Executive

Stock Option Based Incentive Program

FISCAL YEAR 2003

(“Incentive Program”)

 

 

 

 

Contents

 

 

A.                 Purpose

 

B.                   Management Participation Qualifications

 

C.                   Incentive Program Changes

 

D.                  Rules

 

E.                    Overall Incentive Program Concepts and Definitions

 

F.                    Example

 

G.                   Procedure

 

 

 

Attachment:   Letter Acknowledging Participation

 

 

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A.            Purpose

 

The purpose of the Executive Stock Option Based Incentive Program for Fiscal
Year 2003 (“Incentive Program”) is to encourage and reward performance which
contributes to the Company’s growth and success.  Stock option incentives which
complement base salary will be awarded to eligible Exar executives.

 

 

B.            MANAGEMENT PARTICIPANT QUALIFICATIONS

 

1.               Direct participation is limited to those executives who have a
primary responsibility  for the operation, profits, and direction of Exar.

 

2.               Participation shall be recommended by the President/CEO and is
subject to approval by the Compensation and Employee Option Administration
Committees of the Board of Directors.

 

3.               Participation and the Incentive Program information divulged is
considered confidential and may not be discussed to others.

 

 

C.            Incentive Program Changes

 

As business conditions, participants’ positions, or the Company’s needs change,
the Compensation and Employee Option Administration Committees reserve the right
to modify or cancel at any time this Incentive Program, with prior notice, and
participants should not presume continued participation in an Incentive Program.

 

 

D.            RULES

 

1.               THIS INCENTIVE PROGRAM IS ESPECIALLY DESIGNED FOR FY 2003. 
PARTICIPANTS IN PREVIOUS YEAR(S) ARE NOT AUTOMATICALLY INCLUDED IN SUBSEQUENT
YEARS.  A NUMBER OF FACTORS MAY CHANGE FROM YEAR TO YEAR, SUCH AS: BUSINESS
CONDITIONS, INDIVIDUAL EMPLOYEE CONTRIBUTION, CRITICALITY OF CERTAIN POSITIONS,
ETC.

 

2.               The President/CEO will make incentive stock option
recommendations for all participants, other than himself, to be submitted to the
Compensation and Employee Option Administration Committees for final approval.

 

3.               The Compensation and Employee Option Administration Committees
will have final authority and determination for the number of incentive stock
options awarded under the terms of this Incentive Program, including to the
President/CEO.

 

 

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4.               Inclusion in the Incentive Program does not constitute a
guarantee of employment, or specific award of future stock options.

 

 

E.              OVERALL INCENTIVE PROGRAM CONCEPTS AND DEFINITIONS

 

1.               Base Salary:  Projected base salary as of March 31, 2002.

2.               Target Cash Incentive: A percentage of the projected base
salary used to calculate the stock option award, as determined by the
Compensation Committee.

3.               Stock Option Award:  The basis for the number of options
awarded will be calculated using the employee’s Target Cash Incentive, divided
by an estimated gain per share of $10.   The final number of stock options
awarded may be adjusted at the discretion of the President/CEO and with the
approval of the Compensation and Employee Option Administration Committees of
the Board of Directors. Options granted are “non-qualified” and therefore
subject to applicable taxes at the time of exercise.

4.               Stock Option Price:  $22.925 per share (fair market value of
Exar stock as of December 5, 2001).

5.               Option Grant Date:  December 5, 2001.

6.               Vesting Schedule:  Stock options granted for this Incentive
Program will vest in equal amounts over a twelve month period beginning April 5,
2002 and ending March 5, 2003.

7.               Expiration of Grant:  Seven (7) years from the date of grant,
or three (3) months from the participant’s date of termination, whichever is
sooner.

 

F.              Example

 

Employee projected base salary on 3/31/02

 

$

200,000

 

Target Cash Incentive @ 35%

 

$

70,000

 

Estimated gain per share

 

$

10

 

 

Stock Option Award:

 

 

$70,000

=

7,000 options  (may be modified by Board of Directors)

 

 

$10

 

 

 

 

 

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G.            Procedure

 

Employees selected for inclusion in the Incentive Program will be notified in
writing and provided a copy of the Incentive Program.  Any changes in the
Incentive Program or the measurement criteria must be approved in writing by the
Compensation and Employee Option Administration Committees.

 

Participants are eligible to exercise their options at any time once they are
vested, subject to insider trader rules.

 

 

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Attachment

 

 

 

 

 

I acknowledge receiving a copy of the “Executive Stock Option Based Incentive
Program.”  I have read and understand the terms of this Incentive Program, and
also understand that this Incentive Program neither constitutes a contract of
employment nor a representation as to my future earnings or award of stock
options.  The Letter of Notification and the Incentive Program constitute the
entire agreement and supersede any prior written and oral agreements with
respect to the Stock Option Awards under the Incentive Program.  Further, I
understand that the Compensation and Employee Option Administration Committees
of the Board of Directors have the sole discretionary authority for interpreting
the provisions of the Incentive Program and approving eligibility.

 

 

 

 

 

 

 

 

 

Employee Name (Please Print)

 

 

 

 

 

Employee Signature

 

 

 

 

 

Date

 

 

 

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