Exhibit 99.1
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 |