SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or Section 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)(4) 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. 14A:
(3) Filing Party:
(4) Date Filed:
Dear Stockholders:
You are invited to attend the Annual Meeting of Stockholders of EXAR
Corporation to be held at 3:00 p.m. local time on September 18, 1997 at the
Company's Corporate Headquarters at 48720 Kato Road, Fremont, California. At
this meeting you are being asked to vote on several matters recommended by
the Board of Directors. I want to emphasize the importance of Proposal 2 --
our proposed adoption of a new equity incentive plan.
To succeed, EXAR must recruit and retain extraordinarily talented people,
at a time when the competition for these individuals is at an all-time high.
For example, it is common for semiconductor companies in Silicon Valley to
experience voluntary turnover of salaried personnel in excess of 10% per
year. According to industry salary surveys, cash compensation among engineers
has been increasing recently at rates of 12% per year and greater. Unless
EXAR can offer engineers, sales and marketing personnel, and other key
personnel a meaningful participation in the future appreciation of the
Company's stock, I believe we will lose our ability to attract and retain
many of the people we most need.
I joined EXAR in October 1996 because I saw an opportunity to add
significant value to the Company by redirecting its activities and taking
other actions including recruiting key contributors. In the time I have been
here, we have focused the Company's product line in the high-growth areas of
communications, video and imaging, and silicon microstructure products. We
believe this redefinition of our product line is already being reflected in
an enhanced understanding by our customers of EXAR's products and
capabilities. Our engineering activities are now focused on these target
markets, to the exclusion of other activities. We have reorganized the
manufacturing operation of the Company, with significant economics being
realized. And our sales and marketing organization is already delivering
enhanced order flow. In the first six months of calendar 1997, EXAR's
book-to-bill ratio was 1.2:1. This is a substantial improvement over the
previous year and a half.
In my nine months at EXAR, I have seen the kind of value that can be
created by motivated and high-energy employees, and how hard we must work to
recruit and retain these individuals. Not all of that effort is financial.
As executives, we are responsible for creating an environment where work and
achievement is both enjoyable and professionally rewarding, separate and
apart from money. But without creating an exciting financial opportunity for
our employees -- and in our industry, that means stock incentives -- we will
lose our ability to compete for the people who can really make a difference
for our customers and our stockholders. As your President and CEO, my
responsibility is not limited to preserving past successes or acting in a
fashion as "not to lose ground" on the competition. Rather, I firmly believe
that continuing investment in our most critical resource -- our employees --
is needed to vigorously strengthen areas of weakness and inspire creative
solutions to the challenges before us.
The individuals required to compete successfully in the market for analog
and mixed-signal semiconductors are quite scarce, and highly skilled. While
this is true throughout the organization, it is best exemplified by the
number of employees with advanced technical degrees. As of July 1, 1997,
EXAR employed 14 individuals with technical Ph.D. degrees and approximately
50 individuals with other advanced technical degrees such as MSEEs.
The management team at EXAR is dedicated to improving the financial
performance of the Company and increasing the market value of the Common
Stock. I believe that the proposed equity incentive plan is an essential part
of our ability to achieve that objective. The Board of Directors urges you
to vote yes on the 1997 Equity Incentive Plan.
Please sign, date and promptly mail the enclosed proxy in the prepaid
envelope enclosed. Thank you for your attention to this matter.
/s/ Donald L. Ciffone, Jr.
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Donald L. Ciffone, Jr.
President and CEO
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 18, 1997
TO THE STOCKHOLDERS OF EXAR CORPORATION:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of EXAR
CORPORATION, a Delaware corporation (the "Company"), will be held on Thursday,
September 18, 1997 at 3:00 p.m. local time at the Company's Corporate
Headquarters, 48720 Kato Road, Fremont, California, for the following purposes:
1. To elect a director to hold office until the 2000 Annual Meeting of
Stockholders.
2. To approve the Company's 1997 Equity Incentive Plan.
3. To transact such other business as may properly come before the meeting
or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Board of Directors has fixed the close of business on July 28, 1997, as
the record date for the determination of stockholders entitled to notice of and
to vote at this Annual Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
RONALD W. GUIRE
Secretary
Fremont, California
July 28, 1997
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
EXAR CORPORATION
48720 KATO ROAD
FREMONT, CALIFORNIA 94538
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD SEPTEMBER 18, 1997
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of Exar
Corporation, a Delaware corporation (the "Company"), for use at the Annual
Meeting of Stockholders to be held on September 18, 1997, at 3:00 p.m. local
time (the "Annual Meeting"), or at any adjournment or postponement thereof, for
the purposes set forth herein and in the accompanying Notice of Annual Meeting.
The Annual Meeting will be held at the Company's Corporate Headquarters, 48720
Kato Road, Fremont, California. The Company intends to mail this proxy statement
and accompanying proxy card on or about August 15, 1997 to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy
statement, the proxy and any additional information furnished to
stockholders. Copies of solicitation materials will be furnished to banks,
brokerage houses, fiduciaries and custodians holding in their names shares of
Common Stock beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be
supplemented by telephone, telegram or personal solicitation by directors,
officers or other regular employees of the Company or Corporate Investor
Communications, Inc. No additional compensation will be paid to directors,
officers or other regular employees for such services, but Corporate Investor
Communications, Inc. will be paid its customary fee, approximately $4,000,
for solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on July 28,
1997 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on July 28, 1997 the Company had outstanding and entitled to
vote 9,292,755 shares of Common Stock.
Each holder of record of Common Stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
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REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 48720 Kato
Road, Fremont, CA 94538, a written notice of revocation or a duly executed proxy
bearing a later date, or it may be revoked by attending the meeting and voting
in person. Attendance at the meeting will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Company not later
than March 27, 1998 in order to be included in the proxy statement and proxy
relating to that Annual Meeting. In addition, any stockholder that desires to
make a proposal to be presented at the Company's Annual Meeting of Stockholders
must comply with the provisions relating to advance notice contained in the
Company's By-laws.
PROPOSAL 1
ELECTION OF DIRECTOR
The Company's Amended and Restated Certificate of Incorporation, as amended,
and By-laws provide that the Board of Directors shall be divided into three
classes, each class consisting, as nearly as possible, of one-third of the total
number of directors, with each class having a three-year term. Vacancies on the
Board may be filled by either (i) the affirmative vote of the holders of a
majority of the voting power of the then-outstanding shares of voting stock of
the Company voting together as a single class, or (ii) by a majority of the
remaining directors. A director elected to fill a vacancy shall serve for the
remainder of the full term of the class of directors in which the vacancy
occurred and until such director's successor is elected and qualified.
The Board of Directors is presently composed of six members. There are two
directors in the class whose term of office expires in 1997, George E. Grega and
James E. Dykes. Mr. Grega has indicated that he will not stand for re-election
upon expiration of his current term. Mr. Dykes, the only nominee for
election to this class, is currently a director of the Company who was
previously elected by the stockholders. If elected at the Annual Meeting, Mr.
Dykes would serve until the 2000 Annual Meeting and until his successor is
elected and has qualified, or until such director's earlier death, resignation
or removal.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote at the meeting. Shares represented by
executed proxies will be voted, if authority to do so is not withheld, for the
election of the nominees named below. In the event that the nominee should be
unavailable for election as a result of an unexpected occurrence, such shares
will be voted for the election of such substitute nominee as management may
propose. The person nominated for election has agreed to serve if elected, and
management has no reason to believe that the nominee will be unable to serve.
Set forth below is biographical information for the person nominated and
each person whose term of office as a director will continue after the Annual
Meeting.
Nominee for Election for a Three-year Term Expiring at the 2000 Annual
Meeting
JAMES E. DYKES
Mr. Dykes, age 59, joined the Company's Board of Directors in May 1994. Mr.
Dykes served as President and CEO of the Signetics division of North American
Philips Corporation, a manufacturer of industrial and consumer electronics, from
1989 to 1993 and, from 1987 to 1988, as President and CEO of Taiwan
Semiconductor Manufacturing Company ("TSMC"), a semiconductor foundry in Taiwan.
Prior to joining TSMC,
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Mr. Dykes held various management positions with other
semiconductor and related companies including General Electric Company, a
diversified international manufacturer of defense, electrical and other
products, and Harris Semiconductor, Inc., a manufacturer of semiconductors and
integrated circuits. From August 1994 to June 1997, Mr. Dykes served as
President and Chief Operating Officer of Intellon Corp., a wireless network
communications company. In July 1997, Mr. Dykes joined the Thomas Group, Inc. as
Executive Vice President, Corporate Development. Mr. Dykes is also a director of
Cree Research, Inc., a developer of blue light-emitting diodes, and the Thomas
Group Inc., a management services company.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEE.
Directors Continuing in Office Until the 1998 Annual Meeting
DONALD L. CIFFONE, JR.
Mr. Ciffone, age 42, joined the Company as President and CEO in October 1996
and was appointed a director at that time. Mr. Ciffone has more than 19 years of
semiconductor experience. Prior to joining the Company he was Executive Vice
President of Toshiba America from August 1996 to October 1996 and served in a
variety of senior management positions at VLSI Technology, Inc. between 1991 and
1996, the last being Senior Vice President, VLSI Products. Prior to joining that
company, Mr. Ciffone was at National Semiconductor Corporation for 13 years
where he held a variety of marketing and operations positions.
RONALD W. GUIRE
Mr. Guire, age 48, joined the Company in July 1984 and has been a director
of the Company since June 1985. Mr. Guire has served in a variety of officer
positions, and has been Chief Financial Officer of the Company since May 1985
and Executive Vice President since July 1995. Mr. Guire is a director of XeTel
Corporation. Mr. Guire was a partner in the certified public accounting firm of
Graubart & Co. from 1979 until he joined the Company in July 1984.
Directors Continuing in Office Until the 1999 Annual Meeting
GEORGE D. WELLS
Mr. Wells, age 61, joined the Company as President and CEO in June 1992 and
has served as a director since September 1992. In October, 1996, Mr. Wells
retired as President and CEO of the Company. Mr. Wells has more than 35 years of
semiconductor experience. He joined LSI Logic Corporation, a manufacturer of
HCMOS and BiCMOS application-specific integrated circuits, in 1985 as President
and Chief Operating Officer and was appointed Vice Chairman in March 1992, a
position he held until three months before he joined the Company. From 1983 to
1985, Mr. Wells was President of Intersil and General Manager of Semiconductor,
both divisions of General Electric Company. Mr. Wells is a director of QLogic
Corporation, a supplier of adaptor cards and disk control chips and Align-Rite,
a semiconductor photoplate manufacturer.
RAIMON L. CONLISK
Mr. Conlisk, age 75, has served as a director of the Company since August
1985, was appointed Vice Chairman of the Board in August 1990, and was appointed
Chairman of the Board in April 1995. From 1977 to date, Mr. Conlisk has been
President of Conlisk Associates, a management consulting firm serving
high-technology companies in the United States and foreign countries. Mr.
Conlisk has also been President, from 1984 to 1989, and Chairman, from 1989
until retirement in June 1990, of Quantic Industries, Inc. ("Quantic"), a
privately-held manufacturer of electronic systems. He was a director of Quantic
from 1970 until retirement. From 1970 to 1973, and from 1987 to 1990, Mr.
Conlisk served as a director of the American Electronics Association. Mr.
Conlisk is also Chairman of the Board of SBE, Inc., a manufacturer of
communication and computer products, and a director of XeTel Corporation, an
electronics contract manufacturer.
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BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 31, 1997, the Board of Directors held
eight meetings. The Board maintains an Audit Committee, a Compensation
Committee, an Employee Option Administration Committee and a Nominating
Committee.
The Audit Committee reviews the results of the Company's annual audit,
recommends to the Board the independent auditors to be retained for the
Company, and receives and considers the accountants' comments as to controls,
adequacy of staff and management performance, and procedures in connection
with audit and financial controls. The Audit Committee, which during the
fiscal year ended March 31, 1997, was composed of Messrs. Conlisk, Grega, and
Dykes, held four meetings during such fiscal year. Mr. Grega serves as
Chairman of the Audit Committee.
The Compensation Committee evaluates the performance of the Company's
President and CEO, reviews the performance of other members of management, and
reviews and approves or recommends to the Board compensation levels, policies
and programs. The Compensation Committee, which during the fiscal year ended
March 31, 1997, was composed of Messrs. Conlisk, Dykes and Grega, held five
meetings during such fiscal year. Mr. Dykes serves as Chairman of the
Compensation Committee.
The Employee Option Administration Committee administers the Company's
employee stock option plans, including the granting of any options under those
plans. The Employee Option Administration Committee, which during the fiscal
year ended March 31, 1997, was composed of Messrs. Conlisk and Grega, the latter
of whom served as Chairman of the Committee, held eight meetings during such
fiscal year.
The Nominating Committee interviews, evaluates, nominates and recommends
individuals for membership on the Company's Board of Directors and committees
thereof. The Nominating Committee will consider nominees recommended by
stockholders. Such recommendations should be submitted to the attention of the
Chairman of the Nominating Committee. The Nominating Committee, which during the
fiscal year ended March 31, 1997, was composed of Messrs. Conlisk, Dykes and
Grega, held five meetings during such fiscal year. Mr. Conlisk serves as
Chairman of the Nominating Committee.
During the fiscal year ended March 31, 1997, each Board member attended at
least 75% of the aggregate of the meetings of the Board and of the committees on
which he served held during the period for which he was a director or committee
member, respectively.
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PROPOSAL 2
APPROVAL OF 1997 EQUITY INCENTIVE PLAN
In June 1997, the Board adopted the 1997 Equity Incentive Plan (the
"Plan") and reserved 825,000 common shares for issuance under the Plan plus
an additional number of shares that may become available under this Plan that
were reserved for issuance under the Company's 1991 Stock Option Plan, as
amended (the "1991 Plan"). The Board adopted the Plan to ensure that the
Company can continue to grant stock options to employees at levels determined
appropriate by the Board.
As of June 30, 1997, options covering an aggregate of 1,635,041 shares of
the Company's Common Stock were outstanding under the 1991 Plan and 119,163
shares (plus any shares that might in the future be returned to the 1991 Plan as
a result of cancellations or expiration of options) remained available for
future grant under the 1991 Plan.
Stockholders are requested in this Proposal to approve the Plan and to
reserve for issuance 825,000 shares. If the stockholders fail to approve this
Proposal, the Plan will terminate and any outstanding options granted under the
Plan will terminate and become null and void. The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting will be required to approve the Plan.
Abstentions will be counted toward the tabulation of votes cast on proposals
presented to the stockholders and will have the same effect as negative votes.
Broker non-votes are counted towards a quorum, but are not counted for any
purpose in determining whether this matter has been approved.
THE BOARD OF DIRECTORS RECOMMEND
A VOTE IN FAVOR OF PROPOSAL 2.
The essential features of the Plan are outlined below:
GENERAL
The Plan provides for the grant or issuance of incentive stock options,
nonstatutory stock options and stock bonuses to employees, directors and
consultants. Incentive stock options granted under the Plan are intended to
qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the Plan are intended not to qualify as incentive stock
options under the Code. See "Federal Income Tax Information" for a discussion of
the tax treatment of the various awards included in the Plan.
PURPOSE
The Plan provides a means by which selected employees, directors and
consultants to the Company, and its affiliates, may be given an opportunity
to acquire Common Stock of the Company. The Company, by means of the Plan,
seeks to retain the services of persons who are now employees, directors or
consultants to the Company or its affiliates, to secure and retain the
services of new employees, directors and consultants, and to provide
incentives for such persons to exert maximum efforts for the success of the
Company.
FORMS OF BENEFIT
The Plan provides for incentive stock options, nonstatutory stock options
and stock bonuses (collectively "Stock Awards").
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ADMINISTRATION
The Plan is administered by the Board unless and until the Board delegates
administration to a committee composed of two (2) or more Board members, all of
the members of which committee may be non-employee directors (as defined under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and may
also be, in the discretion of the Board, outside directors (as defined under the
Internal Revenue Code of 1986, as amended (the "Code")). If administration is
delegated to a committee, such committee will have, in connection with the
administration of the Plan, the powers possessed by the Board, subject, however,
to such resolutions, not inconsistent with the provisions of the Plan, as may be
adopted from time to time by the Board. The Board or the committee may delegate
to a subcommittee of one or more members of the Board the authority to grant
Stock Awards to eligible persons who are not then subject to Section 16 of the
Exchange Act and/or who are either (i) not then employees covered by Section
162(m) of the Code and are not expected to be covered by Section 162(m) of the
Code at the time of recognition of income resulting from such Stock Award, or
(ii) not persons with respect to whom the Company wishes to qualify for an
exemption from the application of Section 162(m) of the Code. The Board may
abolish a committee or subcommittee at any time and revest in the Board the
administration of the Plan. The Board has delegated the administration of the
Plan to the Employee Option Administration Committee.
The Board has the power to determine from time to time which of the persons
eligible under the Plan shall be granted awards, the type of awards to be
granted, when and how each award shall be granted, to construe and interpret the
Plan and awards granted under it, and to establish, amend and revoke rules and
regulations for its administration. The Board may correct any defect in the Plan
or in any award agreement to make the Plan fully effective.
SHARES SUBJECT TO THE PLAN
The Common Stock that may be sold pursuant to awards under the Plan shall
not exceed in the aggregate 825,000 shares of the Company's Common Stock plus
any shares that remained available for issuance under the Company's 1991 Stock
Option Plan (the "1991 Plan") on the date the Plan was adopted and any
additional shares that would become available under the 1991 Plan due to the
expiration or other termination of any stock award thereunder. If any award
expires or terminates, in whole or in part, without having been exercised in
full, the stock not purchased under such award will revert to and again become
available for issuance under the Plan. The Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
ELIGIBILITY
Incentive stock options may be granted only to employees. Nonstatutory stock
options and stock bonuses may be granted only to employees or consultants.
No person is eligible for the grant of an incentive stock option if, at
the time of grant, such person owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company unless the exercise price of such option is at least one hundred ten
percent (110%) of the fair market value of such Common Stock subject to the
option at the date of grant and the option is not exercisable after the
expiration of five (5) years from the date of grant. No person shall be
eligible to be granted Stock Awards covering more than Three Hundred Thousand
(300,000) shares of the Company's Common Stock in any calendar year.
TERM AND TERMINATION
No option is exercisable after the expiration of ten (10) years from the
date it was granted.
In the event an optionee's employment or relationship as a consultant is
terminated, the optionee may exercise his or her option (to the extent that the
optionee was entitled to exercise it at the time of termination) but only within
the earlier of (i) the date three (3) months after the termination of the
optionee's employment or relationship as a consultant, or (ii) the expiration of
the term of the option as set forth in the option agreement. However, if the
optionee's termination of employment or relationship as a consultant is due to
permanent and total disability, the three (3) month period is extended to one
(1) year. In addition, if the optionee dies while an employee, consultant, or
6
within three (3) months following the termination of such relationship, the
three (3) month period is extended to eighteen (18) months,
In the event a stock bonus recipient's continuous status as an employee,
consultant terminates, the Company may repurchase or otherwise reacquire any or
all of the shares of stock held by that person which have not vested as of the
date of termination under the terms of the stock bonus agreement between the
Company and such person.
EXERCISE/PURCHASE PRICE
The exercise price of each incentive stock option will not be less than one
hundred percent (100%) of the fair market value of the Company's Common Stock on
the date of grant. The exercise price of each nonstatutory stock option will not
be less than fifty percent (50%) of the fair market value on the date of grant
except for options issued under a salary deferral election.
CONSIDERATION
The purchase price of stock acquired pursuant to a Stock Award is paid
either in cash at the time of exercise or purchase, or (if determined by the
Board at the time of grant or exercise for an option) by deferred payment or
other arrangement or in any other form of legal consideration that may be
acceptable to the Board. Additionally, in the case of an option and in the
discretion of the Board at the time of the grant or exercise of an option, by
delivery to the Company of other Common Stock of the Company. In the case of any
deferred payment arrangement, interest will be payable at least annually and
will be charged at the minimum rate of interest necessary to avoid the treatment
as interest of amounts that are not stated to be interest.
TRANSFERABILITY
An incentive stock option shall not be transferable except by will or by the
laws of descent and distribution, and shall be exercisable during the lifetime
of the person to whom the incentive stock option is granted only by such person.
A stock bonus shall not be transferable except where required by law or
expressly authorized by the applicable stock bonus agreement. A nonstatutory
stock option shall be transferable only to the extent specifically provided for
in the option agreement. An award holder may designate a beneficiary who may
exercise his or her award after death.
VESTING
The total number of shares of stock subject to an option may, but need
not, be allotted in periodic installments. The option agreement may provide
that from time to time during each of such installment periods, the option
may become exercisable ("vest") with respect to some or all of the shares
allotted to that period, and may be exercised with respect to some or all of
the shares allotted to such period and/or any prior period as to which the
option became vested but was not fully exercised. The option agreement may
also provide that an optionee may exercise an option prior to full vesting,
provided that the Company may have a repurchase right with respect to any
unvested shares.
Stock bonuses sold or awarded under the Plan may be granted pursuant to a
repurchase option in favor of the Company in accordance with a vesting schedule
determined by the Board.
SALARY DEFERRAL ELECTIONS
The Committee may permit selected employees to elect to have a portion of
their compensation reduced each year in return for options to purchase Common
Stock at an aggregate discount from current fair market value equal to the
salary reduction amount.
Elections to defer salary must be filed with the Company prior to the
commencement of the calendar year in which the salary to be deferred is earned,
and are irrevocable for that year. The minimum amount of salary that may be
deferred for a year is $5,000; the maximum is $50,000.
7
Options granted pursuant to a salary deferral election will be granted on or
before the last trading day in January of the calendar year for which the salary
reduction election is to be in effect. The number of shares of Common Stock
subject to each option shall be equal to A / (B x 66-2/3%), where A is the
salary deferral amount and B is the fair market value per share of Common Stock
on the option grant date. The number of shares shall be rounded down to the
nearest whole number.
The exercise price of each option granted pursuant to a salary deferral
election shall be 33 1/3% of the fair market value of the Common Stock subject
to such option on the date such option is granted. Such options shall become
exercisable in twelve monthly installments at the end of each month of the
calendar year in which salary is deferred, and shall terminate on the earlier of
(i) ten years from the date the option was granted, (ii) three years following
termination of employment or relationship as a director or consultant.
ADJUSTMENTS UPON CHANGES IN STOCK
If any change is made in the Common Stock subject to the Plan, or subject to
any Stock Award, without receipt of consideration by the Company (through
merger, consolidation, reorganization, recapitalization, stock dividend,
dividend in property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate structure or
otherwise), the class(es) and maximum number of shares subject to the Plan, the
maximum annual award applicable under the Plan and the class(es) and number of
shares and price per share of stock subject to outstanding Stock Awards will be
appropriately adjusted.
In the event of: (1) a dissolution or liquidation of the Company; (2) a
merger or consolidation in which the Company is not the surviving corporation;
(3) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; or (4) any other capital reorganization
in which more than fifty percent (50%) of the shares of the Company entitled to
vote are exchanged, excluding in each case a capital reorganization in which the
sole purpose is to change the state of incorporation on the Company, then all
outstanding options shall become exercisable in full for a period of at least
ten (10) days, and all stock bonuses shall be fully vested, prior to such event.
Outstanding options which have not been exercised prior to such event shall
terminate on the date of such event unless assumed by a successor corporation.
AMENDMENT OF THE PLAN
The Board at any time, and from time to time, may amend the Plan.
However, no amendment shall be effective unless approved by the stockholders
of the Company to the extent such amendment requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code, to
comply with the requirements of Rule 16b-3 of the Exchange Act or to comply
with any Nasdaq or securities exchange listing requirements. The Board may in
its sole discretion submit any other amendment to the Plan for stockholder
approval.
TERMINATION OR SUSPENSION OF THE PLAN
The Board may suspend or terminate the Plan at any time. Unless sooner
terminated, the Plan shall terminate September 1, 2007. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the Plan are
intended to be eligible for the favorable federal income tax treatment
accorded "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee or
the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
8
If an optionee holds stock acquired through exercise of an incentive stock
option for at least two (2) years from the date on which the option is granted
and at least one (1) year from the date on which the shares are transferred to
the optionee upon exercise of the option, any gain or loss on a disposition of
such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Capital gains currently are generally
subject to lower tax rates than ordinary income. The maximum long-term capital
gains rate for federal income tax purposes is currently 28% while the maximum
ordinary income rate is effectively 39.6% at the present time. Slightly
different rules may apply to optionees who acquire stock subject to certain
repurchase options or who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness and the satisfaction of a tax reporting
obligation) to a corresponding business expense deduction in the tax year in
which the disqualifying disposition occurs.
NONSTATUTORY STOCK OPTIONS. Nonstatutory stock options granted under the
Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason of
the grant of a nonstatutory stock option. Upon exercise of a nonstatutory stock
option, the optionee normally will recognize taxable ordinary income equal to
the excess of the stock's fair market value on the date of exercise over the
option exercise price plus any amount paid for such option. With respect to
employees, the Company is generally required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Generally, the Company will be entitled to a business expense deduction equal to
the taxable ordinary income realized by the optionee. Upon disposition of the
stock, the optionee will recognize a capital gain or loss equal to the
difference between the selling price and the sum of the amount paid for such
stock plus any amount recognized as ordinary income upon exercise of the option.
Such gain or loss will be long or short-term depending on whether the stock was
held for more than one year. Slightly different rules may apply to optionees who
acquire stock subject to certain repurchase options or who are subject to
Section 16(b) of the Exchange Act.
STOCK BONUSES. Stock bonuses granted under the Plan generally have the
following federal income tax consequences:
Upon acquisition of the stock, the recipient normally will recognize taxable
ordinary income equal to the excess of the stock's fair market value over the
purchase price, if any. However, to the extent the stock is subject to certain
types of vesting restrictions, the taxable event will be delayed until the
vesting restrictions lapse unless the recipient elects to be taxed on receipt of
the stock. With respect to employees, the Company is generally required to
withhold from regular wages or supplemental wage payments an amount based on the
ordinary income recognized. Generally, the Company will be entitled to a
business expense deduction equal to the taxable ordinary income realized by the
optionee. Upon disposition of the stock, the optionee will recognize a capital
gain or loss equal to the difference between the selling price and the sum of
the amount paid for such stock plus any amount recognized as ordinary income
upon acquisition (or vesting) of the stock. Such gain or loss will be long or
short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
POTENTIAL LIMITATION ON COMPANY DEDUCTIONS. As part of the Omnibus Budget
Reconciliation Act of 1993, the U.S. Congress amended the Code to add Section
162(m) which denies a deduction to any publicly held corporation for
compensation paid to certain employees in a taxable year to the extent that
compensation exceeds $1 million for a covered employee. It is possible that
compensation attributable to awards granted in the future under the
9
Plan, when combined with all other types of compensation received by a
covered employee from the Company, may cause this limitation to be exceeded
in any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (i) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period (such as that set forth in the Plan), the per-employee
limitation is approved by the stockholders, and the exercise price of the option
is no less than the fair market value of the stock on the date of grant; or (ii)
the option is granted (or exercisable) only upon the achievement (as certified
in writing by the compensation committee) of an objective performance goal
established in writing by the compensation committee while the outcome is
substantially uncertain, and the option is approved by stockholders.
10
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of June 30, 1997 by: (i) each
director and nominee for director; (ii) each Named Executive Officer (as
defined below); (iii) all executive officers and directors of the Company as
a group; and (iv) all those known by the Company to be beneficial owners of
more than five percent of its Common Stock.
BENEFICIAL OWNERSHIP (1)
--------------------------
NUMBER OF PERCENT OF
BENEFICIAL OWNER SHARES TOTAL
- -------------------------------------------------- ----------- -------------
Franklin Resources, Inc. (2)...................... 644,800 7.0%
777 Mariners Island Boulevard
San Mateo, CA 94403
Wellington Management Company(3).................. 554,500 6.0%
75 State Street
Boston, MA 02109
Oppenheimer & Co. Inc. (4)........................ 506,900 5.5%
Oppenheimer Tower
World Financial Center
New York, NY 10281
The TCW Group, Inc. (5)........................... 477,700 5.2%
865 South Figuerra Street
Los Angeles, CA 90017
Mellon Bank Corporation (6)....................... 477,000 5.2%
One Mellon Bank Center
Pittsburgh, PA 15258
Ronald W. Guire(7)................................ 87,460 *
Stephen W. Michael(7)............................. 61,115 *
George D. Wells................................... 56,199 *
Raimon L. Conlisk(7).............................. 48,750 *
George E. Grega(7)................................ 48,750 *
Thomas R. Melendrez(7)............................ 31,745 *
James E. Dykes(7)................................. 22,500 *
Roubik Gregorian (7).............................. 2,521 *
Donald L. Ciffone, Jr............................. 1,453 *
All executive officers and directors as a group
(13 persons)(7).................................. 436,748 4.6%
* Less than one percent.
(1) This table is based upon information supplied by officers, directors, and
principal stockholders and Schedules 13G filed with the Securities and
Exchange Commission (the "SEC"). Unless otherwise indicated in the footnotes
to this table, and subject to community property laws where applicable, each
of the stockholders named in this table has sole voting and investment power
with respect to the shares indicated as beneficially owned. Applicable
percentages are based on 9,278,137 shares of the Company's Common Stock
outstanding on June 30, 1997, adjusted as required by rules promulgated by
the SEC.
(2) Based on a Schedule 13G filed with the SEC on February 12, 1997.
11
(3) Based on a Schedule 13G filed with the SEC on January 24, 1997. Includes
255,500 shares over which Wellington Management Company has shared voting
power and 554,500 shares over which Wellington Management Company has shared
disposition power.
(4) Based on a Schedule 13G filed with the SEC on January 21, 1997. Includes
506,900 shares over which Oppenheimer & Co. Inc. has shared voting power and
disposition power.
(5) Based on a Schedule 13G filed with the SEC on February 12, 1997.
(6) Based on a Schedule 13G filed with the SEC on January 29, 1997. Includes
96,100 shares over which Mellon Bank Corporation has shared voting power and
57,000 shares over which Mellon Bank Corporation has shared disposition
power.
(7) Includes shares which certain executive officers and directors have the
right to acquire within 60 days after June 30, 1997, pursuant to outstanding
options as follows: Ronald W. Guire, 53,250 shares; Raimon L. Conlisk,
48,750 shares; George E. Grega, 48,750 shares; Stephen W. Michael, 56,500
shares; Thomas R. Melendrez, 28,876 shares; James E. Dykes, 22,500 shares;
Roubik Gregorian, 2,000 shares; and all executive officers and directors as
a group, 307,251 shares.
12
Compliance with the Reporting Requirements of Section 16(a)
Section 16(a) of the Exchange Act requires the Company's directors and
executive officers, and persons who own more than ten percent of a registered
class of the Company's equity securities, to file with the SEC initial reports
of ownership and reports of changes in ownership of Common Stock and other
equity securities of the Company. Officers, directors and greater than ten
percent stockholders are required by SEC regulation to furnish the Company with
copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended March 31, 1997, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
FEES. In fiscal 1997, the Company paid fees to each of its non-employee
directors for their services as directors. The Company paid each of James E.
Dykes and George E. Grega fees totalling $21,600 for their services as
directors. The Company paid George D. Wells fees totalling $10,800 for his
services as a non-employee Director. The Company paid Raimon L. Conlisk fees
totalling $43,200 for his services as a director, including service as
Chairman of the Board of Directors. In addition, the Company reimburses all
directors for certain expenses incurred in connection with their services as
directors in accordance with Company policy.
NONQUALIFIED STOCK OPTIONS. Non-Employee Directors received periodic
non-discretionary grants of nonqualified stock options to purchase shares of
Common Stock of the Company under the 1991 Non-Employee Directors' Stock
Option Plan (the "1991 Directors' Plan"), which was terminated as to future
grants on May 31, 1996. Non-Employee Directors now receive grants under the
1996 Non-Employee Directors' Stock Option Plan (the "1996 Directors' Plan").
The Directors' Plans provide that upon initial election to the Board, each
Non-Employee Director is granted an option to purchase 22,500 shares of
Common Stock, and is automatically granted an option to purchase 7,500
additional shares on each yearly anniversary date thereafter. In addition,
the 1996 Directors' Plan provides that Non-Employee Directors may defer the
payment of fees for their services as directors and apply such deferrals to
options with exercise prices set at a discount to market with the aggregate
amount of such discounts equal to the aggregate amount of the fees so
deferred. Options granted under the Directors' Plans are granted at fair
market value and vest in four equal annual installments with the first
installment becoming exercisable on the first anniversary of the date of the
option grant. The maximum term of options granted under the Directors' Plans
is seven years. Prior to the adoption of the 1991 Directors' Plan,
Non-Employee Directors received options under the 1986 Non-Employee
Directors' Stock Option Plan (the "1986 Directors' Plan"), which was
terminated as to future grants in November 1991. At March 31, 1997, options
to purchase 7,500 shares of Common Stock were outstanding under the 1986
Directors' Plan and options to purchase 157,500 shares of Common Stock were
outstanding under the 1991 Directors' Plan.
During fiscal 1997, options covering 22,500 shares were granted under the
1991 Directors' Plan to the Company's Non-Employee Directors during such
period at an exercise price of $17.19 per share and options covering 22,500
shares were granted under the 1996 Directors' Plan at an exercise price of
$14.25. The exercise price of such options was equal to the fair market value
of the Company's Common Stock on the date of grant. During the same period,
options covering 5,624 shares were exercised by non-employee directors under
the 1986 Directors' Plan for a net value realized of $59,952.
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended March 31, 1997, 1996
and 1995, compensation awarded or paid to, or earned by, the Company's
Presidents and CEOs, and its other four most highly compensated executive
officers at March 31, 1997 (the "Named Executive Officers"):
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
------------------------ SECURITIES ALL OTHER
NAME AND PRINCIPAL SALARY UNDERLYING COMPENSATION
POSITION YEAR ($)(2) BONUS($) OPTIONS (#)(3) ($)(4)
- ------------------------------------------------ --------- ---------- ------------ -------------- ---------------
Donald L. Ciffone, Jr. (5) 1997 188,824 197,000(5) 225,000 843
President and CEO 1996 -- -- -- --
1995 -- -- -- --
George D. Wells (6) 1997 209,512 0 22,500 966
Former President and CEO 1996 343,287 0 25,000 3,750
1995 328,140 137,000 0 9,794
Ronald W. Guire 1997 219,308 21,700 65,000 1,052
Executive Vice President, 1996 204,234 0 15,000 3,750
Chief Financial Officer 1995 197,615 70,000 0 10,702
and Secretary
Roubik Gregorian (7) 1997 188,308 345,000(6) 23,000 912
Chief Technology Officer 1996 -- -- -- --
Vice President, 1995 -- -- -- --
Communications Division
Thomas R. Melendrez 1997 174,846 11,900 20,500 844
Corporate Vice President, 1996 152,309 39,000 10,000 3,750
General Counsel 1995 156,563 39,450 0 9,826
Stephen W. Michael 1997 166,481 12,670 16,000 802
Vice President, 1996 156,576 0 8,000 3,750
Operations Division 1995 144,077 30,000 0 0
- ------------------------
(1) As permitted by rules promulgated by the SEC, no amounts are shown for
"perquisites," as such amounts for each Named Executive Officer do not
exceed the lesser of 10% of the sum of such executive's salary plus bonus
or $50,000.
(2) Includes amounts earned but deferred at the election of the Named Executive
Officer pursuant to the Company's tax-qualified Savings Plan (the "401(k)
Plan"). Also includes auto allowances.
(3) The Company has not granted any stock appreciation rights or made any
restricted stock bonus awards to any executive officer.
(4) Consists of matching contributions made for fiscal 1997, fiscal 1996 and
fiscal 1995 by the Company for the benefit of each Named Executive Officer
under its 401(k) Plan in the stated amounts.
14
(5) Mr. Ciffone joined the Company as President and CEO in October 1996. The
elements of Mr. Ciffone's fiscal 1997 and 1998 compensation were negotiated
and set forth in an offer letter from the Company which provided for, among
other things, his fiscal 1997 base compensation rate, his initial
recommended grant of stock options to purchase 225,000 shares and a
calculated incentive payment under the Company's FY 1997 Executive Incentive
Compensation Program or $197,000, whichever is greater. Mr. Ciffone also
received an auto allowance of $1,000 per month and a "sign on"
loan of $100,000 which shall be deemed paid in full if Mr. Ciffone remains
an employee in good standing for a period of 18 months following his start
date.
(6) Reflects compensation paid to Mr. Wells as President and CEO from April 1996
through his resignation in October 1996 and non-employee director
compensation from October 1996 through March 1997.
(7) Reflects a retention payment per the March 19, 1995 Agreement and Plan of
Reorganization between the Company and Startech Semiconductor, Inc.
OPTION GRANTS IN LAST FISCAL YEAR
The Company has granted both incentive and nonqualified stock options to its
executive officers under its 1991 Plan, as amended. The following tables show
for the fiscal year ended March 31, 1997, certain information regarding options
granted to, exercised by, and held at year end by, the Named Executive Officers:
POTENTIAL REALIZABLE
NUMBER OF % OF TOTAL VALUE AT ASSUMED ANNUAL
SECURITIES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED TO PRICE APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM (4)
GRANTED IN FISCAL PRICE EXPIRATION --------------------------
NAME (#)(1) YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
- ------------------------------------------------ ----------- ------------- ----------- ----------- ------------ ------------
Donald L. Ciffone, Jr. 225,000 27.1% $ 14.25 10/11/03 $ 1,305,266 $ 3,041,824
George D. Wells 22,500 2.7% $ 14.25 10/11/03 $ 130,527 $ 304,182
Ronald W. Guire 15,000 1.8% $ 15.75 06/12/03 $ 96,177 $ 224,134
50,000 6.0% $ 14.25 10/11/03 $ 290,059 $ 675,961
Stephen W. Michael 8,000 1.0% $ 15.75 06/12/03 $ 51,295 $ 119,538
8,000 1.0% $ 16.50 11/15/03 $53,737 $ 125,231
Thomas R. Melendrez 8,000 1.0% $ 15.75 06/12/03 $ 51,295 $ 119,538
12,500 1.5% $ 16.50 11/15/03 $ 83,964 $ 195,673
Roubik Gregorian 8,000 1.0% $ 15.75 06/12/03 $ 51,295 $ 119,538
15,000 1.8% $ 16.50 11/15/03 $ 100,757 $ 234,807
- ----
- ------------------------
(1) The options were granted under the terms of the 1991 Plan, as amended.
Options generally vest 25% per year on the anniversary date of the grant.
The options will become fully vested prior to and the time during which the
stock option may be exercised shall be accelerated upon a change in control
of the Company as defined in the 1991 Plan, as amended. Outstanding options
which have not been exercised prior to a change in control event shall
terminate on the date of such event unless assumed by the successor
corporation.
(2) Based on options to purchase an aggregate of 829,000 shares of Exar Common
Stock granted to employees of Exar in fiscal 1997, including the Named
Executive Officers.
(3) The exercise price of the options was equal to the fair market value of
Common Stock on the date of grant.
15
(4) The potential realizable value is based on the term of the option at the
time of grant (7 years). The potential realizable value is calculated by
assuming that the stock price on the date of grant appreciates at the
indicated rate for the entire term of the option and that the option is
exercised and sold on the last day of its term at the appreciated price.
These amounts represent certain assumed
rates of appreciation, in accordance with rules of the SEC, and do not
reflect Exar's estimate or projection of future stock price performance.
Actual gains, if any, are dependent on the actual future performance of Exar
Common Stock and no gain to the optionee is possible unless the stock price
increases over the option term, which will benefit all stockholders.
16
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL
YEAR-END OPTION VALUES
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE FY-END (#) FY-END ($)
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- -------------------------------------------- --------------- -------------- --------------- -----------------
Donald L. Ciffone, Jr....................... 0 0 0/225,000 0/$112,500
George D. Wells............................. 56,251 384,475 0/22,500 0/$11,250
Ronald W. Guire............................. 0 0 45,750/94,999 $ 43,973/$25,000
Stephen W. Michael.......................... 0 0 56,750/33,249 0/0
Thomas R. Melendrez......................... 0 0 25,001/39,250 $6,866/0
Roubik Gregorian............................ 6000 $ 32,700 (3) 0/23,000 0/0
- ------------------------
(1) Represents the fair market value of the Company's Common Stock on the date
of exercise (based on the closing sales price reported on the Nasdaq
National Market or the actual sales price if the shares were sold by the
optionee simultaneously with the exercise) less the exercise price, without
taking into account any taxes that may be payable in connection with the
transaction.
(2) Fair market value of the Company's Common Stock at March 31, 1997 ($14.75)
minus the exercise price of the options.
(3) Represents options assumed by the Company in connection with the acquisition
of Startech Semiconductor, Inc.
17
REPORT OF THE COMPENSATION COMMITTEE AND OF THE
EMPLOYEE OPTION ADMINISTRATION COMMITTEE(1)
During fiscal 1997, the Compensation Committee of the Board of Directors
(the "Compensation Committee") consisted of Messrs. Conlisk, Grega, and Dykes,
the latter of whom serves as Chairman of the Committee and none of whom is an
officer or an employee of the Company. The Compensation Committee evaluates the
performance of the Company's President and CEO, reviews the performance of other
executive officers and reviews and approves or recommends to the Board
compensation levels, policies and programs. The Employee Option Administration
Committee of the Board of Directors (the "Option Committee") consists of Messrs.
Conlisk and Grega, the latter of whom serves as Chairman of the Committee. The
Option Committee administers the Company's employee stock option plans.
GENERAL COMPENSATION POLICY
COMPENSATION PHILOSOPHY. The Compensation Committee and the Option
Committee (the "Committees") believe that the Company's overall compensation
program should be related to creating stockholder value. Accordingly, the
compensation program is designed to attract and retain talented executives
and technical personnel, to reward achievement of the Company's short-term
and long-term performance goals, to link executive compensation to
stockholder interests through equity-based plans, and to recognize and reward
individual contributions to operating group and Company-wide performance
objectives.
COMPONENTS OF EXECUTIVE COMPENSATION. During fiscal 1997, compensation for
the Company's executive officers consisted of base salary, participation in an
annual incentive compensation program and longer-term equity incentives. The
Committee calibrated each component to a competitive market position based on
compensation surveys and other relevant information. The Company also offers to
its executive officers participation (with all other eligible employees of the
Company) in the Company's 401(k) Savings Plan, an auto allowance for most
executive officers, and certain other benefits available generally to employees
of the Company.
CASH-BASED COMPENSATION
BASE SALARY. The Compensation Committee determines the base salary of the
President and CEO and reviews and approves base salaries for each of the
Company's other executive officers annually in connection with annual
performance reviews. In adjusting base salaries, the Compensation Committee
examines both qualitative and quantitative factors relating to corporate and
individual performance. In many instances, the qualitative factors
necessarily involve a subjective assessment by the Committee. The Committee
neither bases its considerations on any single performance factor nor does it
specifically assign relative weights to factors but rather considers a mix of
factors and evaluates individual performance against that mix both in
absolute terms and in relation to other Company executives. Generally, in
approving salary adjustments for executive officers (other than the President
and CEO), the Committee considers the evaluation and recommendations of the
Company's President and CEO.
The Compensation Committee reviews an independent survey of compensation of
executive officers of other high technology companies to enable it to set base
salaries based on each executive officer's level of responsibility and within
the parameters of companies of comparable size in the Company's industry. The
survey includes a broader group of technology companies than those companies
included in the Hambrecht & Quist Technology Index used in the performance
measurement comparison graph included in this proxy statement. Generally, base
salaries paid to executive officers for fiscal 1997 were set at levels within
the top half of salaries
- ------------------------
(1) This section is not "soliciting material," is not deemed filed with the SEC,
and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended, or the Exchange Act, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
18
paid to executives under the independent survey. This is consistent
with the Committee's objective of attracting and retaining executives
whose skills and potential rank above the norm.
During fiscal 1997, consistent with the principles discussed in the prior
paragraph, the Compensation Committee recommended salary adjustments for non-CEO
executive officers ranging up to 10%. In addition to individual and corporate
performance, the factors considered include relative salaries and
responsibilities in the Company, the Company's merit budget, which considers
factors such as inflation and the competitive environment relative to other
technology companies, independent survey data, number of years with the
Company and anticipated future responsibilities of each individual within
the next year.
ANNUAL INCENTIVE COMPENSATION OPPORTUNITIES. The Company maintains annual
incentive compensation programs to reward executive officers and other key
employees for attaining defined performance goals. The programs are designed to
attract and motivate employees, and they are closely tied to corporate
performance to enhance stockholder value and encourage profit growth. For
executive officers, incentive compensation payments are based primarily on
Company-wide performance targets, as well as personal performance measured
against agreed-objectives. For senior management personnel, Company-wide
performance is a factor, and significant weight also is given to individual
performance and the performance of particular operating groups within the
Company. Company-wide, operating group and individual targets are established
annually for these incentive compensation programs.
Executive Incentive Compensation.
In June 1996, the Committee approved an executive incentive compensation
program based on performance results during the last six months of fiscal 1997
in which all executive officers, including the position of President and CEO,
participated. This program determined incentive compensation payments by
application of a formula which takes into account (i) pretax profit and revenue
goals against pre-established threshold levels and (ii) a position factor
reflecting each participant's relative responsibility within the organization.
The first two elements of the formula are adjusted by a range of numeric factors
specified in the formula, which reflect the impact of particularly favorable or
unfavorable individual performance. The Committee does not otherwise assign
relative weights to any element. Individual performance factors may also be
taken into account to modify the potential incentive payment calculated under
the formula by up to 50%. Under the program approved for the last six months of
fiscal 1997, no incentive payments could have been awarded unless a minimum
level of profitability were achieved. In addition, no incentive payments could
have been awarded unless payments were first made under the key employee
incentive compensation program discussed below. The maximum amount for which Mr.
Ciffone was eligible under the fiscal 1997 program was 100% of base salary.
Other executive officers participating in the program were eligible to receive
maximum amounts ranging between 60% and 80% of base salary. Based on the
Company's pre-tax profit for fiscal 1997 of $7.1 million (excluding the charge
to earnings of 19.6 million), as well as individual performance factors, neither
Mr. Ciffone nor any other executive officer was eligible to receive an incentive
compensation payment pursuant to this program for such year. Given that there
would be no earned incentive payments under the executive incentive compensation
program for two consecutive years, the Committee determined that discretionary
non-program incentive payments totaling $64,600 should be awarded to the non-CEO
executive officers to recognize individual contributions.
Key Employee Incentive Compensation.
During fiscal 1997, certain other senior management personnel participated
in a key employee incentive compensation program, which was adopted by the
Committee in June 1996. Under the program, which provides for quarterly payouts,
incentive compensation payments were based upon Company-wide proprietary
products sales and profit performance targets (which were different from those
applicable to the executive incentive compensation program), the performance of
particular operating groups and individual performance. Because the Company-wide
sales and profit targets were not achieved, no incentive compensation payments
were paid under this program for fiscal 1997. However, the Committee determined
that discretionary non-program incentive payments totaling $204,080 should be
awarded to selected participants to recognize individual contributions.
19
EQUITY INCENTIVES
The Company utilizes its 1991 Plan, as amended, to further align the
interests of stockholders and management by providing executive officers and
other employees with a significant economic interest in the long-term
appreciation of the Company's stock. Generally, options under the 1991 Plan,
as amended, are granted with exercise prices set at 100% of the fair market
value of the underlying stock on the date of grant and have a term of seven
years. Options are subject to vesting over four years which is designed to
motivate option holders to achieve stated objectives, thereby aiding the
Company's efforts to maximize revenue and profit together with shareholder
value, and to remain with the Company for the long-term. In determining the
number of shares subject to an option to be granted to an executive officer,
the Option Committee takes into account the officer's position and level of
responsibility within the Company, the officer's existing stock and unvested
option holdings, the potential reward to the officer if the stock price
appreciates in the public market, and the competitiveness of the officer's
overall compensation arrangements, including stock options, although
outstanding performance by an individual may also be taken into
consideration. Option grants may also be made to new executives upon
commencement of employment and, on occasion, to executives in connection with
a significant change in job responsibility. The Option Committee generally
grants options taking into account multiple year periods. Therefore option
grants are not necessarily made each year. In fiscal 1997, based on the
factors described above, the Option Committee granted options to purchase
504,000 shares of Common Stock to executive officers of the Company including
370,500 shares to new officers.
Additional long-term equity incentives are provided through the Company's
Employee Stock Participation Plan in which all eligible employees, including
eligible executive officers of the Company, may purchase stock of the Company,
subject to specified limits, at 85% of fair market value.
CEO COMPENSATION
George Wells served as the Company's President and CEO through October 11,
1996. For the period beginning on April 1, 1996 and ending on the last day of
his employment, Mr. Wells received $198,712, reflecting the pro rata amount of
his annual base salary of $350,000 and car allowance of $5,600. Mr. Wells also
received other standard benefits available to all executive officers through his
last day of employment. Mr. Wells received no additional option grants during
such period.
On October 11, 1996, the Company appointed Donald L. Ciffone, Jr. as its new
President and CEO. Prior to this appointment, Mr. Ciffone and the Compensation
Committee extensively negotiated the terms of his compensation package in
accordance with the compensation philosophy and policies described above as well
as the Committee's particular objectives at the time Mr. Ciffone was recruited.
Mr. Ciffone's overall compensation package took into account the salaries of
other chief executive officers of high technology companies and the amount
necessary to secure his services as the new President and CEO of the Company as
well as expectations as to Mr. Ciffone's future contribution in leading the
Company.
Mr. Ciffone's compensation package for fiscal 1997 consisted of an annual
base salary of $395,000, participation in the Company's FY 1997 Executive
Incentive Compensation Program ("FY 1997 Program") and a stock option grant.
Under the terms of this employment package, Mr. Ciffone was entitled to receive
an incentive compensation payment equal to the greater of $197,000 or the amount
of the calculated payment under the FY 1997 Program. Because no executive
officers qualified for an incentive compensation payment under the FY 1997
Program, Mr. Ciffone received a payment of $197,000. With regard to Mr.
Ciffone's incentive payment under the Company's FY 1998 Executive Incentive
Compensation Program ("FY 1998 Program"), it was agreed that Mr. Ciffone will
receive a payment equal to 50% of his base salary as of March 31, 1998 or a
calculated payment under the FY 1998 Program, whichever is greater.
To provide Mr. Ciffone with longer-term equity incentives, the Compensation
Committee awarded Mr. Ciffone options to purchase 225,000 shares of the
Company's Common Stock pursuant to the 1991 Plan, as amended. Mr. Ciffone also
received a "sign on" loan of $100,000 which shall be deemed paid in full if Mr.
Ciffone remains an employee in good standing for a period of 18 months following
his start date.
20
Section 162(m) Policy
The Compensation Committee has not adopted a general policy with respect to
the application of Section 162(m) of the Code, which generally imposes an annual
corporate deduction limitation of $1 million on the compensation of certain
executive officers. However, pursuant to Section 162(m), the Board
has adopted, and the stockholders have approved, amendments to the 1991 Plan, as
amended, intended to permit compensation from options granted thereunder to be
excluded from Section 162(m) limitations.
THE COMPENSATION COMMITTEE THE EMPLOYEE OPTION ADMINISTRATION COMMITTEE
- --------------------------- --------------------------------------------------
James E. Dykes George E. Grega
George E. Grega Raimon L. Conlisk
Raimon L. Conlisk
21
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during the fiscal year ended March 31, 1997, the
Compensation Committee consisted of Messrs. Conlisk, Grega and Dykes, none of
whom is an officer or an employee of the Company.
22
PERFORMANCE MEASUREMENT COMPARISON(1)
The following graph shows a five-year comparison of cumulative stockholder
return of the CRSP Total Return Index for the Nasdaq Stock Market (U.S.
Companies) (the "Nasdaq Composite Index"), the Hambrecht & Quist ("H&Q")
Technology Index, and the Company. The H&Q Technology Index is composed of
approximately 200 technology companies in the semiconductor, electronics,
medical, and related technology industries. Historic stock price performance is
not necessarily indicative of future stock price performance.
Comparison of Five-Year Cumulative Total Return on Investment(2)
Research Total Return - Data Summary
EXAR
Cumulative Total Return
----------------------------------------------------------------------------------
3/92 6/92 9/92 12/92 3/93 6/93 9/93 12/93 3/94 6/94 9/94 12/94 3/95 6/95
EXAR CORPORATION EXAR 100 80 124 148 125 151 175 125 125 139 180 196 172 236
NASDAQ STOCK MARKET (U.S.) INAS 100 93 97 113 115 117 127 130 124 118 128 127 138 158
HAMBRECHT & QUIST TECHNOLOGY IHOT 100 90 95 112 119 122 125 132 137 125 143 158 177 221
Research Total Return - Data Summary
EXAR
Cumulative Total Return
------------------------------------------------------------------------
9/95 12/95 3/96 6/96 9/96 12/96 3/97
EXAR CORPORATION EXAR 286 118 118 104 115 124 130
NASDAQ STOCK MARKET (U.S.) INAS 177 179 187 203 210 220 208
HAMBRECHT & QUIST TECHNOLOGY IHOT 250 237 241 259 274 294 281
- ------------------------
(1) This section is not "soliciting material," is not deemed filed with the SEC,
and is not to be incorporated by reference in any filing of the Company
under the Securities Act of 1933, as amended, or the Exchange Act, whether
made before or after the date hereof and irrespective of any general
incorporation language in any such filing.
(2) The total return on investment (change in stock price plus reinvested
dividends) for the Company, the Nasdaq Composite Index and the H&Q
Technology Index, based on March 31, 1992 = 100.
23
CERTAIN TRANSACTIONS
In December 1996, the Company made a loan of $130,000 to Aurelio Fernandez,
Senior Vice President of Worldwide Sales. The loan bears interest at 7% per
annum and is secured by certain real property owned by Mr. Fernandez. Interest
payments under the loan are due monthly and commenced in January 1997. The
principal balance of the loan is due in December 2001. If Mr. Fernandez'
employment with the Company is terminated for cause or if he voluntarily
resigns, the loan is due and payable within 90 days of his last day of
employment. The loan is due and payable within one year of his last day of
employment if Mr. Fernandez' employment with the Company is terminated by the
Company without cause. As of July 28, 1997, the entire principal balance of the
loan remained outstanding.
In October 1996, Mr. Ciffone received a noninterest-bearing loan of
$100,000, which shall be deemed paid in full if Mr. Ciffone remains an employee
in good standing for a period of 18 months following his initial date of
employment. Should Mr. Ciffone voluntarily terminate his employment with Exar
prior to his 18th month anniversary, the loan must be repaid to Exar within
thirty (30) days of his last day of employment.
OTHER MATTERS
The Company's financial statements have been audited by Deloitte & Touche
LLP as independent auditors. Representatives of Deloitte & Touche LLP are
expected to be present at the Annual Meeting of Stockholders. They do not expect
to make any statement, but will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The Board of Directors of the Company approved the dismissal of KPMG Peat
Marwick LLP as the Company's independent accountants effective February 3, 1997
and the engagement of Deloitte and Touche LLP as independent accountants for the
Company for the fiscal year ending March 31, 1997.
There have been no disagreements with KPMG Peat Marwick LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreement if not resolved to the satisfaction of
KPMG Peat Marwick LLP would have caused them to make reference thereto in their
report on the financial statements during the two most recent fiscal years.
KPMG Peat Marwick's report on the financial statements for the past two
years contained no adverse opinion or disclaimer of opinion and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
The Board of Directors hopes that stockholders will attend the meeting.
Whether or not you plan to attend, you are urged to complete, sign and return
the enclosed proxy in the accompanying envelope. A prompt response will greatly
facilitate arrangements for the meeting, and your cooperation will be
appreciated. Stockholders who attend the meeting may vote their shares
personally even though they have sent in their proxies.
BY ORDER OF THE BOARD OF DIRECTORS
Ronald W. Guire Secretary
Secretary
July 28, 1997
24
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended March 31, 1997 is available
without charge upon written request to: Investor Relations, Exar Corporation,
48720 Kato Road, Fremont, California 94538.
25
Research MONTHLY-1 Total Return Worksheet
BEGIN: 03/31/92
FYE: 03/31/97
EXAR CORP EXAR END: 03/31/97
BEGIN CUM
TYPE NO. OF DIV DIV DIV ENDING TOTAL
OF CLOSE SHARES $ PER $.$$ SHARES NO. OF SHRHLDR
DATE* LINE PRICE** *** SHARE** PAID REINVD SHARES RETURN
- ------ ----- --------- ------ ------- ---- ------ ------ -------
03/31/92 BEGIN 12.500 8.000 8.000 100
04/30/92 MON 12.000 8.000 8.000 96
05/31/92 MON 12.000 8.000 8.000 96
06/30/92 MON 10.000 8.000 8.000 80
07/31/92 MON 11.333 8.000 8.000 91
08/31/92 MON 14.583 8.000 8.000 117
09/30/92 MON 15.500 8.000 8.000 124
10/31/92 MON 15.500 8.000 8.000 124
11/30/92 MON 17.333 8.000 8.000 139
12/31/92 MON 18.500 8.000 8.000 146
01/31/93 MON 17.833 8.000 8.000 143
02/28/93 MON 16.167 8.000 8.000 129
03/31/93 YE 15.667 8.000 8.000 125
04/30/93 MON 13.833 8.000 8.000 111
05/31/93 MON 16.500 8.000 8.000 132
06/30/93 MON 18.833 8.000 8.000 151
07/31/93 MON 19.333 8.000 8.000 155
08/31/93 MON 22.333 8.000 8.000 179
09/30/93 MON 21.833 8.000 8.000 175
10/31/93 MON 19.833 8.000 8.000 159
11/30/93 MON 17.833 8.000 8.000 143
12/31/93 MON 15.667 8.000 8.000 125
01/31/94 MON 16.500 8.000 8.000 132
02/28/94 MON 17.500 8.000 8.000 140
03/31/94 YE 15.667 8.000 8.000 125
04/30/94 MON 16.167 8.000 8.000 129
05/31/94 MON 16.250 8.000 8.000 130
06/30/94 MON 17.333 8.000 8.000 139
07/31/94 MON 20.333 8.000 8.000 163
08/31/94 MON 21.583 8.000 8.000 173
09/30/94 MON 22.500 8.000 8.000 180
10/31/94 MON 21.000 8.000 8.000 168
11/30/94 MON 21.250 8.000 8.000 170
12/31/94 MON 24.500 8.000 8.000 196
01/31/95 MON 20.500 8.000 8.000 164
02/28/95 MON 23.000 8.000 8.000 184
* Fiscal yearend and ex-dividend dates. *** `Begin No. of Shares' based on
$100 investment.
** All Closing Prices and Dividends
are adjusted for stock splits.
25-Jul-97
Research MONTHLY-2 Total Return Worksheet
BEGIN: 03/31/92
FYE: 03/31/97
EXAR CORP EXAR END: 03/31/97
BEGIN CUM
TYPE NO. OF DIV DIV DIV ENDING TOTAL
OF CLOSE SHARES $ PER $.$$ SHARES N0. OF SHRHLDR
DATE* LINE PRICE** *** SHARE** PAID REINVD SHARES RETURN
- ------ ---- --------- -------- ------- ---- ------ ------ -------
03/31/95 YE 21.500 8.000 8.000 172
04/30/95 MON 26.375 8.000 8.000 211
05/31/95 MON 26.500 8.000 8.000 212
06/30/95 MON 29.500 8.000 8.000 236
07/31/95 MON 36.250 8.000 8.000 290
08/31/95 MON 37.250 8.000 8.000 298
09/30/95 MON 35.750 8.000 8.000 286
10/31/95 MON 23.750 8.000 8.000 190
11/30/95 MON 21.500 8.000 8.000 172
12/31/95 MON 14.750 8.000 8.000 118
01/31/96 MON 14.625 8.000 8.000 117
02/29/96 MON 16.250 8.000 8.000 130
03/31/96 YE 14.750 8.000 8.000 118
04/30/96 MON 16.500 8.000 8.000 132
05/31/96 MON 16.250 8.000 8.000 130
06/30/96 MON 13.000 8.000 8.000 104
07/31/96 MON 13.250 8.000 8.000 106
08/31/96 MON 14.000 8.000 8.000 112
09/30/96 MON 14.375 8.000 8.000 115
10/31/96 MON 13.750 8.000 8.000 110
11/30/96 MON 15.625 8.000 8.000 125
12/31/96 MON 15.500 8.000 8.000 124
01/31/97 MON 15.563 8.000 8.000 125
02/28/97 MON 14.250 8.000 8.000 114
03/31/97 YE 16.250 8.000 8.000 130
* Fiscal yearend and ex-dividend dates. *** `Begin No. of Shares' based
** All Closing Prices and Dividends are on $100 investment
adjusted for stock splits.
25-Jul-97
EXAR CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 18, 1997
P The undersigned hereby appoints Donald L. Ciffone, Jr. and
R Raimon L. Conlisk, or each of them, as attorneys and proxies of the
O undersigned, with full power of substitution, to vote all of the
X shares of stock of Exar Corporation which the undersigned may be
Y entitled to vote at the Annual Meeting of Stockholders of Exar
Corporation to be held at the Company's Corporate Headquarters,
48720 Kato Road, Fremont, California, on Thursday, September 18,
1997 at 3:00 p.m. local time, and at any and all continuations and
adjournments thereof, with all powers that the undersigned would
possess if personally present, upon and in respect of the following
matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may
properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
THE NOMINEE LISTED IN PROPOSAL 1 AND FOR PROPOSAL 2 AS MORE SPECIFICALLY
DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE INDICATED,
THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY IN THE ENCLOSED RETURN
ENVELOPE WHICH IS POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
-------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE
-------------
/X/ Please mark
votes as in this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
THE NOMINEE FOR DIRECTOR LISTED BELOW.
1. To elect a director to hold office until the 2000
Annual Meeting of Stockholders.
Nominee: James E. Dykes
FOR WITHHELD
THE / / / / FROM THE
NOMINEE NOMINEE
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR PROPOSAL 2.
FOR AGAINST ABSTAIN
2. To approve the Company's / / / / / /
1997 Equity Incentive Plan
MARK HERE
FOR ADDRESS / /
CHANGE AND
NOTE AT LEFT
PLEASE SIGN EXACTLY AS NAME APPEARS AT LEFT. EXECUTORS, ADMINISTRATORS,
TRUSTEES, GUARDIANS, ATTORNEYS-IN-FACT, ETC. SHOULD GIVE THEIR FULL TITLES.
IF THE SIGNER IS A CORPORATION, PLEASE GIVE FULL CORPORATE NAME AND HAVE A
DULY AUTHORIZED OFFICER SIGN, STATING TITLE. IF A SIGNER IS A PARTNERSHIP,
PLEASE SIGN IN PARTNERSHIP NAME BY AUTHORIZED PERSON. IF STOCK IS REGISTERED
IN THE NAMES OF TWO OR MORE PERSONS EACH SHOULD SIGN.
SIGNATURE: DATE: SIGNATURE: DATE:
----------------- ---- ------------ ------