Exar (EXAR) DEFA14A Additional proxy soliciting materials

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.      )

Filed by the Registrantx                            Filed by a Party other than the Registrant¨

Check the appropriate box:

¨ Preliminary Proxy Statement

¨ Confidential, For Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

¨ Definitive Proxy Statement

x Definitive Additional Materials

¨ Soliciting Material Pursuant to § 240.14a-12

EXAR CORPORATION

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)

Payment of Filing Fee (Check the appropriate box):

x No fee required.

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

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

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

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

(4) Proposed maximum aggregate value of transaction:

(5) Total fee paid:

¨ Fee paid previously with preliminary materials:

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

(1) Amount previously paid:

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

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(4) Date Filed:

Company Confidential

Shareholders of Exar

Corporation

(“Shareholders”)

Re: Proposed Stock Option Exchange Program

Exar Corporation

(“Company”)

October 6, 2008

1

Company Confidential

WE HAVE NOT COMMENCED THE OFFER TO EXCHANGE

THAT IS REFERRED TO IN THIS COMMUNICATION. UPON THE

COMMENCEMENT OF THE OFFER TO EXCHANGE, WE WILL

FILE WITH THE SECURITIES AND EXCHANGE COMMISSION A

COMPLETED SCHEDULE TO AND RELATED EXHIBITS AND

DOCUMENTS, INCLUDING THE OFFER TO EXCHANGE ALL

OPTIONHOLDERS ELIGIBLE TO PARTICIPATE IN THE OFFER TO

EXCHANGE ARE STRONGLY ENCOURAGED TO READ THE

SCHEDULE TO AND RELATED EXHIBITS AND DOCUMENTS,

INCLUDING THE OFFER TO EXCHANGE, WHEN THEY BECOME

AVAILABLE. THESE DOCUMENTS WILL CONTAIN IMPORTANT

INFORMATION ABOUT THE OFFER TO EXCHANGE. THE

SCHEDULE TO AND RELATED EXHIBITS AND DOCUMENTS WILL

BE AVAILABLE WITHOUT CHARGE OR ON THE SECURITIES AND

EXCHANGE COMMISSION WEBSITE AT HTTP://WWW.SEC.GOV.

2

Company Confidential

Proposal Clarification

Architected

collaboratively

through

extensive

dialogue

with

OEAS

(F1)

BOD Directive:  Engage Prominent Option Exchange Advisory Specialist

(“OEAS”) ($25.5K) To Develop Best In Class Program

Adopted ALL

OEAS Guidelines and Recommendations

Proxy reviewed by OEAS prior to issuance

Value Neutral (F2)

~$850K Positive Value Returned To Shareholders (10x above OEAS threshold)

Stockholder Driven

Balanced Goal Alignment

•

Value Preservation Through Favorable Exchange

•

Value Creation Through Motivated/Incentivized Employees

Human Capital/Intellectual Property

Reverse above industry/historical attrition rates

Announcement positively received:  Employees/Operation

3

Company Confidential

Rebuttal to Stockholder Advisory Services Assessment

Attrition  (F3)

Timing

Business Urgency/Focus/Risk

Annual Stockholders’

Meeting               Cost/Time Efficient

November Close

Lack of “Valid Explanation”

re:  Stock Decline

Industry

•

Overall/Sector/Company

Accounting

•

Confusion

Regarding

GAAP

vs

Underlying

Level

of

Revenue

(F4)

Unprecedented Macro-Economic Crisis

•

Unstable/Volatile Capital Markets

•

Unpredictable Energy Costs

•

Tightening Investment Resources

•

Investment Banking Demise

•

Mortgage Lending Crash

4

Company Confidential

Value Management

FY’08 Q1 Earnings Announcement (F5)

Enterprise value/cash = share premium

Sipex

Merger

At Market

Overwhelmingly

Approved

By

Both

Company’s

Stockholders

Exceeded Announced Cost Savings

Share Repurchase

~$100M/11M shares

Financial Reporting

GAAP v “As If Combined”

Revenue (F6)

“Sell In”

v “Sell Through”

Rev Recognition

Write Down

Stabilized Executive Management

5

Company Confidential

Reconsideration Requested

Enhanced Shareholder Value            Value

Exchange,

Overhang

Reduction

Balanced and Reasoned Structure           Integrity

Unique Circumstances

Immediate Need

Compelling Justification/Information

OEAS and Proxy Governance, Inc. Endorsed

Transparency Supports Uninfluenced Shareholder Vote

Thank You

6

Company Confidential

F1

Options Outstanding by Strike Price and Expiration Date

(Excluding Directors, Named Executive Officers (Proxy) and recent terminations)

(as of 6/27/08)

Stirke

Price\Expire

2Q09

3Q09

4Q09

FY10

FY11

FY12

FY13

FY14

FY15+

Total

< $11.00

10,852

126

0

3,079

16,555

34,808

90,117

24,896

1,233,023

1,413,456

$11.00-$13.00

0

0

0

56,507

0

3,000

376,290

171,690

52,048

659,535

$13.01-$15.00

0

0

0

231,428

0

36,500

25,000

70,200

289,733

652,861

>$15.00

18,000

138,892

267,928

19,609

55,634

395,060

60,000

5,852

18,430

979,405

1,866,981

Total

28,852

139,018

267,928

310,623

72,189

469,368

551,407

272,638

1,593,234

3,705,257

Qty Vested

28,852

139,018

267,928

310,623

72,189

459,368

484,407

108,208

264,006

2,134,599

% of O/S

100%

100%

100%

100%

100%

98%

88%

40%

17%

58%

Mostly expiring

12/5/08 @

$22.925

Mostly expiring

3/29/08 @ $18.00

Sweet

spot for conversion due to longer

remaining

term

and

lower

expected

exchange ratio

7

Company Confidential

Thousands

Note:

200

day

rolling

average

stock

price

used

to

estimate

value

of

RSUs

-

$9.45

Estimated Value returned to shareholders

Value for Value Exchange -

Proposal

F2

Exchange

analysis

using

no

less

than

4

to

1

exchange

ratio

-

high

value

returned

to

shareholders

Range of Exercise

Prices

Outstanding

Options

Weighted

Average

Remaining Life

in Years for

each Tier

Weighted

Average

Excercise

Price for

each Tier

RMG

Binomial

Breakeven

Ratio

New Options

Unit Cost -

Old Options

Unit Cost -

New

Share of

Restricted Stock

Total Vaule

-

Old Options

Total Vaule

-

New Options

Value returned

to Company (or

delivered to

employees)

$11.00 -

$13.00

659.5

4.47

12.45

$   

4.00

164.9

2.90

$       

9.45

$                  

1,913

$            

1,558

$       

355

$             

$13.01 -

$ 15.00

652.9

4.77

13.54

$   

5.00

130.6

2.79

$       

9.45

$                  

1,821

$            

1,234

$       

588

$             

$15.00 & above

554.6

3.36

17.20

$   

6.00

92.4

1.40

$       

9.45

$                  

776

$                

873

$          

(97)

$              

1,867.0

387.9

4,511

$            

3,666

$       

845

$             

1,479.1

Net Reduction in number of outstanding options

8

Company Confidential

Equity Issues

Stock Option Value Is One Of The Primary Reasons Cited By

Departing Employees

Employee Holdings Do Not Have Retentive Or Incentive Value

Value Disparity Among Employee Population

Competitive Hiring Environment

Adverse/Economic Consequences Related To Turnover

F3

9

Company Confidential

Revenue –

GAAP vs

“As If Combined”

F4

15.7

17.1

19.2

25.2

32.2

28.3

32.5

35.5

36.9

33.1

30.8

34.5

0

5

10

15

20

25

30

35

40

Mar-07Q

Jun-07Q

Sep-07Q

Dec-07Q

Mar-08Q

Jun-08Q

    GAAP

    As If Combined

10

Company Confidential

Exar

15-Mth Relative Price Performance Sept 30, 2008

F5

EXAR 15-Mth Relative Price Performance -

Sept 30, 2008

44

54

64

74

84

94

104

7/19/07

8/17/07

9/18/07

10/17/07

11/15/07

12/17/07

1/17/08

2/19/08

3/19/08

4/18/08

5/19/08

6/18/08

7/18/08

8/18/08

9/17/08

Russell

3000

Index

(^RUA)

-

Share

Pricing

NASDAQ Composite Index (^COMP) -

Share Pricing

S&P

500

Sector

Indices

-

Information

Technology

Sector

Index

-

Share

Pricing

Dow

Jones

Industrial

Average

-

Share

Pricing

PHLX

Semiconductor

Sector

Index

(^SOX)

-

Share

Pricing

Exar

Corp.

(NasdaqGS:EXAR)

-

Common

Stock

-

Share

Pricing

S&P

500

Index

(^SPX)

-

Share

Pricing

11

Company Confidential

Revenue

Reconciliation

–

GAAP

to

“As

If

Combined”

F6

33.1

30.8

34.5

36.9

35.5

32.5

As If Combined

18.5

16.1

16.1

18.5

18.4

16.9

Sipex

14.6

14.7

18.4

18.4

17.1

15.7

Exar

As

If

Combined

Acctg

Basis:

0.9

2.5

9.3

17.7

18.4

16.9

9.7

18.4

16.9

Sipex

pre-acquisition revenue

0.8

1.8

5.2

5.9

Sipex

disty

acq-date

invty

sell-through

0.1

0.7

4.1

2.1

Exar

disty

rev rec

delta to sell-through

Add Revenue Excluded from GAAP:

32.2

28.3

25.2

19.2

17.1

15.7

GAAP

17.7

14.3

10.8

2.9

Sipex

14.5

14.0

14.4

16.2

17.1

15.7

Exar

GAAP Acctg

Basis:

$(M)

Jun-08Q

Mar-08Q

Dec-07Q

Sep-07Q

Jun-07Q

Mar-07Q

Note: amounts are rounded