EXAR CORP, S-3, 2000-02-15

EXAR CORP
S-3, 2000-02-15
SEMICONDUCTORS & RELATED DEVICES

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 14, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-3

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

EXAR CORPORATION

(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C> <C>
DELAWARE 3674 94-1741481
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>

--------------------------

48720 KATO ROAD
FREMONT, CALIFORNIA 94538
(510) 668-7000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
--------------------------

DONALD L. CIFFONE, JR.
CHIEF EXECUTIVE OFFICER
EXAR CORPORATION
48720 KATO ROAD
FREMONT, CALIFORNIA 94538
(510) 668-7000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------------------

COPIES TO:

<TABLE>
<S> <C>
ROBERT L. JONES, ESQ. PETER T. HEALY, ESQ.
MATTHEW W. SONSINI, ESQ. O'MELVENY & MYERS LLP
COOLEY GODWARD LLP Embarcadero Center West
Five Palo Alto Square 275 Battery Street
3000 El Camino Real San Francisco, California 94111
Palo Alto, California 94036 (415) 984-8833
(650) 843-5000
</TABLE>

--------------------------

APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
--------------------------

If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /

If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TITLE OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, $.0001 par value...... 2,875,000 $44.64 $128,340,000 $33,882
</TABLE>

(1) Includes 375,000 shares of common stock, after giving effect to a
three-for-two stock split to be effected on February 15, 2000, issuable upon
exercise of the Underwriter's over-allotment option.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) of the Securities Act of 1933, as amended, and based
upon the average high and low sales prices on February 9, 2000, after giving
effect to a three-for-two stock split to be effected on February 15, 2000,
as reported on the Nasdaq National Market.

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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed without
notice. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This prospectus is not
an offer to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale of these securities is not
permitted.
<PAGE>
Prospectus (Not Complete)
Issued February 14, 2000

2,500,000 SHARES

[LOGO]

EXAR CORPORATION
COMMON STOCK
----------------

Exar Corporation is offering 2,500,000 shares of common stock, after giving
effect to a three-for-two stock split to be effected on February 15, 2000, in a
firmly underwritten offering.

------------------------

Our common stock is traded on the Nasdaq National Market under the symbol
"EXAR." The last reported sale price for our common stock on the Nasdaq National
Market on February 11, 2000 was $54.67, after giving effect to a three-for-two
stock split to be effected on February 15, 2000.

------------------------

INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" SECTION BEGINNING ON PAGE 4.
---------------------

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<CAPTION>
Per Share Total
--------- --------
<S> <C> <C>
Public Offering Price $ $
Discounts and Commissions to Underwriters $ $
Offering Proceeds to Exar $ $
</TABLE>

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.

We have granted the underwriters the right to purchase up to an additional
375,000 shares of common stock, after giving effect to a three-for-two stock
split to be effected on February 15, 2000, to cover any over-allotments. The
underwriters can exercise this right at any time within thirty days after the
offering. The underwriters expect to deliver the shares of common stock to
investors on , 2000.

BANC OF AMERICA SECURITIES LLC

ROBERTSON STEPHENS

U.S. BANCORP PIPER JAFFRAY

NEEDHAM & COMPANY, INC.

------------------------

, 2000.
<PAGE>
TABLE OF CONTENTS

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PAGE
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<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Forward-Looking Statements.................................. 13
Use of Proceeds............................................. 14
Dividend Policy............................................. 14
Price Range Of Our Common Stock............................. 14
Capitalization.............................................. 15
Selected Consolidated Financial Data........................ 16
Management's Discussion and Analysis Of Financial Condition
And Results Of Operations................................. 17
Business.................................................... 26
Management.................................................. 35
Underwriting................................................ 38
Legal Matters............................................... 40
Experts..................................................... 40
Where You Can Find More Information......................... 41
</TABLE>

You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate as of the date on the
front cover of this prospectus only. Our business, financial condition, results
of operations and prospects may have changed since that date.

Information contained in our web site does not constitute part of this
document.

EXAR-Registered Trademark- and the Exar logos are our registered trademarks
in the U.S. and other jurisdictions.
<PAGE>
PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that may be
important to you. You should read the entire prospectus carefully, including the
financial data and related notes, before making an investment decision. The
terms "we," "us," "our" and "Exar Corporation" mean Exar Corporation and its
subsidiaries. Unless otherwise indicated, all information in this prospectus
(i) assumes that the underwriters do not exercise their over-allotment option
and (ii) reflects a three-for-two stock split to be effected on February 15,
2000.

EXAR CORPORATION

We design, develop and market high-performance, high-bandwidth mixed-signal
(analog and digital) silicon solutions for the worldwide communications
infrastructure. Our analog and mixed-signal design expertise, combined with our
systems understanding, enables us to provide integrated circuits, or ICs, for
wide area network, or WAN, equipment that enables high-speed data
communications. Our customers include leading communications original equipment
manufacturers, or OEMs, such as Alcatel Alsthom S.A., Cisco Systems, Inc.,
Lucent Technologies Inc., Nokia Corporation and Tellabs, Inc.

The volume of data traffic across the public communications network has
increased significantly in the past few years. As a result, the existing
communications infrastructure does not have the bandwidth to accommodate the
increased levels of data traffic. One of the significant bottlenecks in today's
communications infrastructure is the point at which the copper, coaxial or fiber
optic transmission media connects to the WAN. To address the dramatic growth in
data traffic and this particular bottleneck, communications OEMs must develop
and introduce sophisticated systems that incorporate increasingly complex
communications ICs that enhance the bandwidth of this bridge between the analog
physical world and the digital computing environment.

We provide physical interface and access control ICs for communications
equipment that is based upon the T/E carrier and Asynchronous Transfer Mode, or
ATM, transmission standards, and we are developing products for the Synchronous
Optical Network/Synchronous Digital Hierarchy, or SONET/ SDH, transmission
standards. We provide our customers with complete solutions that include
hardware, software and application support, thereby facilitating system
integration and our customers' time-to-market. Additionally, our substantial
analog and mixed-signal design expertise and use of standard CMOS semiconductor
manufacturing processes, enable us to offer ICs that provide compelling price/
performance solutions for communications OEMs. We also provide ICs for the
serial communications market and the video and imaging markets.

Our objective is to be the leading provider of high-performance,
high-bandwidth ICs for the worldwide communications infrastructure. Our
strategies for achieving this objective include:

- focusing on high-growth communications markets;

- leveraging our analog and mixed-signal expertise to provide integrated
system level solutions;

- expanding our revenue content per system;

- strengthening and expanding strategic OEM relationships;

- leveraging our broad product portfolio to accelerate communications
product development;

- using standard CMOS process technologies to provide compelling
price/performance; and

- leveraging the fabless semiconductor business model.

Our principal executive offices are located at 48720 Kato Road, Fremont, CA
94538, and our telephone number is (510) 668-7000.

1
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THE OFFERING

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<S> <C>
Common stock offered by Exar............................ 2,500,000 shares

Common stock to be outstanding after this offering...... 17,428,299 shares

Use of proceeds......................................... For capital expenditures and general
corporate purposes, including working
capital.

Nasdaq National Market symbol........................... EXAR
</TABLE>

- ------------------------

The number of shares of our common stock to be outstanding after this
offering is based on the number of shares outstanding as of January 31, 2000 and
does not include the following:

- 3,678,771 shares of common stock issuable upon exercise of outstanding
stock options with a weighted average exercise price of $15.03 per share;

- 1,114,163 additional shares reserved for future issuance under our stock
option plans; and

- 1,227,327 additional shares reserved for sale under our employee stock
purchase plan.

2
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The following tables present our summary consolidated statement of
operations data for fiscal 1996 through 1999 and our summary consolidated
balance sheet data as of December 31, 1999. Consolidated balance sheet data is
presented on an actual basis and as adjusted to reflect the sale of 2,500,000
shares of common stock offered by us in this offering at an assumed public
offering price of $54.67 per share and after deducting the estimated
underwriting discounts and commissions and offering expenses and giving effect
to the application of the net proceeds. The summary consolidated financial data
does not give effect to the three-for-two stock split to be effected on
February 15, 2000.

Net sales........................... $125,766 $ 92,343 $102,015 $71,868 $56,770 $55,509
Gross profit........................ 63,549 36,883 50,078 38,482 30,266 31,100
Income (loss) from operations....... 18,759 (15,238) 8,986 4,051 3,882 1,076
Net income (loss)................... 13,582 (9,197) 7,518 5,424 4,705 8,051

Net income (loss) per share:
Basic............................. $ 1.43 $ (1.01) $ 0.81 $ 0.58 $ 0.50 $ 0.85
Diluted........................... $ 1.37 $ (1.01) $ 0.77 $ 0.57 $ 0.49 $ 0.78

Shares used in the computation of
net income (loss) per share:
Basic............................. 9,495 9,071 9,326 9,392 9,418 9,419
Diluted........................... 9,925 9,071 9,730 9,600 9,675 10,371
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
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ACTUAL AS ADJUSTED
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(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $111,722 $240,522
Total assets................................................ 155,992 284,792
Long-term obligations....................................... 582 582
Retained earnings........................................... 65,175 65,175
Stockholders' equity........................................ 138,825 267,625
</TABLE>

3
<PAGE>
RISK FACTORS

YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE INVESTING IN
OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS
COULD BE HARMED. THIS COULD CAUSE THE PRICE OF OUR STOCK TO DECLINE, AND YOU MAY
LOSE PART OR ALL OF YOUR INVESTMENT. THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING STATEMENTS ABOUT
FUTURE PLANS, OBJECTIVES, INTENTIONS AND EXPECTATIONS. MANY FACTORS, INCLUDING
THOSE DESCRIBED BELOW, COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THOSE DISCUSSED IN ANY FORWARD-LOOKING STATEMENT.

OUR OPERATING RESULTS MAY FLUCTUATE BECAUSE OF A NUMBER OF FACTORS, MANY OF
WHICH ARE BEYOND OUR CONTROL.

Our operating results fluctuate significantly. Some of the factors that
affect our quarterly and annual results, many of which are difficult to control
or predict, are:

- the reduction, rescheduling or cancellation of orders by customers;

- fluctuations in the timing and amount of customer requests for product
shipments;

- fluctuations in the manufacturing output, yields and inventory levels of
our suppliers;

- changes in the mix of products that our customers purchase;

- our ability to introduce new products on a timely basis;

- the announcement or introduction of products by our competitors;

- the availability of external foundry capacity and raw materials;

- competitive pressures on selling prices;

- the amounts and timing of costs associated with product warranties and
returns;

- the amounts and timing of investments in research and development;

- market acceptance of our products;

- costs associated with acquisitions and the integration of acquired
operations;

- the ability of our customers to obtain components from their other
suppliers;

- general conditions in the communications and semiconductor industries;

- fluctuations in interest rates; and

- general economic conditions.

OUR MARKETS ARE SUBJECT TO RAPID TECHNOLOGICAL CHANGE AND, THEREFORE, OUR
SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND INTRODUCE NEW PRODUCTS.

The markets for our products are characterized by:

- rapidly changing technologies;

- evolving and competing industry standards;

- changing customer needs;

- frequent new product introductions and enhancements;

- increased integration with other functions; and

- rapid product obsolescence.

To develop new products for our target markets, we must develop, gain access
to and use leading technologies in a cost-effective and timely manner and
continue to expand our technical and design expertise. In addition, we must have
our products designed into our customers' future products and maintain close
working relationships with key customers in order to develop new products that
meet their changing needs.

4
<PAGE>
In addition, products for communications applications are based on
continually evolving industry standards. Our ability to compete will depend on
our ability to identify and ensure compliance with these industry standards. As
a result, we could be required to invest significant time and effort and to
incur significant expense to redesign our products to ensure compliance with
relevant standards.

We cannot assure you that we will be able to identify new product
opportunities successfully, develop and bring to market new products, achieve
design wins or respond effectively to new technological changes or product
announcements by our competitors. In addition, we may not be successful in
developing or using new technologies or in developing new products or product
enhancements that achieve market acceptance. Our pursuit of necessary
technological advances may require substantial time and expense. Failure in any
of these areas could harm our operating results.

OUR FUTURE SUCCESS DEPENDS IN PART ON THE CONTINUED SERVICE OF OUR KEY DESIGN
ENGINEERING, SALES, MARKETING AND EXECUTIVE PERSONNEL AND OUR ABILITY TO
IDENTIFY, HIRE AND RETAIN ADDITIONAL PERSONNEL.

There is intense competition for qualified personnel in the semiconductor
industry, in particular the highly skilled design, applications and test
engineers involved in the development of new communications ICs. Competition is
especially intense in the Silicon Valley, where our corporate headquarters is
located. We may not be able to continue to attract and retain engineers or other
qualified personnel necessary for the development of our business or to replace
engineers or other qualified personnel who may leave our employ in the future.
Our anticipated growth is expected to place increased demands on our resources
and will likely require the addition of new management and engineering personnel
and the development of additional expertise by existing management personnel.
Loss of the services of, or failure to recruit, key design engineers or other
technical and management personnel could harm our business.

WE DEPEND ON THIRD-PARTY FOUNDRIES TO MANUFACTURE OUR ICS.

We do not own or operate a semiconductor fabrication facility. Most of our
products are based on CMOS processes and are only manufactured by a single
foundry. Two foundries manufacture our products based on CMOS processes, and one
foundry manufactures all of our BiCMOS products. We do not have long-term wafer
supply agreements with our CMOS foundries that guarantee wafer or product
quantities, prices, delivery or lead times, as our CMOS foundries manufacture
our products on a purchase order basis. We provide these foundries with rolling
forecasts of our production requirements; however, the ability of each foundry
to provide wafers to us is limited by the foundry's available capacity.
Therefore, our CMOS foundries could choose to prioritize capacity for other
customers or reduce or eliminate deliveries to us on short notice. Accordingly,
we cannot be certain that these foundries will allocate sufficient capacity to
satisfy our requirements. In addition, we cannot be certain that we will
continue to do business with our foundries on terms as favorable as our current
terms. Other significant risks associated with our reliance on outside foundries
include:

- the lack of assured semiconductor wafer supply and control over delivery
schedules;

- the unavailability of, or delays in obtaining access to, key process
technologies;

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

- potential misappropriation of our intellectual property.

We could experience a substantial delay or interruption in the shipment of
our products or an increase in our costs due to the following:

- a sudden demand for an increased amount of semiconductor devices;

- a manufacturing disruption experienced by one or more of our outside
foundries or sudden reduction or elimination of any existing source or
sources of semiconductor devices;

- time required to find or qualify alternative manufacturing sources for
existing or new products; or

5
<PAGE>
- failure of our suppliers to obtain the raw materials and equipment used in
the production of our ICs.

TO SECURE FOUNDRY CAPACITY, WE MAY BE REQUIRED TO ENTER INTO FINANCIAL AND OTHER
ARRANGEMENTS WITH FOUNDRIES, AND SUCH AGREEMENTS MAY RESULT IN THE DILUTION OF
OUR EARNINGS OR OF THE OWNERSHIP OF OUR STOCKHOLDERS OR OTHERWISE HARM OUR
OPERATING RESULTS.

Allocation of a foundry's manufacturing capacity may be influenced by a
customer's size or the existence of a long-term agreement with the foundry. To
address foundry capacity constraints, we and other semiconductor companies that
rely on third-party foundries have utilized various arrangements, including
equity investments in or loans to foundries, in exchange for guaranteed
production capacity, joint ventures to own and operate foundries, or "take or
pay" contracts that commit a company to purchase specified quantities of
components over extended periods. While we are not currently a party to any of
these arrangements, we may decide to enter into such arrangements in the future.
We cannot be sure, however, that these arrangements will be available to us on
acceptable terms or at all. Any of these arrangements could require us to commit
substantial capital and, accordingly, could require us to obtain additional debt
or equity financing. This could result in the dilution of our earnings or the
ownership of our stockholders or otherwise harm our operating results.

IF OUR FOUNDRIES DISCONTINUE THE MANUFACTURING PROCESSES NEEDED TO MEET OUR
DEMANDS, OR FAIL TO UPGRADE THE TECHNOLOGIES NEEDED TO MANUFACTURE OUR PRODUCTS,
WE MAY FACE PRODUCTION DELAYS.

Our wafer and product requirements typically represent a small portion of
the total production of the foundries that manufacture our products. As a
result, we are subject to the risk that a foundry will cease production on an
older or lower-volume process that it uses to produce our parts. Additionally,
we cannot be certain our foundries will continue to devote resources to the
production of our products or continue to advance the process design
technologies on which the manufacturing of our products is based. Each of these
events could increase our costs and harm our ability to deliver our products on
time.

THE MARKETS IN WHICH WE PARTICIPATE ARE INTENSELY COMPETITIVE.

Our target markets are intensely competitive. Our ability to compete
successfully in our target markets depends on the following factors:

- designing new products that implement new technologies;

- subcontracting the manufacture of new products and delivering them in a
timely manner;

- product quality and reliability;

- technical support and service;

- timely product introduction;

- product performance;

- product features;

- price;

- end-user acceptance of our customers' products;

- compliance with evolving standards; and

- market acceptance of competitors' products.

In addition, our competitors or customers may offer new products based on
new technologies, industry standards or end-user or customer requirements,
including products that have the potential to replace or provide lower-cost or
higher-performance alternatives to our products. The introduction of new
products by our competitors or customers could render our existing and future
products obsolete

6
<PAGE>
or unmarketable. In addition, our competitors and customers may introduce
products that integrate the functions performed by our ICs on a single IC, thus
eliminating the need for our products.

Because the IC markets are highly fragmented, we generally encounter
different competitors in our various market areas. Competitors with respect to
our communications products include Conexant Systems Inc., PMC-Sierra, Inc. and
TranSwitch Corporation. In addition, the expansion of our communications product
portfolio may in the future bring us into competition with other established
communications IC companies, such as Applied Micro Circuits Corp. and Vitesse
Semiconductor Corporation. Competitors in our other markets include Analog
Devices Incorporated, Koninklijke Philips Electronics NV and Texas Instruments
Incorporated. Many of our competitors have greater financial, technical and
management resources than we do. Some of these competitors may be able to sell
their products at prices below which it would be profitable for us to sell our
products.

IF WE ARE UNABLE TO FURTHER PENETRATE THE MARKETS FOR COMMUNICATIONS ICS OR IF
THESE MARKETS FAIL TO GROW AS EXPECTED, OUR REVENUES COULD STOP GROWING AND MAY
DECLINE.

A significant portion of our revenues in recent periods has been, and is
expected to continue to be, derived from sales of communications ICs,
particularly products based on the T/E carrier and ATM transmission standards.
In order for us to be successful, we must continue to penetrate these markets.
Furthermore, if these markets fail to grow as expected, our business could be
harmed.

WE EXPECT THAT REVENUES CURRENTLY DERIVED FROM NON-COMMUNICATIONS PRODUCTS WILL
DECLINE IN FUTURE PERIODS, AND OUR BUSINESS WILL BE HARMED IF OUR COMMUNICATIONS
PRODUCTS FAIL TO MAKE UP FOR THIS DECLINE.

We do not intend to increase our funding of development efforts relating to
our video and imaging and other non-communications products, and as a result
revenues from these products may decline in future periods. In addition, the
markets for these products are subject to extreme price competition, and we may
not be able to reduce our costs in response to declining average selling prices.
Even if we reduce our costs, our customers in these markets may not purchase
these products. Moreover, these markets may decrease in size in the future. If
our communications products fail to make up for any revenue shortfall, our
business could be harmed.

OUR DEPENDENCE ON THIRD-PARTY SUBCONTRACTORS TO ASSEMBLE AND TEST OUR PRODUCTS
SUBJECTS US TO A NUMBER OF RISKS, INCLUDING AN INADEQUATE SUPPLY OF PRODUCTS TO
MEET DEMAND OR THAT OUR COST OF MATERIALS ARE HIGHER THAN EXPECTED.

We depend on independent subcontractors for the assembly and testing of our
products. Our reliance on these subcontractors involves the following
significant risks:

- reduced control over delivery schedules and quality;

- the potential lack of adequate capacity during periods of excess demand;

- difficulties selecting and integrating new subcontractors;

- limited warranties on products supplied to us;

- potential increases in prices due to capacity shortages and other factors;
and

- potential misappropriation of our intellectual property.

These risks may lead to increased costs or delayed product delivery, which
would harm our profitability and customer relationships.

OUR RELIANCE UPON FOREIGN SUPPLIERS EXPOSES US TO RISKS ASSOCIATED WITH
INTERNATIONAL OPERATIONS.

We use semiconductor wafer foundries and assembly and test subcontractors
throughout Asia for most of our products. We intend to continue transferring our
testing and shipping operations to

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offshore subcontractors. Our dependence on these subcontractors involves the
following substantial risks:

- political and economic instability;

- disruption to air transportation from Asia; and

- changes in tax laws, tariffs and freight rates.

These risks may lead to increased costs or delayed product delivery, which
would harm our profitability and customer relationships.

OUR SUBSTANTIAL RELIANCE ON FOREIGN CUSTOMERS COULD CAUSE FLUCTUATIONS IN OUR
OPERATING RESULTS.

International sales accounted for 36.5% of net sales for fiscal year 1999
and 35.1% of net sales for the nine months ended December 31, 1999.
International sales may account for an increasing portion of our revenues. As a
result, an increasing portion of our revenues may be subject to the following
risks:

- changes in regulatory requirements;

- tariffs and other barriers;

- timing and availability of export licenses;

- political and economic instability;

- difficulties in accounts receivable collections;

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

- difficulties in managing distributors;

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

- limited intellectual property protection;

- foreign currency exchange fluctuations;

- the burden of complying with and the risk of violating a wide variety of
complex foreign laws and treaties; and

- potentially adverse tax consequences.

In addition, because sales of our products have been denominated to date
primarily in United States Dollars (except in Japan, where we transact a portion
of our business in Japanese Yen), increases in the value of the United States
Dollar could increase the relative price of our products so that they become
more expensive to customers in the local currency of a particular country.
Future international activity may result in increased foreign currency
denominated sales. Furthermore, because some of our customer purchase orders and
agreements are governed by foreign laws, we may be limited in our ability to
enforce our rights under such agreements and to collect damages, if awarded.

WE RELY ON OUR DISTRIBUTORS AND SALES REPRESENTATIVES TO SELL MANY OF OUR
PRODUCTS.

We sell many of our products through distributors and sales representatives.
Our distributors and sales representatives could reduce or discontinue sales of
our products. They may not devote the resources necessary to sell our products
in the volumes and within the time frames that we expect. In addition, we depend
upon the continued viability and financial resources of these distributors and
sales representatives, some of which are small organizations with limited
working capital. These distributors and sales representatives, in turn, depend
substantially on general economic conditions and conditions within the
semiconductor industry. We believe that our success will continue to depend upon
these distributors and sales representatives. If some or all of our distributors
and sales representatives experience financial difficulties, or otherwise become
unable or unwilling to promote and sell our products, our business could be
harmed.

8
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BECAUSE OUR COMMUNICATIONS ICS TYPICALLY HAVE LENGTHY SALES CYCLES, WE MAY
EXPERIENCE SUBSTANTIAL DELAYS BETWEEN INCURRING EXPENSES RELATED TO RESEARCH AND
DEVELOPMENT AND THE GENERATION OF SALES REVENUE.

The communications IC product cycle usually takes more than 12 months for us
to realize volume shipments after we first contact a customer. We first work
with customers to achieve a design win, which may take nine months or longer.
Our customers then complete the design, testing and evaluation process and begin
to ramp up production, a period which typically lasts an additional three months
or longer. As a result, a significant period of time may elapse between our
sales efforts and our realization of revenue, if any, from volume purchasing of
our communications products by our customers.

OUR BACKLOG MAY NOT RESULT IN FUTURE REVENUE.

Due to possible customer changes in delivery schedules and cancellations of
orders, our backlog at any particular date is not necessarily indicative of
actual sales for any succeeding period. A reduction of backlog during any
particular period, or the failure of our backlog to result in future revenue,
could harm our business.

OUR OPERATING EXPENSES ARE RELATIVELY FIXED, AND WE MAY ORDER MATERIALS IN
ADVANCE OF ANTICIPATED CUSTOMER DEMAND. THEREFORE, WE HAVE LIMITED ABILITY TO
REDUCE EXPENSES QUICKLY IN RESPONSE TO ANY REVENUE SHORTFALLS.

Our operating expenses are relatively fixed, and, therefore, we have limited
ability to reduce expenses quickly in response to any revenue shortfalls.
Consequently, our operating results will be harmed if our revenues do not meet
our revenue projections. We may experience revenue shortfalls for the following
reasons:

- significant pricing pressures that occur because of declines in average
selling prices over the life of a product;

- sudden shortages of raw materials or fabrication, test or assembly
capacity constraints that lead our suppliers to allocate available
supplies or capacity to other customers and, in turn, harm our ability to
meet our sales obligations; and

- the reduction, rescheduling or cancellation of customer orders.

In addition, we typically plan our production and inventory levels based on
internal forecasts of customer demand, which is highly unpredictable and can
fluctuate substantially. From time to time, in response to anticipated long lead
times to obtain inventory and materials from our outside suppliers and
foundries, we may order materials in advance of anticipated customer demand.
This advance ordering may result in excess inventory levels or unanticipated
inventory write-downs if expected orders fail to materialize.

PERIODS OF RAPID GROWTH AND EXPANSION COULD CONTINUE TO PLACE A SIGNIFICANT
STRAIN ON OUR LIMITED PERSONNEL AND OTHER RESOURCES.

To manage our possible future growth effectively, we will be required to
continue to improve our operational, financial and management systems and to
successfully hire, train, motivate and manage our employees. In addition, the
integration of past and future potential acquisitions and the evolution of our
business plan will require significant additional management, technical and
administrative resources. We cannot be certain that we will be able to manage
the growth and evolution of our current business effectively.

9
<PAGE>
WE HAVE IN THE PAST AND MAY IN THE FUTURE MAKE ACQUISITIONS, WHICH WILL INVOLVE
NUMEROUS RISKS. WE CANNOT ASSURE YOU THAT WE WILL BE ABLE TO ADDRESS THESE RISKS
SUCCESSFULLY WITHOUT SUBSTANTIAL EXPENSE, DELAY OR OTHER OPERATIONAL OR
FINANCIAL PROBLEMS.

The risks involved with acquisitions include:

- diversion of management's attention;

- failure to retain key personnel;

- amortization of acquired intangible assets;

- customer dissatisfaction or performance problems with an acquired company;

- the cost associated with acquisitions and the integration of acquired
operations; and

- assumption of known or unknown liabilities or other unanticipated events
or circumstances.

We cannot assure you that we will be able to address these risks
successfully without substantial expense, delay or other operational or
financial problems.

WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY ADEQUATELY.

Our ability to compete is affected by our ability to protect our proprietary
information. We rely on a combination of patents, trademarks, copyrights, mask
work registrations, trade secrets, confidentiality procedures and non-disclosure
and licensing arrangements to protect our intellectual property. Despite these
efforts, we cannot be certain that the steps we take to protect our proprietary
information will be adequate to prevent misappropriation of our technology, or
that our competitors will not independently develop technology that is
substantially similar or superior to our technology.

More specifically, we cannot assure you that our pending patent applications
or any future applications will be approved, or that any issued patents will
provide us with competitive advantages or will not be challenged by third
parties. Nor can we assure you that, if challenged, our patents will be found to
be valid or enforceable, or that the patents of others will not have an adverse
effect on our ability to do business. Furthermore, others may independently
develop similar products or processes, duplicate our products or processes or
design around any patents that may be issued to us.

WE COULD BE HARMED BY LITIGATION INVOLVING PATENTS AND OTHER INTELLECTUAL
PROPERTY RIGHTS.

As a general matter, the semiconductor industry is characterized by
substantial litigation regarding patent and other intellectual property rights.
We may be accused of infringing the intellectual property rights of third
parties. Furthermore, we have certain indemnification obligations to customers
with respect to the infringement of third-party intellectual property rights by
our products. We cannot be certain that infringement claims by third parties or
claims for indemnification by customers or end users of our products resulting
from infringement claims will not be asserted in the future or that such
assertions, if proven to be true, will not harm our business.

Any litigation relating to the intellectual property rights of third
parties, whether or not determined in our favor or settled by us, would at a
minimum be costly and could divert the efforts and attention of our management
and technical personnel. In the event of any adverse ruling in any such
litigation, we could be required to pay substantial damages, cease the
manufacturing, use and sale of infringing products, discontinue the use of
certain processes or obtain a license under the intellectual property rights of
the third party claiming infringement. A license might not be available on
reasonable terms, or at all.

EARTHQUAKES AND OTHER NATURAL DISASTERS MAY DAMAGE OUR FACILITIES OR THOSE OF
OUR SUPPLIERS.

Our corporate headquarters in California is located near major earthquake
faults which have experienced earthquakes in the past. In addition, some of our
suppliers are located near fault lines. In the event of a major earthquake or
other natural disaster near our headquarters, our operations could

10
<PAGE>
be harmed. Similarly, a major earthquake or other natural disaster near one or
more of our major suppliers, like the one that occurred in Taiwan in
September 1999, could disrupt the operations of those suppliers, which could
limit the supply of our products and harm our business.

OUR STOCK PRICE IS VOLATILE.

The market price of our common stock has fluctuated significantly to date.
In the future, the market price of our common stock could be subject to
significant fluctuations due to general market conditions and in response to
quarter-to-quarter variations in:

- our anticipated or actual operating results;

- announcements or introductions of new products;

- technological innovations or setbacks by us or our competitors;

- conditions in the communication and semiconductor markets;

- the commencement of litigation;

- changes in estimates of our performance by securities analysts;

- announcements of merger or acquisition transactions; and

- general economic and market conditions.

In addition, the stock market in recent years has experienced extreme price
and volume fluctuations that have affected the market prices of many high
technology companies, particularly semiconductor companies, and that have often
been unrelated or disproportionate to the operating performance of companies.
These fluctuations, as well as general economic and market conditions, may harm
the market price of our common stock.

THE ANTI-TAKEOVER PROVISIONS OF OUR CERTIFICATE OF INCORPORATION AND OF THE
DELAWARE GENERAL CORPORATION LAW MAY DELAY, DEFER OR PREVENT A CHANGE OF
CONTROL.

Our board of directors has the authority to issue up to 2,250,000 shares of
preferred stock and to determine the price, rights, preferences and privileges
and restrictions, including voting rights, of those shares without any further
vote or action by our stockholders. The rights of the holders of common stock
will be subject to, and may be harmed by, the rights of the holders of any
shares of preferred stock that may be issued in the future. The issuance of
preferred stock may delay, defer or prevent a change in control, as the terms of
the preferred stock that might be issued could potentially prohibit our
consummation of any merger, reorganization, sale of substantially all of our
assets, liquidation or other extraordinary corporate transaction without the
approval of the holders of the outstanding shares of preferred stock. In
addition, the issuance of preferred stock could have a dilutive effect on our
stockholders. Our stockholders must give advance notice, generally 120 days
prior to the relevant meeting, to nominate a candidate for director or present a
proposal to our stockholders at a meeting. These notice requirements could
inhibit a takeover by delaying stockholder action. We may trigger our
stockholder rights plan in the event our board of directors does not agree to an
acquisition proposal. The rights plan may make it more difficult and costly to
acquire our company. The Delaware anti-takeover law restricts business
combinations with some stockholders once the stockholder acquires 15% or more of
our common stock. The Delaware statute makes it harder for our company to be
acquired without the consent of our board of directors and management.

INVESTORS WILL EXPERIENCE DILUTION AS A RESULT OF THIS OFFERING.

Investors in this offering will incur immediate and substantial dilution in
the net tangible book value per share of our common stock.

11
<PAGE>
IF WE HAVE NOT ADEQUATELY PREPARED FOR THE TRANSITION TO YEAR 2000, OUR
BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION COULD SUFFER.

We have executed a plan designed to make our computer systems, applications,
computer and manufacturing equipment and facilities Year 2000 ready. To date,
none of our systems, applications, equipment or facilities have experienced
material difficulties from the transition to Year 2000, nor have we been
notified that any of our suppliers have had any such difficulties. However, due
to the breadth of potential issues related to the Year 2000, we cannot guarantee
that we will not experience any problems in the future and the final
determination may take several months. Where practicable, we have attempted to
mitigate our risks with respect to any failures of our critical external
suppliers related to the Year 2000. The effect on our results of operations from
any failure of our systems, applications, equipment or facilities, or our
critical external suppliers, related to the Year 2000 issue cannot yet be
determined.

12
<PAGE>
FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. We intend such forward-looking statements to be covered by
the safe harbor provisions for forward-looking statements contained in the
Private Securities Litigation Reform Act of 1995, and we are including this
statement for purposes of complying with these safe harbor provisions. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are not
guarantees of future performance and are subject to risks, uncertainties and
assumptions, including those set forth under "Risk Factors."

Words such as "expect," "anticipate," "intend," "plan," "believe,"
"estimate" and variations of such words and similar expressions are intended to
identify such forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks, uncertainties
and assumptions, the forward-looking events discussed in this prospectus might
not occur.

13
<PAGE>
USE OF PROCEEDS

We estimate that the net proceeds from the sale of the 2,500,000 shares of
common stock that we are offering at an assumed public offering price of $54.67
will be approximately $128.8 million after deducting the underwriting discounts
and commissions and estimated offering expenses payable by us. If the
underwriters exercise their over-allotment option in full, we estimate the net
proceeds from this offering will be approximately $148.2 million.

We expect to use the net proceeds from this offering for capital
expenditures and general corporate purposes, including working capital. We may
also use a portion of the net proceeds to invest in wafer fabrication facilities
with our suppliers or to make equity investments in our suppliers, related joint
ventures or other companies to secure manufacturing capacity. We may use a
portion of the net proceeds to acquire or license other complementary products,
technologies or businesses when the opportunity arises; however, we currently
have no commitments or agreements with respect to any such transactions. As of
the date of this prospectus, we cannot specify with certainty the particular
uses for the net proceeds we will receive in this offering. Accordingly, our
management will have broad discretion in applying the net proceeds of this
offering. Pending such uses, the net proceeds of this offering will be primarily
invested in investment grade, interest-bearing instruments.

DIVIDEND POLICY

We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain earnings to support the development of our business
and do not anticipate paying cash dividends for the foreseeable future. Payment
of future dividends, if any, will be at the discretion of our board of directors
after taking into account various factors, including our financial condition,
operating results and current and anticipated cash needs.

PRICE RANGE OF OUR COMMON STOCK

Our common stock is traded on the Nasdaq National Market under the symbol
EXAR. The following table sets forth for the period indicated the high and low
sale prices for our common stock, as reported by the Nasdaq National Market, as
adjusted for our three-for-two stock split, to be effected in the form of a
stock dividend, on February 15, 2000.

<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
Year ended March 31, 1998
First Quarter............................................. $14.50 $ 9.67
Second Quarter............................................ $17.92 $12.83
Third Quarter............................................. $18.17 $10.75
Fourth Quarter............................................ $15.00 $10.67

Year ended March 31, 1999
First Quarter............................................. $16.46 $12.08
Second Quarter............................................ $14.42 $ 9.25
Third Quarter............................................. $12.50 $ 8.00
Fourth Quarter............................................ $11.25 $ 8.75

Year ended March 31, 2000
First Quarter............................................. $16.92 $10.58
Second Quarter............................................ $26.00 $17.00
Third Quarter............................................. $43.08 $21.00
Fourth Quarter through February 11, 2000.................. $56.08 $38.00
</TABLE>

On February 11, 2000, the last reported sale price of our common stock on
the Nasdaq National Market was $54.67. As of January 31, 2000, there were
14,928,299 shares of our common stock outstanding, after giving effect to the
three-for-two stock split, held by approximately 234 holders of record.

14
<PAGE>
CAPITALIZATION

The following table sets forth on an unaudited basis our capitalization as
of December 31, 1999 and as adjusted to reflect the sale of the 2,500,000 shares
of common stock we are offering at an assumed public offering price of $54.67
per share and the receipt of the estimated net proceeds, after deducting the
underwriting discounts and our estimated offering expenses. The table shows the
effect of a three-for-two stock split to be effected on February 15, 2000. You
should read this table in conjunction with the consolidated financial statements
and notes and "Selected Consolidated Financial Data" included elsewhere in this
prospectus.

<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
------------------------
ACTUAL AS ADJUSTED
---------- -----------
(IN THOUSANDS)
<S> <C> <C>
Stockholders' equity:
Preferred stock; $.0001 par value; 2,250,000 shares
authorized; no shares outstanding......................... $ -- $ --
Common stock; $.0001 par value; 25,000,000 shares
authorized; 16,715,616 and 17,030,767 shares outstanding,
as adjusted(1)............................................ 97,350 202,279
Accumulated other comprehensive income...................... 171 171
Retained earnings........................................... 65,175 65,175
Treasury stock; 2,184,849 shares and 0 shares of common
stock at cost, as adjusted................................ (23,871) --
-------- --------
Total stockholders' equity.............................. $138,825 $267,625
======== ========
</TABLE>

- ------------------------

(1) Excludes 4,067,926 shares of common stock issuable upon exercise of stock
options outstanding as of December 31, 1999 at a weighted average exercise
price of $14.69 per share.

15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

You should read our selected consolidated financial data set forth below in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and the
related notes included in this prospectus. The consolidated statement of
operations data for the years ended March 31, 1997, 1998 and 1999 and the
consolidated balance sheet data as of March 31, 1998 and 1999 are derived from
our audited consolidated financial statements included in this prospectus. The
consolidated statement of operations data for the year ended March 31, 1996 and
the consolidated balance sheet data as of March 31, 1996 and 1997 are derived
from audited consolidated financial statements not included in this prospectus.
The consolidated statement of operations data for the nine month periods ended
December 31, 1998 and 1999 and the consolidated balance sheet data as of
December 31, 1999 are derived from unaudited interim consolidated financial
statements included in this prospectus. The unaudited interim consolidated
financial statements include all adjustments, consisting only of normal
recurring adjustments, which we consider necessary for a fair presentation of
the data. Historical results of operations are not necessarily indicative of
results that may be expected for any future period. The selected consolidated
financial data does not give effect to the three-for-two stock split to be
effected February 15, 2000.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEARS ENDED MARCH 31, DECEMBER 31,
----------------------------------------- -------------------
1996 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales............................. $125,766 $92,343 $102,015 $71,868 $56,770 $55,509
Gross profit.......................... 63,549 36,883 50,078 38,482 30,266 31,100
Income (loss) from operations......... 18,759 (15,238) 8,986 4,051 3,882 1,076
Net income (loss)..................... 13,582 (9,197) 7,518 5,424 4,705 8,051

Net income (loss) per share:
Basic............................... $ 1.43 $ (1.01) $ 0.81 $ 0.58 $ 0.50 $ 0.85
Diluted............................. $ 1.37 $ (1.01) $ 0.77 $ 0.57 $ 0.49 $ 0.78

Shares used in the computation of
net income (loss) per share:
Basic............................... 9,495 9,071 9,326 9,392 9,418 9,419
Diluted............................. 9,925 9,071 9,730 9,600 9,675 10,371
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31,
----------------------------------------- AS OF DECEMBER 31,
1996 1997 1998 1999 1999
-------- -------- -------- -------- -------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................... $ 77,550 $ 68,822 $ 90,395 $ 91,885 $111,722
Total assets.......................... 139,074 125,537 143,669 138,296 155,992
Long-term obligations................. 979 880 745 664 582
Retained earnings..................... 53,379 44,182 51,700 57,124 65,175
Stockholders' equity.................. 117,847 109,817 123,729 125,757 138,825
</TABLE>

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE FOLLOWING
DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT
ARE NOT LIMITED TO, THOSE DISCUSSED IN THIS SECTION, AS WELL AS IN THE SECTION
ENTITLED "RISK FACTORS."

OVERVIEW

We design, develop and market analog and mixed-signal ICs for the
communications markets and video and imaging markets. Our primary customers are
large communications OEMs.

Over the past several years, we have actively refocused our business on
products for the communications markets. In the 1970's, we designed,
manufactured, and marketed custom and general purpose analog circuits supporting
many different applications. In the 1980's, we transitioned our products to
analog and mixed signal application specific standard products focusing on
telecommunications, data communications, computer peripherals and consumer
electronics. Through the mid 1990's, we continued this product transition
through internal development and strategic acquisitions and moved to a fabless
semiconductor business model. In 1997, we chose to focus our product strategy
and development efforts on the communications market. At that time, our
communications products represented 43.2% of our net sales. For the nine months
ended December 31, 1999, our communications product sales increased to 74.6% of
our net sales.

International sales represented 42.2%, 41.2%, 36.5% and 35.1% of our net
sales for the years ended March 31, 1997, 1998, and 1999 and for the nine months
ended December 31, 1999. Our international sales consist of sales from the
United States to overseas customers and sales by our wholly-owned subsidiary in
Japan. Sales by our Japanese subsidiary are denominated in Yen, while all other
international sales are denominated in United States Dollars. Our international
operations give rise to exposures from changes in currency exchange rates. We
have adopted a set of practices to minimize our foreign currency risk which
include the occasional use of foreign currency exchange contracts to hedge
amounts receivable from our foreign subsidiaries. In addition, foreign sales may
be subject to tariffs in certain countries or with regard to certain products;
however, our profit margin on international sales of ICs, adjusted for
differences in product mix, is not significantly different from that realized on
our sales to domestic customers.

We recognize revenue from the sale of products when shipped. Our distributor
agreements generally permit the return of up to 10% of their purchases annually
for purposes of stock rotation and also provide for credits to distributors in
the event we reduce the price of any product. We record an allowance based on
future authorized and historical patterns of returns, price protection, and
other concessions at the time revenue is recognized.

Our gross margins vary depending on product mix, competition from other
manufacturers, the volume of products manufactured and sold, our ability to
achieve certain manufacturing efficiencies and the cost of materials procured
from our suppliers. Our newer analog and mixed-signal products, especially our
communications products, generally have higher gross margins than our more
mature products, and margins of any particular product may erode over time.

17
<PAGE>
RESULTS OF OPERATIONS

The following table sets forth for the periods indicated the percentage
relationship to net sales of certain cost, expense and income items. The table
and subsequent discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto.

<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEARS ENDED ENDED
MARCH 31, DECEMBER 31,
------------------------------------ ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 55.0 50.9 46.5 46.7 44.0
Cost of sales-inventory write-off.................. 5.0 -- -- -- --
----- ----- ----- ----- -----
Gross profit....................................... 40.0 49.1 53.5 53.3 56.0
Research and development........................... 15.1 15.3 18.9 18.2 22.3
Selling, general and administrative................ 23.1 22.8 27.1 26.1 31.1
Goodwill amortization.............................. 1.5 1.0 0.9 0.9 0.7
Restructuring and other charges.................... 15.5 -- 1.0 1.3 --
Acquisition related expenses....................... 1.3 1.2 -- -- --
----- ----- ----- ----- -----
Operating income (loss)............................ (16.5) 8.8 5.6 6.8 1.9
Other income, net.................................. 2.9 3.2 6.6 6.5 19.4
----- ----- ----- ----- -----
Income (loss) before income taxes.................. (13.6) 12.0 12.2 13.3 21.3
Income taxes (benefit)............................. (3.6) 4.7 4.6 5.0 6.8
----- ----- ----- ----- -----
Net income (loss).................................. (10.0)% 7.3% 7.6% 8.3% 14.5%
===== ===== ===== ===== =====
</TABLE>

PRODUCT LINE SALES AS A PERCENTAGE OF NET SALES

The following table sets forth product line revenue information as a
percentage of net sales. The table and subsequent discussion should be read in
conjunction with the Consolidated Financial Statements and Notes thereto.

NINE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO NINE MONTHS ENDED DECEMBER 31,
1999

NET SALES. Net sales for the nine months ended December 31, 1999 decreased
by 2.2% to $55.5 million, compared to $56.8 million for the nine months ended
December 31, 1999. This decrease was primarily due to decreases in sales of
discontinued consumer and custom products in our legacy product lines (due in
part to the fiscal 1999 closure of one of our third-party wafer fabrication
facilities), as well as the sale of our silicon microstructures business unit
and related product lines in November 1998. These decreases were offset by a
34.4% or $10.6 million increase in sales of our communications products during
the nine months ended December 31, 1999. This increase in communications product
sales was fueled by increased sales of our serial communications products and

18
<PAGE>
increased sales of our transmission products as both of these product lines
gained market acceptance and design wins.

In the nine months ended December 31, 1999, sales to domestic customers
decreased by 1.1% to $36.0 million. International sales decreased by 4.2% to
$19.5 million.

COST OF SALES. Cost of sales as a percentage of net sales for the nine
months ended December 31, 1999 decreased to approximately 44.0%, compared to
46.7% for the nine months ended December 31, 1999. The resulting increase in
gross margins is due primarily to a greater mix of communications products,
which generally have higher gross margins than many of our more mature products.
Gross margins from sales of ICs vary depending on product mix, competition from
other manufacturers, the volume of products manufactured and sold, the ability
of our suppliers to achieve manufacturing efficiencies and the cost of materials
procured from our suppliers. Margins on any particular product generally erode
over time.

RESEARCH AND DEVELOPMENT. Research and development expenses for the nine
months ended December 31, 1999 represented 22.3% of net sales, compared to 18.2%
of net sales for the nine months ended December 31, 1998. Research and
development spending for the nine months ended December 31, 1999 increased by
19.6% as we continued to invest in the development of our communications
products. These spending increases resulted from additional staffing in the
communications products areas, increases in expenditures for supplies and
equipment for the development of communication products, and an increase in
employee compensation and benefits expenses associated with a pre-tax gain
recognized in Other Income in the first quarter of fiscal 2000. In the future,
we expect to increase spending on research and development activities,
particularly for communications products. We expect research and development
expenses to continue to fluctuate as a percentage of net sales as a result of
the timing of expenditures and changes in the level of net sales. However, we
intend to continue spending approximately 20% of net sales on research and
development activities to support our growth.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the nine months ended December 31, 1999 represented 31.1% of net
sales, compared to 26.1% for the nine months ended December 31, 1998. Selling,
general and administrative expenses for the nine months ended December 31, 1999
increased by 16.8%. The increase was due to growth in communications product
sales and an increase in employee compensation and benefits expenses associated
with a pre-tax gain recognized in Other Income in the first quarter of fiscal
2000. In the short term, many of the selling, general and administrative
expenses are fixed, causing a decline as a percentage of net sales in periods of
rapidly rising sales and an increase as a percentage of net sales when sales
growth is slower or declining.

OTHER INCOME. Other income in the nine months ended December 31, 1999
includes a first quarter pre-tax $7.0 million gain on the sale of an investment
related to a minority equity investment in IC Works, Inc. In April 1999, we
received approximately 1.1 million shares of common stock in Cypress
Semiconductor, Inc. in exchange for our investment in IC Works due to the merger
of Cypress Semiconductor and IC Works. We sold this stock during the first
quarter of fiscal 2000, resulting in a pre-tax gain of $7.0 million in other
income and a related employee compensation and benefits expense of $3.0 million
in costs and expenses.

PROVISION FOR INCOME TAXES. The provision for income taxes is based on
income from operations. The effective tax rate for the first nine months of
fiscal 2000 was approximately 32.0% compared with the federal statutory rate of
35%. The difference is due to utilization of capital loss carryforwards that
offset the gain on sale of the IC Works investment and tax savings generated
from utilization of our

19
<PAGE>
foreign sales corporation partially offset by non-deductible expenses, state
income taxes and foreign income, which is taxed at rates different from U.S.
income tax.

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

FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998

NET SALES. Net sales during fiscal 1999 were $71.9 million compared to
$102.0 million in fiscal 1998, a decrease of 29.6%. This decrease was primarily
due to decreases in net sales of discontinued consumer and custom products in
our legacy product lines, as well as the sale of our silicon microstructures
business unit and related product lines. The abrupt closure of one of our
third-party wafer fabrication facilities during the third quarter of fiscal 1999
had a further negative impact of $2.0 million on our fiscal 1999 net sales from
legacy products.

In fiscal 1999, sales to domestic customers decreased by 24.0% to
$45.6 million. International sales decreased by 37.5% to $26.3 million.

COST OF SALES. Cost of sales as a percentage of net sales decreased from
50.9% in fiscal 1998 to 46.5% in fiscal 1999. The resulting increase in gross
margins is due primarily to a greater mix of our newer analog and mixed-signal
products which generally have higher gross margins than our more mature
products.

RESEARCH AND DEVELOPMENT. Research and development expenses, as a
percentage of net sales, increased from 15.3% in fiscal 1998 to 18.9% in fiscal
1999. Research and development expenses decreased by $2.0 million or 13.0%
compared to fiscal 1998. The decrease in research and development expenses is
attributable to our control of operating expenses in response to decreased
sales, to lower employee benefits costs and to the restructuring activities
associated with the sale of our silicon microstructures business unit and
related product lines.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses, as a percentage of net sales, increased from 22.8% in fiscal 1998 to
27.1% in fiscal 1999. Selling, general and administrative expenses for fiscal
1999 decreased by $3.8 million or 16.2% compared to fiscal 1998. The decrease in
selling, general and administrative expenses is attributable to decreased
commissions expense, to lower employee benefits costs and to our control of
operating expenses in response to decreased sales.

RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges in fiscal
1999 of $731,000 relate to the sale of our silicon microstructures business unit
and related product lines to OSI Systems, Inc. in the third quarter and
represent the loss on the sale of assets, severance costs related to the
termination of 38 employees and other disposition related expenses. The
restructuring action was completed during the fourth quarter of fiscal 1999 and
was financed with cash. In addition to the silicon microstructures sale proceeds
of $2.6 million, we may receive additional contingent performance-based payments
of up to $3.9 million over the next two years.

During the third quarter of fiscal 1998, we sold the capital assets that we
had written down in fiscal 1997 in connection with the termination of a foundry
arrangement. The sales proceeds exceeded the carrying value and, as a result, we
reversed $1.2 million of the related reserve during the quarter. Offsetting this
reversal, we decided during the quarter to replace our information system under
development with a system determined to better meet our needs and wrote off
$1.2 million of capitalized costs associated with system modules which we did
not intend to use.

OTHER INCOME. Other income during fiscal 1999 increased to $4.1 million
from $3.1 million in fiscal 1998 due to increased balances of cash and
short-term investments.

20
<PAGE>
PROVISION FOR INCOME TAXES. Our effective tax rate for fiscal 1999 was 38%
compared with the federal statutory rate of 35%. The discrepancy is due to
non-deductible expenses, state income taxes and foreign losses, which are taxed
at rates different from U.S. income tax rates, partially offset by tax
advantaged investment income and tax savings generated from utilization of our
foreign sales corporation.

FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997

NET SALES. Net sales during fiscal 1998 were $102.0 million compared to
$92.3 million in fiscal 1997, an increase of 10.5%. This increase was primarily
due to significant increases in net sales in our communications and silicon
microstructure product lines as well as last time buy activity pertaining to
some of our discontinued custom legacy products. These increases were partially
offset by a significant decrease in sales of discontinued consumer products.

In fiscal 1998, sales to U.S. customers increased by 12.5% to
$60.0 million. International sales increased by 7.8% to $42.0 million.

COST OF SALES. Cost of sales as a percentage of net sales decreased from
55.0% in fiscal 1997, excluding the one-time inventory write-off discussed
below, to 50.9% in fiscal 1998. The resulting increase in gross margins is due
primarily to manufacturing efficiencies due to higher production volumes,
changes in product mix and efficiencies gained as a result of our decision, in
the fourth quarter of fiscal 1997, to transfer our test and shipping operations
to foreign subcontractors to reduce manufacturing expenses.

RESEARCH AND DEVELOPMENT. Research and development expenses increased
$1.7 million or 12.0% compared to fiscal 1997 due primarily to increased
spending on mask sets and other related costs for new product development.
Research and development expenses, as a percentage of net sales, increased from
15.1% in fiscal 1997 to 15.3% in fiscal 1998.

SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for fiscal 1998 increased by $2.0 million or 9.3%, compared to fiscal
1997 due primarily to increased spending on marketing efforts. Selling, general
and administrative expenses decreased from 23.1% of net sales in fiscal 1997 to
22.8% of net sales in fiscal 1998. The decrease as a percentage of sales is due
primarily to the increase in net sales.

RESTRUCTURING AND OTHER CHARGES. Restructuring and other charges in fiscal
1997 included $5.3 million of restructuring costs and $9.0 million of other
charges arising from:

- A restructuring plan announced and commenced in the fourth quarter of
fiscal 1997 to (i) reduce our manufacturing expenses by transferring our
test and shipping operations to foreign subcontractors, (ii) focus our
product strategy to provide analog and mixed-signal products for the
communications, video and imaging and silicon sensor markets and
(iii) narrow our distribution channels to create more sales leverage. In
1997, these actions resulted in a charge of $5.4 million to operating
expenses and $4.6 million to cost of sales (relating to an inventory
write-off). The charges included a non-cash charge of $8.5 million and
cash expenditures of $1.5 million. As of December 31, 1999, an accrual of
approximately $133,000 remained related to associated lease obligations.

- The termination of a wafer production agreement. In October 1995, we
entered into a wafer production agreement with IC Works. Under the terms
of the agreement, we invested approximately $13 million for the purchase
and installation of equipment at IC Works, in exchange for a predetermined
supply of wafers over the next five years. We also made a minority equity
investment in IC Works of $7.5 million under separate but related
agreements. The dramatically changed market conditions for wafer pricing
and availability, as well as our

21
<PAGE>
recent business redirection, led to a reassessment of our foundry
relationships and process requirements. These factors combined with delays
in the commencement of anticipated production by the foundry, resulted in
the termination of the wafer production agreement. As a result, we
incurred a fourth quarter fiscal 1997 charge to operating expenses of
$9.0 million as a result of negotiations to terminate the 1995 wafer
production agreement with IC Works.

ACQUISITION RELATED EXPENSES. Acquisition related expenses represent
compensation costs of $1.2 million during fiscal 1998 and $1.2 million in fiscal
1997 arising from the acquisition of Startech Semiconductor, Inc. in fiscal
1995.

OTHER INCOME. Other income during fiscal 1998 increased to $3.1 million
from $2.3 million in fiscal 1997 due to increased balances of cash and
short-term investments.

PROVISION FOR INCOME TAXES. The effective tax rate for fiscal 1998 was 39%
compared with the federal statutory rate of 35%. The discrepancy is due to
non-deductible expenses, state income taxes and foreign losses, which are taxed
at rates different from U.S. income tax rates, partially offset by tax
advantaged investment income and tax savings generated from utilization of our
foreign sales corporation.

22
<PAGE>
QUARTERLY RESULTS

The following tables contain selected unaudited quarterly financial data for
the seven quarters ended December 31, 1999 and this data as a percentage of net
sales. In the opinion of management, this unaudited information has been
prepared on the same basis as the audited information and includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the information set forth therein. Results for a particular
quarter are not necessarily indicative of the results for any subsequent
quarter. The data does not give effect to the three-for-two stock split to be
effected on February 15, 2000.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
--------- ---------- --------- ---------- --------- ---------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ $21,764 $19,198 $15,808 $15,098 $16,251 $18,550 $20,708
Cost of sales............................ 10,067 9,145 7,292 6,882 7,302 8,160 8,947
------- ------- ------- ------- ------- ------- -------
Gross profit............................. 11,697 10,053 8,516 8,216 8,949 10,390 11,761
Research and development................. 3,412 3,576 3,360 3,212 4,759 3,669 3,950
Selling, general and administrative...... 5,422 4,893 4,475 4,709 6,406 5,253 5,609
Goodwill amortization.................... 184 185 146 126 126 126 126
Restructuring and other charges.......... -- -- 731 -- -- -- --
------- ------- ------- ------- ------- ------- -------
Operating income (loss).................. 2,679 1,399 (196) 169 (2,342) 1,342 2,076
Other income, net........................ 1,091 1,424 1,182 1,016 8,044 1,296 1,423
------- ------- ------- ------- ------- ------- -------
Income before income taxes............... 3,770 2,823 986 1,185 5,702 2,638 3,499
Income taxes............................. 1,404 1,068 402 466 1,807 857 1,124
------- ------- ------- ------- ------- ------- -------
Net income............................... $ 2,366 $ 1,755 $ 584 $ 719 $ 3,895 $ 1,781 $ 2,375
======= ======= ======= ======= ======= ======= =======
Net income per share:
Basic.................................. $ 0.25 $ 0.19 $ 0.06 $ 0.08 $ 0.42 $ 0.19 $ 0.25
======= ======= ======= ======= ======= ======= =======
Diluted................................ $ 0.24 $ 0.18 $ 0.06 $ 0.08 $ 0.40 $ 0.17 $ 0.22
======= ======= ======= ======= ======= ======= =======
Shares used in computation of net income
per share:
Basic.................................. 9,539 9,413 9,303 9,311 9,332 9,383 9,542
======= ======= ======= ======= ======= ======= =======
Diluted................................ 9,970 9,618 9,436 9,377 9,743 10,435 10,935
======= ======= ======= ======= ======= ======= =======
</TABLE>

<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1998 1998 1998 1999 1999 1999 1999
--------- ---------- --------- ---------- --------- ---------- ---------
(AS A PERCENTAGE OF NET SALES)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................ 46.3 47.6 46.1 45.6 44.9 44.0 43.2
----- ----- ----- ----- ----- ----- -----
Gross profit............................. 53.7 52.4 53.9 54.4 55.1 56.0 56.8
Research and development................. 15.7 18.6 21.3 21.3 29.3 19.8 19.1
Selling, general and administrative...... 24.9 25.5 28.3 31.2 39.4 28.3 27.1
Goodwill amortization.................... 0.8 1.0 0.9 0.8 0.8 0.7 0.6
Restructuring and other charges.......... -- -- 4.6 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Operating income (loss).................. 12.3 7.3 (1.2) 1.1 (14.4) 7.2 10.0
Other income, net........................ 5.0 7.4 7.4 6.7 49.5 7.0 6.9
----- ----- ----- ----- ----- ----- -----
Income before income taxes............... 17.3 14.7 6.2 7.8 35.1 14.2 16.9
Income taxes............................. 6.4 5.6 2.5 3.0 11.1 4.6 5.4
----- ----- ----- ----- ----- ----- -----
Net income............................... 10.9% 9.1% 3.7% 4.8% 24.0% 9.6% 11.5%
===== ===== ===== ===== ===== ===== =====
</TABLE>

The sequential quarter decrease in net sales for the four quarters ended
March 31, 1999 was primarily due to decreases in sales of discontinued consumer
and custom products in our legacy product lines (due in part to the fiscal 1999
closure of one of our third-party wafer fabrication facilities), as well as the
sale of the our silicon microstructures business unit and related product lines
in November 1998. Since September 30, 1998, gross margins have increased each
quarter primarily due to manufacturing efficiencies from higher production
volumes, efficiencies gained as a result of our decision, in the fourth quarter
of fiscal 1997, to transfer our test and shipping operations to foreign

23
<PAGE>
subcontractors to reduce manufacturing expenses, and a greater mix of
communications products which generally have higher gross margins than our more
mature products.

Research and development and selling, general and administrative expenses
increased in the quarter ended June 30, 1999 primarily due to $3.0 million in
employee compensation and benefits expenses resulting from a $7.0 million
pre-tax gain on the sale of an investment related to a minority equity
investment in IC Works included in Other income. In April 1999, we received in
excess of 1.1 million shares of common stock in Cypress Semiconductor in
exchange for our investment in IC Works due to the merger of Cypress
Semiconductor and IC Works. We sold this stock during the same quarter.

LIQUIDITY AND CAPITAL RESOURCES

During the first nine months of fiscal 2000, we financed our operations
primarily from cash flows from operations and existing cash and short-term
investments. At December 31, 1999, we had $104.2 million of cash and short-term
investments. We have a short term, unsecured line of credit available under
which we may borrow up to $10.0 million, none of which was being utilized at
December 31, 1999. In addition, we have a credit facility with certain domestic
and foreign banks under which we may execute up to $25.0 million in foreign
currency transactions. At December 31, 1999, we had foreign currency contracts
outstanding to buy 10 million Yen, or approximately $95,000.

For the nine months ended December 31, 1999, we generated $6.4 million of
cash from our operating activities, the result of net income of $8.1 million,
non-cash items of $2.5 million, a net increase in working capital of
$3.3 million, partially offset by $7.5 million of gains on sales of an
investment and equipment.

Net capital and other asset expenditures during the nine months ended
December 31, 1999 totaled $2.2 million including purchases of computer equipment
and software used for product development. Other investing activities during the
nine months ended December 31, 1999 included the net purchases of $17.6 million
of short term investments, which was offset by $13.1 million of proceeds from
the sale of our minority equity investment in IC Works, and $548,000 of proceeds
from the sale of equipment.

During the nine months ended December 31, 1999, we repurchased 118,300
shares of our common stock for $3.4 million and received $8.4 million from the
issuance of 489,500 common stock shares upon the exercise of stock options under
our stock option plans.

We have no material firm capital commitments.

We anticipate that we will continue to finance our operations with cash
flows from operations, existing cash and short-term investment balances,
borrowings under existing bank credit lines, and some combination of long-term
debt and/or lease financing and additional sales of equity securities. The
combination and sources of capital will be determined by management based on our
needs and prevailing market conditions. We believe that cash, cash equivalents,
short-term investments, borrowings from the line of credit and cash flows from
operations will be sufficient to satisfy working capital requirements and
capital equipment needs for at least the next twelve months. From time to time,
we evaluate potential acquisitions and equity investments complementary to our
design expertise and market strategy, including investments in wafer fabrication
foundries. To the extent we pursue these transactions, we could be required to
seek additional equity or debt financing. There can be no assurance that we
would be able to obtain additional financing on acceptable terms, or at all. The
sale of additional equity or convertible debt could result in dilution to our
stockholders.

YEAR 2000 AND PROXIMATE DATES

Many computer systems may experience problems interpreting dates around the
Year 2000. We have completed the process of identifying the programs and
infrastructure in all areas that could be

24
<PAGE>
affected by the Year 2000 issue and have developed an implementation plan to
resolve any issues. As of the date of this filing, we have experienced no
significant problems related to Year 2000 issues.

In 1999, we implemented a new business system that is Year 2000 compliant at
a cost of $5.3 million dollars. In addition, the replacement of our remaining
legacy systems is estimated to cost $300,000. $5.3 million dollars has been
capitalized for the acquisition and implementation of the new business system
and the replacement of the remaining legacy systems. We have expensed
approximately $300,000 of project costs in prior periods. The new business
system implementation was substantially complete as of March 31, 1999, and the
capitalized portion is being depreciated over an average of six years.

We believe that we will continue to be able to operate our time sensitive
business-application software programs and infrastructure. However, due to the
general uncertainty inherent in the Year 2000 problem, resulting in part from
the uncertainty of the Year 2000 readiness of third-party suppliers and
customers, we are unable to determine at this time whether the consequences of
Year 2000 failures will have a material impact on our results of operations,
liquidity or financial condition. We continue to work with key suppliers and
customers to assess their Year 2000 readiness. The failure by a third party to
adequately address the Year 2000 issue could harm the party's ability to furnish
products and services to us and, therefore, could harm our business.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN CURRENCY FLUCTUATIONS. We are exposed to foreign currency
fluctuations primarily through our operations in Japan. This exposure is the
result of timing differences between incoming and outgoing cashflows denominated
in foreign currency. Operational currency requirements are typically forecast
for a three-month period. If there is a need to hedge this risk, we will enter
into transactions to purchase or sell currency in the open market or enter into
forward currency exchange contracts which are currently available under our bank
lines of credit. While it is expected that this method of hedging foreign
currency risk will be utilized in the future, the hedging methodology and/or
usage may be changed to manage exposure to foreign currency fluctuations.

If our foreign operations forecasts are overstated or understated during
periods of currency volatility, unanticipated currency gains or losses could be
experienced. At the end of the third quarter of fiscal 2000, we did not have
significant foreign currency denominated net assets or net liabilities positions
and had foreign currency contracts outstanding to buy 10 million Japanese Yen,
or approximately $95,000.

INTEREST RATE SENSITIVITY. We maintain investment portfolio holdings of
various issuers, types and maturity dates with various banks and investment
banking institutions. We do not regularly hold investments with maturity dates
beyond 90 days. The market value of these investments on any day during the
investment term may vary as a result of market interest rate fluctuations. This
exposure is not hedged because a hypothetical 10% movement in interest rates
during the investment term would not likely have a material impact on investment
income. The actual impact on investment income in the future may differ
materially from this analysis, depending on actual balances and changes in the
timing and the amount of interest rate movements. The short-term investments are
classified as "available-for-sale" securities and the cost of securities sold is
based on the specific identification method. This designation is reevaluated as
of each balance sheet date. At December 31, 1999, short-term investments
consisted of auction rate securities of $19.6 million. As of December 31, 1999,
there were no significant differences between the fair market value and the
underlying cost of such investments.

25
<PAGE>
BUSINESS

OVERVIEW

We design, develop and market high-performance, high-bandwidth mixed-signal
(analog and digital) silicon solutions for the worldwide communications
infrastructure. We use our high-speed, analog and mixed-signal design expertise,
system-level knowledge and standard CMOS process technologies to offer ICs for
the communications markets that address asynchronous transmission standards,
such as T/E carrier and ATM. We are leveraging this expertise to develop
products based on optical transmission standards, such as SONET/SDH.
Additionally, we provide solutions for the serial communications market as well
as the video and imaging markets. Our major customers include Alcatel, Cisco,
Hewlett-Packard, Lucent, Nokia and Tellabs

INDUSTRY BACKGROUND

Communications technology has evolved from simple analog voice signals
transmitted over networks of copper telephone lines to complex analog and
digital voice and data signals transmitted over hybrid networks of media, such
as copper, coaxial and fiber optic cables. This evolution has been driven by
large increases in the number of users and the complexity and variety of the
data transmitted over networks, resulting from:

- the substantial growth in the Internet and its transformation from a
text-based medium to a multimedia platform containing pictures, video and
sound;

- the growth of wireless communications; and

- the increased demand for remote network access and higher speed, higher
bandwidth communication between local area networks, or LANs, and wide
area networks, or WANs.

The majority of installed communications systems were designed to transmit
only voice communications, and, therefore, they are inadequate for the
high-bandwidth transmission of both voice and data. As a result, new equipment
is being deployed to augment existing transmission media and increase their
bandwidth. Access to the public network is typically based on asynchronous
technologies, such as T/E carrier over copper wire. The demand for greater
bandwidth is driving a migration from lower-speed T1/E1 to higher-speed T3/E1
transmission rates. The T1/E1 standard permits the transmission of data at
1.5Mbps/2.0Mbps, and the T3/E3 permits the transmission of data at
45Mbps/34Mbps. The backbone of the public network is built on an optical fiber
transmission medium which employs synchronous technologies such as SONET/SDH.
Similar to the utilization of faster transmission rates over copper wire,
SONET/SDH protocols such as OC-3 (155Mbps) and OC-12 (622Mbps) are being
upgraded to OC-48 (2.5Gbps) and OC-192 (10Gbps) to increase the bandwidth over a
single optical fiber.

To address the evolving requirements of communications networks, OEMs must
develop and introduce increasingly sophisticated systems at a rapid rate. To
achieve the performance and functionality required of these systems,
communications OEMs utilize increasingly complex communications ICs, which now
account for a significant portion of the value-added proprietary content of
these systems. As a result of the rapid pace of new equipment introductions, the
proliferation of transmission standards, and the difficulty of designing and
producing these ICs, equipment suppliers are increasingly outsourcing the design
and production of the ICs incorporated into their systems.

These trends have created a significant opportunity for IC suppliers that
can design cost-effective solutions for the high-speed transmission of data. The
worldwide T/E carrier IC market has experienced steady growth, and Dataquest
estimates that it will reach $616 million by 2003. The ATM IC market is expected
to grow at a rate of 28%, from $309 million in 1998 to nearly $1.1 billion in

26
<PAGE>
2003, according to Dataquest. The SONET/SDH IC market reached $510 million in
1998, and Dataquest expects that it will grow at a rate of 22% to $922 million
by 2002.

The key ICs contained in a typical communications system include physical
interface, access control, channel processor, bus interface and switch fabric
devices. The physical interface device consists of a transmitter and receiver
that, when integrated, is called a transceiver. Transceivers interface with the
physical transmission media, such as copper wire or optical fiber. Most of these
high-speed, mixed-signal ICs convert parallel digital inputs into a single
analog bit stream that is up to 32 times faster than the original signal.
Transceivers therefore serve as a bridge between analog transmission media and
the digital devices that process data. Access control circuits are digital ICs
that format, or frame, the data and perform error checking. The bus interface
manages the transfer of data among numerous channels and elements, such as the
channel processor and the switch fabric, which work together to shape, route and
control the data.

Because physical interface and access control ICs interface with the
transmission media and are critical to increasing bandwidth, these ICs must
offer high-speed and robust performance. Therefore, communications equipment
OEMs seek IC suppliers that possess extensive analog and digital expertise to
provide high-speed, mixed-signal solutions to bridge the analog physical world
and the digital computing environment. This must be coupled with system-level
expertise so that a supplier can quickly bring to market high-performance,
highly-reliable ICs with optional feature sets.

THE EXAR SOLUTION

We design, develop and market high-performance, high-bandwidth mixed-signal
ICs for use in the worldwide communications infrastructure. Our analog and
mixed-signal design expertise, combined with our systems understanding, enables
us to provide physical interface and access control solutions for WAN
communications equipment. We currently offer ICs based upon the T/E carrier and
ATM transmission standards and are leveraging our expertise to develop products
based upon the SONET/ SDH transmission standards. In addition, we provide
solutions for the serial communications market and video and imaging markets. We
believe our products offer our customers the following benefits:

- increased bandwidth through the integration of multiple channels on a
single device;

- reduced system noise/jitter to improve data integrity;

- reduced overall system cost through the integration of multiple functions
on a single device; and

- accelerated time to market by allowing them to focus on core competencies
and outsource standards-based solutions.

Key elements of our solution include:

LEADING ANALOG AND MIXED-SIGNAL DESIGN EXPERTISE. We have 28 years of
experience in developing analog and mixed-signal ICs. As a result, we have
developed a significant base of knowledge in these areas and a library of design
elements. For example, we believe that we have particularly strong expertise in
the design of high-speed, low-jitter phase lock loops, which are key elements in
our mixed-signal transceiver products. As a result, we can provide our customers
with products that typically exceed standard specifications and allow them
flexibility in designing other parts of their systems.

BROAD PRODUCT OFFERINGS. We offer a variety of physical interface and
access control products based upon the T1/E1, T3/E3 and ATM transmission
standards. We are currently developing multiple channel products for each
transmission standard to enable our customers to minimize board space and
overall cost in multi-port applications. We are also developing products based
upon SONET/SDH standards.

27
<PAGE>
COMPREHENSIVE SOLUTIONS TO ENHANCE SYSTEM INTEGRATION. The combination of
our design and system level expertise allows us to provide a solution that
encompasses hardware, software and applications support. Using our solutions, we
believe that OEMs can efficiently integrate our devices into their systems,
better leverage their development resources and reduce their time to market.

COMPELLING PRICE/PERFORMANCE. We use our systems expertise and our analog,
digital and mixed-signal design techniques to architect high-performance
products based on standard CMOS process technologies. We believe that these CMOS
processes are proven, stable, predictable and able to meet the application speed
and power/performance requirements at a lower price point than other
semiconductor manufacturing processes.

STRATEGY

Our objective is to be the leading provider of high-performance,
high-bandwidth IC solutions for the worldwide communications infrastructure. To
achieve this objective, we employ the following strategies:

FOCUS ON HIGH-GROWTH COMMUNICATIONS MARKETS. We target high-growth
communications markets, including T/E carrier, ATM and SONET/SDH. We have built
substantial expertise in the areas of analog and mixed-signal design, systems
architecture and applications support. We believe that the integration of these
capabilities enables us to develop solutions addressing the high-bandwidth
requirements of communications systems OEMs.

LEVERAGE ANALOG AND MIXED-SIGNAL DESIGN EXPERTISE TO PROVIDE INTEGRATED
SYSTEM LEVEL SOLUTIONS. Utilizing our strong analog and mixed-signal design
expertise, we can integrate mixed-signal physical interface devices with digital
access control devices. We are currently developing products that integrate
transceivers with framers on a single IC and are exploring opportunities to
integrate other functions. These configurations would enable OEMs to use less
board space and reduce their overall system cost.

EXPAND OUR REVENUE CONTENT PER SYSTEM. Our analog and mixed signal design
expertise has enabled us to build a technological lead and a strong market
position in T3/E3 transceivers. We are leveraging this lead and our established
customer relationships to capture design wins for our access control products,
thereby increasing our overall revenue content per system.

STRENGTHEN AND EXPAND STRATEGIC OEM RELATIONSHIPS. Our customer base
includes Alcatel, Cisco, Lucent, Nokia and Tellabs. To promote the early
adoption of our solutions, we actively seek collaborative relationships with
strategic OEMs during product development. We believe that OEMs recognize the
value of our early involvement because designing their system products in
parallel with our development can accelerate their time to market. In addition,
we believe that collaborative relationships help us to obtain early design wins
and to reduce the risk of market acceptance of our new products.

LEVERAGE BROAD PRODUCT PORTFOLIO TO ACCELERATE COMMUNICATIONS PRODUCT
DEVELOPMENT. We believe we have developed a strong presence in the serial
communications market as well as the video and imaging market, where we have
leading industry customers, proven technological capabilities and a strong
product portfolio. Our design expertise has enabled us to offer a diverse
portfolio of both industry standard and proprietary universal asynchronous
receiver transmitters, or UARTs. Additionally, we have established important
customer relationships in Taiwan for our high-performance, low-power video
products and continue to work closely with key customers such as Hewlett-Packard
for our imaging products. Our sales to these markets provide us with resources
to invest in and accelerate our communications product development.

USE STANDARD CMOS PROCESS TECHNOLOGIES TO PROVIDE COMPELLING
PRICE/PERFORMANCE. We primarily design our products to be manufactured using
standard CMOS processes. We believe that these

28
<PAGE>
processes are proven, stable and predictable and benefit from the extensive
semiconductor manufacturing infrastructure devoted to CMOS processes. Therefore,
we believe that we can achieve a given level of performance at a lower cost than
others employing alternative processes.

LEVERAGE FABLESS SEMICONDUCTOR MODEL. We have longstanding relationships
with world-class third-party assembly, test and wafer foundries to manufacture
our semiconductor devices. Our fabless approach allows us to avoid substantial
capital spending, obtain competitive pricing, reduce time to market, reduce
technology and product risks, and facilitate the migration of our products to
new process technologies, which reduce costs and optimize performance. By
leveraging the fabless model, we can focus on our core competencies of IC design
and development.

PRODUCTS

We design, develop and market high-performance, high-bandwidth, physical
interface and access control solutions for the worldwide communications
infrastructure. Our current IC products for the communications market are
designed to respond to the growing demand for high-speed networking applications
for data transmission WAN standards such as T/E carrier, ATM and SONET/SDH. We
also design, develop, and market IC products that address the needs of the
serial communications market and the video and imaging markets. We use our
design methodologies to develop products ranging from application specific
standard products, or ASSPs, designed for industry-wide applications, to
semi-custom solutions for specific customer applications. These complementary
products enable us to offer a range of solutions for our customers'
applications.

COMMUNICATIONS

Our products for T/E carrier, ATM and SONET/SDH applications include
high-speed analog, digital and mixed-signal physical interface and access
control ICs. The physical interface ICs consist of a transmitter and receiver
that, when integrated, is called a transceiver chip. Transceivers interface with
the physical transmission media. Most of these high-speed, mixed-signal ICs
convert parallel digital inputs into a single analog bit stream that is up to 32
times faster than the original signal. Access control circuits are digital
circuits that format, or frame, the data and perform error checking. The figure
below illustrates where our products are employed within communications
equipment.

TYPES OF COMMUNICATIONS ICS USED IN WAN EQUIPMENT

[Diagram depicting two-way data transmission between Communications Equipment
and Physical Transmission Media highlighting the Physical Interface and Access
Controller products of the Company.]

Left margin: Box containing the caption, "Physical Transmission Media (optical
fiber, coaxial cable, twisted pair copper)", connected by an arrow to a box
containing the caption, "Equipment (e.g., switches, multiplexers, digital cross
connects, routers)," and below the caption a row of boxes connected by two-way
arrows containing the following captions: "Physical Interface" (with the words,
"receivers and transmitters," "transceivers" and "jitter attenuator" connected
by an arrow to the box), "access controller," (with the words "framers," "ATM
UNIs" and "M13 multiplexer" connected by an arrow to the box), "channel
Processor," "Bus Interface" and "Switch Fabric."

29
<PAGE>
Our communications products include transmitters and receivers,
transceivers, framers, ATM user network interfaces, or ATM UNIs, a jitter
attenuator and an M13 multiplexer. These products are used in SONET/SDH
multiplexers, private branch exchanges (PBX), central office switches and
digital cross connects. We introduced in early 1999 and began volume production
in October 1999 our second generation physical interface solution, an integrated
single chip transceiver. Subsequently, we announced a dual channel version of
this transceiver that meets the same performance levels while requiring less
board space and lower overall power in multi-port applications. We recently
introduced our integrated, single IC jitter attenuator, a proprietary solution
which allows OEMs to meet difficult jitter tolerance specifications while
reducing overall system costs. Our access control products include framers, ATM
UNIs and an M13 multiplexer. These newer products are beginning to achieve
market acceptance as our strong transceiver products create adjacent component
opportunities. We also supply a family of V.35 transceiver and multiprotocol
products used for high-speed data transmission, primarily in networking
equipment such as routers and bridges.

The following table describes some of our key communications products:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATIONS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
T3/E3/STS-1 1-channel/2-channel transceiver and
T3/E3/STS-1 1-channel receiver and
transmitter..................................... SONET/SDH multiplexers and digital cross connects
T3/E3 jitter attenuator........................... Multiplexers, switches and digital cross connects
T3/E3 M13 multiplexer............................. Multiplexers, frame relay and Internet access
switches
T3/E3 framer...................................... Multiplexers and digital cross connects
T3/E3 ATM UNIs.................................... ATM switches/routers/hubs
4-channel E1 transceiver and framer............... Routers, Internet access equipment, frame relay
and ATM gateways
Multi-channel E1 transceiver...................... Multiplexers, frame relay and ATM gateways
T1/E1 clock adaptor and
Enhanced T1/E1 clock adaptor.................... Frame relay access devices and remote access
servers
Multiprotocol serial interface.................... Multiplexers, access equipment and routers
V.35 serial interface............................. Multiplexers, access equipment and routers
</TABLE>

We expect to introduce a number of new communications ICs in 2000 to provide
an expanded line of T/E carrier products as well as SONET/SDH products. The T/E
carrier products are expected to include multi-channel transceivers, framers and
ATM UNIs. SONET/SDH product introductions are expected to start at the OC-48
(2.5 Gbps) rate, and we intend to subsequently introduce OC-3 (155 Mbps) and
OC-12 (622 Mbps) products.

SERIAL COMMUNICATIONS

UARTs convert data streams from parallel to serial, enabling a serial data
stream to communicate with a central processing unit, or CPU. We sell our UART
products to the remote access and data collection, industrial automation and
handheld/mobile markets. Many of these products include high performance
features, such as automated flow control and large First-In First-Out, or FIFO,
buffers. We have designed a highly integrated quad UART with FIFO circuitry,
which we believe is the de facto industry standard for quad, or four channel,
FIFO UARTs used in multi-channel networking applications.

30
<PAGE>
The following table describes some of our key serial communications
products:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATIONS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
8-channel PCI UART with 64byte FIFO............... PCI interface for network control management
8-channel UART with 64byte FIFO................... Network management, remote access servers and
point of sale systems
Single/Dual/Quad channel UART with 128byte FIFO... Process control systems
Single/Quad channel UART with 64byte FIFO......... Personal digital assistants and GPS
Single/Dual/Quad channel UART with 16byte FIFO.... Hub management, high-speed modems and PC I/O cards
Dual channel UART with 8byte FIFO................. Process control systems, switches and serial port
equipment
Dual channel UART with 16byte FIFO................ Process control systems, switches and serial port
equipment
Dual channel UART................................. Serial port equipment
</TABLE>

During 2000, we expect to expand our family of PCI multi-channel UARTs to
include quad channel as well as dual channel devices.

VIDEO AND IMAGING

The video market is composed of several segments, including digital still
cameras, or DSCs, PC video cameras, security cameras, camcorders and digital
camcorders. Among these applications, one of the fastest growing segments is
DSCs, which Dataquest forecasts will grow from 6.2 million units in 1999 to 13.0
million units in 2003. To create images that are more comparable to film cameras
and include features such as steady-shot and digital zoom, DSCs and digital
camcorders are requiring higher resolution and higher speed data acquisition
subsystems, also known as analog front ends, or AFEs, and analog-to-digital
converters, or ADCs.

We supply high-performance ADCs and integrated AFEs for products such as
DSCs, digital copiers, scanners and multifunctional peripherals, or MFPs, which
incorporate scanning, faxing and copying functions in a single integrated
system. We use advanced design techniques and process technologies to integrate
low-power converter architectures with surrounding analog functions, reducing
total system cost.

The following table describes some of our key video and imaging products:

<TABLE>
<CAPTION>
PRODUCT DESCRIPTION APPLICATIONS
- -------------------------------------------------- --------------------------------------------------
<S> <C>
10bit/18 or 27Msps AFEs........................... DSCs, camcorders and video conferencing
3-channel 12, 14 or 16bit/6 or 12 Msps AFEs....... Scanners, MFPs and digital color copiers
10bit/20 or 40 Msps ADC........................... High-end DSCs and broadcast video
8bit/6Msps ADC.................................... Video boards, scanners and battery powered devices
8, 10 or 12 bit serial input DAC
(digital-to-analog converter)................... Voltage control and power control for wireless
equipment
</TABLE>

During 2000, we plan to focus our product development efforts on video
applications, specifically for DSCs and digital camcorders. These applications
require higher resolution and speed. Key planned product introductions include
12bit/24Msps and 10bit/45Msps AFEs in single and dual channel configurations.

SALES AND CUSTOMERS

We market our products in the United States through 21 independent sales
representatives and four independent, non-exclusive distributors, as well as
through our own direct sales force. We currently

31
<PAGE>
have sales support offices in or near Atlanta, Boston, Chicago, Dallas, Los
Angeles and Fremont. We are represented internationally by 29 sales
representatives and distributors. In addition, we are represented in Europe by
our wholly-owned subsidiaries, Exar Ltd. and Exar-SARL, and in the Asia/ Pacific
Region by our wholly-owned subsidiaries, Exar Japan and Exar Taiwan.

Some of our larger customers include the following:

<TABLE>
<CAPTION>
COMMUNICATIONS SERIAL COMMUNICATIONS VIDEO AND IMAGING
- ---------------------------------------- ----------------------------------- -------------------------------------
<S> <C> <C>
- - 3Com Corporation - Cisco - Hewlett-Packard Company
- - Alcatel - Digi International, Inc. - Hitachi, Ltd.
- - Cisco - LM Ericsson Telephone Co. - Eastman Kodak Company
- - Lucent - Pitney Bowes, Inc. - Logitech International S.A.
- - Marconi Communications Plc. - Symbol Technologies, Inc. - NEC Corporation
- - Nokia - Pretek Electronics Corp.
- - Tellabs - Microtek International, Inc.
</TABLE>

Through the nine months ended December 31, 1999, no single customer
accounted for more than 10% of our sales.

MANUFACTURING

We outsource all of our fabrication and assembly, as well as the majority of
our testing operations. This fabless manufacturing model allows us to focus on
our core competencies of product design and development.

We use world-class independent wafer foundries, such as Chartered
Semiconductor Manufacturing and Taiwan Semiconductor Manufacturing Company, or
TSMC. Chartered and TSMC manufacture all of our CMOS products, and Rohm Co. Ltd.
manufactures all of our Bipolar products and Chartered manufacturers all of our
BiCMOS products. We do not have long term supply agreements with TSMC or
Chartered. Our supply agreement with Rohm expires 2006. The majority of our
current products are implemented in standard CMOS. We use CMOS manufacturing
processes to take advantage of that technology's lower power consumption,
cost-effectiveness, foundry availability and ever-increasing speed. Currently,
most of our new product development is being implemented in CMOS.

Wafers are usually shipped to our subcontractors in Asia for wafer test and
assembly, where they are cut into individual die and packaged. Most of our
assembly work is performed by independent contractors in Hong Kong, Indonesia,
the Philippines and Japan. Following assembly, final test and quality assurance
is performed either at our Fremont, California facility or at our
subcontractors' facilities in Asia. We conduct electrical testing of both wafers
and packaged ICs. The combination of various functions makes the test process
for analog and mixed-signal devices particularly difficult. Test operations
require the programming, maintenance and use of sophisticated computer-based
test systems and complex automatic handling systems.

In the fourth quarter of fiscal 1997, we began to implement a plan to reduce
manufacturing expenses by transferring our testing and shipping to foreign
subcontractors. During fiscal 2000, we completed the transfer of approximately
80% of our testing to foreign subcontractors. Direct shipment to customers
reached 60% during that year, with a future goal of 80%. We plan to maintain a
minimal level of test operations at our California facilities to support our
research and development activities.

32
<PAGE>
RESEARCH AND DEVELOPMENT

We believe that the continued introduction of new products in our target
markets is essential to our growth. As of December 31, 1999, our research and
development staff consisted of 107 employees, 60 of whom hold advanced
engineering degrees. We have successfully recruited 19 engineers through the
first three quarters of our current fiscal year while experiencing minimal
attrition. Over the next year, we will seek to significantly increase our
engineering headcount to add more design and application personnel. In the nine
months ended December 31, 1999, our communications research and development
spending increased 61% over the comparable nine month period in the previous
fiscal year. To support our growth, we intend to continue spending approximately
20% of revenue on research and development activities.

COMPETITION

The semiconductor industry is intensely competitive and is characterized by
rapid technological change and a history of price reduction as production
efficiencies are achieved in successive generations of products. Although the
market for analog and mixed-signal integrated circuits is generally
characterized by longer product life cycles and less dramatic price reductions
than the market for digital integrated circuits, we face substantial competition
in each market in which we participate. Competition in our markets is based
principally on technical innovation, product features, timely introduction of
new products, quality and reliability, performance, price, technical support and
service. We believe that we compete favorably in all of these areas.

BACKLOG

We define backlog to include OEM and distributor orders for which product
shipment is expected to occur primarily within the succeeding six months. At
December 31, 1999, our backlog was $19.3 million, compared with $13.8 million at
December 31, 1998.

Sales are made pursuant to purchase orders for scheduled delivery of
standard items or agreements covering purchases over a period of time, which are
frequently subject to revision and/or cancellation. Lead times for the release
of purchase orders depend upon the scheduling practices of the individual
customer and the rate of bookings varies from month to month. In addition, our
distributor agreements generally permit the return of up to 10% of the purchases
annually for purposes of stock rotation and also provide for credits to
distributors in the event that we reduce the price of any product. Because of
the possibility of changes in delivery schedules, cancellations of orders,
distributor returns or price reductions, our backlog, as of any particular date,
may not be representative of actual sales for any succeeding period. Generally,
customer orders for standard products can be canceled 30 days, and orders for
custom products can be canceled 90 days, prior to the scheduled shipment date
without substantial penalty.

INTELLECTUAL PROPERTY RIGHTS

We have 61 patents issued and 15 patent applications pending in the U.S. We
have 10 patents issued and 24 patent applications pending in various foreign
countries. None of our domestic and foreign patents that have issued will expire
in the near future unless we choose not to pay renewal fees. To protect our
intellectual property, we also rely on a combination of mask work registrations,

33
<PAGE>
trademarks, copyrights, trade secrets, employee and third-party nondisclosure
agreements and licensing arrangements. We have also entered into license
agreements from time to time to gain access to externally developed products or
technologies.

There can be no assurance that others will not independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property, or disclose such intellectual property
or trade secrets, or that we can meaningfully protect our intellectual property.
Furthermore, there can be no assurance that our pending patent applications or
any future applications will be approved, or that any issued patents will
provide us with competitive advantages, or will not be challenged by third
parties, or that if challenged, will be found to be valid or enforceable, or
that the patents of others will not have an adverse effect on our ability to do
business. Furthermore, there can be no assurance that others will not
independently develop similar products, duplicate our products, or design around
any patents that may be issued to us.

We cannot be sure that our products or technologies do not infringe patents
that may be granted in the future pursuant to pending patent applications or
that our products do not infringe any patents or proprietary rights of third
parties. From time to time, we receive communications from third parties
alleging patent infringement. In the event that any relevant claims of
third-party patents are upheld as valid and enforceable, we could be prevented
from selling our products or could be required to obtain licenses from the
owners of these patents or be required to redesign its products to avoid
infringement. We cannot assure you that licenses would be available to us on
acceptable terms, or at all, or that we would be successful in any attempts to
redesign our products or processes to avoid infringement. Our failure to obtain
these licenses or to redesign our products could harm our business.

EMPLOYEES

As of December 31, 1999, we employed 272 full-time employees, with 47 in
administration, 107 in engineering and product development, 45 in operations and
73 in marketing and sales. Of the 107 engineering and product development
employees, 60 hold advanced degrees. Our ability to attract, motivate and retain
qualified personnel is essential to our continued success. None of our employees
is represented by a collective bargaining agreement, nor have we ever
experienced any work stoppage. We believe our employee relations are good.

FACILITIES

Our executive offices, marketing and sales, research and development and
engineering operations are located in Fremont, California in two buildings that
we own consisting of approximately 157,000 square feet. We also own
approximately 5.3 acres of undeveloped property adjacent to our headquarters,
which is presently being held for future office expansion. We lease additional
space for sales offices in Foxboro, Massachusetts; Atlanta, Georgia; Plano,
Texas; Palatine, Illinois; Irvine, California; Kawasaki, Japan; Velizy, France;
East Sussex, England; Remseck and Munich, Germany; and Taipei, Taiwan.

34
<PAGE>
MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF EXAR

The names of Exar's executive officers and directors and their ages as of
January 31, 2000 are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Donald L. Ciffone, Jr....... 44 Chief Executive Officer, President and Director

Michael Class............... 42 Vice President, Worldwide Sales

Roubik Gregorian............ 48 Chief Technology Officer, Senior Vice President/General
Manager, Communications Division

Ronald W. Guire............. 51 Executive Vice President, Chief Financial Officer,
Secretary and Director

Susan J. Hardman............ 38 Vice President, Corporate Marketing

Thomas W. Jones............. 52 Vice President, Reliability and Quality Assurance

Thomas R. Melendrez......... 46 Corporate Vice President, General Counsel

Stephen W. Michael.......... 53 Vice President, Operations Division

Linda Prosser............... 44 Vice President, Marketing Communications

John Sramek................. 48 Vice President, Video and Imaging Division

Raimon L. Conlisk........... 77 Chairman of the Board of Directors

Frank P. Carrubba........... 61 Director

James E. Dykes.............. 61 Director

Richard Previte............. 64 Director
</TABLE>

DONALD L. CIFFONE, JR. joined us as Chief Executive Officer and President in
October 1996 and was appointed director at that time. From August 1996 to
October 1996, 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 M.B.A. from the University of Santa Clara.

MICHAEL CLASS joined us as Director of Western Area Sales in 1996. In
January 1998, he was promoted to the position of Vice President, North
American/European Sales and was promoted to Vice President, Worldwide Sales in
July, 1999. Mr. Class has over 20 years of experience in the semiconductor
industry, most recently with IC Works, Inc. as Area Sales Manager for Western
U.S. and Canada. Prior to joining IC Works, Mr. Class held various sales
management positions with Intel Corporation and VLSI from 1979 to 1995. He holds
a B.S. in Electrical Engineering from Lehigh University and an M.B.A. from
LaSalle University.

ROUBIK GREGORIAN joined us in March 1995 as Vice President, Startech
Division, when we acquired Startech Semiconductor, Inc., where he served as
President. He was appointed Chief Technology Officer and Vice President of the
Communications Division in June 1996, and to his current position as Chief
Technology Officer, Senior Vice President/General Manager, Communications
Division, in June 1998. Prior to joining Startech in 1994, Dr. Gregorian was
Vice President of Research and Development and Chief Technology Officer for
Sierra Semiconductor, Inc. Dr. Gregorian has been issued 16 patents and received
his M.S.E.E. and Ph.D. in Electrical Engineering from the University of
California at Los Angeles, as well as an M.S.E.E. from Tehran University.

35
<PAGE>
RONALD W. GUIRE joined us in July 1984 and has been a director since
June 1985. He has served as Chief Financial Officer 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 he joined
Exar in July 1984. Mr. Guire holds a B.S. in Accounting from California College
of Commerce.

SUSAN J. HARDMAN joined us in February 1997 and became Vice President,
Corporate Marketing in February 2000. Prior to this position, she served as
Senior Director of Business Development as well as Director of Marketing for our
communication products. Ms. Hardman has over 16 years experience in the
semiconductor industry. From 1989 to 1997, Ms. Hardman was with VLSI in a
variety of management positions, most recently as Director of Product Marketing
for VLSI's networking products division. From 1983 to 1989, she was with
Motorola holding a variety of engineering roles. Ms. Hardman holds a B.S. in
Chemical Engineering from Purdue University and an M.B.A. from the University of
Phoenix.

THOMAS W. JONES joined us as Director of Total Quality Management in
October 1992 and became Director of Reliability and Quality Assurance in
November 1992. He was promoted to his current position of Vice President,
Reliability and Quality Assurance in July 1995. Mr. Jones has over 30 years of
industry experience, most recently with LSI Logic, Inc., as Director of Quality
Assurance. Mr. Jones joined LSI in September 1990. In December 1989, Mr. Jones
joined Elcon Products International as Director of Manufacturing. From 1970 to
December 1989, he was with Siliconix, where he held various management positions
including Director of Operations and Director of Quality and Reliability.
Mr. Jones holds a B.S.E.E. equivalent degree from Port Talbot College of
Technology.

THOMAS R. MELENDREZ joined us in April 1986 as Corporate Attorney. He was
promoted to Director, Legal Affairs in July 1991, and again to Corporate Vice
President, Legal Affairs in March 1993. In March 1996, Mr. Melendrez was
promoted to his current position of Corporate Vice President, General Counsel.
Mr. Melendrez has over 20 years legal experience in the semiconductor and
related industries. He received a B.A. from the University of Notre Dame and a
J.D. from the University of San Francisco.

STEPHEN W. MICHAEL joined us as Vice President New Market Development in
September 1992. In July 1995, he was appointed to his current position of Vice
President, Operations Division. Mr. Michael has over 20 years of semiconductor
industry experience, most recently as Vice President and General Manager, Analog
and Custom Products with Catalyst Semiconductor. He joined Catalyst in 1987 and
served in various senior positions.

LINDA PROSSER joined us as Vice President, Marketing Communications in
March 1997. Ms. Prosser has over 18 years experience in marketing
communications, in both corporate and consulting roles. From June 1997 to
February 1998, she provided consulting services to technology companies. She has
also held corporate positions including Vice President, Corporate Communications
at VLSI, from June 1994 to May 1996, and Director of Corporate Communications at
Adobe Systems, from March 1990 to May 1994. Prior to joining Adobe Systems, she
held management positions at technology communications consulting firms
including Ketchum Communications, from 1985 to 1990, and
Burson-Marsteller, Inc., from 1982 to 1985. Ms. Prosser holds a Bachelor of
Journalism from the University of Missouri.

JOHN SRAMEK joined us as Group Manager for the Micro Power Business Unit in
June of 1994 and served in a variety of senior marketing positions until his
promotion to his current position as Vice President, Video and Imaging Division,
in February 1998. Mr. Sramek has over 20 years of experience in sales and
product marketing in the semiconductor industry with a variety of companies
including Micro Power Systems, Inc., Harris Semiconductor and Genrad Inc.
Mr. Sramek holds a B.A. in English Literature and a B.S. in Electrical
Engineering from Bucknell University and an M.B.A. from the University of Santa
Clara.

36
<PAGE>
RAIMON L. CONLISK has served as a director 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 until his retirement in 1999, Mr. Conlisk was
President of Conlisk Associates, a management consulting firm serving
high-technology companies in the United States and foreign countries. From 1991
to 1998, Mr. Conlisk served as a director of Xetel Corporation, a contract
manufacturer of electronic equipment. Mr. Conlisk was also President from 1984
to 1989, and Chairman from 1989 until retirement in June 1990, of Quantic
Industries, Inc., 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.

FRANK P. CARRUBBA joined us as a director 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. From 1981 to 1991, he was with Hewlett-Packard, where he was a member of
the Group Management Committee 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. Dr. Carrubba was one of
the original designers of the RISC instruction set architecture.

JAMES E. DYKES joined us as a director 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 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.

RICHARD PREVITE joined us as a director in October 1999. Mr. Previte is
Chief Executive Officer and Chairman of the Board of Directors of marketFusion.
He is also a director and Vice Chairman of the Board of Directors of Advanced
Micro Devices, or AMD. Additionally, Mr. Previte served as Chairman of the Board
from 1997 to June 1999, and acted as Chief Executive Officer from February 1999
to June 1999 of Vantis Corporation, a subsidiary of AMD. Mr. Previte served as
President of AMD from 1990 to 1999, Executive Vice President and Chief Operating
Officer from 1989 to 1990 and Chief Financial Officer and Treasurer from 1969 to
1989.

37
<PAGE>
UNDERWRITING

GENERAL

We are offering the shares of common stock described in this prospectus
through a number of underwriters. Banc of America Securities LLC, FleetBoston
Robertson Stephens Inc., U.S. Bancorp Piper Jaffray Inc. and Needham & Company,
Inc. are the representatives of the underwriters. We have entered into an
underwriting agreement with the representatives. Subject to the terms and
conditions of the underwriting agreement, we have agreed to sell to the
underwriters, and each underwriter has severally agreed to purchase, the number
of shares of common stock listed next to its name below at the public offering
price, less the underwriting discounts and commissions described on the cover
page of the prospectus:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
Banc of America Securities LLC
FleetBoston Robertson Stephens Inc.
U.S. Bancorp Piper Jaffray Inc.
Needham & Company, Inc.
---------
Total..................................................... 2,500,000
=========
</TABLE>

The underwriting agreement is subject to a number of terms and conditions
and provides that the underwriters must buy all of the shares if they buy any of
them. The underwriters will sell the shares to the public when and if the
underwriters buy the shares from us.

The underwriters initially will offer the shares to the public at the price
specified on the cover page of the prospectus. The underwriters may allow
selected dealers a concession of not more than $ per share. The
underwriters may also allow, and any other dealers may reallow, a concession of
not more than $ per share to some other dealers. If all the shares are
not sold at the public offering price, the underwriters may change the public
offering price and the other selling terms. No change in the public offering
price will vary the proceeds to be received by us as specified on the cover page
of the prospectus. The common stock is offered subject to a number of
conditions, including:

- receipt and acceptance of the common stock by the underwriters; and

- the right on the part of the underwriters to reject orders in whole or in
part.

We have granted the underwriters an option to buy up to 375,000 additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters that exceed the number of shares specified in the table above.
The underwriters may exercise this option at any time within 30 days after the
date of the prospectus. If the underwriters exercise this option, they will each
purchase, subject to a number of terms and conditions, additional shares
approximately in proportion to the amounts specified above. If purchased, the
underwriters will offer such additional shares on the same terms as those on
which the 2,500,000 shares are being offered.

The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares:

<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per share underwriting discounts and commissions..... $ $
Total underwriting discounts and commissions to be
paid by us......................................... $ $
</TABLE>

38
<PAGE>
The expenses of the offering, not including the underwriting discounts and
commissions, are estimated to be approximately $700,000 and will be paid by us.
Expenses of the offering, exclusive of the underwriting discounts and
commissions, include the SEC filing fee, the NASD filing fee, Nasdaq listing
fees, printing expenses, transfer agent and registration and other miscellaneous
fees.

We, our executive officers and directors have entered into lock-up
agreements with the underwriters. Under these agreements, subject to exceptions,
we may not issue any new shares of common stock, and our executive officers and
directors may not offer, sell, contract to sell or otherwise dispose of or hedge
any common stock or securities convertible into or exchangeable for shares of
common stock. These restrictions will be in effect for a period of 90 days after
the date of the prospectus. At any time and without notice, Banc of America
Securities LLC may, in its sole discretion, release all or some of the
securities from these lock-up agreements.

We will indemnify the underwriters against some liabilities, including some
liabilities under the Securities Act. If we are unable to provide this
indemnification, we will contribute to payments the underwriters may be required
to make in respect of those liabilities.

In connection with the offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:

- short sales;

- over-allotment;

- syndicate covering transactions;

- purchases to cover positions created by short sales; and

- stabilizing transactions.

Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in the offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common stock
in the open market or may exercise their over-allotment option. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while the offering
is in progress.

The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of the offering to repay the underwriting discounts
and commissions received by them.

As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.

The underwriters do not expect sales to discretionary accounts to exceed 5%
of the total number of shares of common stock offered by the prospectus.

In connection with the offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M. Rule 103 permits passive
market making during the period when Regulation M would otherwise prohibit
market activity by the participants in the offering. Passive market making may
occur during the business day before the pricing of the offering, before the
commencement of offers or sales of the common stock. Passive market makers must
comply with applicable volume and price limitations and must be identified as a
passive market maker. In general, a passive market maker must display its

39
<PAGE>
bid at a price not in excess of the highest independent bid for the security. If
all independent bids are lowered below the passive market maker's bid, however,
the bid must then be lowered when purchase limits are exceeded. Net purchases by
a passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the common stock during a
specified period and must be discontinued when such limit is reached.
Underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.

LEGAL MATTERS

The validity of the issuance of the common stock offered hereby will be
passed upon for Exar Corporation by Cooley Godward LLP, Palo Alto, California,
and for the underwriters by O'Melveny & Myers LLP, San Francisco, CA. One
partner of Cooley Godward LLP owns 2,250 shares of Exar's common stock, and
another partner owns options to purchase 7,500 shares of common stock.

EXPERTS

The consolidated financial statements as of March 31, 1998 and 1999 and for
each of the three years in the period ended March 31, 1999 included in and
incorporated by reference in this prospectus and the related financial statement
schedule incorporated by reference in the registration statement have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and incorporated by reference in the registration
statement, and have been so included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.

40
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION

Exar Corporation is a Delaware corporation. Exar's principal executive
offices are located at 48720 Kato Road, Fremont, CA 94538 and its telephone
number is (510) 668-7000. Exar common stock is quoted on the Nasdaq National
Market. The trading symbol for Exar is "EXAR." You may inspect reports and other
information concerning Exar at the offices of the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006.

We are a reporting company and file annual, quarterly and special reports,
proxy statements and other information with the Securities and Exchange
Commission, or the SEC. You may inspect and copy such material at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as at the SEC's regional offices at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
Suite 1300, New York, New York 10048. You may also obtain copies of such
material from the SEC at prescribed rates for the cost of copying by writing to
the Public Reference Section of the SEC, 450 Fifth Street, N.W., Washington,
D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on the
public reference rooms. You can also find our SEC filings at the SEC's website
at www.sec.gov.

The SEC allows us to "incorporate by reference" information that we file
with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this prospectus, and information that we file later with
the SEC will automatically update and supersede this information. We incorporate
by reference the documents listed below and any future filings we will make with
the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act
of 1934:

- Registration Statement on Form 8-A, filed February 12, 1986;

- Annual Report on Form 10-K, filed June 24, 1999;

- Quarterly Report on Form 10-Q, filed August 6, 1999;

- Quarterly Report on Form 10-Q, filed November 12, 1999; and

- Quarterly Report on Form 10-Q, filed February 14, 2000.

You may request a copy of these filings at no cost, by writing, telephoning
or e-mailing us at the following address:

Exar Corporation
48720 Kato Road
Fremont, CA 94538
(510) 668-7000

This prospectus is part of a Registration Statement we filed with the SEC.
You should rely only on the information incorporated by reference or provided in
this prospectus and the Registration Statement.

41
<PAGE>
EXAR CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
ANNUAL FINANCIAL STATEMENTS

Independent Auditors' Report.............................. F-2

Consolidated Balance Sheets as of March 31, 1998 and 1999
and December 31, 1999 (unaudited)....................... F-3

Consolidated Statements of Income for the years ended
March 31, 1997, 1998 and 1999 and the nine months ended
December 31, 1998 and 1999 (unaudited).................. F-4

Consolidated Statement of Shareholders' Equity for the
years ended March 31, 1997, 1998 and 1999 and the nine
months ended December 31, 1999 (unaudited).............. F-5

Consolidated Statements of Cash Flow for the years ended
March 31, 1997, 1998 and 1999 and the nine months ended
December 31, 1998 and 1999 (unaudited).................. F-6

Notes to Consolidated Financial Statements................ F-7
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Exar Corporation:

We have audited the accompanying consolidated balance sheets of Exar
Corporation and subsidiaries as of March 31, 1998 and 1999, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income (loss), and cash flows for each of the years in the three year period
ended March 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Exar Corporation and its
subsidiaries as of March 31, 1998 and 1999 and the results of their operations
and their cash flows, for each of the years in the three year period ended
March 31, 1999, in conformity with generally accepted accounting principles.

DELOITTE & TOUCHE LLP
San Jose, California
April 20, 1999

F-2
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)

<TABLE>
<CAPTION>
MARCH 31,
------------------- DECEMBER 31,
1998 1999 1999
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents...................................... $ 76,167 $ 79,154 $ 84,198
Short-term investments.................................... 3,140 2,000 19,630
Accounts receivable, net of allowances of $3,411, $2,047
and $1,820.............................................. 16,764 11,450 10,968
Inventories............................................... 6,781 5,873 7,714
Prepaid expenses and other................................ 1,521 939 1,111
Deferred income taxes..................................... 5,217 4,047 4,365
-------- -------- --------
Total current assets.................................... 109,590 103,463 127,986

PROPERTY, PLANT, AND EQUIPMENT, Net......................... 26,746 27,684 26,968
GOODWILL, net of accumulated amortization of $5,061, $4,922
and $5,300................................................ 1,534 504 126
OTHER ASSETS................................................ 5,799 6,645 912
-------- -------- --------
TOTAL ASSETS................................................ $143,669 $138,296 $155,992
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 7,534 $ 4,265 $ 4,282
Accrued compensation and related benefits................. 8,564 3,560 6,364
Accrued sales commissions................................. 1,107 1,053 1,123
Other accrued expenses.................................... 1,990 1,775 1,426
Income taxes payable...................................... -- 925 3,069
-------- -------- --------
Total current liabilities............................... 19,195 11,578 16,264

COMMITMENTS AND CONTINGENCIES (see Note 10)
DEFERRED INCOME TAXES....................................... -- 297 321
LONG-TERM OBLIGATIONS....................................... 745 664 582

STOCKHOLDERS' EQUITY:
Preferred stock; $.0001 par value; 2,250,000 shares
authorized; no shares outstanding....................... -- -- --
Common stock; $.0001 par value; 25,000,000 shares
authorized; 10,475,503, 10,654,244 and 11,143,744 shares
issued.................................................. 86,091 88,908 97,350
Accumulated other comprehensive income.................... 83 204 171
Retained earnings......................................... 51,700 57,124 65,175
Treasury stock; 977,766, 1,338,266 and 1,456,566 shares of
common stock at cost.................................... (14,145) (20,479) (23,871)
-------- -------- --------
Total stockholders' equity.............................. 123,729 125,757 138,825
-------- -------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $143,669 $138,296 $155,992
======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

COST AND EXPENSES:
Cost of sales............................... 50,829 51,937 33,386 26,504 24,409
Cost of sales--inventory write-off.......... 4,631 -- -- -- --
Research and development.................... 13,907 15,581 13,560 10,348 12,378
Selling, general and administrative......... 21,296 23,273 19,499 14,790 17,268
Goodwill amortization....................... 1,374 1,062 641 515 378
Restructuring and other charges............. 14,344 -- 731 731 --
Acquisition related expenses................ 1,200 1,176 -- -- --
------- -------- ------- ------- -------
Total costs and expenses.................. 107,581 93,029 67,817 52,888 54,433
------- -------- ------- ------- -------

INCOME (LOSS) FROM OPERATIONS................. (15,238) 8,986 4,051 3,882 1,076

OTHER INCOME (EXPENSE):
Interest income............................. 2,382 3,165 4,156 3,196 3,766
Interest expense............................ (85) (76) (65) (44) --
Gain on sale of investment.................. -- -- -- -- 7,003
Other, net.................................. 412 224 622 545 (6)
------- -------- ------- ------- -------
Total other income, net................... 2,709 3,313 4,713 3,697 10,763
------- -------- ------- ------- -------

INCOME (LOSS) BEFORE INCOME TAXES............. (12,529) 12,299 8,764 7,579 11,839

PROVISION (BENEFIT) FOR INCOME TAXES.......... (3,332) 4,781 3,340 2,874 3,788
------- -------- ------- ------- -------

NET INCOME (LOSS)............................. $(9,197) $ 7,518 $ 5,424 $ 4,705 $ 8,051
======= ======== ======= ======= =======
NET INCOME (LOSS) PER SHARE:

BASIC......................................... $ (1.01) $ 0.81 $ 0.58 $ 0.50 $ 0.85
======= ======== ======= ======= =======
DILUTED....................................... $ (1.01) $ 0.77 $ 0.57 $ 0.49 $ 0.78
======= ======== ======= ======= =======
SHARES USED IN COMPUTATION OF NET INCOME
(LOSS) PER SHARE:

BASIC......................................... 9,071 9,326 9,392 9,418 9,419
======= ======== ======= ======= =======
DILUTED....................................... 9,071 9,730 9,600 9,675 10,371
======= ======== ======= ======= =======
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS'

EQUITY AND COMPREHENSIVE INCOME (LOSS)

YEARS ENDED MARCH 31, 1997, 1998, 1999 AND DECEMBER 31, 1999

(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK TREASURE STOCK OTHER
--------------------- --------------------- RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT EARNINGS INCOME (LOSS)
---------- -------- ---------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, March 31, 1996................ 9,918,371 $77,688 (927,766) $(13,420) $53,379 $ 200
Comprehensive loss:
Net loss.............................. (9,197)
Other comprehensive income:
Foreign currency translation
adjustments........................... (492)
Comprehensive loss......................
Exercise of stock options............... 117,837 1,240
Income tax benefit from stock option.... 110
Stock issued under Employee Stock
Participation Plan.................... 86,868 1,034
Acquisition of treasury stock........... (50,000) (725)
---------- ------- ---------- -------- ------- --------
BALANCES, March 31, 1997................ 10,123,076 80,072 (977,766) (14,145) 44,182 (292)
Comprehensive income:
Net income............................ 7,518
Other comprehensive income:
Foreign currency translation
adjustments........................... 375
Comprehensive income....................
Exercise of stock options............... 273,800 3,987
Income tax benefit from stock option.... 867
Stock issued under Employee Stock
Participation Plan.................... 78,627 1,165
---------- ------- ---------- -------- ------- --------
BALANCES, March 31, 1998................ 10,475,503 86,091 (977,766) (14,145) 51,700 83
Comprehensive income:
Net income............................ 5,424
Other comprehensive income:
Foreign currency translation
adjustments........................... 121
Comprehensive income....................
Exercise of stock options............... 93,651 1,330
Income tax benefit from stock option.... 312
Stock issued under Employee Stock
Participation Plan.................... 85,090 1,175
Acquisition of treasury stock,
including............................. (360,500) (6,334)
---------- ------- ---------- -------- ------- --------
BALANCES, March 31, 1999................ 10,654,244 $88,908 (1,338,266) $(20,479) $57,124 $ 204
========== ======= ========== ======== ======= ========
Comprehensive income:
Net income*........................... 8,051
Other comprehensive income:
Foreign currency translation
adjustments*.......................... (33)
Comprehensive income*...................
Exercise of stock options*.............. 445,289 7,552
Income tax benefit from stock option*...
Stock issued under Employee Stock
Participation Plan*................... 44,211 890
Acquisition of treasury stock,
including*............................ (118,300) (3,392)
---------- ------- ---------- -------- ------- --------
BALANCES, December 31, 1999*............ 11,143,744 $97,350 (1,456,566) $(23,871) $65,175 $ 171
========== ======= ========== ======== ======= ========
*UNAUDITED

TOTAL
STOCKHOLDERS' COMPREHENSIVE
EQUITY INCOME (LOSS)
------------- --------------
<S> <C> <C>
BALANCES, March 31, 1996................ $117,847
Comprehensive loss:
Net loss.............................. (9,197) $ (9,197)
Other comprehensive income:
Foreign currency translation
adjustments........................... (492) (492)
--------
Comprehensive loss...................... $ (9,689)
========
Exercise of stock options............... 1,240
Income tax benefit from stock option.... 110
Stock issued under Employee Stock
Participation Plan.................... 1,034
Acquisition of treasury stock........... (725)
--------
BALANCES, March 31, 1997................ 109,817
Comprehensive income:
Net income............................ 7,518 $ 7,518
Other comprehensive income:
Foreign currency translation
adjustments........................... 375 375
--------
Comprehensive income.................... $ 7,893
========
Exercise of stock options............... 3,987
Income tax benefit from stock option.... 867
Stock issued under Employee Stock
Participation Plan.................... 1,165
--------
BALANCES, March 31, 1998................ 123,729
Comprehensive income:
Net income............................ 5,424 $ 5,424
Other comprehensive income:
Foreign currency translation
adjustments........................... 121 121
========
Comprehensive income.................... $ 5,545
========
Exercise of stock options............... 1,330
Income tax benefit from stock option.... 312
Stock issued under Employee Stock
Participation Plan.................... 1,175
Acquisition of treasury stock,
including............................. (6,334)
--------
BALANCES, March 31, 1999................ $125,757
========
Comprehensive income:
Net income*........................... 8,051 $ 8,051
Other comprehensive income:
Foreign currency translation
adjustments*.......................... (33) (33)
========
Comprehensive income*................... $ 8,018
========
Exercise of stock options*.............. 7,552
Income tax benefit from stock option*... --
Stock issued under Employee Stock
Participation Plan*................... 890
Acquisition of treasury stock,
including*............................ (3,392)
--------
BALANCES, December 31, 1999*............ $138,825
========
*UNAUDITED
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ ---------------------
1997 1998 1999 1998 1999
-------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... ($ 9,197) $ 7,518 $ 5,424 $ 4,705 $ 8,051
Reconciliation of net income (loss) to net cash provided
by operating activities:
Depreciation and amortization........................... 6,491 6,190 4,762 3,812 2,999
Write-down of equipment................................. 11,382 -- -- -- --
Provision for doubtful accounts and sales returns....... 464 254 (1,364) (544) (227)
Deferred income taxes................................... (5,050) 3,607 1,510 -- (294)
Gain on sale of investment.............................. -- -- -- -- (7,003)
Gain on sale of equipment............................... -- (387) (289) (289) (474)
Changes in operating assets and liabilities:
Accounts receivable................................... 5,211 (3,374) 6,678 4,559 709
Inventories........................................... 10,789 495 908 245 (1,841)
Prepaid expenses and other............................ (2,643) (246) 319 (388) (172)
Accounts payable...................................... (3,862) 15 (3,269) (3,390) 17
Accrued compensation and related benefits............. 1,030 3,900 (5,004) (5,700) 2,804
Accrued sales commissions............................. 105 494 (54) 67 70
Other accrued expenses................................ (829) (615) (238) 141 (401)
Income taxes payable.................................. 110 2,817 1,500 2,633 2,144
-------- ------- ------- ------- --------
Net cash provided by operating activities........... 14,001 20,668 10,883 5,851 6,382
-------- ------- ------- ------- --------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and leasehold improvements......... (14,696) (4,837) (5,335) (4,287) (1,905)
Proceeds from disposition of equipment and leasehold
improvements............................................ -- 7,968 977 797 548
Purchases of short-term investments....................... (11,072) (4,087) (137) (137) (21,340)
Proceeds from maturities of short-term investments........ 9,000 6,000 1,277 -- 3,710
Purchases of long-term investments........................ -- (3,000) -- -- --
Proceeds from sale of investment.......................... -- -- -- -- 13,080
Other assets.............................................. 986 (416) (889) (10) (344)
-------- ------- ------- ------- --------
Net cash provided by (used in) investing
activities........................................ (15,782) 1,628 (4,107) (3,637) (6,251)
-------- ------- ------- ------- --------

CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................... 2,274 5,152 2,505 2,033 8,442
Long-term obligations..................................... (99) (135) (81) (61) (104)
Acquisition of treasury stock............................. (725) -- (6,334) (5,575) (3,392)
-------- ------- ------- ------- --------
Net cash provided by (used in) financing
activities........................................ 1,450 5,017 (3,910) (3,603) 4,946
-------- ------- ------- ------- --------
EFFECT OF EXCHANGE RATE CHANGES ON CASH..................... (492) 375 121 97 (33)
-------- ------- ------- ------- --------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............. (823) 27,688 2,987 (1,292) 5,044
CASH AND EQUIVALENTS AT BEGINNING OF YEAR................... 49,302 48,479 76,167 76,167 79,154
-------- ------- ------- ------- --------
CASH AND EQUIVALENTS AT END OF YEAR......................... $ 48,479 $76,167 $79,154 $74,875 $ 84,198
======== ======= ======= ======= ========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes................................ $ 2,750 $ 391 $ 633 $ 543 $ 920
======== ======= ======= ======= ========
Cash paid for interest.................................... $ -- $ -- $ -- $ -- $ 725
======== ======= ======= ======= ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS--Exar Corporation (Exar or the Company) designs,
develops and markets analog and mixed-signal application-specific ICs for use in
communications and video and imaging products. Principal markets include North
America, Asia and Europe.

USE OF MANAGEMENT ESTIMATES--The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting principles
requires the use of management estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported results of operations during the reporting period. Actual results
could differ from estimates.

PRINCIPLES OF CONSOLIDATION--The accompanying consolidated financial statements
include the accounts of Exar and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.

CASH AND EQUIVALENTS--The Company considers all highly liquid investments with
original maturities of three months or less, when purchased, to be cash
equivalents.

SHORT-TERM INVESTMENTS--The Company's policy is to invest in various short-term
instruments with investment grade credit ratings. Generally, such investments
have contractual maturities of less than one year. The Company classifies its
short-term investments as "available-for-sale" securities and the cost of
securities sold is based on the specific identification method. At March 31,
1998, short-term investments consisted of government agency securities of
$2,000,000 and auction rate securities of $1,140,000. At March 31, 1999,
short-term investments consisted of auction rate securities of $2,000,000. At
December 31, 1999, short-term investments consisted of auction rate securities
of $19,630,000. As of March 31, 1998, March 31, 1999, and December 31, 1999,
there were no significant differences between the fair market value and the
underlying cost of such investments.

INVENTORIES--Inventories are stated at the lower of cost (first-in, first-out
method) or market.

PROPERTY, PLANT, AND EQUIPMENT-- Property, plant, and equipment are stated at
cost. Depreciation of plant and equipment are computed using the straight-line
method over the estimated useful lives of the assets. Estimated useful lives are
as follows:

<TABLE>
<S> <C>
Computer software and computer equipment.................... 3-6 years
Machinery and equipment..................................... 5-7 years
Buildings and fixtures...................................... 5-30 years
</TABLE>

GOODWILL--Goodwill is amortized on a straight-line basis over a period of five
years.

LONG LIVED ASSETS--Long-lived assets are evaluated for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company's policy is to review the recoverability of
all long lived assets based upon undiscounted cash flows on an annual basis at a
minimum, and in addition, whenever events or changes indicate that the carrying
amount of the asset may not be recoverable. An impairment loss would be
recognized when the sum of

F-7
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the undiscounted future net cash flows expected to result from the use of the
asset and its eventual disposition is less than its carrying amount.

INCOME TAXES--The Company accounts for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes," which requires the asset and liability
approach for financial accounting and reporting of income taxes. Deferred income
taxes reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.

REVENUE RECOGNITION--Revenue is recognized when title transfers (which is
usually at the time of shipment) including sales made to distributors under
agreements allowing limited right of return and price protection on merchandise
unsold by the distributors. For sales made to distributors, reserves are
provided for returns and price allowances at the time of shipment.

COMPREHENSIVE INCOME (LOSS)--In 1999, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive Income," which
requires an enterprise to report, by major components and as a single total, the
change in net assets during the period from nonowner sources. Comprehensive
income (loss) for the years ended March 31, 1997, 1998, 1999, and nine months
ended December 31, 1999, has been disclosed within the consolidated statements
of shareholders' equity and comprehensive income (loss).

FOREIGN CURRENCY--The functional currency of each of the Company's foreign
subsidiaries is the local currency of that country. Accordingly, gains and
losses from the translation of the financial statements of the foreign
subsidiaries are included in stockholders' equity. Gains and losses resulting
from foreign currency transactions are included in other income. Net foreign
currency transaction gains/(losses) were $153,000, $19,000, $59,000, and
($81,000) in 1997, 1998, 1999, and nine months ended December 31, 1999,
respectively.

The Company enters into foreign currency exchange contracts from time-to-time to
hedge certain currency exposures. These contracts are executed with
credit-worthy financial institutions and are denominated in currencies of major
industrial nations. Gains and losses on these contracts serve as hedges in that
they offset fluctuations that might otherwise impact the Company's financial
results. The Company is exposed to credit-related losses in the event of
nonperformance by the parties to its foreign currency exchange contracts. If the
Company's foreign operations forecasts are overstated or understated during
periods of currency volatility, unanticipated currency gains or losses could be
experienced. At December 31, 1999, the Company did not have significant foreign
currency denominated net assets or net liabilities positions, and had foreign
currency contracts outstanding to buy 10.0 million Japanese Yen, or
approximately $95,000.

FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK--Financial instruments
potentially subjecting the Company to concentrations of credit risk consist
primarily of accounts receivable and cash and short-term investments. The
majority of the Company's sales are derived from manufacturers in the computer,
communications and electronic imaging industries. The Company performs ongoing
credit

F-8
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

1. BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

evaluations of its customers and generally does not require collateral for sales
on credit. The Company maintains reserves for potential credit losses and such
losses have been within management's expectations. Approximately 7% of net
accounts receivable at December 31, 1999 relates to sales to customers in Japan.
The Company's policy is to place its cash and short-term investments with high
credit quality financial institutions and limit the amounts invested with any
one financial institution or in any type of financial instrument. The Company
does not hold or issue financial instruments for trading purposes.

FAIR VALUE OF FINANCIAL INSTRUMENTS--The estimated fair value of financial
instruments have been determined by the Company, using available market
information and valuation methodology considered to be appropriate. However,
considerable judgment is required in interpreting market data to develop the
estimates of fair value. The use of different market assumptions and/or
estimation methodologies could have a material effect on estimated fair value
amounts. The estimated fair value of the Company's financial instruments at
March 31, 1998, 1999 and December 31, 1999 was not materially different from the
values presented in the consolidated balance sheets.

2. INVENTORIES

Inventories consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ------------
1998 1999 1999
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Work in process................................. $4,579 $3,262 $5,024
Finished goods.................................. 2,202 2,611 2,690
------ ------ ------
Total........................................... $6,781 $5,873 $7,714
====== ====== ======
</TABLE>

F-9
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

3. PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consisted of the following:

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------- ------------
1998 1999 1999
-------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land......................................... $ 6,584 $ 6,584 $ 6,584
Building..................................... 13,433 13,433 13,433
Machinery and equipment...................... 40,817 28,660 35,357
Leasehold improvements....................... 44 50 68
Construction in progress..................... 1,607 5,023 101
-------- -------- --------
62,485 53,750 55,543
Accumulated depreciation and amortization.... (35,739) (26,066) (28,575)
-------- -------- --------
Total........................................ $ 26,746 $ 27,684 $ 26,968
======== ======== ========
</TABLE>

4. BORROWING ARRANGEMENTS

The Company has available a short-term, unsecured, bank line of credit under
which it may borrow up to $10,000,000, none of which was being utilized at
December 31, 1999. In addition, the Company has a credit facility with certain
domestic and foreign banks under which it may execute up to $25,000,000 in
foreign currency transactions. At December 31, 1999, the Company had one
outstanding foreign currency forward contract to purchase 10.0 million Japanese
Yen, or approximately $95,000.

F-10
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

5. INCOME TAXES

The provision (benefit) for income taxes for the years ended March 31
consisted of the following:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal.......................................... $ 1,112 $ 293 $ 882
State............................................ 278 14 636
Foreign.......................................... 218 -- --
------- ------ ------
1,608 307 1,518
------- ------ ------
Deferred:
Federal.......................................... (4,090) 3,047 1,489
State............................................ (960) 560 21
Foreign.......................................... -- -- --
------- ------ ------
(5,050) 3,607 1,510
------- ------ ------
Charge in lieu of taxes attributable
to employee stock plans.......................... 110 867 312
------- ------ ------
Total.............................................. $(3,332) $4,781 $3,340
======= ====== ======
</TABLE>

Consolidated pretax income (loss) includes foreign losses of approximately
$52,000, $780,000, and $622,000, in 1997, 1998, and 1999, respectively.

Current net deferred tax assets at March 31, 1998 and 1999 were $5,217,000
and $4,047,000, respectively. Non-current net deferred tax assets (liabilities)
at March 31, 1998 and 1999 of $71,000 and $(269,000), respectively, are included
in deferred income taxes and other assets, respectively, within the

F-11
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)

accompanying balance sheet. Significant components of the Company's net deferred
tax asset at March 31, 1998 and 1999 are as follows:

<TABLE>
<CAPTION>
1998 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves and accruals not currently deductible......... $ 6,212 $ 4,550
Net operating loss and tax credit carryforwards........ 8,981 8,393
General business credits............................... 1,365 1,161
State income taxes..................................... 43 219
Other.................................................. 168 207
-------- -------
Total deferred tax assets............................ 16,769 14,530
-------- -------
Deferred tax liabilities:
Depreciation........................................... (1,070) (1,005)
Other.................................................. (330) (323)
-------- -------
Total deferred tax liabilities....................... (1,400) (1,328)
-------- -------
Valuation allowance...................................... (10,081) (9,424)
-------- -------
Net deferred tax assets.................................. $ 5,288 $ 3,778
======== =======
</TABLE>

The valuation allowance for deferred tax assets relates to (i) the tax
benefits of certain acquired net operating losses for which the utilization is
limited to the taxable income of the acquired subsidiary, (ii) capital loss
carryforwards and (iii) state tax credits. The valuation allowance relates to
the amount of such benefits for which realization is not assured. During 1999,
the Company reversed valuation allowances of $657,000, primarily due to a change
in the assessment of the realization of the tax benefits of certain net
operating loss carryforwards.

The Company has net operating loss carryforwards of approximately
$19,700,000 for federal income tax purposes, which are available to offset
future taxable income through 2012. The federal tax law includes provisions
limiting the use of net operating loss carryforwards in the event of certain
changes in ownership, as defined. Consequently, the Company's ability to utilize
certain of its acquired net operating loss carryforwards is subject to an annual
limitation.

F-12
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

5. INCOME TAXES (CONTINUED)

The following summarizes differences between the amount computed by applying
the statutory federal income tax rate to income (loss) before income taxes and
the provision (benefit) for income taxes for each of the years ended March 31:

<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax (benefit) provision at statutory rate... $(4,385) $4,305 $3,067
State income taxes, net of federal income tax
benefit.......................................... 606 457 762
Change in valuation allowance...................... -- -- (657)
Amortization and write-off of goodwill............. 770 371 224
Tax-exempt interest income......................... (60) (114) (38)
Benefit of acquired net operating losses not
previously recognized............................ (70) -- --
Benefit of foreign sales corporation............... (490) (175) (175)
Foreign losses providing no benefit................ -- (18) 261
Tax credits........................................ -- (424) (200)
Other, net......................................... 297 379 96
------- ------ ------
$(3,332) $4,781 $3,340
======= ====== ======
</TABLE>

The California income tax authorities may propose to assess income taxes
using the unitary taxation method for some or all of the fiscal years 1986 to
1990, which remain open to examination under the statute of limitations. This
taxation method has the effect of apportioning taxable income of a former
foreign majority stockholder of the Company to Exar and could possibly result in
additional state income tax liability if successfully asserted. The California
income tax authorities have assessed Exar for income taxes under the unitary
taxation method for the years 1980 through 1985. Such assessments have been paid
or accrued as of March 31, 1999. Subsequent to March 31, 1999, the Company
settled the assessment with the California income tax authorities for an amount
which had been previously accrued. Accordingly, the settlement did not have a
material effect on the Company's financial position or results of operations.

F-13
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

6. NET INCOME (LOSS) PER SHARE

SFAS 128 requires a dual presentation of basic and diluted EPS. Basic EPS
excludes dilution and is computed by dividing net income by the weighted average
of common shares outstanding for the period. Diluted EPS reflects the potential
dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock.

A summary of the Company's EPS is as follows (In thousands, except per share
amounts):

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED MARCH 31, DECEMBER 31,
------------------------------ -------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net income (loss).................................. $(9,197) $7,518 $5,424 $4,705 $8,051
======= ====== ====== ====== ======
Shares used in computation:
Weighted average common shares outstanding used
in computation of basic net income (loss) per
share.......................................... 9,071 9,326 9,392 9,418 9,419
Dilutive effect of stock options................. -- 404 208 257 952
------- ------ ------ ------ ------
Shares used in computation of diluted net income
(loss) per share............................... 9,071 9,730 9,600 9,675 10,371
======= ====== ====== ====== ======
Basic net income (loss) per share.................. $ (1.01) $ 0.81 $ 0.58 $ 0.50 $ 0.85
======= ====== ====== ====== ======
Diluted net income (loss) per share................ $ (1.01) $ 0.77 $ 0.57 $ 0.49 $ 0.78
======= ====== ====== ====== ======
</TABLE>

Options to purchase 661,400, 1,578,514, 1,402,407 and 13,500 shares of
common stock at prices ranging from $21.50 to $37.25, $15.56 to $37.25, $16.09
to $37.25 and above $48.63 were outstanding as of March 31, 1998, March 31,
1999, December 31, 1998 and December 31, 1999, respectively, but not included in
the computation of diluted net income per share because the options' exercise
prices were greater than the average market price of the common shares as of
such dates and, therefore, would be anti-dilutive under the treasury stock
method. Diluted net loss per share for the year ended March 31, 1997 excludes
common equivalent shares of 882,925 as their effect is anti-dilutive. The per
share calculations do not give effect to the three-for-two split, to be effected
in the form of a stock dividend, to be distributed on February 15, 2000.

7. EMPLOYEE BENEFIT PLANS

EXAR SAVINGS PLAN--The Exar Savings Plan covers substantially all employees of
the Company. The Savings Plan provides for voluntary salary reduction
contributions in accordance with Section 401(k) of the Internal Revenue Code as
well as contributions from the Company based on the achievement of specified
operating results. Exar made contributions of $373,000, $379,000 and $86,000,
during fiscal years 1997, 1998 and 1999, respectively.

F-14
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

INCENTIVE COMPENSATION PLANS--The Company's incentive compensation plans provide
for incentive awards for substantially all employees of the Company based upon
the achievement of specified operating and performance results. Incentive awards
totaled $547,000, $3,616,000, $681,000 and $285,000 in fiscal 1997, 1998, 1999,
and the nine months ended December 31, 1999, respectively. The Company's
incentive plans may be amended or discontinued at the discretion of the Board of
Directors.

8. STOCKHOLDERS' EQUITY

PREFERRED SHARE PURCHASE RIGHTS PLAN--In December 1995, the Company's Board of
Directors (the Board) adopted a Preferred Share Purchase Rights Plan under which
the Board declared a dividend of one purchase right for each outstanding share
of common stock of Exar held as of January 10, 1996. Each right entitles the
registered holder to purchase one one-hundredth of a share of Exar's Series A
Junior Participating Preferred Stock at a price of $118.50. The rights become
exercisable ten days after the announcement that an entity or person has
commenced a tender offer to acquire or has acquired 15% or more of the
outstanding Exar Common Stock ("the Distribution Date").

After the Distribution Date, the Board may exchange the rights at an
exchange ratio of one common share or one one-hundredth of a preferred share per
right. Otherwise, each holder of a right, other than rights beneficially owned
by the acquiring entity or person (which will thereafter be void), will have the
right to receive upon exercise that number of common shares having a market
value of two times the exercise price of the right. The rights will expire on
December 15, 2005.

EMPLOYEE STOCK PARTICIPATION PLAN--Exar is authorized to issue 1,500,000 shares
of common stock under its Employee Stock Participation Plan (the Plan). The Plan
permits employees to purchase common stock through payroll deductions. The
purchase price is the lower of 85% of the fair market value of the common stock
at the beginning or end of each three month offering period. Shares purchased by
and distributed to participating employees were 86,868 in fiscal 1997, 78,627 in
fiscal 1998, 85,090 in fiscal 1999, and 44,211 in nine months ended
December 31, 1999, at weighted average prices of $11.90, $14.81, $13.81 and
$20.13, respectively. The weighted average fair value of the fiscal 1997, fiscal
1998, fiscal 1999, and nine months ended December 31, 1999 awards were $3.67,
$6.15, $4.16 and $11.99 per share, respectively.

The Company has reserved 818,218 shares of common stock for future issuance
under its Employee Stock Participation plan.

STOCK OPTION PLANS--Exar has a Stock Option Plan and a Non-Employee Directors'
Stock Option Plan. Under these plans, the Company may grant options to purchase
up to 2,396,035 and 250,000 shares of common stock, respectively. Options are
granted at fair market value on the date of grant. Options are generally
exercisable in four equal annual installments commencing one year after the date
of grant and generally expire seven years from the grant date.

During fiscal 1999, shareholders approved 450,000 additional shares of the
Company's Common Stock to be reserved under the 1997 Equity Incentive Plan (the
"1997 Plan") and 100,000 additional

F-15
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

shares of the Company's 1996 Non-Employee Directors, Stock Option Plan (the
"1996 Directors Plan"). During the nine months ended December 31, 1999,
shareholders approved 450,000 additional shares of the Company's Common Stock
under the 1997 Equity Incentive Plan (the "1997 Plan"). The 1997 plan differs
from prior plans in that, the 1997 plan allows for selected employees and
directors to elect to defer $5,000 to $50,000 of their yearly salaries in return
for options to purchase Common Stock at an aggregate discount from current fair
market value equal to the salary reduction amount.

Option activity for both plans is summarized as follows:

<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------
WEIGHTED
AVERAGE
EXERCISE PRICE
NUMBER OF SHARES PER SHARE
---------------- --------------
<S> <C> <C>
Outstanding, March 31, 1996 (427,783 exercisable at a
weighted average price of $15.63)......................... 1,611,078 $17.52
Options granted (weighted average fair value of $7.92).... 874,000 $15.25
Options exercised......................................... (82,050) $ 9.92
Options canceled.......................................... (481,643) $19.81
--------- ------
Outstanding, March 31, 1997 (645,589 exercisable at a
weighted average price of $16.20)......................... 1,921,385 $16.22
Options granted (weighted average fair value of $12.62)... 796,169 $22.24
Options exercised......................................... (273,800) $14.56
Options canceled.......................................... (250,432) $18.01
--------- ------
Outstanding, March 31, 1998 (764,307 exercisable at a
weighted average price of $16.81)......................... 2,193,322 $18.39
Options granted (weighted average fair value of $9.06).... 794,924 $15.85
Options exercised......................................... (93,651) $14.24
Options canceled.......................................... (301,526) $19.08
--------- ------
Outstanding, March 31, 1999 (1,028,012 exercisable at a
weighted average price of $17.66)......................... 2,593,069 $17.71
Options granted (weighted average fair value of $17.82)... 631,600 $36.13
Options exercised......................................... (445,289) $17.14
Options canceled.......................................... (67,929) $20.38
--------- ------
Outstanding, December 31, 1999.............................. 2,711,951 $22.03
========= ======
</TABLE>

F-16
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

At December 31, 1999, 748,359 options were available for future grant under
both plans.

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------- ----------------------------
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
RANGE OF NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE EXERCISE PRICE
- --------------------- ----------- ------------ -------- ----------- --------------
<S> <C> <C> <C> <C> <C>
5.2$5 - $14.94..... 732,550 4.83 $14.36 294,511 $13.94
15.00 - 17.19.... 640,013 3.82 16.23 376,188 16.42
17.44 - 23.19.... 297,638 3.98 19.81 150,938 19.50
23.63 - 37.28.... 528,950 4.82 25.80 232,950 25.72
37.34 - 48.63.... 512,800 6.70 37.64 5,625 37.34
--------- ---- ------ --------- ------
5.2$5 - $48.63..... 2,711,951 4.85 $22.03 1,060,212 $18.32
</TABLE>

Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," ("SFAS 123") requires the disclosure of pro forma net
income (loss) and earnings (loss) per share had the Company adopted the fair
value method as of the beginning of fiscal 1996. Under SFAS 123, the fair value
of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from the Company's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values. The Company's calculations were made using the Black-Scholes option
pricing model with the following weighted average assumptions: expected life,
6.7 to 7.8 years; stock volatility, 35%, 44% and 43% in fiscal 1997, fiscal 1998
and fiscal 1999 respectively; risk free interest rates, 6.1%, 6.0% and 5.4% in
fiscal 1997, fiscal 1998 and fiscal 1999; respectively; and no dividends during
the expected term. The Company's calculations are based on a single option
valuation approach and forfeitures are recognized as they occur. If the computed
fair values of the fiscal 1997, fiscal 1998 and fiscal 1999 awards had been
amortized to expense over the vesting period of the awards, pro forma net income
(loss) would have been as follows:

<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Pro Forma Net Income (Loss)................................. $(10,544) $4,696 $2,412
======== ====== ======
Pro Forma Net Income (Loss) Per Share:
Basic................................................. $ (1.16) $ 0.50 $ 0.26
======== ====== ======
Diluted............................................... $ (1.16) $ 0.48 $ 0.25
======== ====== ======
</TABLE>

The impact of outstanding non-vested stock options granted prior to 1996 has
been excluded from the pro forma calculation; accordingly, the fiscal 1997,
fiscal 1998 and fiscal 1999 pro forma amounts

F-17
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

8. STOCKHOLDERS' EQUITY (CONTINUED)

are not indicative of future period pro forma amounts, when the calculation will
apply to all applicable stock options.

9. RESTRUCTURING AND OTHER CHARGES

RESTRUCTURING

In the fourth quarter of fiscal 1997, the Company announced and began to
implement a restructuring plan to i) reduce manufacturing expenses by
transferring its test and shipping operations to foreign subcontractors,
ii) focus the Company's product strategy to provide analog and mixed-signal
products for the communications, video and imaging and silicon sensor markets
and iii) narrow the Company's distribution channels to create more leverage. The
Company's restructuring actions consisted primarily of writing down certain
equipment as a result of the transfer of operations and change in product focus;
terminating 54 full-time employees; writing down inventory associated with
product lines which were being discontinued; canceling certain facility leases
and cancellation of contracts as a result of a change in distribution channels;
and writing down goodwill associated with discontinued products. These actions
resulted in a charge of $5,345,000 to operating expenses and $4,631,000 to cost
of sales. The charges included a non-cash charge of $8,454,000 and cash
expenditures of $1,522,000. As of March 31, 1999, an accrual of approximately
$190,000 remained related to associated lease obligations. As of December 31,
1999, an accrual of approximately $133,000 remained related to associated lease
obligations.

In the third quarter of fiscal 1999, the Company sold its silicon
microstructures business unit to OSI Systems, Inc. ("OSI") for $2,600,000, with
additional contingent performance-based payments of up to $3,900,000 over the
next two years. The resulting restructuring charge of $731,000 represents the
loss on the sale of assets, severance costs related to the termination of 38
employees and other disposition related expenses. The restructuring action was
completed during the fourth quarter of fiscal 1999 and was financed through the
use of cash.

OTHER CHARGES

During the fourth quarter of fiscal 1997, the Company incurred a charge of
$9,000,000 relating to the write-down of capital assets and investments made
under the terms of a wafer production agreement and equity investment agreements
with IC Works, Inc. ("IC Works"). The charge was estimated in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed of" and reflects management's estimate of the net
realizable value of the equipment and investment in IC Works. The Company
terminated its 1995 wafer production agreement with the foundry due to
dramatically changed market conditions for wafer pricing and availability, as
well as the recent business redirection of Exar and delays in the commencement
of anticipated production by the foundry.

During the quarter ended December 31, 1997, the Company sold the capital
assets written down in connection with this prior year charge. The sales
proceeds exceeded the carrying value and, as a result, the Company reversed
$1,200,000 of the related reserve during the quarter. Offsetting this reversal,
the

F-18
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

9. RESTRUCTURING AND OTHER CHARGES (CONTINUED)

Company decided during the quarter to replace its current information system
under development with a system determined to better meet the Company's needs
and wrote off $1,200,000 of capitalized costs associated with system modules
which the Company does not intend to use.

As a result of a merger completed on April 1, 1999 of IC Works, Inc. and
Cypress Semiconductor, the Company received in excess of 1.1 million shares of
Cypress Semiconductor common stock in exchange for the Company's minority equity
investment in IC Works, Inc. The Company sold this stock during the first
quarter of fiscal 2000 resulting in a pre-tax gain of $7,000,000 in other income
and a related employee compensation and benefits expense of $3,000,000 in cost
and expenses.

10. COMMITMENTS AND CONTINGENCIES

Certain of the Company's facilities were leased under lease agreements
expiring through August 2001. Rent expense was $300,000 for 1997. The Company
expensed all future lease obligations in 1997 as a part of the restructuring and
other charges (see Note 9).

In 1987, one of the Company's subsidiaries identified low-level groundwater
contamination at its principal manufacturing site. Although the area of
contamination appears to have been defined, the source of the contamination has
not been identified. The Company has reached an agreement with another entity to
participate in the cost of ongoing site investigations and the operation of
remedial systems to remove subsurface chemicals which is expected to continue
for 10 to 15 years. The accompanying consolidated financial statements include
the Company's share of estimated remaining remediation costs of approximately
$764,000 as of March 31, 1999, and $660,000 as of December 31, 1999.

The Company is involved in various claims, legal actions and complaints
arising in the normal course of business. Although the ultimate outcome of these
matters is not presently determinable, management believes that the resolution
of all such pending matters will not have a material adverse effect on the
Company's consolidated financial position, results of operations, liquidity or
cash flows.

11. INDUSTRY AND SEGMENT INFORMATION

In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
standards for reporting information about operating segments in annual financial
statements and requires that certain selected information about operating
segments be reported in interim financial reports. It also establishes standards
for related disclosures about products and services and geographic areas.
Operating segments are defined as components of an enterprise about which
separate financial information is evaluated regularly by the chief operating
decision maker, or decision making group in deciding how to allocate resources
and in assessing performance. SFAS No. 131 differs from accounting standard SFAS
No. 14, which required companies to disclose certain financial information about
an industry segment in which they operate. Under both SFAS No. 14 and SFAS
No. 131, the Company operates in one reportable segment and is engaged in the
design, development and marketing of a variety of analog and mixed-signal
application-specific integrated circuits for use in communications, and in the
video and imaging products. The

F-19
<PAGE>
EXAR CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEARS ENDED MARCH 31, 1997, 1998, 1999, AND NINE MONTHS ENDED DECEMBER 31, 1998
AND 1999

(INFORMATION AS OF DECEMBER 31, 1998 AND 1999 AND THE NINE MONTHS ENDED
DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

11. INDUSTRY AND SEGMENT INFORMATION (CONTINUED)

nature of the Company's products and production processes as well as type of
customers and distribution methods are consistent among all of the Company's
devices. The Company's foreign operations consist primarily of its wholly owned
subsidiaries in Japan and the United Kingdom. The Company's principle markets
include North America, Asia, Europe and other countries. Total sales by
geographic area represent sales to unaffiliated customers (inventory movements
to Japan for sale by the Japan region directly to end customers in Japan are not
significant and eliminated in consolidation and not included below).

Identifiable assets represent assets used in the Company's operations in
each geographic area.

Geographic financial information for each fiscal year is as follows:

<TABLE>
<CAPTION>
NINE MONTHS
ENDING
1997 1998 1999 DECEMBER 31, 1999
-------- -------- -------- -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net Sales:
United States................................ $ 53,374 $ 60,020 $ 45,631 $ 36,032
Export sales to Japan and Asia............... 13,160 16,852 8,658 10,058
Export sales to Western Europe............... 15,144 21,001 15,731 8,059
Export sales to rest of world................ 1,200 1,110 975 640
Japan........................................ 9,465 3,032 873 720
-------- -------- -------- --------
$ 92,343 $102,015 $ 71,868 $ 55,509
======== ======== ======== ========
Income (loss) from operations:
United States................................ $(15,153) $ 9,350 $ 4,572 $ 2,192
Japan........................................ (143) (467) (512) (249)
Western Europe............................... 58 103 (9) (867)
-------- -------- -------- --------
$(15,238) $ 8,986 $ 4,051 $ 1,076
======== ======== ======== ========
Identifiable assets:
United States................................ $119,623 $141,422 $137,078 $155,126
Japan........................................ 5,739 2,102 1,121 918
Western Europe............................... 175 145 97 310
-------- -------- -------- --------
$125,537 $143,669 $138,296 $156,354
======== ======== ======== ========
</TABLE>

12. RECENTLY ISSUED ACCOUNTING STANDARD

In June 1998, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards ("SFAS") No.133, "Accounting for Derivative
Instruments and Hedging Activities," which defines derivatives, requires that
all derivatives be carried at fair value, and provides for hedging accounting
when certain conditions are met. This is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. On a forward looking basis, although
the Company has not fully assessed the implications of this new statement, the
Company does not believe adoption of this statement will have a material impact
on the Company's financial position or results of operations.

F-20
<PAGE>
- ------------------------------------------------------------
- ------------------------------------------------------------

2,500,000 SHARES

[LOGO]

EXAR CORPORATION

----------------

PROSPECTUS

, 2000

---------------------

BANC OF AMERICA SECURITIES LLC
ROBERTSON STEPHENS
U.S. BANCORP PIPER JAFFRAY
NEEDHAM & COMPANY, INC.

Until , 2000, all dealers that buy, sell or trade the common
stock may be required to deliver a prospectus, regardless of whether they are
participating in the offering. This is in addition to the dealer's obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by Exar Corporation in connection with the
sale of the common stock being registered. All the amounts shown are estimates
except for the registration fee.

<S> <C>
SEC Registration fee........................................ $ 33,882
NASD Filing fee............................................. 13,334
Nasdaq additional listing fee............................... 17,500
Printing and engraving expenses............................. 100,000
Legal fees and expenses..................................... 350,000
Accounting fees and expenses................................ 125,000
Transfer Agent and Registrar Fees and expenses.............. 5,000
Blue Sky Fees and expenses.................................. 5,000
Miscellaneous............................................... 49,282
--------
Total....................................................... $600,000
========
</TABLE>

ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS.

Under Section 145 of the Delaware General Corporation Law, Exar has broad
powers to indemnify its directors and officers against liabilities they may
incur in such capacities, including liabilities under the Securities Act of
1933.

Exar's certificate of incorporation and by-laws include provisions to
(i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware and (ii) require
Exar to indemnify its directors and executive officers to the fullest extent
permitted by Section 145 of the Delaware Law, including circumstances in which
indemnification is otherwise discretionary. Pursuant to Section 145 of the
Delaware Law, a corporation generally has the power to indemnify its present and
former directors, officers, employees and agents against expenses incurred by
them in connection with any suit to which they are, or are threatened to be
made, a party by reason of their serving in such positions so long as they acted
in good faith and in a manner they reasonably believed to be in, or not opposed
to, the best interest of the corporation, and with respect to any criminal
action, they had no reasonable cause to believe their conduct was unlawful. Exar
believes that these provisions are necessary to attract and retain qualified
persons as directors and officers. These provisions do not eliminate the
directors' duty of care, and, in appropriate circumstances, equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware law. In addition, each director will continue to be subject to
liability for breach of the directors' duty of loyalty to Exar, for acts or
omissions not in good faith or involving intentional misconduct, for knowing
violations of law, for acts or omissions that the director believes to be
contrary to the best interests of Exar or its stockholders, for any transaction
from which the director derived an improper personal benefit, for acts or
omissions involving a reckless disregard for the directors' duty to Exar or its
stockholders when the director was aware or should have been aware of a risk of
serious injury to Exar or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's duty to Exar or its stockholders, for improper transactions
between the director and Exar and for improper distributions to stockholders and
loans to directors and officers. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities law or
state or federal environmental laws.

II-1
<PAGE>
The Company has entered into indemnity agreements with each of its directors
and executive officers that require Exar to indemnify such persons against
expenses, judgments, fines, settlements and other amounts incurred (including
expenses of a derivative action) in connection with any proceeding, whether
actual or threatened, to which any such person may be made a party by reason of
the fact that such person is or was a director or an executive officer of Exar
or any of its affiliated enterprises, provided such person acted in good faith
and in a manner such persons reasonably believed to be in, or not opposed to,
the best interests of Exar and, with respect to any criminal proceeding, has no
reasonable cause to believe his conduct was unlawful. The indemnification
agreements also set forth procedures that will apply in the event of a claim for
indemnification thereunder.

At present, there is no pending litigation or proceeding involving a
Director or officer of Exar as to which indemnification is being sought.

Exar has an insurance policy covering the officers and directors of Exar
with respect to certain liabilities, including liabilities arising under the
Securities Act or otherwise.

II-2
<PAGE>
INDEX TO EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------ ------------------------------------------------------------
<C> <S>
1.1* Underwriting Agreement.
5.1* Legal Opinion of Cooley Godward LLP.
23.1 Consent of Deloitte & Touche LLP, independent auditors.
23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
</TABLE>

- ------------------------

* To be filed by amendment.

UNDERTAKINGS.

The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

II-3
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Exar has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Freemont, County of
Alameda, State of California, on February 14, 2000.

<TABLE>
<S> <C> <C>
EXAR CORPORATION

By: /s/ DONALD L. CIFFONE, JR.
-----------------------------------------
Donald L. Ciffone, Jr.
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

POWER OF ATTORNEY

Each person whose signature appears below constitutes and appoints Donald L.
Ciffone, Jr. and Ronald W. Guire, his true and lawful attorney-in-fact and
agent, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
or all amendments (including post-effective amendments) to the Registration
Statement on Form S-3, and to any registration statement filed under Securities
and Exchange Commission Rule 462, and to file the same, with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney-in-fact and agent, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorney-in-fact and agent, or his substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement has been signed below by the following
persons in the capacities and on the dates stated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RAIMON L. CONLISK
------------------------------------------- Chairman of the Board February 14, 2000
Raimon L. Conlisk

President, Chief Executive
/s/ DONALD L. CIFFONE, JR. Officer and Director
------------------------------------------- (Principal Executive February 14, 2000
Donald L. Ciffone, Jr. Officer)

Executive Vice President,
/s/ RONALD W. GUIRE Chief Financial Officer,
------------------------------------------- Secretary and Director February 14, 2000
Ronald W. Guire (Principal Financial and
Accounting Officer)

/s/ FRANK P. CARRUBBA
------------------------------------------- Director February 14, 2000
Frank P. Carrubba

/s/ JAMES E. DYKES
------------------------------------------- Director February 14, 2000
James E. Dykes

/s/ RICHARD PREVITE
------------------------------------------- Director February 14, 2000
Richard Previte
</TABLE>

II-4
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION OF DOCUMENT PAGE NUMBER
- ------- ------------------------------------------------------------ -----------
<C> <S> <C>
1.1* Underwriting Agreement.

5.1* Legal Opinion of Cooley Godward LLP.

23.1 Consent of Deloitte & Touche LLP, independent auditors.

23.2* Consent of Cooley Godward LLP (see Exhibit 5.1).
</TABLE>

- ------------------------

* To be filed by amendment

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT

We consent to the incorporation by reference in this Registration Statement
of Exar Corporation on Form S-3 of our report dated April 20, 1999, included in
the Annual Report on Form 10-K of Exar Corporation for the year ended March 31,
1999, and to the use of our report dated April 20, 1999, appearing in the
Prospectus, which is part of this Registration Statement. We also consent to the
reference to us under the "Experts" in such Prospectus.

DELOITTE & TOUCHE LLP
San Jose, California
February 12, 2000