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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File No. 0-19856
XIRCOM, INC.
2300 CORPORATE CENTER DRIVE
THOUSAND OAKS, CALIFORNIA 91320
TELEPHONE: (805) 376-9300
CALIFORNIA 95-4221884
(State of Incorporation) (IRS Employer Identification No.)
Securities registered pursuant to section 12(b) of the Act:
Title of Class Name of Exchange
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COMMON STOCK, $.001 PAR VALUE NASDAQ/NMS
Securities registered pursuant to section 12(g) of the Act: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ______
Based on the closing sale price of the Common Stock on the Nasdaq Stock
Market on November 15, 1995, the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $120,388,000.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
The number of shares outstanding of Registrant's Common Stock, $.001 par
value, was 19,003,174 at November 15, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the Registrant's Proxy
Statement for its Annual Meeting of Shareholders to be held on January 19,
1996.
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INTRODUCTORY STATEMENT
References made in this Annual Report on Form 10-K to "Xircom," the "Company"
or the "Registrant" refer to Xircom, Inc. and its wholly owned subsidiaries.
Xircom is a registered trademark, and CreditCard LAN Adapter, CreditCard Modem,
Pocket LAN Adapter, Ethernet+Modem, Netwave, Parallel Port Multiplexor, Tractor
Grip, Netaccess, MultiPort Modem, MultiChannel ISDN Adapter, and Instant ISDN
are trademarks of Xircom, Inc. Other company and product names contained in
this report may be trade names or trademarks of other companies.
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PART 1
ITEM 1. BUSINESS
Xircom, Inc. ("Xircom" or the "Company") develops, manufactures, sells and
supports a comprehensive set of network access solutions for mobile and remote
personal computer (PC) users. These products represent a market category
recognized as mobile networking. The Company's principal products enable PC
users to access information and resources found on local area networks (LANs)
and online services such as the Internet. Xircom's products are recognized for
innovative technology, high reliability and broad compatibility.
Xircom was founded in 1988 and pioneered the use of the universal PC parallel
port to connect portable PCs to LANs. Xircom's Pocket LAN adapter established
the mobile networking market and by 1992 had become the leading solution for
portable PC-to-LAN connectivity. In late 1992, Xircom was the first company in
the industry to ship an adapter compliant with the standards set by the
Personal Computer Memory Card International Association ("PCMCIA" or "PC
Card"). Through September 30, 1995, the Company has sold nearly two million PC
Card or parallel port LAN adapters and remains the overall market leader in LAN
adapters for portable PCs.
In 1994 and 1995 Xircom expanded its offerings to include products addressing
wide area networking, which enable access to a LAN from a remote location.
These products include combination LAN adapter and modem PC Cards, a modem-only
PC Card and systems-level mobile networking solutions, including remote access
server products. In 1995, the Company began shipping its wireless LAN products
in volume.
MARKET BACKGROUND
Growth in Client/Server Computing. Local area networks offer greater
productivity and lower systems costs by enabling workgroups and geographically
dispersed organizations to share information, applications and resources such
as printers, file servers and communication devices. LANs have enabled the
widespread use of personal computers and servers in a client/server network
configuration, and wide area networking has created "enterprise networks" of
broadly interconnected LANs which offer client PCs access to LANs from almost
any location.
Trends Toward Smaller, Mobile Computers. Simultaneous with the growth in LANs,
continuing technological advances have been made in portable PCs, often
referred to as laptop or notebook computers. Growing use of portable computers
is being driven by an increasingly mobile workforce requiring a higher level of
productivity, including field service personnel, salespeople, consultants,
traveling executives, telecommuters and "day extenders," who work at home in
the evening or on weekends. An increasing number of workers are now utilizing
portable computers as their primary PCs and more business applications are
being developed specifically for portable PCs. According to independent market
research, portable PC shipments worldwide will grow from 7.3 million in 1994 to
over 16 million in 1999.(1) It is also projected that 47% of portable computers
will be connected to a LAN by 1998 compared to 12% in 1994(2) and that 80% of
portable PC users in the U.S. will use their portable as their primary PC by
the year 2000.(3)
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(1) International Data Corporation, 1995
(2) International Data Corporation, 1995
(3) BIS Strategic Decision, 1995
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Remote Access. Over the last several years, there has been a significant
increase in the number of PC users accessing a corporate LAN or an online
service (e.g., America Online, Prodigy, CompuServe or the Internet) from a
"remote" location. To do so requires a modem on the client PC and a modem "on
the LAN" that serves as a communication gateway to the network (oftentimes
referred to as a remote access server or communications server). The modem
market has grown substantially over the last several years and today it is
estimated that 91% of portable PCs are equipped with a modem. The market for
PC Card modems is expected to grow from 1.6 million units in 1994 to 7.1
million units by 1998.(4) The remote access server market is also expected to
grow from approximately 700,000 "ports" in 1994 to 7.0 million in 1998.(5)
Integrated Services Digital Network (ISDN) usage is expected to become a larger
proportion of such connections because ISDN enables higher speeds than analog
modem-based connections and the telephone carriers are making ISDN service more
broadly available. ISDN services are based on multiple 64 kilobits-per-second
(Kbps) digital channels (two "B" channels for a basic rate interface and 23 to
30 "B" Channels for a primary rate interface) compared to 28.8 Kbps speeds for
a V.34 analog modem.
PRODUCTS
In 1995 the Company reorganized into Client and Systems Divisions, grouping its
similar product lines together to achieve greater efficiencies and resource
utilization.
CLIENT PRODUCTS
Client products include Ethernet and Token Ring LAN adapters, combination LAN
adapters and modems, and modem-only products.
Wired LAN adapters for portable PCs. Xircom offers the broadest family of PC
Card and parallel port (Pocket) LAN adapters that operate on Ethernet and Token
Ring topologies and are compatible with all widely used wiring. Xircom LAN
adapters also incorporate preconfigured software drivers that support over 48
different network operating systems and communication protocols. Most Xircom
adapters include both DOS- and Windows-based menu-driven software for simple,
fast installation.
Xircom shipped the industry's first external parallel port LAN adapter, the
Pocket Ethernet Adapter, in May 1989. The second-generation product, Pocket
Ethernet Adapter II, was first shipped in September 1991 and the
third-generation Pocket Ethernet Adapter III was first shipped in March 1993.
The Pocket Token Ring Adapter, first shipped in December 1989, was the first
commercially available parallel port adapter for Token Ring networks. The
second-generation Pocket Token Ring Adapter II was first shipped in February
1992, and the third-generation Pocket Token Ring Adapter III was first shipped
in December 1993. Today Xircom remains the dominant supplier of Pocket LAN
Adapters, with a market share estimated to be over 70%(6). BYTE magazine's 20th
anniversary issue in September 1995 named Xircom's original Pocket LAN Adapter
as one of the Most Important Networking Products of all time. Revenues from
Pocket LAN adapters represented 34% of Xircom's total revenues in fiscal 1995
compared to 55% in 1994. This proportion had further declined to 26% in the
fourth quarter of fiscal 1995 and is expected to continue to decline in 1996
and 1997 as the PC Card becomes the dominant form factor for connecting
peripheral devices to portable PCs.
During 1991, the PCMCIA defined certain dimensional interface standards for use
by a variety of PC peripherals, including memory cards, fax/modems, LAN
adapters and disk drives. The
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(4) International Data Corporation, 1995
(5) International Data Corporation, 1995, and Xircom
(6) Dataquest Incorporated, 1995
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PC Card interface, or slot, is now incorporated into most portable computers,
allowing the PC Card peripheral device, which is the size of a thick credit
card, to be inserted. Xircom was first to ship an Ethernet LAN adapter card
compliant with the PCMCIA standard in late 1992 and began shipping its
CreditCard Ethernet Adapter in February 1993. The Company commenced shipments
of its CreditCard Token Ring Adapter in December 1993. The second-generation
CreditCard Ethernet Adapter IIps and CreditCard Token Ring Adapter IIps were
first shipped in June and July 1994, respectively. In August 1995, the Company
announced support for Windows 95 for its entire line of Ethernet and Token Ring
PC Card adapters and was an active participant in Microsoft's launch of Windows
95. Revenues from PC Card LAN adapters, including combination LAN adapters and
modems, were 59% of the total in fiscal 1995.
Multifunction Adapter/Modem Cards. In February 1994, the Company began
shipping the first PC Card offering a LAN adapter and a modem in a single
PCMCIA card. The CreditCard Ethernet+Modem quickly achieved market acceptance
and received a number of industry awards for technical excellence, including PC
Magazine's "1994 Technical Excellence Award" in the Networking Hardware
category. The Company commenced shipments of the second-generation CreditCard
Ethernet+Modem II in September 1994 and in July 1995 was the first to ship in
volume a combination PC Card product incorporating a V.34 modem with a LAN
adapter. The Ethernet+Modem products accounted for 23% of revenue for all of
fiscal 1995 and 34% in the fourth quarter of fiscal 1995.
PC Card Modem. Xircom commenced shipment of the Company's first modem-only PC
Card in September 1995. The CreditCard Modem 28.8 incorporates the latest V.34
standards and broadens Xircom's remote access solutions by adding a modem-only
option for PC notebook users who require high- speed remote access to LANs,
commercial online service, or the Internet.
Xircom expects customers for its PC Card client products to continue to demand
higher speeds and bandwidth and is focusing its development efforts on new
versions of its PC Card LAN adapters, and multifunction PC Cards that will
combine LAN, modem and ISDN technologies for use with high-bandwidth
applications.
Other Client Products. Xircom also offers the Parallel Port Multiplexor, which
allows a user to connect both a parallel port LAN adapter and a dedicated
printer through a single parallel port. In September 1995, Pacific Data
Products completed the purchase of Xircom's Pocket Print Server product line in
an agreement that had no material financial impact on Xircom.
SYSTEMS PRODUCTS
Xircom's systems solutions include remote access server products and wireless
LAN products.
Remote Access. Xircom's solutions in this market are based on an "open
systems" approach to remote access. Industry analysts project that in the
future the majority of dial-in remote access servers will be open systems much
like LAN file servers are today. They will integrate a standard PC with remote
access software from Novell or Microsoft and adapters like Xircom's MultiPort
Modem Card. The MultiPort Modem Card, which was first shipped in March 1995,
includes four or eight V.34 (28.8 Kbps) modems on a card.
Experts predict that the latest analog modems have most likely reached the
theoretical maximum speed except for the possible development of further data
compression techniques. As a result, users are beginning to migrate to ISDN
technology for higher-speed remote network and Internet connections. In
addition, ISDN service is becoming more broadly
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available and the costs of installation, service and equipment are priced more
reasonably. Industry analysts project that ISDN basic rate terminal adapter
shipments will grow from 225,000 units in 1995 to 550,000 units in 1999,(7)
while ISDN server ports will increase from 345,000 to 1,023,000.(8)
In June 1995, Xircom entered the market for ISDN remote access through its
acquisition of Primary Rate Incorporated ("PRI"). PRI, started in 1989,
developed the industry's first primary rate interface to a computer for the
computer telephony market. PRI's subsequent efforts were on developing ISDN
solutions for OEM customers. Today, these OEM customers include AT&T, Xyplex,
Ericsson, IBM, Bell Atlantic, BellSouth and other vendors who use Xircom ISDN
technology as a component of their internetworking, telecommunications and
remote access solutions.
Prior to the acquisition, PRI had developed an ISA (Industry Standard
Architecture) version of a primary rate interface card that runs under Windows
NT and a first-generation basic rate interface card. These products are now
being marketed as ISDN server cards complementing the analog MultiPort Modem
Cards Xircom introduced earlier in 1995. Further development of these products
will allow Xircom to offer a seamless dial-in server solution for both ISDN and
analog users employing Windows NT or Netware Connect. PRI's experience in ISDN
software development will also be utilized in development of new PC Card ISDN
products.
Wireless LAN. In January 1995, the Company commenced volume shipments of
Netwave, its wireless LAN product line that enables the user to establish a
peer-to-peer network or maintain an Ethernet network connection while moving
about the workplace unencumbered by wires and cables. Based on 2.4 GHz, spread
spectrum, frequency hopping radio frequency (RF) technology, Netwave products
include the CreditCard Netwave Adapter and the Netwave Access Point for
Ethernet.
The Netwave adapter, radio and antenna are fully self-contained in a single PC
Card, with no external circuitry. The companion Netwave Access Point for
Ethernet is a Netwave-to-Ethernet bridge that attaches directly to the wired
LAN, enabling a number of Netwave adapter users to access the network through
one access point. With multiple access points installed throughout a facility,
Netwave users can roam within the coverage area while maintaining real-time
access to network services. Netwave can also be utilized in a simple
peer-to-peer network configuration without access points.
Xircom shipped its Netwave Release 2.5 in July 1995, which offers improved
throughput, seamless roaming capabilities and utilities for conducting site
surveys and managing the wireless connection. At the same time, the Company
announced a new aggressive pricing and seeding program and introduced a Netwave
Starter Kit to promote trials and testing by potential users.
Netwave supports a wide range of network operating systems and PC hardware and
software. The Company is active on the Institute of Electronic and Electrical
Engineers ("IEEE") 802.11 Wireless LAN Committee, which is developing an
industry standard to assure interoperability among various vendors' products.
While the market for wireless LAN has been small to date, industry analysts
expect the market to grow more rapidly once a standard is issued sometime in
1996. In April 1995, Netwave passed European Telecommunications Standard
testing and has gained approvals for sale in most major European countries.
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(7) International Data Corporation, 1995
(8) International Data Corporation, 1995
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Netwave contributed less than 5% of total revenues in fiscal 1995.
RESEARCH AND DEVELOPMENT
The market for the Company's products is characterized by rapidly changing
technology, short product life cycles and evolving industry standards. The
Company believes that technical innovation in its products is required to make
them more desirable than other portable LAN connectivity solutions. The
Company's expertise lies in developing small form factor products which require
a high degree of electronic component integration and careful circuitry design.
In addition, use of Application Specific Integrated Circuits ("ASIC") reduces
the number of semiconductor devices required in the Company's products
resulting in lower manufacturing cost and higher product reliability. Because
of the many variations of PCs that the Company's products are installed in, the
Company's ASIC devices are designed so that they can be automatically
reconfigured upon initialization by the Company's proprietary software.
The Company also utilizes an erasable programmable read-only memory (EPROM) in
most of its products to allow certain changes, enhancements or error
corrections to be implemented through a software download as opposed to a
change in hardware.
The Company is a leader in simplifying the installation and configuration of a
portable LAN adapter by incorporating certain proprietary software coding in
its parallel port products. Subsequently, because of difficulties associated
with installation of PC Cards, the Company developed a Windows-based
installation utility in fiscal 1994, which now ships with most Xircom adapters.
Although the new Windows 95 operating system, released in August 1995, improved
the installation process for PC Cards and other peripherals, add-on hardware
often requires driver updates to enhance features or performance. Therefore,
installation utilities remain an important feature of the products.
Device driver software is also a key component of the Company's products.
Device drivers allow the hardware and firmware (the software code which
provides operating instructions to the hardware) to interact with the
communications port on the PC that the LAN adapter or modem is being installed
in (e.g., the parallel port or PCMCIA slot). While the Company's leading
products are designed to operate with the major operating systems, including
Microsoft Windows 3.1, Windows NT and Windows 95, the Company has also
developed Driver Development Kits that include a library of software interfaces
and source code examples to substantially reduce the time required for other
network operating system vendors to develop drivers for Xircom adapters. The
Company believes that its family of external LAN adapter products incorporates
software drivers for a broader range of computers and network operating systems
than any other family of external LAN adapters commercially available.
Some of the Company's technical advancements and accomplishments since 1989
include:
o Pioneered the use of the PC parallel port for LAN connectivity;
o Participated with Zenith Data Systems and Intel Corp. in the development
of Enhanced Parallel Port ("EPP") technology;
o Was first to ship an Ethernet LAN adapter;
o Was first to ship a parallel port modem, which offers higher throughput
than a serial port modem;
o Was first to ship a PC Card combining a LAN adapter and a modem;
o Was first to incorporate full-duplex Ethernet technology in its LAN
adapters, which offers up to twice the data throughput on an Ethernet
network;
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o Developed the first wireless LAN adapter fully contained in a PC Card
(with no external circuitry);
o Developed block mode transfers for use in modems, allowing greater
throughput than normally available.
The June 1995 acquisition of PRI provided the Company with faster entry to an
emerging market for ISDN products. PRI developed ISDN protocol software,
called Instant ISDN, with an open application programming interface, to
simplify the incorporation of their ISDN products into other OEM solutions.
PRI also provided experience in gaining approvals for the sale of ISDN products
and technology ("homologation") in Europe, Japan and Canada.
Xircom has adopted a Distributed Development Environment ("DDE") to facilitate
the remote physical location of some of its engineers. DDE provides structured
development methodologies and high-speed network links into Xircom's corporate
development network. A key component of DDE is the use of Xircom's products by
the engineers that develop and support them. It is believed that DDE results
in increased productivity and retention of key employees. At this time program
participants include engineers located in Austin, Texas; Colorado Springs,
Colorado; Provo, Utah; and Kontich, Belgium.
The Company's current research and development efforts include ongoing feature
enhancement and cost reduction of current products, continued development of
multifunction PC Cards, development of new versions of Netwave wireless LAN
products, enhancement of remote access modem server products and ISDN server
products, and support for the Company's OEM customers.
The Company has participated in leading industry standards committees such as
the IEEE Working Group 1284 Committee for Parallel Port Standardization, the
PCMCIA Committee for add-in cards for portable computers, the IEEE 802.11
Standards Committee for Wireless LANs, the Fast Ethernet Alliance for
developing 100 megabit-per-second Ethernet technology and the National ISDN
Users Forum. In 1995 Xircom co-founded the Mobile MIB Task Force, a group
formed to extend existing standards to handle the unique issues of managing
mobile computer users who connect to networks. Other participants include
Compaq, IBM, Motorola, Zenith Data Systems and National Semiconductor.
Approximately 19% of the company's 500 employees were engaged in research and
development activities as of September 30, 1995. During fiscal years 1995,
1994 and 1993, the Company incurred research and development expenditures of
$13,824,000, $11,613,000 and $6,882,000, respectively.
MARKETING
The Company sells its products primarily through domestic and international
distributors. U.S. distributors include major national distributors of
computers and networking equipment such as Ingram Micro Inc., Tech Data
Corporation and Merisel, Inc., and national reseller organizations such as IE
Advanced Systems, Inc., Vanstar Corporation and MicroAge, Inc. The Company
also sells directly to major domestic retail chains, such as Computer City
Supercenter and CompUSA. The Company also sells its products to portable
computer manufacturers and has a number of OEM customers for its ISDN products.
Internationally the Company sells products through a worldwide network of
distributors. In fiscal 1995, 1994 and 1993, international sales (sales to
customers outside the U.S.) comprised 43%, 39% and 37%, respectively, of total
net sales. All international sales are
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denominated in U.S. dollars and may be subject to government controls
and other risks, including, in some cases, export licenses, federal
restrictions on export, currency fluctuations, political instability, trade
restrictions, and changes in tariffs and freight rates. The Company has
experienced no material difficulties to date as a result of these factors.
Xircom generally seeks to develop the markets for its products through
marketing programs that promote end-user demand. The Company generates brand
recognition through trade advertising, participation in trade shows and public
relations activities. In 1995, the Company developed a small field sales
organization and expanded its inside sales/telemarketing function to create
demand by calling directly on resellers, VARs and end-users interested in
client or systems products. The Company also has field sales persons and
support engineers to sell its products to OEMs.
BACKLOG
The Company manufactures its products to its forecast of near-term demand and
maintains inventories of finished goods and top-level subassemblies to satisfy
customer orders. Product shipments are generally made within six weeks after
receipt of orders although some OEM customers submit orders for scheduled
deliveries over a longer period. Orders from distribution customers are
cancelable without penalty and OEM customers may reschedule or cancel orders
outside a certain minimum time period. Backlog was not significant at
September 30, 1995 or 1994.
COMPETITION
The Company believes that the principal competitive factors in the market for
external LAN adapters and indirectly competitive products are support of
commonly used topologies, network wiring systems and network operating systems;
performance (including data transfer speeds); compatibility with many brands of
portable computers; quality and reliability; ease of use; size, especially with
respect to the latest subnotebook and handheld portable PCs; customer support
and service; brand name recognition; and price.
Similar to the market for external LAN adapters, the principal competitive
factors for external modems are performance (primarily throughput, but also
error control, connection maintenance and compression); compatibility with many
brands of portable computers and software applications; support of industry
standards; quality and reliability; ease of use; customer support and service;
brand name recognition; and price.
The Company's direct competition for parallel port LAN adapters has primarily
come from a small number of privately held companies, and Xircom has maintained
a dominant market share in this market segment (i.e., over 70%). The PC Card
LAN adapter market has become significantly more competitive, and the Company
has a number of competitors that have substantially greater development,
manufacturing and marketing resources than Xircom, including Fujitsu
Microelectronics, Inc., International Business Machines Corp. (IBM), Motorola
Inc., 3Com Corporation and U.S. Robotics Inc.'s Megahertz subsidiary. Other
manufacturers of desktop LAN adapters offering PC Card adapters include
Standard Microsystems Corporation, Madge Networks Limited and Olicom A/S. In
the multifunction PC Card market (Ethernet+Modem), the Company's closest
competitor is Megahertz. Other smaller companies also offer Ethernet+Modem PC
Cards including Ositech Communications Inc. and New Media. In addition, 3Com
and Motorola have jointly developed and recently commenced shipments of a
combination LAN+modem PC Card.
The Company also competes indirectly with companies that provide alternative
means to
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connect portable computers to LANs such as docking stations or port replicators
with built-in networking capabilities. COMPAQ Computer Corporation, Toshiba
Corporation (Toshiba), IBM, NEC Corporation (NEC) and others offer docking
stations for certain of their portable computers. Although docking stations
historically enjoyed some competitive advantage because they provide a broader
range of functionality than just a LAN connection, the greater built-in
capabilities of many new portable PCs and the standardization provided by PC
Card slots reduce the demand for this additional functionality. In addition,
the use of peripheral devices provides the PC user an upgrade path as speed or
other enhancements to the network are developed.
Ethernet interface chipsets on PC system boards which eliminate the need for a
LAN adapter have been offered only in a limited number of portable PCs to-date,
generally because the chipset solution adds cost and complexity to the base PC
and requires the PC manufacturer to provide networking technical support. As a
result, the Company believes that PC Card solutions for networking portable
computers will continue to dominate the market because of the performance,
flexibility and range of choices they offer to both users and PC manufacturers.
The increased competition in the PC Card LAN market and the shift from the
parallel port to PC Card form factor for portable LAN adapters resulted in a
loss of overall market share, sales declines and lower gross margins for the
Company in 1995. While the Company has taken steps to be more competitive,
particularly on price, and believes it has recently stabilized in its market
share, the significant level of competition could adversely affect sales and
profitability in the future.
For the Company's recently introduced modem-only PC Card, the competition is
significant. U.S. Robotics and its Megahertz subsidiary jointly hold a
majority market share for PC Card modems and control a design feature called
X-Jack which integrates the RJ-11 phone jack into the PCMCIA case. Other
competitors in this market include Hayes Microcomputer Products, Boca Research,
AT&T Paradyne (although AT&T has announced it is discontinuing its PCMCIA line
of modems), TDK Systems, and many others, including manufacturers who may hold
leading or significant market shares within specific countries. Xircom
believes that it can leverage its engineering, sales and manufacturing
resources with its V.34 PC Card modem because it already has modem technology
and market recognition with its Ethernet+Modem PC Card products. Nevertheless,
this market is historically very price-competitive, and some competitors,
including U.S. Robotics, have proprietary designs which may result in lower
manufacturing costs. In addition, because approximately 90% of portable PCs
utilize a modem, there may be a greater likelihood that modem functionality
could be included by the PC manufacturers, and some models include modems
today. However, the Company believes that just as for LAN adapters, standard
expansion slots like PCMCIA that allow the users of the PCs more flexibility in
choice of modems and upgradeability as the technology advances will be the
standard for some time to come. In addition, the Company has achieved
significant market share in the combination Ethernet+Modem market segment and
expects to offer other multifunction cards in the future as a way of
differentiating its modem products.
In the wireless LAN market, the key competitive factors are range, ability to
penetrate obstructions, power consumption, performance (principally data
transmission speed), antenna configuration, price and compatibility with the PC
platform. The Company's direct competition for wireless LAN products comes
from an increasing number of radio-based system manufacturers, some of whom,
such as Proxim, Inc. and Solectek Corp., are focused specifically in wireless
technologies. Others, including AT&T, IBM Corporation and Symbol Technologies,
Inc., have substantially greater research, manufacturing, and marketing
resources than the Company. Others are known to be preparing products for
entering in the
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wireless LAN market including 3Com Corporation, Telxon Corporation and Breeze
Wireless Communications, Inc. In addition, the Company has licensed its
Netwave technology to certain chipset manufacturers who may market such
chipsets to others. The Company believes its Netwave product has a unique form
factor with no antennae or other circuitry outside the PC Card adapter. Some
competitors claim advantages in range and manageability. The Company also
believes it has certain advantages in the software which operates on its access
points although others offer similar functionality. Various components of
Netwave are designed around specifications that served as a basis for parts of
the standard being developed by the IEEE 802.11 Committee on wireless LAN
standards. This could provide the Company some time-to-market advantage in
introduction of standards-compliant products in 1996.
The Company competes directly with a wide variety of vendors offering remote
access solutions. In ISDN, direct competitors include small, ISDN-focused
manufacturers as well as divisions of larger, well-established companies such
as 3Com Corporation and U.S. Robotics, Inc. For the MultiPort Modem Card,
direct competition is primarily from RS232 interface board manufacturers such
as Digi International Inc., which provides low-cost serial port cards that end
users or integrators use with standard external modems. Indirect competitors
such as Shiva Corp., Ascend Communications, Inc., and Telebit Corp. currently
dominate the remote access market by providing stand-alone products that do not
require integration with other hardware or software. In addition, major
internetworking vendors including Cisco Systems, Inc., Bay Networks, Inc. and
Cabletron Systems, Inc. have recently added remote access solutions. All of
these indirect competitors have substantially greater development and marketing
resources than the Company.
MANUFACTURING
The Company believes that high-volume, low-cost manufacturing has become an
important capability to compete effectively in the PC Card market. As a
result, the Company commenced in-house manufacturing in September 1995 with a
limited volume production run of PC Cards at new facilities in Penang,
Malaysia. The Company expects to ramp its production through April 1996 when
most of its PC Card and parallel port adapters will be built in Penang.
To-date, all the Company's PC Card products have been assembled by a single
subcontractor on a turn-key basis. Components are purchased, warehoused,
assembled and tested by such subcontractor before being sent to the Company for
final packaging and shipping. The Company utilizes other subcontractors to
assemble its parallel port adapters and cable assemblies.
The Company purchases certain key components directly from third-party
suppliers. The Company inspects these components for quality and forwards them
to the subcontractors as needed. In the future, most components will be
purchased in Penang using current vendors with local representation. Final
assembly, test, packaging and shipping, currently performed by the Company at
its facility in Thousand Oaks, California, will be transitioned to the Penang
operation during 1996.
Although the Company generally uses standard parts and components for its
products, certain key components used in the Company's products are currently
available from only one source, and others are available from a limited number
of sources. Components currently available from one source include a
proprietary Ethernet chipset (used in the Pocket Ethernet Adapter) purchased
from Fujitsu Microelectronics, a proprietary Ethernet chipset (used in the
CreditCard Ethernet Adapter) purchased from SymBIOS Logic, a Token Ring chipset
from Texas
11
<PAGE> 12
Instruments, an AT&T modem chipset (used in the modem products) and a standard
Motorola microprocessor (used in the modem products). In addition, other
components, including other semiconductor devices, transformers and plastic
product housings, are available or acquired from a single source or a limited
number of sources. Although the Company has not experienced any significant
parts shortages over the past year, many of these components require long-lead
purchase orders so that flexibility to change order quantities due to changes
in demand is limited. Inability to obtain sufficient supplies of these
components or develop alternative sources as needed could have a material
adverse effect on the Company's operating results.
PROPRIETARY RIGHTS AND LICENSES
The Company has applied for numerous patents relating to its external LAN
adapters, parallel port multiplexor, parallel port and PC Card modems, and
wireless LAN products. Patents covering the original parallel port adapter and
the parallel port multiplexor were issued in March 1994 and January 1994,
respectively. A patent covering the combination parallel port Ethernet and
modem was issued in April 1995. The Company has entered into licensing
agreements with three competitors related to the parallel port adapter
technology. Additionally, the Company is currently reviewing the applicability
of its parallel port adapter and combination parallel port Ethernet and modem
patents to other competitive products. The Company also seeks to protect its
proprietary rights through a combination of employee and third-party
nondisclosure agreements as well as copyright and trademark protection. The
Company is aware that competitors have duplicated certain functionality of the
Company's products. There can be no assurance that the Company's patents,
copyrights, trademarks and other efforts to protect its intellectual property
will prevent duplication of the Company's technology or that they will provide
competitive advantage. The Company believes that, due to the rapid pace of
technological change in the LAN communications industry, the Company's success
is likely to depend more upon continued innovation, technical expertise,
marketing skills and customer support and service than legal protection of the
Company's proprietary rights.
The Company currently includes software licensed from third parties in its
Token Ring, Ethernet+Modem, modem-only, ISDN and remote access server products,
which, in the aggregate, accounted for 43% of revenues in fiscal 1995. The
Company's operating results could be adversely affected by a number of factors
relating to this third-party software, including failure by the licensers to
promote or support the software, delays in shipment of the Company's products
as a result of delays in the introduction of licensed software or errors in the
licensed software, excess customer support costs or product returns experienced
by the Company due to errors in licensed software or termination of the
Company's relationship with such licensers.
Madge Networks Agreement. The Company entered into a Software License
Agreement with Madge Networks Limited ("Madge") pursuant to which Madge and the
Company jointly developed the SmartRing Token Ring Adapter software, based on
proprietary Token Ring software of Madge. Madge has licensed its SmartRing
Token Ring Adapter software to Xircom for use in LAN adapters. The Company
paid Madge an initial development fee and up-front license fee, and pays an
additional royalty to Madge on each Token Ring LAN adapter the Company sells.
Royalty payments are subject to certain quarterly minimums, with any royalties
in excess of the quarterly minimum credited against future minimums. The
agreement terminates on the date when the Company ceases to market Token Ring
LAN adapters or may be terminated earlier by Madge if the Company does not meet
minimum royalty payments. In September 1993 the Company entered into a similar
agreement for the license of the SmartRing software for use in the Xircom
CreditCard Token Ring adapter.
12
<PAGE> 13
Willemijn License. The Company has entered into a nonexclusive patent license
agreement with Willemijn Houdstermaatschappij BV (Willemijn) with
respect to certain Token Ring technology for which Willemijn holds patents.
Under this agreement, the Company pays a royalty on each Token Ring adapter
sold by the Company. The agreement terminates in October 1998, upon expiration
of the Willemijn U.S. patent.
Shiva License. The Company entered into a PPP Client Software License
Agreement with Shiva Corporation for software to be included in Ethernet+Modem,
modem-only, ISDN and remote access server products. Under this agreement, the
Company pays a royalty on products sold incorporating the Shiva technology.
The agreement is nonexclusive and expires in June 1997.
Tractor Grip License. The Company has licensed the use of the Tractor Grip
device for attaching parallel port LAN adapters to PCs. The Company's license
terminates upon the expiration of the United States patent in March 2009.
Under this agreement, the Company pays a royalty on products sold incorporating
the Tractor Grip technology.
Fax/Modem License. The Company has entered into a nonexclusive license
agreement for fax/modem software used in Ethernet+Modem and modem-only
products. Under this agreement, the Company pays a royalty on each copy of the
software. The agreement has an initial term of two years and provides for
renewals upon mutual agreement of the parties.
The Company has entered into additional license agreements that require the
payment of per-unit royalties on wireless LAN products. To date, royalties
paid under these agreements have not been material.
EMPLOYEES
As of September 30, 1995, the Company employed a total of 500 persons,
including 210 in sales, marketing and customer support; 97 in engineering and
product development; 143 in operations; and 50 in finance and other
administrative areas.
The Company's success depends on its continued ability to attract and retain
qualified personnel. Competition for such personnel in the computer networking
industry is intense and the Company must provide competitive salary, stock
incentive and benefit packages to attract such personnel. The Company has
development activities in Thousand Oaks, California, in Mountain View,
California and Salem, New Hampshire. None of the Company's employees is
represented by a collective bargaining arrangement. The Company believes that
its relations with its employees are good.
FACTORS AFFECTING STOCK PRICE
The market price of Xircom's common stock may fluctuate substantially over
short periods of time due to a number of factors, including those factors that
could affect Xircom's future financial performance as discussed in Management's
Discussion and Analysis of Financial Condition and Results of Operations on
pages 18 to 24 of this document. The price may also be affected by factors
which influence the overall market for stocks or the market for stocks of
high-technology companies in particular.
13
<PAGE> 14
MANAGEMENT
The following sets forth certain information with respect to the executive
officers of the Company and their ages as of December 1, 1995.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Dirk I. Gates 34 Chairman of the Board,
President and Chief Executive Officer
Robert W. (Sam) Bass 49 Vice President, Operations
Thomas V. Brown 53 Vice President, Corporate
Communications and Marketing
and Acting General Manager,
Systems Division
Steven F. DeGennaro 32 Vice President, Finance and
Chief Accounting Officer
Marc M. Devis 35 Vice President, Europe and Asia-
Pacific Sales and Marketing
Randall H. Holliday 46 General Counsel and Secretary
Carl E. Russo 39 Executive Vice President and
General Manager, Client Division
Jerry N. Ulrich 41 Chief Operating Officer
and Chief Financial Officer
</TABLE>
Mr. Gates has served as Chairman of the Board of the Company since January 1995
and as President and a Director of the Company since its incorporation in
November 1988. He has also served as Chief Executive Officer since October
1991.
Mr. Bass has served as Vice President, Operations of the Company since January
1992. From September 1990 until joining the Company, Mr. Bass served as Vice
President, Operations of Fibermux Corporation, a provider of intelligent hubs
to the LAN market.
Mr. Brown has served as Vice President, Corporate Communications and Marketing
of the Company since November 1994. He is currently on temporary assignment as
Acting General Manager, Systems Division. From February 1991 until November
1994, he served as Vice President, Corporate Communications, and from October
1990 until February 1991 he was a consultant to the Company.
Mr. DeGennaro has served as Vice President, Finance and Chief Accounting
Officer of the Company since May 1995. He had previously served since January
1994 as Corporate Controller and Chief Accounting Officer. Prior to joining
the Company in 1993, Mr. DeGennaro was a senior manager at KPMG Peat Marwick, a
big-six accounting firm. Mr. DeGennaro is a CPA.
Mr. Devis has served as Vice President, Europe and Asia-Pacific Sales and
Marketing since January 1995. He had previously served, since June 1991, as
Managing Director of
14
<PAGE> 15
Xircom Europe N.V. From July 1989 to May 1991, Mr. Devis served as President
and Chairman of Westex N.V., a distributor of computer equipment.
Mr. Holliday has served as General Counsel of the Company since January 1995.
In December 1993, Mr. Holliday joined the Company as Corporate Counsel. From
March 1990 to December 1993, Mr. Holliday was Division Counsel of Abex
Aerospace Division, Pneumo Abex Corporation, an aircraft hydraulic components
manufacturer.
Mr. Russo has served as Executive Vice President and General Manager, Client
Division since April 1995. From January 1994 to March 1995, Mr. Russo held
executive positions at Network Systems Corporation, a manufacturer of
high-speed networking equipment and software, most recently as Senior Vice
President, Channel Networking Group. From 1991 until 1993, Mr. Russo served as
President of FTR, Inc., a professional motor sports team, which filed for
liquidation under Chapter 7 of the U.S. Bankruptcy Code in December 1993. From
1985 until 1991, Mr. Russo held executive positions at AT&T Paradyne, a
manufacturer of wide area networking products, most recently as Vice President
and General Manager, Data Networking Products.
Mr. Ulrich has served as Chief Operating Officer and Chief Financial Officer of
the Company since May 1995. He had previously served since December 1992 as
Vice President, Finance and Administration and Chief Financial Officer and
since March 1992 as Vice President, Finance. From 1991 until joining the
Company, Mr. Ulrich was Corporate Controller for Adaptec, Inc., a manufacturer
of hard disk controllers and small computer system interface (SCSI) host
adapters. From 1989 to 1991, Mr. Ulrich served as Vice President, Finance and
Chief Financial Officer of Pleion Corporation, a manufacturer of modular office
furniture. Mr. Ulrich is a CPA.
ITEM 2. PROPERTIES
The Company's headquarters are located in 87,000 square feet of a leased
facility in Thousand Oaks, California. This facility accommodates corporate
administration, engineering, marketing, sales and customer support. Final
assembly, test and shipping operations are conducted in an adjacent 50,000
square-foot leased facility. The Company also leases a facility that
accommodates additional engineering, marketing, sales and customer support
staff in Salem, New Hampshire; a manufacturing and distribution facility in
Penang, Malaysia; a sales office in Washington, D.C.; a research and
development facility in Mountain View, California; facilities for its European
subsidiary in Kontich, Belgium; and facilities for its Asia-Pacific sales and
marketing operations in Singapore and Sydney, Australia. In 1995, the Company
opened sales offices in Paris, France; Basingstoke, England; Grassbrunn,
Germany; and Stockholm, Sweden. The Company believes its existing facilities
are adequate for its current needs and additional facilities proximate to its
existing facilities are available for lease to meet future needs.
Financial information regarding leases and lease commitments are contained in
Note Ten of Notes to Consolidated Financial Statements on page 38 of this
document.
ITEM 3. LEGAL PROCEEDINGS
No material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
15
<PAGE> 16
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
Xircom Common Stock began trading on The Nasdaq Stock Market on March 31, 1992
under the symbol XIRC. The Company has not paid cash dividends on its Common
Stock and does not plan to pay cash dividends for the foreseeable future. As
of November 27, 1995, there were 426 holders of record of the Company's Common
Stock.
<TABLE>
<CAPTION>
FISCAL 1995 HIGH LOW
----------- ------- -------
<S> <C> <C>
FIRST QUARTER $23-1/2 $ 16
SECOND QUARTER 19 13-1/4
THIRD QUARTER 14-1/4 10-1/8
FOURTH QUARTER $15-3/8 $ 9
Fiscal 1994
-----------
First quarter $ 19 $ 14
Second quarter 28-1/4 16-1/4
Third quarter 25-1/2 12-3/4
Fourth quarter $21-1/4 $13-3/4
</TABLE>
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected balance sheet and statement of operations
data as of and for the fiscal years ended September 30, 1991 through 1995.
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1995 1994 1993 1992 1991
- ---------------------------------------- -------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $126,565 $131,580 $82,212 $59,083 $26,324
Cost of sales 86,080 63,964 38,093 27,440 11,550
-------- -------- ------- ------- -------
Gross profit 40,485 67,616 44,119 31,643 14,774
Research and development expenses 13,824 11,613 6,882 3,908 1,615
Sales and marketing expenses 38,686 25,194 17,105 14,817 6,714
General and administrative expenses 8,092 5,491 5,073 3,391 2,297
In-process research and development
and other nonrecurring charges 46,126 - - - -
-------- -------- ------- ------- -------
Operating income (loss) (66,243) 25,318 15,059 9,527 4,148
Other income (expense), net 439 (175) 760 90 (12)
-------- -------- ------- ------- -------
Income (loss) before income taxes (65,804) 25,143 15,819 9,617 4,136
Income tax provision (benefit) (7,000) 9,231 6,169 3,560 1,663
-------- -------- ------- ------- -------
Net income (loss)(1) $(58,804) $ 15,912 $ 9,650 $ 6,057 $ 2,473
-------- -------- ------- ------- -------
Net income (loss) per share(1) $ (3.44) $ .95 $ .59 $ .41 $ .19
BALANCE SHEET DATA
Working capital $ 28,446 $ 72,590 $57,759 $47,300 $ 5,135
Total assets $ 88,742 $101,015 $75,267 $57,043 $13,747
Long-term obligations,
net of current portion $ 831 $ 134 $ 793 $ 1,181 $ 678
Shareholders' equity $ 53,095 $ 82,115 $62,530 $49,569 $ 6,179
======== ======== ======= ======= =======
</TABLE>
(1) Fiscal 1995 includes $43,942 (net of tax benefit of $2,184), or $2.57 per
share, for write-off of in-process research and development and other
nonrecurring charges.
17
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- -------- ------ -------- ------ -------
<S> <C> <C> <C> <C> <C>
Net sales $126,565 (4%) $131,580 60% $82,212
</TABLE>
Net sales of LAN adapter products, which accounted for 93% of net sales in 1995
and nearly all of the net sales in 1994, decreased 11% due to the Company's
efforts to reduce channel inventories that had built up in the second half of
fiscal 1994 and due to a loss of market share in the PC Card market. Unit
sales of LAN adapter products increased only 3% in 1995 compared to 1994, which
was substantially below the market growth rate. In addition, overall average
selling prices in 1995 declined 13% from 1994 due primarily to the increased
competition in the PC Card LAN adapter market and to a shifting mix of products
from parallel port versions to PC Card versions. The decline in average
selling price was partially offset by an increase in revenues derived from the
higher-priced combination Ethernet+Modem products. The Company's CreditCard
Ethernet Adapter and Credit Card Ethernet+Modem accounted for 29% and 23%,
respectively, of 1995 sales and 27% and 12%, respectively, of 1994 sales.
The Company believes it achieved some stabilization of its market share over
the last four months of fiscal 1995. Expected market growth and stable market
share would result in higher growth in unit shipments in fiscal 1996, as
compared to fiscal 1995. Results for the first two months of fiscal 1996 were
consistent with this expectation.
The systems products (wireless LAN, remote access and ISDN OEM products)
contributed 7% of net sales in fiscal 1995. The Company believes revenues from
ISDN OEM products will increase in fiscal 1996 (due in part to a growing
customer base and because the results from the acquisition of Primary Rate
Incorporated ("PRI") were included for only four months of fiscal 1995). Sales
of the Company's remote access products and wireless LAN products are dependent
on the Company's ability to create greater awareness of its products among
value-added resellers, system integrators and end users. In addition, there
can be no assurances that the Company will be able to devote adequate sales and
marketing resources or further develop the products to achieve such awareness
or acceptance in the case of wireless LAN. The Company expects that this
market will continue to develop slowly until standards are finalized (now
expected by mid-1996) and users become more aware of the types of applications
that will make wireless LAN connections useful.
Net sales increased in 1994 due primarily to higher unit shipments of both
parallel port and PC Card versions of the Company's external LAN adapters,
offset by lower average selling prices. The higher unit volume was
attributable to growth in overall portable PC shipments and the percentage of
those portable PCs connected to LANs and the introduction of new PC Card
products, including the Company's combination LAN adapter and modem product.
International sales (shipments to customers located outside the U.S.) increased
as a percentage of total sales to 43% in 1995 from 39% in 1994. Sales in
Europe and Asia-Pacific grew at a faster rate than in the U.S. during 1995
primarily because of greater market growth in Asia, commencement of shipments
of an internationally approved version of the combination
18
<PAGE> 19
Ethernet+Modem product and less effect from reduction of channel inventories as
compared to the U.S.
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- --------------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Gross profit $40,485 (40%) $67,616 53% $44,119
Percentage of net sales 32.0% 51.4% 53.7%
</TABLE>
Gross profit consists of net sales less cost of sales, which includes product
costs (materials, subcontract assembly costs, labor, manufacturing overhead and
royalty payments to licensers of software incorporated into the Company's
products) and provisions for excess and obsolete inventory and warranty
expense. The decline in gross profit as a percent of net sales in 1995
compared to 1994 was primarily attributable to product mix changes away from
parallel port products and toward PC Card products, which have lower gross
profit margins than parallel port products, as well as price reductions on the
Company's CreditCard Ethernet and CreditCard Ethernet+Modem products. In
addition, lower-than-expected revenues and the resulting greater portion of
fixed cost of sales in relation to total cost of sales contributed to the
decline in gross profit margins. The 1995 results also include an $8.7 million
inventory reserve charged to cost of sales related primarily to excess wireless
LAN and remote access products. The decline in gross profit margin in 1994
compared to 1993 was primarily attributable to the increased proportion of
sales of PC Card adapters.
Excluding nonrecurring charges, operating expenses in 1995 increased by 43%
compared to 1994. While the Company took actions during the second half of
1995 to slow the growth in expenses, including a reduction in workforce in
April of approximately 10% and deferral of most new hiring, expenses increased
in general due to the significant expansion of the Company's product offerings
and the acquisition of PRI in June 1995. Product line expansion efforts
required more development expenditures as well as significant increases in
sales and marketing expenditures. While the PRI acquisition caused further
increases in expenses initially, the Company has taken measures to achieve a
15% - 20% reduction in operating expenses in the first quarter of fiscal 1996
as compared to the fourth quarter of fiscal 1995 ($18.2 million, excluding
nonrecurring charges). These measures include staff attrition, focus on fewer
product development activities and reductions in the level of sales, marketing
and promotional activities for certain products. The Company is continuing to
examine opportunities for cost reduction beyond its first quarter 1996 target.
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
Research and development $13,824 19% $11,613 69% $6,882
Percentage of net sales 10.9% 8.8% 8.4%
</TABLE>
Research and development expenses increased in 1995 and 1994 as the Company
expanded headcount and expenditures for engineering materials, equipment,
software development and outside services, all related to the development of a
significant number of new products. Although the Company has reduced the
planned breadth of certain product line expansion efforts, and the level of
expenditures is expected to decline from the fourth quarter of fiscal 1995 to
the first quarter of fiscal 1996, total expenditures for research and
development expenses in all of fiscal 1996 are likely to increase in absolute
dollars. They are currently expected to decline, however, as a percentage of
net sales.
19
<PAGE> 20
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C>
Sales and marketing $38,686 54% $25,194 47% $17,105
Percentage of net sales 30.6% 19.2% 20.8%
</TABLE>
Sales and marketing expenses increased substantially in absolute dollars during
1995 and 1994 due primarily to additions in sales and marketing personnel,
additional advertising for new products and higher promotional expenditures
related to increased competition in the PC Card market, efforts to reduce
higher-than-normal levels of channel inventories, and activities to launch new
remote access and wireless LAN products. Sales and marketing for all of fiscal
1996 are currently planned to be about equal to fiscal 1995 and are expected to
decline as a percentage of sales.
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- ------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
General and administrative $8,092 47% $5,491 8% $5,073
Percentage of net sales 6.4% 4.2% 6.2%
</TABLE>
General and administrative expenses increased in absolute dollars in each of
1995 and 1994, primarily due to increased headcount, related expenses and
expanded information systems and controls. Amortization of goodwill and other
intangible assets related to the acquisition of PRI that is included in general
and administrative expenses totaled approximately $519,000 during 1995 and is
expected to be approximately $1,600,000 per year in future years. Therefore,
total general and administrative expenses will increase in fiscal 1996 but are
currently expected to decline as a percentage of sales.
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- ------- ------ ------- ------ ------
<S> <C> <C> <C> <C> <C>
In-process research and
development and other
nonrecurring charges $46,126 N/A $ - N/A $ -
Percentage of net sales 36.4% - -
</TABLE>
Nonrecurring charges of $46,126,000 ($43,942,000, net of tax benefit of
$2,184,000) consist primarily of $40,000,000 of in-process research and
development purchased from PRI that had not yet reached technological
feasibility and, therefore, is required to be written off under generally
accepted accounting principles. Additional nonrecurring charges relate to the
sale of certain assets, the write-off of lease obligations on excess and idle
facilities and severance payments related to a reduction in workforce.
Excluding nonrecurring charges, total operating expenses were $60,602,000 in
1995 compared to $42,298,000 in fiscal 1994 (a 43% increase). Net loss and net
loss per share for fiscal 1995, excluding nonrecurring charges, was $14,862,000
and $0.87, respectively.
20
<PAGE> 21
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- ---- ------ ------ ------ ----
<S> <C> <C> <C> <C> <C>
Other income (expense), net $439 N/A $(175) N/A $760
Percentage of net sales 0.3% (0.1%) 0.9%
</TABLE>
Net other income or expense includes interest income from the investment of
available cash, prompt payment discounts earned by the Company offset by prompt
payment discounts taken by customers, foreign currency translation gains or
losses, and interest expense on capital leases.
Interest income in 1995 and 1994 of $1,700,000, and $1,562,000, respectively,
resulted from investments of the proceeds from the Company's initial public
offering of common stock and, in 1994, of cash generated from operations. Net
other expense in 1994 includes a charge of $575,000 for the early termination
of the lease on the Company's corporate headquarters facility.
<TABLE>
<CAPTION>
(in thousands) 1995 CHANGE 1994 Change 1993
- -------------- -------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Income taxes $(7,000) N/A $9,231 50% $6,169
Effective tax rate 10.6% 36.7% 39.0%
</TABLE>
The Company's effective tax benefit declined in 1995 due to the
nondecuctibility of the write-off of in-process research and development and
the amortization of goodwill related to the acquisition of Primary Rate
Incorporated. Excluding the effect of the nondeductible items, the effective
tax rate decreased to 28% due to the write-off of State deferred tax assets not
allowable as a carryback to offset prior years' state tax liabilities. The
Company's effective tax rate declined in 1994 primarily because of increased
benefits realized from sales through Xircom FSC, Inc. (a foreign sales
corporation) because the Company's PC Card products were manufactured in the
United States. In addition, credits for research and development expense
increased in 1994.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The market for portable PC LAN adapters has grown rapidly since the Personal
Computer Memory Card International Association (PCMCIA) introduced a standard
form factor for PC Card (originally "PCMCIA") LAN adapters in 1993. In 1994,
the PC Card market overtook the market for parallel port adapters, and
competition increased substantially in 1995. Companies with greater name
recognition in the PC, desktop LAN adapter and PC Card modem industries and
with greater financial resources gained market share during 1994 and 1995 and
now have a significant presence in the PC Card LAN adapter market. In 1995,
the Company's net sales and gross margin were adversely impacted by a
combination of factors: increased price competition, loss of market share in
the PC Card LAN adapter market, a lower proportion of sales from parallel port
products, higher than normal levels of inventories in the Company's
distribution channels and the related effect of reducing those channel
inventory levels.
The Company also believes that the market for PC Card LAN adapters will be more
price competitive for the long-term and thus result in lower gross profit
margins than the Company
21
<PAGE> 22
had earned from such products in the past. While the Company believes its
current product costs are very competitive, it continues to redesign its
products for cost savings. The Company expects to further reduce its
manufacturing costs by manufacturing at its own facility beginning in fiscal
1996, although efficiencies related to the new manufacturing facility are not
expected to be realized until at least the second fiscal quarter. There can be
no assurances that such cost reductions will keep pace with competitors' cost
reductions nor be sufficient to allow price reductions required to maintain
market share without adversely affecting gross profit margins.
The Company generally ships products within one to six weeks after receipt of
orders and therefore its sales backlog is typically minimal. Accordingly, the
Company's expectations of future net sales are based largely on its own
estimate of future demand and not on firm customer orders. The Company's
expenditures are based in part on such estimates of future sales. If orders
and net sales do not meet expectations, the Company may not be able to reduce
expenses commensurately in the near-term, and profitability could be adversely
affected.
The Company's net sales may also be affected by its distributors' decisions as
to the quantity of the Company's products to be maintained in their
inventories. The Company saw an increase in the level of channel inventories
during the last half of fiscal 1994 as product sell-through slowed compared to
the first half of fiscal 1994. The Company reduced the level of such channel
inventories during the second half of fiscal 1995 by significantly reducing its
shipments to its distributors.
There can be no assurances that the Company's new products will achieve market
acceptance or sell through to end users in sufficient quantities to make them
viable for the long-term. In addition, unless increases in sales allow the
Company to make sufficient expenditures in the sales and marketing areas, the
Company may have difficulty in establishing its presence in these new markets.
The Company expects that PC Card LAN adapters will continue to increase as a
proportion of revenues when compared with parallel port LAN adapters, although
the Company anticipates that the rate of growth will be slower than that
experienced in the past. The Company's PC Card products generally sell for
lower prices than the Company's comparable parallel port products and have
lower gross profit margins. The Company introduced a line of modem-only PC Card
products in the fourth fiscal quarter of 1995, utilizing existing technologies
from its combination LAN and modem PC Cards and modem-based remote access
products. The PC Card modems have gross profit margins lower than the
Company's historical average overall gross profit margin, although it is
presently anticipated that the increased volume will have a positive impact on
coverage of fixed manufacturing costs. While new product areas such as remote
access, ISDN and wireless LAN are expected to contribute higher gross profit
margins, the level of sales to be achieved in these new areas is uncertain and
such contributions are not currently expected to offset the decline in gross
profit margins associated with the PC Card and modem product lines.
The Company established in-house manufacturing capabilities at the end of
fiscal 1995. Although the Company commenced a gradual transition from
manufacturing at its subcontractors to its own facilities at the end of fiscal
1995, interruptions in supply of products could occur if problems arise in this
transition, which in turn could adversely affect future sales. Also, the
Company will continue to incur start-up manufacturing costs in early fiscal
1996 which could adversely affect gross profit margins.
22
<PAGE> 23
In summary, gross profit margins are impacted by a number of factors, including
the rate of sales growth, competitive pricing pressures, the mix of product
sales, component and manufacturing costs, and the shipments of new products,
which often have lower margins until market acceptance and increased volumes
permit component cost reductions and manufacturing efficiencies. Frequent
product transitions also increase the risk of inventory obsolescence and
interruptions of sales.
As discussed under Note Two in the Notes to Consolidated Financial Statements,
the Company acquired PRI, an ISDN technology company in June 1995.
Historically, PRI has focused its sales and development efforts on the OEM
market and has recorded limited sales to date to the end-user market. There
can be no assurances that the Company will be able to successfully develop the
end-user market for ISDN products or be able to compete effectively with other
companies that have significantly greater resources than the Company and which
have recently entered the ISDN market. The acquisition required significant
capital and equity investments and is expected to be dilutive to stockholders
in the near-term. It will continue to be dilutive unless, and until,
significantly increased revenues and profitability are attained by the ISDN
product lines.
The Company's corporate headquarters, research and development facilities and
other critical business operations are located near major earthquake faults.
Operating results could be materially adversely affected in the event of a
major earthquake.
A number of additional factors could have an impact on the Company's future
operating results. The industry in which the Company operates is characterized
by rapid technological change and short product life cycles. Increased
competition in the PC Card market has resulted in shorter product life cycles
than in the past. While the Company has historically been successful in
developing leading technology for its products, ongoing investment in research
and development will be required to maintain the Company's technological
position, and the Company could be required to increase the rate of such
investments depending on competitive factors. It is also possible that
networking capability could be included in the PC itself or in extension
modules to PCs, which could cause a reduction in the demand for add-on
networking devices. The Company's results are also dependent on continued
growth in the underlying market for portable networking products as well as the
Company's ability to retain its market share.
Because of frequent technology changes and rapid industry growth, the cost and
availability of components used to manufacture the Company's products may
fluctuate. Some components, including custom chipsets, are available from only
one supplier. Any interruptions in these supply sources or limitations on
availability could impact the Company's ability to deliver its products and in
turn adversely affect future earnings.
LIQUIDITY AND CAPITAL RESOURCES
The Company's operating activities used cash of approximately $4.4 million in
1995 primarily as a result of losses from operations, net of the write-off of
in-process research and development, and increases in inventory and income
taxes receivable offset by a decrease in accounts receivable and increases in
accounts payable and accrued liabilities. The Company also used approximately
$24.4 million for the acquisition of PRI. Additional cash expenditures of
approximately $1.2 million related to the acquisition are expected to occur in
1996. The Company's capital expenditures of $13.6 million were for leasehold
improvements at new facilities, equipment related to increased headcount,
manufacturing equipment and leasehold improvements at the new Malaysian
manufacturing facility, and information systems hardware and software. The
Company has no material fixed commitments for capital expenditures.
23
<PAGE> 24
Effective November 8, 1995, the Company entered into a credit agreement that
permits borrowings up to $15.0 million at the prime rate plus 1-1/4%.
Advances under the agreement are based on eligible accounts receivable and
inventory and are secured by all U.S.-based assets of the Company. Initial
availability under the eligibility and borrowing formulas was approximately
$9.0 million. The agreement expires in November 1996.
The Company believes that cash on hand, borrowings available under its new
credit facility or from other financing sources and cash provided by operations
will be sufficient to support its working capital and capital expenditure
requirements for at least the next twelve months. During the second half of
fiscal 1995, the Company experienced reduced revenue levels and losses from
operations. While revenues are expected to increase and results of operations
are expected to improve significantly in the December 1995 period, there can be
no assurances that future cash requirements to fund operations will not require
the Company to seek additional capital sooner than the twelve months or that
such additional capital will be available on terms acceptable to the Company.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
XIRCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share information)
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 1995 1994 1993
- ------------------------------- -------- -------- -------
<S> <C> <C> <C>
Net sales $126,565 $131,580 $82,212
Cost of sales 86,080 63,964 38,093
-------- -------- -------
Gross profit 40,485 67,616 44,119
Operating expenses:
Research and development 13,824 11,613 6,882
Sales and marketing 38,686 25,194 17,105
General and administrative 8,092 5,491 5,073
In-process research and development
and other nonrecurring charges 46,126 - -
-------- -------- -------
Total operating expenses 106,728 42,298 29,060
Operating income (loss) (66,243) 25,318 15,059
Other income (expense), net 439 (175) 760
-------- -------- --------
Income (loss) before income taxes (65,804) 25,143 15,819
Income tax provision (benefit) (7,000) 9,231 6,169
-------- -------- -------
Net income (loss) $(58,804) $ 15,912 $ 9,650
Net income (loss) per share $ (3.44) $ 0.95 $ 0.59
Weighted average shares outstanding 17,082 16,833 16,351
======== ======== =======
</TABLE>
See accompanying notes
25
<PAGE> 26
XIRCOM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share information)
<TABLE>
<CAPTION>
September 30 1995 1994
- ------------ -------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 13,658 $ 14,379
Short-term investments - 37,072
Accounts receivable, net of allowances for sales returns
and bad debts of $5,687 ($4,588 in 1994) 11,592 20,415
Income tax receivable 8,362 -
Inventories 19,174 13,987
Deferred income taxes 9,017 3,932
Other current assets 1,459 1,571
-------- --------
Total current assets 63,262 91,356
Equipment and improvements, net 17,588 8,857
Other assets 7,892 802
-------- --------
Total assets $ 88,742 $101,015
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 18,561 $ 11,000
Accrued liabilities 14,313 6,464
Current portion of long-term obligations 801 359
Accrued income taxes 1,141 943
-------- --------
Total current liabilities 34,816 18,766
Long-term obligations 831 134
Commitments and contingencies
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized, none issued - -
Common Stock, $.001 par value, 50,000,000 shares authorized;
18,926,030 shares outstanding at September 30, 1995
(16,116,098 in 1994) 19 16
Paid-in capital 76,666 46,885
Retained earnings (accumulated deficit) (23,590) 35,214
-------- --------
Total shareholders' equity 53,095 82,115
-------- --------
Total liabilities and shareholders' equity $ 88,742 $101,015
======== ========
</TABLE>
See accompanying notes
26
<PAGE> 27
XIRCOM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Retained
Common Stock Unearned Earnings
------------------- Paid-in Stock (Accumulated
(In thousands) Shares Amount Capital Compensation Deficit) Total
- -------------- ------ ------ ------- ------------ ------------ --------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1992 14,514 $15 $40,257 $(355) $ 9,652 $ 49,569
Exercise of stock options 1,155 1 1,775 - - 1,776
Tax benefit related to employee
stock options - - 1,327 - - 1,327
Amortization of unearned
stock compensation - - - 208 - 208
Net income - - - - 9,650 9,650
------ --- ------- ----- -------- --------
Balance at September 30, 1993 15,669 16 43,359 (147) 19,302 62,530
Exercise of stock options 447 - 1,590 - 1,590
Tax benefit related to employee
stock options - - 1,936 - - 1,936
Amortization of unearned
stock compensation - - - 147 - 147
Net income - - - - 15,912 15,912
------ --- ------- ----- -------- --------
Balance at September 30, 1994 16,116 16 46,885 - 35,214 82,115
Issuance of Common Stock for
acquisition of PRI 2,049 2 22,281 - - 22,283
Value of options assumed in connection
with acquisition of PRI - - 2,278 - - 2,278
Issuance of Common Stock under
Employee Stock Purchase Plan 58 - 684 - - 684
Exercise of stock options 703 1 2,843 - - 2,844
Tax benefit related to employee
stock options - - 1,695 - - 1,695
Net loss - - - - (58,804) (58,804)
------ --- ------- ----- -------- --------
Balance at September 30, 1995 18,926 $19 $76,666 $ - $(23,590) $ 53,095
====== === ======= ===== ======== ========
</TABLE>
See accompanying notes
27
<PAGE> 28
XIRCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Fiscal Years Ended September 30 1995 1994 1993
- ------------------------------- --------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(58,804) $ 15,912 $ 9,650
Adjustments to reconcile net income (loss)
to net cash provided by (used in)
operating activities:
Write off of in-process research
and development 40,000 - -
Depreciation and amortization 6,479 3,776 1,981
Deferred income tax benefit (3,760) (1,280) (1,380)
Deferred rent (24) (366) 36
Amortization of unearned stock
compensation - 147 208
Changes in assets and liabilities, net
of the effect of the acquisition:
Accounts receivable 10,091 (6,265) (3,671)
Income tax receivable (8,362) - -
Inventories (3,536) (2,742) (3,049)
Prepaids and other current assets 431 (340) (325)
Accounts payable and accrued liabilities 11,149 7,469 5,620
Income taxes payable 1,892 1,410 1,315
-------- -------- --------
Net cash provided by (used in) operating activities (4,444) 17,721 10,385
INVESTING ACTIVITIES
Purchase of PRI, net of cash acquired (24,387) - -
Purchase of short-term investments (13,975) (39,962) (42,086)
Sale of short-term investments 51,330 33,385 33,187
Purchases of equipment and improvements (13,600) (7,418) (3,997)
Other (175) (433) (48)
-------- -------- --------
Net cash used in investing activities (807) (14,428) (12,944)
FINANCING ACTIVITIES
Proceeds from issuance of common stock 3,528 1,590 1,776
Proceeds from issuance of long-term debt 1,200 - -
Long-term debt repayments (198) (434) (430)
-------- -------- --------
Net cash provided by financing activities 4,530 1,156 1,346
Net increase (decrease) in cash
and cash equivalents (721) 4,449 (1,213)
Cash and cash equivalents at beginning of period 14,379 9,930 11,143
-------- -------- --------
Cash and cash equivalents at end of period $ 13,658 $ 14,379 $ 9,930
======== ======== ========
</TABLE>
See accompanying notes
28
<PAGE> 29
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE ONE: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying consolidated financial statements
include the accounts of Xircom, Inc. (the "Company") and its wholly-owned
subsidiaries. All intercompany balances and transactions have been eliminated.
BUSINESS The Company designs, manufactures, markets and supports products that
allow PCs to be connected locally or remotely to a network.
CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS All highly liquid
investments with a maturity of three months or less at the date of purchase are
considered to be cash equivalents and are carried at cost plus accrued
interest. Investments with maturities of between three and twelve months are
considered to be short-term investments and are carried at cost plus accrued
interest, which approximates market. Interest income totaled $1,700,000,
$1,562,000 and $1,082,000 for fiscal 1995, 1994 and 1993, respectively, and is
included in Other income (expense), net in the accompanying Consolidated
Statements of Operations. Effective October 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. (SFAS) 115,
"Accounting for Certain Investments in Debt and Equity Securities." Adoption
of SFAS 115 had no effect on the accompanying consolidated financial
statements.
CONCENTRATION OF CREDIT RISK The Company makes periodic evaluations of the
creditworthiness of its customers and generally does not require collateral.
To date, the Company has not experienced any material bad debts or collection
problems. As of September 30, 1995 and 1994, three distributors accounted for
a total of 15% and 40%, respectively, of total trade receivables.
INVENTORIES Inventories are carried at the lower of cost (determined on a
first-in, first-out basis) or market.
PROPERTY AND EQUIPMENT Equipment and improvements are stated at cost.
Depreciation and amortization is provided using the straight-line method over
the estimated useful lives of the assets, ranging from one to seven years.
Leasehold improvements are amortized using the straight-line method over the
term of the related lease or the useful life of the asset, whichever is
shorter.
INTANGIBLE ASSETS Included in Other assets in the accompanying Consolidated
Balance Sheets are goodwill and other intangibles associated with the
acquisition of PRI as described in Note Two. Amortization of all intangible
assets is provided on a straight-line basis over their estimated useful lives
ranging from three to seven years. Accumulated amortization of all intangible
assets was $534,000 as of September 30, 1995.
REVENUE RECOGNITION The Company recognizes revenue from product sales when
shipped. The Company generally provides a lifetime limited warranty against
defects in the hardware component and a two-year limited warranty on the
software component of its network adapters and modem products. Netaccess
products have a five-year hardware warranty and a 90-day software warranty, and
ISDN products have a two-year hardware and a one-year software
29
<PAGE> 30
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
warranty. In addition, the Company provides telephone support to purchasers of
its products as needed to assist them in installation or use of the products.
The Company makes provisions for these costs in the period of sale. The
Company also has policies and/or contractual agreements which permit
distributors and dealers to return products under certain circumstances. The
Company makes a provision for the estimated amount of product returns that may
occur under these programs and contracts in the period of sale.
NONRECURRING CHARGES The Company recorded charges to operations during the
year related to the sale of certain assets, the write-off of excess and idle
facilities and severance payments related to a reduction in workforce. The
aggregate amount of these nonrecurring charges of $6,126,000 ($3,942,000, net
of tax benefit) has been charged to the Company's operations along with the
write-off of in-process research and development in connection with the
purchase of PRI as described in Note Two.
FOREIGN CURRENCY TRANSLATION The functional currency of the Company's foreign
subsidiaries is the U.S. dollar. To date, substantially all of the Company's
sales have been denominated in U.S. dollars. Gains and losses from
re-measurement are recognized currently in the Consolidated Statements of
Operations.
RESEARCH AND DEVELOPMENT Research and development costs are expensed as
incurred.
INCOME TAXES Effective October 1, 1993, the Company adopted the provisions of
SFAS 109, "Accounting for Income Taxes." Adoption of SFAS 109 did not have a
material effect on the accompanying consolidated financial statements.
The Company has not provided U.S. income taxes on the undistributed income of
its foreign subsidiaries. The cumulative amount of such income was not
significant as of September 30, 1995. It is management's intent that such
earnings will be permanently reinvested.
NET INCOME (LOSS) PER SHARE Net income (loss) per share is computed using the
weighted average number of shares of common stock and dilutive common stock
equivalents (stock options) outstanding. Fully diluted amounts for each period
do not materially differ from the amounts presented herein.
LICENSING AGREEMENTS The Company has entered into agreements with third
parties to license software and hardware that is incorporated into or sold with
certain of the Company's products. Royalties associated with such licenses are
accrued and expensed as cost of goods sold when the products are shipped.
RECLASSIFICATIONS Certain reclassifications of prior year amounts have been
made for purposes of consistent presentation.
NOTE TWO: BUSINESS ACQUISITION
In June 1995, the Company acquired the assets and assumed the liabilities and
outstanding stock options of Primary Rate Incorporated (PRI). PRI develops,
manufactures, markets and supports standards-based Integrated Service Digital
Network (ISDN) products which provide
30
<PAGE> 31
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
connectivity solutions for corporate information system departments, original
equipment manufacturers and end-users. The purchase price, net of cash
acquired and proceeds from exercise of options and warrants, totaled
approximately $50,279,000 including the assumed stock options which had an
associated value of $2,278,000. The balance of the purchase price was paid
using funds from the Company's working capital and through the issuance of
2,049,019 shares of common stock which had a value at issuance of $22,283,000.
The acquisition was accounted for as a purchase and, accordingly, the acquired
assets and liabilities were recorded at their estimated fair market values at
the date of acquisition. The purchase price plus costs directly attributable
to the completion of the acquisition have been allocated to the assets and
liabilities acquired. Approximately $40,000,000 of the total purchase price
represented the value of in-process research and development that had not yet
reached technological feasibility and was charged to the Company's operations.
In connection with the acquisition, the Company recorded goodwill and other
intangible assets totaling $6,413,000 and a net deferred tax asset totaling
approximately $2,301,000. The net deferred tax asset related primarily to the
net operating loss carryforward discussed in Note Seven and deferred taxes
related to other intangible assets pursuant to SFAS 109.
The Company's consolidated results of operations include the operating results
of PRI from the acquisition date. The following unaudited pro forma
information combines the consolidated results of operations of the Company and
PRI as if the acquisition had occurred on October 1, 1994 and 1993.
Adjustments have been made to reflect the amortization of goodwill and other
intangibles identified in the purchase price allocation, the reduction in
interest income earned due to the decrease in cash position resulting from the
cash used as part of the acquisition consideration, the effects of the
above-mentioned items on the provision for income taxes and the issuance of
common stock as part of the acquisition consideration. The pro forma
information is presented for illustrative purposes only, and is not necessarily
indicative of what the actual results of operations would have been during such
periods or representative of future operations (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Net sales $130,641 $136,388
Net income (loss) (24,346) 13,364
Net income (loss) per share $ (1.26) $ 0.70
======== ========
</TABLE>
The proforma information presented above does not reflect the write-off of
in-process research and development costs of $40,000,000 which was included in
the actual operating results for the year ended September 30, 1995.
31
<PAGE> 32
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE THREE: INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30
------------------------
1995 1994
------- -------
<S> <C> <C>
Finished goods $ 6,555 $ 4,206
Sub-assemblies 6,629 3,591
Work-in-process 2,495 2,273
Component parts 3,495 3,917
------- -------
$19,174 $13,987
======= =======
</TABLE>
NOTE FOUR: EQUIPMENT AND IMPROVEMENTS
Equipment and improvements consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30
-------------------------
1995 1994
-------- --------
<S> <C> <C>
Equipment $ 19,834 $ 10,635
Furniture and fixtures 3,638 1,348
Leasehold improvements 6,006 1,912
Capitalized leased equipment 1,296 1,736
-------- --------
30,774 15,631
Less accumulated depreciation and
amortization (13,186) (6,774)
-------- --------
$ 17,588 $ 8,857
======== ========
</TABLE>
Accumulated amortization related to capitalized leased equipment was $1,092,000
and $1,550,000 as of September 30, 1995 and 1994, respectively.
32
<PAGE> 33
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE FIVE: ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30
---------------------
1995 1994
------- ------
<S> <C> <C>
Payroll and related benefits $ 2,365 $2,387
Warranty reserve 1,835 1,295
Accrued marketing costs 2,715 1,126
Excess and idle facilities cost 4,866 852
Other 2,532 804
------- ------
$14,313 $6,464
======= ======
</TABLE>
NOTE SIX: BANK BORROWINGS AND LONG-TERM OBLIGATIONS
Long-term obligations consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30
---------------------
1995 1994
------ ----
<S> <C> <C>
Capitalized lease obligations due
through 2000 with effective interest
rates ranging from 6% to 19% $ 432 $493
Note payable to bank, due March 1996 600 -
Term loan, due through September 1998 600 -
------ ----
Total long-term obligations 1,632 493
Less current portion 801 359
------ ----
$ 831 $134
====== ====
</TABLE>
On November 8, 1995, the Company entered into a one-year credit agreement with
a financial institution for borrowings up to a maximum of $15,000,000 at the
prime rate plus 1-1/4 percent (10% as of November 8, 1995). Loans under the
agreement are advanced based on the Company's accounts receivable and
inventories, subject to borrowing formulas and are secured by all U.S.-based
assets of the Company. Initial borrowings available under the line were
approximately $9,000,000.
The Company has a credit facility with its bank in Malaysia that permits
borrowings on a revolving credit and term loan basis at the bank's reference
rate plus 1% (8.45% as of September 30, 1995). As of September 30, 1995,
$600,000 was outstanding under both the revolving credit and term loan
provisions of this agreement. Aggregate principal maturities on the note
payable to bank and term loan outstanding at September 30, 1995 were $783,000
in 1996, $200,000 in 1997, and $217,000 in 1998. Interest expense totaled
$68,000, $157,000 and $211,000 for fiscal 1995, 1994 and 1993, respectively.
33
<PAGE> 34
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE SEVEN: INCOME TAXES
The income tax provision (benefit) includes the following (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- ---------------
Liability method Deferred Method
-------------------------- ---------------
<S> <C> <C> <C>
Current:
Federal $(3,048) $ 8,475 $ 5,940
State - 2,010 1,608
Foreign - 26 1
------- ------- -------
(3,048) 10,511 7,549
Deferred:
Federal (7,524) (1,263) (1,163)
State - (17) (211)
Foreign - - (6)
Valuation allowance 3,572 - -
------- ------- -------
(3,952) (1,280) (1,380)
------- ------- -------
$(7,000) $ 9,231 $ 6,169
======= ======= =======
</TABLE>
34
<PAGE> 35
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Significant components of the Company's deferred tax assets and liabilities are
as follows (in thousands):
<TABLE>
<CAPTION>
September 30
-------------------------
1995 1994
------- ------
<S> <C> <C>
Book reserves not deductible for tax $10,910 $3,052
Book in excess of tax depreciation 640 414
State and foreign income taxes - 661
Net operating loss carryforward and credit 3,908 -
------- ------
Total deferred tax asset 15,458 4,127
Valuation allowance (3,572) -
------- ------
Deferred tax asset, net 11,886 4,127
------- ------
Basis difference in acquired assets (1,271) -
Other (423) (195)
------- ------
Total deferred tax liabilities (1,694) (195)
------- ------
Net deferred tax asset $10,192 $3,932
======= ======
</TABLE>
Balance sheet classification of the net deferred tax asset is as follows (in
thousands):
<TABLE>
<CAPTION>
September 30
------------------------
1995 1994
------- ------
<S> <C> <C>
Current deferred tax asset $ 9,017 $3,932
Noncurrent deferred tax asset 1,175 -
------- ------
$10,192 $3,932
======= ======
</TABLE>
Noncurrent deferred tax assets are included in Other assets in the accompanying
Consolidated Balance Sheets.
At September 30, 1995 the Company has net operating loss carryforwards for
federal tax and state tax purposes of approximately $9,246,000 and $3,939,000,
respectively, which expire during the period 2000 through 2010. The amount of
the federal net operating loss and a portion of the state net operating loss
that may be used to offset taxable income and income taxes in future years are
subject to certain change in ownership and pre-acquisition loss limitations.
35
<PAGE> 36
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A valuation allowance for deferred tax assets was established in 1995 to
reflect the uncertainty of the availability of the loss carryback generated in
1995, applicable to state income taxes. A reconciliation of the provision for
income taxes with the tax computed by applying the federal statutory tax rate
(35%, 35% and 34.75% for fiscal 1995, 1994 and 1993, respectively) is as
follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------ ------
<S> <C> <C> <C>
Computed expected tax (benefit) $(23,031) $8,800 $5,497
State taxes, net of federal benefit (1,309) 1,163 912
Tax exempt FSC and interest income (303) (325) (268)
Research and development credit - (500) (200)
Write-off of purchased in-process
technology 14,000 - -
Valuation allowance on deferred tax asset 3,572 - -
Other 71 93 228
-------- ------ ------
$ (7,000) $9,231 $6,169
======== ====== ======
</TABLE>
NOTE EIGHT: COMMON STOCK AND RELATED PLANS
The Company's Stock Option Plan (1992 Plan), as amended in January 1992, 1994
and 1995, authorizes a total of up to 5,300,000 shares of Common Stock for
issuance as either incentive stock options with exercise prices which may not
be less than fair market value at the date of grant, or nonqualified stock
options. The options generally vest over three to four years and expire after
five years. The 1992 Director Stock Option Plan provides for the grant of
nonqualified options for a total of up to 225,000 shares of Common Stock to
non-employee members of the Board of Directors. The options are granted at the
fair market value at the date of grant and vest over a four-year period. The
Company established the 1995 Stock Option Plan (1995 Plan) in connection with
the acquisition of PRI. Unvested options to purchase shares of PRI were
converted into options to purchase shares of the Company's common stock with
vesting rights similar to the 1992 Plan. Options to purchase 232,363 shares of
the Company were granted under the 1995 Plan. The following table is a summary
of activity for the Company's stock option plans:
36
<PAGE> 37
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Number of Option price
shares per share
--------- -------------
<S> <C> <C>
Outstanding at October 1, 1992 2,705,065 $ 0.27-$11.50
Granted 641,250 $ 7.63-$18.25
Exercised (1,154,866) $ 0.27-$11.50
Canceled (63,807) $ 0.33-$10.00
---------- -------------
Outstanding at September 30, 1993 2,127,642 $ 0.33-$18.25
Granted 549,000 $14.50-$26.50
Exercised (447,103) $ 0.33-$14.00
Canceled (110,277) $ 2.33-$19.25
---------- -------------
Outstanding at September 30, 1994 2,119,262 $ 0.33-$26.50
Granted 2,245,577 $ 9.63-$22.50
Exercised (703,376) $ 0.33-$16.75
Canceled (1,120,756) $ 1.29-$26.50
---------- -------------
Outstanding at September 30, 1995 2,540,707 $ 0.33-$19.50
========== =============
</TABLE>
On August 3, 1995, upon approval by the Compensation Committee of the Board of
Directors, the Company offered all holders of outstanding options under the
1992 Plan at exercise prices in excess of $10.00 per share the opportunity to
exchange such options for new options at an exercise price of $10.00 per share,
the fair market value of the Company's stock on such date. As a condition of
the exchange, the program required a one-year delay in the vesting of the
options exchanged. In connection with this repricing, an aggregate of 792,464
shares of Common Stock were repriced to an exercise price of $10.00 per share.
The repriced options have been included in the preceding option table as both
canceled and granted in fiscal 1995.
As of September 30, 1995, options for 602,899 shares were exercisable at an
average price of $6.03 and 679,680 shares were available for future grants
under the plans. Subsequent to the end of fiscal 1995, the Board of Directors
approved the authorization of an additional 700,000 shares for issuance under
the 1992 Plan, subject to shareholder approval at the next Annual Meeting of
Shareholders.
The Company has established the 1994 Employee Stock Purchase Plan which allows
employees to purchase Common Stock of the Company, through payroll deductions,
at 85% of the market value of the shares at the beginning or end of the
offering period, whichever is lower. The plan provides for the grant of rights
to employees to purchase a maximum of 250,000 shares of common stock. During
fiscal 1995, 57,537 shares were issued under the plan.
37
<PAGE> 38
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE NINE: SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
(in thousands) 1995 1994 1993
- -------------- --------- ------ ------
<S> <C> <C> <C>
Cash paid
Interest $ 61 $ 156 $ 213
Income taxes $ 3,383 $6,369 $6,235
-------- ------ ------
Non-cash transactions
Acquisition of assets under
capital leases $ - $ 20 $ 50
Tax benefit related to employee
stock options $ 1,695 $1,936 $1,327
-------- ------ ------
Reconciliation of assets acquired and
liabilities assumed related to the
acquisition of PRI
Fair value of assets acquired $ 52,644 $ - $ -
Liabilities assumed (1,956) - -
Less: Non-cash consideration (26,301) - -
-------- ------ ------
Cash paid for acquisition $ 24,387 $ - $ -
======== ====== ======
</TABLE>
NOTE TEN: COMMITMENTS AND CONTINGENCIES
The Company leases its facilities and certain equipment under operating leases
expiring on various dates through 2005. Rent expense was $1,790,000,
$1,129,000 and $962,000 for fiscal 1995, 1994 and 1993, respectively. As of
September 30, 1995, the minimum future rental payments under all noncancelable
leases for facilities and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
Capital Operating
Fiscal year leases leases
- ----------- -------- ---------
<S> <C> <C>
1996 $278 $ 3,090
1997 114 2,689
1998 43 1,884
1999 26 1,620
2000 8 1,559
Thereafter - 6,340
---- -------
Total minimum lease payments $469 $17,182
---- =======
Less amount representing interest $ 37
----
Present value of lease payments $432
====
</TABLE>
Under certain license agreements (see Note One), the Company is required to pay
specified amounts of per unit royalties based on sales of certain of its
products. Some of these agreements also contain minimum quarterly and annual
volume requirements. Certain of these agreements expire on specific dates,
others continue in effect as long as the technology is incorporated into the
Company's products, and some can be terminated by either party after specified
notice periods. Royalties under these agreements amounted to $2,129,000,
$2,843,000, and $2,574,000 for fiscal 1995, 1994 and 1993, respectively.
38
<PAGE> 39
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company is involved in certain claims and legal proceedings which arise in
the normal course of business. Management does not believe that the outcome of
any of these matters will have a material adverse effect on the Company's
consolidated financial position, results of operations or cash flows.
NOTE ELEVEN: SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in one industry segment: the design, development,
manufacture, marketing and support of personal computer network connectivity
products. Information about the Company's operations in the U.S., Europe and
Asia is presented below.
<TABLE>
<CAPTION>
(in thousands) United States Europe Asia Eliminations Total
- -------------- ------------- ------- ------ ------------ --------
<S> <C> <C> <C> <C> <C>
Fiscal 1995
Net sales to unaffiliated
customers $ 92,771 $33,794 $ - $ - $126,565
Intercompany sales 31,135 - 3,057 (34,192) -
-------- ------- ------- -------- --------
Total sales $123,906 $33,794 $ 3,057 $(34,192) $126,565
Operating income (loss) $(64,160) $ (291) $ 21 $ (1,813) $(66,243)
Identifiable assets $ 94,890 $ 9,786 $10,289 $(26,223) $ 88,742
-------- ------- ------- -------- --------
Fiscal 1994
Net sales to unaffiliated
customers $ 97,081 $34,494 $ 5 $ - $131,580
Intercompany sales 26,532 - 1,272 (27,804) -
-------- ------- ------- -------- --------
Total sales $123,613 $34,494 $ 1,277 $(27,804) $131,580
Operating income $ 24,496 $ 251 $ 46 $ 525 $ 25,318
Identifiable assets $100,311 $ 8,624 $ 1,710 $ (9,630) $101,015
-------- ------- ------- -------- --------
Fiscal 1993
Net sales to unaffiliated
customers $ 58,348 $23,863 $ 1 $ - $ 82,212
Intercompany sales 18,168 - 274 (18,442) -
-------- ------- ------- -------- --------
Total sales $ 76,516 $23,863 $ 275 $(18,442) $ 82,212
Operating income $ 15,251 $ (118) $ 32 $ (106) $ 15,059
Identifiable assets $ 75,050 $ 7,300 $ 445 $ (7,528) $ 75,267
======== ======= ======= ======== ========
</TABLE>
39
<PAGE> 40
XIRCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Total export sales (sales to unaffiliated foreign entities) were $20,069,000,
$16,991,000 and $11,422,000 for fiscal 1995, 1994 and 1993, respectively.
Sales to customers in excess of 10% of total sales are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Customer A 21% 28% 21%
Customer B 7% 10% 11%
Customer C 9% 11% 15%
== == ==
</TABLE>
NOTE TWELVE: SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share data)
- -------------------------------------
Quarter ended
-----------------------------------------------------------------
Dec. 31 Mar. 31 June 30 Sept. 30 Fiscal Year
------- ------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Fiscal 1995
Net sales $40,106 $39,974 $ 16,474 $ 30,011 $ 126,565
Gross profit 20,026 17,617 3,608 (766) 40,485
Net income (loss) 4,536 2,476 (48,756)(2) (17,060)(3) (58,804)
Net income (loss) per share $ .27 $ .15 $ (2.87)(2) $ (.91)(3) $ (3.44)
------- ------- -------- -------- ---------
Fiscal 1994
Net sales $26,376 $30,245 $ 36,089 $ 38,870 $ 131,580
Gross profit 14,370 16,221 18,284 18,741 67,616
Net income 3,431 3,922 4,197 4,362(1) 15,912
Net income per share $ .21 $ .23 $ .25 $ .26(1) $ .95
======= ======= ======== ======== =========
</TABLE>
(1) In the fourth quarter of fiscal 1994, the Company reduced its tax rate for
the fiscal year to 36.7% resulting in a tax rate of 31.0% for the fourth
quarter. The Company also recorded a pretax charge of $575,000 in the
fourth quarter of fiscal 1994 for the early termination of a lease.
(2) In the third quarter of fiscal 1995, the net loss includes $41,337,000 or
$2.43 per share for nonrecurring charges.
(3) In the fourth quarter of fiscal 1995, the net loss includes $2,605,000 or
$0.14 per share for nonrecurring charges. The Company also recorded a
pretax charge of $8,700,000 in the fourth quarter of fiscal 1995 for
additional inventory reserves.
40
<PAGE> 41
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Xircom, Inc.
We have audited the accompanying consolidated balance sheets of Xircom, Inc. as
of September 30, 1995 and 1994, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the three years in
the period ended September 30, 1995. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedule 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, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Xircom, Inc. at September 30,
1995 and 1994 and the consolidated results of its operations and its cash flows
for each of the three years in the period ended September 30, 1995, in
conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
ERNST & YOUNG LLP
Woodland Hills, California
October 19, 1995, except for the
second paragraph of Note Six, as to
which the date is November 8, 1995
41
<PAGE> 42
ITEM 9. DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
42
<PAGE> 43
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors of Xircom is incorporated by reference
from the information under the caption "Election of Directors--Nominees" in
the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders.
Information with respect to executive officers of Xircom is incorporated by
reference to Item 1 of this Annual Report on Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from the information under the captions "Executive
Officer Compensation" and "Certain Transactions" in the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference from the information under the captions "Principal
Shareholders" and "Election of Directors--Nominees" in the Company's Proxy
Statement for its 1996 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference from the information under the caption "Certain
Transactions" in the Company's Proxy Statement for its 1996 Annual Meeting of
Shareholders.
43
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1)The following consolidated financial statements of Xircom, Inc. and the
Report of Independent Auditors, are included in Item 8 of this document:
<TABLE>
<CAPTION>
Page in
Form 10-K
---------
<S> <C>
Consolidated Statements of Operations - Years ended
September 30, 1995, 1994 and 1993 25
Consolidated Balance Sheets at September 30, 1995
and 1994 26
Consolidated Statements of Shareholders' Equity - Years
ended September 30, 1995, 1994 and 1993 27
Consolidated Statements of Cash Flows - Years ended
September 30, 1995, 1994 and 1993 28
Notes to Consolidated Financial Statements 29-40
Report of Ernst & Young LLP, Independent Auditors 41
(2) Consolidated financial statement schedule:
Schedule II - Valuation and Qualifying Accounts 45
</TABLE>
All other schedules are omitted because they are not applicable or the required
information is shown in the consolidated financial statements or notes thereto.
44
<PAGE> 45
SCHEDULE II
XIRCOM, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO BALANCE
BEGINNING COSTS AND AT END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ------------ ---------- ----------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1995
DEDUCTED FROM ASSET ACCOUNTS:
ALLOWANCE FOR SALES RETURNS
AND BAD DEBTS $4,588 $20,324 $19,225 $5,687
====== ======= ======= ======
LIABILITY RESERVES:
WARRANTY $1,295 $ 4,858 $ 4,318 $1,835
====== ======= ======= ======
YEAR ENDED SEPTEMBER 30, 1994
Deducted from asset accounts:
Allowance for sales returns
and bad debts $1,900 $ 8,093 $ 5,405 $4,588
====== ======= ======= ======
Liability reserves:
Warranty $ 825 $ 3,034 $ 2,564 $1,295
====== ======= ======= ======
YEAR ENDED SEPTEMBER 30, 1993
Deducted from asset accounts:
Allowance for sales returns
and bad debts $1,320 $ 3,580 $ 3,000 $1,900
====== ======= ======= ======
Liability reserves:
Warranty $ 300 $ 1,874 $ 1,349 $ 825
====== ======= ======= ======
</TABLE>
45
<PAGE> 46
(3) Exhibits included herein (numbered in accordance with Item 601 of
Regulation S-K):
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization By and Among Xircom, Inc., a California Corporation, Xircom, Inc.,
a Delaware Corporation, and Primary Rate Incorporated, a Delaware Corporation, dated April 12, 1995
(incorporated by reference to Exhibit 2.1 of the Company's report on Form 8-K dated June 22, 1995,
No. 0-19856)
3.1 Amended Articles of Incorporation of Xircom, Inc. (incorporated by reference to Exhibit 3.1 of the
Company's report on Form 10-Q for the quarter ended March 31, 1992)
3.2 Bylaws of Xircom, Inc. (incorporated by reference to Exhibit 3.3 of Amendment No. 3 to the Company's
registration statement on Form S-1, No. 33-45567)
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 3 to the
Company's registration statement on Form S-1, No. 33-45567)
10.1 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 of the Company's report on
Form 10-Q for the quarter ended March 31, 1992)
10.9 Stock Option Plan of the Company, as amended and restated on January 27 1995, and forms of agreement
thereunder (incorporated by reference to Exhibit 4.1 of the Company's registration statement on Form S-8
filed on May 31, 1995, No. 33-92872)
10.10 1992 Director Stock Option Plan of the Company and forms of agreement thereunder (incorporated by
reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended March 31, 1992)
10.15 Form of Distributor Agreement(1)
10.20 Agreement of Substitution, dated as of September 1, 1990, between Willemijn Houdstermaatschappij BV and
the Company(1)(2)
10.23 PPIEC Development Program Agreement, dated as of October 26, 1992, between Fujitsu Microelectronics, Inc.
and the Company (incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-Q for the
quarter ended December 31, 1992)(2)
10.24 Software License Agreement, dated as of January 1, 1993, between Madge Networks Limited and the Company
(incorporated by reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended
December 31, 1992)(2)
10.26 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 of the Company's report on
Form 10-K for the year ended September 30, 1993)
</TABLE>
46
<PAGE> 47
<TABLE>
<S> <C>
10.27 Facility lease agreement, dated as of March 29, 1994, between Metropolitan Life Insurance Company and the
Company (incorporated by reference to Exhibit 10.1 of the Company's report on From 10-Q for the quarter
ended March 31, 1994)
10.28 Facility lease agreement, dated as of March 29, 1994, between Metropolitan Life Insurance Company and the
Company (incorporated by reference to Exhibit 10.2 of the Company's report on From 10-Q for the quarter
ended March 31, 1994)
10.29 Loan and Security Agreement, dated as of November 8, 1995, between The CIT Group/Credit Finance, Inc.,
and Xircom, Inc. and Primary Rate Incorporated
10.29a. Pledge Agreement, dated as of November 8, 1995, between The CIT Group/Credit Finance, Inc., and Xircom, Inc.
10.29b. Secured Continuing Corporate Guaranty dated November 8, 1995, by Xircom, Inc.
10.29c. Patent Security Agreement dated as of November 8, 1995 by Xircom, Inc. in favor of The CIT Group/Credit
Finance, Inc.
10.29d. Trademark Security Agreement dated as of November 8, 1995 between Xircom, Inc. and The CIT Group/Credit
Finance, Inc.
22.1 Subsidiaries of Xircom, Inc. (see page 48)
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page 49)
24.1 Power of Attorney (see page 50)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to corresponding exhibit number of the
Company's registration statement on Form S-1, No. 33-45667
(2) Confidential treatment granted as to certain portions of this Exhibit
(b) Reports on Form 8-K:
None
47
<PAGE> 48
EXHIBIT 22.1
SUBSIDIARIES OF THE COMPANY
Xircom Europe N.V.
Xircom Asia Pacific PTE LTD
Xircom FSC, Inc.
Primary Rate Incorporated
Xircom Operations (Malaysia) SDN. BHD.
Xircom U.K., Ltd.
Xircom France, S.A.R.L.
Xircom Deutschland GmbH
Xircom AB
Primary Rate Limited
Xircom Asia Limited
48
<PAGE> 49
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
pertaining to the Stock Option Plan, 1992 Director Stock Option Plan, 1994
Employee Stock Purchase Plan and 1995 Stock Option Plan and in the Registration
Statement (Form S-3 No. 33-93972) and in the related Prospectus of Xircom, Inc.
of our report dated October 19, 1995, except for the second paragraph of Note
Six, as to which the date is November 8, 1995, with respect to the consolidated
financial statements and schedule of Xircom, Inc., included in this Annual
Report (Form 10-K) for the year ended September 30, 1995.
ERNST & YOUNG LLP
Woodland Hills, California
November 30, 1995
49
<PAGE> 50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
XIRCOM, INC.
Date: November 30, 1995 By: /s/ DIRK I. GATES
----------------------------------
Dirk I. Gates
Chairman of the Board
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Dirk I. Gates and Jerry N. Ulrich, jointly and
severally, his attorneys-in-fact, each with the power of substitution for him
in any and all capacities, to sign any amendments to this Report on Form 10-K,
and to file the same, with exhibits thereto and other documents in connection
therewith with the Securities and Exchange Commission, hereby ratifying and
confirming all that each of said attorneys-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ DIRK I. GATES Chairman of the Board, President November 30, 1995
- -------------------------- and Chief Executive Officer
Dirk I. Gates (Principal Executive Officer)
/s/ JERRY N. ULRICH Chief Operating Officer November 30, 1995
- -------------------------- and Chief Financial Officer
Jerry N. Ulrich (Principal Financial Officer)
/s/ STEVEN F. DEGENNARO Vice President, Finance and November 30, 1995
- -------------------------- Chief Accounting Officer
Steven F. DeGennaro (Principal Accounting Officer)
/s/ KENNETH J. BIBA Director November 30, 1995
- --------------------------
Kenneth J. Biba
/s/ GARY J. BOWEN Director November 30, 1995
- --------------------------
Gary J. Bowen
/s/ BRUCE C. EDWARDS Director November 30, 1995
- --------------------------
Bruce C. Edwards
/s/ J. KIRK MATHEWS Director November 30, 1995
- --------------------------
J. Kirk Mathews
/s/ WILLIAM J. SCHROEDER Director November 30, 1995
- --------------------------
William J. Schroeder
</TABLE>
50
<PAGE> 51
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------ -----------------------
<S> <C>
2.1 Agreement and Plan of Reorganization By and Among Xircom, Inc., a California Corporation, Xircom, Inc.,
a Delaware Corporation, and Primary Rate Incorporated, a Delaware Corporation, dated April 12, 1995
(incorporated by reference to Exhibit 2.1 of the Company's report on Form 8-K dated June 22, 1995,
No. 0-19856)
3.1 Amended Articles of Incorporation of Xircom, Inc. (incorporated by reference to Exhibit 3.1 of the
Company's report on Form 10-Q for the quarter ended March 31, 1992)
3.2 Bylaws of Xircom, Inc. (incorporated by reference to Exhibit 3.3 of Amendment No. 3 to the Company's
registration statement on Form S-1, No. 33-45567)
4.1 Form of Common Stock Certificate (incorporated by reference to Exhibit 4.1 of Amendment No. 3 to the
Company's registration statement on Form S-1, No. 33-45567)
10.1 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.3 of the Company's report on
Form 10-Q for the quarter ended March 31, 1992)
10.9 Stock Option Plan of the Company, as amended and restated on January 27 1995, and forms of agreement
thereunder (incorporated by reference to Exhibit 4.1 of the Company's registration statement on Form S-8
filed on May 31, 1995, No. 33-92872)
10.10 1992 Director Stock Option Plan of the Company and forms of agreement thereunder (incorporated by
reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended March 31, 1992)
10.15 Form of Distributor Agreement(1)
10.20 Agreement of Substitution, dated as of September 1, 1990, between Willemijn Houdstermaatschappij BV and
the Company(1)(2)
10.23 PPIEC Development Program Agreement, dated as of October 26, 1992, between Fujitsu Microelectronics, Inc.
and the Company (incorporated by reference to Exhibit 10.1 of the Company's report on Form 10-Q for the
quarter ended December 31, 1992)(2)
10.24 Software License Agreement, dated as of January 1, 1993, between Madge Networks Limited and the Company
(incorporated by reference to Exhibit 10.2 of the Company's report on Form 10-Q for the quarter ended
December 31, 1992)(2)
10.26 1994 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.26 of the Company's report on
Form 10-K for the year ended September 30, 1993)
</TABLE>
<PAGE> 52
<TABLE>
<S> <C>
10.27 Facility lease agreement, dated as of March 29, 1994, between Metropolitan Life Insurance Company and the
Company (incorporated by reference to Exhibit 10.1 of the Company's report on From 10-Q for the quarter
ended March 31, 1994)
10.28 Facility lease agreement, dated as of March 29, 1994, between Metropolitan Life Insurance Company and the
Company (incorporated by reference to Exhibit 10.2 of the Company's report on From 10-Q for the quarter
ended March 31, 1994)
10.29 Loan and Security Agreement, dated as of November 8, 1995, between The CIT Group/Credit Finance, Inc.,
and Xircom, Inc. and Primary Rate Incorporated
10.29a. Pledge Agreement, dated as of November 8, 1995, between The CIT Group/Credit Finance, Inc., and Xircom, Inc.
10.29b. Secured Continuing Corporate Guaranty dated November 8, 1995, by Xircom, Inc.
10.29c. Patent Security Agreement dated as of November 8, 1995 by Xircom, Inc. in favor of The CIT Group/Credit
Finance, Inc.
10.29d. Trademark Security Agreement dated as of November 8, 1995 between Xircom, Inc. and The CIT Group/Credit
Finance, Inc.
22.1 Subsidiaries of Xircom, Inc. (see page 48)
23.1 Consent of Ernst & Young LLP, Independent Auditors (see page 49)
24.1 Power of Attorney (see page 50)
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to corresponding exhibit number of the
Company's registration statement on Form S-1, No. 33-45667
(2) Confidential treatment granted as to certain portions of this Exhibit
<PAGE> 1
LOAN AND SECURITY AGREEMENT
EXHIBIT 10.29
<PAGE> 2
LOAN AND SECURITY AGREEMENT
XIRCOM, INC. and
PRIMARY RATE, INC.
This Agreement is between the undersigned Borrower and the
undersigned Lender concerning loans and other credit accommodations to be made
by Lender to Borrower.
SECTION 1. PARTIES
1.1 The "Borrower" is the person, firm, corporation or
other entity identified as the Borrower in Section 10 and its successors and
assigns. If more than one Borrower is specified in Section 10, all references
to Borrower shall mean each of them, jointly and severally, individually and
collectively, and the successors and assigns of each.
1.2 The "Lender" is The CIT Group/Credit Finance, Inc.,
and its successors and assigns.
SECTION 2. LOANS AND OTHER CREDIT ACCOMMODATIONS
2.1 Revolving Loans. Lender shall, subject to the terms
and conditions contained herein, make revolving loans to Borrower ("Revolving
Loans") in amounts requested by Borrower from time to time, but not in excess
of the Net Availability existing immediately prior to the making of the
requested Revolving Loan and provided the requested Revolving Loan would not
cause the outstanding Obligations to exceed the Maximum Credit.
(a) The "Maximum Credit" is set forth in Section
10.1(a) hereof.
(b) The "Gross Availability" shall be calculated
at any time as the sum of
(i) the product obtained by multiplying the
then-outstanding amount of Eligible Accounts, net of all
taxes, discounts, allowances and credits given or claimed, by
the Eligible Accounts Percentage set forth in Section 10.1(b),
subject to any applicable sublimit set forth in such Section,
plus: (ii) the product obtained by multiplying the applicable
Eligible Inventory Percentages, if any, set forth in Section
10.1(b) by the values (as determined by Lender based on the
lower of cost or market) of Eligible Inventory, but the amount
so added shall not exceed any sublimits set forth in Section
10.1(c),
minus: (iii) any Reserves.
<PAGE> 3
(c) The "Net Availability" shall be calculated at
any time as an amount equal to the Gross Availability minus the
aggregate amount of all then-outstanding Obligations of Borrower to
Lender.
(d) "Eligible Accounts" are accounts created by
Borrower in the ordinary course of its business which are and remain
acceptable to Lender for lending purposes. General criteria for
Eligible Accounts are set forth below but may be revised from time to
time by Lender, in its sole judgment, on thirty (30) days' prior
written notice to Borrower. Lender shall, in general, deem accounts
to be Eligible Accounts if: (1) such accounts arise from bona fide
completed transactions and have not remained unpaid for more than the
number of days after the invoice date set forth in Section 10.1(d);
(2) the amounts of the accounts reported to Lender are absolutely
owing to Borrower and do not arise from sales on consignment,
guaranteed sale or other terms under which payment by the account
debtors may be conditional or contingent (other than stock rotation or
stock balancing rights); (3) the account debtor's chief executive
office or principal place of business is located in the United States
or Canada or payment of the account is fully supported by a letter of
credit or insured by FCIA or Exim Bank (at Lender's option) and each
of which is assigned to Lender and in form and substance acceptable to
Lender; (4) such accounts do not arise from progress billings (except
as set forth in Section 10.1(b), consignments, retainages or bill and
hold sales (other than stock rotation or stock balancing rights); (5)
there are no contra relationships, setoffs, counterclaims or disputes
existing with respect thereto and, where Lender deems appropriate, it
is furnished with a non-offset letter in form and substance
satisfactory to Lender, and there are no other facts existing or
threatened which would impair or delay the collectability of all or
any portion thereof; (6) the goods giving rise thereto were not at the
time of the sale subject to any liens except those permitted in this
Agreement; (7) such accounts are not accounts with respect to which
the account debtor or any officer or employee thereof is an officer,
employee or agent of or is affiliated with Borrower, directly or
indirectly, whether by virtue of family membership, ownership,
control, management or otherwise; (8) such accounts are not accounts
with respect to which the account debtor is the United States or any
State or political subdivision thereof or any department, agency or
instrumentality of the United States, any State or political
subdivision, unless there has been compliance with the Assignment of
Claims Act or any similar State or local law, if applicable; (9)
Borrower has delivered to Lender or Lender's representative such
documents as Lender may have requested pursuant to Section 5.8 hereof
in connection with such accounts and Lender shall have received a
verification of such account, satisfactory to it, if sent to the
account debtor or any other obligor or any bailee pursuant to Section
5.4 hereof; (10) there are no facts, existing or threatened, which
might result in any adverse change in the account debtor's financial
condition; (11) such accounts owed by a single account debtor or its
affiliates do not represent more than twenty percent (20%) of all
otherwise Eligible Accounts, or in the case of Tech Data or Merisel,
do not represent more than thirty percent (30%) or, in the case of
Ingram Micro, do not represent more than thirty-five percent (35%), of
all otherwise Eligible Accounts (provided that
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accounts excluded from Eligible Accounts solely by reason of this
subsection (11) shall nevertheless be considered Eligible Accounts to
the extent of the amount of such accounts which does not exceed the
applicable limit); (12) such accounts are not owed by an account
debtor whose accounts or whose affiliates' accounts greater than
ninety (90) days past invoice date comprise more than fifty percent
(50%) of the accounts of such account debtor or its affiliates owed to
Borrower; (13) such accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the amount of any customer
credit limits as established, and changed, from time to time by Lender
on 15 days' notice to Borrower (accounts excluded from Eligible
Accounts solely by reason of this subsection (13) shall nevertheless
be considered Eligible Accounts to the extent the amount of such
accounts does not exceed such customer credit limit); and (14) such
accounts are owed by account debtors deemed creditworthy at all times
by Lender.
(e) "Eligible Inventory" is inventory owned by
Borrower which is and remains acceptable to Lender for lending
purposes and is located at one of the addresses set forth in Section
10.6(d).
(f) Lender shall have a continuing right to
deduct reserves in determining the Gross Availability ("Reserves"),
and to increase and decrease such Reserves from time to time, if and
to the extent that, in Lender's reasonable credit judgment, such
Reserves are necessary to protect Lender against any state of facts
which does, or would, with notice or passage of time or both,
constitute an Event of Default or have an adverse effect on any
Collateral. Lender may, at its option, implement Reserves by
designating as ineligible a sufficient amount of accounts or inventory
which would otherwise be Eligible Accounts or Eligible Inventory so as
to reduce Gross Availability by the amount of the intended Reserve.
Without limiting the foregoing, Reserves shall be established for 100%
of the undrawn face amount of standby letters of credit and for 100%
of the undrawn face amount of Accommodations for the purchase of
Eligible Inventory minus the applicable advance rate percentage
multiplied by the cost of the inventory, plus duty and freight.
Additionally, should any of the top eleven account debtors as
referenced in Section 6.1 hereof be carrying more than 2 1/2 months of
inventory, Lender may create a Reserve for the inventory in excess of
a 2 1/2 month supply. The 2 1/2 month supply will be based on the
prior 3 months sales to the account debtor in question.
2.2 Intentionally Deleted
2.3 Accommodations.
(a) Subject to the terms and conditions contained
herein, Lender may, in its sole discretion, issue or cause to be
issued, from time to time at Borrower's request and on terms and
conditions and for purposes satisfactory to Lender, credit
accommodations consisting of letters of credit, bankers' acceptances,
merchandise
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purchase guaranties or other guaranties or indemnities for Borrower's
account (collectively, "Accommodations"). Borrower shall execute and
perform additional agreements relating to the Accommodations in form
and substance acceptable to Lender and the issuer of any
Accommodations, all of which shall supplement the rights and remedies
granted herein. Any payments made by Lender or any affiliate of
Lender in connection with the Accommodations shall constitute
additional Revolving Loans to Borrower.
(b) In addition to the fees and costs of any
issuer in connection with issuing or administering Accommodations,
Borrower shall pay monthly to Lender, on the first day of each month,
a charge on the face amount of all outstanding Accommodations computed
daily from the date of issuance until termination or payment, at the
rate set forth in Section 10.3(a) (the "Accommodation Charges").
(c) No Accommodation will be issued unless the
full amount of the Accommodation requested, plus fees and costs for
issuance, is less than the Net Availability existing immediately prior
to the issuance of the requested Accommodation, or if the requested
Accommodation would cause the sum of the outstanding Obligations to
exceed the Maximum Credit, or cause the sum of the open amount of
Accommodations to exceed, at any time, the Accommodation sublimit set
forth in Section 10.3(b).
(d) All indebtedness, liabilities and obligations
of any sort whatsoever, however arising, whether present or future,
fixed or contingent, secured or unsecured, due or to become due, paid
or incurred or otherwise arising in connection with any Accommodation
shall be included in the term "Obligations" as defined herein, and
shall include, without limitation, (i) all amounts due or which may
become due under any Accommodation; (ii) all amounts charged or
chargeable to Borrower or to Lender by any bank, other financial
institution or correspondent bank which opens, issues or is involved
with such Accommodations; (iii) Lender's Accommodation Charges and all
fees, costs and other charges of any issuer of any Accommodation; and
(iv) all duties, freight, taxes, costs, insurance and all such other
charges and expenses which may pertain directly or indirectly to any
Obligations or Accommodations or to the goods or documents relating
thereto.
(e) Borrower unconditionally agrees to indemnify
and hold Lender harmless from any and all loss, claim or liability
(including reasonable attorneys' fees) arising from any transactions
or occurrences relating to any Accommodation established or opened for
Borrower's account, the Collateral relating thereto and any drafts or
acceptance thereunder, including any such loss or claim due to any
action taken by an issuer of any Accommodation. Borrower further
agrees to indemnify and hold Lender harmless for any errors or
omissions in connection with the Accommodations, whether caused by
Lender, by the issuer of any Accommodation or otherwise. Borrower's
unconditional obligation to indemnify and hold Lender harmless under
this provision
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shall not be modified or diminished for any reason or in any manner
whatsoever, except for Lender's gross negligence or wilful misconduct.
Borrower agrees that any charges made to Lender by any issuer of any
Accommodation shall be conclusive on Borrower and may be charged to
Borrower's account.
(f) Lender shall not be responsible for the
conformity of any goods to the documents presented, the validity or
genuineness of any documents or delay, default, or fraud by the
Borrower or shipper and/or anyone else in connection with the
Accommodations or any underlying transaction.
(g) Borrower agrees that any action taken by
Lender, if taken in good faith, or any action taken by an issuer of
any Accommodation, under or in connection with any Accommodation,
shall be binding on Borrower and shall not create any resulting
liability to Lender, except in the case of gross negligence or wilful
misconduct. In furtherance thereof Lender shall, upon and during the
continuance of an Event of Default or if Lender is directly collecting
the accounts pursuant to Section 5.4, have the full right and
authority to clear and resolve any questions of non-compliance of
documents; to give any instructions as to acceptance or rejection of
any documents or goods; to execute for Borrower's account any and all
applications for steamship or airway guarantees, indemnitees or
delivery orders; to grant any extensions of the maturity of, time of
payment for, or time of presentation of, any drafts, acceptances, or
documents; and to agree to any amendments, renewals, extensions,
modifications, changes or cancellations of any of the terms or
conditions of any of the applications or Accommodations. All of the
foregoing actions may be taken in Lender's sole name, and the issuer
thereof shall be entitled to comply with and honor any and all such
documents or instruments executed by or received solely from Lender,
all without notice to or any consent from Borrower. None of the
foregoing actions described in this subsection 2.3 (g) may be taken by
Borrower after and during the continuance of an Event of Default or if
Lender is directly collecting the accounts, without Lender's express
written consent.
2.4 Obligations In Excess of Limitations. Lender may, in
the exercise of its reasonable credit judgment, make or permit Revolving Loans
and Accommodations or other Obligations in excess of the Maximum Credit, Gross
Availability or applicable sublimits. To the extent such excess is permitted
by Lender, all or any portion of such excess shall become due and payable upon
Lender's demand therefor. To the extent the aggregate amount of Revolving
Loans and Accommodations or other Obligations at any time exceeds, without the
consent of Lender, the Maximum Credit, Gross Availability or applicable
sublimits, all of such excess shall be immediately due and payable, upon
Lender's demand therefor.
SECTION 3. INTEREST AND FEES
3.1 Interest.
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(a) Interest on all Obligations shall be payable
by Borrower on the first day of each month, calculated upon the
closing daily outstanding principal balances in the loan account(s) of
Borrower for each day during the immediately preceding month, at the
per annum rate set forth as the Interest Rate in Section 10.4(a). The
Interest Rate shall increase or decrease by an amount equal to each
increase or decrease, respectively, in the Prime Rate (as defined
below), effective as of the date of each such change. On and after
any Event of Default or termination or non-renewal hereof, at Lender's
option, interest on all due and unpaid Obligations shall accrue at a
rate equal to two percent (2%) per annum in excess of the Interest
Rate otherwise payable until such time as all Obligations are
indefeasibly paid in full in immediately available funds
(notwithstanding entry of any judgment against Borrower or the
exercise of any other right or remedy by Lender), and all such
interest shall be payable on demand. Interest, including interest
charged upon the occurrence of an Event of Default, shall be
calculated on the basis of actual days elapsed over a 360-day year.
In no event shall charges constituting interest exceed the rate
permitted under any applicable law or regulation. However, if any
interest or other charges paid or payable in connection with this
Agreement are ever determined to exceed the maximum amount or rate
permitted by law, Borrower and Lender understand and agree that: (A)
the amount or rate of interest or other charges payable by Borrower
pursuant to this lending transaction shall be reduced to the maximum
amount permitted by law; and (B) any excess amount previously
collected from Borrower in connection with this lending transaction
which exceeded the maximum amount permitted by law will be credited
against the outstanding principal balance. If the outstanding
principal balance has already been paid, the excess amount paid will
be refunded to Borrower.
(b) The "Prime Rate" is the rate of interest
publicly announced by Chemical Bank (or its successor) in New York,
New York as its prime rate or similar such designation (such rate is
not intended to be the lowest rate of interest charged by such bank to
its borrowers).
3.2 Facility Fee. Borrower shall pay Lender on each
anniversary of the date hereof during any Term of this Agreement, a Facility
Fee in the amount set forth in Section 10.4(b), which fee shall be fully earned
and payable as of each anniversary, if any, hereof during any Term of this
Agreement.
3.3 Closing Fee. Borrower shall pay Lender on the date
hereof a Closing Fee in the amount set forth in Section 10.4(c), which fee is
fully earned as of the date hereof.
3.4 Unused Line Fee. Borrower shall pay Lender on the
first day of each month, in arrears, during the initial and any renewal term an
Unused Line Fee at the rate set forth in Section 10.4(d), calculated on the
amount, if any, by which the Maximum Credit exceeds the average outstanding
principal balance of all Revolving Loans and Accommodations made to Borrower
for the preceding month.
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3.5 Charges to Loan Account. At Lender's option, all
payments of principal, interest, fees, costs, expenses and other charges
provided for in this Agreement, or in any other agreement now or hereafter
existing between Lender and Borrower, may be charged on the date when due as
principal to any loan account of Borrower maintained by Lender, and shall
thereafter bear interest at the rate and payable in the manner provided herein
for the accrual and payment of interest on outstanding Obligations. No portion
of any fees or charges payable by Borrower hereunder shall be refundable for
any reason including, without limitation, termination of this Agreement.
SECTION 4. GRANT OF SECURITY INTEREST
4.1 Grant of Security Interest. To secure the payment
and performance in full of all Obligations, Borrower hereby grants to Lender a
continuing security interest in and lien upon, and a right of setoff against,
and Borrower hereby assigns and pledges to Lender, all of the Collateral,
including any Collateral not deemed eligible for lending purposes.
4.2 Obligations. "Obligations" shall mean any and all
Revolving Loans, Accommodations and all other indebtedness, liabilities and
obligations of every kind, nature and description owing by Borrower to Lender,
including principal, interest, charges, fees and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether arising
under this Agreement or otherwise, whether now existing or hereafter arising,
whether arising before, during or after the initial or any renewal Term or
after the commencement of any case with respect to Borrower under the United
States Bankruptcy Code or any similar statute, whether direct or indirect,
absolute or contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, original, renewed or extended
and whether arising directly or howsoever acquired by Lender including from any
other entity outright, conditionally or as collateral security, by assignment,
merger with any other entity, participations or interests of Lender in the
obligations of Borrower to others, assumption, operation of law, subrogation or
otherwise and shall also include all amounts chargeable to Borrower under this
Agreement or in connection with any of the foregoing.
4.3 Collateral. "Collateral" shall mean all of the
following property of Borrower:
(a) All now owned and hereafter acquired right,
title and interest of Borrower in, to and in respect of all: accounts,
including without limitation all interests in goods represented by
accounts, returned, reclaimed or repossessed goods with respect
thereto and rights as an unpaid vendor; chattel paper; general
intangibles (including, but not limited to, tax and duty claims and
refunds, registered and unregistered patents, trademarks, service
marks, copyrights, trade names, applications for the foregoing, trade
secrets, goodwill, processes, drawings, blueprints, customer lists,
license agreements and licenses, whether as licensor or licensee,
computer software programs and systems, choses in action and other
claims, and existing and
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future leasehold interests in equipment, real estate and fixtures);
documents; instruments; letters of credit, bankers' acceptances or
guaranties; cash monies, deposits, securities, bank accounts, deposit
accounts, credits and other property now or hereafter held in any
capacity by Lender, its affiliates or any entity which, at any time,
participates in Lender's financing of Borrower or at any other
depository or other institution; and agreements or property securing
or relating to any of the items referred to above;
(b) All now owned and hereafter acquired right,
title and interest of Borrower in, to and in respect of goods,
including, but not limited to:
(i) All inventory, wherever located,
whether now owned or hereafter acquired, of whatever kind,
nature or description, including all raw materials,
work-in-process, finished goods and materials to be used or
consumed in Borrower's business; and all names or marks
affixed to or to be affixed thereto for purposes of selling
same by the seller, manufacturer, lessor or licensor thereof;
(ii) All equipment and fixtures, wherever
located, whether now owned or hereafter acquired, including,
without limitation, all machinery, equipment, motor vehicles,
furniture and fixtures, and any and all additions,
substitutions, replacements (including spare parts) and
accessions thereof and thereto;
(iii) All consumer goods, farm products,
crops, timber, minerals or the like (including oil and gas),
wherever located, whether now owned or hereafter acquired, of
whatever kind, nature or description;
(c) All now owned and hereafter acquired right,
title and interest of Borrower in, to and in respect of any other
personal property or any fixtures in or upon which Lender has or may
hereafter have a security interest, lien or right of setoff;
(d) All present and future books and records
relating to any of the above, including, without limitation, all
computer programs, printed output and computer readable data, in any
media, in the possession or control of the Borrower, any computer
service bureau or other third party;
(e) All notes, security interests and deeds of
trust or mortgages in favor of Borrower; and
(f) All products and proceeds of the foregoing in
whatever form and wherever located, including, without limitation, all
insurance proceeds and all claims against third parties for loss or
destruction of or damage to any of the foregoing.
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SECTION 5. COLLECTION AND ADMINISTRATION
5.1 Collections. Borrower shall, at Borrower's expense
and in the manner requested by Lender from time to time, direct that
remittances and all other proceeds of accounts and other Collateral shall be
sent to a lock box designated by and/or maintained in the name of Lender, and
deposited into a bank account maintained in the name of Lender under
arrangements with the depository bank under which all funds deposited to such
bank account are required to be transferred solely to Lender. Borrower shall
bear all risk of loss of any funds deposited into such account. In connection
therewith, Borrower shall execute such lock box and bank account agreements as
Lender shall specify. Any collections or other proceeds received by Borrower
shall be held in trust for Lender and immediately remitted to Lender, in kind.
5.2 Payments. All Obligations shall be payable at
Lender's office set forth below or at Bank of America, NT & SA, in Los Angeles,
California, or such substitute bank as Lender may determine ("Lender's Bank")
or such other place as Lender may designate from time to time. For purposes of
determining Gross and Net Availability, remittances and other payments with
respect to the Collateral and Obligations will be treated as credited to the
loan account of Borrower maintained by Lender and Collateral balances to which
they relate, upon the date of Lender's receipt of advice from Lender's Bank
that such remittances or other payments have been credited to Lender's account
or in the case of remittances or other payments, received directly in kind by
Lender, upon the date of Lender's deposit thereof at Lender's Bank, subject to
final payment and collection. In computing interest charges, the loan account
of Borrower maintained by Lender will be credited with remittances and other
payments two (2) Business Days after Lender has received advice of receipt of
remittances in Lender's account at Lender's Bank. For purposes of this
Agreement, "Business Day" shall mean any day other than a Saturday, Sunday or
any other day on which either Lender or banks located in Los Angeles,
California, or New York, New York are authorized to close.
5.3 Loan Account Statements. Lender shall deliver to
Borrower monthly a loan account statement. Each statement shall be considered
correct and binding upon Borrower as an account stated, except to the extent
that Lender receives, within sixty (60) days after the mailing of such
statement, written notice from Borrower of any specific exceptions by Borrower
to that statement.
5.4 Direct Collections. Lender may, at any time, whether
or not an Event of Default has occurred, without notice to or consent of
Borrower, in Lender's reasonable credit judgment, (a) notify any account debtor
that the accounts and other Collateral which includes a monetary obligation
have been assigned to Lender by Borrower and that payment thereof is to be made
to the order of and directly to Lender; (b) send, or cause to be sent by its
designee, requests (which may identify the sender by a pseudonym) for
verification of accounts and other Collateral directly to any account debtor or
any other obligor or any bailee with respect thereto; and (c) demand, collect
or enforce payment of any accounts or such other
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Collateral, but without any duty to do so, and Lender shall not be liable for
any failure to collect or enforce payment thereof. At Lender's reasonable
request, all invoices and statements sent to any account debtor, other obligor
or bailee, shall state that the accounts and such other Collateral have been
assigned to Lender and are payable directly and only to Lender.
5.5 Attorney-in-Fact. Borrower hereby appoints Lender
and any designee of Lender as Borrower's attorney-in-fact and authorizes Lender
or such designee, at Borrower's sole expense, to exercise at any time in
Lender's or such designee's discretion all or any of the following powers,
which powers of attorney, being coupled with an interest, shall be irrevocable
until all Obligations have been paid in full: (a) receive, take, endorse,
assign, deliver, accept and deposit, in the name of Lender or Borrower, any and
all cash, checks, commercial paper, drafts, remittances and other instruments
and documents relating to the Collateral or the proceeds thereof; (b) transmit
to account debtors, other obligors or any bailee's notice of the interest of
Lender in the Collateral or request from account debtors or such other obligors
or bailees at any time, in the name of Borrower or Lender or any designee of
Lender, information concerning the Collateral and any amounts owing with
respect thereto; (c) notify account debtors or other obligors to make payment
directly to Lender, or notify bailees as to the disposition of Collateral; (d)
take or bring, in the name of Lender or Borrower, all steps, actions, suits or
proceedings deemed by Lender necessary or desirable to effect collection of or
other realization upon the accounts and other Collateral; (e) after and during
the continuance of an Event of Default change the address for delivery of mail
to Borrower and to receive and open mail addressed to Borrower; (f) after and
during the continuance of an Event of Default, extend the time of payment of,
compromise or settle for cash, credit, return of merchandise, and upon any
terms or conditions, any and all accounts or other Collateral which includes a
monetary obligation and discharge or release the account debtor or other
obligor, without affecting any of the Obligations; and (g) execute in the name
of Borrower and file against Borrower in favor of Lender financing statements
or amendments with respect to the Collateral.
5.6 Liability. Borrower hereby releases and exculpates
Lender, its officers, employees and designees, from any liability arising from
any acts under this Agreement or in furtherance thereof, whether as
attorney-in-fact or otherwise, whether of omission or commission, and whether
based upon any error of judgment or mistake of law or fact, except for gross
negligence or wilful misconduct. In no event will Lender have any liability to
Borrower for lost profits or other special or consequential damages.
5.7 Administration of Accounts. After written notice by
Lender to Borrower prior to an Event of Default and automatically, without
notice, after an Event of Default, Borrower shall not, without the prior
written consent of Lender in each instance, which consent shall not be
unreasonably withheld, (a) grant any extension of time of payment of any of the
accounts or any other Collateral which includes a monetary obligation; (b)
compromise or settle any of the accounts or any such other Collateral for less
than the full amount thereof; (c) release in whole or in part any account
debtor or other person liable for the payment of any
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of the accounts or any such other Collateral; or (d) grant any credits,
discounts, allowances, deductions, return authorizations or the like with
respect to any of the accounts or any such other Collateral.
5.8 Documents. At such times as Lender may reasonably
request and in the manner reasonably specified by Lender, Borrower shall
deliver to Lender or Lender's representative, as Lender shall designate, copies
or originals of invoices, agreements, proofs of rendition of services and
delivery of goods and other documents evidencing or relating to the
transactions which gave rise to accounts or other Collateral, together with
customer statements, schedules describing the accounts or other Collateral
and/or statements of account and confirmatory assignments to Lender of the
accounts or other Collateral, in form and substance satisfactory to Lender and
duly executed by Borrower. Without limiting the provisions of Section 5.7,
Borrower's issuance of credits, discounts, allowances, deductions, return
authorizations or the like will promptly be reported to Lender in writing;
provided that Borrower further agrees to issue the foregoing in a timely and
prompt manner and to advise Lender of the granting of any credits (whether or
not issued) arising or in an amount outside the ordinary course of business of
Borrower as presently conducted or not customary in Borrower's ordinary
business practice. In no event shall any such schedule or confirmatory
assignment (or the absence thereof or omission of any of the accounts or other
Collateral therefrom) limit or in any way be construed as a waiver, limitation
or modification of the security interests or rights of Lender or the
warranties, representations and covenants of Borrower under this Agreement.
Any documents, schedules, invoices or other paper delivered to Lender by
Borrower may be destroyed or otherwise disposed of by Lender six (6) months
after receipt by Lender, unless Borrower requests their return in writing in
advance and makes prior arrangements for their return, at its expense.
5.9 Access. From time to time as reasonably requested by
Lender, at the sole expense of Borrower (but subject to Section 6.13(d), Lender
or its designee shall have complete access to all of the premises where
Collateral is located for the purposes of inspecting the Collateral, including
Borrower's books and records, and Borrower shall permit Lender or its designee
to make such copies of such books and records or extracts therefrom as Lender
may request. Without expense to Lender, Lender may use such of Borrower's
personnel, equipment, including computer equipment, programs, printed output
and computer readable media, supplies and premises as Lender shall request for
the collection of accounts and realization on other Collateral. Borrower
hereby irrevocably authorizes all accountants and third parties, with the
exception of Borrower's attorneys with respect to information for which a
privilege is asserted, to disclose and deliver to Lender at Borrower's expense
all financial information, books and records, work papers, management reports
and other information in their possession regarding Borrower.
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5.10 Environmental Audits. From time to time, as
reasonably requested by Lender, at the sole expense of Borrower, Borrower shall
provide Lender, or its designee, complete access to all of Borrower's
facilities for the purpose of conducting an environmental audit of such
facilities as Lender or its designees may deem necessary. Borrower agrees to
cooperate with Lender with respect to any environmental audit conducted by
Lender or its designee pursuant to this Section 5.10.
5.11 Primary Rate. Xircom, Inc. and Primary Rate, Inc.
have jointly informed Lender that all accounts and inventory are initially
recorded on the books of Xircom, Inc. even though some of the accounts and
inventory belong to Primary Rate, Inc. Once each fiscal quarter, Xircom, Inc.
reflects the assets of Primary Rate, Inc. by shifting certain accounts on
Xircom, Inc.'s books and records and inventory to Primary Rate, Inc. In
addition to the foregoing, Lender is informed by Xircom, Inc. and Primary Rate,
Inc. that Xircom, Inc. pays the accounts payable and other obligations of
Primary Rate, Inc. Therefore, Lender's advances to Xircom, Inc. will be used,
in part, to pay the liabilities of Primary Rate, Inc. In connection with the
foregoing, Borrower agrees as follows:
(a) At the end of each fiscal quarter, Xircom,
Inc. will report to Lender in writing any reallocation of accounts or
inventory to Primary Rate, Inc. Lender reserves the right to
reallocate its loans to Primary Rate, Inc. based on such information.
(b) At the end of each fiscal quarter, Xircom,
Inc. will report to Lender in writing the amount of liabilities of
Primary Rate, Inc. paid by Xircom, Inc. during such fiscal quarter.
(c) Subject to Lender's right to reallocate loans
pursuant to Section 5.11(a), Borrower directs Lender to make all
advances to Xircom, Inc.
SECTION 6. ADDITIONAL REPRESENTATIONS, WARRANTIES AND COVENANTS
Borrower hereby represents, warrants and covenants to Lender
the following, the truth and accuracy of which, and compliance with which,
shall be continuing conditions of the making of loans or other credit
accommodations by Lender to Borrower:
6.1 Financial and Other Reports. Borrower shall keep and
maintain its books and records in a manner sufficient to permit the preparation
of financial statements, in accordance with generally accepted accounting
principles, consistently applied. Borrower shall, at its sole expense, deliver
to Lender (a) weekly, on or before Tuesday of each week, accurate and complete
perpetual inventory reports; (b) monthly, on or before the tenth (10th) day of
each month, accurate and complete accounts receivable and accounts and notes
payable agings and a monthly inventory report; (c) monthly, on or before the
twentieth (20th) day of
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each month, internally prepared interim financial statements and the "Top 11
Report" with supporting schedules for each of the top eleven account debtors
measured by volume of sales; (d) annually, as soon as available, but in no
event later than ninety (90) days after the end of Borrower's fiscal year,
audited financial statements of Borrower accompanied by the report and opinion
thereon of independent certified public accountants acceptable to Lender; and
(e) with such frequency as Lender shall reasonably request, cash flow
projections in a form reasonably acceptable to Lender. All of the foregoing
shall be in such form and together with such information with respect to the
business of Borrower or any guarantor, as Lender may in each case request.
Borrower shall also provide Lender, upon Lender's request, with accurate and
complete copies of any reports, forms or other documents prepared or delivered
by Borrower to any agency or authority pursuant to the requirements of any
governmental statutes, regulations or ordinances and, without the necessity of
Lender's request, copies of all filings with the Securities and Exchange
Commission.
6.2 Trade Names. Borrower may from time to time render
invoices to account debtors under its trade name(s) set forth in Section
10.6(f) after Lender has received prior written notice from Borrower of the use
of such trade name(s) and as to which, Borrower agrees that: (a) such trade
name does not refer to another corporation or other legal entity; (b) all
accounts and proceeds thereof (including any returned merchandise) invoiced
under any such trade names are owned exclusively by Borrower and are subject to
the security interest of Lender and the other terms of this Agreement; and (c)
all schedules of accounts and confirmatory assignments including any sales made
or services rendered using the trade name shall show Borrower's name as
assignor and Lender is authorized to receive, endorse and deposit to any loan
account of Borrower maintained by Lender all checks or other remittances made
payable to any trade name of Borrower representing payment with respect to such
sales or services.
6.3 Losses. Borrower shall promptly notify Lender in
writing of any loss, damage, investigation, action, suit, proceeding or claim
relating to a material portion of the Collateral or which may result in any
material adverse change in Borrower's business, assets, liabilities or
condition, financial or otherwise.
6.4 Books and Records. Borrower's books and records
concerning accounts and its chief executive office are and shall be maintained
only at the address set forth in Section 10.6(c). Borrower's only other places
of business and the only other locations of Collateral having an aggregate
value in excess of $50,000, if any, are and shall be the addresses set forth in
Sections 10.6(d) and 10.6(e) hereof, provided that Borrower may change such
locations or open a new place of business upon thirty (30) days' prior written
notice to Lender; provided that Borrower shall not be required to give any such
notice with respect to a location at which Collateral with a value of less than
$50,000 in the aggregate will be located. Prior to any change in location or
opening of any new place of business, Borrower shall execute and deliver or
cause to be executed and delivered to Lender such financing statements,
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financing documents and security and other agreements as Lender may reasonably
require, including, without limitation, those described in Section 6.14.
6.5 Title. Borrower has and at all times will continue
to have good and marketable title, free from defects, to all of the Collateral,
free and clear of all liens, security interests, claims or encumbrances of any
kind except in favor of Lender and except, if any, those set forth on Schedule
A hereto.
6.6 Disposition of Assets. Borrower shall not directly
or indirectly: (a) sell, lease, transfer, assign, abandon or otherwise dispose
of (each a "Transfer") any part of the Collateral or any material portion of
its other assets, other than (i) Transfers consisting of sales of inventory to
buyers in the ordinary course of business, (ii) Transfers consisting of sales
of worn-out or obsolete equipment in the ordinary course of business, (iii)
Transfers consisting of the disposal of furniture in connection with the
leasing of Borrower's previous headquarters facility, (iv) Transfers of
non-exclusive licenses and similar arrangements for the use of proprietary
rights of Borrower; (v) Transfers which constitute liquidation of cash
equivalent investments; (vi) Transfers from Borrower to its subsidiaries which
are permitted under Section 6.12 hereof, and (vii) other Transfers not
otherwise permitted by this Section 6.6 not exceeding $1,000,000 in the
aggregate in any fiscal year if written notice is given to Lender and the
proceeds are remitted to Lender in kind to Lender's lock box; or (b)
consolidate with or merge with or into any other entity, or permit any other
entity to consolidate with or merge with or into Borrower (except that any
existing subsidiary of Borrower may merge with and into Borrower so long as
Borrower is the surviving corporation); or (c) form or acquire any interest in
any firm, corporation or other entity.
6.7 Insurance. Borrower shall at all times maintain,
with financially sound and reputable insurers, casualty insurance with respect
to the Collateral and other assets. All such insurance policies shall be in
such form, substance, amounts and coverage as may be satisfactory to Lender and
shall provide for thirty (30) days' prior written notice to Lender of
cancellation or reduction of coverage. Borrower hereby irrevocably appoints
Lender and any designee of Lender as attorney-in-fact for Borrower to obtain
such insurance at Borrower's expense, if Borrower does not do so, and, after an
Event of Default, to adjust or settle any claim or other matter under or
arising pursuant to such insurance or to amend or replace such insurance.
Borrower shall deliver to Lender evidence of such insurance and a lender's loss
payable endorsement satisfactory to Lender as to all existing and future
insurance policies with respect to the Collateral. Borrower shall deliver to
Lender, in kind, all instruments representing proceeds of insurance received by
Borrower. Lender may apply any insurance proceeds received at any time to the
cost of repairs to or replacement of any portion of the Collateral and/or, at
Lender's option, to payment of or as security for any of the Obligations,
whether or not due, in any order or manner as Lender determines; provided,
however, that so long as no Event of Default has occurred and is continuing and
the loss is under $500,000, Lender shall disburse the proceeds of insurance for
casualty losses to Borrower to replace or repair the damaged or destroyed
items.
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6.8 Compliance With Laws. Borrower is and at all times
will continue to be in compliance with the requirements of all material laws,
rules, regulations and orders of any governmental authority relating to its
business (including laws, rules, regulations and orders relating to taxes,
payment and withholding of payroll taxes, employer and employee contributions
and similar items, securities, employee retirement and welfare benefits,
employee health and safety or environmental matters) and all material
agreements or other instruments binding on Borrower or its property. All of
Borrower's inventory shall be produced in accordance with the requirements of
the Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders related thereto. Borrower shall pay and discharge all
taxes, assessments and governmental charges against Borrower or any Collateral
prior to the date on which penalties are imposed or liens attach with respect
thereto, unless the same are being contested in good faith and, at Lender's
option in the exercise of Lender's reasonable credit judgment. Reserves are
established for the amount contested and penalties which may accrue thereon.
6.9 Accounts. With respect to each account deemed an
Eligible Account, except as reported in writing to Lender, Borrower has no
knowledge that any of the criteria for eligibility are not or are no longer
satisfied. As to each account, except as disclosed in writing to Lender prior
to or at the time such account arises (a) each is valid and legally enforceable
and represents an undisputed bona fide indebtedness incurred by the account
debtor for the sum reported to Lender; (b) each arises from an absolute and
unconditional sale of goods, without any right of return or consignment (except
for stock rotation or stock balancing rights), or from a completed rendition of
services; (c) each is not, at the time such account arises, subject to any
defense, offset, dispute, contra relationship, counterclaim, or any given or
claimed credit, allowance or discount, except as specified on the invoice; and
(d) all statements made and all unpaid balances and other information appearing
in the invoices, agreements, proofs of rendition of services and delivery of
goods and other documentation relating to the accounts, and all confirmatory
assignments, schedules, statements of account and books and records with
respect thereto, are true and correct and in all respects what they purport to
be; provided, that so long as Borrower promptly notifies Lender after
Borrower's knowledge thereof that an account no longer meets the criteria set
forth in the foregoing representations and warranties and the account is
removed from Borrower's Gross Availability, no Event of Default shall rise from
the falsity of these representations and warranties.
6.10 Equipment. With respect to Borrower's equipment,
Borrower shall keep the equipment in good order and repair, and in running and
marketable condition, except for obsolete or worn out equipment replaced in the
ordinary course of business.
6.11 Intentionally Deleted.
6.12 Affiliate Transactions. Borrower will not, directly
or indirectly: (a) lend or advance money or property to, guarantee or assume
indebtedness of, or invest (by capital contribution or otherwise) in any
person, firm, corporation or other entity (except for (i) advances in the
ordinary course of business to suppliers in respect of the purchase of
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supplies or equipment, (ii) endorsement of negotiable instruments for deposit
or collection in the ordinary course of business, (iii) investments in
obligations of the United States Government, deposit accounts, certificates of
deposit, commercial paper, money market funds or other permitted by Borrower's
investment policy which has been approved by the Board of Directors of Borrower
and Lender (which consent shall not be unreasonably withheld), (iv) investments
(including debt obligations) received in connection with the bankruptcy or
reorganization of customers or suppliers and in settlement of delinquent
obligations of, and other disputes with, customers or suppliers arising in the
ordinary course of business, (v) extensions of credit which arise as a result
of sales by Borrower to its subsidiaries to the extent that the sales do not
result in loans in excess of Gross Availability or any applicable sublimits,
(vi) investments in Primary Rate, Inc. and investments in other subsidiaries,
and (vii) other investments aggregating not in excess of $1,000,000 in any
fiscal year of Borrower; or (b) declare, pay or make any dividend or other
distribution on account of any shares of any class of stock of Borrower now or
hereafter outstanding except, if Borrower is an "S corporation" as defined in
the Internal Revenue Code of 1986, as amended, for dividends to shareholders in
an amount equal to their state and federal tax liabilities associated with such
status from time to time; or (c) except as set forth in any subordination
agreement between Lender and the applicable party or as otherwise permitted
herein, make any payment of the principal amount of or interest on any
indebtedness owing to any officer, director, shareholder or affiliate
(excluding any subsidiary) of Borrower; or (d) make any loans or advances to
any officer, director, employee, shareholder or affiliate of Borrower other
than travel and other advances and relocation and similar loans in the ordinary
course of business or any other loans not in the ordinary course of business in
an aggregate amount not to exceed $500,000 in any fiscal year of Borrower; or
(e) enter into any sale, lease or other transaction with any officer, director,
employee, shareholder or affiliate of Borrower on terms that are less favorable
to Borrower than those which might be obtained at the time from persons who are
not an officer, director, employee, shareholder or affiliate of Borrower (other
than loans to employees at below market interest rates which are otherwise
permitted under this Section 6.12).
6.13 Fees and Expenses. Borrower shall pay, on Lender's
demand, all costs, expenses, fees, filing fees and taxes payable in connection
with the preparation, execution, delivery, recording, administration (including
Lender's standard wire transfer and returned check fees as Lender shall, from
time to time, advise Borrower), collection, liquidation, enforcement and
defense of the Obligations, Lender's rights in the Collateral, this Agreement
and all other existing and future agreements or documents contemplated herein
or related hereto, including any amendments, waivers, supplements or consents
which may hereafter be made or entered into in respect hereof, or in any way
involving claims by or against Lender directly or indirectly arising out of or
related to the relationship between Borrower and Lender or any guarantor and
Lender, including, but not limited to, the following, whether incurred before,
during or after the initial or any renewal Term or after the commencement of
any case with respect to Borrower or any guarantor under the United States
Bankruptcy Code or any similar statute: (a) all costs and expenses of filing or
recording (including Uniform Commercial Code financing statement filing taxes
and fees, documentary taxes, intangibles taxes and mortgage recording taxes and
fees, if applicable); (b) all title insurance and other
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insurance premiums, appraisal fees, search fees and fees incurred in connection
with any environmental report, audit, survey, or remediation; (c) all fees as
then in effect relating to the wire transfer of loan proceeds and all other
funds and fees then in effect for returned checks and credit reports; (d) all
expenses and costs heretofore and from time to time hereafter incurred by
Lender during the course of periodic, field examinations of the Collateral and
Borrower's operations, plus a per diem charge at the then prevailing rate
(currently $650.00 per person per day, not to exceed $16,000 per year so long
as there is no Event of Default) for Lender's examiners in the field and
office; and (e) the reasonable costs, fees and disbursements of in-house and
outside counsel to Lender, including but not limited to such fees and
disbursements incurred as a result of litigation between the parties hereto,
any third party and in any appeals arising therefrom.
6.14 Further Assurances. At the request of Lender, at any
time and from time to time, at Borrower's sole expense, Borrower shall execute
and deliver or cause to be executed and delivered to Lender, such agreements,
documents and instruments, including waivers, consents and subordination
agreements from landlords, bailees, mortgagees or other holders of property of
Borrower or of loans due from Borrower or security interests or liens in the
Collateral, and do or cause to be done such further acts as Lender, in its
discretion, reasonably exercised, deems necessary or desirable to create,
preserve, perfect or validate any security interest of Lender or the priority
thereof in the Collateral and otherwise to effectuate the provisions and
purposes of this Agreement. Borrower hereby authorizes Lender to file
financing statements or amendments against Borrower in favor of Lender with
respect to the Collateral, without Borrower's signature and to file as
financing statements any carbon, photographic or other reproductions of this
Agreement or any financing statements signed by Borrower.
6.15 Inventory. At Borrower's expense (but no more often
than twice per year while no Event of Default is outstanding), Lender may
conduct appraisals of Borrower's inventory from time to time. If the
outstanding loan against Eligible Inventory exceeds 70% of the appraised
liquidation value of the Eligible Inventory, Borrower will pay the difference
thereof to Lender in three equal monthly installments.
6.16 Environmental Condition. None of Borrower's
properties or assets has ever been designated or identified in any manner
pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute. No lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by Borrower. Borrower has not received a summons, citation,
notice, or directive from the Environmental Protection Agency or any other
federal or state governmental agency concerning any action or omission by
Borrower resulting in the releasing, or otherwise disposing of hazardous waste
or hazardous substances into the environment. Borrower is in compliance in all
material respects with all statutes, regulations, ordinances and other legal
requirements pertaining to the production, storage, handling, treatment,
release, transportation or disposal of any hazardous waste or hazardous
substance.
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SECTION 7. EVENTS OF DEFAULT AND REMEDIES
7.1 Events of Default. All Obligations shall be
immediately due and payable, without notice or demand, and any provisions of
this Agreement as to future loans and credit accommodations by Lender shall
terminate automatically, upon the termination or non-renewal of this Agreement
or, at Lender's option, upon or at any time after the occurrence or existence
of any one or more of the following (each, an "Event of Default"):
(a) Borrower fails to pay when due any of the
Obligations;
(b) Borrower fails to perform, keep or observe
any covenant contained in Sections 6.1(a) or 6.1(b) within three (3)
Business Days, or in Sections 6.1(c), 6.1(d), 6.1(e), 6.3, 6.5, 6.7 or
6.8 within five (5) Business Days, in each case of the date that
Borrower is required to perform, keep or observe such
covenant;provided that such 3 and 5 Business Day cure periods, as
applicable, shall only be available to Borrower twice in any fiscal
year with respect to each covenant;
(c) Any representation, warranty or statement of
fact made by Borrower to Lender in this Agreement or any other
agreement, schedule, confirmatory assignment or otherwise, or to any
affiliate of Lender, shall prove inaccurate or misleading in any
material respect;
(d) Any guarantor or subordinated creditor of
Borrower revokes, terminates or fails to perform any of the material
terms of any guaranty, endorsement, subordination agreement or other
agreement of such party with or in favor of Lender or any affiliate of
Lender;
(e) Any judgment(s) in excess of $500,000 in the
aggregate or any injunction or attachment is obtained against Borrower
or any guarantor and is either enforced or remains unstayed for a
period of fifteen (15) days;
(f) Any guarantor which is a natural person dies,
or Borrower or any guarantor which is a partnership or corporation is
dissolved, or Borrower or any guarantor which is a corporation fails
to maintain its corporate existence in good standing, or the usual
business of Borrower or any guarantor ceases or is suspended;
(g) Borrower or any guarantor becomes insolvent,
makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a general meeting of its creditors
or principal creditors;
(h) Any petition or application for any relief
under the bankruptcy laws of the United States now or hereafter in
effect or under any insolvency, reorganization, receivership,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction now or hereafter in effect (whether at law or in equity)
is
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filed by or against Borrower or any guarantor and in the case of an
involuntary petition in bankruptcy, is not dismissed within thirty
(30) days from the date of the filing thereof;
(i) Any indictment of Borrower or any guarantor
occurs under any criminal statute, or criminal or civil proceedings
are commenced or threatened against Borrower or any guarantor,
pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any material portion of the
property of Borrower or any guarantor;
(j) Borrower shall enter into any business other
than that in which it is engaged as of the date hereof or businesses
related or incidental thereto; or
(k) Any default or event of default occurs on the
part of Borrower under any agreement, document or instrument to which
Borrower is a party or by which Borrower or any of its property is
bound, creating or relating to any indebtedness of Borrower to any
person or entity other than Lender in a principal amount exceeding
$250,000, if the effect of such default is to accelerate, or to permit
the acceleration of, the maturity of all or any part of such
indebtedness, or all or any part of any such indebtedness shall be
declared to be due and payable or required to be prepaid for any other
reason, in either event prior to the stated maturity thereof.
7.2 Remedies. Upon the occurrence of an Event of Default
and at any time thereafter, Lender shall have all the default rights and
remedies provided in this Agreement, any other agreements between Borrower and
Lender, the Uniform Commercial Code or other applicable law, all of which
rights and remedies may be exercised without notice to Borrower, all such
notices being hereby waived, except such notice as is expressly provided for
hereunder or is not waivable under applicable law. All rights and remedies of
Lender are cumulative and not exclusive and are enforceable, in Lender's
discretion, alternatively, successively or concurrently on any one or more
occasions and in any order Lender may determine. Without limiting the
foregoing, Lender may (a) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender; (b) with or without judicial process or
the aid or assistance of others, enter upon any premises on or in which any of
the Collateral may be located and take possession of the Collateral or complete
processing, manufacturing and repair of all or any portion of the Collateral;
(c) require Borrower, at Borrower's expense, to assemble and make available to
Lender any part or all of the Collateral at any place and time designated by
Lender; (d) collect, foreclose, receive, appropriate, set off and realize upon
any and all Collateral; (e) extend the time of payment of, compromise or settle
for cash, credit, return of merchandise, and upon any terms or conditions, any
and all accounts or other Collateral which includes a monetary obligation and
discharge or release the account debtor or other obligor, without affecting any
of the Obligations; and (f) sell, lease, transfer, assign, deliver or otherwise
dispose of any and all Collateral (including, without limitation, entering into
contracts with respect thereto, by public or private sales at any exchange,
broker's board, any office of Lender or elsewhere) at such prices or terms as
Lender may deem reasonable, for
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cash, upon credit or for future delivery, with the Lender having the right to
purchase the whole or any part of the Collateral at any such public sale, all
of the foregoing being free from any right or equity of redemption of Borrower,
which right or equity of redemption is hereby expressly waived and released by
Borrower. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days' prior notice by
Lender to Borrower designating the time and place of any public sale or the
time after which any private sale or other intended disposition of Collateral
is to be made shall be deemed to be reasonable notice thereof and Borrower
waives any other notice. If Lender institutes an action to recover any
Collateral or seeks recovery of any Collateral by way of prejudgment remedy,
Borrower waives the posting of any bond which might otherwise be required.
7.3 Application of Proceeds. Lender may apply the cash
proceeds of Collateral actually received by Lender from any sale, lease,
foreclosure or other disposition of the Collateral to payment of any of the
Obligations, in whole or in part (including reasonable attorneys' fees and
legal expenses incurred by Lender with respect thereto or otherwise chargeable
to Borrower) and in such order as Lender may elect, whether or not then due.
Borrower shall remain liable to Lender for the payment of any deficiency
together with interest at the highest rate provided for herein and all costs
and expenses of collection or enforcement, including reasonable attorneys' fees
and legal expenses.
7.4 Lender's Cure of Third Party Agreement Default.
Lender may, at its option, cure any default by Borrower under any agreement
with a third party or pay or bond on appeal any judgment entered against
Borrower, discharge taxes, liens, security interests or other encumbrances at
any time levied on or existing with respect to the Collateral and pay any
amount, incur any expense or perform any act which, in Lender's sole judgment,
is necessary or appropriate to preserve, protect, insure, maintain or realize
upon the Collateral. Lender may charge Borrower's loan account for any amounts
so expended, such amounts to be repayable by Borrower on demand. Lender shall
be under no obligation to effect such cure, payment, bonding or discharge, and
shall not, by doing so, be deemed to have assumed any obligation or liability
of Borrower.
SECTION 8. JURY TRIAL WAIVER; CERTAIN OTHER WAIVERS AND CONSENTS
8.1 Jury Trial Waiver. BORROWER AND LENDER EACH WAIVE
ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING INSTITUTED BY EITHER OF
THEM AGAINST THE OTHER WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT,
THE OBLIGATIONS, THE COLLATERAL, ANY ALLEGED TORTIOUS CONDUCT BY BORROWER OR
LENDER, OR, IN ANY WAY, DIRECTLY OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE
RELATIONSHIP BETWEEN BORROWER AND LENDER. IN NO EVENT WILL LENDER BE LIABLE
FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
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8.2 Counterclaims. Borrower waives all rights to
interpose any claims, deductions, setoffs or counterclaims of any kind, nature
or description in any action or proceeding instituted by Lender with respect to
this Agreement, the Obligations, the Collateral or any matter arising therefrom
or relating thereto, except compulsory counterclaims.
8.3 Jurisdiction. Borrower hereby irrevocably submits
and consents to the non-exclusive jurisdiction of the State and Federal Courts
located in the State of California and any other State where any Collateral is
located, with respect to any action or proceeding arising out of this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating thereto. In any such action or proceeding, Borrower waives personal
service of the summons and complaint or other process and papers therein and
agrees that the service thereof may be made by mail directed to Borrower at its
chief executive office set forth herein or other address thereof of which
Lender has received notice as provided herein or as otherwise permitted by law,
service to be deemed complete five (5) days after mailing return receipt
requested, or as permitted under the rules of either of said Courts. Any such
action or proceeding commenced by Borrower against Lender will be litigated
only in a federal court located in the Central District of California, or a
state court in the County of Los Angeles, California.
8.4 No Waiver by Lender. Lender shall not, by any act,
delay, omission or otherwise be deemed to have expressly or impliedly waived
any of its rights or remedies unless such waiver shall be in writing and signed
by an authorized officer of Lender. A waiver by Lender of any right or remedy
on any one occasion shall not be construed as a bar to or waiver of any such
right or remedy which Lender would otherwise have on any future occasion,
whether similar in kind or otherwise.
SECTION 9. TERM OF AGREEMENT; MISCELLANEOUS
9.1 Term. This Agreement shall only become effective
upon execution and delivery by Borrower and Lender and shall continue in full
force and effect for a term of one (1) year from the date hereof and shall be
deemed automatically renewed for successive terms of one (1) year thereafter
unless terminated as of the end of the initial or any renewal term (each a
"Term") by either party giving the other written notice at least sixty (60)
days prior to the end of the then-current Term.
9.2 Early Termination. Borrower may also terminate this
Agreement by giving Lender at least thirty (30) days' prior written notice at
any time upon payment in full of all of the Obligations as provided herein,
including the early termination fee provided below. Lender shall also have the
right to terminate this Agreement at any time upon or after the occurrence and
during the continuance of an Event of Default. If Lender terminates this
Agreement upon or after the occurrence of an Event of Default, or if Borrower
shall terminate this Agreement as permitted herein effective prior to the end
of the Initial Term, in addition to all other Obligations, Borrower shall pay
to Lender, upon the effective date of termination, in
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view of the impracticality and extreme difficulty of ascertaining actual
damages, an early termination fee equal to 3% of the Maximum Credit.
9.3 Additional Cash Collateral. Upon any termination of
this Agreement by Borrower as permitted herein, in addition to payment of all
Obligations which are not contingent, Borrower shall deposit such amount of
cash collateral as Lender reasonably determines is necessary to secure Lender
from loss, cost, damage or expense, including reasonable attorneys' fees, in
connection with any open Accommodations or remittance items or other payments
provisionally credited to the Obligations or with respect to which Lender has
not yet received final and indefeasible payment.
9.4 Notices. Except as otherwise provided, all notices,
requests and demands hereunder shall be (a) made to Lender at its address set
forth in Section 10.6(a) and to Borrower to the attention of Vice President
Finance with a copy to General Counsel, at its chief executive office set forth
in Section 10.6(c), or to such other address as either party may designate by
written notice to the other in accordance with this provision; and (b) deemed
to have been given or made: if by hand, immediately upon delivery; if by telex,
telegram or facsimile, immediately upon receipt; if by overnight delivery
service, one (1) day after dispatch; and if by first class or certified mail,
three (3) days after deposit in the U.S. Mail, postage prepaid and addressed as
set forth herein.
9.5 Severability. If any provision of this Agreement is
held to be invalid or unenforceable, such provision shall not affect this
Agreement as a whole, but this Agreement shall be construed as though it did
not contain the particular provision held to be invalid or unenforceable.
9.6 Entire Agreement; Amendments; Assignments. This
Agreement contains the entire agreement of the parties as to the subject matter
hereof, all prior commitments, proposals and negotiations concerning the
subject matter hereof being merged herein. Neither this Agreement nor any
provision hereof shall be amended, modified or discharged orally or by course
of conduct, but only by a written agreement signed by an authorized officer of
Lender. This Agreement shall be binding upon and inure to the benefit of each
of the parties hereto and their respective successors and assigns, except that
any obligation of Lender under this Agreement shall not be assignable or inure
to the successors and assigns of Borrower.
9.7 Discharge of Borrower. No termination of this
Agreement shall relieve or discharge Borrower of its obligations, grants of
Collateral, duties and covenants hereunder or otherwise until such time as all
Obligations to Lender have been indefeasibly paid and satisfied in full,
including, without limitation, the continuation and survival in full force and
effect of all security interests and liens of Lender in and upon all then
existing and thereafter-arising or acquired Collateral and all warranties and
waivers of Borrower.
22
<PAGE> 24
9.8 Usage. All terms used herein which are defined in
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement and all references to the singular or
plural herein shall also mean the plural or singular, respectively.
9.9 Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
9.10 Confidentiality. In handling any confidential
information of Borrower, Lender shall use reasonable care to maintain the
confidentiality of any non-public information thereby received or received
pursuant to this Agreement, except that disclosure of such information may be
made (i) to the subsidiaries or affiliates of Lender or to Lender's attorneys
or agents in connection with present or prospective business relations with
Borrower, (ii) to prospective transferees or purchasers of any interest of
Lender under this Agreement, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order; provided that Borrower is given notice; and
(iv) as may be required in connection with the examination, audit or similar
investigation of Lender. Notwithstanding any provision of this Agreement to
the contrary, prior to the occurrence of an Event of Default, Borrower will not
be required to disclose, permit the inspection, examination, copying or making
extracts of, or discussions of, any document, information or other matter (i)
that constitutes non-financial trade secrets or non-financial proprietary
information that does not constitute or relate to the Collateral, or (ii) in
respect to which disclosure to Lender (or designated representative) is then
prohibited by law.
SECTION 10. ADDITIONAL DEFINITIONS AND TERMS
10.1 (a) Maximum Credit: the lesser of $15,000,000
or (1) 33 1/3% plus
$2,000,000 from the date
hereof through December 31,
1995, (2) 33 1/3% plus
$1,000,000 from January 1,
1996 through March 31, 1996
and (3) 33 1/3% thereafter,
of the prior three months'
collections, to be
determined by Lender on a
monthly basis (aggregate for
both Borrowers)
23
<PAGE> 25
(b) Gross Availability Formulas:
Eligible Accounts Percentage: 75%(1)(subject
to a sublimit of
$250,000 against
progress-billed
Accounts)
Eligible Inventory
Percentages
Finished Goods: 40%; provided that
advances against
eligible finished
goods inventory
shall at no
time exceed 70% of
the appraised
orderly liquidation
value (as determined
by Lender) of the
eligible finished
goods inventory and
finished subassemblies
(top level assemblies).(2)
____________________
(1) So long as dilution does not exceed 15%. If dilution exceeds
15%, the advance percentage shall be reduced by 1% for each
percent of dilution in excess of 15%. For purposes of
determining dilution, Lender will make that determination based
on its audits but, in general, Lender will not include in the
computation of dilution accounts which were never Eligible
Accounts or any account to the extent a Reserve has been
established for that account.
(2) The Eligible Inventory Percentage shall be reduced to 20%
immediately upon any determination by Lender that Borrower has
recorded cumulative net losses, exclusive of non-cash, non-
recurring restructure charges, in excess of the following levels
for the given periods:
<TABLE>
<CAPTION>
Period Cumulative Net Loss
------ -------------------
<S> <C>
Quarter ended 12/31/95 $4,000,000
Quarter ended 03/31/96 4,000,000
Quarter ended 06/30/96 4,000,000
Quarter ended 09/30/96 4,000,000
</TABLE>
The Eligible Inventory Percentage will be increased to the
original 40% if the Cumulative Net Loss in a calendar quarter
subsequent to a reduction in the Eligible Inventory Percentage
meets
(continued...)
24
<PAGE> 26
(c) Inventory Sublimit: $4,500,000 (aggregate
for both Borrowers)
(d) Maximum days after Invoice
Date for Eligible Accounts: 90
10.2 Intentionally Deleted
10.3 Accommodations:
(a) Lender's Charge for
Accommodations: 1.25% over a 360-day
year
(b) Sublimit for Accommodations: $1,000,000 (aggregate
for both Borrowers)
10.4 Fees:
(a) Interest Rate: Prime Rate plus 1.25% over a 360-day
year
(b) Facility Fee: 1.0% of the Maximum
Credit (due only
at anniversary)
(c) Closing Fee: 1.0% of the Maximum
Credit
(d) Unused Line Fee: 0.25%; provided no
Unused Line Fee
will be payable so
long as Borrower
maintains a minimum
monthly average loan
of $2,500,000.
10.5 Intentionally Deleted.
10.6 (a) Lender's Office: 300 South Grand Avenue
Third Floor
Los Angeles, CA 90071
(b) Borrower: Xircom, Inc.
Primary Rate, Inc.
- ---------------
(2) (...continued)
the financial test above and no Event of Default has occurred and is continuing.
25
<PAGE> 27
(c) Borrower's Chief
Executive Office: 2300 Corporate Center Drive
Thousand Oaks, California 91320
(d) Locations of
Eligible Inventory
Collateral: See Schedule "B".
(e) Borrower's Other
Offices and
Locations of
Collateral: See Schedule "C".
(f) Borrower's Trade
Names for
Invoicing: See Schedule "D".
IN WITNESS WHEREOF, Borrower and Lender have duly executed
this Agreement this 8 day of November 1995.
LENDER: BORROWER:
- ------ --------
THE CIT GROUP/CREDIT XIRCOM, INC.
FINANCE, INC.
By: Thomas Hayes By: R. Holliday
---------------------------- ------------------------
Title: Vice President Title: Secretary
------------------------- ---------------------
PRIMARY RATE, INC.
By: R. Holliday
------------------------
Title: Secretary
---------------------
26
<PAGE> 28
SCHEDULE A
Permitted Liens
(a) Encumbrances consisting of easements, zoning restrictions, or other
restrictions on the use of real property or, imperfections to title to real
property that could not reasonably be expected to have a material adverse
effect on Borrower or its assets;
(b) Liens for taxes, assessments, or other governmental charges that are not
delinquent or which are being contested in good faith and for which adequate
Reserves have been established;
(c) Liens of mechanics, materialmen, warehousemen, carriers, landlords or
other similar statutory liens securing obligations that are not yet due and are
incurred in the ordinary course of business or which are being contested in
good faith and for which adequate Reserves have been established;
(d) Liens resulting from good faith deposits to secure payment of workmen's
compensation or other social security programs or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, contracts (other
than for payment of debt), or leases, all in the ordinary course of business;
(e) The following existing liens:
<TABLE>
<CAPTION>
Secured Party Filing No.
------------- ----------
<S> <C> <C>
1) LEASTEC CORPORATION 91-257180
2) LEASTEC INCOME FUND 85-1 91-269053
3) XEROX CORPORATION 91-257825
4) PITNEY BOWES CREDIT CORPORATION 92-002700
5) LEASTEC INCOME FUND III 92-024699
(*ASSIGNED TO FLEET CREDIT)
6) AMPLICON, INC. 92-045540
(*ASSIGNED TO CONCORD COMMERCIAL)
7) LEASTEC CORPORATION 92-071115
(*ASSIGNED TO FLEET CREDIT)
</TABLE>
A-1
<PAGE> 29
<TABLE>
<S> <C> <C>
8) BUSINESS CREDIT LEASING 92-153167
9) AMPLICON, INC. 91-240224
(*ASSIGNED TO CONCORD COMMERCIAL)
10) MASTER LEASE DIVISION OF TOKAI 91-149449
FINANCIAL
11) SIEMENS CREDIT CORPORATION 91-220146
12) SIEMENS CREDIT CORPORATION 91-220147
13) LEASTEC INCOME FUND III 91-257179
</TABLE>
(f) Liens arising from judgments, decrees or attachments not constituting an
Event of Default under Section 7 hereof and for which adequate Reserves have
been established;
(g) Liens which constitute rights of setoff of an ordinary nature or banker's
liens for amounts on deposit whether arising by operation of law or by contract
in connection with with arrangements with banks in the ordinary course of
business; and
(h) liens not to exceed in the aggregate $250,000 for the purchase or lease of
equipment.
A-2
<PAGE> 30
SCHEDULE B
Locations of Eligible Inventory Collateral
2300 Corporate Center Drive
Thousand Oaks, California 91320
10 Manor Parkway
Salem, New Hampshire 03079
B-1
<PAGE> 31
SCHEDULE C
Borrower's Other Offices and Locations of Collateral
2041 Landings Drive
Mountain View, California 94043
915 15th Street, N.W.
Washington, D.C. 20005
C-1
<PAGE> 32
SCHEDULE D
Borrower's Trade Names for Invoicing
PRI
Xircom Systems Division
Xircom ISDN Products Division
D-1
<PAGE> 1
PLEDGE AGREEMENT
EXHIBIT 10.29A
<PAGE> 2
PLEDGE AGREEMENT
This Pledge Agreement is entered into as of the 8 day of
November, 1995, by and between:
PLEDGOR: XIRCOM, INC.
AND
PLEDGEE: THE CIT GROUP / CREDIT FINANCE, INC.
1. Pledge of Collateral and Delivery of Pledged
Collateral.
1.1 Pledgor hereby pledges and assigns to Pledgee
and grants to Pledgee a security interest in all of the Collateral described in
Section 2 below, whether now owned or hereafter acquired, now or at any time
hereafter in the possession, custody or control of Pledgee or its agents,
whether held for safekeeping, in a safe deposit box, or otherwise
("Collateral") to secure prompt payment and full performance of the obligations
described in Section 3 below (collectively, "Obligations").
1.2 All certificates or instruments representing
or evidencing the Collateral shall be delivered to and held by or on behalf of
Pledgee pursuant hereto and shall be in suitable form for transfer by delivery,
or shall be accompanied by duly executed instruments of transfer or assignment
in blank, all in form and substance satisfactory to Pledgee. Pledgee shall
have the right, at any time, after an Event of Default (as defined herein), in
its reasonable discretion and without notice to Pledgor, to transfer to or to
register in the name of Pledgee or any of its nominees any or all of the
Collateral. In addition, Pledgee shall have the right at any time after and
during the continuance of an Event of Default, to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.
2. Collateral. The Collateral consists of the
following:
2.1 All the shares of the capital stock of
Primary Rate, Inc. (the "Company"), owned beneficially and of record by Pledgor
as listed on Schedule I attached hereto and made a part hereof, and all cash,
dividends, other securities, instruments, rights and other property at any time
and from time to time received or receivable in respect of the stock of the
Company or in exchange for all or any part thereof, including without
limitation, stock dividends, warrants, rights to subscribe, conversion rights,
liquidating dividends and other stock rights, and in the event Pledgor receives
any of the foregoing, Pledgor acknowledges that the same shall be received IN
TRUST for Pledgee and agrees immediately to deliver the same to Pledgee in
original form of receipt, together with any stock or bond powers, assignments,
endorsements or other documents or instruments as Pledgee may reasonably
<PAGE> 3
request to establish, protect or perfect Pledgee's interest in respect of such
Collateral; and
2.2 All other property hereafter delivered to
Pledgee (or any agent or bailee holding on behalf of Pledgee) by Pledgor in
substitution for or in addition to any of the foregoing, all certificates and
instruments representing or evidencing such other property and all cash,
dividends, other securities, instruments, rights and other property at any time
and from time to time received or receivable in respect thereof or in exchange
for all or any part thereof, including without limitation, stock dividends,
warrants, rights to subscribe, conversion rights, liquidating dividends and
other stock rights, and in the event Pledgor receives any of the foregoing,
Pledgor acknowledges that the same shall be received IN TRUST for Pledgee and
agrees immediately to deliver the same to Pledgee in original form of receipt,
together with any stock or bond powers, assignments, endorsements or other
documents or instruments as Pledgee may request to establish, protect or
perfect Pledgee's interest in respect of such Collateral; and
2.3 All proceeds of all of the foregoing.
3. Obligations. The Obligations secured under this
Pledge Agreement are:
3.1 (i) the obligations of Pledgor under that
certain Loan and Security Agreement ("Lending Agreement") of even date herewith
made by Pledgor in favor of Pledgee; and (ii) the obligations of Pledgor under
this Pledge Agreement, and all extensions, amendments, modifications and
renewals of any of the foregoing.
4. Representations and Warranties. Pledgor represents
and warrants on the date hereof, that:
4.1 Except as heretofore disclosed to Pledgee in
writing, Pledgor is the sole legal, beneficial and, if applicable, record owner
of the Collateral (or, in the case of after-acquired Collateral, will be the
sole such owner thereof), having good and marketable title thereto, free of all
liens, security interests, encumbrances or claims of any kind, except Permitted
Liens and liens in favor of Pledgee.
4.2 All information heretofore, herein or
hereafter given to Pledgee by or on behalf of Pledgor is complete, true and
correct.
4.3 All shares of stock constituting Collateral
(a) with respect to the Company have been duly and validly issued in compliance
with all applicable state and federal laws (including, without limitation, the
Securities Act of 1933, as amended (the "Securities Act")), (b) are fully paid,
nonassessable and free of preemptive rights, (c) are not subject to any
restrictions upon the voting rights or upon the transfer thereof other than as
may appear on the face of the certificates evidencing such Collateral, (d)
constitute all securities of the Companies owned beneficially and of record by
Pledgor and/or any of its affiliates and (e) include 100% of the issued and
outstanding shares of each class of voting stock of the Company;
2
<PAGE> 4
4.4 The fair saleable value of Pledgor's assets
exceeds Pledgor's liabilities, and Pledgor meets its debts as they mature;
4.5 There does not now exist and, after giving
effect to all transactions contemplated in connection herewith, there will not
exist any default, breach or violation under any material loan document,
corporate or partnership instrument or other instrument or regulation to which
Pledgor is a party or to which assets of Pledgor are subject or bound;
4.6 Pledgor represents that it is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or formation, and has all requisite power and authority and
necessary licenses to own and operate its properties and carry on its business,
and to enter into the transactions contemplated by this Pledge Agreement.
5. Covenants of Pledgor. Until the Obligations are paid
in full, Pledgor agrees to:
5.1 Preserve and protect the Collateral provided
that Pledgee acknowledges receipt of the stock certificates described on
Schedule I hereto;
5.2 Not create, incur, assume or permit to exist
any liens, encumbrances, security interests, levies, assessments or charges on
or in any of the Collateral, except those approved in writing by Pledgee and
Permitted Liens;
5.3 Promptly pay and discharge before the same
become delinquent all taxes, assessments and governmental charges or levies
imposed on any of the Collateral;
5.4 Not sell, encumber, or otherwise dispose of
or transfer any Collateral, or any right or interest therein and agrees that it
will (i) cause the Company not to issue any other voting stock in addition to
or in substitution for the Collateral, except to Pledgor, or in connection with
outstanding stock options or with the prior written consent of Pledgee and (ii)
pledge hereunder, immediately upon its acquisition (directly or indirectly)
thereof, any and all additional shares of stock or other securities of the
Companies;
5.5 Appear in and defend, at Pledgor's own
expense, any action or proceeding which may affect Pledgor's title to or
Pledgee's interest in the Collateral;
5.6 Procure or execute and deliver, from time to
time, in form and substance satisfactory to Pledgee, any stock powers, bond
powers, endorsements, assignments, financing statements, estoppel certificates
or other writings reasonably deemed necessary or appropriate by Pledgee to
perfect, maintain or protect Pledgee's security interest in the Collateral and
the priority thereof, and take such other action and deliver such other
documents, instruments and agreements pertaining to the Collateral as Pledgee
may request to effectuate the intent of this Pledge Agreement;
3
<PAGE> 5
5.7 Keep separate, accurate and complete records
of the Collateral and provide Pledgee with access thereto and the right to make
extracts therefrom;
5.8 Provide Pledgee with such other information
pertaining to the Collateral as Pledgee may reasonably request from time to
time; and
5.9 Maintain and preserve its corporate or other
legal existence and that of the Companies, and all rights, privileges,
franchises and other authority necessary for the conduct of their respective
businesses.
6. Authorized Action by Pledgee.
6.1 After the occurrence and during the
continuation of an Event of Default (as defined herein), Pledgor hereby
irrevocably appoints Pledgee as its attorney-in-fact to do (but Pledgee shall
not be obligated to and shall not incur any liability to Pledgor or any third
party for failure so to do) any act which Pledgor is obligated by this Pledge
Agreement to do, and to exercise such rights and powers as Pledgor might
exercise with respect to the Collateral, including, without limitation, the
right to:
6.1.1 collect by legal proceedings or
otherwise and endorse, receive and receipt for all payments, proceeds and other
sums and property now or hereafter payable on or in respect of proceeds and
other sums and property now or hereafter payable on or in respect of the
Collateral, including dividends and interest payments;
6.1.2 enter into any extension,
reorganization, deposit, merger or consolidation agreement or other agreement
pertaining to the Collateral, and in connection therewith may deposit or
surrender control of the Collateral thereunder, accept other property in
exchange therefor, and do and perform such acts and things as it may deem
proper, and any money or property secured in exchange therefor shall be applied
to the Obligations or held by Pledgee pursuant to the provisions of this Pledge
Agreement;
6.1.3 protect and preserve the
Collateral;
6.1.4 to the extent permitted by law,
transfer the Collateral to its own or its nominee's name; and
6.1.5 make any compromise, settlement
or adjustment, and take any action it deems advisable, with respect to the
Collateral.
6.2 Any reasonable costs and expenses, including
reasonable attorneys' fees, Pledgee may incur while acting as Pledgor's
attorney-in-fact hereunder are included in the Obligations secured hereby. It
is further agreed and understood between the parties hereto that such care as
Pledgee gives to the safekeeping of its own property of like kind shall
constitute reasonable care of the Collateral when in Pledgee's possession;
provided, however, that Pledgee shall not be required to make any presentment,
demand or protest, or give any notice and need not take any action to preserve
any rights against any
4
<PAGE> 6
prior party or any other person in connection with the Obligations or with
respect to the Collateral.
6.3 All the foregoing powers authorized herein,
being coupled with an interest, are irrevocable so long as any Obligations are
outstanding.
7. Transfer, Voting, Dividends, Etc.
7.1 Notwithstanding any other provision hereof,
so long as no Event of Default (as defined herein) shall have occurred and be
continuing:
7.1.1 Pledgor shall be entitled to
exercise all voting powers pertaining to all shares of stock and other
securities constituting Collateral for all purposes not inconsistent with the
terms of this Pledge Agreement;
7.1.2 Pledgor shall be entitled to
receive and retain all dividends (other than stock or liquidating dividends)
and all interest payments payable in respect of the Collateral; provided,
however, that all stock or property representing stock or liquidating dividends
or a distribution or return of capital upon or in respect of the shares of
stock constituting Collateral or resulting from a split-up, revision or
reclassification of such Collateral or received in exchange therefor, as a
result of a merger, consolidation or otherwise, shall be paid or transferred
directly to Pledgee immediately upon receipt thereof by Pledgor, and shall be
retained by Pledgee as Collateral hereunder; and
7.1.3 in order to permit Pledgor to
exercise such voting powers and to receive such dividends Pledgee shall, if
necessary, upon the written request of Pledgor, from time to time, execute and
deliver to Pledgor appropriate proxies.
7.2 If any Event of Default (as defined herein)
shall have occurred and while the same is continuing:
7.2.1 Pledgee, or its nominee or
nominees, shall, at its option, have the sole and exclusive right to exercise
all voting powers pertaining to the shares of stock constituting Collateral,
and shall exercise such powers in such manner as Pledgee may elect, and Pledgor
hereby grants Pledgee an irrevocable proxy, coupled with an interest to vote
such shares of stock; provided, however, that such proxy shall terminate upon
termination of Pledgee's security interest therein; and
7.2.2 All dividends and other
distributions made upon or in respect of shares of stock constituting
Collateral and all interest payments shall be paid directly to and shall be
retained by Pledgee as Collateral hereunder.
8. Default and Remedies.
8.1 The occurrence of any Event of Default under
and as defined in the Lending Agreement but subject to cure periods, if
applicable, set forth therein (herein
5
<PAGE> 7
"Events of Default") shall, at the option of Pledgee and without notice to or
demand on Pledgor, constitute an Event of Default hereunder.
8.2 Upon the occurrence of any Event of Default,
Pledgee may, at its option, without notice to or demand on Pledgor, declare all
Obligations immediately due and payable, and Pledgee shall have all the default
rights and remedies of a secured party (other than the right to any deficiency)
under Chapter 5 of Division 9 of the California Uniform Commercial Code and
other applicable law as well as the right to sell or otherwise dispose of the
Collateral, or any part thereof, either at public or private sale, on any
broker's board or securities exchange, in lots or in bulk, for cash, on credit
or otherwise, with or without representations or warranties, and upon such
terms as shall be acceptable to Pledgee, all of which rights and remedies may
be exercised with or without further notice to Pledgor, at Pledgee's sole
option and as Pledgee in its sole discretion may deem advisable.
8.3 The net cash proceeds resulting from the
collection, liquidation, sale, or other disposition of the Collateral shall be
applied first, to the reasonable expenses (including reasonable all attorneys'
fees) of holding, storing, preparing for sale, selling, collecting, liquidating
and the like, including any brokerage commissions and stamp or transfer taxes,
and then to the satisfaction of all Obligations secured hereby, application as
to any particular obligation or indebtedness or against principal or interest
to be in Pledgee's absolute discretion.
8.4 If by reason of any prohibition contained in
the Securities Act of 1933, as now or hereafter in effect, or applicable in
California or other State securities laws, as now or hereafter in effect, or in
any rules or regulations pertaining to any of the foregoing laws, Pledgee in
good faith reasonably believes it is compelled to resort to one or more private
sales of shares of stock constituting Collateral to a single purchaser or a
restricted group of purchasers who will be obliged to agree, among other
things, to acquire such securities for their own account, for investment and
not with a view to the distribution or resale thereof, Pledgor acknowledges and
agrees that private sales of such Collateral may be held notwithstanding that
such sales may be at prices and on other terms less favorable to Pledgor than
if such Collateral were sold at public sale. Pledgor further agrees that
Pledgee has no obligation to delay the sale of any such Collateral for the
period of time necessary to permit registration of the Collateral, even if the
issuer thereof would, or should, agree to register such Collateral for public
sale under applicable securities laws. Pledgor specifically agrees that
private sales made under the foregoing circumstances shall be deemed to have
been made in a "commercially reasonable" manner.
9. Duty of Pledgee. Pledgee shall not be under any duty
or obligation whatsoever to collect any dividends, interest or other payments
due or accruing in respect of the Collateral or to take any action to preserve
rights in connection with any Collateral, including, without limitation, making
or giving any presentment, demands for performance, notices of non-performance,
protests, notices of protest or notices of dishonor in connection with any
Collateral.
6
<PAGE> 8
10. Cumulative Rights. The rights, powers and remedies
of Pledgee under this Pledge Agreement shall be in addition to all rights,
powers and remedies given to Pledgee under any statute or rule of law, this
Pledge Agreement or any other agreement, all of which rights, powers and
remedies shall be cumulative and may be exercised successively or concurrently.
11. Waiver. Any forbearance, failure or delay by Pledgee
in exercising any right, power or remedy shall not preclude the further
exercise thereof, and every right, power or remedy of Pledgee shall continue in
full force and effect until such right, power or remedy is specifically waived
in a writing executed by Pledgee. Pledgor waives any right to require Pledgee
to proceed against any person or to exhaust any Collateral or to pursue any
remedy in Pledgee's power prior to pursuing Pledgor in respect of the
Obligations.
12. Setoff. Pledgor agrees that Pledgee may exercise its
rights of setoff with respect to the Obligations in the same manner as if the
Obligations were unsecured.
13. Binding Upon Successors. All rights of Pledgee under
this Pledge Agreement shall inure to the benefit of its successors and assigns,
and all obligations of Pledgor shall bind the representatives, executors,
administrators, heirs, successors and assigns of the Pledgor.
14. Remedies Independent. If any default should be made
in the payment of any Obligations, or in the terms and conditions of any
security held therefor, Pledgee is hereby expressly given the right at its
option to proceed in the enforcement of this Pledge Agreement, independently of
any other remedy or security Pledgee may at any time hold in connection with
the Obligations, and it shall not be necessary for Pledgee to proceed upon or
against, and/or exhaust any other security or remedy, whether against any
security, obligor or guarantor, before proceeding to enforce this Pledge
Agreement.
15. Entire Agreement; Severability. This Pledge
Agreement contains the entire pledge agreement between Pledgee and Pledgor with
respect to the Collateral. If any of the provisions of this Pledge Agreement
shall be held invalid or unenforceable, this Pledge Agreement shall be
construed as if not containing those provisions and the rights and obligations
of the parties hereto shall be construed and enforced accordingly.
16. Return; Acquittance. Pledgee may at any time deliver
any Collateral to Pledgor and the receipt thereof by Pledgor shall be a
complete and full acquittance in respect of the Collateral so delivered, and
Pledgee shall thereafter be discharged from any liability or responsibility
therefor.
17. References. The singular includes the plural. If
more than one debtor executes this Pledge Agreement, the term Pledgor shall be
deemed to refer to each of the undersigned as well as to all of them, and the
Collateral and the Obligations shall include the separate and joint Collateral
and Obligations of each of the undersigned. All obligations and agreements
hereunder shall be joint and several. The captions or titles of the sections
of this
7
<PAGE> 9
Pledge Agreement are for convenience of reference only and shall not define or
limit the provisions hereof.
18. Choice of Law. This Pledge Agreement shall be
construed in accordance with and governed by the laws of the State of
California, and, where applicable and except as otherwise defined herein, terms
used herein shall have the meanings given them in the California Uniform
Commercial Code. Pledgor irrevocably and unconditionally submits to the
jurisdiction of the Courts of the State of California or of the United States
located in the County of Los Angeles, in connection with any legal action or
proceeding arising out of or relating to this Pledge Agreement, and Pledgor
waives any objection relating to the basis for personal or in rem jurisdiction
or to venue which it may now or hereafter have in any such suit, action or
proceeding.
19. Jury Trial. PLEDGOR AND PLEDGEE WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND
ARISING OUT OF OR RELATED TO ANY OF THE OBLIGATIONS HEREIN OR TO THIS PLEDGE
AGREEMENT.
20. Notice. Any written notice, consent or other
communication provided for in this Pledge Agreement shall be delivered or sent
by first-class mail, with postage prepaid, to the party to be notified, to the
mailing address stated below. Such addresses may be changed by written notice
as provided herein.
21. Expenses. Pledgor will reimburse Pledgee for all
reasonable out-of-pocket expenses incurred by Pledgee arising out of the
enforcement of this Agreement, including without limitation, reasonable
attorneys' fees and costs whether or not suit is filed.
8
<PAGE> 10
22. Indemnification. Pledgor agrees to pay, and on
demand to indemnify and hold harmless, Pledgee, its successors, assigns, agents
and servants, from and against any and all claims, damages, losses,
liabilities, demands, suits, judgments, causes of action and all legal
proceedings, whether civil or criminal, penalties, fines and other sanctions,
and any costs and expenses incurred in connection therewith, including
reasonable attorneys' fees, which may result from, relate to or arise out of
this Pledge Agreement or any Collateral, including the ownership, purchase,
delivery, acceptance or rejection, use, possession or disposition of any item
of Collateral, but not including any claims arising out of the gross negligence
or willful misconduct of Pledgee or its agents and servants.
PLEDGEE: THE CIT GROUP / CREDIT PLEDGOR: XIRCOM, INC.
FINANCE, INC.
By: Thomas Hayes By: R. Holliday
----------------------------- ------------------------------
Its: Vice President Its: Secretary
----------------------------- ------------------------------
PLEDGEE'S ADDRESS FOR NOTICES: PLEDGOR'S ADDRESS FOR NOTICES:
300 South Grand Avenue 2300 Corporate Center Drive
3rd Floor Thousand Oaks, California 91320
Los Angeles, California 90071 Attention: Vice President - Finance
Attention: Manager with copy to General Counsel
Telecopy: (213) 613-2537 Telecopy: (805) 376-9120
9
<PAGE> 11
SCHEDULE I
<TABLE>
<CAPTION>
Class of Stock No. of Shares
-------------- -------------
<S> <C>
Common 100
</TABLE>
<PAGE> 1
SECURED CONTINUING CORPORATE GUARANTY
EXHIBIT 10.29B
<PAGE> 2
SECURED CONTINUING CORPORATE GUARANTY
FOR VALUE RECEIVED, and in consideration of any loan or other
financial accommodation heretofore or hereafter at any time made or granted to
Primary Rate, Inc. ("Borrower"), by The CIT Group/Credit Finance, Inc.
("Lender"), the undersigned, Xircom, Inc. ("Guarantor"), hereby agrees as
follows:
1. Guaranty of Obligations. Guarantor unconditionally,
absolutely and irrevocably guarantees the full and prompt payment and
performance when due, whether by acceleration or otherwise, and at all times
thereafter, of all obligations of Borrower to Lender, howsoever created,
arising or evidenced, whether direct or indirect, absolute or contingent, or
now or hereafter existing or due or to become due, including, without
limitation, under or in connection with that certain Loan and Security
Agreement dated as of November ___, 1995, between Borrower and Lender, and each
of the documents, instruments and agreements executed and delivered in
connection therewith, as each may be modified, amended, supplemented or
replaced from time to time (all such obligations are herein referred to,
collectively, as the "Liabilities", and all documents evidencing or securing
any of the Liabilities are herein referred to, collectively, as the "Loan
Documents"). This Secured Continuing Corporate Guaranty (this "Continuing
Guaranty") is a guaranty of payment and performance when due and not of
collection.
In the event of any default by Borrower in making payment of,
or default by Borrower in performance of, any of the Liabilities, Guarantor
agrees on demand by Lender to pay and perform all of the Liabilities as are
then or thereafter become due and owing or are to be performed under the terms
of the Loan Documents. Guarantor further agrees to pay all expenses
(including reasonable attorneys' fees and expenses) paid or incurred by Lender
in endeavoring to collect the Liabilities, or any part thereof, and in
enforcing this Continuing Guaranty.
2. Security for Continuing Guaranty. This Continuing
Guaranty is secured by that certain Loan and Security Agreement of even date
herewith among Guarantor, Borrower and Lender (the "Security Document").
3. Continuing Nature of Guaranty and Liabilities. This
Continuing Guaranty shall be continuing and shall not be discharged, impaired
or affected by:
a. the insolvency of Borrower or the payment in
full of all of the Liabilities at any time or from time to time;
b. the power or authority or lack thereof of
Borrower to incur the Liabilities;
<PAGE> 3
c. the validity or invalidity of any of the Loan
Documents or the documents securing the same;
d. the existence or non-existence of Borrower as
a legal entity;
e. any transfer by Borrower of all or any part
of any collateral in which Lender has been granted a lien or security
interest pursuant to the Loan Documents;
f. any statute of limitations affecting the
liability of Guarantor under this Continuing Guaranty or the Loan
Documents or the ability of Lender to enforce this Continuing Guaranty
or any provision of the Loan Documents or the Security Document; or
g. any right of offset, counterclaim or defense
of Guarantor, including, without limitation, those which have been
waived by Guarantor pursuant to Paragraph 7 hereof.
4. Insolvency of Borrower or Guarantor. Without
limiting the generality of any other provision hereof, Guarantor agrees that,
in the event of the dissolution or insolvency of Borrower or Guarantor or the
inability of Borrower or Guarantor to pay their respective debts as they
mature, or an assignment by Borrower or Guarantor for the benefit of creditors,
or the institution of any proceeding by or against Borrower or Guarantor
alleging that Borrower or Guarantor is insolvent or unable to pay their
respective debts as they mature, Guarantor will pay to Lender forthwith the
full amount which would be payable hereunder by Guarantor if all of the
Liabilities were then due and payable, whether or not such event occurs at a
time when any of the Liabilities are otherwise due and payable.
5. Payment of the Liabilities. Any amounts received by
Lender from whatever source on account of the Liabilities may be applied by
Lender toward the payment of such of the Liabilities, and in such order of
application, as Lender may from time to time elect, and notwithstanding any
payments made by or for the account of Guarantor pursuant to this Continuing
Guaranty.
Guarantor agrees that, if at any time all or any part of any
payment theretofore applied by Lender to any of the Liabilities is or must be
rescinded or returned by Lender for any reason whatsoever (including, without
limitation, the insolvency, bankruptcy or reorganization of Borrower), such
Liabilities shall, for the purposes of this Continuing Guaranty and to the
extent that such payment is or must be rescinded or returned, be deemed to have
continued in existence notwithstanding such application by Lender, and this
Continuing Guaranty shall continue to be effective or be reinstated, as the
case may be, as to such Liabilities, all as though such application by Lender
had not been made.
6. Permitted Actions of Lender. Lender may from time to
time, in its sole discretion and without notice to Guarantor, take any or all
of the following actions:
2
<PAGE> 4
a. retain or obtain a security interest in any
assets of Borrower or any third party to secure any of the Liabilities
or any obligations of Guarantor hereunder;
b. retain or obtain the primary or secondary
obligation of any obligor or obligors, in addition to Guarantor, with
respect to any of the Liabilities;
c. extend or renew for one or more periods
(whether or not longer than the original period), alter or exchange
any of the Liabilities;
d. waive, ignore or forbear from taking action
or otherwise exercising any of its default rights or remedies with
respect to any default by Borrower under the Loan Documents;
e. release, waive or compromise any obligation
of Guarantor hereunder or any obligation of any nature of any other
obligor primarily or secondarily obligated with respect to any of the
Liabilities;
f. release its security interest in, or
surrender, release or permit any substitution or exchange for, all or
any part of any collateral now or hereafter securing any of the
Liabilities or any obligation hereunder, or extend or renew for one or
more periods (whether or not longer than the original period) or
release, waive, compromise, alter or exchange any obligations of any
nature of any obligor with respect to any such property; and
g. demand payment or performance of any of the
Liabilities from Guarantor at any time or from time to time, whether
or not Lender shall have exercised any of its rights or remedies with
respect to any property securing any of the Liabilities or any
obligation hereunder, or proceeded against any other obligor primarily
or secondarily liable for payment or performance of any of the
Liabilities.
7. Specific Waivers. Without limiting the generality
of any other provision of this Continuing Guaranty, Guarantor hereby expressly
waives:
a. notice of the acceptance by Lender of this
Continuing Guaranty;
b. notice of the existence, creation, payment,
nonpayment, performance or nonperformance of all or any of the
Liabilities;
c. presentment, demand, notice of dishonor,
protest, notice of protest and all other notices whatsoever with
respect to the payment or performance of the Liabilities or the amount
thereof or any payment or performance by Guarantor hereunder;
3
<PAGE> 5
d. all diligence in collection or protection of
or realization upon the Liabilities or any thereof, any obligation
hereunder or any security for or guaranty of any of the foregoing;
e. any right to direct or affect the manner or
timing of Lender's enforcement of its rights or remedies;
f. any and all defenses which would otherwise
arise upon the occurrence of any event or contingency described in
Paragraph 1 hereof or upon the taking of any action by Lender
permitted hereunder;
g. any defense, right of set-off, claim or
counterclaim whatsoever and any and all other rights, benefits,
protections and other defenses available to Guarantor now or at any
time hereafter, including, without limitation, under California Civil
Code Sections 2787 to 2855, inclusive, and California Code of Civil
Procedure Sections 580a, 580b, 580d or 726, and all successor
sections; and
h. all other principles or provisions of law, if
any, that conflict with the terms of this Continuing Guaranty,
including, without limitation, the effect of any circumstances that
may or might constitute a legal or equitable discharge of a guarantor
or surety.
8. Irrevocability. Guarantor hereby further waives all
rights to revoke this Continuing Guaranty at any time, and all rights to revoke
any agreement executed by Guarantor at any time to secure the payment and
performance of Guarantor's obligations under this Continuing Guaranty,
including, without limitation, the Security Document.
9. Statutory Waiver of Rights and Defenses Regarding
Election of Remedies. Guarantor waives all rights and defenses arising out of
an election of remedies by Lender, even though that election of remedies, such
as a nonjudicial foreclosure with respect to security for a guaranteed
obligation, has destroyed Guarantor's rights of subrogation and reimbursement
against Borrower by the operation of Section 580d of the California Code of
Civil Procedure or otherwise.
10. Subordination. Guarantor hereby subordinates any and
all indebtedness of Borrower to Guarantor to the full and prompt payment and
performance of all of the Liabilities. Guarantor agrees that Lender shall be
entitled to receive payment of all Liabilities prior to Guarantor's receipt of
payment of any amount of any indebtedness of Borrower to Guarantor. Any
payments on such indebtedness to Guarantor, if Lender so requests, shall be
collected, enforced and received by Guarantor, in trust, as trustee for Lender
and shall be paid over to Lender on account of the Liabilities, but without
reducing or affecting in any manner the liability of Guarantor under the other
provisions of this Guaranty. Lender is authorized and empowered, but not
obligated, in its discretion, (a) in the name of Guarantor, to collect and
enforce, and to submit claims in respect of, indebtedness of Borrower to
Guarantor and to apply any amounts received thereon to the
4
<PAGE> 6
Liabilities, and (b) to require Guarantor (i) to collect and enforce, and to
submit claims in respect of, any indebtedness of Borrower to Guarantor, and
(ii) to pay any amounts received on such indebtedness to Lender for application
to the Liabilities.
11. Subrogation. Guarantor will not exercise any rights
which it may acquire by way of subrogation under this Continuing Guaranty, by
any payment hereunder or otherwise, until all of the Liabilities have been paid
in full, in cash, and Lender shall have no further obligations to Borrowers
under the Loan Documents or otherwise. If any amount shall be paid to
Guarantor on account of such subrogation rights at any other time, such amount
shall be held in trust for the benefit of Lender and shall be forthwith paid to
Lender to be credited and applied to the Liabilities, whether matured or
unmatured, in such manner as Lender shall determine in its sole discretion.
12. Assignment of Lender's Rights. Lender may, from time
to time, without notice to Guarantor, assign or transfer any or all of the
Liabilities or any interest therein and, notwithstanding any such assignment or
transfer of the Liabilities or any subsequent assignment or transfer thereof,
the Liabilities shall be and remain the Liabilities for the purpose of this
Continuing Guaranty. Each and every immediate and successive assignee or
transferee of any of the Liabilities or of any interest therein shall, to the
extent of such party's interest in the Liabilities, be entitled to the benefits
of this Continuing Guaranty to the same extent as if such assignee or
transferee were Lender; provided, however, that unless Lender shall otherwise
consent in writing, Lender shall have an unimpaired right, prior and superior
to that of any such assignee or transferee, to enforce this Continuing Guaranty
for its own benefit as to those of the Liabilities which Lender has not
assigned or transferred.
13. Indulgences Not Waivers. No delay in the exercise of
any right or remedy shall operate as a waiver thereof, and no single or partial
exercise by Lender of any right or remedy shall preclude other or further
exercise thereof or the exercise of any other right or remedy; nor shall any
modification or waiver of any of the provisions of this Continuing Guaranty be
binding upon Lender, except as expressly set forth in a writing duly signed and
delivered by Lender. No action of Lender permitted hereunder shall in any way
affect or impair the rights of Lender or the obligations of Guarantor under
this Continuing Guaranty.
14. Financial Condition of Borrower. Guarantor
represents and warrants that it is fully aware of the financial condition of
Borrower, and Guarantor delivers this Continuing Guaranty based solely upon its
own independent investigation of Borrower's financial condition and in no part
upon any representation or statement of Lender with respect thereto. Guarantor
further represents and warrants that it is in a position to and hereby does
assume full responsibility for obtaining such additional information concerning
Borrower's financial condition as Guarantor may deem material to its
obligations hereunder, and Guarantor is not relying upon, nor expecting Lender
to furnish it any information in Lender's possession concerning Borrower's
financial condition or concerning any
5
<PAGE> 7
circumstances bearing on the existence or creation, or the risk of nonpayment
or nonperformance of the Liabilities.
Guarantor hereby waives any duty on the part of Lender to
disclose to Guarantor any facts it may now or hereafter know about Borrower,
regardless of whether Lender has reason to believe that any such facts
materially increase the risk beyond that which Guarantor intends to assume, or
has reason to believe that such facts are unknown to Guarantor.
Guarantor hereby knowingly accepts the full range of risk
encompassed within a contract of "Continuing Guaranty" which includes, without
limitation, the possibility that Borrower will contract for additional
indebtedness for which Guarantor may be liable hereunder after Borrower's
financial condition or ability to pay its lawful debts when they fall due has
deteriorated.
15. Representations and Warranties. Guarantor represents
and warrants to Lender that each of the following statements is accurate and
complete as of the date of this Continuing Guaranty:
a. Guarantor is a corporation duly organized,
validly, existing and in good standing under the laws of its state of
incorporation and is duly qualified and in good standing in each
jurisdiction where the nature of its business or properties requires
such qualification, except where the failure to qualify could not have
a material adverse effect on the condition (financial or otherwise),
business, operations, properties or prospects of Guarantor (a
"Material Adverse Effect");
b. the execution, delivery and performance by
Guarantor of this Continuing Guaranty are within the power of
Guarantor and have been duly authorized by all necessary actions on
the part of Guarantor or its shareholders;
c. this Continuing Guaranty has been duly
executed and delivered by Guarantor and constitutes a legal, valid and
binding obligation of Guarantor, enforceable against Guarantor in
accordance with its terms, except as limited by bankruptcy, insolvency
or other laws of general application relating to or affecting the
enforcement of creditors' rights generally;
d. the execution, delivery and performance of
this Continuing Guaranty do not (i) violate any provisions of law or
any order of any court or other agency of government (each, a
"Requirement of Law"), (ii) contravene any provision of Guarantor's
Articles or Certificate of Incorporation, Bylaws or any material
contract or agreement to which Guarantor is a party or by which
Guarantor or Guarantor's assets are bound (each, a "Contractual
Obligation"), or (iii) result in the creation or imposition of any
lien, charge or encumbrance of any nature upon any property, asset or
revenue of Guarantor except pursuant to or as set forth in the
Security Document;
6
<PAGE> 8
e. all consents, approvals, orders and
authorizations of, and registrations, declarations and filings with,
any governmental agency or authority or other person or entity
(including, without limitation, the shareholders or partners of any
entity), if any, which are required to be obtained in connection with
the execution and delivery of this Continuing Guaranty or the
performance of Guarantor's obligations hereunder have been obtained,
and each is in full force and effect;
f. Guarantor has paid all taxes and other
charges imposed by any governmental agency or authority due and
payable by Guarantor other than those which are being challenged in
good faith by appropriate proceedings and for which adequate reserves
have been established;
g. Guarantor is not in violation of any
Requirement of Law or Contractual Obligation other than any violation
the consequences of which could not have a Material Adverse Effect;
and
h. Guarantor is neither an investment company
(as defined in the Investment Company Act of 1940) nor controlled by
an investment company; and
i. no action, proceeding, investigation or
litigation is pending or, to the knowledge of Guarantor, overtly
threatened against Guarantor which, if adversely determined, could
have a Material Adverse Effect.
16. Guarantor Financial Information. Guarantor will
provide Lender in writing such financial and other information with respect to
Guarantor's assets and liabilities as Lender shall reasonably request from time
to time, in form satisfactory to Lender.
17. Binding Upon Successors. This Continuing Guaranty
shall be binding upon Guarantor and Guarantor's successors and assigns and
shall inure to the benefit of Lender and its successors and assigns. All
references herein to Borrower shall be deemed to include its successors and
assigns, and all references herein to Guarantor shall be deemed to include
Guarantor and Guarantor's successors and assigns.
In addition and notwithstanding anything to the contrary
contained in this Continuing Guaranty or in any other document, instrument or
agreement between or among any of Lender, Borrower, Guarantor or any third
party, the obligations of Guarantor with respect to the Liabilities shall be
joint and several with any other person or entity that now or hereafter
executes a guaranty of any of the Liabilities separate from this Continuing
Guaranty.
18. Notices. All notices required or permitted to be
given hereunder shall be in writing and shall be either personally delivered,
transmitted by facsimile to the facsimile numbers provided herein or sent by
United States certified or registered mail, return receipt requested, addressed
to Guarantor or Lender at their respective addresses stated below or at such
other address as either party hereafter notifies the other party as
7
<PAGE> 9
herein provided. Notices shall be deemed received on the earlier of (i) the
date noted on the return receipt as delivered if mail delivery of the notice is
successful or the date inscribed on a confirmation of successful transmission,
if sent by facsimile; (ii) the last date of attempted delivery, as noted by the
United States Postal Service on the envelope containing the notice, if mail
delivery is unsuccessful; or (iii) the date of the actual delivery if
personally delivered.
19. Governing Law; Additional Waivers. This Continuing
Guaranty has been delivered and shall be governed by and construed in
accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of California.
GUARANTOR HEREBY
(i) WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION TO
ENFORCE OR DEFEND ANY MATTER ARISING FROM OR RELATED TO THIS
CONTINUING GUARANTY, AND ACKNOWLEDGES THAT LENDER ALSO WAIVES SUCH
RIGHT;
(ii) IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY STATE OR
FEDERAL COURT LOCATED IN LOS ANGELES COUNTY, CALIFORNIA, OVER ANY
ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS CONTINUING GUARANTY;
(iii) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT GUARANTOR MAY
EFFECTIVELY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF ANY SUCH ACTION OR PROCEEDING;
(iv) agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in any other
jurisdictions by suit on the judgment or in any other manner provided
by law; and
(v) agrees not to institute any legal action or proceeding
against Lender or any of Lender's directors, officers, employees,
agents or property concerning any matter arising out of or relating to
this Continuing Guaranty in any court other than one located in Los
Angeles County, California.
Nothing herein shall affect or impair Lender's right to serve
legal process in any manner permitted by law or Lender's right to bring any
action or proceeding against Guarantor or its property in the courts of any
other jurisdiction. Wherever possible each provision of this Continuing
Guaranty shall be interpreted as to be effective and valid under applicable
law, but if any provision of this Continuing Guaranty shall be prohibited by or
invalid under such law, such provision shall be ineffective only to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Continuing Guaranty.
8
<PAGE> 10
20. ADVICE OF COUNSEL. GUARANTOR ACKNOWLEDGES THAT IT
HAS EITHER OBTAINED THE ADVICE OF COUNSEL OR HAS HAD THE OPPORTUNITY TO OBTAIN
SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF THIS CONTINUING
GUARANTY.
21. Entire Agreement. This Continuing Guaranty contains
the complete understanding of the parties hereto with respect to the subject
matter herein. Guarantor acknowledges that it is not relying upon any
statements or representations of Lender not contained in this Continuing
Guaranty and that such statements or representations, if any, are of no force
or effect and are fully superseded by this Continuing Guaranty. This
Continuing Guaranty may only be modified by a writing executed by Guarantor and
Lender.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
9
<PAGE> 11
IN WITNESS WHEREOF, Guarantor has caused this Continuing
Guaranty to be duly executed as of this 8 day of November, 1995.
"Guarantor"
Xircom, Inc.
By: R. Holliday
----------------------------------
Title: Secretary
Guarantor's address for notices:
Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, CA 91320-1420
Lender's address for notices:
The CIT Group/Credit Finance, Inc.
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Facsimile: 213/613-2537
10
<PAGE> 1
PATENT SECURITY AGREEMENT
EXHIBIT 10.29C
<PAGE> 2
PATENT SECURITY AGREEMENT
THIS PATENT SECURITY AGREEMENT ("Security Agreement"), dated
as of November ___, 1995, is executed by XIRCOM, INC., a California corporation
("Grantor"), in favor of THE CIT GROUP/CREDIT FINANCE, INC. ("Lender").
RECITALS
A. Pursuant to a Loan and Security Agreement of even
date herewith (the "Loan Agreement"), between Grantor and Lender, Lender has
extended or agreed to extend certain credit facilities to Grantor upon the
terms and subject to the conditions set forth therein.
B. Lender's obligation to extend or continue to extend
the credit facilities to Grantor under the Loan Agreement is subject, among
other conditions, to receipt by Lender of this Security Agreement duly executed
by Grantor.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Grantor hereby agrees with Lender as follows:
1. Definitions and Interpretation. When used in this
Security Agreement, the following terms shall have the following respective
meanings:
"Affiliate" shall mean any person or entity
controlling, controlled by or under common control with another person
or entity.
"Collateral" shall have the meaning given to that
term in Paragraph 2 hereof.
"Obligations" shall mean and include all loans,
advances, debts, liabilities and obligations, howsoever arising, owed
by Grantor to Lender of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment
of money), direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising pursuant to the terms of
the Loan Agreement or any of the other Loan Documents, including
without limitation all interest, fees, charges, expenses, attorneys'
fees and accountants' fees chargeable to and payable by Grantor
hereunder and thereunder.
<PAGE> 3
"Patent and Trademark Office" shall mean the United
States Patent and Trademark Office or any successor office or agency
thereto.
"Patent Applications" means and refers to all
applications made by, or on behalf of, the Company to the Patent and
Trademark Office or to any similar office or agency of any foreign
country or political subdivision thereof for the registration of a
Patent.
"Patent Registrations" means and refers to all
Patents registered with the Patent and Trademark Office or with any
similar office or agency of any foreign country or political
subdivision and all Patent Applications.
"Patents" shall have the meaning given to that term
in Attachment I hereto.
"UCC" shall mean the Uniform Commercial Code as in
effect in the State of California from time to time.
Unless otherwise defined herein, all other capitalized terms used herein and
defined in the Loan Agreement shall have the respective meanings given to those
terms in the Loan Agreement, and all terms defined in the UCC shall have the
respective meanings given to those terms in the UCC.
2. Grant of Security Interest. As security for the
Obligations, Grantor hereby pledges, mortgages and grants to Lender a security
interest in the property described in Attachment I annexed hereto (collectively
and severally, the "Collateral"), which Attachment I is incorporated herein by
this reference.
3. Representations and Warranties. Grantor represents
and warrants to Lender that:
(a) Grantor is the owner of the Collateral (or,
in the case of after-acquired Collateral, at the time Grantor acquires
rights in the Collateral, will be the owner thereof) and that no other
Person has (or, in the case of after-acquired Collateral, at the time
Grantor acquires rights therein, will have) any right, title, claim or
interest (by way of Lien or otherwise) in, against or to the
Collateral;
(b) Lender has (or in the case of after-acquired
Collateral, at the time Grantor acquires rights therein, will have) a
first priority perfected security interest in the Collateral;
(c) Grantor has full corporate power and
authority to grant the security interest herein granted, and the
execution and delivery of this Security Agreement by Grantor and the
performance of its obligations hereunder,
2
<PAGE> 4
have been duly authorized by all necessary corporate action on the
part of Grantor;
(d) Grantor does not own any Patents registered
in, or the subject of pending applications in, the Patent and
Trademark Office or any similar offices or agencies in any other
country or any political subdivision thereof, other than those
described inSchedule A or Schedule B to Attachment I hereto;
(e) Grantor has the sole and full right, title
and interest in and to each of the Patents shown on Schedule A to
Attachment , unencumbered except as set forth in Schedule C to
Attachment I, and the registrations thereof are valid and enforceable
and in full force and effect, and none of the Patents has been
abandoned or dedicated;
(f) There is no claim by any third party that any
Patents are invalid or unenforceable or do or may violate the rights
of any Person;
(g) All licenses of Patents which Grantor has
granted to any Person are set forth in Schedule C to Attachment I
hereto;
(h) All licenses of Patents which any Person has
granted to Grantor are set forth in Schedule D to Attachment I hereto;
and
(i) Grantor has obtained from each employee who
may be considered the inventor of patentable inventions (invented
within the scope of such employee's employment) an assignment to
Grantor of all rights to such inventions, including, without
limitation, Patents.
4. Covenants of Grantor. Grantor hereby agrees:
(a) Grantor shall perform all acts and execute
all documents, including, without limitation, Grants of Security
Interest substantially in the form of Attachment II annexed hereto,
that may be necessary or desirable to record, maintain, preserve,
protect and perfect Lender's interest in the Collateral, the Lien
granted to Lender in the Collateral and the first priority of such
Lien;
(b) Except to the extent that Lender shall give
its prior written consent,
(i) Grantor shall not do any act, or omit to
do any act whereby the Patent Registrations may become
abandoned or dedicated or the remedies available against
potential infringers weakened and shall notify Lender
immediately if it knows of any reason or has reason to know
that any application or registration may become abandoned or
dedicated;
3
<PAGE> 5
(ii) Grantor shall not assign, sell,
mortgage, lease, transfer, pledge, hypothecate, grant a
security interest in or Lien upon, encumber, grant an
exclusive or non-exclusive license, or otherwise dispose of
any of the Collateral, and nothing in this Security Agreement
shall be deemed a consent by Lender to any such action except
as expressly permitted herein;
(c) Grantor shall promptly pay Lender for any and
all sums, costs, and expenses which the Lender may pay or incur
pursuant to the provisions of this Security Agreement or in enforcing
the Obligations, the Collateral or the security interest granted
hereunder, including, without limitation, all filing or recording
fees, court costs, collection charges, travel, and reasonable
attorneys' fees and expenses, all of which together with interest at
the highest rate then payable on the Obligations shall be part of the
Obligations and be payable on demand;
(d) Grantor shall promptly notify Lender upon the
filing, either by Grantor or through any agent, employee, licensee or
designee of Grantor, of (i) an application for the registration of any
Patent with the Patent and Trademark Office or any similar office or
agency in any other country or any political subdivision thereof or
(ii) any assignment to Grantor of any patent, which Grantor may
acquire from a third party, with the Patent and Trademark Office or
any similar office or agency in any other country or any political
subdivision thereof. Upon the request of Lender, Grantor shall
execute and deliver any and all documents, instruments and agreements
as Lender may request to evidence Lender's security interest in such
Patent, and Grantor authorizes Lender to amend an original counterpart
of the notice of security interest executed pursuant toSubparagraph
4(a) of this Security Agreement without first obtaining Grantor's
approval of or signature to such amendment and to record such security
interest with the Patent and Trademark Office;
(e) Grantor shall keep the Collateral free of all
Liens, except in favor of Lender;
(f) Grantor shall take all necessary steps in any
proceeding before the Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision
thereof, to diligently prosecute or maintain, as applicable, each
application and registration of the Patents;
(g) So long as any of the Obligations are
outstanding, Grantor shall make application to the Patent and
Trademark Office to register any material unpatented but patentable
inventions developed by Grantor or its employees (within the scope of
their employment), unless Grantor, in
4
<PAGE> 6
the exercise of its prudent business judgment, deems any such Patent
not to have any significant commercial value or determines that its
rights thereunder are better preserved as a trade secret;
(h) Grantor shall use proper statutory notice in
connection with its use of the Patents;
(i) Grantor shall at all times keep at least one
complete set of its records concerning the Collateral at its chief
executive office and shall make such records available for inspection
by Lender at such times as Lender may reasonably request.
5. Authorized Action by Lender.
(a) Lender may, in its sole discretion, pay any
amount or do any act required of Grantor hereunder or requested by
Lender to preserve, defend, protect, maintain, record or enforce
Grantor's obligations contained herein, the Obligations, the
Collateral, or the right, title and interest granted Lender by this
Security Agreement, and which Grantor fails to do or pay, and any such
payment shall be deemed an advance by Lender to Grantor and shall be
payable on demand together with interest at the highest rate then
payable on the Obligations. Lender will promptly notify Grantor of
any payment by Lender referred to in this Section 5(a).
(b) Grantor agrees to execute and deliver to
Lender three originals of a Special Power of Attorney in substantially
the form ofAttachment III to this Agreement for the implementation of
the recording, giving of notice, preservation, assignment, sale or
other disposal of the Collateral pursuant toParagraph 2 and
Subparagraphs 5(a) and 7(a).
6. Litigation and Other Proceedings
(a) Grantor shall have the obligation to commence
and diligently prosecute such suits, proceedings or other actions for
infringement or other damage, or reexamination or reissue proceedings,
or opposition or cancellation proceedings as are reasonable, in
Grantor's exercise of its prudent business judgement, to protect any
of the Patents. No such suit, proceeding or other actions shall be
settled or voluntarily dismissed, nor shall any party be released or
excused of any claims of or liability for infringement, without the
prior written consent of Lender, which consent shall not be
unreasonably withheld.
(b) Upon the occurrence and during the
continuation of an Event of Default, Lender shall have the right but
not the obligation to bring suit or institute proceedings in the name
of Grantor or Lender to enforce any
5
<PAGE> 7
rights in the Collateral, including any license thereunder, in which
event Grantor shall at the request of Lender do any and all lawful
acts and execute any and all documents required by Lender in aid of
such enforcement. If Lender elects not to bring suit to enforce any
right under the Collateral, including any license thereunder, Grantor
agrees to use all reasonable measures, whether by suit, proceeding or
other action, to prevent the infringement of any right under the
Collateral by any Person and for that purpose agrees to diligently
maintain any action, suit or proceeding against any Person so
infringing necessary to prevent such infringement.
7. Default and Remedies.
(a) Grantor shall be deemed in default under this
Security Agreement upon the occurrence of an Event of Default. Upon
the occurrence and during the continuation of any such Event of
Default, Lender may, at its option, and (except if otherwise specified
below) without notice to or demand on Grantor, and in addition to all
rights and remedies available to Lender under the Loan Agreement or
the other Loan Documents, do any one or more of the following:
(i) upon ten (10) Business days' prior notice
to Grantor, direct Grantor not to make any further use of the
Patents for any purpose;
(ii) at any time and from time to time, upon
ten (10) Business days' prior notice to Grantor, license,
whether general, special or otherwise, and whether on an
exclusive or nonexclusive basis, any of the Patents,
throughout the world for such term or terms, on such
conditions, and in such manner, as Lender shall in its sole
discretion determine;
(iii) at any time and from time to time, enforce
(and upon notice to Grantor have the exclusive right to
enforce) against any licensee or sublicensee all rights and
remedies of Grantor in, to and under any one or more license
agreements with respect to the Collateral (without assuming
any obligations or liability thereunder), and take or refrain
from taking any action under any thereof;
(iv) at any time and from time to time, upon
ten (10) Business days' prior notice to Grantor, assign, sell,
or otherwise dispose of, the Collateral or any of it, either
with or without special or other conditions or stipulations,
with power to buy the Collateral or any part of it, and with
power also to execute assurances, and do all other acts and
things for completing the assignment, sale or disposition
which Lender shall, in its sole discretion, deem appropriate
or proper;
6
<PAGE> 8
(v) in addition to the foregoing, in order to
implement the assignment, sale or other disposal of any of the
Collateral pursuant to clause (a)(iv) hereof, Lender may, at
any time, pursuant to the authority granted in the Power of
Attorney executed pursuant to Subparagraph 5(b) hereof,
execute and deliver on behalf of Grantor, one or more
instruments of assignment of the Patents, in form suitable for
filing, recording or registration in any country; and
(vi) in furtherance of Lender's rights hereunder,
Grantor hereby grants to Lender an irrevocable, non-exclusive
license (exercisable without royalty or other payment by
Lender) to use, license or sublicense any Patent or other
intellectual property in which Debtor now or hereafter has any
right, title or interest, together with the right of access to
all media in which any of the foregoing may be recorded or
stored.
(b) Grantor agrees to pay when due all reasonable
costs incurred in any such transfer of the Patents, including, without
limitation, any taxes, fees and reasonable attorneys' fees and
expenses, and all such costs shall be added to the Obligations.
Lender may apply the proceeds actually received from any such license,
assignment, sale or other disposition to the reasonable costs and
expenses thereof, including, without limitation, reasonable attorneys'
fees and all legal, travel and other expenses which may be incurred by
Lender, and then to the Obligations, in such order as to principal or
interest as Lender may desire; and Grantor shall remain liable and
will pay Lender on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on
the Obligations and the balance of any expenses unpaid. Nothing
herein contained shall be construed as requiring Lender to take any
such action at any time. In the event of any such license,
assignment, sale or other disposition of the Collateral, or any of it,
after the occurrence or continuation as hereinabove provided of an
Event of Default, Grantor shall supply its know-how and expertise
relating to the manufacture and sale of the products bearing or in
connection with which the Patents are used, and its consumer or
customer lists and other records relating to the Patents and to the
distribution of products or the provisions of services, to Lender or
its designee.
(c) In furtherance of Lender's rights hereunder, Grantor
hereby grants to Lender an irrevocable, non-exclusive license
(exercisable without royalty or other payment by Lender) to use,
license or sublicense any Patent in which Grantor now or hereafter has
any right, title or interest together with the right of access to all
media in which any Patent may be recorded or stored. Such license
shall be exercisable only upon the occurrence and during the
continuation of an Event of Default.
7
<PAGE> 9
8. Indemnification and Release.
(a) Grantor assumes all responsibility and
liability arising from the use of the Patents, and Grantor hereby
indemnifies and holds Lender and its directors, officers, employees,
agents and any of their respective Affiliates ("Indemnitees") harmless
from and against any claim, suit, loss, damage or expense (including,
without limitation, reasonable attorneys' fees and expenses) arising
out of or in connection with any alleged infringement of any patent or
alleged defect in any product manufactured, promoted or sold by
Grantor (or any Affiliate of Grantor) in connection with any Patent or
out of the manufacture, promotion, labeling, sale or advertisement of
any product or service by Grantor (or any Affiliate of Grantor).
Grantor agrees that Lender does not assume, and shall have no
responsibility for, the payment of any sums due or to become due under
any agreement or contract included in the Collateral or the
performance of any obligations to be performed under or with respect
to any such agreement or contract by Grantor, and Grantor hereby
agrees to indemnify and hold each Indemnitee harmless with respect to
any and all claims by any Person relating thereto.
(b) Grantor agrees to indemnify and hold each
Indemnitee harmless and against any claim, suit, loss, damage or
expense (including, without limitation, reasonable attorneys' fees and
expenses) arising out of or in connection with any action taken or
omitted to be taken by Lender pursuant toclause 7(a)(iii) hereof
with respect to any license agreement of Grantor.
(c) Grantor agrees to indemnify and hold each
Indemnitee harmless from and against any claim, suit, loss, damage or
expense (including, without limitation, reasonable attorneys' fees and
expenses) arising out of or in connection with (i) any claim, suit or
proceeding instituted by Grantor or (ii) any action taken or omitted
to be taken by Lender pursuant to Subparagraph 6(b).
(d) Grantor hereby releases from any claims,
causes of action and demands at any time arising out of or with
respect to any actions taken or omitted to be taken by the Indemnitees
under the powers of attorney granted under the Special Power of
Attorney executed pursuant toSubparagraph 5(b) herein, other than
actions taken or omitted to be taken through the willful misconduct of
such Indemnitees.
(e) Grantor agrees to cause Lender to be named as
an additional insured with respect to any policy of insurance held by
Grantor from time to time covering product liability or intellectual
property infringement risk.
8
<PAGE> 10
9. Miscellaneous.
(a) Notices. Except as otherwise provided
herein, all notices, requests, demands or other communications to or
upon Lender or Grantor hereunder shall be addressed to Lender or
Grantor at the respective addresses indicated below or at such other
address as Lender or Grantor may designate by written notice to the
other party, and shall be deemed to have been given (i) in the case of
notice by letter, three (3) days after deposited in the mails
registered and return receipt requested, or (ii) in the case of notice
given by telecommunication, when sent with appropriate confirmation
received:
Lender: The CIT Group/Credit Finance, Inc.
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attention: Grace Kim Bowen, Esq.
Telephone: (213) 613-2511
Telecopy: (213) 613-2537
Grantor: Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Attention: General Counsel
Telephone: (805) 376-6910
Telecopy: (805) 376-9120
(b) Nonwaiver. No failure or delay on Lender's
part in exercising any right hereunder shall operate as a waiver
thereof or of any other right nor shall any single or partial exercise
of any such right preclude any other further exercise thereof or of
any other right.
(c) Amendments and Waivers. Except with respect
to action by the Lender pursuant to Subparagraph 4(d), this Security
Agreement may not be amended or modified, nor may any of its terms be
waived, except by written instruments signed by Grantor and Lender as
required by the Loan Agreement. Each waiver or consent under any
provision hereof shall be effective only in the specific instances and
for the purpose for which given.
(d) Assignments. This Security Agreement shall
be binding upon and inure to the benefit of Lender and Grantor and
their respective successors and assigns; provided, however, that
Grantor and Lender may sell, assign and delegate their respective
rights and obligations hereunder only as permitted by the Loan
Agreement.
(e) Cumulative Rights, etc. The rights, powers
and remedies of Lender under this Security Agreement shall be in
addition to all rights, powers and remedies given to
9
<PAGE> 11
Lender by virtue of any applicable law, rule or regulation of any
governmental authority, the Loan Agreement, any other Loan Document or
any other agreement, all of which rights, powers, and remedies shall
be cumulative and may be exercised successively or concurrently
without impairing Lender's rights hereunder. Grantor waives any right
to require Lender to proceed against any Person or to exhaust any
Collateral or to pursue any remedy in Lender's power.
(f) Payments Free of Taxes, Etc. All payments
made by Grantor under this Security Agreement shall be made by Grantor
free and clear of and without deduction for any and all present and
future taxes, levies, charges, deductions and withholdings. In
addition, Grantor shall pay upon demand any stamp or other taxes,
levies or charges of any jurisdiction with respect to the execution,
delivery, registration, performance and enforcement of this Security
Agreement. Upon request by Lender, Grantor shall furnish evidence
satisfactory to Lender that all requisite authorizations and approvals
by, and notices to and filings with, governmental authorities and
regulatory bodies have been obtained and made and that all requisite
taxes, levies and charges have been paid.
(g) Partial Invalidity. If at any time any
provision of this Security Agreement is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction,
neither the legality, validity or enforceability of the remaining
provisions of this Security Agreement nor the legality, validity or
enforceability of such provision under the law of any other
jurisdiction shall in any way be affected or impaired thereby.
(h) Governing Law. This Security Agreement shall
be governed by and construed in accordance with the laws of the State
of California without reference to conflicts of law rules.
(i) Submission to Jurisdiction. Grantor hereby
irrevocably and unconditionally:
(i) Submits for itself and its property in
any legal action or proceeding relating to this Security
Agreement, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive jurisdiction of the
courts located in Los Angeles County, California and consents
and agrees to suit being brought in such courts as Lender may
elect;
(ii) Waives any objection that it may now or
hereafter have to the venue of any such action or proceeding
in any such court or that such proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
10
<PAGE> 12
(iii) Agrees as an alternate means of service
of process in any such legal action or proceeding to service
by mailing of copies thereof (by registered or certified mail,
if practicable) postage prepaid, to the then active agent or
to Grantor at its address set forth in Subparagraph 9(a)
hereof or at such other address of which Lender shall have
been notified pursuant thereto, and agrees that failure to
receive such copy or notice shall not affect or impair the
validity of such service or of any judgment rendered in any
action or proceeding based thereon; and
(iv) Agrees that nothing herein shall
affect Lender's right to effect service of process in any
other manner permitted by law, and that Lender shall have the
right to bring any legal proceedings (including a proceeding
for enforcement of a judgment entered by any of the
aforementioned courts) against Grantor in such courts or in
any other court or jurisdiction in accordance with applicable
law.
(j) Jury Trial. EACH OF GRANTOR AND LENDER, AND
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
11
<PAGE> 13
IN WITNESS WHEREOF, Grantor and Lender have caused this
Security Agreement to be executed as of the day and year first above written.
XIRCOM, INC.
By: R. Holliday
-------------------------------
Name: Randall H. Holliday
-------------------------
Title: Secretary
------------------------
THE CIT GROUP/CREDIT FINANCE, INC.
By: Thomas Hayes
------------------------------
Name: Thomas Hayes
------------------------
Title: Vice President
-----------------------
12
<PAGE> 14
ATTACHMENT I
TO PATENT SECURITY AGREEMENT
(a) All patentable inventions, patent rights, shop
rights, letters patent of the United States or any other country, all right,
title and interest therein and thereto, and all registrations and recordings
thereof, now or hereafter in effect, including, without limitation, (i) all
Patent Applications, Patent Registrations and recordings in the Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof or any other country or political subdivision thereof, all
whether now owned or hereafter acquired by Grantor, including, but not limited
to, those described in Schedules A and B to this Attachment I annexed hereto,
which Schedules A and B are incorporated herein by this reference, and (ii) all
reissues, continuations, continuations-in-part or extensions thereof and all
licenses thereof (collectively, the "Patents"); and
(b) All proceeds of the foregoing (including, without
limitation, whatever is receivable or received when Collateral or proceeds is
sold, collected, exchanged, licensed or otherwise disposed of, whether such
disposition is voluntary or involuntary, including rights to payment and return
premiums and insurance proceeds under insurance with respect to any Collateral,
and all rights to payment with respect to any cause of action affecting or
relating to the Collateral).
I-1
<PAGE> 15
SCHEDULE A TO ATTACHMENT I
TO PATENT SECURITY AGREEMENT
PATENTS
<TABLE>
<CAPTION>
Title Number Date
----- ------ ----
<S> <C> <C>
1) ADAPTER FOR CONNECT- D336,467 6-15-93
ING AN ELECTRONIC
COMPUTER TO A LOCAL
AREA NETWORK
2) NETWORK ADAPTER FOR USE 5,299,314 3-29-94
WITH STANDARD PC
PARALLEL PORT
3) PARALLEL PORT MULTI- D339,116 9-7-93
PLEXOR FOR USE WITH
A COMPUTER
4) PARALLEL PORT MULTI- 5,276,443 1-4-94
PLEXOR FOR PC PARAL-
LEL PORT
5) MODEM ADAPTER FOR USE 5,408,614 4-18-95
WITH STANDARD PC PARAL-
LEL PORT
</TABLE>
I-2
<PAGE> 16
SCHEDULE B TO ATTACHMENT I
TO PATENT SECURITY AGREEMENT
PATENT APPLICATIONS
<TABLE>
<CAPTION>
Title Ser. Number Filing Date
----- ----------- -----------
<S> <C> <C>
1. Virtual Carrier 08/082,313 06/25/93
Detection for
Wireless Local
Area Network
1a. Divisional App- 08/439,083 05/11/95
lication of
above
2a. Divisional App- 08/440,436 05/12/95
lication of
above
3a. Divisional App- 08/439,563 05/11/95
lication of
above
4a. Divisional App- 08/439,337 05/11/95
lication of
above
2. Modem Adapter 08/308,601 09/19/94
Having Shared
Memory Interface
</TABLE>
I-3
<PAGE> 17
SCHEDULE C TO ATTACHMENT I
TO PATENT SECURITY AGREEMENT
LICENSES GRANTED BY GRANTOR TO THIRD PARTIES
Various nonexclusive licenses have been granted to third parties
payments for which, in the aggregate, do not exceed $70,000.00 per year.
The forgoing include the following:
<TABLE>
<CAPTION>
Licensee Date of License Subject
- -------- --------------- -------
<S> <C> <C>
1. Accton Technology 09/30/94 Nonexclusive rights
Corporation to Parallel Port
Network Adapter
Patent (U.S. Patent
No. 5,299,314)
2. D-Link Systems 09/28/94 Nonexclusive rights
to Parallel Port
Network Adapter
Patent (U.S. Patent
No. 5,299,314)
3. Advanced Micro 02/23/94 Nonexclusive rights
Devises, Inc. to broad range of
Wireless LAN tech-
nology, to include
rights under U.S.
Patent Application
08/082,213, and re-
lated divisional
applications
4. NEC Corporation 11/22/94 Nonexclusive rights
as supplemented to broad range of
by agreement Wireless LAN tech-
March 14, 1995 nology, to include
rights under U.S.
Patent Application
08/082,213 and
related divisional
applications
</TABLE>
[I]C-1
<PAGE> 18
SCHEDULE D TO ATTACHMENT I
TO PATENT SECURITY AGREEMENT
LICENSES GRANTED BY THIRD PARTIES TO GRANTOR
<TABLE>
<CAPTION>
Licensor Date of License Subject
- -------- --------------- -------
<S> <C> <C>
1. Aladdin Systems, Inc. 7/14/95 "InstallerMaker"
software
2. AT&T 2/16/94 AT&T "ETC"
software
3. British Tele- 8/3/93 V.42bis modems,
communications, Inc. Patent No.
5,153,591
4. Control Alt Design 8/31/93 "Tractor Grip"
U.S. Patent No.
5,098,312
5. Delrina Corporation 6/27/95 "WinFax LITE"
software
6. IBM 4/1/93 V.42bis modems,
U.S. Patent No.
4,814,746
7. Madge 9/7/90 Software license
used in Token
Ring adapters
8. Shiva Corporation 6/12/95 "Shiva PPP"
software license
9. SPCO Management, Inc. 6/1/92 2.4ghz frequency
hopping radio
design for wire-
less LAN adapter
10. Symbionics 10/27/94 Wireless LAN
adapter radio
design
11. Unisys Corporation 8/13/93 V.42bis modems,
U.S. Patent No.
4,558,302
12. Willemjin 12/1/89 Token Ring adap-
ter technology,
U.S. Patent No.
31,852 (Reissue)
</TABLE>
[I]D-1
<PAGE> 19
ATTACHMENT II TO PATENT SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
(PATENTS)
THIS GRANT OF SECURITY INTEREST, dated as of November ___,
1995, is executed by XIRCOM, INC., a California corporation ("Grantor"), in
favor of THE CIT GROUP/CREDIT FINANCE, INC. ("Lender").
A. Pursuant to a Loan and Security Agreement of even
date (the "Loan Agreement"), between Grantor and Lender, Lender has agreed to
extend certain credit facilities to Grantor upon the terms and subject to the
conditions set forth therein.
B. Grantor owns the letters patent, and/or applications
for letters patent, of the United States, more particularly described on
Schedules 1-A and 1-B annexed hereto as part hereof (the "Patents");
C. Grantor has entered into a Patent Security Agreement
dated the date hereof (the "Security Agreement") in favor of Lender; and
D. Pursuant to the Security Agreement, Grantor has
granted to Lender a security interest in all right, title and interest of
Grantor in and to the Patents, together with any reissue, continuation,
continuation-in-part or extension thereof, and all proceeds thereof, including,
without limitation, any and all causes of action which may exist by reason of
infringement thereof for the full term of the Patents (the "Collateral"), to
secure the prompt payment, performance and observance of the Obligations, as
defined in the Security Agreement;
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, Grantor does hereby further grant to Lender a
security interest in the Collateral to secure the prompt payment, performance
and observance of the Obligations.
Grantor does hereby further acknowledge and affirm that the
rights and remedies of Lender with respect to the security interest in the
Collateral granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are hereby incorporated herein by reference
as if fully set forth herein.
II-1
<PAGE> 20
Lender's address is:
THE CIT GROUP/CREDIT FINANCE, INC.
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attn: Grace Kim Bowen, Esq.
IN WITNESS WHEREOF, Grantor has caused this Grant of Security
Interest to be executed as of the day and year first above written.
XIRCOM, INC.
By:
---------------------------
Name:
---------------------
Title:
---------------------
II-2
<PAGE> 21
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On November ___, 1995, before me, ______________________, personally appeared
____________________________________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature _________________________________ (Seal)
II-3
<PAGE> 22
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
PATENTS
<TABLE>
<CAPTION>
Title Number Date
----- ------ ----
<S> <C> <C>
1) ADAPTER FOR CONNECT- D336,467 6-15-93
ING AN ELECTRONIC
COMPUTER TO A LOCAL
AREA NETWORK
2) NETWORK ADAPTER FOR USE 5,299,314 3-29-94
WITH STANDARD PC
PARALLEL PORT
3) PARALLEL PORT MULTI- D339,116 9-7-93
PLEXOR FOR USE WITH
A COMPUTER
4) PARALLEL PORT MULTI- 5,276,443 1-4-94
PLEXOR FOR PC PARAL-
LEL PORT
5) MODEM ADAPTER FOR USE 5,408,614 4-18-95
WITH STANDARD PC PARAL-
LEL PORT
</TABLE>
II-4
<PAGE> 23
SCHEDULE 1-B TO ASSIGNMENT FOR SECURITY
PATENT APPLICATIONS
<TABLE>
<CAPTION>
Title Ser. Number Filing Date
----- ----------- -----------
<S> <C> <C>
None.
</TABLE>
II-5
<PAGE> 24
ATTACHMENT III TO PATENT SECURITY AGREEMENT
SPECIAL POWER OF ATTORNEY
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
KNOW ALL MEN BY THESE PRESENTS, THAT XIRCOM, INC., a
California corporation ("Grantor"), pursuant to a Patent Security Agreement,
dated as of November ___, 1995 (the "Security Agreement"), between Grantor and
Lender (as hereinafter defined), hereby appoints and constitutes THE CIT
GROUP/CREDIT FINANCE, INC. ("Lender"), its true and lawful attorney, with full
power of substitution, and with full power and authority to perform the
following acts on behalf of Grantor:
1. For the purpose of assigning, selling, licensing or
otherwise disposing of all right, title and interest of Grantor in and to any
letters patent of the United States or any other country or political
subdivision thereof, and all registrations, recordings, reissues,
continuations, continuations-in-part and extensions thereof, and all pending
applications therefor, and for the purpose of the recording, registering and
filing of, or accomplishing any other formality with respect to, the foregoing,
to execute and deliver any and all agreements, documents, instruments of
assignment or other papers necessary or advisable to effect such purpose;
2. For the purpose of evidencing and perfecting Lender's
interest in any patent not previously assigned to Lender as security, or in any
patent which Grantor may acquire from a third party, and for the purpose of the
recording, registering and filing of, or accomplishing any other formality with
respect to, the foregoing, to execute and deliver any and all agreements,
documents, instruments of assignment or other papers necessary or advisable to
effect such purpose.
3. To execute any and all documents, statements,
certificates or other papers necessary or advisable in order to obtain the
purposes described above as Lender may in its sole discretion determine.
III-1
<PAGE> 25
This power of attorney is made pursuant to the Security
Agreement and takes effect solely for the purposes of Paragraph 2 and
Subparagraphs 5(a) and 7(a) thereof and is subject to the conditions thereof
and may not be revoked until the payment in full of all "Obligations" as
defined in the Security Agreement.
Dated: November ___, 1995
XIRCOM, INC.
By:
------------------------------
Name:
------------------------
Title:
-----------------------
III-2
<PAGE> 26
STATE OF CALIFORNIA )
) SS.
COUNTY OF LOS ANGELES )
On November ___, 1995, before me, ______________________, personally appeared
____________________________________________, personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person(s) whose name(s)
is/are subscribed to the within instrument and acknowledged to me that
he/she/they executed the same in his/her/their authorized capacity(ies), and
that by his/her/their signature(s) on the instrument the person(s), or the
entity upon behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature _________________________________ (Seal)
III-3
<PAGE> 1
TRADEMARK SECURITY AGREEMENT
EXHIBIT 10.29D
<PAGE> 2
TRADEMARK SECURITY AGREEMENT
THIS TRADEMARK SECURITY AGREEMENT ("Security Agreement"),
dated as of November 8, 1995, is executed by and between XIRCOM, INC., a
California corporation ("Grantor"), and THE CIT GROUP/CREDIT FINANCE, INC.
("Lender").
RECITALS
A. Pursuant to a Loan and Security Agreement of even
date herewith (the "Loan Agreement"), between Grantor and Lender, Lender has
extended or agreed to extend certain credit facilities to Grantor upon the
terms and subject to the conditions set forth therein.
B. Lender's obligation to extend or continue to extend
the credit facilities to Grantor under the Loan Agreement is subject, among
other conditions, to receipt by Lender of this Security Agreement duly executed
by Grantor.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, Grantor hereby agrees with Lender as follows:
1. Definitions and Interpretation. When used in this
Security Agreement, the following terms shall have the following respective
meanings:
"Affiliate" shall mean any person or entity
controlling, controlled by or under common control with another person
or entity.
"Collateral" shall have the meaning given to that
term in Paragraph 2 hereof.
"Obligations" shall mean and include all loans,
advances, debts, liabilities and obligations, howsoever arising, owed
by Grantor to Lender of every kind and description (whether or not
evidenced by any note or instrument and whether or not for the payment
of money), direct or indirect, absolute or contingent, due or to
become due, now existing or hereafter arising pursuant to the terms of
the Loan Agreement or any of the other Loan Documents, including
without limitation all interest, fees, charges, expenses, attorneys'
fees and accountants' fees chargeable to and payable by Grantor
hereunder and thereunder.
<PAGE> 3
"Patent and Trademark Office" shall mean the United
States Patent and Trademark Office or any successor office or agency
thereto.
"Trademarks" shall have the meaning given to that
term in Attachment I hereto.
"UCC" shall mean the Uniform Commercial Code as in
effect in the State of California from time to time.
Unless otherwise defined herein, all other capitalized terms
used herein and defined in the Loan Agreement shall have the respective
meanings given to those terms in the Loan Agreement, and all terms defined in
the UCC shall have the respective meanings given to those terms in the UCC.
2. Grant of Security Interest. As security for the
Obligations, Grantor hereby pledges, mortgages and grants to Lender a security
interest in the property described in Attachment I annexed hereto (collectively
and severally, the "Collateral"), which Attachment I is incorporated herein by
this reference.
3. Representations and Warranties. Grantor represents
and warrants to Lender that:
(a) Grantor is the owner of the Collateral (or,
in the case of after-acquired Collateral, at the time Grantor acquires
rights in the Collateral, will be the owner thereof) and that no other
Person has (or, in the case of after-acquired Collateral, at the time
Grantor acquires rights therein, will have) any right, title, claim or
interest (by way of Lien or otherwise) in, against or to the
Collateral;
(b) Lender has (or in the case of after-acquired
Collateral, at the time Grantor acquires rights therein, will have) a
first priority perfected security interest in the Collateral;
(c) Grantor has full corporate power and
authority to grant the security interest herein granted, and the
execution and delivery of this Security Agreement by Grantor and the
performance of its obligations hereunder, have been duly authorized by
all necessary corporate action on the part of Grantor;
(d) Grantor does not own any Trademarks
registered in, or the subject of pending applications in, the Patent
and Trademark Office or any similar offices or agencies in any other
country or any political subdivision thereof, other than those
described inSchedule A or Schedule B to Attachment I hereto;
(e) Grantor has the sole and full right, title
and interest in and to each of the Trademarks shown on Schedule A to
Attachment I hereto for the goods and services covered by the
registrations thereof, unencumbered except as set forth in Schedule C
to Attachment I hereto, and such registrations are valid and
enforceable and in full force and effect;
2
<PAGE> 4
(f) There is no claim by any third party that any
Trademarks are invalid or unenforceable or do or may violate the
rights of any Person;
(g) All licenses of Trademarks which Grantor has
granted to any Person are set forth in Schedule C to Attachment
Ihereto;
(h) All licenses of Trademarks which any Person
has granted to Grantor are set forth in Schedule D to Attachment I
hereto.
4. Covenants of Grantor. Grantor hereby agrees:
(a) Grantor shall perform all acts and execute
all documents, including, without limitation, Grants of Security
Interest substantially in the form of Attachment II annexed hereto,
that may be necessary or desirable to record, maintain, preserve,
protect and perfect Lender's interest in the Collateral, the Lien
granted to Lender in the Collateral and the first priority of such
Lien;
(b) Except to the extent that Lender shall give
its prior written consent,
(i) Grantor shall continue to use the
Trademarks in connection with each and every trademarked class
of goods or services applicable to its current line as
reflected in its current catalogs, brochures, price lists or
similar materials in order to maintain the Trademarks in full
force and effect free from any claim of abandonment for
nonuse, and Grantor shall not (and will not permit any
licensee thereof to) do any act or omit to do any act whereby
any Trademark may become invalidated and shall notify Lender
immediately if Grantor knows of any reason or has reason to
know that any application or registration may become
invalidated; and
(ii) Grantor shall not assign, sell,
mortgage, lease, transfer, pledge, hypothecate, grant a
security interest in or Lien upon, encumber, grant an
exclusive or non-exclusive license, or otherwise dispose of
any of the Collateral, and nothing in this Security Agreement
shall be deemed a consent by Lender to any such action except
as expressly permitted herein;
(c) Grantor shall promptly pay Lender for any and
all sums, costs, and expenses which Lender may pay or incur pursuant
to the provisions of this Security Agreement or in enforcing the
Obligations, the Collateral or the security interest granted
hereunder, including, without limitation, all filing or recording
fees, court costs, collection charges, travel, and reasonable
attorneys' fees and expenses, all of which together with interest at
the highest rate then payable on the Obligations shall be part of the
Obligations and be payable on demand;
(d) Grantor shall promptly notify Lender upon the
filing with the Patent and Trademark Office or any similar office or
agency in any other country or any political subdivision thereof,
either by Grantor or by any agent, employee,
3
<PAGE> 5
licensee or designee of Grantor, of (i) an application for the
registration of any Trademark with the Patent and Trademark Office or
any similar office or agency in any other country or any political
subdivision thereof or (ii) any assignment of any Trademark which
Grantor may acquire from a third party. Upon the request of Lender,
Grantor shall execute and deliver any and all documents, instruments,
and agreements as Lender may request to evidence Lender's security
interest in such Trademark (and the goodwill and general intangibles
of Grantor relating thereto or represented thereby), and Grantor
authorizes Lender to amend an original counterpart of the applicable
Grant of Security Interest executed pursuant to Subparagraph 4(a) of
this Security Agreement without first obtaining Grantor's approval of
or signature to such amendment, and to record such security interest
with the Patent and Trademark Office;
(e) Grantor shall keep the Collateral free of all
Liens, except in favor of Lender;
(f) Grantor shall take all necessary steps in any
proceeding before the Patent and Trademark Office or any similar
office or agency in any other country or any political subdivision
thereof, to diligently prosecute or maintain, as applicable, each
application and registration of the Trademarks;
(g) So long as any of the Obligations are
outstanding, Grantor shall make application to the Patent and
Trademark Office (and assign any such application to Lender as
security) to register any registerable but unregistered material
Trademarks used by Grantor in connection with its products or
services, unless Grantor, in the exercise of its prudent business
judgment, deems any such Trademark not to have any significant
commercial value or determines that its rights are better used as a
common law trademark;
(h) Grantor shall (i) use proper statutory notice
in connection with any use of the Trademarks, and (ii) maintain
consistent standards of quality in its manufacture of products sold
under the Trademarks or provision of services in connection with the
Trademarks;
(i) Grantor agrees that if it or any Affiliate
learns of any use by any Person of any term or design likely to cause
confusion with any Trademark, Grantor shall promptly notify Lender of
such use and of all steps taken and to be taken to remedy any
infringement of any Trademark; and
(j) Grantor shall at all times keep at least one
complete set of its records concerning the Collateral at its chief
executive office and shall make such records available for inspection
by Lender at such times as Lender may reasonably request.
5. Authorized Action by Lender.
4
<PAGE> 6
(a) Lender may, in its sole discretion, pay any
amount or do any act required of Grantor hereunder or requested by
Lender to preserve, defend, protect, maintain, record or enforce
Grantor's obligations contained herein, the Obligations, the
Collateral, or the right, title and interest granted Lender by this
Security Agreement, and which Grantor fails to do or pay, and any such
payment shall be deemed an advance by Lender to Grantor and shall be
payable on demand together with interest at the highest rate then
payable on the Obligations. Lender will promptly notify Grantor of
any payment by Lender referred to in this Section 5(a).
(b) Grantor agrees to execute and deliver to
Lender three originals of a Special Power of Attorney in substantially
the form ofAttachment III to this Agreement for the implementation of
the recording, giving of notice, preservation, assignment, sale or
other disposal of the Collateral pursuant toParagraph 2 and
Subparagraphs 5(a) and 7(a).
(c) Grantor hereby grants to Lender and its
employees and agents the right to visit Grantor's business facilities
during normal business hours and with proper notice at which Grantor
manufactures products or provides services, which products or services
are sold under or provided in connection with any of the Trademarks,
and to inspect such products and the quality control records relating
thereto or observe the provision of such services.
6. Litigation and Other Proceedings.
(a) Grantor shall have the obligation to commence
and diligently prosecute such suits, proceedings or other actions for
infringement or other damage, or reexamination or reissue proceedings,
or opposition or cancellation proceedings as are reasonable, in
Grantor's exercise of its prudent business judgement, to protect any
of the Trademarks. No such suit, proceeding or other actions shall be
settled or voluntarily dismissed, nor shall any party be released or
excused of any claims of or liability for infringement, without the
prior written consent of Lender, which consent shall not be
unreasonably withheld.
(b) Upon the occurrence and during the
continuation of an Event of Default, Lender shall have the right but
not the obligation to bring suit or institute proceedings in the name
of Grantor or Lender to enforce any rights in the Collateral,
including any license thereunder, in which event Grantor shall at the
request of Lender do any and all lawful acts and execute any and all
documents required by Lender in aid of such enforcement. If Lender
elects not to bring suit to enforce any right under the Collateral,
including any license thereunder, Grantor agrees to use all reasonable
measures, whether by suit, proceeding or other action, to prevent the
infringement of any right under the Collateral by any Person and for
that purpose
5
<PAGE> 7
agrees to diligently maintain any action, suit or proceeding against
any Person so infringing necessary to prevent such infringement.
7. Default and Remedies.
(a) Grantor shall be deemed in default under this
Security Agreement upon the occurrence of an Event of Default. Upon
the occurrence and during the continuation of any such Event of
Default, Lender may, at its option, and (except if otherwise specified
below) without notice to or demand on Grantor, and in addition to all
rights and remedies available to Lender under the Loan Agreement or
the other Loan Documents, do any one or more of the following:
(i) upon ten (10) Business days' prior notice to
Grantor, direct Grantor not to make any further use of the
Trademarks (or any mark similar thereto) for any purpose;
(ii) at any time and from time to time, upon ten
Business (10) days' prior notice to Grantor, license, whether
general, special or otherwise, and whether on an exclusive or
nonexclusive basis, any of the Trademarks throughout the world
for such term or terms, on such conditions, and in such
manner, as Lender shall in its sole discretion determine;
(iii) at any time and from time to time, enforce (and
upon notice to Grantor have the exclusive right to enforce)
against any licensee or sublicensee all rights and remedies of
Grantor in, to and under any one or more license agreements
with respect to the Collateral (without assuming any
obligations or liability thereunder), and take or refrain from
taking any action under any thereof;
(iv) at any time and from time to time, upon ten (10)
Business days' prior notice to Grantor, assign, sell, or
otherwise dispose of, the Collateral or any of it, either with
or without special or other conditions or stipulations, with
power to buy the Collateral or any part of it, and with power
also to execute assurances, and do all other acts and things
for completing the assignment, sale or disposition which
Lender shall, in its sole discretion, deem appropriate or
proper; and
(v) in addition to the foregoing, in order to
implement the assignment, sale or other disposal of any of the
Collateral pursuant to clause (a)(iv) hereof, Lender may, at
any time, pursuant to the authority granted in the Power of
Attorney executed pursuant to Subparagraph 5(b) hereof,
execute and deliver on behalf of Grantor, one or more
instruments of assignment of the Trademarks (or any
application for registration thereof), in form suitable for
filing, recording or registration in any country.
6
<PAGE> 8
(b) Grantor agrees to pay when due all reasonable costs
incurred in any such transfer of the Trademarks, including, without
limitation, any taxes, fees and reasonable attorneys' fees and
expenses, and all such costs shall be added to the Obligations.
Lender may apply the proceeds actually received from any such license,
assignment, sale or other disposition to the reasonable costs and
expenses thereof, including, without limitation, reasonable attorneys'
fees and all legal, travel and other expenses which may be incurred by
Lender, and then to the Obligations, in such order as to principal or
interest as Lender may desire; and Grantor shall remain liable and
will pay Lender on demand any deficiency remaining, together with
interest thereon at a rate equal to the highest rate then payable on
the Obligations and the balance of any expenses unpaid. Nothing
herein contained shall be construed as requiring Lender to take any
such action at any time. In the event of any such license,
assignment, sale or other disposition of the Collateral, or any of it,
after the occurrence or continuation as hereinabove provided of an
Event of Default, Grantor shall supply its know-how and expertise
relating to the manufacture and sale of the products bearing the
Trademarks or in connection with which the Trademarks are used, and
its consumer or customer lists and other records relating to the
Trademarks and to the distribution of products or the provisions of
services, to Lender or its designee.
8. Reassignment. Upon the payment in full of the
Obligations and the termination of the Loan Agreement and Lender's obligation
to provide advances thereunder, Lender shall execute and deliver to Grantor all
assignments and other instruments as may be necessary to vest in Grantor full
right, title and interest in and to the Collateral, subject to any disposition
thereof which may have been made by Lender pursuant to the provisions of this
Security Agreement.
9. Indemnification and Release.
(a) Grantor assumes all responsibility and
liability arising from the use of the Trademarks, and Grantor shall
indemnify and hold Lender and its directors, officers, employees,
agents and any of their respective Affiliates (Indemnitees") harmless
from and against any claim, suit, loss, damage or expense (including,
without limitation, reasonable attorneys' fees and expenses) arising
out of or in connection with any alleged infringement of any trademark
or alleged defect in any product manufactured, promoted or sold by
Grantor (or any Affiliate of Grantor) in connection with any
Trademark, or out of the manufacture, promotion, labeling, sale or
advertisement of any product or service by Grantor (or any Affiliate
of Grantor). Grantor agrees that Lender does not assume, and shall
have no responsibility for, the payment of any sums due or to become
due under any agreement or contract included in the Collateral or the
performance of any obligations to be performed under or with respect
to any such agreement or contract by Grantor, and Grantor hereby
agrees to indemnify and hold each Indemnitee harmless with respect to
any and all claims by any Person relating thereto.
7
<PAGE> 9
(b) Grantor agrees to indemnify and hold each
Indemnitee harmless from and against any claim, suit, loss, damage or
expense (including, without limitation, reasonable attorneys' fees and
expenses) arising out of or in connection with any action taken or
omitted to be taken by Lender pursuant to clause 7(a)(iii) hereof with
respect to any license agreement of Grantor.
(c) Grantor agrees to indemnify and hold each
Indemnitee harmless from and against any claim, suit, loss, damage or
expense (including, without limitation, reasonable attorneys' fees and
expenses) arising out of or in connection with (i) any claim, suit or
proceeding instituted by Grantor or (ii) any action taken or omitted
to be taken by Lender pursuant to Subparagraph 6(b).
(d) Grantor hereby releases the Indemnitees from
any claims, causes of action and demands at any time arising out of or
with respect to any actions taken or omitted to be taken by the
Indemnitees under the powers of attorney granted under the Special
Power of Attorney executed pursuant to Subparagraph 5(b) herein, other
than actions taken or omitted to be taken through the gross negligence
or willful misconduct of such Indemnitees.
(e) Grantor agrees to cause Lender to be named as
an additional insured with respect to any policy of insurance held by
Grantor from time to time covering product liability or intellectual
property infringement risk.
10. Miscellaneous.
(a) Notices. Except as otherwise provided
herein, all notices, requests, demands or other communications to or
upon Lender or Grantor hereunder shall be addressed to Lender or
Grantor at the respective addresses indicated below or at such other
address as Lender or Grantor may designate by written notice to the
other party, and shall be deemed to have been given (i) in the case of
notice by letter, three (3) days after deposited in the mails
registered and return receipt requested, or (ii) in the case of notice
given by telecommunication, when sent with appropriate confirmation
received:
Lender: The CIT Group/Credit Finance, Inc.
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attention: Grace Kim Bowen, Esq.
Telephone: (213) 613-2511
Telecopy: (213) 613-2537
8
<PAGE> 10
Grantor: Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Attention: General Counsel
Telephone: (805) 376-6910
Telecopy: (805) 376-9120
(b) Nonwaiver. No failure or delay on Lender's
part in exercising any right hereunder shall operate as a waiver
thereof or of any other right nor shall any single or partial exercise
of any such right preclude any other further exercise thereof or of
any other right.
(c) Amendments and Waivers. Except with respect
to action by Lender pursuant to Subparagraph 4(d), this Security
Agreement may not be amended or modified, nor may any of its terms be
waived, except by written instruments signed by Grantor and Lender as
required by the Loan Agreement. Each waiver or consent under any
provision hereof shall be effective only in the specific instances and
for the purpose for which given.
(d) Assignments. This Security Agreement shall
be binding upon and inure to the benefit of Lender and Grantor and
their respective successors and assigns;provided, however, that
Grantor and Lender may sell, assign and delegate their respective
rights and obligations hereunder only as permitted by the Loan
Agreement.
(e) Cumulative Rights, etc. The rights, powers
and remedies of Lender under this Security Agreement shall be in
addition to all rights, powers and remedies given to Lender by virtue
of any applicable law, rule or regulation of any governmental
authority, the Loan Agreement, any other Loan Document or any other
agreement, all of which rights, powers, and remedies shall be
cumulative and may be exercised successively or concurrently without
impairing Lender's rights hereunder. Grantor waives any right to
require Lender to proceed against any Person or to exhaust any
Collateral or to pursue any remedy in Lender's power.
(f) Payments Free of Taxes, Etc. All payments
made by Grantor under this Security Agreement shall be made by Grantor
free and clear of and without deduction for any and all present and
future taxes, levies, charges, deductions and withholdings. In
addition, Grantor shall pay upon demand any stamp or other taxes,
levies or charges of any jurisdiction with respect to the execution,
delivery, registration, performance and enforcement of this Security
Agreement. Upon request by Lender, Grantor shall furnish evidence
satisfactory to Lender that all requisite authorizations and approvals
by, and notices to and filings with, governmental authorities and
regulatory bodies have been obtained and made and that all requisite
taxes, levies and charges have been paid.
9
<PAGE> 11
(g) Partial Invalidity. If at any time any
provision of this Security Agreement is or becomes illegal, invalid or
unenforceable in any respect under the law of any jurisdiction,
neither the legality, validity or enforceability of the remaining
provisions of this Security Agreement nor the legality, validity or
enforceability of such provision under the law of any other
jurisdiction shall in any way be affected or impaired thereby.
(h) Governing Law. This Security Agreement shall
be governed by and construed in accordance with the laws of the State
of California without reference to conflicts of law rules.
(i) Submission to Jurisdiction. Grantor hereby
irrevocably and unconditionally:
(i) Submits for itself and its property in
any legal action or proceeding relating to this Security
Agreement, or for recognition and enforcement of any judgment
in respect thereof, to the non-exclusive jurisdiction of the
courts of the State of Illinois and the courts of the United
States of America located in Los Angeles County, California
and consents and agrees to suit being brought in such courts
as Lender may elect;
(ii) Waives any objection that it may now or
hereafter have to the venue of any such action or proceeding
in any such court or that such proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;
(iii) Agrees as an alternate means of service
of process in any such legal action or proceeding to service
by mailing of copies thereof (by registered or certified mail,
if practicable) postage prepaid, to the then active agent or
to Grantor at its address set forth in Subparagraph 10(a)
hereof or at such other address of which Lender shall have
been notified pursuant thereto, and agrees that failure to
receive such copy or notice shall not affect or impair the
validity of such service or of any judgment rendered in any
action or proceeding based thereon; and
(iv) Agrees that nothing herein shall
affect Lender's right to effect service of process in any
other manner permitted by law, and that Lender shall have the
right to bring any legal proceedings (including a proceeding
for enforcement of a judgment entered by any of the
aforementioned courts) against Grantor in such courts or in
any other court or jurisdiction in accordance with applicable
law.
10
<PAGE> 12
(j) Jury Trial. EACH OF GRANTOR AND LENDER, AND
TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AS TO ANY ISSUE RELATING HERETO IN
ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING OUT OF OR RELATING TO
THIS AGREEMENT.
IN WITNESS WHEREOF, Grantor and Lender have caused this
Security Agreement to be executed as of the day and year first above written.
"GRANTOR"
XIRCOM, INC.
By: R. Holliday
------------------------------
Name: Randall H. Holliday
------------------------
Title: Secretary
-----------------------
"LENDER"
THE CIT GROUP/CREDIT FINANCE, INC.
By: Grace Bowen
------------------------------
Name: Grace Bowen
------------------------
Title: Vice President
-----------------------
11
<PAGE> 13
ATTACHMENT I
TO TRADEMARK SECURITY AGREEMENT
(a) All trademarks, trade names, trade styles and service
marks, and all prints and labels on which said trademarks, trade names, trade
styles and service marks have appeared or appear, and all designs and general
intangibles of like nature, now existing or hereafter adopted or acquired, all
right, title and interest therein and thereto, all registrations and recordings
thereof, including without limitation, (i) all applications, registrations and
recordings in the Patent and Trademark Office or in any similar office or
agency of the United States, any State thereof, or any foreign country or any
political subdivision thereof, all whether now owned or hereafter acquired by
Grantor, including, but not limited to, those described in Schedules A and B to
this Attachment I, which Schedules A and B are incorporated herein by this
reference, and (ii) all reissues, extensions or renewals thereof and all
licenses thereof (collectively, the "Trademarks");
(b) All goodwill of Grantor's business symbolized by the
Trademarks and all customer lists and other records of Grantor relating to the
distribution of products or provision of services bearing or covered by the
Trademarks;
(c) All claims by Grantor against any Person for past,
present or future infringement of the Trademarks, including, without
limitation, the right to take any action to enforce such claims;
(d) All proceeds of the foregoing (including, without
limitation, whatever is receivable or received when Collateral or proceeds are
sold, collected, exchanged, licensed or otherwise disposed of, whether such
disposition is voluntary or involuntary, including, without limitation, rights
to payment and return premiums and insurance proceeds under insurance with
respect to any Collateral, and all rights to payment with respect to any cause
of action affecting or relating to the Collateral).
I-1
<PAGE> 14
SCHEDULE A TO ATTACHMENT I
TO TRADEMARK SECURITY AGREEMENT
TRADEMARKS
<TABLE>
<CAPTION>
Trademark Jurisdiction Reg. Date Reg. No.
- --------- ------------ --------- --------
<S> <C> <C> <C>
Xircom U.S. Patent and 10-30-90 1,619,539
Trademark Office
</TABLE>
[I]A-1
<PAGE> 15
SCHEDULE B TO ATTACHMENT I
TO TRADEMARK SECURITY AGREEMENT
APPLICATIONS FOR TRADEMARKS
<TABLE>
<CAPTION>
Mark Application Date Application No.
- ---- ---------------- ---------------
<S> <C> <C>
Netwave 11/04/94 74/595,458
</TABLE>
[I]A-2
<PAGE> 16
SCHEDULE C TO ATTACHMENT I
TO TRADEMARK SECURITY AGREEMENT
LICENSES GRANTED BY GRANTOR TO THIRD PARTIES
From time to time, Grantor issues nonexclusive licenses.
[I]A-3
<PAGE> 17
SCHEDULE D TO ATTACHMENT I
TO TRADEMARK SECURITY AGREEMENT
LICENSES GRANTED BY THIRD PARTIES TO GRANTOR
LICENSED LOGOS
1. AT&T Virtual WorkPlace
2. Delrina
3. ETC
4. Madge (SmartRing)
5. Microsoft Network (OnLine Services)
6. Novell Certified
7. OS/2 Ready
8. PC Card Solutions
9. Shiva PPP
10. SCO OK, Tested and Supported
11. Windows95 Certified
12. Network Global Navigator
AWARD LOGOS
1. Best of Byte-Comdex/Fall 94
2. LAN Mag 1995 Product of Year
3. Mobility Award Winner
4. PC Mag Tech Excellence
[I]D-1
<PAGE> 18
ATTACHMENT II TO TRADEMARK SECURITY AGREEMENT
GRANT OF SECURITY INTEREST
TRADEMARKS
THIS GRANT OF SECURITY INTEREST, dated as of November ___,
1995 is executed by XIRCOM, INC., a California corporation ("Grantor"), in
favor of THE CIT GROUP/CREDIT FINANCE, INC. ("Lender").
A. Pursuant to a Loan and Security Agreement of even
date herewith (the "Loan Agreement"), between Grantor and Lender, Lender has
extended and agreed to extend certain credit facilities to Grantor upon the
terms and subject to the conditions set forth therein;
B. Grantor has adopted, used and is using certain
trademarks, more particularly described on Schedules 1-A and 1-B annexed
hereto as part hereof, which trademarks are registered or subject to an
application for registration in the United States Patent and Trademark Office
(collectively, the "Trademarks");
C. Grantor has entered into a Trademark Security
Agreement dated the date hereof (the "Security Agreement") in favor of Lender;
and
D. Pursuant to the Security Agreement, Grantor has
granted to Lender a security interest in all right, title and interest of
Grantor in and to the Trademarks, together with the goodwill of the business
symbolized by the Trademarks and the customer lists and records related to the
Trademarks and the applications and registrations thereof, and all proceeds
thereof, including, without limitation, any and all causes of action which may
exist by reason of infringement thereof (the "Collateral"), to secure the
prompt payment, performance and observance of the Obligations, as defined in
the Security Agreement;
NOW, THEREFORE, for good and valuable consideration, receipt
of which is hereby acknowledged, Grantor does hereby further grant to Lender a
security interest in the Collateral to secure the prompt payment, performance
and observance of the Obligations.
II-1
<PAGE> 19
Grantor does hereby further acknowledge and affirm that the
rights and remedies of Lender with respect to the security interest in the
Collateral granted hereby are more fully set forth in the Security Agreement,
the terms and provisions of which are hereby incorporated herein by reference
as if fully set forth herein.
Lender's address is: The CIT Group/Credit Finance, Inc.
300 South Grand Avenue, Third Floor
Los Angeles, California 90071
Attention: Grace Kim Bowen, Esq.
Telephone: (213) 613-2511
Telecopy: (213) 613-2537
IN WITNESS WHEREOF, Grantor has caused this Grant of Security
Interest to be executed as of the day and year first above written.
"GRANTOR"
XIRCOM, INC.
By:
------------------------------
Name:
------------------------
Title:
-----------------------
II-2
<PAGE> 20
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
On November ___, 1995 before me, ______________________,
personally appeared ___________________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on such
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature __________________________________ (Seal)
<PAGE> 21
SCHEDULE 1-A TO GRANT OF SECURITY INTEREST
TRADEMARKS
<TABLE>
<CAPTION>
Mark Registration Date Registration No.
- ---- ----------------- ----------------
<S> <C> <C>
Xircom 10-30-90 1,619,539
</TABLE>
1-A-1
<PAGE> 22
SCHEDULE 1-B TO GRANT OF SECURITY INTEREST
TRADEMARK APPLICATIONS
<TABLE>
<CAPTION>
Mark Application Date Application No.
- ---- ---------------- ---------------
<S> <C> <C>
Netwave 11/04/94 74/595,458
</TABLE>
1-A-2
<PAGE> 23
ATTACHMENT III TO TRADEMARK SECURITY AGREEMENT
SPECIAL POWER OF ATTORNEY
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
KNOW ALL PERSONS BY THESE PRESENTS, THAT XIRCOM, INC., a
California corporation ("Grantor"), pursuant to a Trademark Security Agreement,
dated as of November ___, 1995 (the "Security Agreement"), by and between
Grantor and THE CIT GROUP/CREDIT FINANCE, INC. ("Lender"), hereby appoints and
constitutes Lender its true and lawful attorney, with full power of
substitution, and with full power and authority to perform the following acts
on behalf of Grantor:
1. For the purpose of assigning, selling, licensing or
otherwise disposing of all right, title and interest of Grantor in and to any
trademarks, trade names, trade styles and service marks, and all registrations,
recordings, reissues, extensions and renewals thereof, and all pending
applications therefor, and for the purpose of the recording, registering and
filing of, or accomplishing any other formality with respect to, the foregoing,
to execute and deliver any and all agreements, documents, instruments of
assignment or other papers necessary or advisable to effect such purpose;
2. For the purpose of evidencing and perfecting Lender's
interest in any trademark not previously assigned to Lender as security, or in
any trademark which Grantor may acquire from a third party, and for the purpose
of the recording, registering and filing of, or accomplishing any other
formality with respect to, the foregoing, to execute and deliver any and all
agreements, documents, instruments of assignment or other papers necessary or
advisable to effect such purpose.
3. To execute any and all documents, statements,
certificates or other papers necessary or advisable in order to obtain the
purposes described above as Lender may in its sole discretion determine.
1-A-3
<PAGE> 24
This power of attorney is made pursuant to the Security
Agreement and takes effect solely for the purposes of Paragraph 2 and
Subparagraphs 5(a) and 7(a) thereof and is subject to the conditions thereof
and may not be revoked until the payment in full of all "Obligations" as
defined in the Security Agreement.
Dated: November ___, 1995
"GRANTOR"
XIRCOM, INC.
By:
------------------------------
Name:
------------------------
Title:
-----------------------
1-A-4
<PAGE> 25
STATE OF CALIFORNIA )
) ss.:
COUNTY OF LOS ANGELES )
On November ___, 1995 before me, ______________________,
personally appeared ________________________________________, personally
known to me (or proved to me on the basis of satisfactory evidence) to be the
person(s) whose name(s) is/are subscribed to the within instrument and
acknowledged to me that he/she/they executed the same in his/her/their
authorized capacity(ies), and that by his/her/their signature(s) on such
instrument the person(s) or the entity on behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
Signature __________________________________ (Seal)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1994
<PERIOD-END> SEP-30-1995
<CASH> 13,658
<SECURITIES> 0
<RECEIVABLES> 17,279
<ALLOWANCES> 5,687
<INVENTORY> 19,174
<CURRENT-ASSETS> 63,262
<PP&E> 30,774
<DEPRECIATION> 13,186
<TOTAL-ASSETS> 88,742
<CURRENT-LIABILITIES> 34,816
<BONDS> 831
<COMMON> 19
0
0
<OTHER-SE> 53,076
<TOTAL-LIABILITY-AND-EQUITY> 88,742
<SALES> 126,565
<TOTAL-REVENUES> 126,565
<CGS> 86,080
<TOTAL-COSTS> 86,080
<OTHER-EXPENSES> 106,728
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> (65,804)
<INCOME-TAX> (7,000)
<INCOME-CONTINUING> (58,804)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58,804)
<EPS-PRIMARY> (3.44)
<EPS-DILUTED> (3.44)
</TABLE>
