDMAN joined Exar in February 1997 and became Vice President, Corporate Marketing in February 2000. Prior to this position, she served as Senior Director of Business Development as well as Director of Marketing for the Company's communication products. Ms. Hardman has over 16 years experience in the semiconductor industry. From 1989 to 1997, Ms. Hardman was with VLSI in a variety of management positions, most recently as Director of Product Marketing for 11 VLSI's networking products division. From 1983 to 1989, she was with Motorola holding a variety of engineering roles. Ms. Hardman holds a B.S. in Chemical Engineering from Purdue University and an M.B.A. from the University of Phoenix. THOMAS W. JONES joined Exar as Director of Total Quality Management in October 1992 and became Director of Reliability and Quality Assurance in November 1992. He was promoted to his current position of Vice President, Reliability and Quality Assurance in July 1995. Mr. Jones has over 30 years of industry experience, most recently with LSI Logic, Inc., as Director of Quality Assurance. Mr. Jones joined LSI in September 1990. In December 1989, Mr. Jones joined Elcon Products International as Director of Manufacturing. From 1970 to December 1989, he was with Siliconix, where he held various management positions including Director of Operations and Director of Quality and Reliability. Mr. Jones holds a B.S.E.E. equivalent degree from Port Talbot College of Technology. THOMAS R. MELENDREZ joined Exar in April 1986 as Corporate Attorney. He was promoted to Director, Legal Affairs in July 1991, and again to Corporate Vice President, Legal Affairs in March 1993. In March 1996, Mr. Melendrez was promoted to his current position of Corporate Vice President, General Counsel. Mr. Melendrez has over 20 years legal experience in the semiconductor and related industries. He received a B.A. from the University of Notre Dame and a J.D. from the University of San Francisco. STEPHEN W. MICHAEL joined Exar as Vice President New Market Development in September 1992. In July 1995, he was appointed to his current position of Vice President, Operations Division. Mr. Michael has over 20 years of semiconductor industry experience, most recently as Vice President and General Manager, Analog and Custom Products with Catalyst Semiconductor. He joined Catalyst in 1987 and served in various senior positions. JOHN SRAMEK joined Exar as Group Manager for the Micro Power Business Unit in June of 1994 and served in a variety of senior marketing positions until his promotion to his current position as Vice President, Video and Imaging Division, in February 1998. Mr. Sramek has over 20 years of experience in sales and product marketing in the semiconductor industry with a variety of companies including Micro Power Systems, Inc., Harris Semiconductor and Genrad Inc. Mr. Sramek holds a B.A. in English Literature and a B.S. in Electrical Engineering from Bucknell University and an M.B.A. from the University of Santa Clara. RAIMON L. CONLISK joined Exar as a director in August 1985, was appointed Vice Chairman of the Board in August 1990, and was appointed Chairman of the Board in April 1995. Mr. Conlisk has also served as a director since 1991 and was appointed Chairman of the Board in December 1997 of SBE, Inc., a manufacturer of communications and computer products. From 1977 to 1999, Mr. Conlisk was President of Conlisk Associates, a management consulting firm serving high-technology companies in the United States and foreign countries. From 1991 to 1998, Mr. Conlisk served as a director of Xetel Corporation, a contract manufacturer of electronic equipment. Mr. Conlisk was also President from 1984 to 1989, a director from 1970 and Chairman from 1989 until retirement in June 1990, of Quantic Industries, Inc., a privately held manufacturer of electronic systems. From 1970 to 1973 and from 1987 to 1990, Mr. Conlisk served as a director of the American Electronics Association. FRANK P. CARRUBBA joined Exar as a director in August 1998. Dr. Carrubba served as Executive Vice President and Chief Technical Officer of Royal Philips Electronics, headquartered in Eindhoven, the Netherlands, from 1991 to 1997. From 1982 to 1991, Dr. Carrubba was with the Hewlett-Packard Company, where he was a member of the Group Management Committee and was Director of H-P Laboratories. Prior to joining Hewlett-Packard, he spent 22 years as a member of the technical staff at IBM Corporation's Thomas J. Watson Research Laboratory in Yorktown Heights, New York. Dr. Carrubba was one of the original designers of RISC Architecture, for which he was named Inventor of the Year in 1992. Dr. Carrubba is also a Director of Coherent, Inc., a developer and manufacturer of lasers, laser systems and precision optics. JAMES E. DYKES joined Exar as a director in May 1994. Mr. Dykes served as President and CEO of the Signetics division of North American Philips Corporation, a manufacturer of industrial and consumer electronics, from 1989 to 1993 and, from 1987 to 1988, as President and CEO of TSMC, a semiconductor foundry in Taiwan. Prior to joining TSMC, Mr. Dykes held various management positions with other semiconductor and related companies, including General Electric Company, a diversified international manufacturer of defense, electrical and other products, and Harris Semiconductor, Inc., a manufacturer of integrated circuits. From August 1994 to June 1997, Mr. Dykes served as President and Chief Operating Officer of Intellon Corp., a wireless network communications company. From July 1997 to July 1998, Mr. Dykes served as 12 Executive Vice President, Corporate Development of the Thomas Group, Inc., a management services company. Mr. Dykes is also a director of the Thomas Group Inc., Cree Research, Inc., a developer of blue light-emitting diodes, and Thesus Logic, Inc., a privately held semiconductor company. RICHARD PREVITE joined Exar as a director in October 1999. Mr. Previte is Chief Executive Officer and Chairman of the Board of Directors of marketFusion. He was a director from 1990 to April 2000 and Vice Chairman from 1999 to April 2000 of the Board of Directors of Advanced Micro Devices, or AMD. Additionally, Mr. Previte served as Chairman of the Board from 1997 to June 1999, and acted as Chief Executive Officer from February 1999 to June 1999 of Vantis Corporation, a subsidiary of AMD. Mr. Previte served as President of AMD from 1990 to 1999, Executive Vice President and Chief Operating Officer from 1989 to 1990 and Chief Financial Officer and Treasurer from 1969 to 1989. RISK FACTORS In addition to the other information contained in this Annual Report on Form 10-K and other reports filed by the Company with the Securities and Exchange Commission, you should consider the following factors in evaluating the Company and its business. If any of the following risks actually occur, the Company's business could be harmed. This could cause the price of EXAR's stock to decline. This Annual Report on Form 10-K contains forward-looking statements that involve risks and uncertainties, including statements about future plans, objectives, intentions and expectations. Many factors, including those described below, could cause actual results to differ materially from those discussed in any forward-looking statement. THE COMPANY'S OPERATING RESULTS FLUCTUATE SIGNIFICANTLY BECAUSE OF A NUMBER OF FACTORS, MANY OF WHICH ARE BEYOND THE COMPANY'S CONTROL. The Company's operating results fluctuate significantly. Some of the factors that affect the Company's quarterly and annual results, many of which are difficult to control or predict, are: - the reduction, rescheduling or cancellation of orders by customers; - fluctuations in the timing and amount of customer requests for product shipments; - fluctuations in the manufacturing output, yields and inventory levels of the Company's suppliers; - changes in the mix of products that the Company's customers purchase; - the Company's ability to introduce new products on a timely basis; - the announcement or introduction of products by the Company's competitors; - the availability of third-party foundry capacity and raw materials; - competitive pressures on selling prices; - the amounts and timing of costs associated with product warranties and returns; - the amounts and timing of investments in research and development; - market acceptance of the Company's products; - costs associated with acquisitions and the integration of acquired operations; - the ability of the Company's customers to obtain components from their other suppliers; - general conditions in the communications and semiconductor industries; - fluctuations in interest rates; and 13 - general economic conditions. THE COMPANY'S MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE; THEREFORE, THE COMPANY'S SUCCESS DEPENDS ON ITS ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS. The markets for the Company's products are characterized by: - rapidly changing technologies; - changing customer needs; - frequent new product introductions and enhancements; - increased integration with other functions; and - rapid product obsolescence. To develop new products for the Company's target markets, the Company must develop, gain access to and use leading technologies in a cost-effective and timely manner and continue to expand its technical and design expertise. In addition, the Company must have its products designed into its customers' future products and maintain close working relationships with key customers in order to develop new products that meet their changing needs. In addition, products for communications applications are based on continually evolving industry standards. The Company's ability to compete will depend on its ability to identify and ensure compliance with these industry standards. As a result, the Company could be required to invest significant time and effort and to incur significant expense to redesign its products to ensure compliance with relevant standards. The Company cannot assure you that it will be able to identify new product opportunities successfully, develop and bring to market new products, achieve design wins or respond effectively to new technological changes or product announcements by its competitors. In addition, the Company may not be successful in developing or using new technologies or in developing new products or product enhancements that achieve market acceptance. The Company's pursuit of necessary technological advances may require substantial time and expense. Failure in any of these areas could harm its operating results. THE COMPANY'S FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF ITS KEY ENGINEERING AND MANAGEMENT PERSONNEL AND ITS ABILITY TO IDENTIFY, HIRE AND RETAIN ADDITIONAL PERSONNEL. There is intense competition for qualified personnel in the semiconductor industry, in particular the highly skilled design, applications and test engineers involved in the development of new communications ICs. Competition is especially intense in the Silicon Valley, where the Company's corporate headquarters is located. The Company may not be able to continue to attract and retain engineers or other qualified personnel necessary for the development of its business or to replace engineers or other qualified personnel who may leave it's employ in the future. The Company's anticipated growth is expected to place increased demands on its resources and will likely require the addition of new management and engineering personnel and the development of additional expertise by existing management personnel. Loss of the services of, or failure to recruit, key engineers or other technical and management personnel could harm its business. THE COMPANY DEPENDS ON THIRD PARTY FOUNDRIES TO MANUFACTURE ITS ICS. The Company does not own or operate a semiconductor fabrication facility. Most of its products are based on CMOS processes. Although two foundries manufacture its products based on CMOS processes, most are manufactured at a single foundry. In addition, one foundry manufactures most of the Company's BiCMOS products. The Company does not have long-term wafer supply agreements with its CMOS foundries that guarantee wafer or product quantities, prices, delivery or lead times, as its CMOS foundries manufacture its products on a purchase order basis. The Company provides these foundries with rolling forecasts of its production requirements; however, the ability of each foundry to provide wafers to the Company is limited by the foundry's available capacity. Therefore, the Company's CMOS foundries could choose to 14 prioritize capacity for other customers or reduce or eliminate deliveries to it on short notice. Accordingly, the Company cannot be certain that these foundries will allocate sufficient capacity to satisfy its requirements. In addition, the Company cannot be certain that it will continue to do business with its foundries on terms as favorable as its current terms. Other significant risks associated with the Company's reliance on third-party foundries include: - the lack of control over delivery schedules; - the unavailability of, or delays in obtaining access to, key process technologies; - limited control over quality assurance, manufacturing yields and production costs; and - potential misappropriation of the Company's intellectual property. The Company could experience a substantial delay or interruption in the shipment of its products or an increase in its costs due to the following: - a sudden demand for semiconductor devices; - a manufacturing disruption experienced by one or more of the Company's foundries or sudden reduction or elimination of any existing source or sources of semiconductor devices; - time required to identify or qualify alternative manufacturing sources for existing or new products; or - failure of the Company's suppliers to obtain the raw materials and equipment used in the production of its ICs. TO SECURE FOUNDRY CAPACITY, THE COMPANY MAY BE REQUIRED TO ENTER INTO FINANCIAL AND OTHER ARRANGEMENTS WITH FOUNDRIES, AND SUCH AGREEMENTS MAY RESULT IN THE DILUTION OF ITS EARNINGS OR THE OWNERSHIP OF ITS STOCKHOLDERS OR OTHERWISE HARM ITS OPERATING RESULTS. Allocation of a foundry's manufacturing capacity may be influenced by a customer's size or the existence of a long-term agreement with the foundry. To address foundry capacity constraints, the Company and other semiconductor companies that rely on third-party foundries have utilized various arrangements, including equity investments in or loans to foundries in exchange for guaranteed production capacity, joint ventures to own and operate foundries, or "take or pay" contracts that commit a company to purchase specified quantities of wafers over extended periods. While the Company is not currently a party to any of these arrangements, it may decide to enter into these arrangements in the future. The Company cannot be sure, however, that these arrangements will be available to it on acceptable terms, if at all. Any of these arrangements could require the Company to commit substantial capital and, accordingly, could require it to obtain additional debt or equity financing. This could result in the dilution of its earnings or the ownership of its stockholders or otherwise harm its operating results. IF THE COMPANY'S FOUNDRIES DISCONTINUE THE MANUFACTURING PROCESSES NEEDED TO MEET ITS DEMANDS, OR FAIL TO UPGRADE THE TECHNOLOGIES NEEDED TO MANUFACTURE ITS PRODUCTS, THE COMPANY MAY FACE PRODUCTION DELAYS. The Company's wafer and product requirements typically represent a small portion of the total production of the foundries that manufacture its products. As a result, the Company is subject to the risk that a foundry will cease production on an older or lower-volume process that it uses to produce its parts. Additionally, the Company cannot be certain its foundries will continue to devote resources to the production of its products or continue to advance the process design technologies on which the manufacturing of its products is based. Each of these events could increase the Company's costs and harm its ability to deliver its products on time. THE MARKETS IN WHICH THE COMPANY PARTICIPATES ARE INTENSELY COMPETITIVE. The Company's target markets are intensely competitive. The Company's ability to compete successfully in its target markets depends on the following factors: 15 - designing new products that implement new technologies; - subcontracting the manufacture of new products and delivering them in a timely manner; - product quality and reliability; - technical support and service; - timely product introduction; - product performance; - product features; - price; - end-user acceptance of the Company's customers' products; - compliance with evolving standards; and - market acceptance of competitors' products. In addition, the Company's competitors or customers may offer new products based on new technologies, industry standards or end-user or customer requirements, including products that have the potential to replace or provide lower-cost or higher-performance alternatives to its products. The introduction of new products by the Company's competitors or customers could render the Company's existing and future products obsolete or unmarketable. In addition, the Company's competitors and customers may introduce products that integrate the functions performed by its ICs on a single IC, thus eliminating the need for the Company's products. Because the IC markets are highly fragmented, the Company generally encounters different competitors in its various market areas. Competitors with respect to the Company's communications products include Conexant Systems Inc., PMC-Sierra, Inc. and TranSwitch Corporation. In addition, the expansion of the Company's communications product portfolio may in the future bring it into competition with other established communications IC companies, such as Applied Micro Circuits Corp. and Vitesse Semiconductor Corporation. Competitors in the Company's other markets include Analog Devices Incorporated, Philips Electronics and Texas Instruments Incorporated. Many of the Company's competitors have greater financial, technical and management resources than the Company does. Some of these competitors may be able to sell their products at prices below which it would be profitable for the Company to sell its products. IF THE COMPANY IS UNABLE TO FURTHER PENETRATE THE MARKETS FOR COMMUNICATIONS ICS, OR IF THESE MARKETS FAIL TO GROW AS EXPECTED, ITS REVENUES COULD STOP GROWING AND MAY DECLINE. A significant portion of the Company's revenues in recent periods has been, and is expected to continue to be, derived from sales of communications ICs, particularly products based on the T/E carrier and ATM transmission standards. In order for the Company to be successful, it must continue to penetrate these markets. Furthermore, if these markets fail to grow as expected, the Company's business could be harmed. THE COMPANY EXPECTS THAT REVENUES CURRENTLY DERIVED FROM NON-COMMUNICATIONS PRODUCTS WILL DECLINE IN FUTURE PERIODS, AND ITS BUSINESS WILL BE HARMED IF ITS COMMUNICATIONS PRODUCTS FAIL TO COMPENSATE FOR THIS DECLINE. The Company does not intend to increase its funding of development efforts relating to its video and imaging and other non-communications products, and as a result revenues from these products may decline in future periods. In addition, the markets for these products are subject to extreme price competition, and the Company may not be able to reduce its costs in response to declining average selling prices. Even if the Company reduces its costs, its customers in these markets may not 16 purchase these products. Moreover, these markets may decrease in size in the future. If the Company's communications products fail to compensate for any revenue shortfall, its business could be harmed. THE COMPANY'S DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO ASSEMBLE AND TEST ITS PRODUCTS SUBJECTS IT TO A NUMBER OF RISKS, INCLUDING AN INADEQUATE SUPPLY OF PRODUCTS AND HIGHER MATERIALS COSTS. The Company depends on independent subcontractors for the assembly and testing of its products. The Company's reliance on these subcontractors involves the following significant risks: - reduced control over delivery schedules and quality; - the potential lack of adequate capacity during periods of excess demand; - difficulties selecting and integrating new subcontractors; - limited warranties on products supplied to the Company; - potential increases in prices due to capacity shortages and other factors; and - potential misappropriation of the Company's intellectual property. These risks may lead to delayed product delivery or increased costs, which would harm the Company's profitability and customer relationships. THE COMPANY'S RELIANCE UPON FOREIGN SUPPLIERS EXPOSES IT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS. The Company uses semiconductor wafer foundries and assembly and test subcontractors throughout Asia for most of its products. The Company intends to continue transferring its testing and shipping operations to foreign subcontractors. The Company's dependence on these subcontractors involves the following substantial risks: - political and economic instability; - disruption to air transportation from Asia; - changes in tax laws, tariffs and freight rates; and - compliance with local or foreign regulatory reguirements. These risks may lead to delayed product delivery or increased costs, which would harm the Company's profitability and customer relationships. THE COMPANY'S RELIANCE ON FOREIGN CUSTOMERS COULD CAUSE FLUCTUATIONS IN ITS OPERATING RESULTS. International sales accounted for 32.8% and 36.5% of net sales for fiscal years 2000 and 1999, respectively. International sales may account for an increasing portion of the Company's revenues, which would subject it to the following risks: - changes in regulatory requirements; - tariffs and other barriers; - timing and availability of export licenses; - political and economic instability; 17 - difficulties in accounts receivable collections; - difficulties in staffing and managing foreign subsidiary and branch operations; - difficulties in managing distributors; - difficulties in obtaining governmental approvals for communications and other products; - limited intellectual property protection; - foreign currency exchange fluctuations; - the burden of complying with and the risk of violating a wide variety of complex foreign laws and treaties; and - potentially adverse tax consequences. In addition, because sales of the Company's products have been denominated to date primarily in United States Dollars (except in Japan, where the Company transacts a portion of its business in Japanese Yen), increases in the value of the United States Dollar could increase the relative price of the Company's products so that they become more expensive to customers in the local currency of a particular country. Future international activity may result in increased foreign currency denominated sales. Furthermore, because some of the Company's customer purchase orders and agreements are governed by foreign laws, the Company may be limited in its ability to enforce its rights under these agreements and to collect damages, if awarded. THE COMPANY RELIES ON ITS DISTRIBUTORS AND SALES REPRESENTATIVES TO SELL MANY OF ITS PRODUCTS. The Company sells many of its products through distributors and sales representatives. The Company's distributors and sales representatives could reduce or discontinue sales of its products. They may not devote the resources necessary to sell the Company's products in the volumes and within the time frames that it expects. In addition, the Company depends upon the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. These distributors and sales representatives, in turn, depend substantially on general economic conditions and conditions within the semiconductor industry. The Company believes that its success will continue to depend upon these distributors and sales representatives. If some or all of the Company's distributors and sales representatives experience financial difficulties, or otherwise become unable or unwilling to promote and sell its products, the Company's business could be harmed. BECAUSE THE COMPANY'S COMMUNICATIONS ICS TYPICALLY HAVE LENGTHY SALES CYCLES, THE COMPANY MAY EXPERIENCE SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND DEVELOPMENT AND THE GENERATION OF SALES REVENUE. Due to the communications IC product cycle, it usually takes the Company more than 12 months to realize volume shipments after it first contacts a customer. The Company first works with customers to achieve a design win, which may take nine months or longer. The Company's customers then complete the design, testing and evaluation process and begin to ramp up production, a period which typically lasts an additional three months or longer. As a result, a significant period of time may elapse between the Company's research and development efforts and its realization of revenue, if any, from volume purchasing of the Company's communications products by its customers. THE COMPANY'S BACKLOG MAY NOT RESULT IN FUTURE REVENUE. Due to possible customer changes in delivery schedules and cancellations of orders, the Company's backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. A reduction of backlog during any particular period, or the failure of the Company's backlog to result in future revenue, could harm the Company's business. 18 THE COMPANY'S OPERATING EXPENSES ARE RELATIVELY FIXED, AND IT MAY ORDER MATERIALS IN ADVANCE OF ANTICIPATED CUSTOMER DEMAND. THEREFORE, THE COMPANY HAS LIMITED ABILITY TO REDUCE EXPENSES QUICKLY IN RESPONSE TO ANY REVENUE SHORTFALLS. The Company's operating expenses are relatively fixed, and, therefore, it has limited ability to reduce expenses quickly in response to any revenue shortfalls. Consequently, the Company's operating results will be harmed if its revenues do not meet its revenue projections. The Company may experience revenue shortfalls for the following reasons: - significant pricing pressures that occur because of declines in average selling prices over the life of a product; - sudden shortages of raw materials or fabrication, test or assembly capacity constraints that lead the Company's suppliers to allocate available supplies or capacity to other customers and, in turn, harm the Company's ability to meet its sales obligations; and - the reduction, rescheduling or cancellation of customer orders. In addition, the Company typically plans its production and inventory levels based on internal forecasts of customer demand, which is highly unpredictable and can fluctuate substantially. From time to time, in response to anticipated long lead times to obtain inventory and materials from the Company's outside suppliers and foundries, it may order materials in advance of anticipated customer demand. This advance ordering may result in excess inventory levels or unanticipated inventory write-downs if expected orders fail to materialize. PERIODS OF RAPID GROWTH AND EXPANSION COULD CONTINUE TO PLACE A SIGNIFICANT STRAIN ON THE COMPANY'S LIMITED PERSONNEL AND OTHER RESOURCES. To manage the Company's possible future growth effectively, the Company will be required to continue to improve its operational, financial and management systems and to successfully hire, train, motivate and manage its employees. In addition, the integration of past and future potential acquisitions and the evolution of the Company's business plan will require significant additional management, technical and administrative resources. The Company cannot be certain that it will be able to manage the growth and evolution of its current business effectively. EXAR HAS IN THE PAST AND MAY IN THE FUTURE MAKE ACQUISITIONS, WHICH WILL INVOLVE NUMEROUS RISKS. EXAR CANNOT ASSURE THAT IT WILL BE ABLE TO ADDRESS THESE RISKS SUCCESSFULLY WITHOUT SUBSTANTIAL EXPENSE, DELAY OR OTHER OPERATIONAL OR FINANCIAL PROBLEMS. The risks involved with acquisitions include: - diversion of management's attention; - failure to retain key personnel; - amortization of acquired intangible assets; - customer dissatisfaction or performance problems with an acquired company; - the cost associated with acquisitions and the integration of acquired operations; and - assumption of known or unknown liabilities or other unanticipated events or circumstances. The Company cannot assure that it will be able to address these risks successfully without substantial expense, delay or other operational or financial problems. 19 THE COMPANY MAY NOT BE ABLE TO PROTECT ITS INTELLECTUAL PROPERTY RIGHTS ADEQUATELY. The Company's ability to compete is affected by its ability to protect its intellectual property rights. The Company relies on a combination of patents, trademarks, copyrights, mask work registrations, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect its intellectual property rights. Despite these efforts, the Company cannot be certain that the steps it takes to protect its proprietary information will be adequate to prevent misappropriation of the Company's technology, or that its competitors will not independently develop technology that is substantially similar or superior to the Company's technology. More specifically, the Company cannot be sure that its pending patent applications or any future applications will be approved, or that any issued patents will provide it with competitive advantages or will not be challenged by third parties. Nor can the Company be sure that, if challenged, the Company's patents will be found to be valid or enforceable, or that the patents of others will not have an adverse effect on the Company's ability to do business. Furthermore, others may independently develop similar products or processes, duplicate the Company's products or processes or design around any patents that may be issued to it. THE COMPANY COULD BE HARMED BY LITIGATION INVOLVING PATENTS AND OTHER INTELLECTUAL PROPERTY RIGHTS. As a general matter, the semiconductor industry is characterized by substantial litigation regarding patent and other intellectual property rights. The Company may be accused of infringing the intellectual property rights of third parties. Furthermore, the Company has certain indemnification obligations to customers with respect to the infringement of third-party intellectual property rights by its products. The Company cannot be certain that infringement claims by third parties or claims for indemnification by customers or end users of its products resulting from infringement claims will not be asserted in the future or that such assertions, if proven to be true, will not harm its business. Any litigation relating to the intellectual property rights of third parties, whether or not determined in the Company's favor or settled by the Company, would at a minimum be costly and could divert the efforts and attention of its management and technical personnel. In the event of any adverse ruling in any such litigation, the Company could be required to pay substantial damages, cease the manufacturing, use and sale of infringing products, discontinue the use of certain processes or obtain a license under the intellectual property rights of the third party claiming infringement. A license might not be available on reasonable terms, or at all. EARTHQUAKES AND OTHER NATURAL DISASTERS MAY DAMAGE THE COMPANY'S FACILITIES OR THOSE OF ITS SUPPLIERS. The Company's corporate headquarters in Fremont, California is located near major earthquake faults that have experienced earthquakes in the past. In addition, some of its suppliers are located near fault lines. In the event of a major earthquake or other natural disaster near its headquarters, the Company's operations could be harmed. Similarly, a major earthquake or other natural disaster near one or more of the Company's major suppliers, like the one that occurred in Taiwan in September 1999, could disrupt the operations of those suppliers, which could limit the supply of the Company's products and harm its business. THE COMPANY'S STOCK PRICE IS VOLATILE. The market price of the Company's common stock has fluctuated significantly to date. In the future, the market price of its common stock could be subject to significant fluctuations due to: - quarter-to-quarter variations in the Company's anticipated or actual operating results; - announcements or introductions of new products; - technological innovations or setbacks by the Company or its competitors; - conditions in the communications and semiconductor markets; 20 - the commencement of litigation; - changes in estimates of the Company's performance by securities analysts; - announcements of merger or acquisition transactions; and - general economic and market conditions. In addition, the stock market in recent years has experienced extreme price and volume fluctuations that have affected the market prices of many high technology companies, including semiconductor companies, and that have often been unrelated or disproportionate to the operating performance of companies. These fluctuations may harm the market price of the Company's common stock. THE ANTI-TAKEOVER PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND OF THE DELAWARE GENERAL CORPORATION LAW MAY DELAY, DEFER OR PREVENT A CHANGE OF CONTROL. The Company's board of directors has the authority to issue up to 2,250,000 shares of preferred stock and to determine the price, rights, preferences and privileges and restrictions, including voting rights, of those shares without any further vote or action by its stockholders. The rights of the holders of common stock will be subject to, and may be harmed by, the rights of the holders of any shares of preferred stock that may be issued in the future. The issuance of preferred stock may delay, defer or prevent a change in control, as the terms of the preferred stock that might be issued could potentially prohibit the Company's consummation of any merger, reorganization, sale of substantially all of its assets, liquidation or other extraordinary corporate transaction without the approval of the holders of the outstanding shares of preferred stock. In addition, the issuance of preferred stock could have a dilutive effect on the Company's stockholders. The Company's stockholders must give 120 days advance notice prior to the relevant meeting to nominate a candidate for director or present a proposal to the Company's stockholders at a meeting. These notice requirements could inhibit a takeover by delaying stockholder action. The Company may trigger its stockholder rights plan in the event its board of directors does not agree to an acquisition proposal. The rights plan may make it more difficult and costly to acquire the Company. The Delaware anti-takeover law restricts business combinations with some stockholders once the stockholder acquires 15% or more of the Company's common stock. The Delaware statute makes it more difficult for the Company to be acquired without the consent of its board of directors and management. IF THE COMPANY HAS NOT ADEQUATELY PREPARED FOR THE TRANSITION TO YEAR 2000, ITS BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD SUFFER. The Company has executed a plan designed to make its computer systems, applications, computer and manufacturing equipment and facilities Year 2000 ready. To date, none of the Company's systems, applications, equipment or facilities have experienced material difficulties from the transition to Year 2000, nor has the Company been notified that any of its suppliers have had any such difficulties. However, due to the breadth of potential issues related to the Year 2000, the Company cannot guarantee that it will not experience any problems in the future and the final determination may take several months. Where practicable, the Company has attempted to mitigate its risks with respect to any failures of its critical external suppliers related to the Year 2000. The effect on the Company's results of operations from any failure of its systems, applications, equipment or facilities, or its critical external suppliers, related to the Year 2000 issue cannot yet be determined. ITEM 2 PROPERTIES The Company's corporate headquarters are located in Fremont, California and consist of approximately 151,000 square feet. The land and building are owned by the Company and house Exar's principal administrative, test, engineering, marketing, customer service and sales departments. ITEM 3 LEGAL PROCEEDINGS There are no material legal actions pending or contemplated. 21 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the quarter ended March 31, 2000. 22 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS The Common Stock of Exar is traded on the Nasdaq National Market under the symbol "EXAR." The following table sets forth the range of high and low sales prices for the Company's Common Stock for the periods indicated, as reported by Nasdaq, as adjusted for a three-for-two stock split effected on February 15, 2000. The listed quotations represent inter-dealer prices without retail markup, markdown or commissions. - ------------------------------------------------------------------------------- COMMON STOCK PRICES
HIGH LOW ---- --- FISCAL 2000 Quarter ended March 31, 2000 $99.63 $38.00 Quarter ended December 31, 1999 $43.08 $21.00 Quarter ended September 30, 1999 $26.00 $17.00 Quarter ended June 30, 1999 $16.92 $10.58 FISCAL 1999 Quarter ended March 31, 1999 $11.25 $ 8.75 Quarter ended December 31, 1998 $12.50 $ 8.00 Quarter ended September 30, 1998 $14.42 $ 9.25 Quarter ended June 30, 1998 $17.13 $12.08 - -------------------------------------------------------------------------------
The Company has never paid dividends on its Common Stock and presently intends to continue this policy in order to retain earnings for use in its business. The Company had approximately 206 stockholders of record as of May 31, 2000. The Company believes it has in excess of 3,900 beneficial stockholders. The last sales price for Exar's Common Stock, as reported by Nasdaq on May 31, 1999, was $68.75 per share. 23 ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
- ---------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED MARCH 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Consolidated Statements of Operations Data: Net Sales $ 78,544 $ 71,868 $ 102,015 $ 92,343 $ 125,766 Gross Profit 44,402 38,482 50,078 36,883 63,549 Income (Loss) From Operations 3,946 4,051 8,986 (15,238) 18,759 Net Income (Loss) 15,115 5,424 7,518 (9,197) 13,582 Net Income (Loss) Per Share: Basic $ 1.04 $ 0.39 $ 0.54 $ (0.68) $ 0.95 Diluted $ 0.93 $ 0.38 $ 0.52 $ (0.68) $ 0.91 Shares Used in Computation of Net Income (Loss) Per Share: Basic 14,480 14,088 13,989 13,606 14,243 Diluted 16,197 14,400 14,595 13,606 14,888 - ----------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------- YEARS ENDED MARCH 31, (IN THOUSANDS) 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- Consolidated Balance Sheet Data: Working Capital $ 393,570 $ 91,885 $ 90,395 $ 68,822 $ 77,550 Total Assets 438,433 138,296 143,669 125,537 139,074 Long-term Obligations 574 664 745 880 979 Retained Earnings 72,239 57,124 51,700 44,182 53,379 Stockholders' Equity 425,041 125,757 123,729 109,817 117,847 - ------------------------------------------------------------------------------------------------------------------------------------
24 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, AS WELL AS IN THE SECTION ENTITLED "RISK FACTORS." OVERVIEW The Company designs, develops and markets analog and mixed-signal ICs for the communications markets and the video and imaging markets. The Company's primary customers are large communications OEMs. Over the past several years, the Company has actively refocused its business on products for the communications markets. In the 1970's, the Company designed, manufactured and marketed custom and general purpose analog circuits supporting many different applications. In the 1980's, the Company transitioned its products to analog and mixed-signal application specific standard products, or ASSPs, focusing on telecommunications, data communications, computer peripherals and consumer electronics. Through the mid-1990's, the Company continued this product transition through internal development and strategic acquisitions and moved to a fabless semiconductor business model. In 1997, the Company chose to focus its product strategy and development efforts on the communications markets. For that year, the Company's communications products represented 43.2% of its net sales. For the year ended March 31, 2000, the Company's communications product sales increased to 74.2% of its net sales. The Company's international sales represented 32.8%, 36.5% and 41.2% of the Company's net sales for the years ended March 31, 2000, 1999 and 1998. These international sales consist of sales from the United States to overseas customers and sales by its wholly-owned subsidiary in Japan. Sales by the Company's Japanese subsidiary are denominated in Yen, while all other international sales are denominated in United States Dollars. The Company's international operations give rise to exposures from changes in currency exchange rates. The Company has adopted a set of practices to minimize its foreign currency risk which include the occasional use of foreign currency exchange contracts to hedge amounts receivable from its foreign subsidiaries. In addition, foreign sales may be subject to tariffs in certain countries or with regard to certain products; however, the Company's profit margin on international sales of ICs, adjusted for differences in product mix, is not significantly different from that realized on its sales to domestic customers. The Company recognizes revenue from the sale of products when shipped. The Company's distributor agreements generally permit the return of up to 10% of their purchases annually for purposes of stock rotation and also provide for credits to distributors in the event the Company reduces the price of any product. The Company records an allowance based on future authorized and historical patterns of returns, price protection and other concessions at the time revenue is recognized. The Company's gross margins vary depending on product mix, competition, the volume of products sold, its suppliers' ability to achieve certain manufacturing efficiencies and the cost of materials procured from its suppliers. The Company's newer analog and mixed-signal products, especially its communications products, generally have higher gross margins than its more mature products, and margins of any particular product may erode over time. 25 RESULTS OF OPERATIONS The following table sets forth for the periods indicated the percentage relationship to net sales of certain cost, expense and income items. The table and subsequent discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto.
FISCAL YEARS ENDED MARCH 31, ----------------------------------------- 2000 1999 1998 --------- -------- ------- Net sales.................................................... 100.0% 100.0% 100.0% Cost of sales................................................ 43.5 46.5 50.9 ---------- --------- -------- Gross profit................................................. 56.5 53.5 49.1 Research and development..................................... 21.3 18.9 15.3 Selling, general and administrative.......................... 29.6 27.1 22.8 Goodwill amortization........................................ 0.6 0.9 1.0 Restructuring and other charges.............................. 1.0 Acquisition and related expenses............................. 1.2 ---------- --------- -------- Operating income............................................. 5.0 5.6 8.8 Other income, net............................................ 23.2 6.6 3.2 ---------- --------- -------- Income before income taxes................................... 28.2 12.2 12.0 Income taxes................................................. 9.0 4.6 4.7 ---------- --------- -------- Net income .................................................. 19.2% 7.6% 7.3% ========== ========= ========
PRODUCT LINE SALES AS A PERCENTAGE OF NET SALES The following table sets forth product line revenue information as a percentage of net sales. The table and subsequent discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto.
FISCAL YEARS ENDED MARCH 31, --------------------------------------- 2000 1999 1998 -------- -------- -------- Communications............................................... 74.2% 57.1% 47.8% Video and Imaging............................................ 18.1 21.4 25.0 Other........................................................ 7.7 21.5 27.2 --------- --------- --------- 100.0% 100.0% 100.0% ========= ========= =========
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999 NET SALES. Net sales for the fiscal year ended March 31, 2000 increased by 9.3% to $78.6 million, compared to $71.9 million for the fiscal year ended March 31, 1999. This increase was primarily due to a 42.0% or $17.2 million increase in sales of the Company's communications products. This increase in communications product sales was fueled by increased sales of the Company's serial communications products and increased sales of its data transmission products as both of these product lines gained market acceptance and design wins. This increase was offset by decreases in sales of discontinued consumer and custom products in the Company's legacy product lines (due in part to the fiscal 1999 closure of one of the Company's third-party wafer fabrication facilities), as well as the sale of the Company's silicon microstructures business unit and related product lines in November 1998. 26 In the fiscal year ended March 31, 2000, sales to domestic customers increased by 15.7% to $52.8 million. International sales decreased by 1.7% to $25.8 million. COST OF SALES. Cost of sales as a percentage of net sales for the fiscal year ended March 31, 2000 decreased to approximately 43.5%, compared to 46.5% for the fiscal year ended March 31, 1999. The resulting increase in gross margins is due primarily to a greater mix of communications products, which generally have higher gross margins than many of the Company's more mature products. Gross margins from sales of ICs vary depending on product mix, competition from other manufacturers, the volume of products manufactured and sold, the ability of the Company's suppliers to achieve manufacturing efficiencies and the cost of materials procured from the Company's suppliers. Margins on any particular product generally erode over time. RESEARCH AND DEVELOPMENT. Research and development expenses for the fiscal year ended March 31, 2000 represented 21.3% of net sales, compared to 18.9% of net sales for the fiscal year ended March 31, 1999. Research and development spending for the fiscal year ended March 31, 2000 increased by 23.4% as the Company continued to invest in the development of its communications products. These spending increases resulted from additional staffing in the communications products areas, increases in expenditures for supplies and equipment for the development of communications products, and an increase in employee compensation and benefits expenses associated with a pre-tax gain recognized in Other Income in the first quarter of fiscal 2000. In the future, the Company expects to increase spending on research and development activities, particularly for communications products. The Company expects research and development expenses to continue to fluctuate as a percentage of net sales as a result of the timing of expenditures and changes in the level of net sales. However, the Company intends to continue spending approximately 20% of net sales on research and development activities to support its growth. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses for the fiscal year ended March 31, 2000 represented 29.6% of net sales, compared to 27.1% for the fiscal year ended March 31, 1999. Selling, general and administrative expenses for the fiscal year ended March 31, 2000 increased by 19.1%. The increase was due to growth in communications product sales and an increase in employee compensation and benefits expenses associated with a pre-tax gain recognized in Other Income in the first quarter of fiscal 2000. In the short term, many of the selling, general and administrative expenses are fixed, causing a decline as a percentage of net sales in periods of rapidly rising sales and an increase as a percentage of net sales when sales growth is slower or declining. OTHER INCOME. Other income in the fiscal year ended March 31, 2000 includes a pre-tax $12.0 million gain on the sale of an investment related to a minority equity investment in IC Works, Inc. In April 1999, the Company received approximately 1.1 million shares of common stock in Cypress Semiconductor, Inc. in exchange for its investment in IC Works due to the merger of Cypress Semiconductor and IC Works. The Company sold this stock during the first and fourth quarters of fiscal 2000, resulting in a pre-tax gain of $12.0 million in other income and a related employee compensation and benefits expense of $3.0 million in costs and expenses. PROVISION FOR INCOME TAXES. The provision for income taxes is based on income from operations. The effective tax rate for fiscal 2000 was approximately 31.7% compared with the federal statutory rate of 35%. The difference is due to utilization of capital loss carryforwards that offset the gain on sale of the IC Works investment and tax savings generated from utilization of the Company's foreign sales corporation partially offset by non-deductible expenses, state income taxes and foreign income, which is taxed at rates different from U.S. income tax. To date, inflation has not had a significant impact on the Company's operating results. FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998 NET SALES. Net sales during fiscal 1999 were $71.9 million compared to $102.0 million in fiscal 1998, a decrease of 29.6%. This decrease was primarily due to decreases in net sales of discontinued consumer and custom products in the Company's legacy product lines, as well as the sale of the Company's silicon microstructures business unit and related product lines. The abrupt closure of one of the Company's third-party wafer fabrication facilities during the third quarter of fiscal 1999 had a further negative impact of $2.0 million on its fiscal 1999 net sales from legacy products. 27 In fiscal 1999, sales to domestic customers decreased by 24.0% to $45.6 million. International sales decreased by 37.5% to $26.3 million. COST OF SALES. Cost of sales as a percentage of net sales decreased from 50.9% in fiscal 1998 to 46.5% in fiscal 1999. The resulting increase in gross margins is due primarily to a greater mix of the Company's newer analog and mixed-signal products which generally have higher gross margins than its more mature products. RESEARCH AND DEVELOPMENT. Research and development expenses, as a percentage of net sales, increased from 15.3% in fiscal 1998 to 18.9% in fiscal 1999. Research and development expenses decreased by $2.0 million or 13.0% compared to fiscal 1998. The decrease in research and development expenses is attributable to the Company's control of operating expenses in response to decreased sales, to lower employee benefits costs and to the restructuring activities associated with the sale of the Company's silicon microstructures business unit and related product lines. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses, as a percentage of net sales, increased from 22.8% in fiscal 1998 to 27.1% in fiscal 1999. Selling, general and administrative expenses for fiscal 1999 decreased by $3.8 million or 16.2% compared to fiscal 1998. The decrease in selling, general and administrative expenses is attributable to decreased commissions expense, to lower employee benefits costs and to the Company's control of operating expenses in response to decreased sales. RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges in fiscal 1999 of $731,000 relate to the sale of the Company's silicon microstructures business unit and related product lines to OSI Systems, Inc. in the third quarter and represent the loss on the sale of assets, severance costs related to the termination of 38 employees and other disposition related expenses. The restructuring action was completed during the fourth quarter of fiscal 1999 and was financed with cash. In addition to the $2.6 million in proceeds from the sale of the silicon microstructures business unit and related product lines, the Company may receive additional contingent performance-based payments from this sale of up to $2.5 million over the next year. During the third quarter of fiscal 1998, the Company sold the capital assets that it had written down in fiscal 1997 in connection with the termination of a foundry arrangement. The sales proceeds exceeded the carrying value and, as a result, the Company reversed $1.2 million of the related reserve during the quarter. Offsetting this reversal, the Company decided during the quarter to replace its information system under development with a system determined to better meet its needs and wrote off $1.2 million of capitalized costs associated with system modules which the Company did not intend to use. OTHER INCOME. Other income during fiscal 1999 increased to $4.1 million from $3.1 million in fiscal 1998 due to increased balances of cash and short-term investments. PROVISION FOR INCOME TAXES. The Company's effective tax rate for fiscal 1999 was 38% compared with the federal statutory rate of 35%. The discrepancy is due to non-deductible expenses, state income taxes and foreign losses, which are taxed at rates different from U.S. income tax rates, partially offset by tax advantaged investment income and tax savings generated from utilization of the Company's foreign sales corporation. 28 QUARTERLY RESULTS The following tables contain selected unaudited quarterly financial data for the eight quarters ended March 31, 2000 and this data as a percentage of net sales. In the opinion of management, this unaudited information has been prepared on the same basis as the audited information and includes all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the information set forth therein. Results for a particular quarter are not necessarily indicative of the results for any subsequent quarter. The data gives effect to the three-for-two stock split effected on February 15, 2000.
QUARTER ENDED ------------------------------------------------------ MARCH 31, DEC. 31, SEPT. 30, JUNE 30, 2000 1999 1999 1999 ------------ ------------ ----------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales $ 23,045 $ 20,708 $ 18,550 $ 16,251 Cost of sales 9,743 8,947 8,160 7,302 ------------ ------------ ----------- ---------- Gross profit 13,302 11,761 10,390 8,949 Research and development 4,360 3,950 3,669 4,759 Selling, general and administrative 5,946 5,609 5,253 6,406 Goodwill amortization 126 126 126 126 Restructuring and other charges ------------ ------------ ----------- ---------- Operating income (loss) 2,870 2,076 1,342 (2,342) Other income, net 7,423 1,423 1,296 8,044 ------------ ------------ ----------- ---------- Income before income taxes 10,293 3,499 2,638 5,702 Income taxes 3,229 1,124 857 1,807 ------------ ------------ ----------- ---------- Net income $ 7,064 $ 2,375 $ 1,781 $ 3,895 ============ ============ =========== ========== Net income per share: Basic $ 0.45 $ 0.17 $ 0.13 $ 0.28 ============ ============ =========== ========== Diluted $ 0.39 $ 0.14 $ 0.11 $ 0.27 ============ ============ =========== ========== Shares used in the computation of Net income per share: Basic 15,538 14,313 14,074 13,998 ============ ============ =========== ========== Diluted 18,122 16,402 15,652 14,614 ============ ============ =========== ========== --------------------------------------------------- MARCH 31, DEC. 31, SEPT. 30, JUNE 30, 1999 1998 1998 1998 ------------ ---------- ------------ ------------ Net sales $ 15,098 $ 15,808 $ 19,198 $ 21,764 Cost of sales 6,882 7,292 9,145 10,067 ------------ ---------- ------------ ------------ Gross profit 8,216 8,516 10,053 11,697 Research and development 3,212 3,360 3,576 3,412 Selling, general and administrative 4,709 4,475 4,893 5,422 Goodwill amortization 126 146 185 184 Restructuring and other charges 731 ------------ ---------- ------------ ------------ Operating income (loss) 169 (196) 1,399 2,679 Other income, net 1,016 1,182 1,424 1,091 ------------ ---------- ------------ ------------ Income before income taxes 1,185 986 2,823 3,770 Income taxes 466 402 1,068 1,404 ------------ ---------- ------------ ------------ Net income $ 719 $ 584 $ 1,755 $ 2,366 ============ ========== ============ ============ Net income per share: Basic $ 0.05 $ 0.04 $ 0.12 $ 0.17 ============ ========== ============ ============ Diluted $ 0.05 $ 0.04 $ 0.12 $ 0.16 ============ ========== ============ ============ Shares used in the computation of Net income per share: Basic 13,966 13,954 14,119 14,308 ============ ========== ============ ============ Diluted 14,065 14,154 14,427 14,955 ============ ========== ============ ============
MARCH 31, DEC. 31, SEPT. 30, JUNE 30, 2000 1999 1999 1999 ------------- ------------- ------------ ----------- (AS A PERCENTAGE OF NET SALES) Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 42.3 43.2 44.0 44.9 ------------- ------------- ------------ ----------- Gross profit 57.7 56.8 56.0 55.1 Research and development 18.9 19.1 19.8 29.3 Selling, general and administrative 25.8 27.1 28.3 39.4 Goodwill amortization 0.5 0.6 0.7 0.8 Restructuring and other charges ------------- ------------- ------------ ----------- Operating income (loss) 12.5 10.0 7.2 (14.4) Other income, net 32.2 6.9 7.0 49.5 ------------- ------------- ------------ ----------- Income before income taxes 44.7 16.9 14.2 35.1 Income taxes 14.0 5.4 4.6 11.1 ------------- ------------- ------------ ----------- Net income 30.7% 11.5% 9.6% 24.0% ============= ============= ============ =========== MARCH 31, DEC. 31, SEPT. 30, JUNE 30, 1999 1998 1998 1998 ------------- ----------- ----------- -------------- Net sales 100.0% 100.0% 100.0% 100.0% Cost of sales 45.6 46.1 47.6 46.3 ------------- ----------- ----------- -------------- Gross profit 54.4 53.9 52.4 53.7 Research and development 21.3 21.3 18.6 15.7 Selling, general and administrative 31.2 28.3 25.5 24.9 Goodwill amortization 0.8 0.9 1.0 0.8 Restructuring and other charges 4.6 ------------- ----------- ----------- -------------- Operating income (loss) 1.1 (1.2) 7.3 12.3 Other income, net 6.7 7.4 7.4 5.0 ------------- ----------- ----------- -------------- Income before income taxes 7.8 6.2 14.7 17.3 Income taxes 3.0 2.5 5.6 6.4 ------------- ----------- ----------- -------------- Net income 4.8% 3.7% 9.1% 10.9% ============= =========== =========== ==============
Since September 30, 1998, gross margins have increased each quarter primarily due to manufacturing efficiencies from higher production volumes, efficiencies gained as a result of the Company's decision, in the fourth quarter of fiscal 1997, to transfer its test and shipping operations to foreign subcontractors to reduce manufacturing expenses, and a greater mix of communications products which generally have higher gross margins than the Company's more mature products. The 29 sequential quarter decrease in net sales for the three quarters ended March 31, 1999 was primarily due to decreases in sales of discontinued consumer and custom products in the Company's legacy product lines (due in part to the fiscal 1999 closure of one of its third-party wafer fabrication facilities), as well as the sale of the Company's silicon microstructures business unit and related product lines in November 1998. Research and development and selling, general and administrative expenses increased in the quarter ended June 30, 1999 primarily due to $3.0 million in employee compensation and benefits expenses resulting from a $7.0 million first quarter pre-tax gain on the sale of an investment related to a minority equity investment in IC Works included in other income. In April 1999, the Company received in excess of 1.1 million shares of common stock in Cypress Semiconductor in exchange for its investment in IC Works due to the merger of Cypress Semiconductor and IC Works. The Company sold this stock during the first and fourth quarters of fiscal 2000, resulting in a pre-tax gain of $12.0 million. LIQUIDITY AND CAPITAL RESOURCES During fiscal 2000, the Company financed its operations primarily from cash flows from operations and existing cash and short-term investments. At March 31, 2000, the Company had $380.2 million of cash and short-term investments. The Company has a short term, unsecured line of credit available under which it may borrow up to $10.0 million, none of which was being utilized at March 31, 2000. In addition, the Company has a credit facility with certain domestic and foreign banks under which it may execute up to $25.0 million in foreign currency transactions. At March 31, 2000, the Company had no foreign currency contracts outstanding. For the fiscal year ended March 31, 2000, the Company generated $9.6 million of cash from its operating activities, the result of net income of $15.1 million and a net increase in working capital of $7.3 million, partially offset by $12.6 million of gains on sales of an investment and equipment and non-cash items of $200,000. Net capital and other asset expenditures during the fiscal year ended March 31, 2000 totaled $2.9 million including purchases of computer equipment and software used for product development. Other investing activities during the fiscal year ended March 31, 2000 included the net purchases of $1.0 million of short term investments, which was offset by $18.1 million of proceeds from the sale of the Company's minority equity investment in IC Works, and $658,000 of proceeds from the sale of equipment. During the fiscal year ended March 31, 2000, the Company issued 3,450,000 shares of common stock through a follow-on offering for net proceeds of $260.8 million, repurchased 177,450 shares of the Company's common stock for $3.4 million and received $16.0 million from the issuance of 1,337,036 common stock shares upon the exercise of stock options under the Company's stock option plans. The Company has no material firm capital commitments. The Company anticipates that it will continue to finance its operations with cash flows from operations, existing cash and short-term investment balances, borrowings under existing bank credit lines, and some combination of long-term debt and/or lease financing and additional sales of equity securities. The combination and sources of capital will be determined by management based on the Company's needs and prevailing market conditions. The Company believes that cash, cash equivalents, short-term investments, borrowings from the line of credit and cash flows from operations will be sufficient to satisfy working capital requirements and capital equipment needs for at least the next twelve months. From time to time, the Company evaluates potential acquisitions and equity investments complementary to its design expertise and market strategy, including investments in, or other arrangements with, wafer fabrication foundries. To the extent the Company pursues these transactions, it could be required to seek additional equity or debt financing. There can be no assurance that the Company would be able to obtain additional financing on acceptable terms, or at all. The sale of additional equity or convertible debt could result in dilution to the Company's stockholders. YEAR 2000 Many computer systems may experience problems interpreting dates around the Year 2000. The Company has completed the process of identifying the programs and infrastructure in all areas that could be affected by the Year 2000 issue and has 30 developed an implementation plan to resolve any issues. As of the date of this filing, the Company has experienced no significant problems related to Year 2000 issues. In 1999, the Company implemented a new business system that is Year 2000 compliant at a cost of $5.3 million. In addition, the replacement of the Company's remaining legacy systems is estimated to cost $300,000. The amount capitalized for the acquisition and implementation of the new business system and the replacement of the remaining legacy systems was $5.3 million. The Company has expensed approximately $300,000 of project costs in prior periods. The new business system implementation was substantially complete as of March 31, 1999, and the capitalized portion is being depreciated over an average of six years. The Company believes that it will continue to be able to operate its time sensitive business-application software programs and infrastructure. However, due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third-party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on its results of operations, liquidity or financial condition. The Company continues to work with key suppliers and customers to assess their Year 2000 readiness. The failure by a third party to adequately address the Year 2000 issue could harm the party's ability to furnish products and services to the Company and, therefore, could harm its business. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK FOREIGN CURRENCY FLUCTUATIONS. The Company is exposed to foreign currency fluctuations primarily through its operations in Japan. This exposure is the result of timing differences between incoming and outgoing cashflows denominated in foreign currency. Operational currency requirements are typically forecast for a three-month period. If there is a need to hedge this risk, the Company will enter into transactions to purchase or sell currency in the open market or enter into forward currency exchange contracts which are currently available under its bank lines of credit. While it is expected that this method of hedging foreign currency risk will be utilized in the future, the hedging methodology and/or usage may be changed to manage exposure to foreign currency fluctuations. If the Company's foreign operations forecasts are overstated or understated during periods of currency volatility, the Company could experience unanticipated currency gains or losses. At the end of fiscal 2000, the Company did not have significant foreign currency denominated net assets or net liabilities positions and had no foreign currency contracts outstanding. INTEREST RATE SENSITIVITY. The Company maintains investment portfolio holdings of various issuers, types and maturity dates with various banks and investment banking institutions. The Company does not regularly hold investments with maturity dates beyond 90 days. The market value of these investments on any day during the investment term may vary as a result of market interest rate fluctuations. This exposure is not hedged because a hypothetical 10% movement in interest rates during the investment term would not likely have a material impact on investment income. The actual impact on investment income in the future may differ materially from this analysis, depending on actual balances and changes in the timing and the amount of interest rate movements. The short-term investments are classified as "available-for-sale" securities and the cost of securities sold is based on the specific identification method. This designation is reevaluated as of each balance sheet date. At March 31, 2000, short-term investments consisted of auction rate securities of $3.0 million. As of March 31, 2000, there were no significant differences between the fair market value and the underlying cost of such investments. 31 ITEM 8. FINANCIAL STATEMENTS INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Exar Corporation: We have audited the accompanying consolidated balance sheets of Exar Corporation and subsidiaries as of March 31, 2000 and 1999, and the related consolidated statements of operations, stockholders' equity and comprehensive income, and cash flows for each of the years in the three year period ended March 31, 2000. Our audits also included the consolidated financial statement schedule listed in Item 14.(a)2. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Exar Corporation and its subsidiaries as of March 31, 2000 and 1999 and the results of their operations and their cash flows, for each of the years in the three year period ended March 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. DELOITTE & TOUCHE LLP San Jose, California April 24, 2000 32 EXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS MARCH 31, 2000 AND 1999 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
- ------------------------------------------------------------------------------------------------------------------------- 2000 1999 ASSETS CURRENT ASSETS: Cash and equivalents $ 377,158 $ 79,410 Short-term investments 3,000 2,000 Accounts receivable, net of allowances of $1,869 and $2,047 11,550 10,734 Inventories 8,299 5,873 Prepaid expenses and other 3,012 1,399 Deferred income taxes 3,369 4,047 --------------- ------------- Total current assets 406,388 103,463 PROPERTY, PLANT, AND EQUIPMENT, Net 26,653 27,684 GOODWILL, net of accumulated amortization of $4,922 - 504 OTHER ASSETS 5,392 6,645 --------------- ------------- TOTAL ASSETS $ 438,433 $ 138,296 =============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 3,497 $ 4,265 Accrued compensation and related benefits 7,060 3,560 Accrued sales commissions 1,096 1,053 Other accrued expenses 1,165 1,775 Income taxes payable - 925 --------------- ------------- Total current liabilities 12,818 11,578 COMMITMENTS AND CONTINGENCIES (see Note 10) DEFERRED INCOME TAXES - 297 LONG-TERM OBLIGATIONS 574 664 STOCKHOLDERS' EQUITY: Preferred stock; $.0001 par value; 2,250,000 shares authorized; no shares outstanding - - Common stock; $.0001 par value; 25,000,000 shares authorized; 18,582,975 and 15,980,788 shares issued 352,614 88,908 Accumulated other comprehensive income 188 204 Retained earnings 72,239 57,124 Treasury stock; none and 2,007,399 shares of common stock at cost - (20,479) --------------- ------------- Total stockholders' equity 425,041 125,757 --------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 438,433 $ 138,296 =============== =============
See notes to consolidated financial statements. 33 EXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 NET SALES $ 78,554 $ 71,868 $ 102,015 COST AND EXPENSES: Cost of sales 34,152 33,386 51,937 Research and development 16,738 13,560 15,581 Selling, general and administrative 23,214 19,499 23,273 Goodwill amortization 504 641 1,062 Restructuring and other charges - 731 - Acquisition and related expenses - - 1,176 ------------- ------------- -------------- Total costs and expenses 74,608 67,817 93,029 ------------- ------------- -------------- INCOME FROM OPERATIONS 3,946 4,051 8,986 OTHER INCOME (EXPENSE): Interest income 6,152 4,156 3,165 Interest expense - (65) (76) Gain on sale of investment 12,018 - - Other, net 16 622 224 ------------- ------------- -------------- Total other income, net 18,186 4,713 3,313 ------------- ------------- -------------- INCOME BEFORE INCOME TAXES 22,132 8,764 12,299 PROVISION FOR INCOME TAXES 7,017 3,340 4,781 ------------- ------------- -------------- NET INCOME $ 15,115 $ 5,424 $ 7,518 ============= ============= ============== NET INCOME PER SHARE: BASIC $ 1.04 $ 0.39 $ 0.54 ============= ============= ============== DILUTED $ 0.93 $ 0.38 $ 0.52 ============= ============= ============== SHARES USED IN COMPUTATION OF NET INCOME PER SHARE: BASIC 14,480 14,088 13,989 ============= ============= ============== DILUTED 16,197 14,400 14,595 ============= ============= ==============
See notes to consolidated financial statements 34 EXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Accumulated Common Stock Treasury Stock Other Total ---------------------- ----------------------- Retained Comprehensive Stockholder's Shares Amount Shares Amount Earnings Income (Loss) Equity ----------- ---------- ----------- ----------- ---------- ------------- ------------ BALANCES, March 31, 1997 15,184,407 $ 80,072 (1,466,649) $ (14,145) $ 44,182 $ (292) $ 109,817 Comprehensive income: Net income 7,518 7,518 Other comprehensive income: Foreign currency translation adjustments 375 375 Comprehensive income Exercise of stock options 410,700 3,987 3,987 Income tax benefit from stock option transactions 867 867 Stock issued under Employee Stock Participation Plan 117,750 1,165 1,165 ----------- ---------- ----------- ----------- ---------- ------------- ----------- BALANCES, March 31, 1998 15,712,857 86,091 (1,466,649) (14,145) 51,700 83 123,729 Comprehensive income: Net income 5,424 5,424 Other comprehensive income: Foreign currency translation adjustments 121 121 Comprehensive income Exercise of stock options 140,476 1,330 1,330 Income tax benefit from stock option transactions 312 312 Stock issued under Employee Stock Participation Plan 127,455 1,175 1,175 Acquisition of treasury stock (540,750) (6,334) (6,334) ----------- ---------- ----------- ----------- ---------- ------------- ----------- BALANCES, March 31, 1999 15,980,788 88,908 (2,007,399) (20,479) 57,124 204 125,757 Comprehensive income: Net income 15,115 15,115 Other comprehensive income: Foreign currency translation adjustments (16) (16) Comprehensive income Exercise of stock options 1,259,777 14,718 14,718 Income tax benefit from stock option transactions 10,838 10,838 Stock issued under Employee Stock Participation Plan 77,259 1,264 1,264 Acquisition of treasury stock (177,450) (3,392) (3,392) Stock issued in connection with follow-on offering, net of related costs 1,265,151 236,886 2,184,849 23,871 260,757 ----------- ---------- ----------- ----------- ---------- ------------- ----------- BALANCES, March 31, 2000 18,582,975 $352,614 - $ - $ 72,239 $ 188 $ 425,041 =========== ========== =========== =========== ========== ============= =========== Comprehensive Income ------------- BALANCES, March 31, 1997 Comprehensive income: Net income $ 7,518 Other comprehensive income: Foreign currency translation adjustments 375 ------------- Comprehensive income $ 7,893 ============= Exercise of stock options Income tax benefit from stock option transactions Stock issued under Employee Stock Participation Plan BALANCES, March 31, 1998 Comprehensive income: Net income $ 5,424 Other comprehensive income: Foreign currency translation adjustments 121 ------------- Comprehensive income $ 5,545 ============= Exercise of stock options Income tax benefit from stock option transactions Stock issued under Employee Stock Participation Plan Acquisition of treasury stock BALANCES, March 31, 1999 Comprehensive income: Net income $ 15,115 Other comprehensive income: Foreign currency translation adjustments (16) ------------- Comprehensive income $ 15,099 ============= Exercise of stock options Income tax benefit from stock option transactions Stock issued under Employee Stock Participation Plan Acquisition of treasury stock Stock issued in connection with follow-on offering, net of related costs BALANCES, March 31, 2000
See notes to consolidated financial statements. 35 EXAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2000, 1999 AND 1998 (IN THOUSANDS)
- ------------------------------------------------------------------------------------------------------------------------------- 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $15,115 $ 5,424 $ 7,518 Reconciliation of net income to net cash provided by operating activities:: Depreciation and amortization 4,038 4,762 6,190 Provision for doubtful accounts and sales returns (178) (1,364) 254 Deferred income taxes (4,071) 1,510 3,607 Gain on sale of investment (12,018) - Gain on sale of equipment (584) (289) (387) Changes in operating assets and liabilities: Accounts receivable (638) 6,678 (3,374) Inventories (2,426) 908 495 Prepaid expenses and other (937) 319 (246) Accounts payable (768) (3,269) 15 Accrued compensation and related benefits 3,500 (5,004) 3,900 Accrued sales commissions 43 (54) 494 Other accrued expenses (684) (238) (615) Income taxes payable 9,237 1,500 2,817 ---------- ---------- ---------- Net cash provided by operating activities 9,629 10,883 20,668 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of equipment and leasehold improvements (2,503) (5,335) (4,837) Proceeds from disposition of equipment and leasehold improvements 658 977 7,968 Purchases of short-term investments (24,340) (137) (4,087) Proceeds from maturities of short-term investments 23,340 1,277 6,000 Purchases of long-term investments - - (3,000) Proceeds from sale of investment 18,095 - - Other assets (372) (889) (416) ---------- ---------- ---------- Net cash provided by (used in) investing activities 14,878 (4,107) 1,628 ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock 276,739 2,505 5,152 Long-term obligations (90) (81) (135) Acquisition of treasury stock (3,392) (6,334) - ---------- ---------- ---------- Net cash provided by (used in) financing activities 273,257 (3,910) 5,017 ---------- ---------- ---------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (16) 121 375 ---------- ---------- ---------- NET INCREASE IN CASH AND EQUIVALENTS 297,748 2,987 27,688 CASH AND EQUIVALENTS AT BEGINNING OF YEAR 79,410 76,423 48,735 ---------- ---------- ---------- CASH AND EQUIVALENTS AT END OF YEAR $377,158 $79,410 $76,423 ========== ========== ========== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid for income taxes $ 1,051 $ 633 $ 391 ========== ========== ========== Cash paid for interest $ 725 $ - $ - ========== ========== ==========
See notes to consolidated financial statements. 36 EXAR CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED MARCH 31, 2000, 1999 AND 1998 - ------------------------------------------------------------------------------- 1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS - Exar Corporation ("Exar" or the "Company") designs, develops and markets high-performance, high-bandwidth mixed-signal (analog and digital) silicon solutions for the worldwide communications infrastructure. The Company uses its high-speed, analog and mixed-signal design expertise, system-level knowledge and standard CMOS process technologies to offer integrated circuits, or ICs, for the communications markets that address asynchronous transmission standards, such as T/E carrier and ATM. The Company is leveraging this expertise to develop products based on optical transmission standards, such as SONET/SDH. Additionally, Exar provides solutions for the serial communications market as well as the video and imaging markets. Exar's largest customers include Alcatel, Cisco, Hewlett-Packard, Lucent, Nokia and Tellabs. USE OF MANAGEMENT ESTIMATES - The preparation of the Company's consolidated financial statements in conformity with generally accepted accounting principles requires the use of management estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported results of operations during the reporting period. Actual results could differ from estimates. PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial statements include the accounts of Exar and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. BASIS OF PRESENTATION - All share amounts and per share calculations in the accompanying consolidated financial statements give effect to the three-for-two stock split effected on February 15, 2000. CASH AND EQUIVALENTS - The Company considers all highly liquid investments with original maturities of three months or less, when purchased, to be cash equivalents. SHORT-TERM INVESTMENTS - The Company's policy is to invest in various short-term instruments with investment grade credit ratings. Generally, such investments have contractual maturities of less than one year. The Company classifies its short-term investments as "available-for-sale" securities and the cost of securities sold is based on the specific identification method. At March 31, 2000, short term investments consisted of auction rate securities of $3,000,000. At March 31, 1999, short-term investments consisted of auction rate securities of $2,000,000. As of March 31, 2000 and 1999, there were no significant differences between the fair market value and the underlying cost of such investments. INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out method) or market. PROPERTY, PLANT, AND EQUIPMENT - Property, plant, and equipment are stated at cost. Depreciation of plant and equipment are computed using the straight-line method over the estimated useful lives of the assets. Estimated useful lives are as follows: Computer software and computer equipment 3-6 years Machinery and equipment 5-7 years Buildings and fixtures 5-30 years
GOODWILL - Goodwill is amortized on a straight-line basis over a period of five years. 37 LONG LIVED ASSETS - Long lived assets are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company's policy is to review the recoverability of all long lived assets based upon undiscounted cash flows on an annual basis at a minimum, and in addition, whenever events or changes indicate that the carrying amount of the asset may not be recoverable. An impairment loss would be recognized when the sum of the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. INCOME TAXES - The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," which requires the asset and liability approach for financial accounting and reporting of income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. REVENUE RECOGNITION - The Company recognizes revenue from the sale of products when shipped. The Company's distributor agreements generally permit the return of up to 10% of their purchases annually for purposes of stock rotation and also provide for credits to distributors in the event the Company reduces the price of any product. The Company records an allowance based on future authorized and historical patterns of returns, price protection and other concessions at the time revenue is recognized. COMPREHENSIVE INCOME - In 1999, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which requires an enterprise to report, by major components and as a single total, the change in net assets during the period from nonowner sources. Comprehensive income for the years ended March 31, 2000, 1999, and 1998 has been disclosed within the consolidated statements of stockholders' equity and comprehensive income. FOREIGN CURRENCY - The functional currency of each of the Company's foreign subsidiaries is the local currency of that country. Accordingly, gains and losses from the translation of the financial statements of the foreign subsidiaries are included in stockholders' equity. Gains and losses resulting from foreign currency transactions are included in other income. Net foreign currency transaction gains (losses) were $(157,000), $59,000 and $19,000 in 2000, 1999 and 1998, respectively. The Company enters into foreign currency exchange contracts from time-to-time to hedge certain currency exposures. These contracts are executed with credit-worthy financial institutions and are denominated in currencies of major industrial nations. Gains and losses on these contracts serve as hedges in that they offset fluctuations that might otherwise impact the Company's financial results. The Company is exposed to credit-related losses in the event of nonperformance by the parties to its foreign currency exchange contracts. At March 31, 2000, and 1999, there were no such foreign currency exchange contracts outstanding. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK - Financial instruments potentially subjecting the Company to concentrations of credit risk consist primarily of accounts receivable and cash and short-term investments. The majority of the Company's sales are derived from manufacturers in the computer, communications and electronic imaging industries. The Company performs ongoing credit evaluations of its customers and generally does not require collateral for sales on credit. The Company maintains reserves for potential credit losses and such losses have been within management's expectations. The Company's policy is to place its cash and short-term investments with high credit quality financial institutions and limit the amounts invested with any one financial institution or in any type of financial instrument. The Company does not hold or issue financial instruments for trading purposes. FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair value of financial instruments have been determined by the Company, using available market information and valuation methodology considered to be appropriate. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. The use of different market assumptions and/or estimation methodologies could have a material effect on estimated fair value amounts. The estimated fair value of the Company's financial instruments at March 31, 2000 and 1999 was not materially different from the values presented in the consolidated balance sheets. 38 RECLASSIFICATIONS - Certain amounts in the 1999 financial statements have been reclassified to conform to the 2000 presentation. 2. INVENTORIES Inventories at March 31 consisted of the following:
2000 1999 ---- ---- (In thousands) Work in process $ 5,064 $ 3,262 Finished goods 3,235 2,611 -------- -------- Total $ 8,299 $ 5,873 ======== ========
3. PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment at March 31 consisted of the following:
2000 1999 ---- ---- (In thousands) Land $ 6,584 $ 6,584 Building 13,433 13,433 Machinery and equipment 35,254 28,660 Leasehold improvements 68 50 Construction in progress 5,023 --------- --------- 55,339 53,750 Accumulated depreciation and amortization (28,686) (26,066) --------- --------- Total $ 26,653 $ 27,684 ========= =========
4. BORROWING ARRANGEMENTS The Company has available a short-term, unsecured, bank line of credit under which it may borrow up to $10,000,000, none of which was being utilized at March 31, 2000. In addition, the Company has a credit facility with certain domestic and foreign banks under which it may execute up to $25,000,000 in foreign currency transactions. At March 31, 2000, the Company had no outstanding foreign currency forward contracts. 39 5. INCOME TAXES The provision for income taxes for the years ended March 31 consisted of the following:
2000 1999 1998 ---- ---- ---- (In thousands) Current: Federal $ 91 $ 882 $ 293 State 159 636 14 Foreign - - - --------- -------- --------- 250 1,518 307 --------- -------- --------- Deferred: Federal (3,624) 1,489 3,047 State (447) 21 560 Foreign - - - --------- -------- --------- (4,071) 1,510 3,607 --------- -------- --------- Charge in lieu of taxes attributable to employee stock plans 10,838 312 867 --------- -------- --------- Total $ 7,017 $ 3,340 $ 4,781 ========= ======== =========
Consolidated pretax income includes foreign losses of approximately $(28,000), $(622,000), and $(780,000), in 2000, 1999, and 1998, respectively. Undistributed earnings of the Company's foreign subsidiaries are considered to be indefinitely reinvested and, accordingly no provision for federal and state income taxes have been provided thereon. Upon distribution of those earnings in the form of a dividend or otherwise, the Company would be subject to both US income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries. It is not practical to estimate the income tax liability that might be incurred on the remittance of such earnings. Current net deferred tax assets at March 31, 2000 and 1999 were $3,369,000 and $4,047,000, respectively. Non-current net deferred tax assets (liabilities) at March 31, 2000 and 1999 of $4,480,000 and $(269,000), respectively, are included in deferred income taxes and other assets, respectively, within the accompanying balance sheet. Significant components of the Company's net deferred tax asset at March 31, 2000 and 1999 are as follows:
2000 1999 ---- ---- (In thousands) Deferred tax assets: Reserves and accruals not currently deductible $ 3,903 $ 4,550 Net operating loss and tax credit carryforwards 8,477 8,393 General business credits 2,024 1,161 State income taxes 8 219 Other 169 207 -------- --------- Total deferred tax assets 14,581 14,530 -------- --------- Deferred tax liabilities: Depreciation (922) (1,005) Other (480) (323) -------- ---------- Total deferred tax liabilities (1,402) (1,328) -------- ---------- Valuation allowance (5,330) (9,424) -------- ---------- Net deferred tax assets $ 7,849 $ 3,778 ======== ==========
40 The valuation allowance for deferred tax assets relates to (i) the tax benefits of certain acquired net operating losses for which the utilization is limited to the taxable income of the acquired subsidiary and (ii) state tax credits. The valuation allowance relates to the amount of such benefits for which realization is not assured. During fiscal year 2000, the Company reversed valuation allowances of $4,094,000, primarily due to a change in the assessment of the realization of the tax benefits of certain net operating loss carryforwards. The Company has net operating loss carryforwards of approximately $15,307,000 for federal income tax purposes, which are available to offset future taxable income through fiscal year 2012. The federal tax law includes provisions limiting the use of net operating loss carryforwards in the event of certain changes in ownership, as defined. Consequently, the Company's ability to utilize certain of its acquired net operating loss carryforwards is subject to an annual limitation. The following summarizes differences between the amount computed by applying the statutory federal income tax rate to income before income taxes and the provision for income taxes for each of the years ended March 31:
2000 1999 1998 ---- ---- ---- (In thousands) Income tax provision at statutory rate $ 7,746 $ 3,067 4,305 State income taxes, net of federal income tax benefit 1,071 762 457 Change in valuation allowance (1,818) (657) - Amortization of goodwill 176 224 371 Tax-exempt interest income (7) (38) (114) Benefit of foreign sales corporation - (175) (175) Foreign losses providing no benefit 48 261 (18) Tax credits (200) (200) (424) Other, net 1 96 379 --------- --------- --------- Total $ 7,017 $ 3,340 $ 4,781 ========== ========= ==========
41 6. NET INCOME PER SHARE SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS excludes dilution and is computed by dividing net income by the weighted average of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. A summary of the Company's EPS for each of the years ended March 31 is as follows (In thousands, except per share amounts):
2000 1999 1998 ---------- ---------- ----------- NET INCOME $ 15,115 $ 5,424 $ 7,518 ========== ========== =========== SHARES USED IN COMPUTATION: Weighted average common shares outstanding used in computation of basic net income per share 14,480 14,088 13,989 Dilutive effect of stock options 1,717 312 606 ---------- ---------- ----------- Shares used in computation of diluted net income per share 16,197 14,400 14,595 ========== ========== =========== BASIC NET INCOME PER SHARE $ 1.04 $ 0.39 $ 0.54 ========== ========== =========== DILUTED NET INCOME PER SHARE $ 0.93 $ 0.38 $ 0.52 ========== ========== ===========
Options to purchase 27,000, 2,367,771 and 992,100 shares of common stock at prices ranging from $95.31, $10.37 to $24.83 and $14.33 to $24.83 were outstanding as of March 31, 2000, 1999 and 1998, respectively, but not included in the computation of diluted net income per share because the options' exercise prices were greater than the average market price of the common shares as of such dates and, therefore, would be anti-dilutive under the treasury stock method. 7. EMPLOYEE BENEFIT PLANS EXAR SAVINGS PROGRAMS - The Exar Savings Plan covers substantially all employees of the Company. The Savings Plan provides for voluntary salary reduction contributions in accordance with Section 401(k) of the Internal Revenue Code as well as contributions from the Company based on the achievement of specified operating results. Exar made contributions of $452,000, $86,000 and $379,000 during 2000, 1999 and 1998, respectively. INCENTIVE COMPENSATION PROGRAMS - The Company's incentive compensation programs provide for incentive awards for substantially all employees of the Company based upon the achievement of specified operating and performance results. Incentive awards totaled $4,964,000, $681,000, and $3,616,000 in fiscal years 2000, 1999 and 1998, respectively. The Company's incentive programs may be amended or discontinued at the discretion of the Board of Directors. 42 8. STOCKHOLDERS' EQUITY PREFERRED SHARE PURCHASE RIGHTS PLAN - In December 1995, the Company's Board of Directors (the Board) adopted a Preferred Share Purchase Rights Plan under which the Board declared a dividend of one purchase right for each outstanding share of common stock of Exar held as of January 10, 1996. Each right entitles the registered holder to purchase one one-hundredth of a share of Exar's Series A Junior Participating Preferred Stock. Subsequent to March 31, 2000, the original price of the dividend of rights was increased from $118.50 ($79.00 after giving effect to the 3 for 2 stock split effected on February 15, 2000) to $375.00. The rights become exercisable ten days after the announcement that an entity or person has commenced a tender offer to acquire or has acquired 15% or more of the outstanding Exar Common Stock ("the Distribution Date"). After the Distribution Date, the Board may exchange the rights at an exchange ratio of one common share or one one-hundredth of a preferred share per right. Otherwise, each holder of a right, other than rights beneficially owned by the acquiring entity or person (which will thereafter be void), will have the right to receive upon exercise that number of common shares having a market value of two times the exercise price of the right. The rights will expire on December 15, 2005. EMPLOYEE STOCK PARTICIPATION PLAN - Exar is authorized to issue 2,250,000 shares of common stock under its Employee Stock Participation Plan (the Plan). The Plan permits employees to purchase common stock through payroll deductions. The purchase price is the lower of 85% of the fair market value of the common stock at the beginning or end of each three month offering period. Shares purchased by and distributed to participating employees were 77,259 in 2000, 117,750 in 1999, and 130,096 in 1998 at weighted average prices of $16.34, $9.21 and $9.87, respectively. The weighted average fair value of the fiscal 2000, 1999 and 1998 awards was $14.54, $2.77 and $4.10 per share, respectively. The Company has reserved 1,217,963 shares of common stock for future issuance under its Employee Stock Participation Plan. STOCK OPTION PLANS - Exar has a Stock Option Plan and a Non-Employee Directors' Stock Option Plan. Under these plans, the Company may grant options to purchase up to 3,594,052 and 375,000 shares of common stock, respectively. Options are granted at fair market value on the date of grant. Options are generally exercisable in four equal annual installments commencing one year after the date of grant and generally expire seven years from the grant date. During fiscal year 2000, shareholders approved 675,000 additional shares of the Company's Common Stock to be reserved under the 1997 Equity Incentive Plan, as amended (the "1997 Plan"). The 1997 Plan differs from prior plans in that, the 1997 Plan allows for selected employees and employee directors to irrevocably elect to defer $5,000 to $50,000 of their yearly salaries in return for options to purchase Common Stock at an aggregate discount from current fair market value equal to the salary reduction amount. 43 Option activity for both plans is summarized as follows:
Outstanding Options --------------------------- Weighted Average Exercise Number of Price per Shares Share --------- ------- Outstanding, March 31, 1997 (968,383 exercisable at a weighted average price of $10.80) 2,882,078 $ 10.81 Options granted (weighted average fair value of $8.41) 1,194,253 14.83 Options exercised (410,700) 9.71 Options canceled (375,648) 12.01 --------- ------- Outstanding, March 31, 1998 (1,146,460 exercisable at a weighted average price of $11.21) 3,289,983 12.26 Options granted (weighted average fair value of $6.04) 1,192,370 10.57 Options exercised (140,476) 9.49 Options canceled (452,289) 12.72 --------- ------- Outstanding, March 31, 1999 (1,542,018 exercisable at a weighted average price of $11.77) 3,889,588 11.81 Options granted (weighted average fair value of $15.77) 1,108,055 27.42 Options exercised (1,259,777) 11.66 Options canceled (174,798) 14.96 --------- ------- Outstanding, March 31, 2000 3,563,068 $ 16.54 ========= =======
At March 31, 2000, 1,035,608 options were available for future grant under both plans.
Options Outstanding Options Exercisable ---------------------------------- ------------------------------ Weighted Average Weighted Weighted Range of Number Remaining Contractual Average Number Average Exercise Prices Outstanding Life (years) Price Exercisable Exercise Price - ----------------------- ----------- --------------------- -------- ----------- -------------- $ 3.50 - $ 9.96 817,079 4.87 $ 9.60 233,348 $ 9.02 10.00 - 11.46 823,011 3.79 10.81 471,474 10.93 11.63 - 15.46 355,091 3.98 13.17 163,085 13.02 15.75 - 24.83 714,653 4.82 17.48 230,298 16.89 24.89 - 95.31 853,234 6.51 29.31 16,875 24.89 ------------------ --------- ---- ----- --------- ------ $ 3.50 - $ 95.31 3,563,068 4.91 $ 16.54 1,115,080 $ 12.28 ========= =========
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") requires the disclosure of pro forma net income and earnings per share had the Company adopted the fair value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value of stock-based awards to employees is calculated through the use of option pricing models, even though such models were developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which 44 significantly differ from the Company's stock option awards. These models also require subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The Company's calculations were made using the Black-Scholes option pricing model with the following weighted average assumptions: expected life, 5.3 to 7.8 years; stock volatility, 58%, 43% and 44% in 2000, 1999 and 1998 respectively; risk free interest rates, 6.1%, 5.4% and 6.0% in 2000, 1999 and 1998; respectively; and no dividends during the expected term. The Company's calculations are based on a single option valuation approach and forfeitures are recognized as they occur. If the computed fair values of the 2000, 1999 and 1998 awards had been amortized to expense over the vesting period of the awards, pro forma net income would have been as follows: (In thousands, except per share amounts):
2000 1999 1998 ---- ---- ---- Pro Forma Net Income $ 11,039 $ 2,412 $ 4,696 ======== ======== ======= Pro Forma Net Income Per Share: BASIC $ 0.76 $ 0.17 $ 0.34 ======== ======== ======= DILUTED $ 0.68 $ 0.17 $ 0.32 ======== ======== =======
The impact of outstanding non-vested stock options granted prior to 1996 has been excluded from the pro forma calculation; accordingly, the 2000, 1999 and 1998 pro forma amounts are not indicative of future period pro forma amounts, when the calculation will apply to all applicable stock options. 9. RESTRUCTURING AND OTHER CHARGES RESTRUCTURING In the third quarter of fiscal 1999, the Company sold its Silicon Microstructures business unit to OSI Systems, Inc. ("OSI") for $2,600,000, with additional contingent performance-based payments of up to $2,500,000 over the next year. The resulting restructuring charge of $731,000 represents the loss on the sale of the assets sold, severance costs related to the termination of 38 employees and other disposition related expenses. The restructuring action was completed during the fourth quarter of fiscal 1999 and was financed through the use of cash. OTHER CHARGES During the fourth quarter of fiscal 1997, the Company incurred a charge of $9,000,000 relating to the write-down of capital assets and investments made under the terms of a wafer production agreement and equity investment agreements with IC Works, Inc. ("IC Works"). The charge was estimated in accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of" and reflects management's estimate of the net realizable value of the equipment and investment in IC Works. The Company terminated its 1995 wafer production agreement with the foundry due to dramatically changed market conditions for wafer pricing and availability, as well as the recent business redirection of the Company and delays in the commencement of anticipated production by the foundry. During the quarter ended December 31, 1997, the Company sold the capital assets written down in connection with this prior year charge. The sales proceeds exceeded the carrying value and, as a result, the Company reversed $1.2 million of the related reserve during the quarter. Offsetting this reversal, the Company decided during the quarter to replace its current information system under development with a system determined to 45 better meet the Company's needs and wrote off $1,200,000 of capitalized costs associated with system modules which the Company does not intend to use. As a result of a merger completed on April 1, 1999 of IC Works, Inc. and Cypress Semiconductor, the Company received in excess of 1.1 million shares of Cypress Semiconductor (CY: NYSE) common stock in exchange for the Company's minority equity investment in IC Works, Inc. The Company sold this stock during the first and fourth quarters of fiscal 2000 resulting in a pre-tax gain of $12,000,000 in other income and a related employee compensation and benefits expense of $3,000,000 in costs and expenses. 10. COMMITMENTS AND CONTINGENCIES In 1987, one of the Company's subsidiaries identified low-level groundwater contamination at its principal manufacturing site. Although the area of contamination appears to have been defined, the source of the contamination has not been identified. The Company has reached an agreement with another entity to participate in the cost of ongoing site investigations and the operation of remedial systems to remove subsurface chemicals which is expected to continue for 10 to 15 years. The accompanying consolidated financial statements include the Company's share of estimated remaining remediation costs of approximately $647,000 as of March 31, 2000. The Company is involved in various claims, legal actions and complaints arising in the normal course of business. Although the ultimate outcome of these matters is not presently determinable, management believes that the resolution of all such pending matters will not have a material adverse effect on the Company's consolidated financial position, results of operations, liquidity or cash flows. 11. INDUSTRY AND SEGMENT INFORMATION In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 establishes standards for reporting information about operating segments in annual financial statements and requires that certain selected information about operating segments be reported in interim financial reports. It also establishes standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the chief operating decision maker, or decision making group in deciding how to allocate resources and in assessing performance. SFAS No. 131 differs from accounting standard SFAS No. 14, which required companies to disclose certain financial information about an industry segment in which they operate. Under both SFAS No. 14 and SFAS No. 131, the Company operates in one reportable segment and is engaged in the design, development and marketing of a variety of analog and mixed-signal application-specific integrated circuits for use in communications, and in the video and imaging products. The nature of the Company's products and production processes as well as type of customers and distribution methods are consistent among all of the Company's devices. The Company's foreign operations consist primarily of its wholly-owned subsidiaries in Japan, the United Kingdom, France and Taiwan. The Company's principle markets include North America, Asia, Europe and other countries. Total sales by geographic area represent sales to unaffiliated customers (inventory movements to Japan for sale by the Japan region directly to end customers in Japan are not significant and eliminated in consolidation and not included below). The following table sets forth product line revenue for years ended March 31:
2000 1999 1998 ---- ---- ---- (In thousands) Communications $ 58,262 $ 41,029 $48,787 Video and Imaging 14,204 15,375 25,549 Other 6,088 15,464 27,679 ---------- ---------- ---------- $ 78,554 $ 71,868 $102,015 ========== ========== ==========
46 Identifiable assets represent assets used in the Company's operations in each geographic area. Geographic financial information for each year is as follows:
2000 1999 1998 ---- ---- ---- (In thousands) Net sales: United States $ 52,775 $ 45,631 $ 60,020 Export sales to Japan and Asia 12,007 8,658 16,852 Export sales to Western Europe 12,363 15,731 21,001 Export sales to rest of world 823 975 1,110 Japan 586 873 3,032 ---------- ---------- ---------- $ 78,554 $ 71,868 $ 102,015 ========== ========== ========== Income (loss) from operations: United States $ 4,000 4,572 $ 9,350 Japan (89) (512) (467) Western Europe 35 (9) 103 --------- ---------- ---------- $ 3,946 $ 4,051 $ 8,986 ========== ========== ========== Long-lived assets: United States $437,505 $ 137,078 $ 141,422 Japan 526 1,121 2,102 Western Europe 402 97 145 ---------- ---------- ---------- $438,433 $ 138,296 $ 143,669 ========== ========== ==========
12. RECENTLY ISSUED ACCOUNTING STANDARD In June 1998, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative Instruments and Hedging Activities," which defines derivatives, requires that all derivatives be carried at fair value, and provides for hedging accounting when certain conditions are met. This is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. On a forward looking basis, although the Company has not fully assessed the implications of this new statement, the Company does not believe adoption of this statement will have a material impact on the Company's financial position or results of operations. In December 1999, the Securities and Exchange Commission (SEC) released Staff Accounting Bulletin (SAB) No. 101. Revenue Recognition in Financial Statements. This bulletin summarizes certain interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant of the SEC in administering the disclosure requirements of the Federal securities laws in applying generally accepted accounting principles to revenue recognition in financial statements. Applications of the accounting and disclosures desired in the bulletin is required by the first quarter of fiscal 2001. Although the Company has not fully assessed the implications of SAB No. 101. management does not believe adoption of this bulletin will have a significant impact on the Company's consolidated financial position, results of operations or cash flows. 47 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not Applicable PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT For a listing of executive officers and directors of the Company and certain information about them, see Part I "Management." Certain information required by this item concerning the Company's directors is incorporated by reference from the section captioned "Proposal 1: Election of Directors" contained in the Company's Definitive Proxy Statement to be filed not later than 120 days following the close of the fiscal year ("Definitive Proxy Statement"). COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission and the National Market. Officers, directors and greater than ten-percent shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. To the Company's knowledge and based solely on its review of the copies of such forms received by it, and written representations from certain reporting persons that no other forms were required during the fiscal year ended March 31, 2000, its officers, directors, and greater than ten percent beneficial owners complied with all applicable Section 16(a) filing requirements. ITEM 11. EXECUTIVE COMPENSATION The information required under this item is hereby incorporated by reference from the Company's Definitive Proxy Statement under the caption "Executive Compensation." ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required under this item is hereby incorporated by reference from the Company's Definitive Proxy Statement under the caption "Security Ownership of Certain Beneficial Owners and Management." ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required under this item is hereby incorporated by reference from the Company's Definitive Proxy Statement under the captions "Certain Transactions" and "Executive Compensation." 48 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this Form 10-K: (1) Index to Consolidated Financial Statements. The following Consolidated Financial Statements of Exar Corporation and its subsidiaries are filed as part of this Form 10-K:
Form 10K Page No. Independent Auditors' Report 32 Consolidated Balance Sheets March 31, 2000 and 1999 33 Consolidated Statements of Operations for the years ended March 31, 2000, 1999 and 1998 34 Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years ended March 31, 2000, 1999, and 1998 35 Consolidated Statements of Cash Flows for the years ended March 31, 2000, 1999 and 1998 36 Notes to Consolidated Financial Statements 37-47
(2) Index to Financial Statement Schedules. The following Consolidated Financial Statement Schedule of Exar Corporation and its subsidiaries for each of the years ended March 31, 2000, 1999 and 1998 are filed as part of this Form 10-K:
Form 10K Page No. II Valuation and Qualifying Accounts 53 and Reserves
Schedules not listed above have been omitted because they are not applicable or required, or the information required to be set forth therein is included in the Consolidated Financial Statements or Notes thereto. 49
Exhibit Exhibit Footnote Number Description 3.1 Certificate of Amendment of Amended and Restated Certificate of Incorporation of Exar Corporation, as amended June 8, 2000. (a) 3.2 Bylaws of the Company, as amended. 4.1 Reference is made to Exhibits 3.1 and 3.2. (c) 4.2 Rights Agreement dated as of December 15, 1995, between the Registrant and the First National Bank of Boston, as amended May 1, 2000. * 10.1 1989 Employee Stock Participation Plan of the Company and related Offering, as amended June 24, 1999. (a)* 10.2 1991 Stock Option Plan of the Company and related forms of stock option grant and exercise. (a)* 10.3 1991 Non-Employee Directors' Stock Option Plan of the Company and related forms of stock option grant and exercise. * 10.4 Fiscal 2000 Key Employee Incentive Compensation Program. * 10.5 Fiscal 2000 Executive Incentive Compensation Program. * 10.6 1996 Non-Employee Directors' Stock Option Plan, as amended April 13, 2000. (b)* 10.7 1997 Equity Incentive Plan, as amended September 9, 1999. * 10.8 Executive Officers' Change of Control Severence Benefit Plans 21.1 Subsidiaries of the Company. 23.1 Independent Auditors' Consent. 24.1 Power of Attorney. Reference is made to the signature page. 27.1 Financial Data Schedule.
(a) Filed as an exhibit to the Company's Annual report on Form 10-K for the fiscal year ended March 31, 1992 and incorporated herein by reference. (b) Filed as an exhibit to the Company's registration statement on Form S-8 (Registration statement No. 333-31120) filed with the Commission on February 25, 2000 and incorporated herein by reference. (c) The Right's Agreement was filed as an exhibit to the Registrant's Current Report on Form 8-K, dated December 15, 1995. 50 * Indicates management contracts or compensatory plans and arrangements filed pursuant to Item 601(b)(10) of Regulation S-K. - --------------------- (b) There were no reports filed on Form 8-K during the fourth quarter of fiscal year 2000. 51 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized. EXAR CORPORATION By: /s/ Donald L. Ciffone Jr. ----------------------------------------------- Donald L. Ciffone Jr. Chief Executive Officer, President and Director Date: June 22, 2000 KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Ronald W. Guire and Donald L. Ciffone, Jr., and each of them, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his substitute or substituted, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /s/ Donald L. Ciffone Jr. Chief Executive Officer, President and Director June 22, 2000 - -------------------------- (Donald L. Ciffone Jr.) /s/ Ronald W. Guire Executive Vice President, Chief Financial Officer, June 22, 2000 - -------------------- Secretary and Director (Ronald W. Guire) (Principal Financial and Accounting Officer) /s/ Raimon L. Conlisk Director and Chairman of the Board June 22, 2000 - ---------------------- (Raimon L. Conlisk) /s/ James E. Dykes Director June 22, 2000 - ------------------ (James E. Dykes) /s/ Frank P. Carrubba Director June 22, 2000 - --------------------- (Frank P. Carrubba) /s/ Richard Previte Director June 22, 2000 - ------------------- (Richard Previte)
52 SCHEDULE II
- --------------------------------------------------------------------------------------------------------------------------------- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------------------------------- Balance Balance at Write-offs and at end Classification Beginning of Year Additions Recoveries of Year - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- Year ended March 31, 2000: Allowance for doubtful accounts and sales returns $ 2,047 $4,192 $ 4,370 $ 1,869 - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- Year ended March 31, 1999: Allowance for doubtful accounts and sales returns $ 3,411 $ 1,360 $ 2,724 $ 2,047 - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- Year ended March 31, 1998: Allowance for doubtful accounts and sales returns $ 3,158 $ 716 $463 $ 3,411 - ------------------------------------------ ------------------- ----------------------- ------------------- ---------------------- - ------------------------------------------ ------------------- ----------------------- ------------------- ----------------------
53 EX-3.1 2 ex-3_1.txt EXH. 3.1 EXHIBIT 3.1 CERTIFICATE OF AMENDMENT OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF EXAR CORPORATION EXAR CORPORATION, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify: FIRST: The name of the corporation is Exar Corporation. SECOND: The date on which the Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware was October 10, 1991. An Amended and Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on February 27, 1992. A Certificate of Amendment and Amended and Restated Certificate of Incorporation of the corporation was filed with the Secretary of State of the State of Delaware on January 19, 1995. THIRD: The Board of Directors of the corporation, acting in accordance with the provisions of Section 242 of the General Corporation Law of the State of Delaware, adopted resolutions to amend the Amended and Restated Certificate of Incorporation of the corporation by deleting the first paragraph of Article IV and substituting therefor a new first paragraph of Article IV in the following form: "This corporation is authorized to issue two classes of stock to be designated, respectively, `Common Stock' and `Preferred Stock.' The total number of shares which the corporation is authorized to issue is One Hundred Two Million Two Hundred Fifty Thousand (102,250,000) shares. One Hundred Million (100,000,000) shares shall be Common Stock, and Two Million Two Hundred Fifty Thousand (2,250,000) shares shall be Preferred Stock, each having a par value of one-hundredth of one cent ($.001)." FOURTH: Thereafter, pursuant to a resolution of the Board of Directors, this Certificate of Amendment was submitted to the stockholders of the corporation for their approval and was duly adopted in accordance with the provision of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, Exar Corporation has caused this Certificate of Amendment to be signed by its President and Chief Executive Officer and attested to by its Secretary this 8th day of June, 2000. EXAR CORPORATION By: ------------------------------------- Donald L. Ciffone, Jr. President and Chief Executive Officer ATTEST: - -------------------------------- Ronald W. Guire, Secretary EX-4.2 3 ex-4_2.txt EXH. 4.2 EXHIBIT 4.2 AMENDMENT OF RIGHTS AGREEMENT THIS AMENDMENT of the Rights Agreement dated December 15, 1995 (herein "Amendment"), is made as of May 1, 2000, by and between EXAR Corporation, a corporation incorporated under the laws of the State of Delaware, having its principal office at 48720 Kato Road, Fremont, California 94538 (herein "Company"), and Fleet National Bank (f/k/a Bank Boston, N.A., f/k/a The First National Bank of Boston), a National Banking Association (herein "Rights Agent"). This Amendment is pursuant to Section 27, Supplements and Amendments, of the Rights Agreement dated December 15, 1995, by and between the Company and Rights Agent (herein "Rights Agreement"), which permits the parties to modify its terms by a written document signed by both parties. WHEREAS, the Company entered into a Rights Agreement with the Rights Agent whereunder the Company issued to holders of its common stock a dividend of rights (the "Rights") to purchase shares of a newly established and designated series of Preferred Shares as set forth in the Rights Agreement; WHEREAS, the initial exercise price of the Rights under the Rights Agreement is $79.00 (after giving effect to the 3-for-2 stock split on February 15, 2000) per Right; and WHEREAS, after consultation with the Company's legal counsel, Cooley Godward LLP, and independent financial advisor, Banc of America Securities LLC, the Board of Directors deems it desirable and in the best interests of the Company and its stockholders that the exercise price of the Rights Agreement be amended. IN CONSIDERATION of the mutual promises exchanged, the parties agree as follows: 1. GENERAL Except as otherwise provided in this Amendment, the contractual relationship of the parties will continue to be governed by the terms and conditions of the Rights Agreement. This Amendment shall not be construed as a modification of any provision of the Rights Agreement unless such provision, or portion thereof, is expressly modified herein. 2. CERTAIN DEFINITIONS The Company and Rights Agent hereby agree to delete Sections 1(d) and (f) in their entirety and replace them with the following: "(d) "Business Day" shall mean any day other than a Saturday, a Sunday, or a day on which banking institutions in the Commonwealth of Massachusetts are authorized or obligated by law or executive order to close." "(f) "Close of Business" on any given date shall mean 5:00 P.M., Eastern time, on such date; PROVIDED, HOWEVER, that if such date is not a Business Day it shall mean 5:00 P.M., Eastern time, on the next succeeding Business Day." 3. APPOINTMENT OF RIGHTS AGENT The Company and Rights Agent hereby agree to delete the last sentence in Section 2 in its entirety and replace it with the two (2) following sentences: "The Company may from time to time appoint such co-Rights Agents as it may deem necessary or desirable, upon ten (10) days' prior written notice to the Rights Agent. The Rights Agent shall have no duty to supervise, and shall in no event be liable for, the acts or omissions of any such co-Rights Agent." 4. EXERCISE OF RIGHTS; PURCHASE PRICE; EXPIRATION DATE OF RIGHTS The Company and Rights Agent hereby agree to delete Section 7(b) in its entirety and replace it with the following: "(b) the Purchase Price for each one one-hundredth of a Preferred Share pursuant to the exercise of a Right shall initially be $375.00 (after giving effect to the 3-for-2 stock split on February 15, 2000), shall be subject to adjustment from time to time as provided in Sections 11 and 13 hereof, and shall be payable in lawful money of the United States of America in accordance with paragraph (c) below." 5. NOTICES The address noted for the Rights Agent shall be deleted and replaced with the following: "Fleet National Bank c/o EquiServe Limited Partnership 150 Royall Street Canton, Massachusetts 02021 Attention: Client Administrator" IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the day and year first above written, in counterparts, each of which shall be considered an original, but all of which together shall constitute one instrument. EXAR CORPORATION FLEET NATIONAL BANK (F/K/A BANK BOSTON, N.A., F/K/A THE FIRST NATIONAL BANK OF BOSTON) By: By: ------------------------ ----------------------- Executive Vice President Title: and CFO Title: --------------------- ---------------------- 2 EX-10.1 4 ex-10_1.txt EXH. 10.1 EXHIBIT 10.1 EXAR CORPORATION EMPLOYEE STOCK PARTICIPATION PLAN ADOPTED AUGUST 1, 1989 EFFECTIVE JANUARY 1, 1990 AMENDED THROUGH AUGUST 2, 1991 AMENDED THROUGH JUNE 24, 1999 1. PURPOSE. (a) The purpose of the Plan is to provide a means by which employees of Exar Corporation, a Delaware corporation (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the Plan: (i) to determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical); (ii) to designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan; (iii) to construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correction any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective; (iv) to amend the Plan as provided in paragraph 13; and (v) generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate one million (1,000,000) shares of the Company's common stock (the "Common Stock"). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. 4. GRANT OF RIGHTS; OFFERING. The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate. If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the Offering or otherwise) the substance of the provisions contained in paragraphs 5 through 8, inclusive. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be equal to or greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is at least twenty (20) hours per week. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the Purchase Period (as defined below) for such right shall begin on its Offering Date and end coincident with the end of such offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Purchase Period (as defined below) for such Offering, he or she will not receive any right under that Offering. (c) No employees shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(d), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. 2 (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423 (b) (8) of the Code, do not permit such employee's rights to purchase stock of the Company or any affiliate 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 rights are granted) for each calendar year in which such rights are outstanding at any time. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an offering made under the Plan, shall be granted the right to purchase the number of shares of Common Stock of the Company purchasable with up to fifteen percent (15%) of such employee's Base Compensation (as defined in Section 7(a)) during the period which begins on the Offering Date (or such later date as the Board determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no more than twenty-seven (27) months after the Offering Date (the "Purchase Period"). In connection with each Offering made under this Plan, the Board or the Committee shall specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each such Offering, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Exercise Date (as defined in the Offering) under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (b) The purchase price of stock acquired pursuant to rights granted under the Plan shall be no less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the date of purchase. 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in an Offering by delivering an agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to fifteen percent (15%) of such employee's Base Compensation during the Purchase Period. Base Compensation is defined as total cash compensation exclusive of commissions (other than that of selected sales personnel), bonuses, overtime, allowances, loans, educational assistance and premium pay such as shift differential, but including amounts elected to be deferred by the employee (that would otherwise have been paid) under the Company's 401(k) Plan. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. At any time during the Purchase Period a participant may terminate his or her payroll deductions. A participant may reduce, increase or begin such payroll deductions after the beginning of any Purchase Period only as provided for in the Offering. A participant may not make any additional payments into his or her account unless expressly provided for in the Offering. (b) If a participant terminates his or her payroll deductions, such participant may withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Purchase Period. Upon such withdrawal from the offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in other Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company or an Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), without interest; provided, however, that 3 subject to the right of the terminated employee to withdraw from the Offering and receive a distribution of his or her accumulated payroll deductions (as described in paragraph 7(b), in the event that a participating employee's employment cases within three (3) months of the next Exercise Date, the balance in such employee's account shall be held and used to purchase Common Stock for the terminated employee on such Exercise Date pursuant to the terms of the ongoing Offering. (d) Rights granted under the Plan shall not be transferable, and shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE. (a) On each exercise date, as defined in the relevant Offering (an "Exercise Date"), each participant's accumulated payroll deductions (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Exercise Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to such participant after such Exercise Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Exercise Date of an Offering shall be distributed in full to such participant after such Exercise Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act"). If, on an Exercise Date of any Offering hereunder, the Plan is not so registered, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the purchase period shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieve from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 4 11. RIGHTS AS A STOCKHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until certificates representing such shares shall have been issued. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Board shall make appropriate adjustments in the maximum number of shares subject to the Plan and the number of shares and price per share of stock subject to outstanding rights. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion, any surviving corporation shall assume outstanding rights or substitute similar rights for those under the Plan, such rights shall continue in full force and effect, or such rights shall be exercised immediately prior to such event. 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) increase the number of shares reserved for rights under the Plan; or (ii) modify the provisions as to eligibility for participation in the Plan or modify the Plan in any other way to the extent such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted. 14. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom such rights were granted. 15. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the vote of the shareholders of the Company, and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 5 EXAR CORPORATION EMPLOYEE STOCK PARTICIPATION PLAN OFFERING ADOPTED AUGUST 1, 1989 EFFECTIVE JANUARY 1, 1990 AMENDED THROUGH AUGUST 2, 1991 AMENDED THROUGH JUNE 24, 1999 1. GRANT; OFFERING DATE. The Board of Directors of Exar Corporation, a Delaware corporation (the "Company"), pursuant to the Company's Employee Stock Participation Plan (the "Plan"), hereby authorizes the grant of rights to purchase shares of the common stock of the Company ("Common Stock") to all Eligible Employees effective on January 1st, April 1st, July 1st and October 1st of each year beginning with the calendar year 1990 (the "Offering Dates"). Rights granted under this Offering are intended to qualify as options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Internal Revenue Code of 1986, as amended (the "Code"). The granting of rights pursuant to each Offering hereunder shall occur on each respective Offering Date unless, prior to such date (a) the Board of Directors determines that such Offering shall not occur, or (b) no shares remain available for issuance under the Plan in connection with the Offering, or (c) if required, an appropriate permit has not been issued by the Commissioner of Corporations of the State of California covering the rights to be granted and the shares to be issued in connection with the Offering. 2. ELIGIBLE EMPLOYEES. All Eligible Employees of the Company shall be granted rights to purchase Common Stock under each Offering on the Offering Date of such Offering. "Eligible Employees" are employees of the Company whose customary employment with the Company is at least twenty (20) hours per week; provided that no employee who is disqualified by subparagraph 5(c) or 5(d) of the Plan shall be an Eligible Employee. 3. RIGHTS. Subject to the limitations contained in the Plan, on each Offering Date each Eligible Employee shall be granted the right to purchase the number of shares of Common Stock purchasable with up to ten percent (10%) of such employee's Base Compensation (as defined in the Plan) paid during the purchase period for such Offering. The purchase period for each Offering shall commence on the Offering Date and end on the next to occur of March 31st, June 30th, September 30th or December 31st (the "Purchase Period"). However, no employee may purchase under any given Offering more than one thousand (1,000) shares of Common Stock, and the maximum aggregate number of shares available to be purchased by all Eligible Employees under any given Offering is forty thousand (40,000) shares. If the aggregate purchase of shares of Common Stock upon exercise of rights granted under the offering would exceed the maximum aggregate number of shares available, the Board shall make a pro rata allocation of the shares available in a uniform and equitable manner. 6 4. PURCHASE PRICE. The purchase price of the Common Stock shall be the lesser of eighty-five percent (85%) of the fair market value of the Common Stock on the Offering Date or eighty-five percent (85%) of the fair market value of the Common Stock on the date of purchase, determined, respectively, based on the average of the low and the high price of the Common Stock on the first and last trading days within the Purchase Period. 5. PARTICIPATION. An Eligible Employee shall become a participant in an Offering by delivering an agreement authorizing payroll deductions of up to ten (10%) of such employee's Base Compensation during the period for which such authorization is effective. Such deductions may be in whole percentages or fixed dollar amounts only, and a participant may not make additional payments into his or her account. The agreement shall be in such form as the Company provides, and must be delivered to the Company at least two weeks prior to the issuance of the first payroll check for the Purchase Period. A participant may increase or decrease his or her participation percentage during a Purchase Period by delivering notice to the Company, in such form as the Company provides, at least two weeks prior to the issuance of the payroll check for which it is to be effective. A participant may withdraw from an Offering and receive his or her accumulated payroll deductions (reduced to the extent such deductions have been used to acquire stock for the participant) by delivering a withdrawal notice to the Company in such form as the Company provides. Upon receipt of such notice, the Company will distribute to the participant as soon as practicable such participant's accumulated payroll deductions (reduced to the extent such deductions have been used to acquire stock for the participant), without interest. 6. TERMINATION. Rights granted under the Offering shall terminate immediately upon cessation of any participating employee's employment with the Company for any reason prior to end of the Purchase Period of the Offering and the Company will distribute as soon as practicable such terminated employee's accumulated payroll deductions (reduced to the extent such deductions have been used to acquire stock for the participant) to him or her, without interest. 7. EXERCISE. On each Exercise Date, each participant's accumulated payroll deductions (without any increase for interest) shall be applied to the purchase of whole shares of Common Stock, up to the maximum number of shares permitted under the Plan and the Offering. "Exercise Date" shall be defined as each March 31st, June 30th, September 30th and December 31st or the immediately preceding business day if any such date is not a business day. The amount of accumulated payroll deductions remaining in each participant's account at the end of a Purchase Period (after the purchase of shares) which is less than the amount required to purchase one share of stock on the Exercise Date of such Purchase Period shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering or is no longer eligible to be granted rights under the Plan, in which case such amount shall be distributed as soon as practicable to such participant after the end of the Purchase Period, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account (after the purchase of shares) which is equal to the amount required to purchase whole shares of stock on the Exercise Date shall be distributed as soon as practicable in full to such participant after the end of each Purchase Period, without interest. 8. TRANSFER. Rights granted under each Offering shall not be transferable, and shall be exercisable only by the person to whom such rights are granted. 7 9. NOTICES AND AGREEMENTS. Any notices or agreements provided for in an Offering or the Plan shall be given in writing, in a form provided by the Company, and unless specifically provided for in the Plan or this Offering shall be deemed effectively given upon receipt or, in the case of notices and agreements delivered by the Company, five (5) days after deposit in the United States mail, postage prepaid. 10. EXERCISE CONTINGENT ON REGISTRATION OF PLAN AND SHAREHOLDER APPROVAL. No rights granted under an offering may be exercised to any extent unless the Plan (including rights granted thereunder) is covered by an effective registration statement pursuant to the Securities Act of 1933, as amended. If on an Exercise Date the Plan is not so registered, no rights granted under the Offering shall be exercised on such date and all payroll deductions accumulated during the Purchase Period (reduced to the extent such deductions have been used to acquire stock under the Offering) will be distributed to the participants, without interest. 11. OFFERING SUBJECT TO PLAN. Each Offering is subject to all the provisions of the Plan, and its provisions are hereby made a part of the Offering, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of an Offering and those of the Plan (including interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan), the provisions of the Plan shall control. 8 EX-10.4 5 ex-10_4.txt EXH. 10.4 EXHIBIT 10.4 KEY EMPLOYEE INCENTIVE COMPENSATION PROGRAM FISCAL YEAR 2000 CONTENTS A. Purpose B. Effective Dates C. Plan Changes D. Plan Administration E. Participation F. Overall Plan Concepts G. Procedure H. Method Of Calculation I. Changes In Status J. Interpretation Of Plan Terms A. PURPOSE The purpose of the Key Employee Incentive Compensation Program is to encourage and reward performance which contributes to the Company's success. Financial incentives which complement base salary will be awarded to participants in the plan for achieving corporate and personal objectives. B. EFFECTIVE DATE This fiscal 2000 Plan was approved by the Board of Directors on April 20, 1999. The period April 1, 1999 through March 31, 2000 will be used for purposes of determining performance achievement and for payout calculations. C. PLAN CHANGES The Company, at its sole discretion through the Board of Directors, may amend, alter, or cancel this Key Employee Incentive Compensation Program at any time. D. PLAN ADMINISTRATION The Key Employee Incentive Compensation Program will be administered by the Plan Committee consisting of the President/CEO and the Executive Vice President/CFO with the staff support of the Human Resources Director. The role of the Plan Committee is to interpret the provisions and intent of the plan, evaluate and determine eligibility and measurement criteria, assess performance results, amend and modify the plan administration, and communicate the Plan provisions to participants, as necessary. The President/CEO will approve the final recommendations to be submitted for Board of Directors' approval. E. PARTICIPATION Eligibility in the annual incentive plan is determined by the recommendations of senior management and the approval of the President/CEO and the Board of Directors. 1. NEW HIRES (a) New hires after the beginning of the plan year who are approved as participants will have prorated incentive awards. (b) New hires in the final quarter (January 1 - March 31) of the plan year are not eligible to participate for that plan year. 2. Since this is an ANNUAL plan, participation is established annually. Participants in previous year(s) are not automatically included in subsequent years. A number of factors may change from year to year, such as: business conditions, individual employee contribution, criticality of certain positions, etc. 3. Inclusion in the plan does not constitute a guarantee of employment or specific earnings. 2 F. OVERALL PLAN CONCEPTS 1. INCENTIVE POOL: The pre-tax profit threshold must be achieved before any funding of the incentive pool takes place. The total amount of the pool is determined by the level of achievement of both pre-tax profit and revenue goals. 2. INCENTIVE PAYOUT: Payout occurs when the pool is funded, when the Corporate objectives are satisfactorily met and when personal performance is satisfactory. 3. INCENTIVE AMOUNT: Individual payments are expressed as a percent of the participant's annual base pay as of March 31 prior to the plan year. 4. TARGET INCENTIVE AWARD: Participants selected for participation in the plan will be assigned to one of several target incentive award categories. The higher the level of importance of the position to the success of the Company, the higher the percentage of target incentive award. For Example: Assume the participant is approved for a target incentive award of 15%, and the pre-tax target and INDIVIDUAL personal targets are met at exactly 100%, then the participant's performance incentive will be 15% of his/her annual base salary (as of March 31, prior to the beginning of the plan year). If the target is not met at 100%, but within the threshold of the target, the payout will be reduced. If the target and the individual performance are exceeded to the outstanding level the payout could reach 150% of target award. In the above example that would be 22.5% of annual base salary (15% x 150%). G. PROCEDURE The employee selected for inclusion in this Key Employee Incentive Compensation Program will be notified in writing and provided a copy of the corporate pre-tax profit target and revenue target. Any changes in the plan or the measurement criteria must be approved in writing by the President/CEO and the Board of Directors. Payment will be subject to ordinary deductions, such as FICA, SDI, and income taxes. No other deduction will be made. Payment, when earned, will be made as soon as administratively possible, generally not later than 75 days after the end of the plan year. H. METHOD OF CALCULATION 1. ESSENTIAL ELEMENTS OF CALCULATION (a) INCENTIVE POOL FUNDING: The pool is funded when the corporate pre-tax profit threshold is met. If the profit is below the established threshold, the pool will NOT be funded. If the profit and revenue objectives are met just at threshold, the pool will be funded at 23.2%. If the objectives are met at 100%, the pool will be funded at 100%. If the objectives are exceeded to the OUTSTANDING level, the pool will be funded at 150%. (b) PERSONAL CONTRIBUTION MODIFIER: Each participant's payout can be modified based on individual contribution to Exar's success. The personal objectives are related to the participant's critical job responsibilities and are linked directly to departmental or corporate objectives. The payout can be modified (increased/decreased) based on appraisal by appropriate managers and approved by the President/CEO and by the Board. 3 2. EXAMPLES
Example 1 Example 2 --------- --------- Employee's annual base salary (3/31/00) $ 90,000 $ 70,000 Target Incentive Award 20% (18,000) 15% (10,500) Pre-Tax Profit ($9.0M) 51.1% ($9.0M) 51.1% Revenue ($82M) 62.5% ($82.0M) 62.5% Combined Pool Funding Factor 113.6% 113.6% Personal Contribution Modifier 95% 120%
Total Indiv. Target Incentive Incentive Corp Personal Award Modifier Award Payment ---- -------- -------------- ------ ------------------ Example 1: 113.6% X 95% = 107.92% X $ 18,000 = $19,425.60 Example 2: 113.6% X 120% = 136.32% X $ 10,500 = $14,313.60
I. CHANGES IN STATUS 1. Participants who give notice of termination or who terminate employment, voluntarily or involuntarily, prior to the date of payout are not eligible for payment. 2. Participants who retire or become totally disabled during the plan year will receive the eligible award payment on a prorated basis. 3. If a participant dies during the plan year the employee's beneficiary will receive the entire eligible payment. 4. Employees who, during the plan year, are promoted to incentive eligible positions and are approved by the President and the Board of Directors for inclusion in the Plan may receive payments on a prorated basis. Employees promoted into incentive eligible positions in the last quarter of the plan year are not eligible in that year. 5. Rehired employees who were previously eligible as a participant in this Plan must be approved as any other new participant. J. INTERPRETATION OF PLAN TERMS The Plan Committee, with the approval of the Board of Directors, is responsible for the interpretation of this plan. Any resolution or dispute regarding eligibility, determination of procedures, measurements, or awards is the sole responsibility of the Plan Committee with Board of Directors' approval. 4 EX-10.5 6 ex-10_5.txt EXH. 10.5 EXHIBIT 10.5 PLAN DOCUMENT EXECUTIVE INCENTIVE COMPENSATION PROGRAM FISCAL YEAR 2000 PLAN 1.0 INTENT The intention of the Executive Incentive Compensation Program for Fiscal Year 2000 is to provide incentives to eligible Exar Corporation executives for achieving or surpassing established revenue and pre-tax profit goals derived from the FY 2000 Financial Plan. 2.0 MANAGEMENT PARTICIPANT QUALIFICATIONS 2.1 Direct participation is limited to a small group of executives who have an important influence on the operation, profits, and future of Exar. Generally, only the corporate officers and the directors of major staff or line functions may be eligible. 2.2 Participation shall be recommended by the President/CEO or Executive Vice-President/CFO and is subject to concurrence by the Compensation Committee of the Board of Directors. 2.3 An invitation to participate and the information divulged in connection with the program must be considered private and not be discussed with others. 3.0 FUNDING OF THE INCENTIVE PLAN POOL 3.1 General: The Incentive Plan Pool will be funded upon achievement of certain revenue and pre-tax profit goals. The pre-tax profit goal must be met at the pre-established threshold levels before any pool funding takes place. Further, this plan will not be funded unless there is funding and payout for the Fiscal Year 2000 Key Employee Incentive Program 3.2 Calculation for Pool Funding The size of the executive pool is the sum of the fiscal year 2000 annual base salary of the participants times their respective target award percentages. The pool size will be modified according to the actual revenue and profit performance levels compared to the approved financial plan for fiscal year 2000. Use the table in Attachment 2 to determine the pool size. For example, if the actual revenue level were $82M, the pool for revenue achievement would be $884k. If the pre-tax profit were $9M, the pool for the pre-tax profit achievement would be $507.8k. The total pool would be $1.3918M ($884k + $507.8k). 3.3 Calculation for Individual Payout The individual payout is determined by factoring one's base salary, individual target award percentage, actual corporate revenue and pre-tax profit results, and personal performance factors. 4.0 RULES 4.1 Pre-tax profits or revenues generated by "creative accounting" or by system changes will be excluded for purposes of this program. 4.2 In calculating incentive compensation, "salary" will be the total base compensation for the fiscal year, excluding any incentive pay, bonus payments, auto allowance, etc. 4.3. It is recognized that certain unforeseen events or inequities could develop in the plan as established. Consideration will be given to unusual circumstances. Such consideration will be made at year end only, and the decision of the Compensation Committee will be final. 4.4 Payments will be made in accordance with the final annual statements as audited by the Company's independent Certified Public Accountants. Amounts earned should be paid prior to June 15. 4.5 In order to remove any deterrent to a "Purchase Acquisition", the write-off of in-process R&D will be added back to profits for calculation of pre-tax profit. 4.6 The Compensation Committee determines the target award for participants. 4.7 The program is to be in force for FY'2000, and only those who are in the employ of the Company and still a member of the eligible executive group through the date of payout will qualify for payments. 4.8 As business conditions, participants' position, or the corporation's needs change, the Compensation Committee reserves the right to modify or cancel at any time with prior notice this Incentive Program, and participants should not presume continued participation in an Incentive Program. 2 EX-10.6 7 ex-10_6.txt EXH. 10.6 EXHIBIT 10.6 EXAR CORPORATION 1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN ADOPTED JULY 23, 1996 APPROVED BY STOCKHOLDERS AUGUST 29, 1996 AMENDED AND RESTATED MARCH 20, 1997 AMENDED AND RESTATED JUNE 12, 1997 AMENDED AND RESTATED SEPTEMBER 18, 1997 AMENDED AND RESTATED SEPTEMBER 10, 1998 AMENDED AND RESTATED SEPTEMBER 11, 1998 AMENDED AND RESTATED APRIL 13, 2000 1. PURPOSE (a) The purpose of the Exar Corporation 1996 Non-Employee Directors' Stock Option Plan (the "Plan") is to provide a means by which each director of Exar Corporation, a Delaware corporation (the "Company") who is not otherwise an employee of the Company or of any Affiliate of the Company (each such person being hereafter referred to as a "Non-Employee Director") will be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of persons now serving as Non-Employee Directors of the Company, to secure and retain the services of persons capable of serving in such capacity, and to provide incentives for such persons to exert maximum efforts for the success of the Company. 2. ADMINISTRATION (a) The Plan shall be administered by the Board of Directors of the Company (the "Board") unless and until the Board delegates administration to a committee, as provided in subparagraph 2(b). (b) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN (a) Subject to the provisions of paragraph 11 relating to adjustments upon changes in stock, the stock that may be sold pursuant to options granted under the Plan shall not exceed in the aggregate two hundred fifty thousand (250,000) shares of the Company's common stock. If any option granted under the Plan shall for any reason expire or otherwise terminate without having been exercised in full, the stock not purchased under such option shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. ELIGIBILITY. Options shall be granted only to Non-Employee Directors of the Company. 5. NON-DISCRETIONARY GRANTS. (a) Each person who is elected for the first time to be a Non-Employee Director after the effective date of the Plan shall, on the date of initial election as a Non-Employee Director by the Board or shareholders of the Company, automatically be granted an option to purchase eighteen thousand (18,000) shares of the Company's common stock (subject to adjustment as provided in paragraph 11 hereof) on such date upon the terms and conditions set forth herein (the "Initial Grant"). (b) On the date of each Annual Meeting of the Stockholders of the Company (or the next day that the Company's stock is traded should the stock not trade on such date), an option to purchase seven thousand five hundred (7,500) shares of the Company's common stock (subject to adjustment as provided in paragraph 11 hereof) shall automatically be granted to such person provided that such person (i) is at that time a Non-Employee Director, and (ii) has served continuously as a Non-Employee Director since the date of the previous Annual Meeting of the Stockholders of the Company (the "Annual Grant"); PROVIDED, HOWEVER, that the Annual Grant for 1998 shall be made on September 11, 1998, and the number of shares of the Company's Common Stock subject to such Annual Grant shall equal seven thousand five hundred (7,500) minus the number of shares for which an option to purchase was granted to such person under this Section 5(b) on or after September 11, 1997, that had not vested as of September 11, 1998. Notwithstanding the foregoing, with respect to the Chairman of the Board, the Annual Grant shall be for twice the number of shares as are granted to other Non-Employee Directors, or fifteen thousand (15,000) shares of the Company's common stock (subject to adjustment as provided in paragraph 11 hereof. (c) In addition, the Chairman of the board shall be granted an option to purchase eleven thousand two hundred fifty (11,250) shares of the Company's common stock (subject to adjustments as provided in paragraph 11 hereof) on April 13, 2000 upon the terms and conditions set forth in paragraph 7 with the exception that the option will become exercisable and fully vested in six months from the date of grant, namely October 13, 2000; provided that the Chairman of the Board remain in the service of the Company from April 13, 2000 continuously until October 13, 2000. 6. DEFERRED DIRECTOR FEE GRANTS. (a) Each Non-Employee Director may elect to apply a percentage of his or her fees for any calendar year otherwise payable in cash for his or her service on the Board or a committee of the Board ("Directors' Fees"), in an amount equal to at least twenty-five percent (25%) but in no event more than fifty percent (50%), to the acquisition of an option to purchase shares of the Company's common stock pursuant to the terms of this paragraph 6 ("Deferred Fee Option"). Such election is irrevocable and must be filed with the Board or a delegate of the Board prior to the commencement of the calendar year in which the Directors' Fees to be deferred are earned. Notwithstanding the foregoing, a newly elected Non-Employee Director may file such an irrevocable election with the Board or a delegate of the Board within thirty (30) days of the date the Non-Employee Director is elected to the Board. Each Non-Employee Director who files such a timely election shall automatically be granted an option under this paragraph 6 on (i) the first trading day in January of the calendar year for which the deferral election is to be in effect; or (ii) for a newly elected Non-Employee Director, the first trading day of the month following the month in which the Non-Employee Director files such election. 2 Notwithstanding the foregoing, if the number of shares remaining available for the grant of options under the Plan is not sufficient to cover non-discretionary option grants under paragraph 5 and Deferred Fee Options, the available shares shall be first allocated to non-discretionary option grants under paragraph 5 and then ratably among the Non-Employee Directors eligible to receive a Deferred Fee Option based on their relative deferred fees. (b) The purchase price per share of common stock of the Company for the shares to be purchased pursuant to the exercise of any Deferred Fee Option shall be 33-1/3% of the fair market value of the stock on the date such Deferred Fee Option is granted. (c) The number of shares of common stock of the Company subject to a Deferred Fee Option shall be determined pursuant to the following formula (rounded down to the nearest whole number): X = A / (B x 66-2/3%), where X is the number of option shares, A is the maximum amount of the Directors' Fees subject to the Non-Employee Director's deferral election, and B is the fair market value per share of stock on the option grant date. (d) Each Deferred Fee Option shall vest (become exercisable) in installments on each date that Directors' Fees would have been payable in cash had no deferral election been in effect under this paragraph 6 with respect to the number of shares equal to (1) the aggregate shares subject to the Deferred Fee Option multiplied by (2) the fraction in which the numerator is the Directors' Fees that the Non-Employee Director would have received in cash on such date absent a deferral election and the denominator is the aggregate Directors' Fees that the Non-Employee Director would have received for the calendar year in cash absent a deferral election. Each Deferred Fee Option shall be fully vested and exercisable in the event the Non-Employee Director dies or becomes disabled within the meaning of Section 22(e)(3) of the Code while a director or immediately prior to the consummation of a corporate reorganization event as described in paragraph 11(b). (e) If a Non-Employee Director's term as a director for the Company shall terminate for any reason, any Deferred Fee Option then held by such Non-Employee Director, to the extent then exercisable, shall remain exercisable after the termination of his or her service as a Non-Employee Director for a period of three (3) years (but in no event beyond seven years from the date of grant of the Deferred Fee Option). If the Deferred Fee Option is not exercised during the applicable period, it shall be deemed to have been forfeited and of no further force or effect. 7. OPTION PROVISIONS. Each option shall be subject to the following terms and conditions: (a) The term of each option commences on the date it is granted and, unless sooner terminated as set forth herein, expires on the date ("Expiration Date") seven (7) years from the date of grant. If the optionee's service as a Non-Employee Director terminates for any reason or for no reason, the option shall terminate on the earlier of the Expiration Date or the date twelve (12) months following the date of termination of such service; PROVIDED, HOWEVER, that if a Non-Employee Director becomes an employee or consultant of the Company while holding an option issued under the Plan, the option shall terminate on the earlier of the Expiration Date or the date twelve (12) months after the date on which both the directorship and the employment or consulting relationship of the optionee with the Company terminate. Notwithstanding the foregoing, if such termination is due to the optionee's death or permanent and total disability, within the meaning of Section 422(c)(6) of the 3 Code, the option shall terminate on the earlier of the Expiration Date or twelve (12) months following termination of such directorship or service. In any and all circumstances, an option may be exercised following termination of the optionee's service as a Non-Employee Director or employee of or consultant to the Company or any Affiliate only as to that number of shares as to which it was exercisable on the date of termination of such service under the provisions of subparagraph 7(e). (b) The exercise price of each option shall be one hundred percent (100%) of the fair market value of the stock subject to such option on the date such option is granted. (c) Payment of the exercise price of each option is due in full in cash at the time of exercise. (d) An option shall not be transferable except by will or by the laws of descent and distribution, or pursuant to a domestic relations order satisfying the requirements of Rule 16(a)-12 under the Securities Exchange Act of 1934 and shall be exercisable during the lifetime of the person to whom the option is granted only by such person (or by his guardian or legal representative) or transferee pursuant to such an order. Notwithstanding the foregoing, the optionee may, by delivering written notice to the Company in a form satisfactory to the Company, designate a third party who, in the event of the death of the optionee, shall thereafter be entitled to exercise the option. (e) An option granted in an Initial Grant shall become exercisable in annual installments over a period of three (3) years from the date of grant, with thirty-three and one third percent (33-1/3%) becoming exercisable at the end of each anniversary of the date of grant, provided that the optionee has, during the entire period prior to such vesting date, continuously served as a Non-Employee Director or employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (f) An option granted in an Annual Grant shall become exercisable in monthly installments over a period of twelve (12) months from the date of grant, with eight and one-third percent (8-1/3%) becoming exercisable at the end of each full month following the date of grant, provided that the optionee has, during the entire period prior to such vesting date, continuously served as a Non-Employee Director or employee of or consultant to the Company or any Affiliate of the Company, whereupon such option shall become fully exercisable in accordance with its terms with respect to that portion of the shares represented by that installment. (g) If a Non-Employee Director's term as a Director of the Company expires and the Non-Employee Director is not elected or appointed to an immediate subsequent term as a Director of the Company, any option then held by such Non-Employee Director shall become fully vested and exercisable in accordance with its terms. (h) The Company may require any optionee, or any person to whom an option is transferred under subparagraph 7(d), as a condition of exercising any such option: (i) to give written assurances satisfactory to the Company as to the optionee's knowledge and experience in financial and business matters; and (ii) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the option for such person's own account and not with any present intention of selling or otherwise distributing the stock. These requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the option has been registered under a then-currently-effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii), as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then-applicable securities laws. 4 (i) Notwithstanding anything to the contrary contained herein, an option may not be exercised unless the shares issuable upon exercise of such option are then registered under the Securities Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. 8. COVENANTS OF THE COMPANY. (a) During the terms of the options granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such options. (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the options granted under the Plan; PROVIDED, HOWEVER, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any option granted under the Plan, or any stock issued or issuable pursuant to any such option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such options. 9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to options granted under the Plan shall constitute general funds of the Company. 10. MISCELLANEOUS. (a) Neither an optionee nor any person to whom an option is transferred under subparagraph 7(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such option unless and until such person has satisfied all requirements for exercise of the option pursuant to its terms. (b) Nothing in the Plan or in any instrument executed pursuant thereto shall confer upon any Non-Employee Director any right to continue in the service of the Company or any Affiliate or shall affect any right of the Company, its Board or shareholders or any Affiliate to terminate the service of any Non-Employee Director with or without cause. (c) No Non-Employee Director, individually or as a member of a group, and no beneficiary or other person claiming under or through him, shall have any right, title or interest in or to any option reserved for the purposes of the Plan except as to such shares of common stock, if any, as shall have been reserved for him pursuant to an option granted to him. (d) In connection with each option made pursuant to the Plan, it shall be a condition precedent to the Company's obligation to issue or transfer shares to a Non-Employee Director, or to evidence the removal of any restrictions on transfer, that such Non-Employee Director make arrangements satisfactory to the Company to insure that the amount of any federal or other withholding tax that may be required to be withheld with respect to such sale or transfer, or such removal or lapse, is made available to the Company for timely payment of such tax. 5 11. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any option granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or otherwise), the Plan and outstanding options will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding options. (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, excluding in each case a capital reorganization in which the sole purpose is to change the state of incorporation of the Company, then all outstanding options shall become exercisable in full for a period of at least ten (10) days prior to such event. Outstanding options which have not been exercised prior to such event shall terminate on the date of such event unless assumed by a successor corporation. 12. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. Except as provided in paragraph 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company where stockholder approval is necessary for the Plan to comply with the requirements of Rule 16b-3 or Nasdaq or securities exchange listing requirements. (b) Rights and obligations under any option granted before any amendment of the Plan shall not be impaired by such amendment unless (i) the Company requests the consent of the person to whom the option was granted and (ii) such person consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. No options may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any option granted while the Plan is in effect shall not be impaired by suspension or termination of the Plan, except with the consent of the person to whom the option was granted. 14. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE. The Plan shall become effective on the date approved by the Board, provided that no options may be exercised unless and until the Plan is approved by the stockholders of the Company. 6 EX-10.8 8 ex-10_8.txt EXH. 10.8 EXHIBIT 10.8 EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN SECTION 2. INTRODUCTION. This EXAR Corporation Executive Officers' Change of Control Severance Benefit Plan (the "Plan") was approved by the Compensation Committee of the Board of Directors of EXAR Corporation (the "Company") on June 24, 1999 (the "Effective Date"). The purpose of the Plan is to encourage valued officers to work in the Company's best interests during and following a Change of Control (as defined below) by providing for the payment of severance benefits as set forth herein. This Plan shall supersede any group severance benefit plan, policy or practice previously maintained by the Company for the employees described herein. This Plan shall supersede any agreement between the Eligible Employees (as defined below) for monetary severance payments, but not for other forms of severance compensation including stock or accelerated vesting of stock options as set forth in the EXAR Corporation 1997 Equity Incentive Plan. This Plan document also is the Summary Plan Description for the Plan. SECTION 3. DEFINITIONS. When used herein, the following terms shall have the following definitions: (a) "BASE SALARY" shall mean an Eligible Employee's salary from the Company, at the rate in effect on the date of a Change of Control (or as increased thereafter), excluding all bonus, commissions and other incentive compensation, such as, but not by way of limitation, payments under the Company's Executive Incentive Compensation Program, Sales Incentive Compensation Program and Key Employee Compensation Program. (b) "CAUSE" shall mean: (i) conviction of any felony or conviction of any crime involving moral turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company; (iii) conduct by an Eligible Employee which, based upon a good faith and reasonable factual investigation and determination by the Company, demonstrates gross incompetence; or (iv) intentional, material violation by an Eligible Employee of any contract between the Eligible Employee and the Company or any statutory duty of the Eligible Employee to the Company that is not corrected within thirty (30) days after written notice to the Eligible Employee thereof. Physical or mental disability shall not constitute "Cause." (c) "CHANGE OF CONTROL" shall mean (i) a dissolution or liquidation of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iv) any other capital reorganization in which more than thirty-five percent (35%) of the shares of the Company entitled to vote are exchanged, excluding in each case a capital reorganization in which the sole purpose is to change the state of incorporation of the Company; (v) a transaction or group of related transactions involving the sale of all or substantially all of the Company's assets; or (vi) the acquisition by any person, entity or group (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any subsidiary of the Company) of the beneficial ownership, directly or indirectly, of securities of the Company representing more than thirty-five percent (35%) of the combined voting power in the election of directors. For purposes of this paragraph, acquisition of ownership interests by any Eligible Employee, whether through a "management buy-out" or otherwise, shall not constitute a "Change of Control." "ELIGIBLE EMPLOYEES" shall mean those executives as may be designated from time to time by the Board of Directors to be a participant. The Board of Directors, or the Compensation Committee of the Board of Directors, may, in its sole discretion, designate additional employees to be Eligible Employees under the Plan. (d) "GOOD REASON" shall mean any one of the following events which occurs within thirteen (13) months after the effective date of a Change of Control: (i) any reduction of the Eligible Employee's rate of total compensation (including base salary, bonus, stock, stock options, etc.); (ii) any reduction in the package of welfare benefit plans, taken as a whole, provided to the Eligible Employee (except that employee contributions may be raised to the extent of any cost increases imposed by third parties) or any action by the Company which would adversely affect the Eligible Employee's participation or reduce the Eligible Employee's benefits under any of such plans; (iii) any change in the Eligible Employee's responsibilities, duties, authority, title, reporting relationship or offices resulting in any diminution of position (including, but not limited to, a change of responsibility from company-wide responsibility to division-level responsibility); (iv) request that the Eligible Employee relocate to a worksite that is more than thirty-five (35) miles from the Eligible Employee's prior worksite, unless the Eligible Employee accepts such relocation opportunity; (v) failure or refusal of a successor to the Company to assume the Company's obligations under the Plan; or (vii) material breach by the Company or any successor to the Company of any of the material provisions of the Plan. (e) "TERMINATION DATE" shall mean the date upon which an Eligible Employee's employment with the Company terminates within thirteen (13) months after the effective date of a Change of Control. SECTION 4. ELIGIBILITY FOR BENEFITS. (a) GENERAL RULES. Subject to the requirements set forth in this Section 3, and subject to further limitations set forth subsequently in this Plan, the Company will grant severance benefits to Eligible Employees. As a condition of receiving severance benefits under the Plan, each Eligible Employee must execute an effective general waiver and release, on the appropriate form attached hereto as Exhibits A and B, which releases the Company from any and all claims the Eligible Employee may have against the Company. (b) EXCEPTIONS. An employee who otherwise is an Eligible Employee will not receive severance benefits under the Plan in any of the following circumstances: (i) The employee voluntarily terminates employment with the Company other than for Good Reason. (ii) The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or a successor to the Company, or is wholly or partly owned (directly or indirectly) by the parent or other affiliate of the Company or its successor. SECTION 5. AMOUNT OF SEVERANCE BENEFITS. Eligible Employees whose employment is terminated without Cause or for Good Reason on a Termination Date will receive, subject to Section 5 hereof, a lump sum payment equal to two (2) times the Eligible Employee's Base Salary. In the event of an Eligible Employee's death prior to the receipt of a payment to which he or she is entitled, such payment shall be made to the Eligible Employee's surviving spouse or, if 2 none, to the Eligible Employee's estate. The foregoing severance benefits shall be subject to applicable federal, state, local and foreign tax withholdings. SECTION 6. LIMITATION ON AMOUNT OF BENEFIT; GOLDEN PARACHUTE TAXES. (a) Notwithstanding any other provision of the Plan to the contrary, (i) the severance benefits under this Plan are in lieu of any other benefit provided under any other group severance plan of the Company and (ii) severance benefits under this Plan shall be reduced by the amount of any payment to which the Eligible Employee is entitled under any individual severance agreement or other arrangement then in effect between the Eligible Employee and the Company. The accelerated vesting of stock options under the Company's 1997 Equity Incentive Plan shall not be subject to this Section 5(a). (b) Notwithstanding any other provision of the Plan to the contrary, in the event it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment, distribution or benefit by or from the Company to or for the benefit of an Eligible Employee, whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise (the "Payments"), would cause the Eligible Employee to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to or for the benefit of the Eligible Employee, within the later of ninety (90) days of the Termination Date or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") in an amount that shall fund the payment by the Eligible Employee of any Excise Tax on the Payments, as well as any income taxes imposed on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment and any interest or penalties imposed with respect to taxes on the Gross-Up Payment or any Excise Tax. For purposes of determining the amount of the Gross-Up Payment, the Eligible Employee shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of such federal, state and local income taxation in the calendar year in which the Gross-Up Payment is due, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then the Eligible Employee shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which the Eligible Employee has received as a result of such initial repayment). In the event that the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to the Eligible Employee an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 5(b), a determination of the Internal Revenue Service as to the amount of Excise Tax for which an Eligible Employee is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce to the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, charges assessed and other expenses shall be borne and paid when due by the Company. SECTION 7. NOTICE OF TERMINATION. Any termination by the Company, whether or not for Cause, or by the Eligible Employee for Good Reason, shall be communicated by a Notice of Termination to the other party hereto given by hand delivery or by registered or certified mail, return receipt requested, postage prepaid, if to the Eligible Employee, then to the Eligible Employee at the Eligible Employee's address as set forth in the Company's records, and, if to the Company, to EXAR Corporation, 48720 Kato Road, Fremont, California 94538 Attention: Law Department. For purposes of the Plan, a Notice of Termination means a written notice which (i) indicates the specific termination provision in the Plan relied upon and (ii) if the Termination 3 Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by the Company or the Eligible Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause or of Good Reason shall not waive any right of the Company or of the Eligible Employee, respectively, or preclude the Company or the Eligible Employee, respectively, from asserting such fact or circumstance in enforcing its, his or her rights hereunder. SECTION 8. TIME OF PAYMENT. The Company will pay the severance payments described in Section 4 above within thirty (30) days after the Termination Date of an Eligible Employee, but not sooner than the effective date of the release attached as Exhibit A or B, as appropriate. SECTION 9. MITIGATION. The Eligible Employee shall not be required to mitigate the amount of the severance benefits payable under this Plan by seeking other employment or otherwise, and any amount earned by the Eligible Employee after the Termination Date shall not reduce or otherwise affect the amount of such severance benefits. SECTION 10. RIGHT TO INTERPRET PLAN; AMEND AND TERMINATE; OTHER ARRANGEMENTS. (a) EXCLUSIVE DISCRETION. The Plan Administrator (as defined in Section 14 below) shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan, to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and the amount of benefits to be paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons. (b) AMENDMENT OR TERMINATION. The Compensation Committee of the Board of Directors of the Company reserves the right to amend or discontinue this Plan or the benefits provided hereunder at any time; PROVIDED, HOWEVER, that no such amendment or termination shall affect the right to any unpaid benefit of any Eligible Employee whose Termination Date has occurred prior to such amendment or termination of the Plan, and that no amendment or discontinuance of this Plan may occur after the effective date of a Change of Control or in anticipation of a Change of Control. Any action amending or terminating the Plan shall be in writing and executed by the Chair of the Compensation Committee of the Board of Directors of the Company. SECTION 11. NO IMPLIED EMPLOYMENT CONTRACT. The Plan shall not be deemed (i) to give any Eligible Employee any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any Eligible Employee or other person at any time and for any reason, which right is hereby reserved. 4 SECTION 12. LEGAL CONSTRUCTION. This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") as a "welfare benefit plan" as defined in Section 3(1) of ERISA, and, to the extent not preempted by ERISA, the laws of the State of California. If any term, provision, covenant or restriction of the Plan is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of the Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated. SECTION 13. CLAIMS, INQUIRIES AND APPEALS. (a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing. The Plan Administrator is: Compensation Committee EXAR Corporation 48720 Kato Road Fremont, CA 94538 Attention: Chair of Compensation Committee (b) DENIAL OF CLAIMS. In the event that any application for severance benefits is denied in whole or in part, the Plan Administrator must notify the Eligible Employee, in writing, of the denial of the application, and of the Eligible Employee's right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the Eligible Employee, and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Plan Administrator needs to complete the review and an explanation of the Plan's review procedure. This written notice will be given to the Eligible Employee within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the Eligible Employee before the end of the initial ninety (90)-day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. If written notice of denial of the application for severance benefits is not furnished within the specified time, the application shall be deemed to be denied. The Eligible Employee will then be permitted to appeal the denial in accordance with the review procedure described below. (c) REQUEST FOR A REVIEW. Any Eligible Employee (or that person's authorized representative) for whom an application for severance benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied (or deemed denied). The Plan Administrator will give the Eligible Employee (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review shall be in writing and shall be addressed to: Compensation Committee EXAR Corporation 48720 Kato Road Fremont, CA 94538 Attn: Chair of Compensation Committee 5 A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the Eligible Employee feels are pertinent. The Plan Administrator may require the Eligible Employee to submit additional facts, documents or other material as it may find necessary or appropriate in making its review. (d) DECISION ON REVIEW. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the Eligible Employee within the initial sixty (60)-day period. The Plan Administrator will give prompt, written notice of its decision to the Eligible Employee. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the Eligible Employee, the specific Plan provisions upon which the decision is based. If written notice of the Plan Administrator's decision is not given to the Eligible Employee within the time prescribed in this Section 12(d), the application will be deemed denied on review. (e) RULES AND PROCEDURES. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing severance benefit claims. The Plan Administrator may require an Eligible Employee who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of severance benefits to do so at the Eligible Employee's own expense. (f) EXHAUSTION OF REMEDIES. No legal action for severance benefits under the Plan may be brought until the Eligible Employee (i) has submitted a written application for severance benefits in accordance with the procedures described by Section 12(a) above, (ii) has been notified by the Plan Administrator that the application is denied (or the application is deemed denied due to the Plan Administrator's failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 12(c) above and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the appeal is deemed to be denied due to the Plan Administrator's failure to take any action on the claim within the time prescribed by Section 12(d) above). SECTION 14. BASIS OF PAYMENTS TO AND FROM PLAN. All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company. SECTION 15. OTHER PLAN INFORMATION. (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer Identification Number assigned to the Company (which is the "Plan Sponsor" as that term is used in ERISA) by the Internal Revenue Service is 94-1741481. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 510. (b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the fiscal year for the purpose of maintaining the Plan's records is December 31. (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. Service of legal process may be made upon the Plan Administrator. (d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" of the Plan is EXAR Corporation and the "Plan Administrator" of the Plan is the Compensation Committee of the Board of Directors of the Company, both having the following address: 48720 Kato Road, Fremont, CA 94538. The Plan Sponsor's and Plan 6 Administrator's telephone number is (510) 668-7112. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. SECTION 16. STATEMENT OF ERISA RIGHTS. Eligible Employees participating in this Plan (which is intended to be an ERISA welfare benefit plan sponsored by EXAR Corporation) are entitled to certain rights and protections under ERISA. If you are an Eligible Employee, you are considered a participant in the Plan and, under ERISA, you are entitled to: (a) Examine, without charge, at the Plan Administrator's office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports; (b) Obtain copies of all Plan documents and Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; (c) Receive a summary of the Plan's annual financial report, in the case of a plan which is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.) In addition to creating rights for Eligible Employees, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a Plan benefit or exercising your rights under ERISA. If your claim for a Plan benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within thirty (30) days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about your rights under ERISA, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. 7 EXHIBIT A RELEASE AGREEMENT - INDIVIDUAL TERMINATION I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN (THE "PLAN"). I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. Except as otherwise set forth in this Agreement, in consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the Effective Date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the Effective Date of this Agreement; (b) I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (the "Effective Date"). 8 EXAR CORPORATION EMPLOYEE By: Name: Title: Date: Date: 9 EXHIBIT B RELEASE AGREEMENT - GROUP TERMINATION I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN (THE "PLAN"). I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. Except as otherwise set forth in this Agreement, in consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the Effective Date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the Effective Date of this Agreement; (b) I have the right to consult with an attorney prior to executing this Agreement; (c) I have forty-five (45) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (the "Effective Date"); and (f) I have received with this Agreement a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated. 10 EXAR CORPORATION EMPLOYEE By: Name: Title: Date: Date: 11 EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN SECTION 17. INTRODUCTION. This EXAR Corporation Executive Officers' Change of Control Severance Benefit Plan (the "Plan") was approved by the Compensation Committee of the Board of Directors of EXAR Corporation (the "Company") on June 24, 1999 (the "Effective Date"). The purpose of the Plan is to encourage valued officers to work in the Company's best interests during and following a Change of Control (as defined below) by providing for the payment of severance benefits as set forth herein. This Plan shall supersede any group severance benefit plan, policy or practice previously maintained by the Company for the employees described herein. This Plan shall supersede any agreement between the Eligible Employees (as defined below) for monetary severance payments, but not for other forms of severance compensation including stock or accelerated vesting of stock options as set forth in the EXAR Corporation 1997 Equity Incentive Plan. This Plan document also is the Summary Plan Description for the Plan. SECTION 18. DEFINITIONS. When used herein, the following terms shall have the following definitions: (a) "BASE SALARY" shall mean an Eligible Employee's salary from the Company, at the rate in effect on the date of a Change of Control (or as increased thereafter), excluding all bonus, commissions and other incentive compensation, such as, but not by way of limitation, payments under the Company's Executive Incentive Compensation Program, Sales Incentive Compensation Program and Key Employee Compensation Program. (b) "CAUSE" shall mean: (i) conviction of any felony or conviction of any crime involving moral turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against the Company; (iii) conduct by an Eligible Employee which, based upon a good faith and reasonable factual investigation and determination by the Company, demonstrates gross incompetence; or (iv) intentional, material violation by an Eligible Employee of any contract between the Eligible Employee and the Company or any statutory duty of the Eligible Employee to the Company that is not corrected within thirty (30) days after written notice to the Eligible Employee thereof. Physical or mental disability shall not constitute "Cause." (c) "CHANGE OF CONTROL" shall mean (i) a dissolution or liquidation of the Company; (ii) a merger or consolidation in which the Company is not the surviving corporation; (iii) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; (iv) any other capital reorganization in which more than thirty-five percent (35%) of the shares of the Company entitled to vote are exchanged, excluding in each case a capital reorganization in which the sole purpose is to change the state of incorporation of the Company; (v) a transaction or group of related transactions involving the sale of all or substantially all of the Company's assets; or (vi) the acquisition by any person, entity or group (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any subsidiary of the Company) of the beneficial ownership, directly or indirectly, of securities of the Company representing more than thirty-five percent (35%) of the combined voting power in the election of directors. For purposes of this paragraph, acquisition of ownership interests by any Eligible Employee, whether through a "management buy-out" or otherwise, shall not constitute a "Change of Control." 12 (i) "ELIGIBLE EMPLOYEES" shall mean those executives as may be designated from time to time by the Board of Directors to be a participant. The Board of Directors, or the Compensation Committee of the Board of Directors, may, in its sole discretion, designate additional employees to be Eligible Employees under the Plan. (d) "GOOD REASON" shall mean any one of the following events which occurs within thirteen (13) months after the effective date of a Change of Control: (i) any reduction of the Eligible Employee's rate of total compensation (including base salary, bonus, stock, stock options, etc.); (ii) any reduction in the package of welfare benefit plans, taken as a whole, provided to the Eligible Employee (except that employee contributions may be raised to the extent of any cost increases imposed by third parties) or any action by the Company which would adversely affect the Eligible Employee's participation or reduce the Eligible Employee's benefits under any of such plans; (iii) any change in the Eligible Employee's responsibilities, duties, authority, title, reporting relationship or offices resulting in any diminution of position (including, but not limited to, a change of responsibility from company-wide responsibility to division-level responsibility); (iv) request that the Eligible Employee relocate to a worksite that is more than thirty-five (35) miles from the Eligible Employee's prior worksite, unless the Eligible Employee accepts such relocation opportunity; (v) failure or refusal of a successor to the Company to assume the Company's obligations under the Plan; or (vii) material breach by the Company or any successor to the Company of any of the material provisions of the Plan. (e) "TERMINATION DATE" shall mean the date upon which an Eligible Employee's employment with the Company terminates within thirteen (13) months after the effective date of a Change of Control. SECTION 19. ELIGIBILITY FOR BENEFITS. (i) GENERAL RULES. Subject to the requirements set forth in this Section 3, and subject to further limitations set forth subsequently in this Plan, the Company will grant severance benefits to Eligible Employees. As a condition of receiving severance benefits under the Plan, each Eligible Employee must execute an effective general waiver and release, on the appropriate form attached hereto as Exhibits A and B, which releases the Company from any and all claims the Eligible Employee may have against the Company. (b) EXCEPTIONS. An employee who otherwise is an Eligible Employee will not receive severance benefits under the Plan in any of the following circumstances: (i) The employee voluntarily terminates employment with the Company other than for Good Reason. (ii) The employee voluntarily terminates employment with the Company in order to accept employment with another entity that is wholly or partly owned (directly or indirectly) by the Company or a successor to the Company, or is wholly or partly owned (directly or indirectly) by the parent or other affiliate of the Company or its successor. SECTION 20. AMOUNT OF SEVERANCE BENEFITS. Eligible Employees whose employment is terminated without Cause or for Good Reason on a Termination Date will receive, subject to Section 5 hereof, a lump sum payment equal to the greater of (a) one (1) times the Eligible Employee's Base Salary or (b) one (1) month of Base Salary for each complete year of service with the Company, up to a maximum of two (2) times the Eligible Employee's Base Salary. In the event of an Eligible Employee's death prior to the receipt of a payment to which he or she is entitled, such payment shall be made to the Eligible Employee's surviving spouse or, if none, to the Eligible Employee's estate. The foregoing severance benefits shall be subject to applicable federal, state, local and foreign tax withholdings. 13 SECTION 21. LIMITATION ON AMOUNT OF BENEFIT; GOLDEN PARACHUTE TAXES. (a) Notwithstanding any other provision of the Plan to the contrary, (i) the severance benefits under this Plan are in lieu of any other benefit provided under any other group severance plan of the Company and (ii) severance benefits under this Plan shall be reduced by the amount of any payment to which the Eligible Employee is entitled under any individual severance agreement or other arrangement then in effect between the Eligible Employee and the Company. The accelerated vesting of stock options under the Company's 1997 Equity Incentive Plan shall not be subject to this Section 5(a). (b) Notwithstanding any other provision of the Plan to the contrary, in the event it shall be determined, either by the Company or by a final determination of the Internal Revenue Service, that any payment, distribution or benefit by or from the Company to or for the benefit of an Eligible Employee, whether paid or payable or distributed or distributable pursuant to the terms of the Plan or otherwise (the "Payments"), would cause the Eligible Employee to become subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then the Company shall pay to or for the benefit of the Eligible Employee, within the later of ninety (90) days of the Termination Date or ninety (90) days of the date of determination referred to above, an additional amount (the "Gross-Up Payment") in an amount that shall fund the payment by the Eligible Employee of any Excise Tax on the Payments, as well as any income taxes imposed on the Gross-Up Payment, any Excise Tax imposed on the Gross-Up Payment and any interest or penalties imposed with respect to taxes on the Gross-Up Payment or any Excise Tax. For purposes of determining the amount of the Gross-Up Payment, the Eligible Employee shall be deemed to pay federal, state and local income taxes at the highest nominal marginal rate of such federal, state and local income taxation in the calendar year in which the Gross-Up Payment is due, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account to determine the amount of the Gross-Up Payment, then the Eligible Employee shall repay to the Company at that time the portion of the Gross-Up Payment attributable to such reduction (plus an amount equal to any tax reduction, whether of the Excise Tax, any applicable income tax, or any applicable employment tax, which the Eligible Employee has received as a result of such initial repayment). In the event that the Excise Tax is subsequently determined, whether by the Company or by a final determination of the Internal Revenue Service, to be more than the amount taken into account to determine the amount of the Gross-Up Payment, then the Company shall pay to the Eligible Employee an additional amount, which shall be determined using the same methods as were used for calculating the Gross-Up Payment, with respect to such excess. For purposes of this Section 5(b), a determination of the Internal Revenue Service as to the amount of Excise Tax for which an Eligible Employee is liable shall not be treated as final until the time that either (i) the Company agrees to acquiesce to the determination of the Internal Revenue Service or (ii) the determination of the Internal Revenue Service has been upheld in a court of competent jurisdiction and the Company decides not to appeal such judicial decision or such decision is not appealable. If the Company chooses to contest the determination of the Internal Revenue Service, then all costs, attorneys' fees, charges assessed and other expenses shall be borne and paid when due by the Company. 14 SECTION 22. NOTICE OF TERMINATION. Any termination by the Company, whether or not for Cause, or by the Eligible Employee for Good Reason, shall be communicated by a Notice of Termination to the other party hereto given by hand delivery or by registered or certified mail, return receipt requested, postage prepaid, if to the Eligible Employee, then to the Eligible Employee at the Eligible Employee's address as set forth in the Company's records, and, if to the Company, to EXAR Corporation, 48720 Kato Road, Fremont, California 94538 Attention: Law Department. For purposes of the Plan, a Notice of Termination means a written notice which (i) indicates the specific termination provision in the Plan relied upon and (ii) if the Termination Date is other than the date of receipt of such notice, specifies the Termination Date (which date shall be not more than fifteen (15) days after the giving of such notice). The failure by the Company or the Eligible Employee to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Cause or of Good Reason shall not waive any right of the Company or of the Eligible Employee, respectively, or preclude the Company or the Eligible Employee, respectively, from asserting such fact or circumstance in enforcing its, his or her rights hereunder. SECTION 23. TIME OF PAYMENT. The Company will pay the severance payments described in Section 4 above within thirty (30) days after the Termination Date of an Eligible Employee, but not sooner than the effective date of the release attached as Exhibit A or B, as appropriate. SECTION 24. MITIGATION. The Eligible Employee shall not be required to mitigate the amount of the severance benefits payable under this Plan by seeking other employment or otherwise, and any amount earned by the Eligible Employee after the Termination Date shall not reduce or otherwise affect the amount of such severance benefits. SECTION 25. RIGHT TO INTERPRET PLAN; AMEND AND TERMINATE; OTHER ARRANGEMENTS. (a) EXCLUSIVE DISCRETION. The Plan Administrator (as defined in Section 14 below) shall have the exclusive discretion and authority to establish rules, forms, and procedures for the administration of the Plan, to construe and interpret the Plan and to decide any and all questions of fact, interpretation, definition, computation or administration arising in connection with the operation of the Plan, including, but not limited to, the eligibility to participate in the Plan and the amount of benefits to be paid under the Plan. The rules, interpretations, computations and other actions of the Plan Administrator shall be binding and conclusive on all persons. (b) AMENDMENT OR TERMINATION. The Compensation Committee of the Board of Directors of the Company reserves the right to amend or discontinue this Plan or the benefits provided hereunder at any time; PROVIDED, HOWEVER, that no such amendment or termination shall affect the right to any unpaid benefit of any Eligible Employee whose Termination Date has occurred prior to such amendment or termination of the Plan, and that no amendment or discontinuance of this Plan may occur after the effective date of a Change of Control or in anticipation of a Change of Control. Any action amending or terminating the Plan shall be in writing and executed by the Chair of the Compensation Committee of the Board of Directors of the Company. SECTION 26. NO IMPLIED EMPLOYMENT CONTRACT. The Plan shall not be deemed (i) to give any Eligible Employee any right to be retained in the employ of the Company or (ii) to interfere with the right of the Company to discharge any Eligible Employee or other person at any time and for any reason, which right is hereby reserved. 15 SECTION 27. LEGAL CONSTRUCTION. This Plan is intended to be governed by and shall be construed in accordance with the Employee Retirement Income Security Act of 1974 ("ERISA") as a "welfare benefit plan" as defined in Section 3(1) of ERISA, and, to the extent not preempted by ERISA, the laws of the State of California. If any term, provision, covenant or restriction of the Plan is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of the Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated. SECTION 28. CLAIMS, INQUIRIES AND APPEALS. (a) APPLICATIONS FOR BENEFITS AND INQUIRIES. Any application for benefits, inquiries about the Plan or inquiries about present or future rights under the Plan must be submitted to the Plan Administrator in writing. The Plan Administrator is: Compensation Committee EXAR Corporation 48720 Kato Road Fremont, CA 94538 Attention: Chair of Compensation Committee (b) DENIAL OF CLAIMS. In the event that any application for severance benefits is denied in whole or in part, the Plan Administrator must notify the Eligible Employee, in writing, of the denial of the application, and of the Eligible Employee's right to review the denial. The written notice of denial will be set forth in a manner designed to be understood by the Eligible Employee, and will include specific reasons for the denial, specific references to the Plan provision upon which the denial is based, a description of any information or material that the Plan Administrator needs to complete the review and an explanation of the Plan's review procedure. This written notice will be given to the Eligible Employee within ninety (90) days after the Plan Administrator receives the application, unless special circumstances require an extension of time, in which case, the Plan Administrator has up to an additional ninety (90) days for processing the application. If an extension of time for processing is required, written notice of the extension will be furnished to the Eligible Employee before the end of the initial ninety (90)-day period. This notice of extension will describe the special circumstances necessitating the additional time and the date by which the Plan Administrator is to render its decision on the application. If written notice of denial of the application for severance benefits is not furnished within the specified time, the application shall be deemed to be denied. The Eligible Employee will then be permitted to appeal the denial in accordance with the review procedure described below. 16 (c) REQUEST FOR A REVIEW. Any Eligible Employee (or that person's authorized representative) for whom an application for severance benefits is denied (or deemed denied), in whole or in part, may appeal the denial by submitting a request for a review to the Plan Administrator within sixty (60) days after the application is denied (or deemed denied). The Plan Administrator will give the Eligible Employee (or his or her representative) an opportunity to review pertinent documents in preparing a request for a review. A request for a review shall be in writing and shall be addressed to: Compensation Committee EXAR Corporation 48720 Kato Road Fremont, CA 94538 Attn: Chair of Compensation Committee A request for review must set forth all of the grounds on which it is based, all facts in support of the request and any other matters that the Eligible Employee feels are pertinent. The Plan Administrator may require the Eligible Employee to submit additional facts, documents or other material as it may find necessary or appropriate in making its review. (d) DECISION ON REVIEW. The Plan Administrator will act on each request for review within sixty (60) days after receipt of the request, unless special circumstances require an extension of time (not to exceed an additional sixty (60) days), for processing the request for a review. If an extension for review is required, written notice of the extension will be furnished to the Eligible Employee within the initial sixty (60)-day period. The Plan Administrator will give prompt, written notice of its decision to the Eligible Employee. In the event that the Plan Administrator confirms the denial of the application for benefits in whole or in part, the notice will outline, in a manner calculated to be understood by the Eligible Employee, the specific Plan provisions upon which the decision is based. If written notice of the Plan Administrator's decision is not given to the Eligible Employee within the time prescribed in this Section 12(d), the application will be deemed denied on review. (e) RULES AND PROCEDURES. The Plan Administrator will establish rules and procedures, consistent with the Plan and with ERISA, as necessary and appropriate in carrying out its responsibilities in reviewing severance benefit claims. The Plan Administrator may require an Eligible Employee who wishes to submit additional information in connection with an appeal from the denial (or deemed denial) of severance benefits to do so at the Eligible Employee's own expense. (f) EXHAUSTION OF REMEDIES. No legal action for severance benefits under the Plan may be brought until the Eligible Employee (i) has submitted a written application for severance benefits in accordance with the procedures described by Section 12(a) above, (ii) has been notified by the Plan Administrator that the application is denied (or the application is deemed denied due to the Plan Administrator's failure to act on it within the established time period), (iii) has filed a written request for a review of the application in accordance with the appeal procedure described in Section 12(c) above and (iv) has been notified in writing that the Plan Administrator has denied the appeal (or the appeal is deemed to be denied due to the Plan Administrator's failure to take any action on the claim within the time prescribed by Section 12(d) above). SECTION 29. BASIS OF PAYMENTS TO AND FROM PLAN. All benefits under the Plan shall be paid by the Company. The Plan shall be unfunded, and benefits hereunder shall be paid only from the general assets of the Company. 17 SECTION 30. OTHER PLAN INFORMATION. (a) EMPLOYER AND PLAN IDENTIFICATION NUMBERS. The Employer Identification Number assigned to the Company (which is the "Plan Sponsor" as that term is used in ERISA) by the Internal Revenue Service is 94-1741481. The Plan Number assigned to the Plan by the Plan Sponsor pursuant to the instructions of the Internal Revenue Service is 510. (b) ENDING DATE FOR PLAN'S FISCAL YEAR. The date of the end of the fiscal year for the purpose of maintaining the Plan's records is December 31. (c) AGENT FOR THE SERVICE OF LEGAL PROCESS. Service of legal process may be made upon the Plan Administrator. (d) PLAN SPONSOR AND ADMINISTRATOR. The "Plan Sponsor" of the Plan is EXAR Corporation and the "Plan Administrator" of the Plan is the Compensation Committee of the Board of Directors of the Company, both having the following address: 48720 Kato Road, Fremont, CA 94538. The Plan Sponsor's and Plan Administrator's telephone number is (510) 668-7112. The Plan Administrator is the named fiduciary charged with the responsibility for administering the Plan. SECTION 31. STATEMENT OF ERISA RIGHTS. Eligible Employees participating in this Plan (which is intended to be an ERISA welfare benefit plan sponsored by EXAR Corporation) are entitled to certain rights and protections under ERISA. If you are an Eligible Employee, you are considered a participant in the Plan and, under ERISA, you are entitled to: (a) Examine, without charge, at the Plan Administrator's office and at other specified locations, such as work sites, all Plan documents and copies of all documents filed by the Plan with the U.S. Department of Labor, such as detailed annual reports; (b) Obtain copies of all Plan documents and Plan information upon written request to the Plan Administrator. The Administrator may make a reasonable charge for the copies; (c) Receive a summary of the Plan's annual financial report, in the case of a plan which is required to file an annual financial report with the Department of Labor. (Generally, all pension plans and welfare plans with one hundred (100) or more participants must file these annual reports.) In addition to creating rights for Eligible Employees, ERISA imposes duties upon the people responsible for the operation of the employee benefit plan. The people who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so prudently and in the interest of you and other Plan participants and beneficiaries. No one, including your employer or any other person, may fire you or otherwise discriminate against you in any way to prevent you from obtaining a Plan benefit or exercising your rights under ERISA. If your claim for a Plan benefit is denied in whole or in part, you must receive a written explanation of the reason for the denial. You have the right to have the Plan review and reconsider your claim. Under ERISA, there are steps you can take to enforce the above rights. For instance, if you request materials from the Plan and do not receive them within thirty (30) days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials, unless the materials were not sent because of reasons beyond the control of the Plan Administrator. If you have a claim for benefits that is denied or ignored, in whole or in part, you may file suit in a state or federal court. If it should happen that the Plan fiduciaries misuse the Plan's money, or if you are discriminated against for asserting your rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court. The court will 18 decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees, for example, if it finds your claim is frivolous. If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about your rights under ERISA, you should contact the nearest office of the Pension and Welfare Benefits Administration, U.S. Department of Labor, listed in your telephone directory or the Division of Technical Assistance and Inquiries, Pension and Welfare Benefits Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210. 19 EXHIBIT A RELEASE AGREEMENT - INDIVIDUAL TERMINATION I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN (THE "PLAN"). I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. Except as otherwise set forth in this Agreement, in consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the Effective Date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the Effective Date of this Agreement; (b) I have the right to consult with an attorney prior to executing this Agreement; (c) I have twenty-one (21) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (the "Effective Date"). 20 EXAR CORPORATION EMPLOYEE By: Name: Title: Date: Date: 21 EXHIBIT B RELEASE AGREEMENT - GROUP TERMINATION I UNDERSTAND AND AGREE COMPLETELY TO THE TERMS SET FORTH IN THE EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLAN (THE "PLAN"). I acknowledge that I have read and understand Section 1542 of the California Civil Code which reads as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR." I hereby expressly waive and relinquish all rights and benefits under that section and any law of any jurisdiction of similar effect with respect to my release of any claims I may have against the Company. Except as otherwise set forth in this Agreement, in consideration of benefits I will receive under the Plan, I hereby release, acquit and forever discharge the Company, its parents and subsidiaries, and their officers, directors, agents, servants, employees, shareholders, successors, assigns and affiliates, of and from any and all claims, liabilities, demands, causes of action, costs, expenses, attorneys' fees, damages, indemnities and obligations of every kind and nature, in law, equity, or otherwise, known and unknown, suspected and unsuspected, disclosed and undisclosed (other than any claim for indemnification I may have as a result of any third party action against me based on my employment with the Company), arising out of or in any way related to agreements, events, acts or conduct at any time prior to and including the Effective Date of this Agreement, including but not limited to: all such claims and demands directly or indirectly arising out of or in any way connected with my employment with the Company or the termination of that employment, including but not limited to, claims of intentional and negligent infliction of emotional distress, any and all tort claims for personal injury, claims or demands related to salary, bonuses, commissions, stock, stock options, or any other ownership interests in the Company, vacation pay, fringe benefits, expense reimbursements, severance pay, or any other form of compensation; claims pursuant to any federal, state or local law or cause of action including, but not limited to, the federal Civil Rights Act of 1964, as amended; the federal Age Discrimination in Employment Act of 1967, as amended ("ADEA"); the federal Americans with Disabilities Act of 1990; the California Fair Employment and Housing Act, as amended; tort law; contract law; wrongful discharge; discrimination; fraud; defamation; emotional distress; and breach of the implied covenant of good faith and fair dealing. I acknowledge that I am knowingly and voluntarily waiving and releasing any rights I may have under ADEA. I also acknowledge that the consideration given for the waiver and release in the preceding paragraph hereof is in addition to anything of value to which I was already entitled. I further acknowledge that I have been advised by this writing, as required by the ADEA, that: (a) my waiver and release do not apply to any rights or claims that may arise after the Effective Date of this Agreement; (b) I have the right to consult with an attorney prior to executing this Agreement; (c) I have forty-five (45) days to consider this Agreement (although I may choose to voluntarily execute this Agreement earlier); (d) I have seven (7) days following the execution of this Agreement by the parties to revoke the Agreement; and (e) this Agreement shall not be effective until the date upon which the revocation period has expired, which shall be the eighth (8th) day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (the "Effective Date"); and (f) I have received with this Agreement a detailed list of the job titles and ages of all employees who were terminated in this group termination and the ages of all employees of the Company in the same job classification or organizational unit who were not terminated. 22 EXAR CORPORATION EMPLOYEE By: Name: Title: Date: Date: 23 EXAR CORPORATION EXECUTIVE OFFICERS' CHANGE OF CONTROL SEVERANCE BENEFIT PLANS
- ------------------------------------------------------- ----------------------------------------------------- GROUP I GROUP II - ---------------------------- -------------------------- -------------------------- -------------------------- NAME EFFECTIVE NAME EFFECTIVE - ---------------------------- -------------------------- -------------------------- -------------------------- Donald L. Ciffone, Jr. 06/24/99 Susan J. Hardman 03/06/00 - ---------------------------- -------------------------- -------------------------- -------------------------- Michael J. Class 06/24/99 Thomas W. Jones 06/24/99 - ---------------------------- -------------------------- -------------------------- -------------------------- Roubik Gregorian 06/24/99 Thomas R. Melendrez 06/24/99 - ---------------------------- -------------------------- -------------------------- -------------------------- Ronald W. Guire 06/24/99 Stephen W. Michael 06/24/99 - ---------------------------- -------------------------- -------------------------- -------------------------- John Sramek 06/24/99 - ---------------------------- -------------------------- -------------------------- --------------------------
24 EX-21.1 9 ex-21_1.txt EXH. 21.1 EXHIBIT 21.1 SUBSIDIARIES OF THE COMPANY 1. Exar International, Inc. (a Virgin Islands Foreign Sales corporation). 2. Exar Japan Corporation (a Japan corporation). 3. Micro Power Systems, Inc. (a California corporation). 4. Exar Ltd. (a United Kingdom Limited Liability corporation). 5. Exar SARL (a French Limited Liability corporation). 6. Exar Taiwan Corporation (a Taiwan corporation). EX-23.1 10 ex-23_1.txt EXH. 23.1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT The Board of Directors and Stockholders Exar Corporation: We consent to the incorporation by reference in Registration Statements Nos. 33-58991, 333-37371, 333-69381 and 333-31120 on Form S-8 and No. 33-59071 on Form S-3 of Exar Corporation of our report dated April 24, 2000, appearing in this Annual Report on Form 10-K of Exar Corporation for the year ended March 31, 2000. Deloitte & Touche LLP San Jose, California June 22, 2000 EX-27.1 11 ex-27_1.txt EXH. 27.1
5 1,000 YEAR MAR-31-2000 APR-01-1999 MAR-31-2000 377,158 3,000 11,550 0 8,299 406,388 26,653 0 438,433 12,818 0 352,614 0 0 72,427 438,433 78,554 78,554 34,152 74,608 0 0 0 22,132 7,017 15,115 0 0 0 15,115 1.04 0.93
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