10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended December 28, 2008

OR

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

For the transition period from              to             

Commission File No. 0-14225

EXAR CORPORATION

(Exact Name of Registrant as specified in its charter)

Delaware	94-1741481
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

48720 Kato Road, Fremont, CA 94538

(Address of principal executive offices)

(510) 668-7000

(Registrant’s telephone number, including area code)

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

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

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

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

As of January 23, 2009, 42,931,835 shares of the Registrant’s Common Stock, par value $0.0001, were issued and outstanding, net of 19,924,369 treasury shares.

EXAR CORPORATION AND SUBSIDIARIES

INDEX TO

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 28, 2008

		Page
	PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
	PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	37
Item 1A.	Risk Factors	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 4.	Submission of Matters to a Vote of Security Holders	52
Item 6.	Exhibits	53
	Signatures	54

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)

(Unaudited)

	December 28, 2008			March 30, 2008
ASSETS
Current assets:
Cash and cash equivalents	$	70,835		$	122,016
Short-term marketable securities		186,646			146,844
Accounts receivable (net of allowances of $568 and $714)		7,335			9,943
Accounts receivable, related party (net of allowances of $1,305 and $1,421)		51			3,712
Inventories		18,125			14,201
Interest receivable and prepaid expenses		4,174			3,889
Deferred income taxes		466			507
Total current assets		287,632			301,112
Property, plant and equipment, net		44,106			46,130
Goodwill		—			47,626
Intangible assets, net		8,102			26,019
Other non-current assets		2,668			3,333
Total assets	$	342,508		$	424,220
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,785		$	8,801
Accrued compensation and related benefits		5,344			5,744
Deferred income and allowance on sales to distributors		3,366			3,253
Deferred income and allowance on sales to distributors, related party		7,244			9,118
Other accrued expenses		6,362			8,136
Total current liabilities		29,101			35,052
Long-term lease financing obligations		16,037			16,379
Other non-current obligations		1,584			1,712
Total liabilities		46,722			53,143
Commitments and contingencies (Notes 16, 17 and 18)
Total stockholders’ equity
Preferred stock, $.0001 par value; 2,250,000 shares authorized; no shares outstanding		—			—
Common stock, $.0001 par value; 100,000,000 shares authorized; 42,892,806 and 43,928,762 shares issued and outstanding at December 28, 2008 and March 30, 2008, respectively (net of treasury shares)		4			4
Additional paid-in capital		709,005			702,218
Accumulated other comprehensive income		1,702			1,873
Treasury stock at cost, 19,923,011 and 18,288,021 shares at December 28, 2008 and March 30, 2008, respectively		(248,974	)		(235,538	)
Accumulated deficit		(165,951	)		(97,480	)
Total stockholders’ equity		295,786			371,077
Total liabilities and stockholders’ equity	$	342,508		$	424,220

See accompanying Notes to Condensed Consolidated Financial Statements

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EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

	Three Months Ended						Nine Months Ended
	December 28, 2008			December 30, 2007			December 28, 2008			December 30, 2007
Net sales	$	17,201		$	20,691		$	58,953		$	49,569
Net sales, related party		9,104			4,516			32,311			11,912
Total net sales		26,305			25,207			91,264			61,481
Cost of sales:
Cost of sales		10,821			12,422			33,339			22,974
Cost of sales, related party		3,998			2,679			15,053			5,162
Amortization of purchased intangible assets		782			2,539			2,693			3,937
Total cost of sales		15,601			17,640			51,085			32,073
Gross profit		10,704			7,567			40,179			29,408
Operating expenses:
Research and development		8,092			8,890			24,317			22,401
Acquired in-process research and development		—			—			—			8,800
Selling, general and administrative		9,099			12,071			30,146			26,104
Goodwill and other intangible asset impairment		59,676			—			59,676			—
Total operating expenses		76,867			20,961			114,139			57,305
Loss from operations		(66,163	)		(13,394	)		(73,960	)		(27,897	)
Other income and expense, net:
Interest income and other, net		2,454			3,652			7,414			12,768
Interest expense		(266	)		(275	)		(927	)		(427	)
Impairment charges on investments, net of realized gain		82			—			(1,127	)		(449	)
Total other income and expense, net		2,270			3,377			5,360			11,892
Loss before income taxes		(63,893	)		(10,017	)		(68,600	)		(16,005	)
Provision (benefit) from income taxes		(70	)		1,665			(129	)		7,476
Net loss	$	(63,823	)	$	(11,682	)	$	(68,471	)	$	(23,481	)
Loss per share:
Basic loss per share	$	(1.49	)	$	(0.24	)	$	(1.60	)	$	(0.56	)
Diluted loss per share	$	(1.49	)	$	(0.24	)	$	(1.60	)	$	(0.56	)
Shares used in the computation of loss per share:
Basic		42,889			49,301			42,866			42,210
Diluted		42,889			49,301			42,866			42,210

See accompanying Notes to Condensed Consolidated Financial Statements

4

EXAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

	Nine Months Ended
	December 28, 2008			December 30, 2007
Cash flows from operating activities:
Net loss	$	(68,471	)	$	(23,481	)
Reconciliation of net loss to net cash provided by operating activities:
Acquired in-process research and development		—			8,800
Goodwill and other intangible asset impairment		59,676			—
Depreciation and amortization		11,660			8,835
Deferred income taxes		—			11,411
Stock-based compensation expense		3,727			3,914
Provision for sales returns and allowances		6,191			2,894
Impairment on investments		1,487			449
Tax benefits from stock plans		—			192
Fair value adjustment of acquired Sipex inventories included in cost of sales		—			1,799
Changes in operating assets and liabilities, net of effect of the Sipex merger:
Accounts receivable		78			(8,666	)
Prepaid expenses and other assets		(594	)		(1,124	)
Inventories		(3,957	)		1,011
Accounts payable		(2,016	)		1,615
Accrued compensation and related benefits		(400	)		2,751
Deferred income and allowance on sales to distributors		(1,343	)		8,082
Other accrued expenses		(2,042	)		(4,376	)
Income taxes payable		—			(3,676	)
Net cash provided by operating activities		3,996			10,430
Cash flows from investing activities:
Purchases of property, plant and equipment and intellectual property		(1,969	)		(1,425	)
Purchases of short-term marketable securities		(174,500	)		(290,882	)
Proceeds from sales and maturities of short-term marketable securities		133,264			381,391
Contributions to long-term investments		(215	)		(432	)
Acquisition of Sipex, net of cash acquired and transaction costs		—			(2,916	)
Net cash (used in) provided by investing activities		(43,420	)		85,736
Cash flows from financing activities:
Repurchase of common stock		(13,437	)		(57,971	)
Proceeds from issuance of common stock		2,884			3,370
Repayment of bank borrowings		—			(5,291	)
Repayment of lease financing obligations		(1,204	)		(79	)
Net cash used in financing activities		(11,757	)		(59,971	)
Effect of exchange rate changes on cash		—			(126	)
Net (decrease) increase in cash and cash equivalents		(51,181	)		36,069
Cash and cash equivalents at the beginning of period		122,016			119,809
Cash and cash equivalents at the end of period	$	70,835		$	155,878
Supplemental disclosure of non-cash investing and financing activities:
Issuance of common stock in consideration for acquired assets and liabilities of Sipex	$	—		$	229,999
Assumption of vested options and warrants	$	—		$	11,890
Property, plant and equipment acquired under capital lease arrangement	$	2,571		$	5,154

See accompanying Notes to Condensed Consolidated Financial Statements

5

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1. ORGANIZATION AND BASIS OF PRESENTATION

Description of Business

Exar Corporation (together with its subsidiaries, “Exar” or “we”) was incorporated in California in 1971 and reincorporated in Delaware in 1991. We are a fabless semiconductor company that designs, develops, markets and sells power management and connectivity silicon solutions. Applying both analog and digital technologies, our products are deployed in a wide array of applications such as portable electronic devices, set top boxes, digital video recorders, telecommunication systems and industrial automation equipment.

Our fiscal year ends on the Sunday closest to March 31 and our fiscal quarters end on the Sunday closest to the end of the corresponding calendar quarter. The third quarters of fiscal 2009 and fiscal 2008 included 91 days from September 29, 2008 to December 28, 2008 and October 1, 2007 to December 30, 2007, respectively.

Basis of Presentation and Use of Management Estimates

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and include Exar and its wholly-owned subsidiaries. This financial information reflects all adjustments, which are, in our opinion, of a normal and recurring nature and necessary to state fairly the statements of financial position, results of operations and cash flows for the dates and periods presented. The March 30, 2008 condensed consolidated balance sheet was derived from the audited financial statements at that date, but does not include all disclosures required by GAAP. All significant inter-company transactions and balances have been eliminated.

The financial statements include management’s estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of sales and expenses during the reporting periods. Actual results could differ from those estimates, and material effects on operating results and financial position may result. These condensed consolidated financial statements and the notes thereto should be read in conjunction with our audited consolidated financial statements for the fiscal year ended March 30, 2008 included in our Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A, our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2008, as amended by Amendment No. 1 on Form 10-Q/A, and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2008, each as filed with the Securities and Exchange Commission (“SEC”). The results of operations for the three and nine months ended December 28, 2008 are not necessarily indicative of the results to be expected for any future period.

To conform to the current period presentation, we have reclassified net realized gain on investments from the “Interest income and other, net” line item to the “Impairment charges on investments, net of realized gain” line item in our condensed consolidated statements of operations.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In April 2008, the Financial Accounting Standards Board (“FASB”) issued Staff Position No. FAS 142-3, Determination of the Useful Life of Intangible Assets (“FSP 142-3”). FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”). FSP 142-3 is intended to improve the consistency between the useful life of a recognized intangible asset under FAS 142 and the period of expected cash flows used to measure the fair value of the asset under Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations (“FAS 141R”), and other guidance under GAAP. FSP 142-3 is effective for fiscal years beginning after December 15, 2008. We are currently evaluating the impact, if any, of the adoption of FSP 142-3 on our financial position, results of operations and liquidity.

In December 2007, the FASB issued FAS 141R, which replaces FAS 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized under purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. FAS 141R is effective for financial statements issued for fiscal years beginning after December 15, 2008 and will apply prospectively to business combinations completed on or after that date. We will adopt FAS 141R in fiscal 2010 and its effects on future periods will depend on the nature and significance of any acquisitions subject to FAS 141R.

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In May 2008, the FASB issued Statement of Financial Accounting Standards No. 162, The Hierarchy of Generally Accepted Accounting Principles (“FAS 162”). The new standard is intended to improve financial reporting by identifying a consistent framework, or hierarchy, for selecting accounting principles to be used in preparing financial statements that are presented in conformity with GAAP for nongovernmental entities. FAS 162 is effective 60 days following SEC approval of the Public Company Accounting Oversight Board auditing amendments to AU Section 411, The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles. We have evaluated the new statement and have determined that its adoption did not have a significant impact on the determination or reporting of our financial results.

Relative to FAS 157, the FASB issued Staff Position No. FAS 157-1 and FAS 157-2 in February 2008 and FAS 157-3 in October 2008. FAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13 and Its Related Interpretive Accounting Pronouncements That Address Leasing Transactions, did not impact us as it amends FAS 157 to exclude Statement of Financial Accounting Standards No. 13, Accounting for Leases, and its related interpretative accounting pronouncements that address leasing transactions. FAS 157-2, Effective Date of FASB Statement No. 157, delays the effective date of FAS 157 for all non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually) until fiscal years beginning after November 15, 2008.

We are currently assessing the impact of FAS 157 for nonfinancial assets and nonfinancial liabilities on our financial position, results of operations and liquidity.

NOTE 3. FAIR VALUE MEASUREMENT

Effective March 31, 2008, the first day of fiscal 2009, we adopted the Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“FAS 157”) , which defines fair value, establishes a framework and provides guidance regarding the methods used for measuring fair value, and expands disclosures about fair value measurements. The adoption of FAS 157 for financial assets and financial liabilities had no material impact on our financial position, results of operations and liquidity.

FAS 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active, clarifies the application of FAS 157 as it relates to the valuation of financial assets in a market that is not active and is effective immediately. As of December 28, 2008, we did not have any financial assets that were valued using inactive markets, and as such, we were not impacted by FAS 157-3.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“FAS 159”). FAS 159 permits companies to choose to measure certain financial instruments and certain other items at fair value. The standard requires that unrealized gains and losses on items for which the fair value option has been elected be reported in earnings. FAS 159 was effective for financial statements issued for fiscal years beginning after November 15, 2007, although earlier adoption was permitted. On March 31, 2008, the first day of fiscal 2009, we adopted FAS 159 and have elected not to measure any additional financial instruments and other items at fair value. As such, the adoption had no material impact on our financial position, results of operations and liquidity.

Valuation Hierarchy and Techniques

FAS 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. FAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Our investment assets, measured at fair value on a recurring basis, at the end of the third quarter of fiscal 2009 were as follows (in thousands):

	Total		Level 1		Level 2
Assets
Money market funds and U.S. Treasury securities	$	25,830	$	25,830	$	—
Asset-backed securities		10,993		—		10,993
Mortgage-backed securities		20,881		—		20,881
Other fixed income available-for-sale securities		198,680		—		198,680
Total financial instruments owned	$	256,384	$	25,830	$	230,554

Our financial assets and financial liabilities recorded at fair value have been categorized based upon the following three levels of inputs in accordance with FAS 157:

Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. Our investments in marketable securities and money market funds that are traded in active exchange markets, as well as our investments in U.S. Treasury securities that are highly liquid and are actively traded in over-the-counter markets are classified under level 1.

Level 2 – Observable inputs other than level 1 prices such as quoted prices for similar assets or liabilities, quoted

7

prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Our investments in U.S. government and agency securities, commercial paper, corporate and municipal debt securities and asset-backed and mortgage-backed securities are traded less frequently than exchange-traded securities and are valued using inputs that include quoted prices for similar assets in active markets, and inputs other than quoted prices that are observable for the asset, such as interest rates and yield curves that are observable at commonly quoted intervals. These instruments are classified within level 2.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. We hold no financial assets or liabilities that are classified within level 3.

NOTE 4. CASH, CASH EQUIVALENTS AND SHORT-TERM MARKETABLE SECURITIES

The following table summarizes our cash, cash equivalents and short-term marketable securities (in thousands):

	December 28, 2008		March 30, 2008
Cash and cash equivalents
Cash in financial institutions	$	1,097	$	1,208
Cash equivalents
Money market funds		19,877		28,274
Corporate bonds and commercial paper		—		86,553
U.S. government and agency securities		49,861		5,981
Total cash equivalents		69,738		120,808
Total cash and cash equivalents		70,835		122,016
Available-for-sale securities
U.S. government and agency securities	$	81,763	$	72,358
Corporate bonds and commercial paper		73,009		45,578
Asset-backed securities		10,993		10,943
Mortgage-backed securities		20,881		17,965
Total short-term marketable securities	$	186,646	$	146,844

We classify investments as available-for-sale at the time of purchase and re-evaluate such designation as of each consolidated balance sheet date. Our available-for-sale securities are classified as cash equivalents if the maturity from the date of purchase is ninety days or less, and as short-term investments for those with maturities, from the date of purchase, in excess of ninety days which we intend to sell as necessary to meet our liquidity requirements. We amortize premiums and accrete discounts to interest income over the life of the investment.

All marketable securities are reported at fair value based on the estimated or quoted market prices as of each consolidated balance sheet date, with unrealized gains or losses recorded in accumulated other comprehensive income (loss) within stockholders’ equity except those unrealized losses that are deemed to be other than temporary which are reflected in the “Impairment charges on investments, net of realized gain” in the condensed consolidated statements of operations. Net realized gains on marketable securities for the three months ended December 28, 2008 were approximately $0.1 million. Net realized losses on marketable securities, for the nine months ended December 28, 2008 were approximately $0.2 million.

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The following table summarizes our investments in marketable securities (in thousands):

	December 28, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	19,877	$	—	$	—		$	19,877
Corporate bonds and commercial paper		73,069		120		(180	)		73,009
U.S. government and agency securities		129,753		1,894		(22	)		131,624
Asset-backed and mortgage-backed securities		31,957		220		(303	)		31,874
Total at December 28, 2008	$	254,655	$	2,234	$	(505	)	$	256,384
	March 30, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	28,274	$	—	$	—		$	28,274
Corporate bonds and commercial paper		158,790		354		(233	)		158,911
U.S. government and agency securities		50,146		1,413		—			51,559
Asset-backed and mortgage-backed securities		28,543		462		(97	)		28,908
Total at March 30, 2008	$	265,753	$	2,229	$	(330	)	$	267,652

As of December 28, 2008, asset-backed and mortgage-backed securities, accounted for 4% and 8%, respectively, of our total investments. The asset-back securities are comprised primarily of premium tranches of auto loans, and credit card receivables, while our mortgage-backed securities are primarily from the Federal agencies. We do not own auction rate securities nor do we own securities that are classified as sub-prime. As of December 28, 2008, the net unrealized loss of our asset-backed and mortgage-backed securities totaled $0.1 million or less than 0.5 percent of our total investments.

We account for our investments in debt and equity instruments under the Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (“FAS 115”). Management determines the appropriate classification of cash equivalents or short-term marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. The investments are adjusted for amortization of premiums and discounts to maturity and such amortization is included in “Interest income and other, net”. Cash equivalents and short-term marketable securities are reported at fair value with the related unrealized gains and losses included in the “Accumulated other comprehensive income” line item in the unaudited condensed consolidated balance sheets. As of December 28, 2008, there was approximately $1.7 million of net unrealized gains from our level 1 and level 2 investments.

We follow the guidance provided by FASB Staff Position No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP 115-1”), to assess whether our investments with unrealized loss positions are other-than-temporarily impaired. We regularly review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position and intent and ability to hold a security to maturity or forecasted recovery. Realized gains and losses and declines in value of our investments judged to be other-than-temporary are reported in the “Impairment charges on investments, net of realized gain” line item in the condensed consolidated statements of operations. In September 2008, Lehman Brothers Holdings Inc. (“Lehman”) filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. As a result of Lehman’s bankruptcy filing, we recorded an other-than-temporary impairment charge of $0.6 million in the nine months ended December 28, 2008.

NOTE 5. BUSINESS COMBINATION

On August 25, 2007, we completed our merger with Sipex Corporation (“Sipex”), a company that designed, manufactured and marketed high performance analog ICs used by OEMs in the computing, consumer electronics, communications and networking infrastructure markets. As a result of the merger, we have combined product offerings, increased technical expertise, distribution channels, customer base and geographic reach, and reduced expenses due to significant cost synergies.

The merger was accounted for as a purchase in accordance with FAS 141. Accordingly, Sipex results of operations and estimated fair value of assets acquired and liabilities assumed were included in our consolidated financial statements beginning August 26, 2007.

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The total estimated purchase price of the Sipex merger is summarized as follows (in thousands):

	Amounts
Fair value of Exar common stock issued	$	229,999
Fair value of options and warrants assumed		16,701
Direct transaction costs		4,038
Total estimated purchase price	$	250,738

Purchase Price Allocation

The allocation of the purchase price to Sipex’s tangible and identifiable intangible assets acquired and liabilities assumed was based on their estimated fair values. The excess of the purchase price over the tangible and identifiable intangible assets acquired and liabilities assumed has been allocated to goodwill. Goodwill resulted primarily from our expectations of synergies from integration of Sipex’s product offerings with our product offerings. Goodwill is not deductible for tax purposes. We had up to twelve months from the closing date of the merger to adjust pre-acquisition contingencies, if any.

The purchase price was adjusted as follows during the nine months ended December 28, 2008 (in thousands):

	As of March 30, 2008			Adjustments		As of December 28, 2008
Cash	$	1,122				$	1,122
Accounts receivable		5,720					5,720
Inventory		12,245					12,245
Other assets		2,056					2,056
Property, plant and equipment		19,883					19,883
Accounts payable		(6,439	)				(6,439	)
Other liabilities		(10,530	)	1,449			(9,081	)
Long-term financing obligations and others		(18,470	)				(18,470	)
Net tangible assets acquired		5,587					7,036
Identifiable intangible assets		60,600					60,600
In-process research and development		8,800					8,800
Fair value of unvested options assumed		4,811					4,811
Goodwill		170,940		(1,449	)		169,491
Total estimated purchase price	$	250,738				$	250,738

During the nine months ended December 28, 2008, goodwill was reduced by $1.4 million, principally in connection with the reduction of $0.4 million in the allowance for sales returns and volume price discounts for Sipex’s products in the distribution channel, and $0.9 million related to employee related liabilities which were initially estimated in August 2007.

Pro Forma Financial Information

The following unaudited pro forma financial information is based on the respective historical financial statements of Exar and Sipex. The unaudited pro forma financial information reflects the consolidated results of operations as if the merger of Sipex occurred at the beginning of each period and includes the amortization of the resulting identifiable acquired intangible assets and the effects of the estimated write-up of Sipex inventory to fair value on cost of goods sold, the exclusion of interest expense on Sipex’s senior convertible notes and stock-based compensation expenses. These unaudited pro forma financial

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information adjustments reflect their related tax effects. The pro forma data for the nine months ended December 30, 2007 also includes a non-recurring charge of $8.8 million against the acquired in-process research and development (“IPR&D”). The unaudited pro forma financial data is provided for illustrative purposes only and is not necessarily indicative of the consolidated results of operations for future periods or what actually would have been realized had Exar and Sipex been a consolidated entity during the periods presented.

The following summary includes the impact of certain adjustments mentioned in the previous paragraph (in thousands except per share information):

	Nine months ended
	December 30, 2007
Pro forma net sales	$	89,563
Pro forma net loss	$	(51,818	)
Pro forma basic and diluted net loss per share	$	(1.01	)

NOTE 6. GOODWILL AND INTANGIBLE ASSETS

The rapid and severe deterioration of worldwide economic conditions has affected our industry and led customers to scale down their levels of production. As a result of third quarter fiscal 2009 impairment indicators, we considered the potential impairment of goodwill and other long-lived assets including intangible assets. Indicators that required us to perform an interim impairment review consisted of further weakening in new orders from our customers throughout the third quarter and into the fourth quarter of fiscal 2009, as well as, the uncertainty of the magnitude and duration of the current recession and industry analysts’ expectations that demand for semiconductors will remain weak until economic conditions improve. In addition, we experienced a significant decline in our stock price that reduced our market capitalization below our net asset carrying value for an extended period of time. As a result of the goodwill and long-lived asset impairment assessments, we recorded a charge totaling $59.7 million in the third quarter of fiscal 2009. This charge is comprised of $46.2 million related to goodwill and $13.5 million related to intangible assets.

Described below is a summary of our goodwill and intangible assets and the related impairment assessments.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. We follow the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”), under which we evaluate goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We conduct our annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income approach that uses discounted cash flows and the market approach that utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss. Because we have one reporting unit under FAS 142, we utilize an entity-wide approach to assess goodwill for impairment.

Given the impairment indicators discussed above, we performed an interim goodwill impairment analysis during the third quarter of fiscal 2009 using a combination of the income approach and the market approach, in accordance with the provisions of FAS 142. The analysis performed compared the implied fair value of goodwill to the carrying amount of goodwill on our balance sheet. Our estimate of the implied fair value of the goodwill was based on the quoted market price of our common stock and the discounted value of estimated future cash flows over a seven-year period with residual value. The analysis resulted in an impairment charge of approximately $46.2 million that reduced our carrying value of goodwill to zero.

Solely for the purposes of establishing inputs for the fair value calculations described above related to goodwill impairment testing, we made the following assumptions. We assumed that the current economic recession would continue through fiscal year 2010, followed by a recovery period in fiscal years 2011 through 2013 and long-term industry growth past fiscal year 2013. In addition, we applied gross margin assumptions consistent with our historical trends and used a 3% growth factor to calculate the terminal value of the company, which was consistent with the rate used in the prior year’s annual impairment test. We used a 14% discount rate to calculate the present value of cash flows and the terminal value, which is slightly higher than the 12.5% discount rate we used in the prior year’s annual impairment test, primarily due to increases to the required market risk and small stock premiums.

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Given the current volatile worldwide economic environment and the resulting uncertainties regarding its impact on our business, our estimates and assumptions regarding the duration of the ongoing economic recession, or the period or strength of any future recovery, made for purposes of our goodwill impairment testing during the third quarter of fiscal 2009 may not prove to be accurate.

The following table summarizes the change in the carrying amount of goodwill for the nine months ended December 28, 2008 (in thousands):

	Amount
Balance as of March 30, 2008	$	47,626
Goodwill adjustment (see Note 5)		(1,449	)
Impairment charge		(46,177	)
Balance as of December 28, 2008	$	—

Intangible Assets

Our purchased intangible assets at December 28, 2008 and December 30, 2007 are summarized below (in thousands):

	December 28, 2008							December 30, 2007
	New Carrying Amount (1)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount	Accumulated Amortization		Net Carrying Amount
Existing technology	$	16,876	$	(10,145	)	$	6,731	48,393	(5,244	)	43,149
Patents/Core technology		1,693		(1,152	)		541	7,900	(560	)	7,340
Customer backlog		340		(340	)		—	400	(242	)	158
Distributor relationships		1,265		(792	)		473	6,500	(385	)	6,115
Customer relationships		771		(445	)		326	4,300	(215	)	4,085
Tradenames/Trademarks		177		(146	)		31	600	(71	)	529
	$	21,122	$	(13,020	)	$	8,102	68,093	(6,717	)	61,376

⁽¹⁾ The new carrying amount is net of intangible asset impairment charges of approximately $36.7 million and $13.5 million taken during the fourth quarter of fiscal 2008 and the third quarter of fiscal 2009, respectively.

Our long-lived assets include land, buildings, equipment, furniture and fixtures and privately held equity investments. 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. We evaluate the recoverability of our long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). We compare the carrying value of long-lived assets to our projection of future undiscounted cash flows attributable to such assets and, in the event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge against income equal to the excess of the carrying value over the asset’s fair value.

Given the impairment indicators discussed above, we performed a test of purchased intangible assets for recoverability. The assessment of recoverability is based upon the assumptions and underlying cash flow projections prepared for the concurrent interim goodwill impairment test. Our estimate of the implied fair value of the intangible assets was based on the discounted value of estimated future cash flows over a five-year period using a discount rate of 14%.

The analysis determined that the carrying amount of the intangible assets exceeded the implied fair value under the test for impairment per FAS 144 and the difference was allocated to the intangible assets of the impacted asset group on a pro-rata basis using the relative carrying amounts of the assets. We recorded an impairment charge of approximately $13.5 million, of which $9.8 million related to existing technology, $1.4 million to patents/core technology, $1.3 million to distributor relationships, $0.9 million to customer relationships and $0.1 million to tradenames/trademarks.

Given the current volatile worldwide economic environment and the resulting uncertainties regarding its impact on our business, our estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or

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strength of any future recovery, made for purposes of our intangible asset impairment testing during the third quarter of fiscal 2009 may not prove to be accurate. If our assumptions regarding projected revenue or gross margin rates are not achieved, we may be required to record additional intangible asset impairment charges in future periods, if any such change or other factor constitutes a triggering event. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

The aggregate amortization expenses for our purchased intangible assets are summarized for the periods presented below (in thousands):

		Three Months Ended				Nine Months Ended
	Weighted Average Lives	December 28, 2008		December 30, 2007		December 28, 2008		December 30, 2007
	(in months)
Existing technology	50	$	1,061	$	2,021	$	3,628	$	3,368
Patents/Core technology	60		102		395		371		560
Customer backlog	6		—		200		—		242
Distributor relationships	72		70		271		255		385
Customer relationships	84		40		154		144		214
Tradenames/Trademarks	36		13		50		47		71
Total		$	1,286	$	3,091	$	4,445	$	4,840

The estimated future amortization expenses for our purchased intangible assets are summarized below (in thousands):

Amortization Expense (by fiscal year)
Remainder of 2009	$	734
2010		2,938
2011		2,199
2012		984
2013		858
2014 and thereafter		389
	$	8,102

NOTE 7. LONG-TERM INVESTMENTS

Our long-term investments, recorded in the “Other non-current assets” line item in our condensed consolidated balance sheets, consist of investments in TechFarm Ventures (Q), L.P. (“TechFarm Fund”) and Skypoint Telecom Fund II (US), L.P. (“Skypoint Fund”). Both TechFarm Fund and Skypoint Fund are venture capital funds which invest primarily in private companies in the telecommunications and/or networking industry. We account for these non-marketable equity securities under the cost method. In accordance with FSP 115-1, we periodically review and determine whether the investments are other-than-temporarily impaired, in which case the investments are written down to their impaired value.

As of December 28, 2008 and March 30, 2008, our long-term investments balances were as follows (in thousands):

	December 28, 2008		March 30, 2008
TechFarm Fund	$	—	$	466
Skypoint Fund		1,949		2,170
Long-term investments	$	1,949	$	2,636

In the nine months ended December 28, 2008, we made an approximately $0.2 million capital contribution under our $5.0 million commitment to Skypoint Fund. As of December 28, 2008, we had a remaining obligation of approximately $0.5 million to Skypoint Fund upon its request.

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In the second quarter of fiscal 2009, we analyzed the fair value of the underlying investment in TechFarm Fund and concluded that the remaining carrying value in TechFarm Fund was other-than-temporarily impaired and recorded an impairment charge of $0.5 million. As such, we reduced the carrying value of our investment in TechFarm Fund to zero as of September 28, 2008. During the same period, we also analyzed the fair value of the underlying investments of Skypoint Fund and concluded a portion of the carrying value was other-than-temporarily impaired and recorded an impairment charge of $0.4 million.

In the second quarter of fiscal 2008, we performed a review of our investments and determined that two of the portfolio companies in the Skypoint Fund had limited cash on hand and financing opportunities were minimal. We concluded that a portion of the carrying value had been other-than-temporarily impaired and recorded an impairment charge of $0.4 million. No impairment charge was recorded for TechFarm Fund in the second quarter of fiscal 2008.

NOTE 8. RELATED PARTY TRANSACTIONS

Affiliates of Future Electronics Inc. (“Future”), Alonim Investments Inc. and two of its affiliates (collectively “Alonim”), own approximately 7.7 million shares, or approximately 18% of our outstanding common stock as of December 28, 2008. As such, Alonim is our largest stockholder.

Our sales to Future are made under an agreement that provides protection against price reduction for its inventory of our products and other sales allowances. We recognize revenue on sales to Future under the distribution agreement when Future sells the products to its end customers. Future has historically accounted for a significant portion of our net sales. It is our largest distributor worldwide and accounted for 35% and 18% of our total net sales for the three months ended December 28, 2008 and December 30, 2007, respectively. It accounted for 35% and 19% of our total net sales for the nine months ended December 28, 2008 and December 30, 2007, respectively.

We reimbursed Future for approximately $21,000 and $27,000 of expenses for marketing promotional materials for the three months ended December 28, 2008 and December 30, 2007, respectively. We reimbursed Future for approximately $38,000 and $45,000 of expenses for marketing promotional materials for the nine months ended December 28, 2008 and December 30, 2007, respectively.

NOTE 9. RESTRUCTURING

In connection with the Sipex merger in August 2007, our management approved and initiated plans to restructure the operations of the combined company to eliminate certain duplicative activities, reduce costs and better align product and operating expenses with current economic conditions. The Sipex restructuring costs were accounted for as liabilities assumed as part of the purchase business combination in accordance with the Emerging Issues Task Force Issue No. 95-3, Recognition of Liabilities in Connection with a Purchase Business Combination (“EITF 95-3”).

Our restructuring liabilities were included in the “Other accrued expenses” line item in our condensed consolidated balance sheets, and the activities affecting the liabilities for the three and nine months ended December 28, 2008 are summarized as follows (in thousands):

	Facility costs			Severance costs			Total restructuring liabilities
Balance at March 30, 2008	$	491		$	200		$	691
Payments		(36	)		—			(36	)
Balance at June 29, 2008		455			200			655
Payments		(36	)		—			(36	)
Balance at September 28, 2008		419			200			619
Payments		(13	)		(98	)		(111	)
Balance at December 28, 2008	$	406		$	102		$	508

The remaining facility related balance of approximately $406,000 is expected to be paid during the remaining term of the lease contract which extends through 2012. The severance related balance of approximately $102,000 related to severance costs is expected to be paid within the next four months.

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NOTE 10. INVENTORIES

As of December 28, 2008 and March 30, 2008, our inventories consisted of the following (in thousands):

	December 28, 2008		March 30, 2008
Work-in-process	$	9,151	$	8,775
Finished goods		8,974		5,426
Inventories	$	18,125	$	14,201

NOTE 11. PROPERTY, PLANT AND EQUIPMENT

As of December 28, 2008 and March 30, 2008, our property, plant and equipment consisted of the following (in thousands):

	December 28, 2008			March 30, 2008
Land	$	11,960		$	11,960
Buildings		22,636			22,584
Machinery and equipment		69,556			65,215
Property, plant and equipment, total		104,152			99,759
Accumulated depreciation and amortization		(60,046	)		(53,629	)
Property, plant and equipment, net	$	44,106		$	46,130

During the three and nine months ended December 28, 2008, we recorded a charge for accelerated depreciation of $1.2 million associated with the abandonment of an energy generation equipment at our Fremont facility. We abandoned the asset because the ongoing operating costs frequently exceeded the value of the energy generated.

NOTE 12. LOSS PER SHARE

Basic earnings (loss) per share excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the periods in accordance with FASB Statement of Financial Accounting Standards No. 128, Earnings Per Share (“FAS 128”). Diluted earnings per share (“EPS”) reflects the potential dilution that would occur if outstanding stock options or warrants to issue common stock were exercised for common stock, and the common stock underlying restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) were issued by using the treasury stock method.

Our loss per share is summarized as follows for the periods presented (in thousands, except per share amounts):

	Three Months Ended						Nine Months Ended
	December 28, 2008			December 30, 2007			December 28, 2008			December 30, 2007
Net loss	$	(63,823	)	$	(11,682	)	$	(68,471	)	$	(23,481	)
Shares used in computation:
Weighted average shares of common stock outstanding used in computation of basic loss per share		42,889			49,301			42,866			42,210
Dilutive effect of stock options and restricted stock units		—			—			—			—
Shares used in computation of diluted loss per share		42,889			49,301			42,866			42,210
Loss per share	$	(1.49	)	$	(0.24	)	$	(1.60	)	$	(0.56	)

For the three and nine months ended December 28, 2008, as we incurred a net loss, the weighted average number of common shares outstanding equaled the weighted average number of common shares and common share equivalents assuming dilution. Options to purchase common shares and RSUs for common shares in the aggregate amounts of approximately 153,000 and 213,000 shares for the three and nine months ended December 28, 2008, respectively, were excluded from our loss per share calculation under the treasury stock method. Had we had income for these periods, our diluted shares would have increased by the aforementioned amounts.

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Our application of the treasury stock method includes assumed cash proceeds from options exercised, the average unamortized stock-based compensation expense for the period, and the estimated deferred tax benefit or detriment associated with stock-based compensation expense.

NOTE 13. COMMON STOCK REPURCHASES

From time to time, we acquire outstanding shares of our common stock in the open market to partially offset dilution from our stock awards program. We may continue to utilize our share repurchase program described below, which would reduce our cash, cash equivalents and/or short-term investments available to fund future operations and to meet other liquidity requirements.

On August 28, 2007, we established a share repurchase plan (“2007 SRP”) and authorized the repurchase of up to $100 million of our common stock. The 2007 SRP was in addition to a share repurchase plan announced on March 6, 2001 (“2001 SRP”), which covered the repurchase of up to $40 million of our common stock.

During the three and nine months ended December 28, 2008, we repurchased a total of 0.1 million and 1.6 million shares, respectively, of our common stock at an aggregate cost of $0.5 million and $13.4 million, respectively, under the 2007 SRP.

During the three and nine months ended December 30, 2007, we repurchased a total of 2.3 million and 4.7 million shares, respectively, of our common stock at an aggregate cost of $25.6 million and $58.0 million, respectively, under the 2007 SRP and the 2001 SRP. In addition, we repurchased 10,000 shares at an aggregate cost of $1 from a former executive officer pursuant to a restricted stock purchase agreement in the nine months ended December 30, 2007.

We have fully utilized the 2001 SRP. As of December 28, 2008, the remaining authorized amount for share repurchases under the 2007 SRP was $11.8 million. The 2007 SRP does not have a termination date.

NOTE 14. STOCK-BASED COMPENSATION

Employee Stock Participation Plan (“ESPP”)

Our ESPP permits employees to purchase common stock through payroll deductions at a purchase price that is equal to 95% of our common stock price on the last trading day of each three-calendar-month offering period. Our ESPP is non-compensatory under the Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (“FAS 123R”).

We are authorized to issue 4.5 million shares of common stock under our ESPP. There were approximately 1,625,000 shares of common stock reserved for future issuance under our ESPP at December 28, 2008.

In the nine months ended December 28, 2008, we issued approximately 39,000 shares of our common stock at a weighted average price of $7.42 to the participating employees under our ESPP.

Equity Incentive Plans

We currently have five equity incentive plans including the Exar Corporation 2006 Equity Incentive Plan (the “2006 Plan”) and four other equity plans assumed upon merger with Sipex: the Sipex Corporation 1999 Stock Plan, the Sipex Corporation 2000 Non-Qualified Stock Option Plan, the Sipex Corporation Amended and Restated 2002 Non-Statutory Stock Option Plan and the Sipex Corporation 2006 Equity Incentive Plan (collectively, the “Sipex Plans”).

The 2006 Plan authorizes the issuance of stock options, stock appreciation rights, restricted stock, stock bonuses and other forms of awards granted or denominated in common stock or units of common stock, as well as cash bonus awards. RSUs granted under the 2006 Plan are counted against authorized shares available for future issuance on a basis of two shares for every RSU issued. The 2006 Plan allows for performance-based vesting and partial vesting based upon level of performance. Grants under the Sipex Plans are only available to former Sipex employees or employees of the combined company hired after the merger. At December 28, 2008, there were approximately 3.1 million shares available for future grant under all our equity incentive plans.

There were options to purchase approximately 3.8 million and 5.1 million shares of our common stock outstanding under all equity incentive plans at December 28, 2008 and March 30, 2008, respectively.

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Stock Options

Our stock option transactions during the nine months of fiscal 2009 are summarized as follows:

	Outstanding		Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (in Years)	Aggregate Intrinsic Value
Balance at March 30, 2008	5,086,297		$	13.23	3.85	$	2,383,110
Options granted	2,056,675			8.00
Options exercised	(488,247	)		5.32
Options cancelled	(2,226,915	)		15.93
Options forfeited	(668,576	)		11.20
Balance at December 28, 2008	3,759,234		$	10.15	5.16	$	145,687
Vested and expected to vest, December 28, 2008	3,385,281		$	10.32	5.03	$	144,273
Vested and exercisable, December 28, 2008	1,291,118		$	13.20	2.86	$	138,222

The aggregate intrinsic values in the table above represented the total pre-tax intrinsic value, which was based on the closing price of our common stock at the end of the periods. These were the values which would have been received by option holders if all option holders exercised their options on that date.

The total number of in-the-money options vested and exercisable was 0.2 million and 0.8 million at December 28, 2008 and December 30, 2007, respectively.

Total unrecognized stock-based compensation cost was $6.9 million at December 28, 2008, which is expected to be recognized over a weighted average period of 3.23 years.

Restricted Stock Awards and Restricted Stock Units

Our RSA and RSU transactions during the nine months ended December 28, 2008 are summarized as follows:

	Shares		Weighted Average Grant-Date Fair Market Value		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Non-vested at March 30, 2008	304,933		$	12.20	1.41	$	2,497,401
Granted	595,204			7.19
Issued and released	(72,060	)		7.11
Cancelled	(37,967	)		9.80
Non-vested at December 28, 2008	790,110		$	8.46	1.32	$	4,867,078
Vested and expected to vest at December 28, 2008	692,868		$	8.27	1.29	$	4,268,067

The aggregate intrinsic value of RSUs represents the closing price per share of our stock at the end of the periods presented, multiplied by the number of unvested RSUs or the number of vested and expected to vest RSUs, as applicable, at the end of each period.

For RSUs, stock-based compensation expense was calculated based on our stock price on the date of grant, multiplied by the number of RSUs granted. The grant date fair value of RSUs, less estimated forfeitures, was recognized on a straight-line basis, over the vesting period.

At December 28, 2008, there were RSUs for approximately 790,000 shares of our common stock outstanding with an unrecognized stock-based compensation cost of approximately $2.4 million to be recognized as compensation expense over a weighted average period of 1.32 years.

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At December 30, 2007, there were RSUs for approximately 304,628 shares of our common stock outstanding with an unrecognized stock-based compensation cost of approximately $2.7 million to be recognized as compensation expense over a weighted average period of 1.46 years.

Stock-Based Compensation Expense

Our stock-based compensation expense related to stock options, RSAs and RSUs under FAS 123R for the fiscal periods presented is summarized as follows (in thousands):

	Three Months Ended				Nine Months Ended
	December 28, 2008		December 30, 2007		December 28, 2008		December 30, 2007
Cost of sales	$	105	$	361	$	471	$	495
Research and development		392		389		1,231		937
Selling, general and administrative		769		1,035		2,013		2,482
Stock-based compensation expense	$	1,266	$	1,785	$	3,715	$	3,914

The amount capitalized in inventory as of December 28, 2008 and March 30, 2008 was immaterial.

Option Exchange Program

On October 23, 2008, we commenced a tender offer (the “Offer”) and filed a Schedule TO with the SEC pursuant to which holders of options with exercise prices equal to or greater than $11.00 per share and an expiration date after March 31, 2009 could tender their options in exchange for restricted stock unit awards. The exchange ratio of shares subject to such eligible options to new awards issued was 4-to-1, 5-to-1 or 6-to-1, depending on the exercise price of the option being exchanged. New awards received in exchange for eligible options are subject to a two-year vesting schedule with 50% vesting at each anniversary.

Pursuant to the Offer, 242 eligible participants tendered, and we accepted for exchange, options to purchase an aggregate of 1,650,231 shares of our common stock, representing approximately 94% of the 1,755,691 shares subject to options that were eligible to be exchanged in the Offer as of the commencement of the Offer on October 23, 2008. On November 24, 2008, upon the terms and subject to the conditions set forth in the Offer to Exchange Certain Outstanding Options for Restricted Stock Units, filed as an exhibit to the Schedule TO, we issued restricted stock unit awards covering an aggregate of 344,020 shares of our common stock in exchange for the options surrendered pursuant to the Offer.

The new awards were granted with a price of $6.51 per share, the closing price of our common stock on November 24, 2008 as reported on the NASDAQ Global Select Market. The fair value of the options exchanged was measured as the total of the unrecognized compensation cost of the original options tendered and the incremental compensation cost of the restricted stock units awarded on November 24, 2008, the date of exchange. The incremental compensation cost which total $1.3 million, was measured as the excess of the fair value of the restricted stock unit awards over the fair value of the options immediately before cancellation

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based on the share price and other pertinent factors at that date. The amount will be amortized over the service period, approximately two years. During the three months ended December 28, 2008, we recorded approximately $64,000 of such incremental stock-based compensation expense.

Valuation Assumptions

We estimate the fair value of stock options on the date of grant using the Black-Scholes option-pricing model. The assumptions used in calculating the fair value of stock-based compensation represent our estimates, but these estimates involve inherent uncertainties and the application of management judgments which include the expected term of the stock-based awards, stock price volatility and pre-vesting forfeiture rates. As a result, if factors change and we use different assumptions, our stock-based compensation expense could be materially different in the future.

We used the following assumptions to calculate the fair values of options granted during the fiscal periods presented:

	Three Months Ended						Nine Months Ended
	December 28, 2008			December 30, 2007			December 28, 2008			December 30, 2007
Expected term of options (years)		4.6 - 4.8			4.5 - 5.0			4.6 - 4.8			4.5 - 5.0
Risk-free interest rate		1.9 - 2.0	%		3.6 - 3.7	%		1.9 - 3.2	%		3.6 - 4.8	%
Expected volatility		35	%		31 - 32	%		30 - 35	%		30 - 36	%
Expected dividend yield		—			—			—			—
Weighted average estimated fair value	$	2.17		$	4.24		$	2.58		$	4.60

NOTE 15. COMPREHENSIVE LOSS

Our comprehensive loss is summarized as follows for the fiscal periods presented (in thousands):

	Three Months Ended						Nine Months Ended
	December 28, 2008			December 30, 2007			December 28, 2008			December 30, 2007
Net loss	$	(63,823	)	$	(11,682	)	$	(68,471	)	$	(23,481	)
Other comprehensive income (loss):
Cumulative translation adjustments		—			(20	)		—			(77	)
Change in unrealized gain (loss) on marketable securities, net of tax		1,836			684			(171	)		1,036
Total other comprehensive income (loss)		1,836			664			(171	)		959
Comprehensive loss	$	(61,987	)	$	(11,018	)	$	(68,642	)	$	(22,522	)

NOTE 16. LEASE OBLIGATIONS

In connection with the Sipex merger, we assumed a lease financing obligation related to a facility in Milpitas, California (the “Hillview facility”). The lease term expires in March 2011 with average lease payments of approximately $1.4 million per year.

The fair value of the Hillview facility was estimated at $13.4 million at the time of the merger and was included in the “Property, plant and equipment, net” line item on the condensed consolidated balance sheets. In accordance with purchase accounting, we have accounted for this sale and leaseback transaction as a financing transaction which was included in the “Long-term lease financing obligations” line item on our condensed consolidated balance sheets. The effective interest rate is 8.2%. Depreciation for the Hillview facility is recorded using the straight-line method over the remaining useful life and was $0.1 million and $0.3 million for the three and nine months ended December 28, 2008, respectively, and was $0.1 million for both the three and nine months ended December 30, 2007.

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At the end of the lease term, the estimated final lease obligation is approximately $12.2 million, which we will settle by returning the Hillview facility.

We sublet the Hillview facility in April 2008. The sublease expires in March 2011 and we expect annual sublease income of approximately $1.4 million for the duration of the sublease term. The sublease income for the three and nine months ended December 28, 2008 was approximately $0.4 million and $1.1 million, respectively, and was recorded in the “Interest income and other, net” line item in our condensed consolidated statements of operations.

In addition to the Hillview facility, we also acquired engineering design tools (“design tools”) under capital leases. We acquired $5.2 million of design tools in December 2007 under a four-year license and $3.7 million of design tools in November 2008 under a three-year license, which were accounted for as a capital lease and recorded in the “Property, plant and equipment, net” line item on the condensed consolidated balance sheets. The related design tools obligation was included in the “Long-term lease financing obligations” line item in our condensed consolidated balance sheets. The effective interest rate for the design tools is 7.25% for the four-year tools and 4.0% for the three-year tools based upon prevailing interest rates at the time of the respective acquisitions. Amortization on the design tools is recorded using the straight-line method over the remaining useful life and was $0.4 million and $1.0 million, respectively, for the three and nine months ended December 28, 2008.

Future minimum lease payments for our lease financing obligations at December 28, 2008 are summarized as follows (in thousands):

Fiscal Years	Hillview Facility			Design Tools			Total			Sublease Income
Remainder of 2009	$	343		$	43		$	386		$	354
2010		1,415			2,670			4,085			1,412
2011		13,624			2,670			16,294			1,412
2012		—			1,087			1,087			—
Total minimum lease payments		15,382			6,470			21,852			3,178
Less: amount representing interest		(2,340	)		(688	)		(3,028	)		—
Less: amount representing maintenance		—			(618	)		(618	)		—
Present value of minimum lease payments		13,042			5,164			18,206			3,178
Less: current portion of lease financing obligation		(345	)		(1,824	)		(2,169	)		—
Long-term lease financing obligation	$	12,697		$	3,340		$	16,037		$	3,178

Interest expense for the Hillview facility lease financing for the three and nine months ended December 28, 2008 totaled approximately $0.3 million and $0.8 million, respectively. Interest expense for the design tools lease obligations for both the three and nine months ended December 28, 2008 totaled approximately $0.1 million.

Interest expense for the Hillview facility lease financing for the three and nine months ended December 30, 2007 totaled approximately $0.3 million and $0.4 million, respectively.

NOTE 17. COMMITMENTS AND CONTINGENCIES

In 1986, Micro Power Systems Inc. (“MPSI”), a subsidiary that we acquired in June 1994, identified low-level groundwater contamination at its principal manufacturing site. Although the area and extent of the contamination appear to have been defined, the source of the contamination has not been identified. MPSI previously reached an agreement with a prior tenant to share in the cost of ongoing site investigations and the operation of remedial systems to remove subsurface chemicals. The frequency and number of wells monitored at the site was reduced with prior regulatory approval for a plume stability analysis as an initial step towards site closure. No significant rebound concentrations have been observed. The groundwater treatment system remains shut down during its two-year plume stability evaluation. In July 2008, we evaluated the effectiveness of the plume stability and decided to initiate a treatment program and pursue a no further action order for the site. As such, we accrued an additional $58,000, increasing our liability to $250,000. This accrual includes approximately $200,000 for various remediation options under consideration and $50,000 for future annual monitoring.

In February 2006, we entered into a definitive Master Agreement with Hangzhou Silan Microelectronics Co. Ltd. and Hangzhou Silan Integrated Circuit Co. Ltd. (collectively “Silan”) in China. Silan is a China-based semiconductor foundry. This transaction was related to the closing of our wafer fabrication operations located in Milpitas, California. Under this agreement, Exar and Silan would work together to enable Silan to manufacture semiconductor wafers using our process technology. The Master Agreement includes a Process Technology Transfer and License Agreement which contemplates the

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transfer of eight of our processes and related product manufacturing to Silan. Subject to our option to suspend in whole or in part, there is a purchase commitment under the Wafer Supply Agreement obligating us to purchase from Silan an average of at least one thousand equivalent wafers per week, calculated on a quarterly basis, for two years beginning January 1, 2007. As of December 28, 2008, we have completed the transfer of the process technology and Silan has started commercial manufacturing for us. There were open purchase orders for approximately $1.1 million outstanding at the end of the third quarter of fiscal 2009.

Generally, we warrant all of our products against defects in materials and workmanship for a period ranging from ninety days to two years from the delivery date. Reserve requirements are recorded in the period of sale and are based on an assessment of the products sold with warranty and historical warranty costs incurred. Our liability is generally limited to replacing, repairing or issuing credit, at our option, for the product if it has been paid for. The warranty does not cover damage which results from accident, misuse, abuse, improper line voltage, fire, flood, lightning or other damage resulting from modifications, repairs or alterations performed other than by us, or resulting from failure to comply with our written operating and maintenance instructions. Warranty expense has historically been immaterial for our products. The warranty liability related to our products was immaterial at the end of the third quarter of fiscal 2009.

Additionally, our sales agreements indemnify our customers for expenses or liability resulting from alleged or claimed infringement by our products of any United States letter patents of third parties. However, we are not liable for any collateral, incidental or consequential damages arising out of patent infringement. The terms of these indemnification agreements are perpetual, commencing after execution of the sales agreement or the date indicated on our order acknowledgement. The maximum amount of potential future indemnification is unlimited. However, to date, we have not paid any claims or been required to defend any lawsuits with respect to any such indemnity claim.

NOTE 18. LEGAL PROCEEDINGS

From time to time, we are involved in various claims, legal actions and complaints arising in the normal course of business. Although the ultimate outcome of the matters discussed below and other matters is not presently determinable, management currently believes that the resolution of all such pending matters will not have a material adverse effect on our financial condition, results of operations or liquidity.

Ericsson Wireless Communications, Inc. and Vicor Corporation

On November 16, 2004, Ericsson Wireless Communications, Inc. (now known as Ericsson Inc.) (“Ericsson”) initiated a lawsuit against us in San Diego County Superior Court. In its Third Amended Complaint, Ericsson asserted causes of action against us for negligence, strict product liability, and unfair competition, seeking monetary damages and unspecified injunctive relief. Based on discovery responses, Ericsson claimed that its damages exceeded $1 billion. The case is based on Ericsson’s purchase of allegedly defective products from Vicor Corporation, our former customer to whom we sold untested, semi-custom wafers. We disputed the allegations in Ericsson’s Third Amended Complaint, believed that we had meritorious defenses, and defended the lawsuit vigorously. On December 1, 2006, we entered into a Settlement Agreement with Ericsson to resolve the claims it asserted. Based on further events in the case, our total liability to Ericsson under the Settlement Agreement was $500,000, which was paid by our insurance carriers. Following payment, Ericsson dismissed its claims against us with prejudice.

On April 5, 2005, Vicor Corporation (“Vicor”) filed a cross-complaint against us in San Diego County Superior Court that asserted various contract, tort, and indemnity based claims. Vicor alleged, among other things, that we sold it integrated circuits that were defective and failed to meet agreed-upon specifications, and that we intentionally concealed material facts regarding the specifications of the integrated circuits that Vicor alleges it bought from us. Vicor alleged that it is entitled to indemnification from us for the damages that Vicor paid to Ericsson because of Ericsson’s direct claims against Vicor. On May 9, 2005, we filed a demurrer to all but one of Vicor’s causes of action against us, which the San Diego Superior Court sustained without leave to amend on June 17, 2005, except for Vicor’s claims for indemnity. We answered those causes of action on July 5, 2005. We disputed the allegations in Vicor’s cross-complaint, believed that we had meritorious defenses, and defended the lawsuit vigorously.

After entering the Settlement Agreement with Ericsson, we filed a motion on December 20, 2006 for an order finding the Settlement Agreement was in good faith. On January 22, 2007, the Court entered an order finding that we entered into the Settlement Agreement in good faith. The result of the finding of good faith was that Vicor’s indemnity claims were subject to dismissal. Vicor filed a petition for writ of mandate with the California Court of Appeal challenging the good faith finding, which the Court of Appeal summarily denied on February 28, 2007. The San Diego Superior Court dismissed Vicor’s indemnity claims and entered judgment in our favor on July 10, 2007. After entering judgment, the San Diego Superior Court

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awarded us costs against Vicor in the amount of $84,405 and monetary sanctions against Vicor in the amount of $44,266.91. Vicor filed a notice of appeal on September 6, 2007. Oral argument on the appeal was held on January 12, 2009, but no decision has been issued yet.

On March 4, 2005, we filed a complaint in Santa Clara County Superior Court against Vicor. In the complaint, we sought a declaration regarding the respective rights and obligations, including warranty and indemnity rights and obligations, under the written contracts between us and Vicor for the sale of untested, semi-custom wafers. In addition, we sought a declaration that we were not responsible for any damages that Vicor must pay to Ericsson or any other customer of Vicor arising from claims that Vicor sold allegedly defective products.

On March 17, 2005, Vicor filed a cross-complaint against us and Rohm Device USA, LLC and Rohm Co., Ltd, the owners and operators of the foundry which supplied the untested, semi-custom wafers that we sold to Vicor. In the cross-complaint, Vicor asserted allegations similar to those in its cross-complaint in the Ericsson San Diego County action discussed above, and also alleged that it is entitled to indemnification from us for any damages that Vicor must pay to Ericsson or other Vicor customers that may make claims against Vicor. In the cross-complaint, Vicor asserted various contract, tort, and indemnity based causes of action against us. On May 23, 2005, we filed a demurrer to each cause of action in Vicor’s cross-complaint, and on July 15, 2005, the Santa Clara County Superior Court sustained our demurrer to each of the causes of action. The Court granted Vicor leave to amend the cross-complaint to assert a reciprocal cause of action for declaratory relief only. On August 1, 2005, Vicor filed its amended cross-complaint asserting a reciprocal declaratory relief claim against us and a declaration that we were obligated to indemnify it for any damages resulting from claims brought against Vicor by its customers. Vicor’s amended cross-complaint does not seek damages. We answered Vicor’s amended cross-complaint on September 2, 2005. The Santa Clara action was transferred to San Diego for coordination with the Ericsson San Diego County action on August 18, 2006. No trial date has been set.

DiPietro v. Sipex

In April 2003, plaintiff Frank DiPietro (former chief financial officer of Sipex) brought an action for breach of contract against Sipex in the Middlesex Superior Court in the state of Massachusetts. Mr. DiPietro was seeking approximately $800,000 in severance benefits. Sipex counterclaimed for approximately $150,000, which it was owed under a promissory note signed by Mr. DiPietro. In August 2004, Sipex filed two motions for summary judgment (one for Mr. DiPietro’s claims against it and one for its counterclaim against Mr. DiPietro). In June 2005, the Middlesex Superior Court granted both Sipex’s motions for summary judgment. Soon thereafter, Mr. DiPietro filed a notice of appeal. Sipex then filed motions for costs and pre-judgment interest. Sipex was successful in its motion for prejudgment interest and it was successful in requiring Mr. DiPietro to pay over $900 in deposition costs.

On June 21, 2006, Mr. DiPietro served Sipex with his appeal brief. On July 20, 2006, Sipex served its opposition and Mr. DiPietro’s reply brief was served on August 3, 2006. On December 12, 2006, the Massachusetts Appeals Court heard arguments in DiPietro v. Sipex and asked for a letter clarifying a legal issue that Sipex provided on December 28, 2006. On January 12, 2007, Mr. DiPietro sent a letter responding to Sipex’s letter.

On May 14, 2007, the Appeals Court issued its decision reversing the Middlesex Superior Court’s grant of summary judgment and remanding the case for further proceedings. Sipex immediately filed a motion for enlargement of time to file a petition for rehearing and an application for further appellate review. Sipex’s petition for rehearing was filed on June 13, 2007, in the Massachusetts Appeals Court and its application for further appellate review was filed on June 28, 2007, in the Massachusetts Supreme Judicial Court. Thereafter, on July 9, 2007, DiPietro filed his opposition to Sipex’s application for further appellate review and on July 18, 2007, filed his response to Sipex’s petition for rehearing. In early September 2007, the Massachusetts Appeals Court amended its decision to clarify issues addressed in Sipex’s petition for rehearing.

On October 31, 2007, Sipex’s application for further appellate review was denied. The case was remanded to Middlesex Superior Court and will proceed.

On June 16, 2008, we attended a pretrial conference. At the Court clerk’s suggestion, Sipex served its motion for leave to file renewed motions for summary judgment on August 11, 2008, and Mr. DiPietro served his opposition on August 21, 2008. The parties attended a status conference on October 14, 2008, and at that time, the Court heard arguments on Sipex’s motion for leave to file renewed motions for summary judgment. The outcome of that motion is pending. A pre-trial conference was held on February 3, 2009.

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Cypress v. Sipex, Exar and Ralph Schmitt

On October 12, 2007, Cypress Semiconductor Corporation (“Cypress”) filed an action against Sipex, Exar, Ralph Schmitt and Does 1 through 50 in the Superior Court of the State of California, County of Santa Clara, Cypress Semiconductor Corp. v. Sipex Corp., et al., Case No. 1-07-CV096311, alleging claims for: (1) misappropriation of trade secrets; (2) violation of the Computer Fraud and Abuse Act, 18 U.S.C. §1030; (3) unfair competition under Cal. Bus. & Prof. Code §§17200 et seq.; (4) tortious interference with contract; (5) interference with actual and prospective economic advantage; (6) breach of fiduciary duty and breach of the duty of loyalty; (7) inducement of breach of fiduciary duty; (8) breach of written contract; (9) breach of the covenant of good faith and fair dealing; (10) conversion; and (11) unjust enrichment. The second, sixth, eighth and ninth causes of action are alleged against Mr. Schmitt only. Mr. Schmitt was Chief Executive Officer and President and a member of the board of directors of Exar from August 25, 2007 to December 6, 2007. Prior to Exar’s merger with Sipex, he was Chief Executive Officer and a member of the board of directors of Sipex. Exar filed an answer to the complaint on November 13, 2007. The case was removed to federal court on November 14, 2007, Cypress Semiconductor Corp. v. Sipex Corp., et al., United States District Court, Northern District of California, Case No. C 07-05778 JF. The parties exchanged Initial Disclosures pursuant to Federal Rules of Civil Procedure, Rule 26(a)(1) on March 7, 2008. A Case Management Conference was held on March 14, 2008 before the Honorable Jeremy Fogel. At the Case Management Conference, Judge Fogel ordered that discovery be stayed for 60 days to allow the parties the opportunity to discuss settlement. A Settlement Conference took place before Magistrate Judge Seeborg on May 13, 2008 which resulted in a settlement of the case. The terms of the settlement are confidential and the settlement amount was not material to our financial condition, results of operations or liquidity. On May 28, 2008, Judge Fogel issued a conditional Order of Dismissal of the case with prejudice.

NOTE 19. INCOME TAX

During the three months ended December 28, 2008 and December 30, 2007, we recorded an income tax benefit of $0.1 million and an income tax provision of $1.7 million, respectively. During the nine months ended December 28, 2008 and December 30, 2007, we recorded an income tax benefit of $0.1 million and an income tax provision of $7.5 million, respectively. During the three and nine months ended December 30, 2007, the tax provision was recorded primarily due to establishment of valuation allowance against all deferred tax assets in connection with the Sipex acquisition during the second quarter of fiscal 2008.

The unrecognized tax benefits did not significantly change and remained at $9.8 million during the nine months ended December 28, 2008. The increase in unrecognized tax benefit primarily as a result of increased unrecognized tax benefit on R&D tax credits was offset by decrease in unrecognized tax benefit due to release of FIN 48 reserve on account of expiry of statute of limitation. If recognized, all of these unrecognized tax benefits would be recorded as a reduction in the future income tax provision before consideration of changes in the valuation allowance on our deferred tax assets.

Estimated interest and penalties relates to income taxes are classified as a component of the provision for income taxes in our condensed consolidated statement of operations. Accrued interest and penalties were $0.3 million and $0.2 million at the end of the third quarters of fiscal 2009 and 2008, respectively.

Our only major tax jurisdictions are the United States federal and various states. The fiscal years 1998 through 2008 remain open and subject to examinations by the appropriate governmental agencies in the United States, with fiscal years 2001 through 2008 open to audits in certain of our state jurisdictions.

Emergency Economic Stabilization Act of 2008

The “Emergency Economic Stabilization Act of 2008,” which contains the “Tax Extenders and Alternative Minimum Tax Relief Act of 2008”, was signed into law on October 3, 2008. Under the Act, the research credit was retroactively extended for amounts paid or incurred after December 31, 2007 and before January 1, 2010. We do not expect any impact to our effective tax rate or tax provision during fiscal 2009 as a result of this change in the law.

California Assembly Bill 1452

On September 30, 2008, California enacted Assembly Bill 1452 which among other provisions, suspends net operating loss deductions for 2008 and 2009 and extends the carryforward period of any net operating losses not utilized due to such suspension, adopts the federal 20-year net operating loss carryforward period, phases in the federal two-year net operating loss carryback periods beginning in 2011 and limits the utilization of tax credits to 50 percent of a taxpayer’s taxable income. We do not expect any impact to our effective tax rate or tax provision during fiscal 2009 as a result of this change in the law.

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NOTE 20. SEGMENT AND GEOGRAPHIC INFORMATION

We operate as one reportable segment. We design, develop and market high-performance, analog and mixed-signal silicon solutions for a variety of markets including power management, networking, serial communications and storage. The nature of our products and production processes as well as the type of customers and distribution methods are consistent among all of our products.

Our net sales by product line are summarized as follows for the fiscal periods presented (in thousands):

	Three Months Ended				Nine Months Ended
	December 28, 2008		December 30 2007		December 28, 2008		December 30 2007*
Communications	$	6,191	$	7,558	$	21,513	$	21,484
Interface		14,062		12,172		50,542		32,746
Power management		6,052		5,477		19,209		7,251
Total net sales	$	26,305	$	25,207	$	91,264	$	61,481

* Revenue from Sipex products was included starting from August 26, 2007.

Our net sales by geographic areas are summarized as follows for the fiscal periods presented below (in thousands):

	Three Months Ended				Nine Months Ended
	December 28, 2008		December 30 2007		December 28, 2008		December 30 2007*
United States	$	6,664	$	4,691	$	23,091	$	17,893
China		5,950		6,099		20,197		13,168
Singapore		3,240		2,602		11,682		4,508
Japan		1,578		2,397		6,273		4,669
Italy		1,687		2,958		4,394		6,801
Europe (excludes Italy)		4,529		3,393		15,447		9,321
Rest of world		2,657		3,067		10,180		5,121
Total net sales	$	26,305	$	25,207	$	91,264	$	61,481

* Revenue from Sipex products was included starting from August 26, 2007.

Substantially all of our property, plant and equipment and other long-lived assets are located in the United States.

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as information contained in “Part II, Item 1A. Risk Factors” below and elsewhere in this Quarterly Report on Form 10-Q, contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are generally written in the future tense and/or may generally be identified by words such as “will,” “may,” “should,” “could,” “expect,” “suggest,” “believe,” “anticipate,” “intend,” “plan,” or other similar words. Forward-looking statements contained in this Quarterly Report include, among others, statements regarding (1) our revenue growth, (2) our future gross profits, (3) our future research and development efforts and related expenses, (4) our future selling, general and administrative expenses, (5) our cash and cash equivalents, short-term marketable securities and cash flows from operations being sufficient to satisfy working capital requirements and capital equipment needs for at least the next 12 months, (6) our ability to continue to finance operations with cash flows from operations, existing cash and investment balances, and some combination of long-term debt and/or lease financing and sales of equity securities, (7) the possibility of future acquisitions and investments, (8) our ability to accurately estimate our assumptions used in valuing stock-based compensation, (9) our ability to estimate and reconcile distributors’ reported inventories to their activities, and (10) the uncertainty of the magnitude and duration of the current recession. Actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that could cause actual results to differ materially from those stated herein include, but are not limited to: the information contained under the captions “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 1A. Risk Factors.” We disclaim any obligation to update information in any forward-looking statement.

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The following Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the condensed consolidated financial statements and notes thereto, included in this Quarterly Report on Form 10-Q, and our audited consolidated financial statements for the fiscal year ended March 30, 2008 included in our Annual Report on Form 10-K, as amended by Amendment No. 1 on Form 10-K/A, our Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 2008, as amended by Amendment No. 1 on Form 10-Q/A, and our Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2008, each as filed with the Securities and Exchange Commission (“SEC”). Our results of operations for the three and nine months ended December 28, 2008 are not necessarily indicative of results to be expected for any future period.

BUSINESS OVERVIEW

Exar Corporation (together with its subsidiaries, “Exar” or “we”) is a fabless semiconductor company that designs, develops, markets and sells connectivity and power management products to the consumer, communications and industrial markets. Applying both analog and digital technologies, our products are deployed in a wide array of applications such as portable electronic devices, set top boxes, digital video recorders, telecommunication systems and industrial automation equipment. Our product portfolio spans a wide range of performance solutions from direct current to direct current (“DC-DC”) regulators and controllers, voltage references, microprocessor supervisors, charge pump regulators and light-emitting diode (“LED”) drivers, single and multi-channel Universal Asynchronous Receiver/Transmitters (“UART”) for portable and wireless applications, serial interfaces, port multipliers for storage applications, to T/E (T: North America and Asia transmission interface; E: European transmission interface) and Synchronous Optical Network/Synchronous Data Hierarchy (“Sonet/SDH”) communications. Our products are designed working directly with large original equipment manufacturer (“OEM”) customers who help drive our technology roadmap and system solutions.

We market our products worldwide with sales offices and personnel located throughout the Americas, Europe, and Asia. Our products are sold in the United States through a number of manufacturers’ representatives and distributors. Internationally, our products are sold through various regional and country specific distributors with locations in thirty-three countries around the globe. In addition to our sales offices, we also employ a worldwide team of field application engineers to work directly with our customers.

Our international sales consist primarily of sales that are denominated in U.S. dollars. Such international related operations expenses expose us to fluctuations in currency exchange rates because our foreign operating expenses are denominated in foreign currency while our sales are denominated in U.S. dollars. Although foreign sales within certain countries or foreign sales comprised of certain products may subject us to tariffs, our gross profit margin on international sales, adjusted for differences in product mix, is not significantly different from that realized on our sales to domestic customers. Our operating results are subject to quarterly and annual fluctuations as a result of several factors that could materially and adversely affect our future profitability as described in “Part II, Item 1A. Risk Factors—Our Financial Results May Fluctuate Significantly Because Of A Number Of Factors, Many Of Which Are Beyond Our Control.”

Our fiscal year ends on the Sunday closest to March 31 and our fiscal quarters end on the Sunday closest to the end of the corresponding calendar quarter. The third quarters of fiscal 2009 and fiscal 2008 included 91 days from September 29, 2008 to December 28, 2008 and October 1, 2007 to December 30, 2007, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of our financial statements and accompanying disclosures in conformity with U.S. GAAP, the accounting principles generally accepted in the United States, requires estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities in the condensed consolidated financial statements and the accompanying notes. The U.S. Securities and Exchange Commission (the “SEC”) has defined a company’s critical accounting policies as policies that are most important to the portrayal of a company’s financial condition and results of operations, and which require a company to make its most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified our most critical accounting policies and estimates to be as follows: (1) revenue recognition; (2) valuation of inventories; (3) income taxes; (4) stock-based compensation; (5) goodwill; and (6) long-lived assets. Although we believe that our estimates, assumptions and judgments are reasonable, they are based upon information presently available. Actual results may differ significantly from these estimates if the assumptions, judgments and conditions upon which they are based turn out to be inaccurate. With the exception our goodwill and long-lived asset policies discussed below, a further discussion

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can be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the fiscal year ended March 30, 2008 as amended by Amendment No. 1 on Form 10-K/A.

Our current estimates under our goodwill and long-lived asset policies are as follows:

The rapid and severe deterioration of worldwide economic conditions has affected our industry and led customers to scale down their levels of production. As a result of third quarter fiscal 2009 impairment indicators, we considered the potential impairment of goodwill and other long-lived assets including intangible assets. Indicators that required us to perform an interim impairment review consisted of further weakening in new orders from our customers throughout the third quarter and into the fourth quarter of fiscal 2009, as well as, the uncertainty of the magnitude and duration of the current recession as evidenced by industry analysts expectations that demand for semiconductors will remain weak until economic conditions improve. In addition, we experienced a significant decline in our stock price that reduced our market capitalization below our net asset carrying value for an extended period of time. As a result of the goodwill and long-lived asset impairment assessments, we recorded a charge totaling $59.7 million in the third quarter of fiscal 2009. This charge is comprised of $46.2 million related to goodwill and $13.5 million related to intangible assets.

Described below is a summary of our goodwill and intangible assets and the related impairment assessments.

Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in a business combination. We follow the provisions of Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“FAS 142”), under which we evaluate goodwill for impairment on an annual basis or whenever events and changes in circumstances suggest that the carrying amount may not be recoverable. We conduct our annual impairment analysis in the fourth quarter of each fiscal year. Impairment of goodwill is tested at the reporting unit level by comparing the reporting unit’s carrying amount, including goodwill, to the fair value of the reporting unit. The fair values of the reporting units are estimated using a combination of the income approach that uses discounted cash flows and the market approach that utilizes comparable companies’ data. If the carrying amount of the reporting unit exceeds its fair value, goodwill is considered impaired and a second step is performed to measure the amount of impairment loss, if any. Because we have one reporting unit under FAS 142, we utilize an entity-wide approach to assess goodwill for impairment.

Given the impairment indicators discussed above, we performed an interim goodwill impairment analysis during the third quarter of fiscal 2009 using a combination of the income approach and the market approach, in accordance with the provisions of FAS 142. The analysis performed compared the implied fair value of goodwill to the carrying amount of goodwill on our balance sheet. Our estimate of the implied fair value of the goodwill was based on the quoted market price of our common stock and the discounted value of estimated future cash flows over a seven-year period with residual value. The analysis resulted in an impairment charge of approximately $46.2 million that reduced our carrying value of goodwill to zero.

Solely for the purposes of establishing inputs for the fair value calculations described above related to goodwill impairment testing, we made the following assumptions. We assumed that the current economic recession would continue through fiscal year 2010, followed by a recovery period in fiscal years 2011 through 2013 and long-term industry growth past fiscal year 2013. In addition, we applied gross margin assumptions consistent with our historical trends and used a 3% growth factor to calculate the terminal value of the company, which was consistent with the rate used in the prior year’s annual impairment test. We used a 14% discount rate to calculate the present value of cash flows and the terminal value, which is slightly higher than the 12.5% discount rate we used in the prior year’s annual impairment test, primarily due to increases to the required market risk and small stock premiums.

Given the current volatile worldwide economic environment and the resulting uncertainties regarding its impact on our business, our estimates and assumptions regarding the duration of the ongoing economic recession, or the period or strength of any future recovery, made for purposes of our goodwill impairment testing during the third quarter of fiscal 2009 may not prove to be accurate.

The following table summarizes the change in the carrying amount of goodwill for the nine months ended December 28, 2008 (in thousands):

	Amount
Balance as of March 30, 2008	$	47,626
Goodwill adjustment (see Note 5)		(1,449	)
Impairment charge		(46,177	)
Balance as of December 28, 2008	$	—

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Intangible Assets

Our purchased intangible assets at December 28, 2008 and December 30, 2007 are summarized below (in thousands):

	December 28, 2008							December 30, 2007
	New Carrying Amount (1)		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount	Accumulated Amortization		Net Carrying Amount
Existing technology	$	16,876	$	(10,145	)	$	6,731	48,393	(5,244	)	43,149
Patents/Core technology		1,693		(1,152	)		541	7,900	(560	)	7,340
Customer backlog		340		(340	)		—	400	(242	)	158
Distributor relationships		1,265		(792	)		473	6,500	(385	)	6,115
Customer relationships		771		(445	)		326	4,300	(215	)	4,085
Tradenames/Trademarks		177		(146	)		31	600	(71	)	529
	$	21,122	$	(13,020	)	$	8,102	68,093	(6,717	)	61,376

⁽¹⁾ The new carrying amount is net of intangible asset impairment charges of approximately $36.7 million and $13.5 million taken during the fourth quarter of fiscal 2008 and the third quarter of fiscal 2009, respectively.

Our long-lived assets include land, buildings, equipment, furniture and fixtures and privately held equity investments. 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. We evaluate the recoverability of our long-lived assets in accordance with Statement of Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“FAS 144”). We compare the carrying value of long-lived assets to our projection of future undiscounted cash flows attributable to such assets and, in the event that the carrying value exceeds the future undiscounted cash flows, we record an impairment charge against income equal to the excess of the carrying value over the asset’s fair value.

Given the impairment indicators discussed above, we performed a test of purchased intangible assets for recoverability. The assessment of recoverability is based upon the assumptions and underlying cash flow projections prepared for the concurrent interim goodwill impairment test. Our estimate of the implied fair value of the intangible assets was based on the discounted value of estimated future cash flows over a five-year period using a discount rate of 14%.

The analysis determined that the carrying amount of the intangible assets exceeded the implied fair value under the test for impairment per FAS 144 and the difference was allocated to the intangible assets of the impacted asset group on a pro-rata basis using the relative carrying amounts of the assets. We recorded an impairment charge of approximately $13.5 million, of which $9.8 million related to existing technology, $1.4 million to patents/core technology, $1.3 million to distributor relationships, $0.9 million to customer relationships and $0.1 million to tradenames/trademarks.

Given the current volatile worldwide economic environment and the resulting uncertainties regarding its impact on our business, our estimates and assumptions regarding the duration of the ongoing economic downturn, or the period or strength of any future recovery, made for purposes of our intangible asset impairment testing during the third quarter of fiscal 2009 may not prove to be accurate. If our assumptions regarding projected revenue or gross margin rates are not achieved, we may be required to record additional intangible asset impairment charges in future periods, if any such change or other factor constitutes a triggering event. It is not possible at this time to determine if any such future impairment charge would result or, if it does, whether such charge would be material.

RESULTS OF OPERATIONS

Net Sales by Product Line

We began to recognize revenue on shipments to our two primary distributors, Future Electronics Inc. (“Future”), a related party, and Nu Horizons Electronics Corp. (“Nu Horizons”), on a sell-through basis beginning August 26, 2007. On that same date, we began to include sales from products acquired from Sipex in our financial statements. Certain net sales by product line for prior periods have been reclassified to be consistent with the presentation of fiscal 2009.

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Our net sales by product line in absolute dollars and as a percentage of net sales were as follows for the periods presented (in thousands):

	Three Months Ended										Nine Months Ended
	December 28, 2008				December 30, 2007				Change		December 28, 2008				December 30, 2007*				Change
Net sales:
Communications	$	6,191	24	%	$	7,558	30	%	(18	)%	$	21,513	24	%	$	21,484	35	%	—
Interface		14,062	53	%		12,172	48	%	16	%		50,542	55	%		32,746	53	%	54	%
Power Management		6,052	23	%		5,477	22	%	10	%		19,209	21	%		7,251	12	%	165	%
Total	$	26,305	100	%	$	25,207	100	%			$	91,264	100	%	$	61,481	100	%

* Revenue from Sipex products was included starting from August 26, 2007.

Communications

Communications products include network access and transmission products and storage products, as well as optical products acquired from Sipex. We estimate that the change of revenue recognition to a sell-through basis at our two primary distributors had no significant effect on revenue for the three and nine months ended December 28, 2008, however it reduced sales of network access and transmission products approximately $0.7 million and $1.3 million for the three and nine months ended December 30, 2007, respectively. Additionally, the remaining revenue fluctuations are as follows:

For the three months ended December 28, 2008, net sales of communications products decreased $2.0 million compared to the same period last year. Net sales of optical products decreased $0.2 million and net sales of network access and transmission products decreased $1.8 million, primarily due to decreased sales volume of SONET products at lower prices.

For the nine months ended December 28, 2008, net sales of communications products decreased $1.3 million compared to the same period last year. Net sales of optical products increased $1.6 million as the Sipex merger occurred in mid second quarter of fiscal 2008. Net sales of network access and transmission products decreased $2.9 million, primarily due to decreased sales volume and price erosion on a SONET product.

Interface

Interface products include UARTs, video, imaging and other products as well as serial transceiver products acquired from Sipex. We estimate that the change of revenue recognition to a sell-through basis at our two primary distributors had no significant effect on revenue for the three and nine months ended December 28, 2008, however it reduced sales of UART products by $3.3 million and $4.8 million for the three months and nine months ended December 30, 2007, respectively. Additionally, the remaining revenue fluctuations are as follows:

For the three months ended December 28, 2008, net sales of interface products decreased $1.4 million compared to the same period last year. Net sales of transceiver products increased $3.1 million as last year, we were precluded from recognizing revenue from products in the distribution channel at the time of the Sipex merger. Net sales of UARTs decreased $4.6 million, primarily due to decreased sales volume.

For the nine months ended December 28, 2008, net sales of interface products increased $13.0 million compared to the same period last year. Net sales of transceiver products increased $21.1 million as the Sipex merger occurred in mid second quarter of fiscal 2008 and last year, we were precluded from recognizing revenue from products in the distribution channel at the time of the Sipex merger. Net sales of UARTs decreased $8.1 million, primarily due to decreased sales volume.

Power Management

Power management products, including DC-DC regulators and LED drivers, were acquired from Sipex. For the three and nine months ended December 28, 2008, net sales of power management products increased by $0.6 million and $12.0 million, respectively, compared to the same periods a year ago as the Sipex merger occurred in mid second quarter of fiscal 2008 and last year, we were precluded from recognizing revenue from products in the distribution channel at the time of the Sipex merger.

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Net Sales by Channel

Our net sales by channel in absolute dollars and as a percentage of net sales were as follows for the periods presented (in thousands):

	Three Months Ended										Nine Months Ended
	December 28, 2008				December 30, 2007				Change		December 28, 2008				December 30, 2007*				Change
Net sales:
Sell-through distributors	$	16,147	61	%	$	10,897	43	%	48	%	$	54,592	60	%	$	24,629	40	%	122	%
Direct and others		10,158	39	%		14,310	57	%	(29	)%		36,672	40	%		36,852	60	%	—
Total	$	26,305	100	%	$	25,207	100	%			$	91,264	100	%	$	61,481	100	%

* Revenue from Sipex products was included starting from August 26, 2007.

For the three and nine months ended December 28, 2008, net sales to our distributors, for which we recognize revenue on the sell-through method, included $10.7 million and $36.0 million, respectively, from the sale of Sipex products and net sales to direct customers and others included $3.7 million and $12.4 million, respectively, from the sale of Sipex products. In addition, we estimate that the change of revenue recognition to a sell-through basis at our two primary distributors reduced sales by $4.0 million and $6.1 million for the three and nine months ended December 30, 2007, respectively.

For the three and nine months ended December 30, 2007, net sales from our sell-through distributors included $7.3 million and $8.2 million, respectively, from the sale of Sipex products and net sales to direct customers and others included $3.5 million and $5.5 million, respectively, from the sale of Sipex products.

Net Sales by Geography

Our net sales by geography in absolute dollars and as a percentage of net sales were as follows for the periods presented (in thousands):

	Three Months Ended										Nine Months Ended
	December 28, 2008				December 30, 2007				Change		December 28, 2008				December 30, 2007*				Change
Net sales:
Americas	$	6,838	26	%	$	4,832	19	%	42	%	$	23,444	26	%	$	18,035	30	%	30	%
Asia		13,251	50	%		14,024	56	%	(6	)%		47,979	52	%		27,324	44	%	76	%
Europe		6,216	24	%		6,351	25	%	(2	)%		19,841	22	%		16,122	26	%	23	%
Total	$	26,305	100	%	$	25,207	100	%			$	91,264	100	%	$	61,481	100	%

* Revenue from Sipex products was included starting from August 26, 2007.

For the three and nine months ended December 28, 2008, net sales in the Americas included $2.9 million and $12.9 million, respectively; net sales in Asia included $8.9 million and $26.8 million, respectively; and net sales in Europe included $2.5 million and $5.8 million, respectively, of sales of products acquired from Sipex. In addition, we estimate that the change of revenue recognition to a sell-through basis at our two primary distributors reduced sales in the Americas by $4.0 million and $6.1 million, respectively, for the three and nine months ended December 30, 2007.

For the three and nine months ended December 30, 2007, net sales in the Americas included $1.6 million and $2.0 million, respectively; net sales in Asia included $7.7 million and $9.6 million, respectively; and net sales in Europe included $1.6 million and $2.2 million, respectively, of sales of products acquired from Sipex.

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Gross Profit

Our gross profit in absolute dollars and as a percentage of net sales was as follows for the periods indicated (in thousands):

	Three Months Ended										Nine Months Ended
	December 28, 2008				December 30, 2007				Change		December 28, 2008				December 30, 2007*				Change
Net sales	$	26,305			$	25,207					$	91,264			$	61,481
Cost of sales:
Cost of sales		14,819	56	%		13,643	54	%				48,392	53	%		26,337	43	%
Fair value adjustment of acquired inventories		—	—			1,458	6	%				—	—			1,799	3	%
Amortization of acquired intangible assets		782	3	%		2,539	10	%				2,693	3	%		3,937	6	%
Gross profit	$	10,704	41	%	$	7,567	30	%	41	%	$	40,179	44	%	$	29,408	48	%	37	%

* Incremental revenue and gross profit from Sipex products was included starting from August 26, 2007.

Gross profit represents net sales less cost of sales. Cost of sales includes:

• the cost of purchasing finished silicon wafers manufactured by independent foundries;

• the costs associated with assembly, packaging, test, quality assurance and product yields;

• the cost of personnel and equipment associated with manufacturing support and manufacturing engineering;

• the cost of stock-based compensation;

• the amortization of purchased intangible assets in connection with acquisitions; and

• the provision for excess and obsolete inventory.

The increase in gross profit, as a percentage of net sales, for the three months ended December 28, 2008, as compared to the same period a year ago, was due primarily to the lower charge for amortization of intangible assets and the sale last year of acquired inventory which had been written-up to fair value, partially offset by increased sales of lower margin products acquired from Sipex and higher charges for excess and obsolete inventory.

The decrease in gross profit, as a percentage of net sales, for the nine months ended December 28, 2008 as compared to the same period a year ago, was primarily due to increased sales of lower margin products acquired with the Sipex merger, higher excess and obsolete inventory and lower sales for network and UART products that typically have higher gross margins partially offset by lower amortization of acquired intangible assets and the sale last year of acquired inventory which had been written-up to fair value.

The fair value adjustment of acquired inventories decreased by $1.5 million and $1.8 million in the three and nine months ended December 28, 2008, respectively, as compared to the same periods a year ago because the sale of acquired inventory completed last year. Amortization expense for the purchased intangible assets decreased by $1.8 million and $1.2 million in the three and nine months ended December 28, 2008, respectively, as compared to the same periods a year ago because the carrying value of the underlying assets were reduced by an impairment charge we recorded in the fourth quarter of fiscal 2008.

Stock-based compensation expense recorded in cost of sales was approximately $0.1 million and $0.5 million, respectively, for the three and nine months ended December 28, 2008, as compared to approximately $0.4 million and $0.5 million, respectively, for the same periods a year ago. The decrease in stock-based compensation expense for the three months ended December 28, 2008 when compared to the same period a year ago was primarily attributable to lower headcount and lower valuation of new options granted.

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Operating Expenses

	Three Months Ended								Change		Nine Months Ended								Change
	December 28, 2008				December 30, 2007						December 28, 2008				December 30, 2007*
Net sales	$	26,305			$	25,207					$	91,264			$	61,481
Research and development		8,092	31	%		8,890	35	%	(9	)%		24,317	27	%		22,401	36	%	9	%
Selling, general and administrative		9,099	35	%		12,071	48	%	(25	)%		30,146	33	%		26,104	42	%	15	%

* Incremental expenses from Sipex merger were included starting from August 26, 2007.

Research and Development (“R&D”)

Our research and development costs consisted primarily of:

• the salaries, stock-based compensation, and related expenses of employees engaged in product research, design and development activities;

• costs related to engineering design tools, mask tooling costs, test hardware, engineering supplies and services, and use of in-house test equipment;

• amortization of purchased intellectual property; and

• facilities expenses.

The decrease in R&D expenses for the three months ended December 28, 2008 as compared to the same period a year ago was primarily due to EDA software and mask tooling costs. The increase in R&D expense for the nine months ended December 28, 2008 as compared to the same period a year ago was primarily incremental expense of $1.7 million due to our growth as a result of the Sipex merger partially offset by lower headcount, EDA software and mask tooling costs.

Incremental amortization expense of intellectual property recorded in R&D expenses was $0.2 million and $0.7 million, respectively, for the three and nine months ended December 28, 2008 as compared to the same periods a year ago.

Stock-based compensation expense recorded in R&D expenses was $0.4 million and $1.2 million, respectively, for the three and nine months ended December 28, 2008 as compared to $0.4 million and $1.0 million, respectively, for the same periods a year ago.

Selling, General and Administrative (“SG&A”)

Selling, general and administrative expenses consisted primarily of:

• salaries, stock-based compensation and related expenses;

• sales commissions;

• professional and legal fees;

• amortization of purchased intangible assets; and

• facilities expenses.

The decrease in SG&A expenses for the three months ended December 28, 2008 as compared to the same period a year ago was primarily as a result of lower merger related expense and lower compensation expense due to a reduction in headcount.

The increase in SG&A expenses for the nine months ended December 28, 2008 as compared to the same period a year ago was primarily as a result of incremental expense of $5.1 million due to our growth as a result of the Sipex merger and the cost of a Sipex property tax audit partially offset by lower merger related expense and lower compensation expense due to a reduction in headcount.

Amortization expense of the purchased intangible assets recorded in SG&A expenses was $0.1 million and $0.4 million, respectively, for the three and nine months ended December 28, 2008, as compared to $0.5 million and $0.7 million, respectively, for the same periods a year ago. The amortization expense of the purchased intangible assets decreased when compared to the same periods a year ago because the carrying value of the underlying assets were reduced by an impairment charge we recorded in the fourth quarter of fiscal 2008.

Stock-based compensation expense recorded in SG&A expenses was $0.8 million and $2.0 million, respectively, for the three and nine months ended December 28, 2008, as compared to $1.0 million and $2.5 million, respectively, for the same periods a year ago. The decrease in stock-based compensation expense when compared to the same periods a year ago was primarily attributable to adjustments for pre-vesting forfeitures within our executive staff.

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Goodwill and Other Intangible Asset Impairment

As a result of the goodwill and long-lived asset impairment assessments, we recorded a charge totaling $59.7 million in the third quarter of fiscal 2009. This charge is comprised of $46.2 million related to goodwill and $13.5 million related to intangible assets and is described above in our critical accounting policies and estimates.

Acquired In-Process Research and Development

We recorded a charge of $8.8 million in acquired in-process research and development (“IPR&D”), associated with our merger with Sipex in the second quarter of fiscal 2008. We allocated the purchase price related to IPR&D through established valuation techniques. IPR&D was expensed upon acquisition because technological feasibility had not been established and no future alternative uses existed. The fair value of technology under development was determined using the income approach, which discounted expected future cash flows to present value, taking into account the stage of completion, estimated costs to complete, utilization of patents and core technology, the risks related to successful completion, and the markets served. The cash flows derived from the IPR&D were discounted at discount rates ranging from 25% to 40%. The percentage of completion for these projects ranged from 20% to 87% at the merger date.

The IPR&D projects underway at Sipex at the merger date were in the interface and power management product families. Within interface, specific projects relate to new products in its Multiprotocol and RS485 families. Within power management, development activities relate to the commercialization of its digital power technology, LED drivers, DC-DC regulators and controllers. Of these projects, five have been cancelled, five require further development and testing to release them to production and three have been released to production. IPR&D projects for power management require an additional $1.5 million to complete and some product shipments began in late calendar year 2007. IPR&D projects for interface are expected to require $0.3 million to complete with expected revenue generation beginning in mid calendar year 2009. All power management and interface projects are scheduled to complete by the end of fiscal year 2009.

Other Income and Expense, Net

	Three Months Ended				Change		Nine Months Ended				Change
	December 28, 2008		December 30, 2007				December 28, 2008		December 30, 2007
Interest income and other, net	2,454		3,632		(32	)%	7,414		12,696		(42	)%
Interest expense	(266	)	(275	)	(3	)%	(927	)	(427	)	117	%
Impairment charges on investments, net of realized gains:
Impairment charges on non-marketable securities	—		—		—		(901	)	(449	)	101	%
Loss on investments in short-term marketable securities	(34	)	—		100	%	(587	)	—		100	%
Realized gains on marketable securities	116		20		480	%	361		72		401	%

Interest Income and Other, Net

Our interest income and other, net primarily consisted of:

• interest income;

• sublease income;

• foreign exchange gains or losses; and

• gains or losses on the sale or disposal of equipment.

The decrease in interest income and other, net during the three and nine months ended December 28, 2008 as compared to the same periods a year ago was primarily attributable to a decrease in interest income as a result of lower invested cash balances and lower yield of the investments, partially offset by sublease income.

Our Hillview facility located in Milpitas, California (the “Hillview Facility”), originally leased from Mission West Properties, L.P., was sublet to a subtenant in April 2008. The sublease expires on March 31, 2011 with average annual rent of approximately $1.4 million. The sublease income for the three and nine months ended December 28, 2008 was approximately $0.4 million and $1.1 million, respectively.

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Interest Expense

In connection with the Sipex merger, we assumed a lease financing obligation related to the Hillview facility. We have accounted for this sale and leaseback transaction as a financing transaction which was included in the “Long-term lease financing obligations” line item on the condensed consolidated balance sheets. The effective interest rate is 8.2%. The interest expense for the third quarter and first nine months of fiscal 2009 was primarily attributable to the Hillview facility financing transaction.

In addition, we also acquired engineering design tools (“design tools”) under capital leases. We acquired $5.2 million of design tools in December 2007 under a four-year license and $3.7 million of design tools in November 2008 under a three-year license, which were accounted for as a capital lease and recorded in the “Property, plant and equipment, net” line item on the condensed consolidated balance sheets. The related design tools obligation was included in the “Long-term lease financing obligations” line on our condensed consolidated balance sheets. The effective interest rate for the design tools is 7.25% for the four-year tools and 4.0% for the three-year tools.

Our interest expenses were primarily from these capital leased assets. Interest expense for the Hillview facility lease financing for the three and nine months ended December 28, 2008 totaled approximately $269,000 and $811,000, respectively. Interest expense for the design tools lease obligations for the three and nine months ended December 28, 2008 totaled approximately $53,000 and $142,000, respectively.

Interest expense for the Hillview facility lease financing for the three and nine months ended December 30, 2007 totaled approximately $275,000 and $366,000, respectively.

Impairment Charges on Investments, Net of Realized Gains

We follow the guidance provided by FASB Staff Position No. 115-1, The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“FSP 115-1”), to assess whether our investments with unrealized loss positions are other-than-temporarily impaired. We regularly review our investments in unrealized loss positions for other-than-temporary impairments. This evaluation includes, but is not limited to, significant quantitative and qualitative assessments and estimates regarding credit ratings, collateralized support, the length of time and significance of a security’s loss position and intent and ability to hold a security to maturity or forecasted recovery. Realized gains and losses and declines in value of our investments judged to be other-than-temporary are reported in the “Impairment charges on investments, net of realized gain” line item in the condensed consolidated statements of operations. In September 2008, Lehman Brothers Holdings Inc. (“Lehman”) filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. As a result of Lehman’s bankruptcy filing, we recorded an other-than-temporary impairment charge of $0.6 million in the nine months ended December 28, 2008.

In the second quarter of fiscal 2009, we analyzed the fair value of the underlying investment in TechFarm Fund and concluded that the remaining carrying value in TechFarm Fund was other-than-temporarily impaired and recorded an impairment charge of $0.5 million. As such, we reduced the carrying value of our investment in TechFarm Fund to zero as of September 28, 2008. During the same period, we also analyzed the fair value of the underlying investments of Skypoint Fund and concluded a portion of the carrying value was other-than-temporarily impaired and recorded an impairment charge of $0.4 million.

In the second quarter of fiscal 2008, we performed a review of our investments and determined that two of the portfolio companies in the Skypoint Fund had limited cash on hand and financing opportunities were minimal. We concluded that a portion of the carrying value had been other-than-temporarily impaired and recorded an impairment charge against our earnings of $0.4 million.

Provision (Benefit) for Income Taxes

During the three months ended December 28, 2008 and December 30, 2007, we recorded an income tax benefit of $0.1 million and an income tax provision of $1.7 million, respectively. During the nine months ended December 28, 2008 and December 30, 2007, we recorded an income tax benefit of $0.1 million and an income tax provision of $7.5 million, respectively. During the three and nine months ended December 30, 2007, the tax provision was recorded primarily due to establishment of a valuation allowance against all deferred tax assets in connection with the Sipex acquisition during the second quarter of fiscal 2008.

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LIQUIDITY AND CAPITAL RESOURCES

	As of and For Nine Months Ended
(dollars in thousands)	December 28, 2008			December 30, 2007
Cash and cash equivalents	$	70,835		$	155,878
Short-term investments		186,646			147,524
Total cash, cash equivalents, and short-term investments	$	257,481		$	303,402
Percentage of total assets		75	%		48	%
Net cash provided by operating activities	$	3,996		$	10,430
Net cash (used in) provided by investing activities		(43,420	)		85,736
Net cash used in financing activities		(11,757	)		(59,971	)
Effect of exchange rate change on cash		—			(126	)
Net (decrease) increase in cash and cash equivalents	$	(51,181	)	$	36,069

Our net loss was approximately $68.5 million for the nine months ended December 28, 2008. After adjustments for non-cash items and changes in working capital, we generated $4.0 million of cash from operating activities.

Significant non-cash charges included:

• depreciation and amortization expenses of $11.7 million;

• stock-based compensation expense of $3.7 million;

• goodwill and other asset impairment charge of $59.7 million; and

• impairment charge on investments of $1.5 million.

Working capital changes included:

• a $0.1 million decrease in accounts receivable primarily due to lower product shipments;

• a $4.0 million increase in inventory primarily due to the substantial drop in our fiscal 2009 third quarter shipments and the cycle time required to adjust inventory to the decline in sales; and

• a $2.0 million decrease in accounts payable.

In the nine months ended December 28, 2008, net cash used by investing activities reflects the net purchases of $41.2 million of short-term marketable securities and $2.0 million in purchases of equipment and intellectual property.

From time to time, we acquire outstanding shares of our common stock in the open market to partially offset dilution from our stock awards program, to increase our return on our invested capital and to bring our cash to a more appropriate level for our company. We may continue to utilize our share repurchase program described below, which would reduce our cash, cash equivalents and/or short-term investments available to fund future operations and to meet other liquidity requirements.

On August 28, 2007, we established a share repurchase plan (“2007 SRP”) and authorized the repurchase of up to $100 million of our common stock. The 2007 SRP was in addition to a share repurchase plan announced on March 6, 2001 (“2001 SRP”), which covered the repurchase of up to $40 million of our common stock.

During the three and nine months ended December 28, 2008, we repurchased a total of 0.1 million and 1.6 million shares, respectively of our common stock at an aggregate cost of $0.5 million and $13.4 million, respectively, under the 2007 SRP.

During the three and nine months ended December 30, 2007, we repurchased a total of 2.3 million and 4.7 million shares,

34

respectively, of our common stock at an aggregate cost of $25.6 million and $58.0 million, respectively, under the 2007 SRP and 2001 SRP. In addition, we repurchased 10,000 shares at an aggregate cost of $1 from a former executive officer pursuant to a restricted stock purchase agreement in the nine months ended December 30, 2007.

We have fully utilized the 2001 SRP. As of December 28, 2008, the remaining authorized amount for the share repurchases under the 2007 SRP was $11.8 million. The 2007 SRP does not have a termination date.

To date, inflation has not had a significant impact on our operating results.

We anticipate that we will continue to finance our operations with cash flows from operations, existing cash and investment balances, 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 our needs and prevailing market conditions.

The following table summarizes our investments in marketable securities (in thousands):

	December 28, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	19,877	$	—	$	—		$	19,877
Corporate bonds and commercial paper		73,069		120		(180	)		73,009
U.S. government and agency securities		129,753		1,894		(22	)		131,624
Asset-backed and mortgage-backed securities		31,957		220		(303	)		31,874
Total at December 28, 2008	$	254,655	$	2,234	$	(505	)	$	256,384
	March 30, 2008
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Money market funds	$	28,274	$	—	$	—		$	28,274
Corporate bonds and commercial paper		158,790		354		(233	)		158,911
U.S. government and agency securities		50,146		1,413		—			51,559
Asset-backed and mortgage-backed securities		28,543		462		(97	)		28,908
Total at March 30, 2008	$	265,753	$	2,229	$	(330	)	$	267,652

As of December 28, 2008, our fixed income investment securities included asset-backed and mortgage-backed securities, accounted for 4% and 8%, respectively, of our total investments. The asset-backed securities are comprised primarily of premium tranches of auto loans and credit card receivables, while our mortgage-backed securities are primarily from the Federal agencies. We do not own auction rate securities nor do we own securities that are classified as sub-prime. As of the date of this Report, we have sufficient liquidity and do not intend to sell these securities nor realize any significant losses in the short term. As of December 28, 2008, the net unrealized loss of our asset-backed and mortgage-backed securities totaled $0.1 million or less than 0.5 percent of our total investments.

We believe that our cash and cash equivalents, short-term marketable securities and cash flows from operations will be sufficient to satisfy working capital requirements and capital equipment needs for at least the next 12 months. However, should the demand for our products decrease in the future, the availability of cash flows from operations may be limited, thus having a material adverse effect on our financial condition or results of operations. From time to time, we evaluate potential acquisitions, strategic arrangements and equity investments complementary to our design expertise and market strategy, which may include investments in wafer fabrication foundries. To the extent that we pursue or position ourselves to pursue these transactions, we could consume a significant portion of our capital resources or choose to seek additional equity or debt financing. There can be no assurance that additional financing could be obtained on terms acceptable to us. The sale of additional equity or convertible debt could result in dilution to our stockholders.

RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to “Part I, Item 1. Financial Statements” and “Notes to Condensed Consolidated Financial Statements, Note 2 – Recent Accounting Pronouncements.”

OFF-BALANCE SHEET ARRANGEMENTS

As of December 28, 2008, we had no off-balance sheet arrangements as defined in Item 303(a)(4) of the SEC’s Regulation S-K.

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CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our contractual obligations and commitments at December 28, 2008 were as follows (in thousands):

	Fiscal Year
	Remainder of 2009		2010		2011		2012		2013 and thereafter		Total
Contractual Obligations
Purchase commitment (1)	$	3,449	$	—	$	—	$	—	$	—	$	3,449
Long-term lease financing obligation (2)		386		4,085		4,126		1,087		—		9,684
Lease obligations (3)		140		374		218		166		—		898
Long-term investment commitments (Skypoint Fund) (4)		523		—		—		—		—		523
Remediation commitment (5)		50		155		5		5		35		250
Total	$	4,548	$	4,614	$	4,349	$	1,258	$	35	$	14,804

Note: The table above excludes the liability for unrecognized income tax benefit of approximately $1.0 million at December 28, 2008
since we cannot predict with reasonable reliability the timing of cash settlements with the respective taxing authorities.

(1) We place purchase orders with wafer foundries and other vendors as part of our normal course of business. We expect to receive and pay for wafers, capital equipment and various service contracts over the next 12 to 18 months from our existing cash balances.

(2) Includes lease payments (excluding a $12.2 million estimated final obligation settlement with the lessor by returning the Hillview facility at the end of the lease term due on our Hillview facility in Milpitas, California under a 5-year Standard Form Lease agreement that we signed with Mission West Properties L.P. on March 9, 2006, as amended on August 25, 2007) and includes $6.5 million related to software licenses for engineering design.

(3) Includes lease payments related to worldwide offices and buildings.

(4) The commitment related to the Skypoint Fund does not have a set payment schedule and thus will become payable upon request from the Fund’s General Partner.

(5) The commitment relates to the environmental remediation activities of Micro Power Systems, Inc.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Foreign Currency Fluctuations. We are exposed to foreign currency fluctuations primarily through our foreign operations. This exposure is the result of foreign operating expenses being denominated in foreign currency. Operational currency requirements are typically forecasted for a one-month period. If there is a need to hedge this risk, we may enter into transactions to purchase currency in the open market or enter into forward currency exchange contracts.

If our foreign operations forecasts are overstated or understated during periods of currency volatility, we could experience unanticipated currency gains or losses. At December 28, 2008, we did not have significant foreign currency denominated net assets or net liabilities positions, and had no foreign currency contracts outstanding.

Investment Risk and Interest Rate Sensitivity. We maintain investment portfolio holdings of various issuers, types, and maturity dates with various banks and investment banking institutions. The market value of these investments on any given day during the investment term may vary as a result of market interest rate fluctuations. Our investment portfolio consisted of cash equivalents, money market funds and fixed income securities of $256.4 million as of December 28, 2008 and $267.7 million as of March 30, 2008. These securities, like all fixed income instruments, are subject to interest rate risk and will vary in value as market interest rates fluctuate. If market interest rates were to increase or decline immediately and uniformly by less than 10% from levels as of December 28, 2008, the increase or decline in the fair value of the portfolio would not be material. At December 28, 2008, the difference between the fair market value and the underlying cost of the investments portfolio was a net unrealized gain of $1.7 million. As a result of Lehman’s bankruptcy filing, we recorded an other-than-temporary impairment charge of $0.6 million in the nine months ended December 28, 2008.

Our short-term investments are classified as “available-for-sale” securities and the cost of securities sold is based on the specific identification method. At December 28, 2008, short-term investments consisted of commercial paper, asset-backed securities, corporate bonds and government securities of $186.7 million. We place our investments in instruments that meet credit quality standards, as specified in our investment policy guidelines. The guidelines also limit the amount of credit exposure to any one issue, issuer or type of instrument. We do not use derivative financial instruments.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures (“Disclosure Controls”)

We evaluated the effectiveness of the design and operation of our Disclosure Controls, as defined by the rules and regulations of the SEC (the “Evaluation”), as of the end of the period covered by this Report. This Evaluation was performed under the supervision and with the participation of management, including our Chief Executive Officer (the “CEO”), as principal executive officer, and Chief Financial Officer (the “CFO”), as principal financial officer.

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Attached as Exhibits 31.1 and 31.2 of this Report are the certifications of the CEO and the CFO, respectively, in compliance with Section 302 of the Sarbanes-Oxley Act of 2002 (the “Certifications”). This section of the Report provides information concerning the Evaluation referred to in the Certifications and should be read in conjunction with the Certifications.

Disclosure Controls are controls and procedures designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods as specified in the SEC’s rules and forms. In addition, Disclosure Controls are designed to ensure the accumulation and communication of information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended, to our management, including the CEO and CFO, to allow timely decisions regarding required disclosure.

Based on the Evaluation, our CEO and CFO have concluded that our Disclosure Controls are effective as of December 28, 2008.

Inherent Limitations on the Effectiveness of Disclosure Controls

Our management, including the CEO and CFO, does not expect that the Disclosure Controls will prevent all errors and all fraud. Disclosure Controls, no matter how well conceived, managed, utilized and monitored, can provide only reasonable assurance that the objectives of such controls are met. Therefore, because of the inherent limitation of Disclosure Controls, no evaluation of such controls can provide absolute assurance that all control issues and instances of fraud, if any, within us have been detected.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Please refer to “Part I, Item 1. Financial Statements” and “Notes to Condensed Consolidated Financial Statements, Note 18– Legal Proceedings.”

ITEM 1A. RISK FACTORS

Global capital and credit market conditions, and resulting declines in consumer confidence and spending, could have a material adverse effect on our business, operating results, and financial condition.

Volatility and disruption in the global capital and credit markets in 2008 have led to a tightening of business credit and liquidity, a contraction of consumer credit, business failures, higher unemployment, and declines in consumer confidence and spending in the United States and internationally. If global economic and financial market conditions deteriorate or remain weak for an extended period of time, the following factors could have a material adverse effect on our business, operating results, and financial condition:

• slower spending may result in reduced demand for our products, reduced orders for our products, order cancellations, lower revenues, increased inventories, and lower gross margins;

• we may be unable to find suitable investments that are safe, liquid, and provide a reasonable return resulting in lower interest income or longer investment horizons, and disruptions to capital markets or the banking system may also impair the value of investments or bank deposits we currently consider safe or liquid;

• the failure of financial institution counterparties to honor their obligations to us under credit instruments could jeopardize our ability to rely on and benefit from those instruments, and our ability to replace those instruments on the same or similar terms may be limited under poor market conditions;

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• continued volatility in the markets and prices for commodities and raw materials we use in our products and in our supply chain could have a material adverse effect on our costs, gross margins, and profitability;

• if distributors or direct sellers of our products experience declining revenues, or experience difficulty obtaining financing in the capital and credit markets to purchase our products, it could result in reduced orders for our products, order cancellations, inability to timely meet their payment obligations to us, extended payment terms, higher accounts receivable, reduced cash flows, greater expense associated with collection efforts, and increased bad debt expense;

• if distributors or direct sellers of our products experience severe financial difficulty, some may become insolvent and cease business operations, which could reduce the availability of our products to customers;

• if contract manufacturers or foundries of our products or other participants in our supply chain experience difficulty obtaining financing in the capital and credit markets to purchase raw materials or to finance general working capital needs, it may result in delays or non-delivery of shipments of our products;

• potential shutdowns by our third-party foundry, assembly and test subcontractors due to slow business conditions could result in longer lead-times, higher buffer inventory levels and degraded on-time delivery performance; and

• the weak macroeconomic environment also limits our visibility into future purchases by our customers and renewals of existing agreements, which may necessitate changes to our business model.

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

Our financial results may fluctuate significantly. Some of the factors that affect our financial results, many of which are difficult or impossible to control or predict, include:

• the cyclical nature of the semiconductor industry;

• our difficulty in predicting revenues and ordering the correct mix of products from suppliers due to limited visibility provided by customers and channel partners;

• fluctuations of our revenue and gross profits due to the mix of product sales that has various margins;

• the effect of the timing of sales by our resellers on our reported results as a result of our sell-through revenue recognition policies;

• the reduction, rescheduling, cancellation or timing of orders by our customers, distributors and channel partners due to, among others, the following factors:

• management of customer, subcontractor and/or channel inventory;

• delays in shipments from our subcontractors causing supply shortages;

• inability of our subcontractors to provide quality products in a timely manner;

• dependency on a single product with a single customer and/or distributors;

• volatility of demand for equipment sold by our large customers, which in turn, introduces demand volatility for our products;

• disruption in customer demand as customers change or modify their complex subcontract manufacturing supply chain;

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• disruption in customer demand due to technical or quality issues with our devices or components in their system;

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

• disruption in sales or distribution channels;

• our ability to maintain and expand distributor relationships;

• changes in sales and implementation cycles for our products;

• the ability of our suppliers and customers to remain solvent, obtain financing or fund capital expenditures as a result of global recession;

• risks associated with entering new markets;

• the announcement or introduction of products by our existing competitors or potential new competitors;

• loss of market share by our customers;

• competitive pressures on selling prices or product availability;

• pressures on selling prices overseas due to foreign currency exchange fluctuations;

• erosion of average selling prices coupled with the inability to sell newer products with higher average selling prices, resulting in lower overall revenue and margins;

• delays in product design releases;

• market and/or customer acceptance of our products;

• consolidation among our competitors, our customers and/or our customers’ customers;

• changes in our customers’ end user concentration or requirements;

• loss of one or more major customers;

• significant changes in ordering pattern by major customers;

• our or our channel partners’ ability to maintain and manage appropriate inventory levels;

• the availability and cost of materials and services, including foundry, assembly and test capacity, needed by us from our foundries and other manufacturing suppliers;

• disruptions in our or our customers’ supply chain due to natural disasters, fire, outbreak of communicable diseases, labor disputes, civil unrest or other reason;

• delays in successful transfer of manufacturing processes to our subcontractors;

• fluctuations in the manufacturing output, yields, and capacity of our suppliers;

• fluctuation in suppliers’ capacity due to reorganization, relocation or shift in business focus;

• problems, costs, or delays that we may face in shifting our products to smaller geometry process technologies and in achieving higher levels of design and device integration;

• our ability to successfully introduce and transfer into production new products and/or integrate new technologies;

• increase in manufacturing costs;

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• higher mask tooling costs associated with advanced technologies;

• the amount and timing of our investment in research and development;

• costs and business disruptions associated with stockholder or regulatory issues;

• the timing and amount of employer payroll tax to be paid on our employees’ gains on stock options exercised;

• inability to generate profits to utilize net operating losses;

• increased costs and time associated with compliance with new accounting rules or new regulatory requirements;

• changes in accounting or other regulatory rules, such as the requirement to record assets and liabilities at fair value;

• fluctuations in interest rates and/or market values of our marketable securities;

• litigation costs associated with the defense of suits brought or complaints made against us; and

• changes in or continuation of certain tax provisions.

Our expense levels are based, in part, on expectations of future revenues and are, to a large extent, fixed in the short-term. Our revenues are difficult to predict and at times we have failed to achieve revenue expectations. We may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. If revenue levels are below expectations for any reason, operating results are likely to be materially adversely affected.

Our stock price is volatile.

The market price of our common stock has fluctuated significantly to date. In the future, the market price of our common stock could be subject to significant fluctuations due to:

• loss of or changes to key executives;

• our anticipated or actual operating results;

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

• technological innovations by us or our competitors;

• product delays or setbacks by us, our customers or our competitors;

• potential supply disruptions;

• sales channel interruptions;

• concentration of sales among a small number of customers;

• conditions in our customers’ markets and the semiconductor markets;

• the commencement and/or results of litigation;

• changes in estimates of our performance by securities analysts;

• decreases in the value of our investments or long-lived assets, thereby requiring an asset impairment charge against earnings;

• repurchasing shares of our common stock;

• announcements of merger or acquisition transactions; and/or

• general global economic and capital market conditions;

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In the past, securities and class action litigation has been brought against companies following periods of volatility in the market prices of their securities. We may be the target of one or more of these class action suits, which could result in significant costs and divert management’s attention, thereby harming our business, results of operations and financial condition.

In addition, at times the stock market has experienced and is currently experiencing extreme price, volume and value fluctuations that affect the market prices of many high technology companies, including semiconductor companies, and that are unrelated or disproportionate to the operating performance of those companies. Any such fluctuations may harm the market price of our common stock.

The general state of the U.S. and global economies, as well as our market, may materially and adversely impact our business, financial condition and results of operations.

Periodic declines or fluctuations in the U.S. dollar, corporate profits, interest rates, and capital markets, inflation, lower spending, the impact of conflicts throughout the world, terrorist acts, natural disasters, volatile energy costs, the outbreak of communicable diseases and other geopolitical factors have had, and may continue to have, a negative impact on the U.S. and global economies. Our revenue and profitability have generally followed market fluctuations in our industry, which fluctuations have affected the demand for our own and our customers’ products, thus affecting our revenues and profitability. Our customers continue to experience consolidation in their industries which may result in project delays or cancellations. We are unable to predict the strength or duration of current market conditions or effects of consolidation. Uncertainties in anticipated spending levels or further consolidation may adversely affect our business, financial condition and results of operations.

We derive a substantial portion of our revenues from distributors, especially from our two primary distributors, Future Electronics Inc. (“Future”), a related party, and Nu Horizons Electronics Corp. (“Nu Horizons”). Our revenues would likely decline significantly if our primary distributors elected not to promote or sell our products or if they elected to cancel, reduce or defer purchases of our products.

Our distributors rely heavily on the availability of short-term capital at reasonable rates to fund their ongoing operations. If this capital is not available, or is only available on onerous term, certain distributors may not be able to pay for inventory received or we may experience a reduction in orders from these distributors, which would likely cause our revenue to decline and materially and adversely impact our business, financial condition and results of operations.

Future and Nu Horizons have historically accounted for a significant portion of our revenues, and they are our two primary distributors worldwide. We anticipate that sales of our products to these distributors will continue to account for a significant portion of our revenues. The loss of either Future or Nu Horizons as a distributor, or a significant reduction in orders from either of them would materially and adversely affect our operating results, business and financial condition.

Sales to Future and Nu Horizons are made under agreements that provide protection against price reduction for their inventory of our products. As such, we could be exposed to significant liability if the inventory value of the products held by Future and Nu Horizons declined dramatically. Our distributor agreements with Future and Nu Horizons do not contain minimum purchase commitments. As a result, Future and Nu Horizons could cease purchasing our products with short notice or cease distributing these products. In addition, they may defer or cancel orders without penalty, which would likely cause our revenues to decline and materially and adversely impact our business, financial condition and results of operations.

The complexity of our products may lead to errors, defects and bugs, which could subject us to significant costs or damages and adversely affect market acceptance of our products.

Although we, our customers and our suppliers rigorously test our products, they may contain undetected errors, weaknesses, defects or bugs when first introduced or as new versions are released. If any of our products contain production defects, reliability, quality or compatibility problems that are significant to our customers, our reputation may be damaged and customers may be reluctant to continue to buy our products, which could adversely affect our ability to retain and attract new customers. In addition, these defects or bugs could interrupt or delay sales of affected products, which could adversely affect our results of operations.

If defects or bugs are discovered after commencement of commercial production, we may be required to make significant expenditures of capital and other resources to resolve the problems. This could result in significant additional development

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costs and the diversion of technical and other resources from our other development efforts. We could also incur significant costs to repair or replace defective products or may agree to be liable for certain damages incurred. These costs or damages could have a material adverse effect on our financial condition and results of operations.

If we fail to develop, introduce or enhance products that meet evolving market needs or which are necessitated by technological advances, or we are unable to grow revenues, then our business, financial condition and results of operations could be materially and adversely impacted.

The markets for our products are characterized by a number of factors, some of which are listed below:

• changing technologies;

• evolving and competing industry standards;

• changing customer requirements;

• increasing price pressure;

• increasing product development costs;

• long design-to-production cycles;

• competitive solutions;

• fluctuations in capital equipment spending levels and/or deployment;

• rapid adjustments in customer demand and inventory;

• increasing functional integration;

• moderate to slow growth;

• frequent product introductions and enhancements;

• changing competitive landscape (consolidation, financial viability);

• finite market windows for product introductions; and

• short end market product life cycles.

Our growth depends in part on our successful development and acceptance of new products for our core markets. We must: (i) anticipate customer and market requirements and changes in technology and industry standards; (ii) properly define and develop new products on a timely basis; (iii) gain access to and use technologies in a cost-effective manner; (iv) have suppliers produce quality products; (v) continue to expand our technical and design expertise; (vi) introduce and cost-effectively manufacture new products on a timely basis; (vii) differentiate our products from our competitors’ offerings; and (viii) gain customer acceptance of our products. In addition, we must continue to have our products designed into our customers’ future products and maintain close working relationships with key customers to define and develop new products that meet their evolving needs. Moreover, we must respond in a rapid and cost-effective manner to shifts in market demands, the trend towards increasing functional integration and other changes. Migration from older products to newer products may result in volatility of earnings.

Products for our customers’ applications are based on continually evolving industry standards and new technologies. Our ability to compete will depend in part on our ability to identify and ensure compliance with these industry standards. The emergence of new standards could render our products incompatible. We could be required to invest significant time, effort and expenses to develop and qualify new products to ensure compliance with industry standards.

The process of developing and supporting new products is complex, expensive and uncertain, and if we fail to accurately predict and understand our customers’ changing needs and emerging technological trends, our business may be harmed. In addition, we may make significant investments to modify new products according to input from our customers who may choose a competitor’s or an internal solution, or cancel their projects. We may not be able to identify new product opportunities successfully, develop and bring to market new products, achieve design wins, ensure when and which design

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wins actually get released to production, or respond effectively to technological changes or product announcements by our competitors. In addition, we may not be successful in developing or using new technologies or may incorrectly anticipate market demand and develop products that achieve little or no market acceptance. Our pursuit of technological advances may require substantial time and expense and may ultimately prove unsuccessful. Failure in any of these areas may materially and adversely harm our business, financial condition and results of operations.

If we are unable to convert a significant portion of our design wins into revenue, our business, financial condition and results of operations could be materially and adversely impacted.

We have secured a significant number of design wins for new and existing products. Such design wins are necessary for revenue growth. However, many of our design wins may never generate revenues if their end-customer projects are unsuccessful in the market place or the end-customer terminates the project, which may occur for a variety of reasons. Mergers and consolidations among our customers may lead to termination of certain projects before the associated design win generates revenue. If design wins do generate revenue, the time lag between the design win and meaningful revenue is typically between six months to greater than eighteen months. If we fail to convert a significant portion of our design wins into substantial revenue, our business, financial condition and results of operations could be materially and adversely impacted. Under current deteriorating global economic conditions, our design wins could be delayed even longer than the typical lag period and our eventual revenue could be less than anticipated from products that were introduced within the last eighteen to thirty-six months.

We have made and in the future may make acquisitions and significant strategic equity investments, which may involve a number of risks. If we are unable to address these risks successfully, such acquisitions and investments could have a materially adverse effect on our business, financial condition and results of operations.

We have undertaken a number of strategic acquisitions and investments in the past and may do so from time to time in the future. The risks involved with these acquisitions and investments include:

• the possibility that we may not receive a favorable return on our investment or incur losses from our investment or the original investment may become impaired;

• failure to satisfy or set effective strategic objectives;

• our assumption of known or unknown liabilities or other unanticipated events or circumstances; and

• the diversion of management’s attention from day-to-day operations of the business and the potential disruptions to the ongoing business.

Additional risks involved with acquisitions include:

• difficulties in integrating and managing various operations such as sales, engineering, marketing, and operations;

• difficulties in incorporating acquired technologies and intellectual property rights into new products;

• difficulties or delays in the transfer of manufacturing flows and supply chains of products of acquired businesses;

• failure to retain and integrate key personnel;

• failure to retain and maintain relationship with existing customers, distributors, channel partners and other parties;

• failure to manage and operate multiple geographic locations both effectively and efficiently;

• failure to coordinate research and development activities to enhance and develop new products and services in a timely manner that optimize the assets and resources of the combined company;

• difficulties in creating uniform standards, controls (including internal control over financial reporting), procedures, policies and information systems;

• unexpected capital equipment outlays and continuing expenses related to technical and operational integration;

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• difficulties in entering markets or retaining current markets in which we have limited or no direct prior experience and where competitors in such markets may have stronger market positions;

• insufficient revenues to offset increased expenses associated with acquisitions;

• under-performance problems with an acquired company;

• issuance of common stock that would dilute our current stockholders’ percentage ownership;

• reduction in liquidity and interest income on lower cash balance;

• recording of goodwill and intangible assets that will be subject to periodic impairment testing and potential impairment charges against our future earnings;

• incurring amortization expenses related to certain intangible assets;

• the opportunity cost associated with committing capital in such investments;

• incurring large and immediate write-offs; and

• being subject to litigation.

Risks involved with strategic equity investments include:

• the possibility of litigation resulting from these types of investments;

• the possibility that we may not receive a financial return on our investments or incur losses from these investments;

• a changed or poorly executed strategic plan; and

• the opportunity cost associated with committing capital in such investments.

We may not address these risks successfully without substantial expense, delay or other operational or financial problems, or at all. Any delays or other such operations or financial problems could adversely impact our business, financial condition and results of operations.

Because a significant portion of our total assets were, and may again be with future potential acquisitions, represented by goodwill and other intangible assets which are subject to mandatory annual impairment evaluations, we could be required to write off some or all of our goodwill and other intangible assets, which may adversely impact our financial condition and results of operations.

We accounted for our merger using the purchase method of accounting. A significant portion of the purchase price for the business combination was allocated to identifiable tangible and intangible assets and assumed liabilities based on estimated fair values at the date of consummation. The excess purchase price was allocated to goodwill. In accordance with the FAS 142, Goodwill and Other Intangible Assets, goodwill is not amortized but is reviewed for impairment annually or more frequently if impairment indicators arise. We conduct our annual analysis of our goodwill in the fourth quarter of our fiscal year. Intangible assets that are subject to amortization are reviewed for impairment in accordance with FAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

The assessment of goodwill and other intangible assets impairment is a subjective process. Estimations and assumptions regarding future performance, results of our operations and comparability of our market capitalization and its net book value will be used. Changes in estimates and assumptions could have an adverse impact on our operating results and our effective tax rate.

Occasionally, we enter into agreements that expose us to potential damages that exceed the value of the agreement.

We have given certain customers increased indemnification for product deficiencies that is in excess of our standard limited warranty indemnification and could possibly result in greater costs, in excess of the original contract value. In an attempt to limit this liability, we have also increased our errors and omissions insurance policy to partially offset these potential additional costs; however, our insurance coverage could be insufficient to prevent us from suffering material losses if the indemnification amounts are large enough.

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If we are unable to accurately forecast demand for our products, we may be unable to efficiently manage our inventory.

Due to the absence of substantial non-cancelable backlog, we typically plan our production and inventory levels based on customer forecasts, internal evaluation of customer demand and current backlog, which can fluctuate substantially. As a consequence of inaccuracies inherent in forecasting, inventory imbalances periodically occur that result in surplus amounts of some of our products and shortages of others. Such shortages can adversely impact customer relations and surpluses can result in larger-than-desired inventory levels, which can adversely impact our financial position. Due to deteriorating global economic conditions and increased difficulty in forecasting demand for our products, we are currently experiencing and will likely continue to experience an increase in inventory levels.

Our business may be adversely impacted if we fail to effectively utilize and incorporate acquired technology.

We have acquired and may in the future acquire intellectual property in order to accelerate our time to market for new products. Acquisitions of intellectual property may involve risks such as successful technical integration into new products, market acceptance of new products and achievement of planned return on investment. Successful technical integration in particular requires a variety of factors which we may not currently have, such as available technical staff with sufficient time to devote to integration, the requisite skill sets to understand the acquired technology and the necessary support tools to effectively utilize the technology. The timely and efficient integration of acquired technology may be adversely impacted by inherent design deficiencies or application requirements. The potential failure of or delay in product introduction utilizing acquired intellectual property could lead to an impairment of capitalized intellectual property acquisition costs.

If we are unable to compete effectively with existing or new competitors, we will experience fewer customer orders, reduced revenues, reduced gross margins and lost market share.

We compete in markets that are intensely competitive, and which are subject to both rapid technological change and continued price erosion. Our competitors include many large domestic and foreign companies that have substantially greater financial, technical and management resources and leverage than we have.

We have experienced increased competition at the design stage, where customers evaluate alternative solutions based on a number of factors, including price, performance, product features, technologies, and availability of long-term product supply and/or roadmap guarantee. Additionally, we experience, in some cases, severe pressure on pricing from some of our competitors or on-going cost reduction expectations from customers. Such circumstances may make some of our products unattractive due to price or performance measures and result in losing our design opportunities or causing a decrease in our revenue and margins. Also, competition from new companies in emerging economy countries with significantly lower costs could affect our selling price and gross margins. In addition, if competitors in Asia reduce prices on commodity products, it would adversely affect our ability to compete effectively in that region. Specifically, we have licensed rights to Hangzhou Silan Microelectronics Co. Ltd. and Hangzhou Silan Integrated Circuit Co. Ltd. (collectively “Silan”) in China to market our commodity interface products that could reduce our sales in the future should they become a meaningful competitor. Loss of competitive position could result in price reductions, fewer customer orders, reduced revenues, reduced gross margins and loss of market share, any of which would affect our operating results and financial condition. To remain competitive, we continue to evaluate our manufacturing operations for opportunities for additional cost savings and technological improvements. If we are unable to successfully implement new process technologies and to achieve volume production of new products at acceptable yields, our operating results and financial condition may be affected. Our future competitive performance depends on a number of factors, including our ability to:

• increase device performance and improve manufacturing yields;

• accurately identify emerging technological trends and demand for product features and performance characteristics;

• develop and maintain competitive products;

• enhance our products by adding innovative features that differentiate our products from those of our competitors;

• bring products to market on a timely basis at competitive prices;

• respond effectively to new technological changes or new product announcements by others;

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• adapt products and processes to technological changes;

• adopt or set emerging industry standards; and

• meet changing customer requirements.

Our design, development and introduction schedules for new products or enhancements to our existing and future products may not be met. In addition, these products or enhancements may not achieve market acceptance, or we may not be able to sell these products at prices that are favorable.

If our distributors or sales representatives stop selling or fail to successfully promote our products, our business, financial condition and results of operations could be adversely impacted.

We sell many of our products through sales representatives and distributors, many of which sell directly to OEMs, contract manufacturers and end customers. Our non-exclusive distributors and sales representatives may carry our competitors’ products, which could adversely impact or limit sales of our products. Additionally, they could reduce or discontinue sales of our products or may not devote the resources necessary to sell our products in the volumes and within the time frames that we expect. Our agreements with distributors contain limited provisions for return of our products, including stock rotations whereby distributors may return a percentage of their purchases from us based upon a percentage of their most recent three months of shipments. In addition, in certain circumstances upon termination of the distributor relationship, distributors may return some portion of their prior purchases. The loss of business from any of our significant distributors or the delay of significant orders from any of them, even if only temporary, could materially and adversely harm our business, financial conditions and results of operations.

Moreover, we depend on the continued viability and financial resources of these distributors and sales representatives, some of which are small organizations with limited working capital. In turn, these distributors and sales representatives are subject to general economic and semiconductor industry conditions. We believe that our success will continue to depend on these distributors and sales representatives. If some or all of our distributors and sales representatives experience financial difficulties, or otherwise become unable or unwilling to promote and sell our products, our business, financial condition and results of operations could be adversely impacted.

Affiliates of Future, Alonim Investments Inc. and two of its affiliates (collectively “Alonim”), own approximately 18% of our common stock, and as such, Alonim is our largest stockholder. This ownership position will allow Future to significantly influence matters requiring stockholders’ approval. Future’s ownership will continue to increase as a percentage of our outstanding shares if we continue to repurchase our common stock. In addition, an executive officer of Future is on our board of directors, which could lead to actual or perceived influence from Future.

An affiliate of Future, our largest distributor, owns a significant percentage of our outstanding shares and Pierre Guilbault, the chief financial officer of Future, is a member of our board of directors. Due to its affiliate’s ownership of a significant percentage of our common stock, Future may be able to exert strong influence over actions requiring the approval of our stockholders, including the election of directors, many types of change of control transactions and amendments to our charter documents, although Future is bound by a Lock-Up and Standstill Agreement until August 25, 2009, prohibiting Future from either soliciting proxies or seeking to advise anyone with respect to voting our stock. The significant ownership percentage of Future could have the effect of delaying or preventing a change of control or otherwise discouraging a potential acquirer from obtaining control of us. Conversely, by virtue of Future’s percentage ownership of our stock, Future could facilitate a takeover transaction that our board of directors did not approve.

This relationship could also result in actual or perceived attempts to influence management to take actions beneficial to Future which may or may not be beneficial to us or in our best interests. Future could attempt to obtain terms and conditions more favorable than those we would typically provide our distributors because of its relationship with us. Any such actual or perceived preferential treatment could materially and adversely affect our business, financial condition and results of operations.

We depend on third-party subcontractors to manufacture our products. We utilize wafer foundries for processing our wafers and assembly and test subcontractors for manufacturing and testing our packaged products. Any disruption in or loss of subcontractors’ capacity to manufacture our products subjects us to a number of risks, including the potential for an inadequate supply of products and higher materials costs. These risks may lead to delayed product delivery or increased costs, which could materially and adversely impact our business, financial condition and results of operations.

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We do not own or operate a semiconductor fabrication facility or a foundry. We utilize various foundries for different processes. Our products are based on complementary metal oxide semiconductor processes (“CMOS”), Bipolar processes and Bipolar-CMOS processes (“BiCMOS”). Chartered Semiconductor Manufacturing Ltd. (“Chartered”), located in Singapore, manufactures the majority of the CMOS wafers from which our communications and UART products are produced. Episil Technologies, Inc.(“Episil”), located in Taiwan, and Silan, located in China, manufacture the majority of wafers from which our power and serial products are produced. High Voltage BiCMOS power products are supplied by Polar Semiconductor (MN, USA) and Jazz Semiconductor (CA, USA). All of these foundries produce semiconductors for many other companies (many of which have greater requirements than us), and therefore, we may not have access on a timely basis to sufficient capacity or certain process technologies. In addition, we rely on our foundries’ continued financial health and ability to continue to invest in smaller geometry manufacturing processes and additional wafer processing capacity.

Many of our new products are designed to take advantage of smaller geometry manufacturing processes. Due to the complexity and increased cost of migrating to smaller geometries as well as process changes, we could experience interruptions in production or significantly reduced yields causing product introduction or delivery delays. If such delays occur, our products may have delayed market acceptance or customers may select our competitors’ products during the design process. An extended planned shutdown at one of our foundries subsequent to the quarter ended December 28, 2008 may result in poor yield and quality issues when the foundry restarts the manufacturing line.

New process technologies or new products can be subject to especially wide variations in manufacturing yields and efficiency. There can be no assurance that our foundries or the foundries of our suppliers will not experience unfavorable yield variances or other manufacturing problems that result in delayed product introduction or delivery delays. This risk is particularly significant in the near term as we have recently transferred certain of our manufacturing processes to Silan and Episil.

We do not have long-term wafer supply agreements with Chartered that would guarantee wafer quantities, prices, and delivery or lead times, but we do provide minimum purchase commitments to Silan and Episil in accordance with our supply agreements. Subject to any such minimum purchase commitments, these foundries manufacture our products on a purchase order basis. We provide our foundries with rolling forecasts of our production requirements. However, the ability of our foundries to provide wafers is limited by the foundries’ available capacity. There can be no assurance that our third-party foundries will allocate sufficient capacity to satisfy our requirements.

Furthermore, any sudden reduction or elimination of any primary source or sources of fully processed wafers could result in a material delay in the shipment of our products. Any delays or shortages will materially and adversely impact our business, financial condition and operating results.

In addition, we may not continue to do business with our foundries on terms as favorable as our current terms. Significant risks associated with our reliance on third-party foundries include:

• the lack of assured process technology and wafer supply;

• limited control over quality assurance, manufacturing yields and production costs;

• financial and operating stability of the foundries;

• limited control over delivery schedules;

• limited manufacturing capacity of the foundries; and

• potential misappropriation of our intellectual property.

Our reliance on our wafer foundries and assembly and test subcontractors involves the following risks:

• a manufacturing disruption or sudden reduction or elimination of any existing source or sources of semiconductor manufacturing materials or processes, which might include the potential closure, change of ownership, change in business conditions or relationships, change of management or consolidation by one of our foundries;

• disruption of manufacturing or assembly or test services due to relocation or limited capacity of the foundries or subcontractors;

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• inability to obtain or develop technologies needed to manufacture our products;

• extended time required to identify, qualify and transfer to alternative manufacturing sources for existing or new products or the possible inability to obtain an adequate alternative;

• failure of our foundries or subcontractors to obtain raw materials and equipment;

• increasing cost of raw materials and energy resulting in higher wafer or package costs;

• long-term financial and operating stability of the foundries, or their suppliers or subcontractors and their ability to invest in new capabilities and expand capacity to meet increasing demand, to remain solvent, or to obtain financing in tight credit market;

• we expect our suppliers will continue to take measures such as reductions in force, pay reductions, forced time off or shut down their production for extended periods of time to reduce and/or control operating expenses in response to weakened and weakening customer demand;

• subcontractors’ inability to transition to smaller package types or new package compositions;

• a sudden, sharp increase in demand for semiconductor devices, which could strain the foundries’ or subcontractors’ manufacturing resources and cause delays in manufacturing and shipment of our products;

• manufacturing quality control or process control issues, including reduced control over manufacturing yields, production schedules and product quality.

• disruption of transportation to and from Asia where most of our foundries and subcontractors are located;

• embargoes or other regulatory limitations affecting the availability of raw materials, equipment or changes in tax laws, tariffs, services and freight rates; and

• compliance with local or international regulatory requirements.

Other additional risks associated with subcontractors include:

• subcontractors imposing higher minimum order quantities for substrates;

• potential increase in assembly and test costs;

• difficulties in selecting, qualifying and integrating new subcontractors;

• entry into “take-or-pay” agreements; and

• limited warranties from our subcontractors for products assembled and tested for us.

To secure foundry capacity, we may be required to enter into financial and other arrangements with foundries, which could result in the dilution of our earnings or otherwise harm our operating results.

Allocation of a foundry’s manufacturing capacity may be influenced by a foundry customer’s size, the existence of a long-term agreement with the foundry or other commitments. To address foundry capacity constraints, we 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. These arrangements may not be available to us on acceptable terms, if at all. Any of these arrangements could require us to commit substantial capital and, accordingly, could require us to reduce our cash holdings, incur additional debt or secure equity financing. This could result in the dilution of our earnings or the ownership of our stockholders or otherwise harm our operating results. Furthermore, we may not be able to obtain sufficient foundry capacity in the future pursuant to such arrangements.

We depend in part on the continued service of our key engineering and management personnel and our ability to identify, hire, incentivize and retain qualified personnel. If we lose key employees or fail to identify, hire, incentivize and retain these individuals, our business, financial condition and results of operations could be materially and adversely impacted.

Our future success depends, in part, on the continued service of our key design engineering, technical, sales, marketing and executive personnel and our ability to identify, hire, motivate and retain other qualified personnel.

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Under certain circumstances, including a company acquisition, merger and/or business downturn, current and prospective employees may experience uncertainty about their future roles with us. Volatility or lack of positive performance in our stock price and the ability to offer equity compensation to as many key employees or in amounts consistent with past practices, as a result of regulations regarding the expensing of equity awards, may also adversely affect our ability to retain key employees, all of whom have been granted equity awards. In addition, competitors may recruit employees, as is common in the high tech sector. If we are unable to retain personnel that are critical to our future operations, we could face disruptions in operations, loss of existing customers, loss of key information, expertise or know-how, and unanticipated additional recruitment and training costs.

Competition for skilled employees having specialized technical capabilities and industry-specific expertise is intense and continues to be a considerable risk inherent in the markets in which we compete.

Our employees are employed at-will, which means that they can terminate their employment at any time. The failure to recruit and retain, as necessary, key design engineers, technical, sales, marketing and executive personnel could harm our business, financial condition and results of operations.

Our results of operations could vary as a result of the methods, estimations and judgments we use in applying our accounting policies.

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties, assumptions and changes in rulemaking by the regulatory bodies; and factors may arise over time that lead us to change our methods, estimates, and judgments. Changes in those methods, estimates and judgments could significantly impact our results of operations. Our revenue reporting is highly dependent on receiving pertinent and accurate data from our distributors in a timely fashion. Distributors provide us periodic data regarding the product, price, quantity and end customer when products are resold as well as the quantities of our products they still have in stock. We must use estimates and apply judgment to reconcile distributors’ reported inventories to their activities. Any error in our judgment could lead to inaccurate reporting of our revenues, deferred income and allowances on sales to distributors and net income.

The final determination of our income tax liability may be materially different from our income tax provision, which could have an adverse effect on our results of operations.

Our future effective tax rates may be adversely affected by a number of factors including:

• the jurisdictions in which profits are determined to be earned and taxed;

• the resolution of issues arising from tax audits with various tax authorities;

• changes in the valuation of our deferred tax assets and liabilities;

• adjustments to estimated taxes upon finalization of various tax returns;

• increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with mergers;

• changes in available tax credits;

• changes in share-based compensation expense;

• changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles; and/or

• the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes.

Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, the U.S. Internal Revenue Service (“IRS”) and other tax authorities regularly examine our income tax returns. Our results of operations could be adversely impacted if these assessments or any other assessments resulting from the examination of our income tax returns by the IRS or other taxing authorities are not resolved in our favor.

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We acquired significant net operating loss (“NOL”) carryforwards as a result of the merger. The utilization of acquired NOL carryforwards is subject to the IRS’s complex limitation rules that carry significant burdens of proof. Our eventual ability to utilize our estimated NOL carryforwards is subject to IRS scrutiny and our future results may not benefit as a result of potential unfavorable IRS rulings.

Our engagement with foreign customers could cause fluctuations in our operating results, which could materially and adversely impact our business, financial condition and results of operations.

International sales have accounted for, and will likely continue to account for a significant portion of our revenues, which subjects us to the following risks:

• changes in regulatory requirements;

• tariffs and other barriers;

• timing and availability of export or import licenses;

• disruption of services due to political, civil, labor, and economic instability;

• disruption of services due to natural disasters outside the United States;

• disruptions to customer operations outside the United States due to the outbreak of communicable diseases;

• difficulties in accounts receivable collections;

• difficulties in staffing and managing foreign subsidiary and branch operations;

• difficulties in managing sales channel partners;

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

• limited intellectual property protection;

• foreign currency exchange fluctuations;

• the burden of complying with foreign laws and treaties; and

• potentially adverse tax consequences.

In addition, because sales of our products have been denominated primarily in U.S. dollars, increases in the value of the U.S. dollar as compared with local currencies could make our products more expensive to customers in the local currency of a particular country resulting in pricing pressures on our products. Increased international activity in the future may result in foreign currency denominated sales. Furthermore, because some of our customers’ purchase orders and agreements are governed by foreign laws, we may be limited in our ability, or it may be too costly for us, to enforce our rights under these agreements and to collect damages, if awarded.

Because some of our integrated circuits products have lengthy sales cycles, we may experience substantial delays between incurring expenses related to product development and the revenue derived from these products.

A portion of our revenue is derived from selling integrated circuits to communications equipment vendors. Due to their product development cycle, we have typically experienced at least an eighteen-month time lapse between our initial contact with a customer and realizing volume shipments. We first work with customers to achieve a design win, which may take nine months or longer. Our customers then complete their design, test and evaluation process and begin to ramp-up production, a period which typically lasts an additional nine months. The customers of communications equipment manufacturers may also require a period of time for testing and evaluation, which may cause further delays. As a result, a significant period of time may elapse between our research and development efforts and our realization of revenue, if any, from volume purchasing of our communications products by our customers. Due to the length of the communications equipment vendors’ product development cycle, the risks of project cancellation by our customers, price erosion or volume reduction are present for an extended period of time.

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Our backlog may not result in revenue.

Due to the possibility of customer changes in delivery schedules and quantities actually purchased, cancellation of orders, distributor returns or price reductions, our backlog at any particular date is not necessarily indicative of actual sales for any succeeding period. The current economic downturn increases the risk of purchase order cancellations or delays, product returns and price reductions. We may not be able to meet our expected revenue levels or results of operations if there is a reduction in our order backlog for any particular period and we are unable to replace those sales during the same period.

Fixed operating expenses and our practice of ordering materials in anticipation of projected customer demand could make it difficult for us to respond effectively to sudden swings in demand and result in higher than expected costs and excess inventory. Such sudden swings in demand could therefore have a material adverse impact on our business, financial condition and results of operations.

Our operating expenses are relatively fixed in the short to medium term, and therefore, we have limited ability to reduce expenses quickly and sufficiently in response to any revenue shortfall. In addition, we typically plan our production and inventory levels based on 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 our outside suppliers and foundries, we 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. This incremental cost could have a materially adverse impact on our business, financial condition and results of operations.

We may be unable to protect our intellectual property rights, which could harm our competitive position.

Our ability to compete is affected by our ability to protect our intellectual property rights. We rely on a combination of patents, trademarks, copyrights, mask work registrations, trade secrets, confidentiality procedures and non-disclosure and licensing arrangements to protect our intellectual property rights. Despite these efforts, we may be unable to protect our proprietary information. Such intellectual property rights may not be recognized or if recognized, it may not be commercially feasible to enforce. Moreover, we cannot be certain that our competitors will not independently develop technology that is substantially similar or superior to our technology.

More specifically, our pending patent applications or any future applications may not be approved, and any issued patents may not provide us with competitive advantages or may be challenged by third parties. If challenged, our patents may be found to be invalid or unenforceable, and the patents of others may have an adverse effect on our ability to do business. Furthermore, others may independently develop similar products or processes, duplicate our products or processes or design around any patents that may be issued to us.

We could be required to pay substantial damages or could be subject to various equitable remedies if it were proven that we infringed the intellectual property rights of others.

As a general matter, the semiconductor industry is characterized by substantial litigation regarding patents and other intellectual property rights. If a third party were to prove that our technology infringed its intellectual property rights, we could be required to pay substantial damages for past infringement and could be required to pay license fees or royalties on future sales of our products. If we were required to pay such license fees whenever we sold our products, such fees could exceed our revenue. In addition, if it was proven that we willfully infringed a third party’s proprietary rights, we could be held liable for three times the amount of the damages that we would otherwise have to pay. Such intellectual property litigation could also require us to:

• stop selling, incorporating or using our products that use the infringed intellectual property;

• obtain a license to make, sell or use the relevant technology from the owner of the infringed intellectual property, which license may not be available on commercially reasonable terms, if at all; and/or

• redesign our products so as not to use the infringed intellectual property, which may not be technically or commercially feasible.

The defense of infringement claims and lawsuits, regardless of their outcome, would likely be expensive and could require a significant portion of management’s time. In addition, rather than litigating an infringement matter, we may determine that it

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is in our best interests to settle the matter. Terms of a settlement may include the payment of damages and our agreement to license technology in exchange for a license fee and ongoing royalties. These fees could be substantial. If we were required to pay damages or otherwise became subject to such equitable remedies, our business, financial condition and results of operations would suffer. Similarly, if we were required to pay license fees to third parties based on a successful infringement claim brought against us, such fees could exceed our revenue.

Earthquakes and other natural disasters may damage our facilities or those of our suppliers and customers.

Our corporate headquarters in Fremont, California is located near major earthquake faults that have experienced seismic activity. In addition, some of our customers and suppliers are in locations which may be subject to similar natural disasters. In the event of a major earthquake or other natural disaster near our headquarters, our operations could be disrupted. Similarly, a major earthquake or other natural disaster affecting one or more of our major customers or suppliers could adversely impact the operations of those affected, which could disrupt the supply of our products and harm our business.

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

Items 2(a) and 2(b) are inapplicable.

(c) Issuer Purchases of Equity Securities

During the three months ended December 28, 2008, we repurchased shares of our common stock as follows:

Fiscal Period	Total Number of Shares Purchased (1)	Average Price Paid per Share (1)		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (2)
Balance as of September 28, 2008	12,335,425	$	10.35	12,325,425	$	12,347
9/29/2008 - 10/26/2008	—		—	—	$	12,347
10/27/2008 - 11/23/2008	10,600		6.01	10,600	$	12,283
11/24/2008 - 12/28/2008	76,986		5.98	76,986	$	11,823
Total shares purchased	87,586	$	5.99	87,586
Balance as of December 28, 2008	12,423,011	$	10.32	12,413,011

(1) Including 10,000 shares repurchased from a former executive officer under a restricted stock purchase agreement in fiscal 2008 (See Note 13).

(2) On August 28, 2007, we established a share repurchase plan (“2007 SRP”) and authorized the repurchase of up to $100 million of our common stock. The 2007 SRP was in addition to a share repurchase plan announced on March 6, 2001 (“2001 SRP”), which covered the repurchase of up to $40 million of our common stock. The shares repurchased under the 2001 SRP fully utilized the $40 million authorization at December 30, 2007. As of December 28, 2008, the remaining authorized amount for stock repurchase under the 2007 SRP was $11.8 million with no termination date.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:

We held our Annual Meeting of Stockholders on October 16, 2008 in Fremont, California. The number of shares issued, outstanding and eligible to vote as of the record date was 42,747,273. The following numbers of votes were cast for the matters indicated:

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1. The proposal of election of Directors.

Name	For	Withheld
Pierre Guilbault	38,889,437	1,379,709
Brian Hilton	39,335,703	933,443
Richard L. Leza	38,444,352	1,824,794
Gary Meyers	39,944,916	324,230
Juan (Oscar) Rodriguez	38,617,307	1,651,839
Pedro (Pete) P. Rodriguez	39,284,148	984,998

2. The proposal of ratifying the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending March 29, 2009.

FOR	39,502,246
AGAINST	754,834
ABSTAIN	12,066

3. The proposal of approving a stock option exchange program to permit eligible employees to voluntarily exchange eligible options to purchase shares of the Company’s common stock outstanding under the Company’s existing equity incentive plans for a lesser number of restricted stock units to be granted under the Company’s 2006 Equity Incentive Plan.

FOR	21,764,742
AGAINST	13,988,662
ABSTAIN	17,305

ITEM 6. EXHIBITS

(a) Exhibits required by Item 601 of Regulation S-K

See the Exhibit Index, which follows the signature page to this Quarterly Report on Form 10-Q.

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SIGNATURES

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

	EXAR CORPORATION (Registrant)
February 6, 2009	By	/s/ Pedro (Pete) P. Rodriguez
		Pedro (Pete) P. Rodriguez
		Chief Executive Officer, President and Director (On the Registrant’s Behalf and as Principal Executive Officer)

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EXHIBIT INDEX

Exhibit Footnote	Exhibit Number	Description
(b)	3.1	Amended and Restated Certificate of Incorporation.
(c)	3.2	Amended and Restated Bylaws.
(a)	10.1*	Executive Officers’ Group II Change of Control Severance Benefit Plan.
(a)	10.2*	2006 Equity Incentive Plan Form of Stock Unit Award Agreement.
(a)	10.3*	2006 Equity Incentive Plan Form of Director Restricted Stock Unit Award Agreement.
(a)	10.4*	2006 Equity Incentive Plan Form of Performance Stock Unit Award Agreement.
(a)	10.5*	Amended and Restated Employment Agreement, dated December 31, 2008, by and between Exar Corporation and J. Scott Kamsler.
(a)	10.6*	Amended and Restated Employment Agreement, dated December 19, 2008, by and between Exar Corporation and Pedro (Pete) P. Rodriguez.
(a)	31.1	Principal Executive Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(a)	31.2	Principal Financial Officer Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(a)	32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(a)	32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(a) Filed herewith.

(b) Filed as an exhibit to Exar’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007 and incorporated herein by reference.

(c) Filed as an exhibit to Exar’s Current Report on Form 8-K filed on December 12, 2007 and incorporated herein by reference.

* Indicates management contracts or compensatory plans or arrangements filed pursuant to Item 601(b)(10) of Regulation S-K.

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EX-10.1

Exhibit 10.1

EXAR CORPORATION

EXECUTIVE OFFICERS’ GROUP II CHANGE OF CONTROL

SEVERANCE BENEFIT PLAN

Adopted June 24, 1999

Amended and Restated June 23, 2004

Amended and Restated December 10, 2008

Section 1. INTRODUCTION.

This EXAR Corporation Executive Officers’ Group II 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”) and was amended and restated on June 23, 2004 and on December 10, 2008. 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 (but not limited to) stock or accelerated vesting of equity awards as set forth in the applicable plan document or agreement. This Plan document also is the Summary Plan Description for the Plan.

Section 2. 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 annualized 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.”

1.

(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.”

(d) “Code” means the U.S. Internal Revenue Code of 1986, as amended.

(e) “Eligible Employees” shall mean those executives as may be designated from time to time by the Board of Directors to participate in the Plan. 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.

(f) “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 (vi) material breach by the Company or any successor to the Company of any of the material provisions of the Plan.

(g) “Separation from Service” shall mean the date upon which an Eligible Employee dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation

2.

Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.

(h) “Termination Date” shall mean the date upon which an Eligible Employee’s employment with the Company terminates.

Section 3. 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 and deliver to the Company on or promptly following the Termination Date (and in all events not more than 45 days after the Termination Date) 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, and must not revoke such waiver and release within any revocation period provided under applicable law.

(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’s employment with the Company terminates (w) due to a termination by the Company for Cause, (x) by the employee for any reason other than for Good Reason, (y) due to the employee’s death or disability, or (z) for any reason prior to the effective date of a Change in Control or more than thirteen (13) months after the effective date of a Change in Control.

(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 4. AMOUNT OF SEVERANCE BENEFITS.

Subject to the terms and conditions of this Plan (including, without limitation, Sections 3(a) and 5 hereof), Eligible Employees whose employment is terminated by the Company without Cause or by the Eligible Employee for Good Reason upon or within thirteen (13) months after the effective date of a Change of Control will receive as severance pay a lump sum payment equal to: (a) in the case of Eligible Employees who begin participating in the Plan prior to December 10, 2008, the greater of (i) one (1) times the Eligible Employee’s Base Salary or (ii) one-twelfth (1/12) of the Eligible Employee’s 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; or (b) in the case of Eligible Employees who begin participating in the Plan on or after December 10, 2008, an amount equal to one-fourth (1/4) of the Eligible Employee’s Base Salary plus one-twelfth (1/12) of the Eligible Employee’s Base Salary for each complete year of service

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with the Company, up to a maximum of one-half (1/2) the Eligible Employee’s Base Salary. In the event an Eligible Employee becomes entitled to severance pay hereunder and dies 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 payment shall be subject to applicable federal, state, local and foreign tax withholdings.

Section 5. 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 equity awards 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, including (but not limited to) accelerated vesting of equity awards (collectively, 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 Eligible Employee’s Separation from Service or ninety (90) days of the date of determination referred to above, and in all events not later than the end of the Eligible Employee’s taxable year following the Eligible Employee’s taxable year in which the Eligible Employee remits the related taxes, 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

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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 6. 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 7. TIME OF PAYMENT.

(a) The Company will pay the severance payments described in Section 4 above no later than sixty (60) days following the date on which the Eligible Employee’s Separation from Service occurs, subject to the release requirement set forth in Section 3(a).

(b) Notwithstanding Section 7(a) or any other provision of the Plan to the contrary, if the Eligible Employee is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of the Eligible Employee’s Separation from Service, the Eligible Employee shall not be entitled to any severance payments hereunder until the earlier of (i) the date which is six (6) months after the Eligible Employee’s Separation from Service for any reason other than death, or (ii) the date of the Eligible Employee’s death. Any amounts otherwise payable to the Eligible Employee upon or in the six (6) month period following the Eligible Employee’s Separation from Service that are not so paid by reason of this Section 7(b) shall be paid

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(without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the Eligible Employee’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of the Eligible Employee’s death). The provisions of this Section 7(b) shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.

Section 8. 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 9. 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 10. 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.

Section 11. 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

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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. This Plan is intended to comply with Section 409A of the Code (including the Treasury regulations and other published guidance relating thereto) so as not to subject any Eligible Employee to payment of any interest or additional tax imposed under Code Section 409A. The provisions of this Plan shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to the Eligible Employee.

Section 12. 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.

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(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)

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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 13. 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 14. 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 511.

(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 15. 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.

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(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.

10.

EXHIBIT A

RELEASE AGREEMENT – INDIVIDUAL TERMINATION

I understand and agree completely to the terms set forth in the EXAR Corporation Executive Officers’ Group II 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

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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 (8^th) day after this Agreement is executed by me, provided that the Company has also executed this Agreement by that date (the “Effective Date”).

EXAR CORPORATION	EMPLOYEE
By:	Name:
Title:	Date:
Date:

2.

EXHIBIT B

RELEASE AGREEMENT – GROUP TERMINATION

I understand and agree completely to the terms set forth in the EXAR Corporation Executive Officers’ Group II 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

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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 (8^th) 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.

EXAR CORPORATION	EMPLOYEE
By:	Name:
Title:	Date:
Date:

2.

EX-10.2

Exhibit 10.2

EXAR CORPORATION

2006 EQUITY INCENTIVE PLAN

STOCK UNIT AWARD AGREEMENT

THIS STOCK UNIT AWARD AGREEMENT (this “Agreement”) is dated as of [            ] by and between Exar Corporation, a Delaware corporation (the “Corporation”), and [            ] (the “Participant”).

W I T N E S S E T H

WHEREAS, pursuant to the Exar Corporation 2006 Equity Incentive Plan (the “Plan”), the Corporation has granted to the Participant effective as of the date hereof (the “Award Date”), a credit of stock units under the Plan (the “Award”), upon the terms and conditions set forth herein and in the Plan.

NOW THEREFORE, in consideration of services rendered and to be rendered by the Participant, and the mutual promises made herein and the mutual benefits to be derived therefrom, the parties agree as follows:

1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Plan.

2. Grant. Subject to the terms of this Agreement, the Corporation hereby grants to the Participant an Award with respect to an aggregate of [            ] stock units (subject to adjustment as provided in Section 7.1 of the Plan) (the “Stock Units”). As used herein, the term “stock unit” shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding share of the Corporation’s Common Stock (subject to adjustment as provided in Section 7.1 of the Plan) solely for purposes of the Plan and this Agreement. The Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such Stock Units vest pursuant to Section 3. The Stock Units shall not be treated as property or as a trust fund of any kind.

3. Vesting. [Subject to Section 8 below, the Award shall vest and become nonforfeitable with respect to thirty-three and one-third percent (33 1/3%) of the total number of Stock Units (subject to adjustment under Section 7.1 of the Plan) on each of the first, second and third anniversaries of the Award Date.]

4. Continuance of Employment. The vesting schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Participant to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 8 below or under the Plan.

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Nothing contained in this Agreement or the Plan constitutes an employment or service commitment by the Corporation, affects the Participant’s status as an employee at will who is subject to termination without cause, confers upon the Participant any right to remain employed by or in service to the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or any Subsidiary at any time to terminate such employment or services, or affects the right of the Corporation or any Subsidiary to increase or decrease the Participant’s other compensation or benefits. Nothing in this paragraph, however, is intended to adversely affect any independent contractual right of the Participant without his consent thereto.

5. Dividend and Voting Rights.

(a) Limitations on Rights Associated with Units. The Participant shall have no rights as a stockholder of the Corporation, no dividend rights (except as expressly provided in Section 5(b) with respect to Dividend Equivalent Rights) and no voting rights, with respect to the Stock Units and any shares of Common Stock underlying or issuable in respect of such Stock Units until such shares of Common Stock are actually issued to and held of record by the Participant. No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock certificate.

(b) Dividend Equivalent Rights Distributions. As of any date that the Corporation pays an ordinary cash dividend on its Common Stock, the Corporation shall pay the Participant an amount equal to the per share cash dividend paid by the Corporation on its Common Stock on such date multiplied by the number of Stock Units remaining subject to this Award as of the related dividend payment record date. No such payment shall be made with respect to any Stock Units which, as of such record date, have either been paid pursuant to Section 7 or terminated pursuant to Section 8.

6. Restrictions on Transfer. Neither the Award, nor any interest therein or amount or shares payable in respect thereof may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not apply to (a) transfers to the Corporation, or (b) transfers by will or the laws of descent and distribution.

7. Timing and Manner of Payment of Stock Units. On or as soon as administratively practical following each vesting of the applicable portion of the total Award pursuant to Section 3 or Section 7 of the Plan (and in all events not later than two and one-half months after the vesting date), the Corporation shall deliver to the Participant a number of shares of Common Stock (either by delivering one or more certificates for such shares or by entering such shares in book entry form, as determined by the Corporation in its discretion) equal to the number of Stock Units subject to this Award that vest on the applicable vesting date, unless such Stock Units terminate prior to the given vesting date pursuant to Section 8. The Corporation’s obligation to deliver shares of Common Stock or otherwise make payment with respect to vested Stock Units is subject to the condition precedent that the Participant or other person entitled under the Plan to receive any shares with respect to the vested Stock Units deliver to the Corporation any representations or other documents or assurances required pursuant to Section 8.1 of the Plan. The Participant shall have no further rights with respect to any Stock Units that are paid or that terminate pursuant to Section 8.

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8. Effect of Termination of Employment. The Participant’s Stock Units shall terminate to the extent such units have not become vested prior to the first date the Participant is no longer employed by the Corporation or one of its Subsidiaries, regardless of the reason for the termination of the Participant’s employment with the Corporation or a Subsidiary, whether with or without cause, voluntarily or involuntarily. If any unvested Stock Units are terminated hereunder, such Stock Units shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Corporation and without any other action by the Participant, or the Participant’s beneficiary or personal representative, as the case may be.

9. Adjustments Upon Specified Events. Upon the occurrence of certain events relating to the Corporation’s stock contemplated by Section 7.1 of the Plan (including, without limitation, an extraordinary cash dividend on such stock), the Administrator shall make adjustments in accordance with such section in the number of Stock Units then outstanding and the number and kind of securities that may be issued in respect of the Award. No such adjustment shall be made with respect to any ordinary cash dividend for which dividend equivalents are paid pursuant to Section 5(b).

10. Tax Withholding. Subject to Section 8.1 of the Plan, upon any distribution of shares of Common Stock in respect of the Stock Units, the Corporation shall automatically reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of whole shares, valued at their then fair market value (with the “fair market value” of such shares determined in accordance with the applicable provisions of the Plan), to satisfy any withholding obligations of the Corporation or its Subsidiaries with respect to such distribution of shares at the minimum applicable withholding rates. In the event that the Corporation cannot legally satisfy such withholding obligations by such reduction of shares, or in the event of a cash payment or any other withholding event in respect of the Stock Units, the Corporation (or a Subsidiary) shall be entitled to require a cash payment by or on behalf of the Participant and/or to deduct from other compensation payable to the Participant any sums required by federal, state or local tax law to be withheld with respect to such distribution or payment.

11. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Secretary, and to the Participant at the Participant’s last address reflected on the Corporation’s records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be given only when received, but if the Participant is no longer an employee of the Corporation, shall be deemed to have been duly given by the Corporation when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government.

12. Plan. The Award and all rights of the Participant under this Agreement are subject to the terms and conditions of the provisions of the Plan, incorporated herein by reference. The Participant agrees to be bound by the terms of the Plan and this Agreement. The Participant acknowledges having read and understanding the Plan, the Prospectus for the Plan, and this Agreement. Unless otherwise expressly provided in other sections of this Agreement, provisions of the Plan that confer discretionary authority on the Board or the Administrator do not (and shall not be deemed to) create any rights in the Participant unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Administrator so conferred by appropriate action of the Board or the Administrator under the Plan after the date hereof.

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13. Entire Agreement. This Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan and this Agreement may be amended pursuant to Section 8.6 of the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Participant hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.

14. Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Corporation as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. The Participant shall have only the rights of a general unsecured creditor of the Corporation with respect to amounts credited and benefits payable, if any, with respect to the Stock Units, and rights no greater than the right to receive the Common Stock as a general unsecured creditor with respect to Stock Units, as and when payable hereunder.

15. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

16. Section Headings. The section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.

17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to conflict of law principles thereunder.

18. Construction. It is intended that the terms of the Award will not result in the imposition of any tax liability pursuant to Section 409A of the Code. The Agreement shall be construed and interpreted consistent with that intent.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Participant has hereunto set his or her hand as of the date and year first above written.

EXAR CORPORATION, a Delaware corporation	PARTICIPANT
By:
	Signature
Print Name:
Its:
	Print Name

5

CONSENT OF SPOUSE

In consideration of the execution of the foregoing Stock Unit Award Agreement by Exar Corporation, I,                     , the spouse of the Participant therein named, do hereby join with my spouse in executing the foregoing Stock Unit Award Agreement and do hereby agree to be bound by all of the terms and provisions thereof and of the Plan.

Dated:                     

Signature of Spouse

Print Name

6

EX-10.3

Exhibit 10.3

EXAR CORPORATION

2006 EQUITY INCENTIVE PLAN

DIRECTOR RESTRICTED STOCK UNIT AWARD AGREEMENT

THIS DIRECTOR RESTRICTED STOCK UNIT AWARD AGREEMENT (this “Agreement”) is dated as of [            ] by and between Exar Corporation, a Delaware corporation (the “Corporation”), and [            ] (the “Director”).

W I T N E S S E T H

WHEREAS, pursuant to the Exar Corporation 2006 Equity Incentive Plan (the “Plan”), the Corporation has granted to the Director effective as of the date hereof (the “Award Date”), a credit of restricted stock units under the Plan (the “Award”), upon the terms and conditions set forth herein and in the Plan.

NOW THEREFORE, in consideration of services rendered and to be rendered by the Director, and the mutual promises made herein and the mutual benefits to be derived therefrom, the parties agree as follows:

1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Plan.

2. Grant. Subject to the terms of this Agreement, the Corporation hereby grants to the Director an Award with respect to an aggregate of [            ] stock units (subject to adjustment as provided in Section 7.1 of the Plan) (the “Stock Units”). As used herein, the term “stock unit” shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding share of the Corporation’s Common Stock (subject to adjustment as provided in Section 7.1 of the Plan) solely for purposes of the Plan and this Agreement. The Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Director if such Stock Units vest pursuant to Section 3. The Stock Units shall not be treated as property or as a trust fund of any kind.

3. Vesting. Subject to Section 8 below, the Award shall vest and become nonforfeitable with respect to one hundred percent (100%) of the total number of Stock Units (subject to adjustment under Section 7.1 of the Plan) on the earlier to occur of (i) the first anniversary of the Award Date, and (ii) the first annual meeting of the Corporation’s stockholders that occurs after the Award Date.

4. Continuance of Services. The vesting schedule requires continued service through each applicable vesting date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Agreement. Partial service, even if substantial, during any vesting period will not entitle the Director to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of services as provided in Section 8 below or under the Plan. Nothing contained in this Agreement or the Plan constitutes a continued service commitment by the Corporation or interferes with the right of the Corporation to increase or decrease the compensation of the Director from the rate in existence at any time.

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5. Dividend and Voting Rights.

(a) Limitations on Rights Associated with Units. The Director shall have no rights as a stockholder of the Corporation, no dividend rights (except as expressly provided in Section 5(b) with respect to Dividend Equivalent Rights) and no voting rights, with respect to the Stock Units and any shares of Common Stock underlying or issuable in respect of such Stock Units until such shares of Common Stock are actually issued to and held of record by the Director. No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock certificate.

(b) Dividend Equivalent Rights Distributions. As of any date that the Corporation pays an ordinary cash dividend on its Common Stock, the Corporation shall pay the Director an amount equal to the per share cash dividend paid by the Corporation on its Common Stock on such date multiplied by the number of Stock Units remaining subject to this Award as of the related dividend payment record date. No such payment shall be made with respect to any Stock Units which, as of such record date, have either been paid pursuant to Section 7 or terminated pursuant to Section 8.

6. Restrictions on Transfer. Neither the Award, nor any interest therein or amount or shares payable in respect thereof may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not apply to (a) transfers to the Corporation, or (b) transfers by will or the laws of descent and distribution.

7. Timing and Manner of Payment of Stock Units. On or as soon as administratively practical following vesting of the Award pursuant to Section 3 or Section 7 of the Plan (and in all events not later than two and one-half months after the vesting date), the Corporation shall deliver to the Director a number of shares of Common Stock (either by delivering one or more certificates for such shares or by entering such shares in book entry form, as determined by the Corporation in its discretion) equal to the number of Stock Units subject to this Award that vest on the applicable vesting date, unless such Stock Units terminate prior to the given vesting date pursuant to Section 8. The Corporation’s obligation to deliver shares of Common Stock or otherwise make payment with respect to vested Stock Units is subject to the condition precedent that the Director or other person entitled under the Plan to receive any shares with respect to the vested Stock Units deliver to the Corporation any representations or other documents or assurances required pursuant to Section 8.1 of the Plan. The Director shall have no further rights with respect to any Stock Units that are paid or that terminate pursuant to Section 8.

8. Effect of Termination of Service. The Director’s Stock Units shall terminate to the extent such units have not become vested prior to the first date the Director is no longer a member of the Board, regardless of the reason for the termination of the Director’s service as Board member (whether voluntarily or involuntarily, including a termination due to death or disability). If any unvested Stock Units are terminated hereunder, such Stock Units shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Corporation and without any other action by the Director, or the Director’s beneficiary or personal representative, as the case may be.

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9. Adjustments Upon Specified Events. Upon the occurrence of certain events relating to the Corporation’s stock contemplated by Section 7.1 of the Plan (including, without limitation, an extraordinary cash dividend on such stock), the Administrator shall make adjustments if appropriate in the number of Stock Units then outstanding and the number and kind of securities that may be issued in respect of the Award. No such adjustment shall be made with respect to any ordinary cash dividend for which Dividend Equivalent Rights may be paid pursuant to Section 5(b).

10. Tax Withholding. Subject to Section 8.1 of the Plan, upon any distribution of shares of Common Stock in respect of the Stock Units, the Corporation shall automatically reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of whole shares, valued at their then fair market value (with the “fair market value” of such shares determined in accordance with the applicable provisions of the Plan), to satisfy any withholding obligations of the Corporation with respect to such distribution of shares at the minimum applicable withholding rates. In the event that the Corporation cannot legally satisfy such withholding obligations by such reduction of shares, or in the event of a cash payment or any other withholding event in respect of the Stock Units, the Corporation shall be entitled to require a cash payment by or on behalf of the Director and/or to deduct from other compensation payable to the Director any sums required by federal, state or local tax law to be withheld with respect to such distribution or payment.

11. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Secretary, and to the Director at the Director’s last address reflected on the Corporation’s records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be given only when received, but if the Director is no longer a member of the Board, shall be deemed to have been duly given by the Corporation when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government.

12. Plan. The Award and all rights of the Director under this Agreement are subject to, and the Director agrees to be bound by, all of the terms and conditions of the provisions of the Plan, incorporated herein by reference. In the event of a conflict or inconsistency between the terms and conditions of this Agreement and of the Plan, the terms and conditions of the Plan shall govern. The Director agrees to be bound by the terms of the Plan and this Agreement. The Director acknowledges having read and understanding the Plan, the Prospectus for the Plan, and this Agreement. Unless otherwise expressly provided in other sections of this Agreement, provisions of the Plan that confer discretionary authority on the Administrator do not (and shall not be deemed to) create any rights in the Director unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Administrator so conferred by appropriate action of the Administrator under the Plan after the date hereof.

13. Entire Agreement. This Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan and this Agreement may be amended pursuant to Section 8.6 of the Plan. Such amendment must be in writing and signed by the

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Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Director hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.

14. Limitation on Director’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Corporation as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. The Director shall have only the rights of a general unsecured creditor of the Corporation with respect to amounts credited and benefits payable, if any, with respect to the Stock Units, and rights no greater than the right to receive the Common Stock as a general unsecured creditor with respect to Stock Units, as and when payable hereunder.

15. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

16. Section Headings. The section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.

17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to conflict of law principles thereunder.

18. Construction. It is intended that the terms of the Award will not result in the imposition of any tax liability pursuant to Section 409A of the Code. This Agreement shall be construed and interpreted consistent with that intent.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Director has hereunto set his or her hand as of the date and year first above written.

EXAR CORPORATION, a Delaware corporation	DIRECTOR
By:
	Signature
Print Name:
Its:
	Print Name

5

CONSENT OF SPOUSE

In consideration of the execution of the foregoing Restricted Stock Unit Award Agreement by Exar Corporation, I,                     , the spouse of the Director therein named, do hereby join with my spouse in executing the foregoing Restricted Stock Unit Award Agreement and do hereby agree to be bound by all of the terms and provisions thereof and of the Plan.

Dated:                     

Signature of Spouse

Print Name

6

EX-10.4

Exhibit 10.4

EXAR CORPORATION

2006 EQUITY INCENTIVE PLAN

PERFORMANCE STOCK UNIT AWARD AGREEMENT

THIS PERFORMANCE STOCK UNIT AWARD AGREEMENT (this “Agreement”) is dated as of [            ] by and between Exar Corporation, a Delaware corporation (the “Corporation”), and [            ] (the “Participant”).

W I T N E S S E T H

WHEREAS, pursuant to the Exar Corporation 2006 Equity Incentive Plan (the “Plan”), the Corporation has granted to the Participant effective as of the date hereof (the “Award Date”), a credit of performance stock units under the Plan (the “Award”), upon the terms and conditions set forth herein and in the Plan.

NOW THEREFORE, in consideration of services rendered and to be rendered by the Participant, and the mutual promises made herein and the mutual benefits to be derived therefrom, the parties agree as follows:

1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meaning assigned to such terms in the Plan.

2. Grant. Subject to the terms of this Agreement, the Corporation hereby grants to the Participant an Award with respect to an aggregate of [            ] performance stock units (subject to adjustment as provided in Section 7.1 of the Plan) (the “Stock Units”). As used herein, the term “stock unit” shall mean a non-voting unit of measurement which is deemed for bookkeeping purposes to be equivalent to one outstanding share of the Corporation’s Common Stock (subject to adjustment as provided in Section 7.1 of the Plan) solely for purposes of the Plan and this Agreement. The Stock Units shall be used solely as a device for the determination of the payment to eventually be made to the Participant if such Stock Units vest pursuant to Section 3. The Stock Units shall not be treated as property or as a trust fund of any kind.

3. Vesting. Subject to Section 8 below, the Award shall vest and become nonforfeitable based on the achievement of the performance goals established by the Administrator and set forth on Exhibit A attached hereto for the “Performance Period” identified therein. The number of Stock Units that vest and become payable under this Agreement shall be determined based on the level of results or achievement of targets for each of the performance goals set forth on Exhibit A. Any Stock Units subject to the Award that do not vest in accordance with Exhibit A shall terminate as of the last day of the Performance Period.

4. Continuance of Employment. The vesting schedule requires continued employment or service through each applicable vesting date as a condition to the vesting of the applicable installment of the Award and the rights and benefits under this Agreement. Employment or service for only a portion of the vesting period, even if a substantial portion, will not entitle the Participant to any proportionate vesting or avoid or mitigate a termination of rights and benefits upon or following a termination of employment or services as provided in Section 8 below or under the Plan.

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Nothing contained in this Agreement or the Plan constitutes an employment or service commitment by the Corporation, affects the Participant’s status as an employee at will who is subject to termination without cause, confers upon the Participant any right to remain employed by or in service to the Corporation or any Subsidiary, interferes in any way with the right of the Corporation or any Subsidiary at any time to terminate such employment or services, or affects the right of the Corporation or any Subsidiary to increase or decrease the Participant’s other compensation or benefits. Nothing in this paragraph, however, is intended to adversely affect any independent contractual right of the Participant without his consent thereto.

5. Dividend and Voting Rights.

(a) Limitations on Rights Associated with Units. The Participant shall have no rights as a stockholder of the Corporation, no dividend rights (except as expressly provided in Section 5(b) with respect to Dividend Equivalent Rights) and no voting rights, with respect to the Stock Units and any shares of Common Stock underlying or issuable in respect of such Stock Units until such shares of Common Stock are actually issued to and held of record by the Participant. No adjustments will be made for dividends or other rights of a holder for which the record date is prior to the date of issuance of the stock certificate.

(b) Dividend Equivalent Rights Distributions. As of any date that the Corporation pays an ordinary cash dividend on its Common Stock, the Corporation shall pay the Participant an amount equal to the per share cash dividend paid by the Corporation on its Common Stock on such date multiplied by the number of Stock Units remaining subject to this Award as of the related dividend payment record date. No such payment shall be made with respect to any Stock Units which, as of such record date, have either been paid pursuant to Section 7 or terminated pursuant to Section 8.

6. Restrictions on Transfer. Neither the Award, nor any interest therein or amount or shares payable in respect thereof may be sold, assigned, transferred, pledged or otherwise disposed of, alienated or encumbered, either voluntarily or involuntarily. The transfer restrictions in the preceding sentence shall not apply to (a) transfers to the Corporation, or (b) transfers by will or the laws of descent and distribution.

7. Timing and Manner of Payment of Stock Units. As soon as administratively practical following the Performance Period, the Administrator shall determine the number of Stock Units (if any) that have vested pursuant to Section 3. On or as soon as practicable after the date of such determination (and in all events within two and one-half (2 1/2) months after the end of the Performance Period), or in the case of accelerated vesting of the Award pursuant to Section 7 of the Plan, as soon as administratively practicable after (and in all events within two and one-half (2 1/2) months after) the date of such acceleration event, the Corporation shall deliver to the Participant a number of shares of Common Stock (either by delivering one or more certificates for such shares or by entering such shares in book entry form, as determined by the Corporation in its discretion) equal to the number of Stock Units subject to this Award that vest on the applicable vesting date, unless such Stock Units terminate prior to such vesting date pursuant to Section 8. The Corporation’s obligation to deliver shares of Common Stock or otherwise make payment with respect to vested Stock Units is subject to the condition precedent that the Participant or other person entitled under the Plan to receive any shares with respect to the vested Stock Units deliver to the Corporation any representations or other documents or assurances required pursuant to Section 8.1 of the Plan. The Participant shall have no further rights with respect to any Stock Units that are paid or that terminate pursuant to Section 8.

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8. Effect of Termination of Employment. The Participant’s Stock Units shall terminate to the extent such units have not become vested prior to the first date the Participant is no longer employed by the Corporation or one of its Subsidiaries, regardless of the reason for the termination of the Participant’s employment with the Corporation or a Subsidiary, whether with or without cause, voluntarily or involuntarily. If any unvested Stock Units are terminated hereunder, such Stock Units shall automatically terminate and be cancelled as of the applicable termination date without payment of any consideration by the Corporation and without any other action by the Participant, or the Participant’s beneficiary or personal representative, as the case may be.

9. Adjustments Upon Specified Events. Upon the occurrence of certain events relating to the Corporation’s stock contemplated by Section 7.1 of the Plan (including, without limitation, an extraordinary cash dividend on such stock), the Administrator shall make adjustments in accordance with such section in the number of Stock Units then outstanding and the number and kind of securities that may be issued in respect of the Award. No such adjustment shall be made with respect to any ordinary cash dividend for which dividend equivalents are paid pursuant to Section 5(b). Furthermore, the Administrator shall adjust the performance measures and performance goals referenced in Section 3 hereof to the extent (if any) it determines that the adjustment is necessary or advisable to preserve the intended incentives and benefits to reflect (1) any material change in corporate capitalization, any material corporate transaction (such as a reorganization, combination, separation, merger, acquisition, or any combination of the foregoing), or any complete or partial liquidation of the Corporation, (2) any change in accounting policies or practices, (3) the effects of any special charges to the Corporation’s earnings, or (4) any other similar special circumstances.

10. Tax Withholding. Subject to Section 8.1 of the Plan, upon any distribution of shares of Common Stock in respect of the Stock Units, the Corporation shall automatically reduce the number of shares to be delivered by (or otherwise reacquire) the appropriate number of whole shares, valued at their then fair market value (with the “fair market value” of such shares determined in accordance with the applicable provisions of the Plan), to satisfy any withholding obligations of the Corporation or its Subsidiaries with respect to such distribution of shares at the minimum applicable withholding rates. In the event that the Corporation cannot legally satisfy such withholding obligations by such reduction of shares, or in the event of a cash payment or any other withholding event in respect of the Stock Units, the Corporation (or a Subsidiary) shall be entitled to require a cash payment by or on behalf of the Participant and/or to deduct from other compensation payable to the Participant any sums required by federal, state or local tax law to be withheld with respect to such distribution or payment.

11. Notices. Any notice to be given under the terms of this Agreement shall be in writing and addressed to the Corporation at its principal office to the attention of the Secretary, and to the Participant at the Participant’s last address reflected on the Corporation’s records, or at such other address as either party may hereafter designate in writing to the other. Any such notice shall be given only when received, but if the Participant is no longer an employee of the Corporation, shall be deemed to have been duly given by the Corporation when enclosed in a properly sealed envelope addressed as aforesaid, registered or certified, and deposited (postage and registry or certification fee prepaid) in a post office or branch post office regularly maintained by the United States Government.

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12. Plan. The Award and all rights of the Participant under this Agreement are subject to the terms and conditions of the provisions of the Plan, incorporated herein by reference. The Participant agrees to be bound by the terms of the Plan and this Agreement. The Participant acknowledges having read and understanding the Plan, the Prospectus for the Plan, and this Agreement. Unless otherwise expressly provided in other sections of this Agreement, provisions of the Plan that confer discretionary authority on the Board or the Administrator do not (and shall not be deemed to) create any rights in the Participant unless such rights are expressly set forth herein or are otherwise in the sole discretion of the Board or the Administrator so conferred by appropriate action of the Board or the Administrator under the Plan after the date hereof.

13. Entire Agreement. This Agreement and the Plan together constitute the entire agreement and supersede all prior understandings and agreements, written or oral, of the parties hereto with respect to the subject matter hereof. The Plan and this Agreement may be amended pursuant to Section 8.6 of the Plan. Such amendment must be in writing and signed by the Corporation. The Corporation may, however, unilaterally waive any provision hereof in writing to the extent such waiver does not adversely affect the interests of the Participant hereunder, but no such waiver shall operate as or be construed to be a subsequent waiver of the same provision or a waiver of any other provision hereof.

14. Limitation on Participant’s Rights. Participation in the Plan confers no rights or interests other than as herein provided. This Agreement creates only a contractual obligation on the part of the Corporation as to amounts payable and shall not be construed as creating a trust. Neither the Plan nor any underlying program, in and of itself, has any assets. The Participant shall have only the rights of a general unsecured creditor of the Corporation with respect to amounts credited and benefits payable, if any, with respect to the Stock Units, and rights no greater than the right to receive the Common Stock as a general unsecured creditor with respect to Stock Units, as and when payable hereunder.

15. Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

16. Section Headings. The section headings of this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof.

17. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to conflict of law principles thereunder.

18. Construction. It is intended that the terms of the Award will not result in the imposition of any tax liability pursuant to Section 409A of the Code. The Agreement shall be construed and interpreted consistent with that intent.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Corporation has caused this Agreement to be executed on its behalf by a duly authorized officer and the Participant has hereunto set his or her hand as of the date and year first above written.

EXAR CORPORATION, a Delaware corporation	PARTICIPANT
By:
	Signature
Print Name:
Its:
	Print Name

5

CONSENT OF SPOUSE

In consideration of the execution of the foregoing Performance Stock Unit Award Agreement by Exar Corporation, I,                     , the spouse of the Participant therein named, do hereby join with my spouse in executing the foregoing Performance Stock Unit Award Agreement and do hereby agree to be bound by all of the terms and provisions thereof and of the Plan.

Dated:                     

Signature of Spouse

Print Name

6

EXHIBIT A

PERFORMANCE-BASED VESTING REQUIREMENTS

Subject to Sections 8 and 9 of this Agreement, the number of Stock Units subject to the Award that vest and become non-forfeitable shall be determined as provided in this Exhibit A.

1. Combined Revenue. If the aggregate Combined Revenue during the period commencing on [October 1, 2007] and ending on [March 31, 2008] (the “Performance Period”) equals or exceeds [$            ], then [twenty percent (20%)] of the total number of Stock Units subject to the Award shall become fully vested as of the last day of the Performance Period.

2. Synergies. If the aggregate [Synergies] during the Performance Period equals or exceeds [$            ], then [twenty percent (20%)] of the total number of Stock Units subject to the Award shall become fully vested as of the last day of the Performance Period.

3. Sipex Revenue. If the aggregate Sipex Revenue during the Performance Period equals or exceeds [$            ], then [fifteen percent (15%)] of the total number of Stock Units subject to the Award shall become fully vested as of the last day of the Performance Period.

4. Sipex Gross Margin. If the aggregate Sipex Gross Margin during the Performance Period equals or exceeds [            ], then [fifteen percent (15%)] of the total number of Stock Units subject to the Award shall become fully vested as of the last day of the Performance Period.

5. Individual Performance. [Thirty percent (30%)] of the total number of Stock Units subject to the Award shall be eligible to vest based on the Participant’s achievement during the Performance Period of the following performance goal(s): [INSERT].

6. Determination; Termination of Stock Units. As soon as practicable after the last day of the Performance Period, the Administrator shall determine, in its sole discretion, if [and to the extent that] the performance goals set forth in this Exhibit A have been met and the number of Stock Units subject to the Award that vest based on such determination. Any Stock Units subject to the Award that are not vested after giving effect to the foregoing sentence shall terminate as of the last day of the Performance Period.

7. Definitions. For purposes of the Award, the following definitions shall apply:

“Combined Revenue” shall mean the Corporation’s [gross revenue] as determined on a consolidated basis in accordance with generally accepted accounting principles as applied in the Corporation’s financial reporting.

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“Sipex Gross Margin” shall mean the [gross operating margin] of Sipex Corporation as determined in accordance with generally accepted accounting principles as applied in the Corporation’s financial reporting.

“Sipex Revenue” shall mean the [gross revenue] of Sipex Corporation as determined in accordance with generally accepted accounting principles as applied in the Corporation’s financial reporting.

“Synergies” shall mean [            ].

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EX-10.5

Exhibit 10.5

December 29, 2008

Mr. J. Scott Kamsler

Dear Scott:

This letter sets forth the terms of your continued employment with Exar Corporation (“Exar”) as Senior Vice President and Chief Financial Officer, reporting to Pete Rodriguez, President and Chief Executive Officer, and amends and restates in its entirety the letter agreement between you and Exar dated January 18, 2007. Your annual salary will continue to be $290,000 paid bi-weekly in accordance with Exar’s standard payroll practices.

You have been included in the FY2009 Executive Incentive Compensation Program, effective from March 31, 2008 through March 29, 2009. Your target award is 50% of your annual base salary with a maximum payout of 100% of your annual base salary. Your actual bonus will be determined and paid in accordance with the terms of the program.

Your equity awards are subject to the terms and conditions set forth in the applicable award agreements.

In the event there is a Change of Control and your employment is terminated within twelve (12) months following the Change of Control date either by Exar without Cause or by you for Good Reason, (i) all options, restricted stock unit awards and other equity-based awards granted to you by Exar, to the extent then outstanding and otherwise unvested, will immediately vest, and (ii) you will be entitled to receive, within sixty (60) days following your termination and subject to all applicable withholdings, a lump sum severance payment equal to the greater of (a) one year’s base salary or (b) one month’s base salary for each year of completed service with Exar, to a maximum aggregate severance payment equal to two years’ base salary; provided, however, that Exar’s obligation to provide such accelerated vesting and such severance payment shall be contingent upon your providing to Exar, within twenty-one (21) days following your last day of employment with Exar, a valid, executed general release agreement in the form attached to the Company’s Executive Officers’ Group II Change of Control Severance Benefit Plan in effect on the date hereof, and such release agreement not having been revoked by you pursuant to any revocation rights afforded by applicable law. For purposes of this letter agreement, the term “Exar” shall include any successor of Exar following a Change of Control.

As used herein, the term “Cause” means (i) your conviction of any felony or conviction of any crime involving moral turpitude or dishonesty; (ii) participation in a fraud or act of dishonesty against Exar; (iii) conduct by you which, based upon a good faith and reasonable factual investigation and determination by Exar, demonstrates gross incompetence; or (iv) intentional, material violation by you of any contract between you and Exar or any statutory duty of you to Exar that is not corrected within thirty (30) days after written notice to you thereof. Physical or mental disability shall not constitute “Cause.”

As used herein, the term “Good Reason” means, without your express written consent, (i) a material diminution in your authority, duties or responsibilities or (ii) a material diminution in your base compensation, provided that any such diminution shall not constitute “Good Reason” unless both (x) you provide written notice to Exar of the condition claimed to constitute Good Reason within ninety (90) days of the initial existence of such condition, and (y) Exar fails to remedy such condition within thirty (30) days of receiving such written notice thereof; and provided, further, that in all events the termination of your employment with Exar shall not be treated as a termination for “Good Reason” unless such termination occurs not more than six (6) months following the initial existence of the condition claimed to constitute “Good Reason.”

As used herein, the term “Change of Control” means (i) a dissolution or liquidation of Exar; (ii) a merger or consolidation in which Exar is not the surviving corporation; (iii) a reverse merger in which Exar is the surviving corporation but the shares of Exar’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 Exar 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 Exar; (v) a transaction or group of related transactions involving the sale of all or substantially all of Exar’s assets; or (vi) the acquisition by any person, entity or group (excluding any employee benefit plan, or related trust, sponsored or maintained by Exar or any Exar subsidiary) of the beneficial ownership, directly or indirectly, of securities of Exar 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 employee of Exar or its subsidiaries, whether through a “management buy-out” or otherwise, shall not constitute a “Change of Control.”

It is intended that any amounts payable under this letter agreement shall either be exempt from or comply with Section 409A of the U.S. Internal Revenue Code (including the Treasury regulations and other published guidance relating thereto) (“Code Section 409A”) so as not to subject you to payment of any additional tax, penalty or interest imposed under Code Section 409A. The provisions of this letter agreement shall be construed and interpreted to avoid the imputation of any such additional tax, penalty or interest under Code Section 409A yet preserve (to the nearest extent reasonably possible) the intended benefit payable to you.

Please sign and date in the space provided below to indicate your acceptance of the terms set forth herein and return one copy to Diane Hill, fax (510) 668-7011.

Sincerely,	Agreed and Accepted:
/s/ Diane Hill	/s/ J. Scott Kamsler	Dec-31-2008
Diane Hill	J. Scott Kamsler	Date
Vice President Human Resources	Feb-19-2007
	Start Date

EX-10.6

Exhibit 10.6

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made and entered into this 19th day of December 2008, by and between Exar Corporation, a Delaware corporation (the “Company”), and Pedro (Pete) P. Rodriguez, an individual (the “Executive”).

RECITALS

THE PARTIES ENTER INTO THIS AGREEMENT on the basis of the following facts, understandings and intentions:

A. The Company desires that the Executive be employed by the Company to carry out the duties and responsibilities described below, all on the terms and conditions hereinafter set forth, effective as of April 28, 2008 (the “Effective Date”).

B. The Executive desires to accept such employment on such terms and conditions.

C. This Agreement shall govern the employment relationship between the Executive and the Company from and after the Effective Date and supersedes and negates all previous agreements with respect to such relationship.

NOW, THEREFORE, in consideration of the above recitals incorporated herein and the mutual covenants and promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby expressly acknowledged, the parties agree as follows:

1. Retention and Duties.

1.1 Retention. As of the Effective Date, the Company does hereby hire, engage and employ the Executive for the Period of Employment (as defined in Section 2) on the terms and conditions expressly set forth in this Agreement. As of the Effective Date, the Executive does hereby accept and agree to such hiring, engagement and employment, on the terms and conditions expressly set forth in this Agreement.

1.2 Duties. During the Period of Employment, the Executive shall serve the Company as its President and Chief Executive Officer and shall have the powers, duties and obligations of management usually vested in the offices of president and chief executive officer of a corporation, subject to the directives of the Company’s Board of Directors (the “Board”). Executive shall comply with the corporate policies of the Company as they are in effect from time to time throughout the Period of Employment (including, without limitation, the Company’s employee handbook, personnel policies, and business conduct and ethics policies, as they may change from time to time). The Executive will remain a member of the Board after the Effective Date and may serve as an officer and/or member of the board of directors of one or more of the Company’s subsidiaries or affiliates (and this Agreement shall provide the exclusive compensation for all such services). During the Period of Employment, the Executive shall report solely to the Board. In connection with any termination of the Executive’s employment, unless otherwise requested by the Board, the Executive shall concurrently resign from the Board and from the Board (or other similar body) of any other members of the Company Group (as defined below) on which he then serves.

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1.3 No Other Employment; Minimum Time Commitment. During the Period of Employment, the Executive shall both (i) devote substantially all of the Executive’s business time, energy and skill to the performance of the Executive’s duties for the Company, and (ii) hold no other employment; provided, however, that the Company acknowledges that the Executive is a member of the U.S. Navy Reserve and agrees that nothing herein shall prohibit the Executive from performing any legally required Naval Reserve Duty. The Executive’s service on the boards of directors (or similar body) of other business entities, or the provision of other services thereto, is subject to the prior written approval of the Board, which may not be unreasonably withheld. The Company shall have the right to require the Executive to resign from any board or similar body on which he may then serve if the Board determines that the Executive’s service on such board or body interferes with the effective discharge of the Executive’s duties and responsibilities to the Company or that any business related to such service is then in competition with any business of the Company or any of its affiliates, successors or assigns. Nothing in this Section 1.3 shall be construed as preventing Executive from engaging in the investment of his personal assets.

1.4 No Breach of Contract. The Executive hereby represents to the Company that: (i) the execution and delivery of this Agreement by the Executive and the Company and the performance by the Executive of the Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any other agreement or policy to which the Executive is a party or otherwise bound; (ii) the Executive has no information (including, without limitation, confidential information and trade secrets) relating to any other person or entity which would prevent, or be violated by, the Executive entering into this Agreement or carrying out his duties hereunder; and (iii) that, except as set forth on Exhibit A hereto, the Executive is not bound by any confidentiality, trade secret or similar agreement with any other person or entity.

1.5 Location. The Executive acknowledges that the Company’s principal executive offices are currently located in Fremont, California. The Executive’s principal place of employment shall be the Company’s principal executive offices. The Executive agrees that he will be regularly present at the Company’s principal executive offices. The Executive acknowledges that he may be required to travel from time to time in the course of performing his duties for the Company.

2. Period of Employment. The “Period of Employment” shall be a period of two (2) years commencing on the Effective Date and ending at the close of business on the two-year anniversary of the Effective Date (the “Termination Date”); provided, however, that this Agreement shall be automatically renewed, and the Period of Employment shall be automatically extended for one (1) additional year on the Termination Date and each anniversary of the Termination Date thereafter, unless either party gives notice, in writing, at least sixty (60) days prior to the expiration of the Period of Employment (including any renewal thereof) of such party’s desire to terminate the Period of Employment (a “Notice of Non-Renewal”). The phrase “Period of Employment” shall include any extension thereof pursuant to the preceding sentence. Providing a Notice of Non-Renewal shall not constitute a breach of this Agreement or a termination for “Good Reason” for purposes of this Agreement. Notwithstanding the foregoing, the Period of Employment is subject to earlier termination as provided below in this Agreement.

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3. Compensation.

3.1 Base Salary. The Executive’s base salary (the “Base Salary”) shall be paid in accordance with the Company’s regular payroll practices in effect from time to time, but not less frequently than in monthly installments. The Executive’s Base Salary for the first twelve (12) months of the Period of Employment shall be at an annualized rate of Four Hundred Thousand Dollars ($400,000). The Company will review the Executive’s Base Salary at least annually and may adjust the Executive’s Base Salary from the rate then in effect based on such review.

3.2 Incentive Bonus. During the Period of Employment, the Executive shall be eligible to receive an annual incentive bonus (“Incentive Bonus”) in an amount to be determined by the Board in its sole discretion, based on the performance objectives established by the Board for that particular period. The Executive’s target Incentive Bonus amount for the 2009 and 2010 fiscal years shall be 87.5% of the Executive’s Base Salary, unless the Board or the Compensation Committee of the Board (the “Compensation Committee”) sets a higher target Incentive Bonus for those years. For fiscal year 2009, the Incentive Bonus shall be pro rated based on the number of days Executive is employed by the Company in fiscal year 2009 divided by 365. In order to earn the Incentive Bonus for any particular fiscal year, the Executive must remain actively and continuously employed through the end of the Company’s fiscal year. The Incentive Bonus shall be paid, subject to applicable withholdings and authorized deductions, as soon as practicable after the end of such fiscal year (and in all events within the applicable period prescribed for the payment of “short-term deferrals” as provided in Treasury Regulation Section 1.409A-1(b)(4)).

The Executive’s Incentive Bonus shall be payable in accordance with the Company’s Fiscal Year 2009 Executive Incentive Compensation Program. The Executive will participate in establishing his individual performance goals under such program, which he and the Board (or the Compensation Committee of the Board) shall endeavor to agree upon prior to the Effective Date.

3.3 Sign-Up Bonus. Subject to the obligation of the Executive to repay the Signing Bonus (as defined below) under certain circumstances described in this Section 3.3, the Executive shall be eligible to receive a one-time signing bonus in the amount of One Hundred Thousand Dollars ($100,000), less applicable withholdings and deductions (“Signing Bonus”). The Executive must repay the Signing Bonus to the Company within seven (7) days of the Severance Date (as defined below in Section 5.3) if Executive’s employment is terminated (i) by the Executive prior to the earlier of the two-year anniversary of the Effective Date and a Change of Control, (ii) by the Executive after a Change of Control but prior to the two-year anniversary of the Effective Date other than for Good Reason, or (iii) by the Company for Cause.

The Signing Bonus shall be paid to Executive on the Company’s first regularly scheduled payroll date following the Effective Date.

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3.4 Stock Option Grants. Subject to this Section 3.4, the Company will grant to the Executive an option (the “Option”) to purchase 560,000 shares of the Company’s Common Stock, effective on the first date following the Effective Date on which the Company’s normal option grant policy would result in grants being effective.

The exercise price per share for the Option will be equal to the fair market value of a share of the Common Stock on the date the Option is granted. The Option will be intended to qualify as an “incentive stock option” within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the “Code”), to the maximum extent possible within the limitations of the Code. The Option will vest as follows: 25% of the shares subject to the Option shall vest upon Executive’s completion of one year of active and continuous service to the Company following the Effective Date, and 1/48 of the shares subject to the Option shall vest in 36 equal monthly installments upon completion of each month of active and continuous service thereafter such that Executive shall be fully vested in the Option after four years of continuous service from the Effective Date. The vesting of each installment of the Option will occur only if such vesting date occurs during the Executive’s continued employment by the Company through the respective vesting date. The maximum term of the Option will be seven (7) years from the date of grant of the Option. The Option shall be granted under the Company’s 2006 Equity Incentive Plan (the “Plan”), a copy of which has been provided to the Executive, and shall be subject to such further terms and conditions as set forth in a written stock option agreement to be entered into by the Company and the Executive to evidence the Option (the “Option Agreement”). The Option Agreement shall provide that Executive shall vest in 100% of the then unvested shares subject to the Option in the event Executive’s employment is terminated by the Company without Cause or by Executive for Good Reason within 12 months following a Change of Control. The Option Agreement shall be in substantially the form as may be used by the Company to evidence stock option grants for other senior executives made under the Plan at the time of grant.

3.5 Director Compensation. Commencing on the Effective Date, the Executive shall no longer be entitled to receive cash or equity compensation paid to outside directors of the Company and, instead, the Executive shall be compensated exclusively in accordance with the terms of this Agreement. Notwithstanding the foregoing, during the Period of Employment, Executive’s grant of 4,500 restricted stock units issued to Executive in his capacity as a director on October 11, 2007 and any other outstanding equity grants made to the Executive prior to the date hereof shall continue to vest in accordance with, and be subject to, the terms and conditions of the such grants, the grant agreements related thereto (the “Prior Grant Agreements”) and any equity incentive plan pursuant to which each such grant was made.

4. Benefits.

4.1 Retirement, Welfare and Fringe Benefits. During the Period of Employment, the Executive shall be entitled to participate in all employee pension and welfare benefit plans and programs, and fringe benefit plans and programs, made available by the Company to the Company’s employees generally, in accordance with the eligibility and participation provisions of such plans and as such plans or programs may be in effect from time to time; provided, however, that the Executive shall not be entitled to a duplication of benefits or payments provided to the Executive pursuant to this Agreement.

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4.2 Reimbursement of Business Expenses. The Company shall reimburse Executive for all reasonable business expenses that Executive incurs during the Period of Employment in connection with carrying out the Executive’s duties for the Company, subject to the Company’s expense reimbursement policies (including submission of any documentation of such expenses required by such policies) in effect from time to time and provided that in all events any such reimbursement shall be made not later than the end of the calendar year following the year in which the related expense was incurred.

4.3 Vacation and Other Leave. During the Period of Employment, the Executive shall accrue and be entitled to take paid vacation in accordance with the Company’s vacation policies in effect from time to time, including the Company’s policies regarding vacation accruals; provided that the Executive’s rate of vacation accrual during the Period of Employment shall be no less than three (3) weeks per year. The Executive shall also be entitled to all other holiday and leave pay generally available to other executives of the Company.

4.4 Naval Reserve Duty Leave. The Company acknowledges that the Executive is a member of the U.S. Navy Reserve and from time to time will be required to perform legally required Naval Reserve Duty. Subject to any additional requirements imposed on the Company by applicable law from time to time, the Executive shall be entitled to take up to three (3) weeks of paid leave per year to fulfill his Naval Reserve Duty obligations, provided that (i) the Executive submits to the Company’s human resources department a true and correct copy of the Naval Reserve Duty orders for any such leave; (ii) the Executive will exercise best efforts to perform his duties as the Company’s President and Chief Executive Officer while he is on Naval Reserve Duty leave; and (iii) the Executive will exercise best efforts to cause the Naval Reserve Duty leave to be taken in increments of seven days or less.

5. Termination.

5.1 Termination by the Company. The Executive’s employment by the Company, and the Period of Employment, may be terminated at any time by the Company: (i) with Cause (as defined in Section 5.5), or (ii) with no less than sixty (60) days advance notice to the Executive, without Cause, or (iii) in the event of the Executive’s death (which shall occur automatically upon such death), or (iv) in the event that the Board determines in good faith that the Executive has a Disability (as defined in Section 5.5).

5.2 Termination by the Executive. The Executive’s employment by the Company, and the Period of Employment, may be terminated by the Executive with no less than sixty (60) days advance notice to the Company; provided, however, that in the case of a termination for Good Reason, the Executive may provide immediate written notice upon the Company failing to cure the event that constitutes Good Reason after the Executive has provided the Company written notice of the event constituting Good Reason and at least a 30-day period to cure.

5.3 Benefits Upon Termination. If the Executive’s employment by the Company is terminated during the Period of Employment for any reason by the Company or by the Executive, or upon or following the expiration of the Period of Employment (in any case, the date that the Executive’s employment by the Company terminates is referred to herein as the “Severance Date”), the Company shall have no further obligation to make or provide to the Executive, and the Executive shall have no further right to receive or obtain from the Company, any payments or benefits except as follows:

(a) The Company shall pay the Executive (or, in the event of his death, the Executive’s estate) any Accrued Obligations (as defined in Section 5.5);

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(b) If, during the Period of Employment, the Executive’s employment with the Company terminates as a result of an Involuntary Termination (as defined in Section 5.5) or the Executive’s employment with the Company terminates upon the expiration of the Period of Employment pursuant to a Notice of Non-Renewal given by the Company, and in either case subject to the Executive signing, delivering and not revoking a general release as set forth in Section 5.4, the Company shall provide the following severance benefits to Executive:

(i) The Company shall pay the Executive (in addition to the Accrued Obligations) an amount equal to 100% of the Executive’s Base Salary at the annual rate in effect on the Severance Date. Subject to Section 24.2, the Company shall pay such amount to the Executive in substantially equal installments, less tax withholdings and other authorized deductions, in accordance with the Company’s normal payroll practices then in effect over a period of twelve (12) consecutive months, with the first installment payable in the month following the month in which the Executive’s Separation from Service (as such term is defined in Section 5.5) occurs.

(ii) The Company shall pay the cost of the Executive’s premiums charged to continue medical coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act (“COBRA”), at the same or reasonably equivalent medical coverage for Executive (and, if applicable, Executive’s eligible dependents) as in effect immediately prior to the Severance Date, for a period commencing on the Severance Date and ending on the earlier to occur of (A) the date the Executive becomes eligible for medical coverage with another employer and (B) the 6-month anniversary of the Severance Date. To the extent that the payment of any COBRA premiums pursuant to this Section 5.3(b)(ii) are taxable to Executive, any payment due to Executive pursuant to this section shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred. Executive’s right to payment of such premiums is not subject to liquidation or exchange for another benefit and the amount of such benefits that Executive receives in one taxable year shall not affect the amount of such benefits that Executive receives in any other taxable year.

(iii) In the event that Executive’s employment with the Company terminates as a result of an Involuntary Termination or a Notice of Non-Renewal delivered by the Company (or its successor) within twelve (12) months following a Change of Control, the Company shall, in addition to the amounts in (i) and (ii) of this Section 5.3(b), (A) pay Executive an amount equal to a pro rated portion of Executive’s target Incentive Bonus for the fiscal year in which the termination occurs (such payment to be made, subject to Section 24.2 and less tax withholdings and other authorized deductions, in a lump sum in the month following the month in which Executive’s Separation from Service occurs); and (B) in accordance with Section 3.4 of this Agreement and the terms and conditions of the Option Agreement, Executive shall fully vest in any unvested shares subject to the Option.

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For purposes of clarity, in the event the Executive’s employment terminates upon the expiration of the Period of Employment pursuant to a Notice of Non-Renewal given by the Executive, the Executive shall not be entitled to any payment pursuant to this Section 5.3(b); and in the event the Executive’s employment terminates upon the expiration of the Period of Employment (whether pursuant to a Notice of Non-Renewal given by the Company or the Executive), the Executive’s outstanding options shall continue to be governed in accordance with their terms (including, without limitation, the terms applicable to a termination of the Executive’s employment).

Notwithstanding the foregoing provisions of this Section 5.3, if the Executive breaches his obligations under the Confidentiality Agreement and/or Section 7 or 8 of this Agreement at any time, from and after the date of such breach, (x) the Executive will no longer be entitled to, and the Company will no longer be obligated to pay, any remaining unpaid portion of any benefits provided in Section 5.3(b), and (y) the Executive will no longer be entitled to, and the Company will no longer be obligated to make available to Executive or Executive’s spouse or dependents any group health, life or other similar insurance plans or any payment in respect of such plans; provided, however, that if the Executive provides the release contemplated by Section 5.4, in no event shall the Executive be entitled to benefits pursuant to Section 5.3(b) of less than $5,000, which amount the parties agree is good and adequate consideration, in and of itself, for the Executive’s release contemplated by Section 5.4.

The foregoing provisions of this Section 5.3 shall not affect: (i) the Executive’s receipt of benefits otherwise due terminated employees under group insurance coverage consistent with the terms of the applicable Company welfare benefit plan; (ii) the Executive’s rights under COBRA to continue participation in medical, dental, hospitalization and life insurance coverage; or (iii) the Executive’s receipt of benefits otherwise due in accordance with the terms of the Company’s 401(k) plan (if any). In no event shall the Company’s obligations to the Executive exceed the sum of the Accrued Obligations, the benefits provided in Section 5.3(b), if applicable, and the benefits contemplated by this paragraph, regardless of the manner of the Executive’s termination.

5.4 Release; Exclusive Remedy.

(a) This Section 5.4 shall apply notwithstanding anything else contained in this Agreement or any stock option, restricted stock or other equity-based award agreement to the contrary. As a condition precedent to any Company obligation to the Executive pursuant to Section 5.3(b) or any obligation to accelerate vesting of any equity-based award in connection with the termination of the Executive’s employment (including with respect to the Option), the Executive shall, upon or promptly following his last day of employment with the Company, provide the Company with a valid, executed general release agreement in a form acceptable to the Company, and such release agreement shall have not been revoked by the Executive pursuant to any revocation rights afforded by applicable law. The Company shall have no obligation to make any payment to the Executive pursuant to Section 5.3(b) (or otherwise accelerate the vesting of any equity-based award in the circumstances as otherwise contemplated by the applicable award agreement) unless and until the release agreement contemplated by this Section 5.4 becomes irrevocable by the Executive in accordance with all applicable laws, rules and regulations.

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(b) The Executive agrees that the general release agreement described in Section 5.4(a) will require that the Executive acknowledge, as a condition to the payment of any benefits under Section 5.3(b), as applicable, that the payments contemplated by Section 5.3 (and any applicable acceleration of vesting of an equity-based award in accordance with the terms of such award in connection with the termination of the Executive’s employment) shall constitute the exclusive and sole remedy for any termination of his employment, and the Executive will be required to covenant, as a condition to receiving any such payment (and any such accelerated vesting), not to assert or pursue any other remedies, at law or in equity, with respect to his employment or the termination of his employment. The Company and Executive acknowledge and agree that there is no duty of the Executive to mitigate damages under this Agreement. All amounts paid to the Executive pursuant to Section 5.3 shall be paid without regard to whether the Executive has taken or takes actions to mitigate damages.

5.5 Certain Defined Terms.

(a) As used herein, “Accrued Obligations” means:

(i) any Base Salary that had accrued but had not been paid (including accrued and unpaid vacation time) on or before the Severance Date; and

(ii) any reimbursement due to the Executive pursuant to Section 4.2 for expenses incurred by the Executive on or before the Severance Date.

(b) As used herein, “Cause” shall mean, as reasonably determined by the Board (excluding the Executive, if he is then a member of the Board), (i) any act of personal dishonesty taken by the Executive in connection with his responsibilities as an employee or director of the Company which is intended to result in substantial personal enrichment of the Executive and is reasonably likely to result in material harm to the Company, (ii) the Executive’s conviction of a felony or any other crime which the Board reasonably believes has had or will have a material detrimental effect on the Company’s reputation or business, (iii) a willful act by the Executive which constitutes misconduct and is materially injurious to the Company, or (iv) continued willful violations by the Executive of the Executive’s obligations to the Company after there has been delivered to the Executive a written demand for performance from the Company which describes the basis for the Company’s belief that the Executive has willfully violated his obligations to the Company.

(c) As used herein, “Change of Control” shall mean (i) any merger or consolidation of the Company in which the stockholders of the Company immediately prior to the transaction do not own more than 50% of the outstanding voting power of the Company (or its successor) immediately after such transaction, (ii) the sale of all or substantially all of the assets of the Company, or (iii) any person or related group of persons (other than the Company or a person that directly or indirectly controls, is controlled by, or is under common control with, the Company) directly or indirectly acquires beneficial ownership (within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934, as amended) of securities possessing more than fifty percent (50%) of the total combined voting power of the Company’s outstanding securities pursuant to a tender or exchange offer made directly to the Company’s stockholders.

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(d) As used herein, “Disability” shall mean a physical or mental impairment which, as determined in good faith by the Board, renders the Executive unable to perform the essential functions of his employment with the Company, taking into consideration any reasonable accommodation that does not impose an undue hardship on the Company, for more than 120 days in any 12-month period, unless a longer period is required by federal or state law, in which case that longer period would apply.

(e) As used herein, “Good Reason” shall mean the occurrence of, without Executive’s express written consent, a material reduction of the Executive’s duties, position or responsibilities relative to the Executive’s duties, position or responsibilities in effect immediately prior to such reduction or a material breach of this Agreement by the Company.

(f) As used herein, “Involuntary Termination” shall mean a termination of the Executive’s employment by the Company without Cause or a resignation by the Executive for Good Reason within 60 days of the occurrence of the event constituting Good Reason. For purposes of this Agreement, the term Involuntary Termination includes a termination of the Executive’s employment due to the Executive’s death or Disability, provided that, solely for purposes of determining whether Executive has incurred an Involuntary Termination hereunder, the term “Disability” means a “disability” within the meaning of Treasury Regulation Section 1.409A-3(i)(4).

(g) As used herein, a “Separation from Service” occurs when the Executive dies, retires, or otherwise has a termination of employment with the Company that constitutes a “separation from service” within the meaning of Treasury Regulation Section 1.409A-1(h)(1), without regard to the optional alternative definitions available thereunder.

5.6 Notice of Termination. Any termination of the Executive’s employment under this Agreement shall be communicated by written notice of termination from the terminating party to the other party. The notice of termination shall indicate the specific provision(s) of this Agreement relied upon in effecting the termination.

5.7 Limitation on Benefits.

(a) Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and benefits provided under this Agreement and benefits provided to, or for the benefit of, the Executive under any other Company plan or agreement (such payments or benefits are collectively referred to as the “Benefits”) would be subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue Code of 1986, as amended (the “Code”), the Benefits shall be reduced (but not below zero) if and to the extent that a reduction in the Benefits would result in the Executive retaining a larger amount, on an after-tax basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive received all of the Benefits (such reduced amount if referred to hereinafter as the “Limited Benefit Amount”). Unless the Executive shall have given prior written notice specifying a different order to the Company to effectuate the Limited Benefit Amount, the

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Company shall reduce or eliminate the Benefits by first reducing or eliminating those payments or benefits which are not payable in cash and then by reducing or eliminating cash payments, in each case in reverse order beginning with payments or benefits which are to be paid the farthest in time from the Determination (as hereinafter defined). Any notice given by the Executive pursuant to the preceding sentence shall take precedence over the provisions of any other plan, arrangement or agreement governing the Executive’s rights and entitlements to any benefits or compensation.

(b) A determination as to whether the Benefits shall be reduced to the Limited Benefit Amount pursuant to this Agreement and the amount of such Limited Benefit Amount shall be made by the Company’s independent public accountants or another certified public accounting firm of national reputation designated by the Company (the “Accounting Firm”) at the Company’s expense. The Accounting Firm shall provide its determination (the “Determination”), together with detailed supporting calculations and documentation to the Company and the Executive within five (5) days of the date of termination of the Executive’s employment, if applicable, or such other time as requested by the Company or the Executive (provided the Executive reasonably believes that any of the Benefits may be subject to the Excise Tax), and if the Accounting Firm determines that no Excise Tax is payable by the Executive with respect to any Benefits, it shall furnish the Executive with an opinion reasonably acceptable to the Executive that no Excise Tax will be imposed with respect to any such Benefits. Unless the Executive provides written notice to the Company within ten (10) days of the delivery of the Determination to the Executive that he disputes such Determination, the Determination shall be binding, final and conclusive upon the Company and the Executive.

6. Proprietary Information and Confidentiality Agreement. The Executive shall execute, and comply with the terms and conditions of, the Proprietary Information and Confidentiality Agreement attached hereto as Exhibit B (the “Confidentiality Agreement”).

7. Confidentiality. The Executive shall not at any time (whether during or after the Executive’s employment with the Company), directly or indirectly, other than in the course of the Executive’s duties hereunder, disclose or make available to any person, firm, corporation, association or other entity for any reason or purpose whatsoever, any Confidential Information (as defined in the Confidentiality Agreement). The Executive agrees that, upon termination of the Executive’s employment with the Company, all Confidential Information in the Executive’s possession that is in written, digital or in other tangible form (together with all copies or duplicates thereof, including any computer or electronically stored files, including but not limited to emails, power point presentations, pdf documents, excel spread sheets and other documents) shall be returned to the Company and shall not be retained by the Executive or furnished to any third party, in any form; provided, however, that the Executive shall not be obligated to treat as confidential, or return to the Company copies of any Confidential Information that (a) was publicly known at the time of disclosure to the Executive, (b) becomes publicly known or available thereafter other than by any means in violation of this Agreement or any other duty owed to the Company by any person or entity, or (c) is lawfully disclosed to the Executive by a third party.

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8. Anti-Solicitation.

8.1 Business Relationships. During the Period of Employment and for a period of one (1) year thereafter, the Executive shall not, directly or indirectly, individually or as a consultant to, or as an employee, officer, stockholder, director or other owner or participant in any business, influence or attempt to influence customers, vendors, suppliers, joint venturers, associates, consultants, agents, or partners of the Company or any of its affiliates (collectively, the “Company Group”), to divert their business away from the Company Group, to any individual, partnership, firm, corporation or other entity then in competition with the business of any entity within the Company Group, and he will not otherwise materially interfere with any business relationship of any entity within the Company Group.

8.2 Employees and Consultants. During the Period of Employment and for a period of one (1) year thereafter, the Executive shall not, directly or indirectly, individually or as a consultant to, or as an employee, officer, stockholder, director or other owner of or participant in any business, solicit (or assist in soliciting) any person who is then, or at any time within six (6) months prior thereto, an employee or consultant of an entity within the Company Group who earned annually $25,000 or more as an employee or consultant of such entity during the last six (6) months of his or her own employment to work for (as an employee, consultant or otherwise) any business, individual, partnership, firm, corporation, or other entity whether or not engaged in competitive business with any entity in the Company Group.

9. Withholding Taxes. Notwithstanding anything else herein to the contrary, the Company may withhold (or cause there to be withheld, as the case may be) from any amounts otherwise due or payable under or pursuant to this Agreement such federal, state and local income, employment, or other taxes as may be required to be withheld pursuant to any applicable law or regulation.

10. Litigation/Audit Cooperation. Following the termination of the Executive’s employment with the Company for any reason, the Executive shall reasonably cooperate with the Company in connection with (a) any internal or governmental investigation or administrative, regulatory, arbitral or judicial proceeding involving any member of the Company Group with respect to matters relating to the Executive’s employment with or service as a member of the board of directors of any member of the Company Group (collectively, “Litigation”) or (b) any audit of the financial statements of any member of the Company Group with respect to the period of Executive’s employment with the Company (“Audit”). The Executive acknowledges that such cooperation may include, but shall not be limited to, the Executive making himself available to the Company Group (or their respective attorneys or auditors) upon reasonable notice for: (i) interviews, factual investigations, and providing declarations or affidavits that provide truthful information in connection with any Litigation or Audit; (ii) appearing at the request of any member of the Company Group to give testimony without requiring service of a subpoena or other legal process; (iii) volunteering to any member of the Company Group pertinent information related to any Litigation or Audit; (iv) providing information and legal representations to the auditors of any member of the Company Group in a form and within a timeframe requested by the Board, with respect to the financial statements for the period in which Executive was employed by the Company; and (v) turning over to the Company Group any documents relevant to any Litigation or Audit that are or may come into the Executive’s possession. The Company Group shall reimburse the Executive for reasonable travel expenses incurred in connection with providing the services under this Section 10, including lodging and meals, upon Executive’s submission of receipts.

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11. Assignment. This Agreement is personal in its nature and neither of the parties hereto shall, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that in the event of a merger, consolidation, or transfer or sale of all or substantially all of the assets of the Company with or to any other individual(s) or entity, this Agreement shall, subject to the provisions hereof, be binding upon and inure to the benefit of such successor and such successor shall discharge and perform all the promises, covenants, duties, and obligations of the Company hereunder.

12. Number and Gender. Where the context requires, the singular shall include the plural, the plural shall include the singular, and any gender shall include all other genders.

13. Section Headings. The section headings of, and titles of paragraphs and subparagraphs contained in, this Agreement are for the purpose of convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation thereof.

14. Governing Law. This Agreement, and all questions relating to its validity, interpretation, performance and enforcement, as well as the legal relations hereby created between the parties hereto, shall be governed by and construed under, and interpreted and enforced in accordance with, the laws of the State of California, notwithstanding any California or other conflict of law provision to the contrary.

15. Severability. If any provision of this Agreement or the application thereof is held invalid, the invalidity shall not affect other provisions or applications of this Agreement which can be given effect without the invalid provisions or applications and to this end the provisions of this Agreement are declared to be severable.

16. Entire Agreement. This Agreement, together with the Confidentiality Agreement, the Option Agreement and the Prior Grant Agreements, embodies the entire agreement of the parties hereto respecting the matters within its scope. This Agreement supersedes all prior and contemporaneous agreements of the parties hereto that directly or indirectly bears upon the subject matter hereof. Any prior negotiations, correspondence, agreements, proposals or understandings relating to the subject matter hereof shall be deemed to have been merged into this Agreement, and to the extent inconsistent herewith, such negotiations, correspondence, agreements, proposals, or understandings shall be deemed to be of no force or effect. There are no representations, warranties, or agreements, whether express or implied, or oral or written, with respect to the subject matter hereof, except as expressly set forth herein. Subject to Section 19, nothing herein shall affect the validity and continued effectiveness of the indemnification agreement by and between the Executive and the Company dated as of November 2, 2005 (the “Indemnification Agreement”).

17. Modifications. This Agreement may not be amended, modified or changed (in whole or in part), except by a formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the parties hereto.

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18. Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.

19. Arbitration. Any controversy arising out of or relating to the Executive’s employment (whether or not before or after the expiration of the Period of Employment), any termination of the Executive’s employment, this Agreement, the Confidentiality Agreement, the Option Agreement, the Prior Grant Agreements, the Indemnification Agreement, the enforcement or interpretation of any of such agreements, or because of an alleged breach, default, or misrepresentation in connection with any of the provisions of any such agreement, including (without limitation) any state or federal statutory claims, shall be submitted to arbitration in Alameda County, California, before a sole arbitrator selected from Judicial Arbitration and Mediation Services, Inc. or its successor (“JAMS”), or if JAMS is no longer able to supply the arbitrator, such arbitrator shall be selected from the American Arbitration Association; provided, however, that provisional injunctive relief may, but need not, be sought in a court of law while arbitration proceedings are pending, and any provisional injunctive relief granted by such court shall remain effective until the matter is finally determined by the arbitrator. The arbitration shall be administered by JAMS pursuant to its Comprehensive Arbitration Rules and Procedures. Judgment on the award may be entered in any court having jurisdiction.

The parties acknowledge and agree that they are hereby waiving any rights to trial by jury in any action, proceeding or counterclaim brought by either of the parties against the other in connection with any matter whatsoever arising out of or in any way connected with any of the matters referenced in the first sentence of the first paragraph of this Section 19.

The parties agree that the Company shall be responsible for payment of the forum costs of any arbitration hereunder, including the arbitrator’s fee. The parties further agree that in any proceeding with respect to such matters, the prevailing party will be entitled to recover its reasonable attorney’s fees and costs from the non-prevailing party (other than forum costs associated with the arbitration which in any event shall be paid by the Company).

Without limiting the remedies available to the parties and notwithstanding the foregoing provisions of this Section 19, the Executive and the Company acknowledge that any breach of any of the covenants or provisions contained in Section 7 or 8 of this Agreement or in the Confidentiality Agreement could result in irreparable injury to either of the parties hereto for which there might be no adequate remedy at law, and that, in the event of such a breach or threat thereof, the non-breaching party shall be entitled to obtain a temporary restraining order and/or a preliminary injunction and a permanent injunction restraining the other party hereto from engaging in any activities prohibited by any covenant or provision in Section 7 or 8 of this Agreement or in the Confidentiality Agreement or such other equitable relief as may be required to enforce specifically any of such covenants or provisions.

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20. Insurance. The Company shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering the Executive, and the Executive agrees to submit to any usual and customary medical examination and otherwise cooperate with the Company in connection with the procurement of any such insurance and any claims thereunder.

21. Notices.

21.1 All notices, requests, demands, consents and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given and made if (i) delivered by hand, (ii) otherwise delivered against receipt therefor, or (iii) sent by registered or certified mail, postage prepaid, return receipt requested. Any such notice, request, demand, consent or other communication by the Board shall be made based on a resolution duly adopted by the Board (or an authorized committee thereof) and made to the Executive by the then serving Chairman of the Board or any other person authorized by the Board (or such committee) to make such communication. Any notice shall be duly addressed to the parties as follows:

(a) if to the Company:

Exar Corporation

48720 Kato Road

Fremont, CA 94538

Attn: Board of Directors

with a copy to:

Stephen Sonne, Esq.

O’Melveny & Myers LLP

2765 Sand Hill Road

Menlo Park, CA 94025

(b) if to the Executive, to the address most recently on file in the payroll records of the Company.

21.2 Any party may alter the address to which communications or copies are to be sent by giving notice of such change of address in conformity with the provisions of this Section 21 for the giving of notice. Any communication shall be effective when delivered by hand, when otherwise delivered against receipt therefor, or five (5) business days after being mailed in accordance with the foregoing.

22. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against any party whose signature appears thereon, and all of which together shall constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such signed counterparts may be used in lieu of the originals for any purpose.

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23. Legal Counsel; Mutual Drafting. Each party recognizes that this is a legally binding contract and acknowledges and agrees that they have had the opportunity to consult with legal counsel of their choice. Each party has cooperated in the drafting, negotiation and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against either party on the basis of that party being the drafter of such language. The Executive agrees and acknowledges that he has read and understands this Agreement, is entering into it freely and voluntarily, and has been advised to seek counsel prior to entering into this Agreement and has had ample opportunity to do so.

24. Code Section 409A.

24.1 It is intended that any amounts payable under this Agreement and the Company’s and the Executive’s exercise of authority or discretion hereunder shall comply with Section 409A of the Code (including the Treasury regulations and other published guidance relating thereto) (“Code Section 409A”) so as not to subject the Executive to payment of any interest or additional tax imposed under Code Section 409A. To the extent that any amount payable under this Agreement would trigger the additional tax imposed by Code Section 409A, the Agreement shall be construed and interpreted in a manner to avoid such additional tax yet preserve (to the nearest extent reasonably possible) the intended benefit payable to the Executive.

24.2 Notwithstanding any provision of this Agreement to the contrary, if the Executive is a “specified employee” within the meaning of Treasury Regulation Section 1.409A-1(i) as of the date of the Executive’s Separation from Service, the Executive shall not be entitled to any payment or benefit pursuant to Section 5.3(b) until the earlier of (i) the date which is six (6) months after Executive’s Separation from Service for any reason other than death, or (ii) the date of the Executive’s death. Any amounts otherwise payable to the Executive upon or in the six (6) month period following the Executive’s Separation from Service that are not so paid by reason of this Section 24.2 shall be paid (without interest) as soon as practicable (and in all events within thirty (30) days) after the date that is six (6) months after the Executive’s Separation from Service (or, if earlier, as soon as practicable, and in all events within thirty (30) days, after the date of the Executive’s death). The provisions of this Section 24.2 shall only apply if, and to the extent, required to avoid the imputation of any tax, penalty or interest pursuant to Section 409A of the Code.

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IN WITNESS WHEREOF, the Company and the Executive have executed this Agreement as of the date first written above.

“COMPANY”
Exar Corporation, a Delaware corporation
By:	/s/ Richard L. Leza
Name:	Richard L. Leza
Title:	Chairman of the Board
“EXECUTIVE”
/s/ Pedro (Pete) P. Rodriguez
Pedro (Pete) P. Rodriguez

EX-31.1

Exhibit 31.1

PRINCIPAL EXECUTIVE OFFICER CERTIFICATION

I, Pedro (Pete) P. Rodriguez, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Exar Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2009

/s/ Pedro (Pete) P. Rodriguez

Pedro (Pete) P. Rodriguez

Chief Executive Officer, President and Director

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, J. Scott Kamsler, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Exar Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 6, 2009

/s/ J. SCOTT KAMSLER

J. Scott Kamsler

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Pedro (Pete) P. Rodriguez, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report of Exar Corporation on Form 10-Q for the period ended December 28, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Exar Corporation.

Date: February 6, 2009

/s/ Pedro (Pete) P. Rodriguez

Pedro (Pete) P. Rodriguez

Chief Executive Officer, President and Director

(Principal Executive Officer)

EX-32.2

Exhibit 32.2

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, J. Scott Kamsler, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge, the Quarterly Report of Exar Corporation on Form 10-Q for the period ended December 28, 2008 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Exar Corporation.

Date: February 6, 2009

/s/ J. SCOTT KAMSLER

J. Scott Kamsler

Senior Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)