SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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Check the appropriate box:
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14a-6(e)(2))
/X/ Definitive Proxy Statement
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/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
EXAR CORPORATION
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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[LOGO]
EXAR CORPORATION
48720 KATO ROAD
FREMONT, CALIFORNIA 94538
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 9, 1999
------------------------
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 9, 1999 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 one (1) director to hold office until the 2002 Annual Meeting of
Stockholders and until his successor is elected.
2. To approve the Company's 1997 Equity Incentive Plan, as amended, to increase
the aggregate number of shares of Common Stock authorized for issuance under
such plan by 450,000 shares.
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 14, 1999, 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
/s/ Ronald W. Guire
RONALD W. GUIRE
SECRETARY
Fremont, California
July 26, 1999
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 9, 1999
------------------------
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 9, 1999, 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 July 26, 1999 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 $4,500, for solicitation services.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on July 14,
1999 will be entitled to notice of and to vote at the Annual Meeting. At the
close of business on July 14, 1999, the Company had outstanding and entitled to
vote 9,383,920 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.
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 Corporate
Headquarters, 48720 Kato Road, Fremont, California 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
2000 Annual Meeting of Stockholders must be received by the Company not later
than March 31, 2000 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 five members. There is one
director, Raimon L. Conlisk, in the class whose term of office expires in 1999.
Mr. Conlisk, the nominee for election to this class, is currently the Chairman
of the Board and a Director of the Company. Mr. Conlisk was previously elected
by the stockholders. If elected at the Annual Meeting, Mr. Conlisk would serve
until the 2002 Annual Meeting and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal.
George D. Wells, who was the other director in the class, resigned on October
30, 1998.
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 nominee 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. Mr. Conlisk has agreed to serve if elected, and management has no
reason to believe that he 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 2002 ANNUAL MEETING
RAIMON L. CONLISK
Mr. Conlisk, age 77, 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
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director of the American Electronics Association. Mr. Conlisk is also Chairman
of the Board of SBE, Inc., a manufacturer of communication and computer
products.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF THE NAMED NOMINEE.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2001 ANNUAL MEETING
DONALD L. CIFFONE, JR.
Mr. Ciffone, age 44, joined the Company as President and CEO in October 1996
and was appointed a director at that time. Mr. Ciffone was Executive Vice
President of Toshiba America, the U.S. semiconductor subsidiary of Toshiba
Semiconductor. Prior to joining Toshiba, he served from 1991 to 1996, in a
variety of senior management positions at VLSI Technology, Inc. From 1978 to
1991, Mr. Ciffone held a variety of marketing and operations positions at
National Semiconductor, Inc. Mr. Ciffone holds an MBA from the University of
Santa Clara.
RONALD W. GUIRE
Mr. Guire, age 50, joined the Company in July 1984 and has been a director
of the Company since June 1985. He 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 also Chairman of the
Board of XeTel Corporation, an electronics contract manufacturer. Mr. Guire was
a partner in the certified public accounting firm of Graubart & Co. from 1979
until joining the Company.
DIRECTORS CONTINUING IN OFFICE UNTIL THE 2000 ANNUAL MEETING
JAMES E. DYKES
Mr. Dykes, age 61, 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, 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., a
management services company, as Executive Vice President, Corporate Development.
Mr. Dykes is also a director of the Thomas Group Inc. and Cree Research, Inc., a
developer of blue light-emitting diodes.
FRANK P. CARRUBBA
Dr. Carrubba, age 61, joined the Company's Board of Directors in August
1998. Dr. Carrubba served as Executive Vice President and Chief Technical
Officer of Philips Electronics N.V., headquartered in Eindhoven, The
Netherlands, from 1991 to 1997, where he was responsible for corporate research
and development, corporate factory technology, coordination of manufacturing
policy, standards, patents and trademarks, and corporate purchasing. From 1981
to 1991, he was with the Hewlett-Packard Company in Palo Alto, California, where
he was a member of the Group Management Committee, responsible for corporate
research and advanced development, and was Director of H-P Laboratories. Prior
to joining Hewlett-Packard, he spent 22 years as a member of the technical staff
at IBM Corporation's Thomas J. Watson Research Laboratory in Yorktown Heights,
New York. Dr. Carrubba was one of the original designers of the RISC
Architecture, for which he received the "Inventor of the Year" award from the
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Intellectual Property Owners in Washington, D.C. Dr. Carrubba received his
Bachelor's Degree, Master's Degree and Ph.D. Degree from the University of New
Haven, in New Haven, Connecticut.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended March 31, 1999, the Board of Directors held
seven 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, 1999, was composed of Messrs. Conlisk, Carrubba and Dykes, held three
meetings during such fiscal year. Mr. Carrubba 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, 1999, was composed of Messrs. Conlisk, Dykes and Carrubba, held four
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, 1999, was composed of Messrs. Dykes and Conlisk, held seven
meetings during such fiscal year. Mr. Conlisk serves as Chairman of the Employee
Option Administration Committee.
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, 1999, was composed of Messrs. Conlisk, Dykes and
Ciffone (non-voting), held five meetings during such fiscal year. Mr. Conlisk
serves as Chairman of the Nominating Committee.
During the fiscal year ended March 31, 1999, each Board member attended at
least 75% or more 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, AS AMENDED
In June 1997, the Board adopted, and the stockholders subsequently approved
in September 1997, the Company's 1997 Equity Incentive Plan (the "1997 Plan").
Under the 1997 Plan, 825,000 common shares were reserved for issuance plus an
additional number of shares that may become available upon the cancellation of
options outstanding under the Company's 1991 Stock Option Plan, as amended (the
"1991 Plan"). In June 1998, the Board adopted, and the stockholders subsequently
approved in September 1998, an increase in the number of authorized shares for
issuance under the 1997 Plan by 450,000 shares, from a total of 825,000 shares
to 1,275,000 (the "1997 Plan, as amended"). As of May 31, 1999, options (net of
canceled or expired options) and stock bonus awards covering an aggregate of
2,354,511 shares of the Company's Common Stock were outstanding or had been
exercised, and only 457,904 shares (plus any shares that might in the future be
returned to the 1991 Plan as a result of cancellation or expiration of options)
remained available for future grant under the 1997 Plan, as amended. No options
or stock bonuses may be granted under the 1997 Plan, as amended, to non-employee
directors. During the last fiscal year, under the 1997 Plan, as amended, the
Company granted to all employees as a group, options to purchase 744,406 shares
at exercise prices of $14.88 to $24.63 per share.
On June 24, 1999, the Board approved an amendment to the 1997 Plan, as
amended, subject to stockholder approval, to enhance the flexibility of the
Board and the Employee Option Administration Committee in granting stock options
to the Company's employees. The amendment increases the number of shares
authorized for issuance under the 1997 Plan, as amended, by 450,000 shares from
a total of 1,275,000 shares to 1,725,000 shares plus an additional number of
shares that may become available upon the cancellation of options outstanding
under the Company's 1991 Plan. The Board adopted this amendment to ensure that
the Company can continue to grant stock options to employees at levels
determined appropriate by the Board and the Employee Option Administration
Committee.
Stockholders are requested in this Proposal 2 to approve the 1997 Plan, as
amended. 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 proposed amendment to the 1997 Plan, as amended.
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 RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 2
The essential features of the 1997 Plan, as amended, are outlined below:
GENERAL
The 1997 Plan, as amended, 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 1997 Plan,
as amended, 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 1997 Plan, as amended, 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 1997 Plan, as amended.
PURPOSE
The 1997 Plan, as amended, provides a means by which selected employees,
employee-directors and consultants to the Company, and its affiliates, may be
given an opportunity to acquire Common Stock of
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the Company. The Company, by means of the 1997 Plan, as amended, seeks to retain
the services of persons who are now employees, employee-directors or consultants
to the Company or its affiliates, to secure and retain the services of new
employees, employee-directors and consultants, and to provide incentives for
such persons to exert maximum efforts for the success of the Company.
Approximately 260 of the Company's employees, employee-directors and consultants
are eligible to participate in the 1997 Plan, as amended.
FORMS OF BENEFIT
The 1997 Plan, as amended, provides for incentive stock options,
nonstatutory stock options and stock bonuses (collectively "Stock Awards").
ADMINISTRATION
The 1997 Plan, as amended, 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 Code). If administration is delegated to a committee, such
committee will have, in connection with the administration of the 1997 Plan, as
amended, the powers possessed by the Board, subject, however, to such
resolutions, not inconsistent with the provisions of the 1997 Plan, as amended,
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 1997 Plan, as amended. The Board has delegated the
administration of the 1997 Plan, as amended, to the Employee Option
Administration Committee.
The Board has the power to determine from time to time which of the persons
eligible under the 1997 Plan, as amended, shall be granted awards, the type of
awards to be granted, when and how each award shall be granted, to construe and
interpret the 1997 Plan, as amended, 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 1997 Plan, as amended, or in any award
agreement to make the 1997 Plan, as amended, fully effective.
SHARES SUBJECT TO THE 1997 PLAN, AS AMENDED
The Common Stock that may be sold pursuant to awards under the 1997 Plan, as
amended, shall not exceed in the aggregate 1,725,000 shares of the Company's
Common Stock plus any shares that remained available for issuance under the
Company's 1991 Plan on the date the 1997 Plan, as amended, 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 1997 Plan, as amended. The Common Stock subject
to the 1997 Plan, as amended, 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.
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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
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. The Board of
Directors has the authority, with the consent of affected holders, to reprice
outstanding options and to offer optionees the opportunity to replace
outstanding options with new options for the same or a different number of
shares. Such repricing shall be limited to: (i) no more than 20% of the options
reserved for issuance under the 1997 Plan, as amended; and (ii) options held
other than by directors and officers (corporate and Section 16 insiders).
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
7
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 1997 Plan, as amended, 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 then 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 calendar year. The minimum amount of salary that
may be deferred for a year is $5,000; the maximum is $50,000.
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 1997 Plan, as
amended, 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 1997 Plan, as amended, the maximum annual award applicable under the 1997
Plan, as amended, 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,
8
cash or otherwise; or (4) any other capital reorganization in which more than
fifty percent (50%) of the shares of the Company entitled to vote are exchanged,
excluding in each case a capital reorganization in which the sole purpose is to
change the state of incorporation of the Company, then all outstanding options
shall become exercisable in full for a period of at least ten (10) days, 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 1997 PLAN, AS AMENDED
The Board at any time, and from time to time, may amend the 1997 Plan, as
amended. 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 1997 Plan, as amended, 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 1997 Plan, as amended, for stockholder approval.
TERMINATION OR SUSPENSION OF THE 1997 PLAN, AS AMENDED
The Board may suspend or terminate the 1997 Plan, as amended, at any time.
Unless sooner terminated, the 1997 Plan, as amended, shall terminate September
1, 2007. No Stock Awards may be granted under the 1997 Plan, as amended, while
the 1997 Plan, as amended, is suspended or after it is terminated.
FEDERAL INCOME TAX INFORMATION
INCENTIVE STOCK OPTIONS. Incentive stock options under the 1997 Plan, as
amended, 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.
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 or mid-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, mid-term or
short-term depending on how long the optionee holds the stock. Capital gains are
generally subject to lower tax rates than ordinary income. Slightly different
rules may apply to optionees who are subject to Section 16 of the Exchange Act
or acquire stock subject to certain repurchase options.
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, Section 162(m) of the Code 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
1997 Plan, as amended, 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
9
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. Generally, with
respect to employees, the Company is required to withhold from regular wages or
supplemental wage payments an amount based on the ordinary income recognized.
Subject to requirement of reasonableness, Section 162(m) of the Code and the
satisfaction of a reporting obligation, the Company will be generally 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, mid-term or
short-term depending on how long the optionee holds the stock. 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 1997 Plan, as amended,
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 1997 Plan,
as amended, 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 1997 Plan, as amended), 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 May 31, 1999 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
NUMBER OF OWNER SHARES
BENEFICIAL OWNERSHIP (1) PERCENT OF TOTAL
- ---------------------------------------------------------------------- ----------- -------------
David L. Babson and Company Incorporated (2).......................... 979,600 10.5%
One Memorial Drive
Cambridge, MA 02142-1300
Sanford C. Bernstein & Co., Inc. (3).................................. 845,565 9.0%
One State Street Plaza
New York, NY 10004-1545
Royce & Associates, Inc. (4).......................................... 764,200 8.2%
1414 Avenue of the Americas
New York, NY 10019
Wellington Management Company, LLP (5)................................ 736,600 7.9%
75 State Street
Boston, MA 02109
Oppenheimer Capital (6)............................................... 692,800 7.4%
Oppenheimer Tower
World Financial Center
New York, NY 10281
Thomson Horstmann & Bryant, Inc. (7).................................. 595,200 6.4%
Park 80 West, Plaza Two
Saddle Brook, NJ 07663
Dimensional Fund Advisors Inc. (8).................................... 545,700 5.8%
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401
J. P. Morgan & Co. Incorporated (9)................................... 519,850 5.6%
60 Wall Street
New York, NY 10260
Frontier Capital Management (10)...................................... 481,880 5.2%
99 Summer Street
Boston, MA 02110
Ronald W. Guire(11)................................................... 141,951 1.5%
Donald L. Ciffone, Jr. (11)........................................... 131,730 1.4%
Stephen W. Michael (11)............................................... 86,465 *
Thomas R. Melendrez (11).............................................. 61,998 *
James E. Dykes (11)................................................... 44,303 *
Raimon L. Conlisk (11)................................................ 36,976 *
Roubik Gregorian (11)................................................. 21,284 *
All executive officers and directors as a group (14 persons) (11)..... 642,192 6.9%
- ------------------------
* Less than one percent.
11
(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 9,345,676 shares of the
Company's Common Stock outstanding on May 31, 1999, adjusted as required by
rules promulgated by the SEC.
(2) Based on a Schedule 13G filed with the SEC on January 8, 1999.
(3) Based on a Schedule 13G filed with the SEC on February 5, 1999. Includes
17,965 shares over which Sanford C. Bernstein & Co., Inc. has shared voting
power.
(4) Based on a Schedule 13G filed with the SEC on February 10, 1999.
(5) Based on a Schedule 13G filed with the SEC on February 9, 1999. Includes
396,000 shares over which Wellington Management Company, LLP has shared
voting power and 736,600 shares over which Wellington Management Company,
LLP has shared dispositive power.
(6) Based on a Schedule 13G filed with the SEC on February 12, 1999. Includes
692,800 shares over which Oppenheimer Capital has shared voting and
dispositive power.
(7) Based on a Schedule 13G filed with the SEC on January 29, 1999. Includes
11,500 shares over which Thomson Horstmann & Bryant, Inc. has shared voting
power.
(8) Based on a Schedule 13G filed with the SEC on February 11, 1999.
(9) Based on a Schedule 13G filed with the SEC on February 22, 1999.
(10) Based on a Schedule 13G filed with the SEC on February 12, 1999.
(11) Includes shares which certain executive officers and directors have the
right to acquire within 60 days after May 31, 1999, pursuant to
outstanding options as follows: Ronald W. Guire, 107,499 shares; Donald L.
Ciffone, Jr., 125,000 shares; Stephen W. Michael, 79,749 shares; Thomas R.
Melendrez, 55,126 shares; James E. Dykes, 55,553 shares; Raimon L.
Conlisk, 48,226 shares; Roubik Gregorian, 20,500 shares; and all executive
officers and directors as a group, 642,192 shares.
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, 1999, all Section
16(a) filing requirements applicable to its officers, directors and greater than
ten percent beneficial owners were complied with; except that one (1) report
covering one (1) transaction was filed late by Thomas R. Melendrez, and one (1)
report covering one (1) transaction was filed late by George D. Wells.
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
FEES. In fiscal 1999, the Company paid fees to each of its non-employee
directors for their services as directors. The Company paid to James E. Dykes
fees totaling $14,400 for his services as a director. The
12
Company paid to Frank P. Carrubba fees totaling $14,700 for his services as a
director. The Company paid George D. Wells fees totaling $8,400 for his services
as a director through December 31, 1998. The Company paid Raimon L. Conlisk fees
totaling $45,600 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 1996 Non-Employee Directors' Stock Option
Plan, as amended (the "1996 Directors' Plan"). The 1996 Directors' Plan provides
that upon initial election to the Board, each Non-Employee Director is granted
an option to purchase 18,000 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 to purchase shares of the
Company's common stock with exercise prices equal to 33-1/3% of the fair market
value of the stock on the date the options are granted. For calendar year 1999,
Mr. Conlisk elected to have 25% of his annual director's fee deferred. Options
granted under the 1996 Directors' Plan are granted at fair market value. Initial
option grants vest annually over a period of three years. Annual options granted
prior to September 11, 1998, vest in four equal annual installments with the
first installment becoming exercisable on the first anniversary of the date of
the option grant. Annual options granted on or after September 11, 1998 vest
monthly over a period of twelve months from the date of grant. The maximum term
of options granted under the 1996 Directors' Plan is seven years. Prior to the
adoption of the 1996 Directors' Plan, Non-Employee Directors received options
under the 1991 Non-Employee Directors' Stock Option Plan (the "1991 Directors'
Plan") which was terminated as to future grants on May 31, 1996, and the 1986
Non-Employee Directors' Stock Option Plan (the "1986 Directors' Plan"), which
was terminated as to future grants on November 7, 1991. At March 31, 1999,
options to purchase -0- shares of Common Stock were outstanding under the 1986
Directors' Plan, options to purchase 97,500 shares of Common Stock were
outstanding under the 1991 Directors' Plan and options to purchase 104,958
shares of Common Stock were outstanding under the 1996 Directors' Plan.
During fiscal 1999, options covering 50,518 shares were granted under the
1996 Directors' Plan to the Company's Non-Employee Directors during such period
at an average exercise price of $19.29 per share. 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, Non-Employee Directors exercised options
covering 15,000 shares under the 1991 Directors' Plan for a net value realized
of $46,238.
13
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY COMPENSATION TABLE
The following table shows for the fiscal years ended March 31, 1999, 1998
and 1997, compensation awarded or paid to, or earned by, the Company's President
and CEO, and its other four most highly compensated executive officers at March
31, 1999 (the "Named Executive Officers"):
LONG-TERM
COMPENSATION
AWARDS
---------
ANNUAL COMPENSATION (1) SECURITIES
-------------------------------- UNDERLYING ALL OTHER
SALARY OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) (2) BONUS(4) (#)(3) ($) (4)
- ------------------------------------------------------------ ----- --------- -------------- --------- -------------
Donald L. Ciffone, Jr. (5).................................. 1999 460,304 70,000 50,000 100,800(6)
President and CEO 1998 424,785 507,000(5) 50,000 3,000
1997 188,824 197,000 225,000 843
Ronald W. Guire............................................. 1999 254,113 29,000 30,000 800
Executive Vice President, 1998 239,204 222,000 30,000 3,000
Chief Financial Officer 1997 219,308 21,700 65,000 1,052
and Secretary
Roubik Gregorian (7)........................................ 1999 232,813 30,000 140,000 800
Senior Vice President 1998 208,076 596,000(7) 28,000 3,000
and Chief Technology Officer, 1997 188,308 345,000(7) 23,000 912
Communications Division
Thomas R. Melendrez......................................... 1999 198,775 15,000 13,000 554
Corporate Vice President 1998 186,750 116,000 14,000 3,000
and General Counsel 1997 174,846 11,900 20,500 844
Stephen W. Michael.......................................... 1999 184,509 16,000 14,000 800
Vice President, 1998 174,745 130,000 15,000 3,000
Operations Division 1997 166,481 12,670 16,000 802
- ------------------------
(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 retirement plan, the Exar
Corporation 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 1999, fiscal 1998 and
fiscal 1997 by the Company for the benefit of each Named Executive Officer
under its 401(k) Plan in the stated amounts.
(5) Mr. Ciffone joined the Company as President and CEO in October 1996. The
components 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, and FY
1998 Executive Incentive Compensation Program or fifty percent (50%) of his
base salary as of March 31, 1998, whichever is greater. Mr. Ciffone also
received an auto allowance of $1,000 per month.
(6) Includes a "sign-on" loan of $100,000 to Mr. Ciffone, which has been deemed
paid in full.
(7) Reflects a retention payment per the March 19, 1995 Agreement and Plan of
Reorganization between the Company and Startech Semiconductor, Inc.
14
OPTION GRANTS IN LAST FISCAL YEAR
The Company has granted both incentive and nonqualified stock options to its
executive officers under the 1997 Plan, as amended, and 1991 Plan, as amended.
The following tables show for the fiscal year ended March 31, 1999, certain
information regarding options granted to, exercised by, and held at year end by,
the Named Executive Officers:
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE
UNDERLYING GRANTED TO APPRECIATION FOR
OPTIONS EMPLOYEES EXERCISE OPTION TERM(4)
GRANTED IN FISCAL PRICE EXPIRATION --------------------
(#)(1) YEAR(2) ($/SH)(3) DATE 5% ($) 10% ($)
--------- ---------- --------- ---------- -------- ----------
Donald L. Ciffone, Jr................. 50,000 6.66% $14.88 9/11/05 $302,883 $ 705,846
Ronald W. Guire....................... 30,000 3.99% $14.88 9/11/05 $181,730 $ 423,705
Roubik Gregorian...................... 40,000 4.32% $14.88 9/11/05 $242,306 $ 564,676
100,000 13.31% $15.69 12/17/05 $638,741 $1,488,537
Stephen W. Michael.................... 14,000 1.86% $14.88 9/11/05 $ 84,807 $ 197,637
Thomas R. Melendrez................... 13,000 1.73% $14.88 9/11/05 $ 78,750 $ 184,520
- ------------------------
(1) The options were granted under the terms of the 1991 Plan, as amended, and
the 1997 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, and the 1997 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 751,281 shares of the
Company's Common Stock granted to employees of the Company in fiscal 1999,
including the Named Executive Officers.
(3) The exercise price of the options was equal to the fair market value of the
Company's Common Stock on the date of grant.
(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 the Company's estimate
or projection of future stock price performance. Actual gains, if any, are
dependent on the actual future performance of the Company's Common Stock
and no gain to the optionee is possible unless the stock price increases
over the option term, which will benefit all stockholders.
15
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
NUMBER OF
SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FY-END(#) AT FY-END($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) REALIZED($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- -------------------------------------- ----------------- ------------- ------------------- --------------------
Donald L. Ciffone, Jr................. 0 0 125,000/200,000 $210,937/$273,187
Ronald W. Guire....................... 0 0 107,499/85,000 $51,094/$85,631
Stephen W. Michael.................... 0 0 79,749/33,250 $36,525/$18,180
Thomas R. Melendrez................... 750 $ 1,158 55,126/34,250 $6,919/$18,491
Roubik Gregorian...................... 0 0 20,500/170,500 $2,250/$94,050
- ------------------------
(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, 1999 ($16.13)
minus the exercise price of the options.
EMPLOYMENT AGREEMENTS
In connection with the Company's original employment offer to Mr. Ciffone,
the Company agreed to continue Mr. Ciffone's then current base salary for a
period of two (2) years in the event of certain transactions involving a change
in the equity ownership of the Company, or where the Company would not be the
surviving corporation, excluding a capital reorganization for the sole purpose
of changing the Company's state of incorporation, and provided that Mr. Ciffone
is not offered a similar executive position with the surviving entity.
REPORT OF THE COMPENSATION COMMITTEE AND OF THE
EMPLOYEE OPTION ADMINISTRATION COMMITTEE(1)
During fiscal 1999, the Compensation Committee of the Board of Directors
(the "Compensation Committee") consisted of Messrs. Conlisk, Carrubba 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.
Dykes and Conlisk, 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 relate to creating stockholder
- ------------------------
(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.
16
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 1999, 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
executive compensation surveys and reports, third party compensation specialists
and other relevant information. The Company also offers to its executive
officers participation (with all other eligible employees of the Company) in its
401(k) 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 1999 were set at levels within
the top half of salaries 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 1999, consistent with the principles discussed in the prior
paragraph, the Compensation Committee recommended an average salary adjustment
for non-CEO executive officers of 6.5%. 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 selected
senior management and technical personnel 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 and revenue 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 selected senior
management and technical 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. The programs are periodically
reviewed with an executive compensation firm to ensure they are competitive and
designed to achieve the performance intended.
17
EXECUTIVE INCENTIVE COMPENSATION. In June 1998, the Committee approved an
Executive Incentive Compensation Program based on performance results for fiscal
1999, in which all officers, including the 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 compensation payment calculated under the
formula. Under the program approved for fiscal 1999, no incentive payments could
have been awarded unless a minimum level of profitability was 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
1999 program was 150% of base salary. Other executive officers participating in
the program were eligible to receive maximum amounts ranging between 80% and
120% of base salary. Based on the Company's pre-tax profit for fiscal 1999 of
$8.8 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. However, the Committee
determined that discretionary non-program incentive payments totaling $153,000
should be awarded to the non-CEO executive officers to recognize individual
contributions and ensure their continued support.
KEY EMPLOYEE INCENTIVE COMPENSATION. During fiscal 1999, certain other
senior management and technical personnel participated in a Key Employee
Incentive Compensation Program, which was adopted by the Committee in June 1998.
Under the program incentive compensation payments were based upon pre-tax profit
targets (which were consistent with 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 1999. The Committee, nonetheless, determined that discretionary non-
program incentive payments totaling $327,000 should be awarded to selected
participants to recognize individual contributions and secure their continued
support.
EQUITY INCENTIVES
The Company utilizes its 1997 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 1997 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.
Under the 1997 Plan, as amended, executive officers and selected senior
management and technical personnel may defer a portion of his or her base salary
and apply such deferred salary to options to purchase shares of the Company's
Common Stock with exercise prices set at a discount to market with the aggregate
of such discounts equal to the aggregate amount of the base salary so deferred.
Options, other than deferred compensation 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 may grant options
taking into account multiple year periods. In
18
fiscal 1999, based on the factors described above, the Option Committee granted
options to purchase 259,000 shares of Common Stock to executive officers of the
Company.
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
Mr. Ciffone's compensation package for fiscal 1999 consisted of an annual
base salary of $460,000, participation in the Company's FY 1999 Executive
Incentive Compensation Program ("FY 1999 Executive Incentive Program") and a
stock option grant. Though no incentive compensation payments were earned under
the FY 1999 Executive Incentive Program, Mr. Ciffone received a discretionary
non-program incentive payment of $70,000 for fiscal 1999.
To provide Mr. Ciffone with longer-term equity incentives, the Compensation
Committee awarded Mr. Ciffone options to purchase 50,000 shares of the Company's
Common Stock pursuant to the 1997 Plan, as amended.
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, the 1997 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 Raimon L. Conlisk
Frank P. Carrubba James E. Dykes
Raimon L. Conlisk
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
As noted above, during the fiscal year ended March 31, 1999, the
Compensation Committee consisted of Messrs. Conlisk, Carrubba and Dykes, none of
whom is an officer or an employee of the Company.
19
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)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
NASDAQ STOCK HAMBRECHT & QUIST
EXAR CORPORATION MARKET (U.S.) TECHNOLOGY
3/94 $100 $100 $100
6/94 111 95 91
9/94 144 103 104
12/94 156 102 116
3/95 137 111 130
6/95 188 127 162
9/95 228 143 183
12/95 94 144 173
3/96 94 151 177
6/96 83 163 189
9/96 92 169 201
12/96 99 177 215
3/97 104 168 205
6/97 137 199 247
9/97 169 232 299
12/97 105 217 252
3/98 138 254 306
6/98 134 261 313
9/98 97 236 278
12/98 103 306 393
3/99 103 342 428
- ------------------------
(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, 1994 = 100.
20
CERTAIN TRANSACTIONS
In connection with the implementation of its new enterprise resource
planning system, the Company retained the services of Answer Think Consulting
Group ("ACG"). Ted A. Fernandez, ACG's Chief Executive Officer, is the brother
of Aurelio Fernandez, who resigned as Senior Vice President of Worldwide Sales
on January 22, 1998. During the fiscal year ending March 31, 1999 the Company
paid ACG $1,853,052.
The Company has entered into indemnity agreements with certain officers and
directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he/she may be
required to pay in actions or proceedings which he/she is or may be made a party
by reason of his/her position as a director, officer or other agent of the
Company, and otherwise to the full extent permitted under Delaware law and the
Company's By-Laws.
ACCOUNTANTS
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.
COMMUNICATING WITH THE COMPANY
We have from time-to-time received calls from stockholders inquiring about
the available means of communication with the Company. We thought that it would
be helpful to describe these arrangements which are available for your use.
- If you would like to RECEIVE INFORMATION about the Company, without
charge, you may use one of these convenient methods:
1. To have information such as the Company's latest Quarterly Earnings
Release, Form 10-K, Form 10-Q or Annual Report mailed to you,
stockholders residing in the U.S., please call the transfer agent,
Boston EquiServe at 800-730-4001.
2. To view the Company's website on the Internet, use the Company's
Internet address: www.exar.com. The Company's website includes product,
marketing, corporate and financial data, as well as recent earnings
releases, current stock price, an electronic file of this Proxy
Statement and 10K/10Q, the Company's Annual Report to Stockholders and
job listings. Internet access to this information has the advantage of
providing you with up-to-date information about the Company throughout
the year.
3. To reach our Investor Relations representative, please call
510-668-7201.
- If you would like to WRITE TO US, please send your correspondence to the
following address:
Exar Corporation
48720 Kato Road
Fremont, California 94538
Attn: Investor Relations, M/S 205
OTHER MATTERS
The Board of Directors knows of no other matter that will be presented for
consideration at the Annual Meeting of Stockholders. If any other matter is
properly brought before the meeting, it is the
21
intention of the persons named in the accompanying proxy to vote on such matter
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
/s/ Ronald W. Guire
Ronald W. Guire
SECRETARY
July 14, 1999
22
DETACH HERE
PROXY
EXAR CORPORATION
PROXY SOLICITED BY BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 9, 1999
The undersigned hereby appoints Donald L. Ciffone, Jr. and Ronald W. Guire,
or each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Exar Corporation which
the undersigned may be 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 9, 1999 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 IN THE ENCLOSED RETURN ENVELOPE WHICH IS
POSTAGE PREPAID IF MAILED IN THE UNITED STATES.
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEE FOR DIRECTOR LISTED
BELOW AND FOR PROPOSAL 2.
1. To elect a director to hold office until the 2002 Annual Meeting of
Stockholders.
NOMINEE: Raimon L. Conlisk
FOR WITHHELD FROM
NOMINEE [ ] NOMINEE [ ]
2. To approve the Company's 1997 Equity Incentive Plan, as amended, to
increase the aggregate number of shares of Common Stock authorized for
issuance under such plan by 450,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
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 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: _________