XIRCOM INC, DEF 14A, 1996-12-12

XIRCOM INC
DEF 14A, 1996-12-12
COMPUTER COMMUNICATIONS EQUIPMENT

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SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the Registrant /X/

Filed by a Party other than the Registrant / /

Check the appropriate box:

<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
/X/ Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12

</TABLE>
Xircom, Inc.
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(Name of Registrant as Specified In Its Charter)

- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14a-6(i)(1), or 14a-6(i)(2)
or Item 22(a)(2) of Schedule 14A.

/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).

/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.

(1) Title of each class of securities to which transaction applies:

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(2) Aggregate number of securities to which transaction applies:

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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):

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(4) Proposed maximum aggregate value of transaction:

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(5) Total fee paid:

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/ / Fee paid previously with preliminary materials.

/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.

(1) Amount Previously Paid:

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(2) Form, Schedule or Registration Statement No.:

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(3) Filing Party:

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(4) Date Filed:

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[logo of Xircom]
_______________________________________________________

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD JANUARY 17, 1997

To The Shareholders:

NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Xircom, Inc.,
a California corporation (the "Company"), will be held on January 17, 1997 at
10:00 a.m., local time, at the Hyatt Westlake Plaza Hotel, 880 South Westlake
Boulevard, Westlake Village, California 91361, for the following purposes:

1. To elect directors to serve for the ensuing year and until their
successors are elected and duly qualified.

2. To approve an amendment to the Company's Stock Option Plan to
increase the number of shares of Common Stock reserved for
issuance thereunder from 6,000,000 shares to 6,600,000 shares.

3. To approve an amendment to the Company's Director Stock Option Plan
to increase the number of shares of Common Stock reserved for
issuance thereunder from 225,000 shares to 425,000 shares.

4. To approve an amendment to the Company's Employee Stock Purchase
Plan to increase the number of shares of Common Stock reserved for
issuance thereunder from 250,000 shares to 400,000 shares.

5. To ratify the appointment of Ernst & Young LLP as independent
auditors of the Company for the fiscal year ending September 30,
1997.

6. To transact such other business as may properly come before the
meeting or any adjournment thereof.

Only shareholders of record at the close of business on November 25,
1996 are entitled to receive notice of and to vote at the Annual Meeting.

All shareholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to mark, sign, date and return the enclosed proxy card as promptly as
possible in the postage-prepaid envelope enclosed for that purpose. Any
shareholder attending the Annual Meeting may vote in person even if he or she
previously returned a proxy.

By Order of the Board of Directors

/s/ RANDALL H. HOLLIDAY

Randall H. Holliday
Secretary

Thousand Oaks, California
December 12, 1996
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XIRCOM, INC.
2300 CORPORATE CENTER DRIVE
THOUSAND OAKS, CALIFORNIA 91320

PROXY STATEMENT

The enclosed Proxy is solicited on behalf of the Board of Directors of
Xircom, Inc., a California corporation ("Xircom" or the "Company"), for use at
Xircom's Annual Meeting of Shareholders (the "Annual Meeting") to be held on
Friday, January 17, 1997 at 10:00 a.m., local time, or at any adjournment(s)
thereof. The purposes of the Annual Meeting are set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at the Hyatt Westlake Plaza Hotel, 880 South
Westlake Boulevard, Westlake Village, California 91361.

The Company's principal executive offices are located at 2300
Corporate Center Drive, Thousand Oaks, California 91320, and its telephone
number at that location is (805) 376-9300.

These proxy solicitation materials were mailed or delivered on or
about December 12, 1996 to all shareholders entitled to vote at the Annual
Meeting.

VOTING AND SOLICITATION

Shareholders of record as of the close of business on November 25,
1996 (the "Record Date") are entitled to notice of and to vote at the Annual
Meeting. On November 25, 1996, 19,959,603 shares of Xircom's Common Stock, $
.001 par value (the "Common Stock"), were issued and outstanding. For
information regarding holders of more than 5% of the outstanding Common Stock,
see "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT" below.
The closing sale price of Xircom Common Stock as reported on The Nasdaq Stock
Market on November 25, 1996 was $19.75 per share.

Except as noted below under Proposal 1 "ELECTION OF DIRECTORS" under
"Required Vote," each share has one vote on all other matters.

Xircom will bear the cost of this solicitation, including
reimbursement of brokerage firms and other persons representing beneficial
owners of shares for their reasonable expenses in forwarding solicitation
material to such beneficial owners. Proxies may be solicited by certain of the
Company's directors, officers and other employees, without additional
compensation, personally, by telephone or by telegram. Xircom has retained the
services of D.F. King & Co., Inc. to assist in obtaining proxies from brokers
and nominees of shareholders for the Annual Meeting. The estimated cost of
such services is $4,000, plus out-of-pocket expenses.

REVOCABILITY OF PROXIES

Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked by (i)
filing with the Secretary of the Company at or before the taking of the vote at
the Annual Meeting a written notice of revocation bearing a later date than the
proxy, (ii) executing a later dated proxy relating to the same shares and
delivering it to the Secretary of the Company at or before the taking of the
vote at the Annual Meeting or, (iii) attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy). Any written notice of revocation or
subsequent proxy should be delivered to Xircom, Inc., 2300 Corporate Center
Drive, Thousand Oaks, CA 91320-1420, Attention: Secretary, or hand delivered to
the Secretary of the Company at or before the taking of the vote at the Annual
Meeting.

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DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR ANNUAL MEETING FOR FISCAL
YEAR 1997

Proposals of shareholders which are intended to be presented by such
shareholders at the Company's 1997 Annual Meeting must be received by the
Company no later than August 14, 1997 to be included in the proxy statement and
form of proxy relating to that meeting.

PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES

There are currently seven directors of the Company as authorized under
the Bylaws of the Company. Such directors are to be elected at the Annual
Meeting of Shareholders. Unless otherwise instructed, the proxy holders will
vote the proxies received by them for the Company's seven nominees named below,
all of whom are presently directors of the Company. If any nominee of the
Company is unable or declines to serve as a director at the time of the Annual
Meeting, the proxies will be voted for any nominee designated by the present
Board of Directors to fill the vacancy. It is not presently expected that any
of the nominees named below will be unable or will decline to serve as a
director. If additional persons are nominated for election as directors, the
proxy holders intend to vote all proxies received by them according to the
cumulative voting rules (if applicable) to assure the election of as many of
the nominees listed below as possible. In such event, the specific nominees
for whom votes will be cast will be determined by the proxy holders. The term
of office of each person elected as a director will continue until the next
Annual Meeting of Shareholders or until his successor has been elected and duly
qualified.

Names of the seven nominees and certain information about each of them
are set forth below. Information as to stock ownership of each director and
all current directors and executive officers as a group is set forth below
under "SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT."

<TABLE>
<CAPTION>
Director
Name, Principal Occupation and Directorships Age Since
- -------------------------------------------- --- -----
<S> <C> <C>
Michael F.G. Ashby...................................................................................... 47 1996
Vice President and Chief Financial Officer, Pacific Telesis Enterprises (a telecommunications company) since
September 1995; President and Chief Executive Officer, Network Systems Corporation (a manufacturer and marketer of
network communications devices) from March 1995 to August 1995, Chief Operating Officer of Network Systems
Corporation from January 1993 to March 1995, Chief Financial Officer of Network Systems Corporation from September
1992 to January 1993; Chief Financial Officer of Teradata Corporation (a manufacturer and marketer of relational
database computers) from November 1988 to August 1992.
Kenneth J. Biba......................................................................................... 46 1991
President, HighGain Technologies, Inc. (a technology consulting firm) since November, 1995; Executive Vice President
and General Manager Wireless Products Division of Xircom from September 1993 to October 1995; Executive Vice
President, Business Development of Xircom from January 1993 to September 1993; Chief Operating Officer of Xircom from
November 1991 to January 1993.
Gary J. Bowen........................................................................................... 49 1995
Industry consultant since October, 1996; Executive Vice President, Worldwide Field Operations of Bay Networks, Inc.
(a manufacturer and marketer of enterprise networking equipment) from October 1994 to October, 1996 (pursuant to
merger of SynOptics Communications, Inc. and Wellfleet Communications, Incorporated in 1994); Senior Vice President,
Marketing and Field Operations of Wellfleet from January 1990 to October 1994.
</TABLE>

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<TABLE>
<S> <C> <C>
Dirk I. Gates.......................................................................... 35 1988
Chairman of the Board of Xircom since January 1995, Chief Executive Officer since
October 1991 and President of Xircom since November 1988; various positions with
Pertron Controls Corporation (a manufacturer of programmable controllers for automated
welding equipment) from 1983 until 1988.
J. Kirk Mathews....................................................................... 54 1988
Independent industry consultant and investor since January 1995; Chairman of the Board
of Xircom from November 1988 to January 1995; Chief Executive Officer of Xircom from
November 1988 until October 1991.
William J. Schroeder.................................................................. 52 1991
President, Chief Executive Officer and member of Board of Directors of Diamond
Multimedia Systems, Inc. (a manufacturer of computer multimedia products) since May
1994; Vice Chairman of the Board of Conner Peripherals, Inc. (a disk drive
manufacturer) from 1989 to 1994; also President of Archive Corporation (a Conner
subsidiary) from January 1993 to November 1993 and CEO of Arcada Software, Inc. (a
Conner subsidiary) from November 1993 to May 1994.
Delbert W. Yocam...................................................................... 52 1996
Chairman and Chief Executive Officer of Borland International, Inc. (a provider of
software development products and services) since December 1996; independent industry
consultant from November 1994 to December 1996; President, Chief Operating Officer,
and member of the Board of Directors of Tektronix, Inc. (a manufacturer of electronic
equipment) from September 1992 to November 1994; independent consultant from November
1989 to September 1992. Member of the Board of Directors of Adobe Systems, Inc.,
Oracle Corp., Castelle, Inc., Raster Graphics, Inc., Integrated Measurement Systems,
Inc., Sapiens International Corp., Boomtown, Inc.
</TABLE>

There are no family relationships between any directors or executive officers
of the Company.

BOARD MEETINGS AND COMMITTEES

The Board of Directors of the Company held a total of nine (9)
meetings during the fiscal year ended September 30, 1996, including five (5)
telephonic meetings. The Board has an Audit Committee and a Compensation
Committee but does not have a nominating committee.

The Audit Committee of the Board of Directors for fiscal 1996
consisted of Messrs. Bowen and Schroeder, together with Mr. Bruce C. Edwards
until the resignation of Mr. Edwards from the Board of Directors in July 1996
and together with Messrs. Ashby and Yocam from their appointment to the Audit
Committee in July 1996. The Audit Committee recommends engagement of the
Company's independent accountants and is primarily responsible for approving
the services performed by the Company's independent auditors and for reviewing
and evaluating the Company's accounting principles and its system of internal
accounting controls. There was one (1) independent meeting of the Audit
Committee during fiscal 1996. Certain matters otherwise historically presented
to the Audit Committee were attended to by the full Board during fiscal 1996.

The Compensation Committee of the Board of Directors for fiscal 1996
consisted of Messrs. Bowen and Schroeder, together with Mr. Bruce C. Edwards
until the resignation of Mr. Edwards from the Board of Directors in July 1996
and together with Messrs. Ashby and Yocam from their appointment to the Audit
Committee in July 1996. The Compensation Committee makes recommendations to
the Board of Directors regarding the Company's executive compensation policies
and administers the Company's Stock Option Plan. There were four (4) meetings
of the Compensation Committee during fiscal 1996.

During fiscal 1996, no incumbent director attended fewer than 75% of
the sum of the total number of meetings of the Board of Directors and the total
number of meetings of all committees of the Board of Directors on which that
director served, held during such director's period of service on the Board.
See "Director Compensation" for information on the compensation of non-employee
directors.

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DIRECTOR COMPENSATION

The Company paid fees to each outside director for his services as an
outside director during fiscal 1996, based on the director's respective period
of service and meetings attended, as follows: $25,000 each to Mr. Bowen, Mr.
Mathews and Mr. Schroeder, $17,500 to Mr. Edwards (prior to his resignation as a
Director), $17,000 to Mr. Biba, $9,000 to Mr. Ashby, and $6,500 to Mr. Yocam.
Directors are also reimbursed for their reasonable out-of-pocket expenses
incurred in connection with attendance at board and committee meetings.

Each outside director is automatically granted an option to purchase a
total of 30,000 shares of Common Stock upon first joining the Board of Directors
as an outside director, under the Company's 1992 Director Stock Option Plan.
Mr. Biba was granted such an option during fiscal 1996 on February 1, 1996, at
an exercise price of $10.63 per share. Mr. Ashby was granted such an option
during fiscal 1996 on June 28, 1996, at an exercise price of $14.75 per share.
Mr. Yocam was granted such an option during fiscal 1996 on July 2, 1996, at an
exercise price of $13.88 per share. Such options vest cumulatively as to 7,500
shares each year for four years after the date of grant, based on continued
service on the Board. In addition, on July 1 of each year, each outside
director who has served on the Board for at least six months as of the date of
grant is automatically granted under the plan an option to purchase 7,500 shares
of Common Stock. Each annual option vests in full four years after the date of
grant. Each such option is granted at an exercise price equal to fair market
value as of the date of grant. Directors Bowen, Mathews and Schroeder were each
granted an option to purchase a total of 7,500 shares of Common Stock at an
exercise price of $14.13 per share on July 1, 1996.

REQUIRED VOTE

Each shareholder voting in the election of directors may cumulate such
shareholder's votes and give one candidate a number of votes equal to the number
of directors to be elected multiplied by the number of votes to which such
shareholder's shares are entitled, or may distribute such votes on the same
principle among as many candidates as the shareholder chooses, provided that
votes cannot be cast for more than the total number of directors to be elected
at the meeting. However, no shareholder may cumulate votes for any candidate
unless the candidate's name has been placed in nomination prior to the voting
and at least one shareholder at the meeting has given notice of the intention to
cumulate votes prior to the voting.

The seven nominees receiving the highest number of Votes Cast will be
elected as directors for the ensuing year. For this purpose, the "Votes Cast"
are defined under California law to be the shares of the Company's Common Stock
represented and "voting" at the Annual Meeting. Votes that are withheld from
any director will be counted for purposes of determining the presence or absence
of a quorum, but have no legal effect under California law. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions in the counting of votes with respect to the election
of directors, the Company believes that abstentions should be counted for
purposes of determining the presence or absence of a quorum for the transaction
of business. In the absence of controlling precedent to the contrary, the
Company intends to treat abstentions in this manner. Broker non-votes will also
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business.

RECOMMENDATION

MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES LISTED ABOVE.

PROPOSAL 2 - APPROVAL OF AMENDMENT TO 1992 STOCK OPTION PLAN

The Company's 1992 Stock Option Plan (most recently amended and
restated January 19, 1996, and referred to herein as the "1992 Option Plan")
currently permits the grant of both incentive stock options and nonstatutory
stock options. Options granted under the 1992 Option Plan generally become
exercisable over varying periods, based on continued employment, and in the
case of incentive stock options, have a maximum term of ten (10) years after
the grant date.

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PROPOSED AMENDMENT

In October 1996, the Board of Directors adopted, subject to
shareholder approval, an amendment to the 1992 Option Plan to increase the
number of shares reserved for issuance thereunder from 6,000,000 shares to
6,600,000 shares. As of November 25, 1996, there were 1,400,135 shares
available for future option grants under the 1992 Option Plan, including the
600,000 shares subject to shareholder approval at this Annual Meeting.

At the Annual Meeting, the shareholders are being asked to approve
this amendment to the 1992 Option Plan.

RECOMMENDATION

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED AMENDMENT
TO THE 1992 OPTION PLAN AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR SUCH
AMENDMENT.

DESCRIPTION OF 1992 STOCK OPTION PLAN

The Company's 1992 Stock Option Plan, as amended (the "1992 Option
Plan"), provides for the grant to employees of incentive stock options within
the meaning of Section 422A of the Internal Revenue Code of 1986, as amended
(the "Code"), and for the grant to employees and consultants of nonstatutory
options.

The 1992 Option Plan may be administered by the Board of Directors of
the Company or by a committee of the Board, and shall be administered by the
Board or its committee in a manner that complies with Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Currently
the 1992 Option Plan is administered by the Compensation Committee of the
Board. The committee determines the terms of options granted, including
exercise price, number of shares subject to each option and exercisability
thereof, and form of consideration payable upon exercise. In addition, the
Board has appointed a Stock Option Committee of Management, consisting of
Messrs. Dirk Gates and Steven DeGennaro, which is authorized to grant options
to employees other than elected officers within guidelines established by the
Board or the Compensation Committee. Options granted under the 1992 Option
Plan vest and become exercisable at such time or times as is determined by the
administrator of the plan. Options granted to date generally vest over three
or four years, assuming continued employment, and expire under the applicable
terms of a specific grant from five to seven years from the date of the grant.
Options are not transferable by the optionee other than by will or the laws of
descent and distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee.

The exercise price of incentive stock options granted under the 1992
Option Plan must be at least equal to 100% of the fair market value of the
shares of Common Stock on the date of grant. Nonstatutory options may be
granted at any exercise price. With respect to any participant who owns stock
possessing more than 10% of the voting power of all classes of the Company's
outstanding capital stock, the exercise price of any incentive stock option
granted must be equal to at least 110% of the fair market value on the grant
date and the maximum term of the option must not exceed five years. The terms
of all other options granted under the 1992 Option Plan may not exceed ten
years. The option exercise price may be paid in cash, promissory note, shares
of the Company's Common Stock, or through a broker-dealer sale and remittance
procedure which will allow the optionee to exercise the option and sell the
purchased shares on the same day, with the sale proceeds used to satisfy the
option price payable for the purchased shares.

In the event of a merger of the Company with or into another
corporation or a sale of substantially all of the Company's assets, each option
would be assumed or an equivalent option substituted by the successor
corporation. In the event that the successor corporation does not assume the
option or substitute an equivalent option, the plan administrator is required
to accelerate the exercisability of all outstanding options.

The 1992 Option Plan also allows the Company to grant Stock
Appreciation Rights ("SARs"), stock purchase rights and long-term performance
awards. SARs may be granted in connection with or independent of options and
entitle the holder thereof to receive an amount, in cash or Common Stock, at
the Company's discretion,

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equal to the excess of the fair market value of the shares subject to the SAR on
the date of its exercise over the fair market value on the date of grant. Stock
purchase rights allow an offeree to purchase stock, subject to a right of the
Company to repurchase unvested shares in the event of termination of employment.
Shares purchased pursuant to stock purchase rights vest over time, based on
continued employment. Long-term performance awards are cash or stock bonus
awards which may be earned over a specified period after grant, based upon
performance or employment factors. No SARs, stock purchase rights or long-term
performance awards have been granted under the 1992 Option Plan.

Unless terminated sooner, the 1992 Option Plan will terminate in May
2000. The Board has the authority to amend or terminate the 1992 Option Plan,
provided, however, that no such action may adversely affect any outstanding
option, SAR, long-term performance award or stock purchase right.

As of September 30, 1996, 3,106,812 options to purchase shares of
Common Stock had been exercised, options to purchase 2,069,579 shares at a
weighted average exercise price of $11.02 per share were outstanding, and
1,423,608 shares remained available for future option grants under the 1992
Option Plan, including the 600,000 shares subject to shareholder approval at the
Annual Meeting.

TAX INFORMATION

Incentive stock options under the 1992 Option Plan are afforded
favorable federal income tax treatment under the Code. If an option is treated
as an incentive stock option, the optionee will recognize no income upon grant
or exercise of the option unless the alternative minimum tax rules apply. Upon
an optionee's sale of the shares (assuming that the sale occurs no sooner than
two years after grant of the option and one year after exercise of the option),
any gain will be taxed to the optionee as long-term capital gain. If the
optionee disposes of the shares prior to the expiration of the above holding
periods, the optionee will recognize ordinary income in an amount measured as
the difference between the exercise price and the lower of the fair market value
of the shares at the exercise date or the sale price of the shares. Any gain or
loss recognized on such a premature sale or exchange of the shares in excess of
the amount treated as ordinary income will be characterized as capital gain or
loss. Under the Code, the fair market value of the total number of shares of
Common Stock (determined on the date of grant of such option) covered by
incentive stock options held by an optionee first becoming exercisable in any
one calendar year may not exceed $100,000. To the extent this limit is
exceeded, such options shall not qualify as incentive stock options and will be
taxed as nonstatutory stock options as described below.

All other options granted under the 1992 Option Plan are nonstatutory
options and will not qualify for any special tax benefits to the optionee.
Accordingly, an optionee will not recognize any taxable income at the time he or
she is granted a nonstatutory option. However, upon exercise of the option, the
optionee will recognize ordinary income for federal income tax purposes in an
amount measured as the excess of the then fair market value of the shares over
the exercise price. Upon an optionee's resale of such shares, any difference
between the sale price and the fair market value of such shares on the date of
exercise will be treated as capital gain or loss and will qualify for long-term
capital gain or loss treatment if the shares have been held for more than one
year.

The ordinary income recognized by an optionee in accordance with the
exercise of a nonstatutory option will be treated as wages for tax purposes and
will be subject to tax withholding by the Company out of the current
compensation paid to such person, if any. If such current compensation is
insufficient to pay the withholding tax, such person will be required to make
direct payment to the Company for the tax liability. Any required withholding
in connection with the exercise of a nonstatutory stock option may, with the
consent of the Board of Directors, be satisfied by an optionee, in whole or in
part, by surrendering to the Company shares of Common Stock held by such person.
For such purpose, the surrendered shares are valued at their fair market value
at the time of surrender.

The Company will be entitled to a tax deduction in the amount and at
the time that an optionee recognizes ordinary income with respect to the option.
No employee may be granted options, SARs and stock purchase rights to purchase
more than 250,000 shares in any fiscal year nor more than 500,000 shares from
December 9, 1993 to May 2000; provided however, that the fiscal year limitation
may be exceeded with respect to an additional one-time

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grant of up to 250,000 shares to any newly hired employee. These limitations
enable the Company to exclude the compensation expense relating to stock
options, SARs and stock purchase rights under this 1992 Option Plan from
consideration under limits on the deductibility of compensation expense for
federal income tax purposes. To the extent the Board determines in the future
that such limitations are not required to preserve the deductibility of such
compensation expense, the Board may modify or eliminate these limitations. The
Company has no current intent to grant options, SARs or stock purchase rights to
any employee which would approach such limits. However, the Company believes
that grants in such amounts could become appropriate in future periods to retain
or attract executive personnel.

Different rules for measuring an optionee's ordinary income and the
Company's tax deduction may apply if the optionee is subject to Section 16 of
the Exchange Act.

THE FOREGOING DOES NOT PURPORT TO BE A COMPLETE SUMMARY OF THE EFFECT
OF FEDERAL INCOME TAXATION UPON HOLDERS OF OPTIONS OR UPON THE COMPANY. IT
ALSO DOES NOT REFLECT PROVISIONS OF THE INCOME TAX LAWS OF ANY MUNICIPALITY,
STATE OR FOREIGN COUNTRY IN WHICH AN OPTIONEE MAY RESIDE.

PLAN BENEFITS

The Company cannot now determine the exact number of options to be
granted in the future to the executive officers named under "EXECUTIVE OFFICER
COMPENSATION--Summary Compensation Table" below, to all current executive
officers as a group, or to all employees (including executive officers). See
"EXECUTIVE OFFICER COMPENSATION--Stock Option Grants and Exercises" below for
the number of stock options granted to the executive officers named in the
Summary Compensation Table in the fiscal year ended September 30, 1996. During
the fiscal year ended September 30, 1996, options to purchase 510,000 shares of
Common Stock of the Company were granted to all current executive officers as a
group and options to purchase 1,038,050 shares of Common Stock of the Company
were granted to all employees (including executive officers).

REQUIRED VOTE

The affirmative vote of a majority of the Votes Cast will be required
under California law to approve the amendment to the Plan. For this purpose,
the "Votes Cast" are defined under California law to be the shares of the
Company's Common Stock represented and "voting" at the Annual Meeting. In
addition, the affirmative votes must constitute at least a majority of the
required quorum, which quorum is a majority of the shares outstanding on the
Record Date. Votes that are cast against the proposal will be counted for
purposes of determining (i) the presence or absence of a quorum and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the amendment of the Plan, the Company believes that abstentions should
be counted for purposes of determining both (i) the presence or absence of a
quorum for the transaction of business and (ii) the total number of Votes Cast
with respect to the proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against the proposal. Broker
non votes will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business, but will not be counted for purposes
of determining the number of Votes Cast with respect to the proposal.

PROPOSAL 3 - APPROVAL OF AMENDMENT TO 1992 DIRECTOR STOCK OPTION PLAN

The Company's 1992 Director Stock Option Plan (the "1992 Director
Plan") provides for the grant of nonstatutory options to nonemployee directors
of the Company. Each outside director is automatically granted an option to
purchase a total of 30,000 shares of Common Stock upon first joining the Board
of Directors as an outside director. Such options vest cumulatively as to 7,500
shares each year for four years after the date of grant, based on continued
service on the Board. In addition, on July 1 of each year, each outside
director who has served on the Board for at least six months as of the date of
grant is automatically granted under the plan an option to

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purchase 7,500 shares of Common Stock. Each annual option vests in full four
years after the date of grant. Each such option is granted at an exercise
price equal to fair market value as of the date of grant.

PROPOSED AMENDMENT

In October 1996, the Board of Directors adopted, subject to
shareholder approval, an amendment to the 1992 Director Plan to increase the
number of shares reserved for issuance thereunder from 225,000 to 425,000
shares. As of November 25, 1996, there were 215,000 shares available for
future option grants under the 1992 Director Plan, including the 200,000 shares
subject to shareholder approval at this Annual Meeting.

At the Annual Meeting, the shareholders are being asked to approve
this amendment to the 1992 Director Plan.

RECOMMENDATION

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED AMENDMENT
TO THE 1992 DIRECTOR PLAN AND RECOMMENDS THAT SHAREHOLDERS VOTE FOR SUCH
AMENDMENT.

DESCRIPTION OF 1992 DIRECTOR STOCK OPTION PLAN

An aggregate of 425,000 shares have been reserved for issuance under
the 1992 Director Plan, including the 200,000 shares subject to shareholder
approval at the Annual Meeting. The 1992 Director Plan is currently
administered by the Board of Directors.

Under the 1992 Director Plan, each new nonemployee director who joins
the Board is automatically granted a nonstatutory option to purchase 30,000
shares of Common Stock on the date upon which such person first becomes a
director. Each such one-time grant vests cumulatively as to 7,500 shares each
year for four years after the date of grant, based on continued service as a
director. In addition, on July 1 of each year, each nonemployee director who
has served as a nonemployee director for at least six months as of the date of
grant automatically receives a nonstatutory option to purchase 7,500 shares of
the Company's Common Stock. Each such annual option vests in its entirety four
years after the date of grant, based on continued service as a director. The
exercise price of each option granted under the 1992 Director Plan is equal to
the fair market value of the Common Stock on the date of grant.

Options granted under the 1992 Director Plan have a term of five
years, unless terminated sooner upon termination of the optionee's status as a
director or otherwise pursuant to the 1992 Director Plan. Options are not
transferable by the optionee other than by will or the laws of descent or
distribution or pursuant to a qualified domestic relations order, and each
option is exercisable during the lifetime of the director only by such director
or a permitted transferee.

In the event of a merger of the Company with or into another
corporation or a consolidation, acquisition of assets or like transaction
involving the Company, each option may be assumed or an equivalent option
substituted by the successor corporation. If the successor corporation chooses
not to assume the options under the 1992 Director Plan, or if the Board of
Directors determines that the options should not continue to be outstanding,
then the options become null and void upon consummation of the merger or
transaction; provided that the optionee must be given notice of the transaction
and have 30 days from the date such notice is sent to exercise all unexpired
options, and, if as a result of the transaction the Company is not the
surviving entity, the optionee may exercise all options not otherwise
exercisable. The option exercise price may be paid in cash, promissory note,
shares of the Company's Common Stock, or through a broker-dealer sale and
remittance procedure which will allow the optionee to exercise the option and
sell the purchased shares on the same day, with the sale proceeds used to
satisfy the option price payable for the purchased shares.

9
<PAGE> 11
Unless terminated sooner, the 1992 Director Plan will terminate in
December 2002. The Board has the authority to amend or terminate the 1992
Director Plan, provided that no such action may affect any outstanding option
without the consent of the holder.

As of September 30, 1996, 15,000 options to purchase shares of Common
Stock had been exercised, options to purchase 195,000 shares at a weighted
average exercise price of $13.35 per share were outstanding, and 215,000 shares
remained available for future option grants under the 1992 Director Plan,
including the 200,000 shares subject to shareholder approval at the Annual
Meeting.

TAX INFORMATION

Options granted under the 1992 Director Plan are nonstatutory options
and will not qualify for any special tax benefits to the optionee.
Accordingly, an optionee will not recognize any taxable income at the time he
or she is granted a nonstatutory option. However, upon exercise of the option,
the optionee will recognize ordinary income for federal income tax purposes in
an amount measured as the excess of the then fair market value of the shares
over the exercise price. Upon an optionee's resale of such shares, any
difference between the sale price and the fair market value of such shares on
the date of exercise will be treated as capital gain or loss and will qualify
for long-term capital gain or loss treatment if the shares have been held for
more than one year.

Different rules for measuring an optionee's ordinary income and the
Company's tax deduction may apply if the optionee is subject to Section 16 of
the Exchange Act.

REQUIRED VOTE

The affirmative vote of a majority of the Votes Cast will be required
under California law to approve the amendment to the Plan. For this purpose,
the "Votes Cast" are defined under California law to be the shares of the
Company's Common Stock represented and "voting" at the Annual Meeting. In
addition, the affirmative votes must constitute at least a majority of the
required quorum, which quorum is a majority of the shares outstanding on the
Record Date. Votes that are cast against the proposal will be counted for
purposes of determining (i) the presence or absence of a quorum and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the amendment of the Plan, the Company believes that abstentions should
be counted for purposes of determining both (i) the presence or absence of a
quorum for the transaction of business and (ii) the total number of Votes Cast
with respect to the proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal. Broker non votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not
be counted for purposes of determining the number of Votes Cast with respect to
the proposal.

PROPOSAL 4-APPROVAL OF AMENDMENT TO 1994 EMPLOYEE STOCK PURCHASE PLAN

In October 1996, the Board of Directors adopted, subject to
shareholder approval, an amendment to the 1994 Employee Stock Purchase Plan
(the "Purchase Plan") to increase the number of shares reserved for issuance
thereunder from 250,000 to 400,000 shares. As of November 25, 1996, there were
184,087 shares of Common Stock available for issuance under the 1994 Employee
Stock Purchase Plan, including the 150,000 shares subject to shareholder
approval at this Annual Meeting. The Board of Directors believes that the
benefits to employees associated with the Purchase Plan will assist the Company
in attracting and retaining qualified employees.

10
<PAGE> 12
At the Annual Meeting, the shareholders are being asked to approve
this amendment to the 1994 Employee Stock Purchase Plan.

RECOMMENDATION

THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE PROPOSED AMENDMENT
TO THE 1994 EMPLOYEE STOCK PURCHASE PLAN AND RECOMMENDS THAT SHAREHOLDERS VOTE
FOR SUCH AMENDMENT.

DESCRIPTION OF PURCHASE PLAN

The essential features of the Purchase Plan are outlined below.
Copies of the Purchase Plan are available upon written request to the Company.

Purpose
The purpose of the Purchase Plan is to provide to employees (including
executive officers) of the Company an opportunity to purchase Common Stock of
the Company through payroll deductions. The Purchase Plan is intended to
qualify under Section 423 of the Internal Revenue Code.

Administration
The Purchase Plan may be administered by the Board of Directors or a
committee appointed by the Board, and currently is administered by the
Compensation Committee of the Board of Directors. All questions of
interpretation or application of the Purchase Plan are determined by the Board
of Directors or its appointed committee, and its decisions are final,
conclusive and binding upon all participants.

Eligibility
Any person who during the applicable offering period is regularly
employed in excess of 20 hours per week and five (5) months per calendar year
by the Company is eligible to participate in the Purchase Plan. No person who
owns or holds options or rights to acquire, or as a result of participation in
the Purchase Plan would own or hold options or rights to acquire, 5% or more of
the Company's Common Stock may participate in the Purchase Plan.

Participation in an Offering
Each offering of Common Stock under the Purchase Plan ("Offering") is
generally for a period of six months ("Offering Period"). The Board may change
the timing and duration of the Offering Periods without stockholder approval if
such change is announced at least five (5) days prior to the beginning of the
first Offering Period to be affected. The Board or its Committee may provide
for Offering Periods up to twenty-four (24) months in length, and Offering
Periods may be consecutive or overlapping. To date Offering Periods under the
Purchase Plan have been for consecutive six-month periods commencing on May 1
and November 1 of each year. To participate in the Purchase Plan, each
eligible employee must authorize payroll deductions pursuant to the Purchase
Plan. Such payroll deductions may not exceed 10% of a participant's
compensation. Once an employee becomes a participant in the Purchase Plan, the
employee will automatically participate in each successive Offering Period
until such time as the employee withdraws from the Purchase Plan or the
employee's employment terminates.

Grant and Exercise of Option
At the beginning of each Offering Period, each participant is
automatically granted an option to purchase shares of the Company's Common
Stock. The option may be exercised at the end of an Offering Period to the
extent of the payroll deductions accumulated during such Offering Period. The
option expires upon termination of employment or, in the event the option is
not exercised, at the end of the Offering Period, whichever is earlier.
Participants may not purchase shares having a fair market value exceeding
$25,000 in any calendar year. The Company may make a pro rata reduction in the
number of shares subject to options if the total number of shares which would
otherwise be subject to options granted at the beginning of an offering period
exceeds the number of shares remaining available for issuance under the
Purchase Plan. Unless an employee withdraws his or her participation in the
Purchase Plan by giving written notice to the Company of his or her election to
withdraw all

11
<PAGE> 13
accumulated payroll deductions prior to the end of an Offering Period, the
employee's option for the purchase of shares will be exercised automatically at
the end of the Offering Period, and the maximum number of full shares subject
to option which are purchasable with the accumulated payroll deductions in his
or her account will be purchased at the applicable purchase price determined as
provided below.

Purchase Price
The purchase price per share at which shares are sold to participating
employees is 85% of the lower of the fair market value per share of the Common
Stock on (i) the first day of the Offering Period or (ii) the last day of the
Offering Period. The fair market value of the Common Stock on a given date is
determined by reference to the last reported bid price on The Nasdaq Stock
Market.

Payroll Deductions
The purchase price of the shares acquired is accumulated by payroll
deductions over the six-month Offering Period. The deductions may not exceed
10% of a participant's aggregate eligible compensation. Eligible compensation
includes all wages, salaries and fees for professional services and any other
amounts reserved for personal services actually rendered in the course of
employment, including commissions, profit sharing and bonuses, but excluding
amounts realized from participation in the Company's stock and options program.
Payroll deductions for a participant commence on the first payroll following
the offering date and continue until participation is terminated. A
participant may reduce or increase the rate of payroll deductions at any time
during the offering period and may discontinue his or her participation in the
Purchase Plan at any time, subject to such limitations as the Board or its
committee may establish. Upon the withdrawal of a participant from the
Purchase Plan, the Company returns to the participant all funds credited to a
participant's payroll deduction account, without interest.

Termination of Employment
Termination of a participant's employment for any reason, including
retirement or death, or the failure of the participant to remain in the
continuous employ of the Company for an excess of 20 hours per week (or 5
months per year) during the applicable Offering Period, cancels his or her
option and his or her participation in the Purchase Plan immediately. In such
event, the payroll deductions credited to the participant's account will be
returned to him or her or, in the case of death, to the person or persons
entitled thereto as provided in the Purchase Plan.

Capital Changes
In the event any change is made in the Company's capitalization during
an Offering Period, such as a stock split or stock dividend, which results in
an increase or decrease in the number of shares of Common Stock outstanding
without receipt of consideration by the Company, appropriate adjustment shall
be made in the purchase price and in the number of shares subject to options
under the Purchase Plan.

Amendment and Termination of the Plan
The Board of Directors may at any time amend, alter or terminate the
Purchase Plan. No amendment may be made to the Purchase Plan without approval
of the shareholders of the Company if such amendment would increase the number
of shares reserved under the Purchase Plan, change the standards of eligibility
for participation in the Purchase Plan or materially increase the benefits
accruing to participants in the Purchase Plan. In the event the Purchase Plan
is terminated, the Board may elect to terminate all outstanding options either
immediately or upon completion of the purchase of shares on the next purchase
date, or may elect to permit options to expire in accordance with their terms
(and participation to continue through such expiration dates).

Federal Income Tax Information
The Purchase Plan, and the right of participants to make purchases
thereunder, is intended to qualify under the provisions of Section 421 and 423
of the Code. Under these provisions, no income will be taxable to a
participant at the time of grant of the option or purchase of the shares. Upon
disposition of the shares, the participant will generally be subject to tax.
If the shares have been held by the participant for more than two years after
the date of option grant and more than one year after the purchase date of the
shares, the lesser of (a) the excess of the fair market value of the shares at
the time of such disposition over the purchase price of the shares

12
<PAGE> 14
subject to the option, or (b) 15% of the fair market value of the shares on the
first day of the Offering Period will be treated as ordinary income, and any
further gain upon such disposition will be treated as long-term capital gain.
If the shares are disposed of before the expiration of the holding periods
described above, the excess of the fair market value of the shares on the
exercise date over the option price will be treated as ordinary income, and
further gain or loss on such disposition will be capital gain or loss.
However, if the shares are disposed of for less than the exercise price there
is no ordinary income and the participant recognizes a capital loss measured by
the difference between the exercise price and the sales price. Different rules
may apply with respect to optionees subject to Section 16(b) of the Securities
Exchange Act of 1934, as amended. The Company is not entitled to a deduction
for amounts taxable to a participant except to the extent of ordinary income
taxable to a participant upon disposition of shares prior to the expiration of
the holding periods described above.

THE FOREGOING IS ONLY A SUMMARY OF THE FEDERAL INCOME TAX CONSEQUENCES
OF THE PURCHASE PLAN TO PARTICIPANTS AND THE COMPANY. IN ADDITION, THE SUMMARY
DOES NOT DISCUSS THE TAX CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME
TAX LAWS OF ANY STATE OR FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.

PLAN BENEFITS

The Company cannot now determine the exact number of shares to be
issued in the future under the Purchase Plan to the executive officers named
under "EXECUTIVE OFFICER COMPENSATION--Summary Compensation Table," to all
current executive officers as a group, or to all employees (including executive
officers) as a group.

REQUIRED VOTE

The affirmative vote of a majority of the Votes Cast will be required
under California law to approve the adoption of the Plan. For this purpose,
the "Votes Cast" are defined under California law to be the shares of the
Company's Common Stock represented and "voting" at the Annual Meeting. In
addition, the affirmative votes must constitute at least a majority of the
required quorum, which quorum is a majority of the shares outstanding on the
Record Date. Votes that are cast against the proposal will be counted for
purposes of determining (i) the presence or absence of a quorum and (ii) the
total number of Votes Cast with respect to the proposal. While there is no
definitive statutory or case law authority in California as to the proper
treatment of abstentions in the counting of votes with respect to a proposal
such as the adoption of the Plan, the Company believes that abstentions should
be counted for purposes of determining both (i) the presence or absence of a
quorum for the transaction of business and (ii) the total number of Votes Cast
with respect to the proposal. In the absence of controlling precedent to the
contrary, the Company intends to treat abstentions in this manner.
Accordingly, abstentions will have the same effect as a vote against the
proposal. Broker non-votes will be counted for purposes of determining the
presence or absence of a quorum for the transaction of business, but will not
be counted for purposes of determining the number of Votes Cast with respect to
the proposal.

PROPOSAL 5 - RATIFICATION OF APPOINTMENT OF AUDITORS

The Board of Directors has appointed Ernst & Young LLP, independent
auditors, to audit Xircom's consolidated financial statements for the fiscal
year ending September 30, 1997. Such appointment is being presented to the
shareholders for ratification at the meeting. The affirmative vote of the
holders of a majority of the shares present in person or represented by proxy
and entitled to vote at the meeting is required to ratify the Board's
selection. In the event of a negative vote on such ratification, the Board of
Directors will reconsider its selection.

Ernst & Young LLP has audited Xircom's consolidated financial
statements since the fiscal period ended September 30, 1989. Representatives
of Ernst & Young LLP are expected to be present at the meeting, will have the
opportunity to make a statement if they so desire, and will be available to
answer appropriate questions from shareholders.

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<PAGE> 15
RECOMMENDATION

THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.

EXECUTIVE OFFICER COMPENSATION

SUMMARY COMPENSATION TABLE
The following table shows, as to (i) the Company's Chief Executive
Officer, (ii) each of the four other most highly compensated executive officers
other than the Chief Executive Officer who were serving as executive officers
of the Company as of September 30, 1996 and whose salary plus bonus exceeded
$100,000, and (iii) additional similar information for one individual who was
no longer an executive officer at September 30, 1996 but who otherwise would
have been named in the table (collectively the "Named Executive Officers"),
information concerning compensation paid for services to the Company in all
capacities during the fiscal year ended September 30, 1996 as well as the total
compensation paid to each such individual for the Company's previous two fiscal
years (if such person was the Chief Executive Officer or an executive officer,
as the case may be, during any part of such fiscal year).
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
------------------- ------------
Option All Other
Name, Age and Principal Position Year Salary ($) Bonus ($) Shares (1) Compensation (2)
------------------------------------------------------ ---- ---------- --------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Dirk I. Gates, 35 1996 $ 215,000 $214,731 50,000 --
Chairman, President and Chief Executive Officer 1995 $ 215,000 $ 7,242 -- --
1994 $ 195,000 $117,449 -- --
Carl E. Russo, 40 (3) 1996 $ 225,000 $175,163 50,000 $84,090
Executive Vice President and General Manager 1995 $ 96,250 $ 41,250 100,000 $35,605
1994 -- -- -- --
Marc M. Devis, 36 (4) 1996 $ 215,000 $152,144 50,000 $30,520
Sr. Vice President Sales and Marketing, Europe and 1995 $ 183,598 $ 40,451 20,000 --
Asia-Pacific 1994 $ 161,583 $ 61,628 50,000 --
Thomas V. Brown, 54 (5) 1996 $ 155,000 $ 93,862 20,000 $10,000
Vice President, Corporate Marketing 1995 $ 150,000 $ 13,493 10,000 --
1994 $ 140,000 $ 55,427 -- --
Robert W. Bass, 50 1996 $ 155,000 $ 92,482 45,000 --
Vice President, Worldwide Operations 1995 $ 155,000 $ 13,906 -- --
1994 $ 150,000 $ 57,262 -- --
Jerry N. Ulrich, 42 (6) 1996 $ 220,000 $111,822 -- --
Chief Operating Officer and Chief Financial 1995 $ 188,398 $ 15,444 20,000 --
Officer (through June 28, 1996) 1994 $ 160,000 $ 68,965 50,000 --
</TABLE>
________________________________________________________________________________

(1) The Company has not granted any SARs.
(2) Does not include amounts related to the value of group term life insurance
provided nor Company matching payments under the Company's
401(k) Plan, which together total less than $1,000 for each executive
officer.
(3) Mr. Russo joined the Company in April 1995, and was entitled to a
guaranteed performance bonus for the first six months of his employment.
Other compensation represents reimbursements for relocation expenses and a
hire incentive payment.
(4) Mr. Devis, resident in Belgium, is provided the use of a company-paid car.
The value of the personal use of the car is less than $10,000
per year. Other compensation includes amounts payable as special
allowances under Belgian law.
(5) Other compensation includes special project bonus.
(6) Mr. Ulrich left the service of the Company during FY 1996. Total
compensation for FY 1996 includes compensation payable under a separation
agreement.

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<PAGE> 16
STOCK OPTION GRANTS AND EXERCISES

The following tables set forth the stock options granted to the Named
Executive Officers under the Company's stock option plans and the options
exercised by such officers during the fiscal year ended September 30, 1996.

Stock Option Grants In Fiscal Year 1996
The Option Grant Table sets forth hypothetical gains for the options
at the end of their respective seven (7)-year terms, as calculated in
accordance with the rules of the Securities and Exchange Commission ("SEC").
Each gain is based on an arbitrarily assumed annualized rate of compound
appreciation of the market price of five percent (5%) and ten percent (10%)
from the date the option was granted to the end of the option term, less the
exercise price. Actual gains, if any, on option exercises are dependent on the
future performance of the Company's Common Stock and overall market conditions.

Individual Grants (1)

<TABLE>
<CAPTION>
Potential Realizable Value
at Assumed Annual Rates of
Percent of Total Stock Price Appreciation
Options Granted Exercise or for Option Term
Option Shares to Employees in Base Price Expiration ---------------------------
Name Granted (#)(2) Fiscal Year ($/share) Date 5%($) 10%($)
----------- -------------- ---------------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Dirk I. Gates 50,000 4.82% $ 11.625 07/11/03 $ 236,627 $ 551,441
Carl E. Russo 50,000 4.82% $ 11.625 07/11/03 $ 236,627 $ 551,441
Marc M. Devis 50,000 4.82% $ 11.625 07/11/03 $ 236,627 $ 551,441
Thomas V. Brown 20,000 1.93% $ 10.375 01/19/03 $ 84,473 $ 196,858
Robert W. Bass 35,000 3.37% $ 11.625 07/11/03 $ 165,638 $ 386,009
10,000 0.96% $ 12.375 07/25/03 $ 50,378 $ 117,403
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Mr. Ulrich, listed in the Executive Officer Compensation table, received no
option grants in fiscal year 1996.

(2) The Company did not grant any SARs in fiscal 1996.

Aggregate Option Exercises in Fiscal Year 1996 and Year-end Option Values
The following table discloses all stock options exercised by the Chief
Executive Officer and the other executive officers named in the Executive
Officer Compensation table for the fiscal year ended September 30, 1996. The
values realized in the following table are based on the difference between the
market value of the underlying securities at the exercise date or the end of
the fiscal year (September 30, 1996) minus the exercise price of the options.
The value of unexercised in-the-money options are based on the difference
between the market value at the end of the fiscal year and the exercise price
of in-the-money options.

<TABLE>
<CAPTION>
Number of unexercised Value of unexercised
options at 1996 in-the-money options
year-end at 1996 year-end (1)
Shares acquired Value realized ------------------------- -------------------------
Name of Officer on exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
--------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Dirk I. Gates -- -- -- 50,000 -- $ 231,250
Carl E. Russo -- -- 25,000 125,000 $ 131,250 $ 625,000
Marc M. Devis -- -- 19,999 100,001 $ 124,993 $ 543,757
Thomas V. Brown 22,498 $ 245,452 17,672 23,580 $ 105,068 $ 145,257
Robert W. Bass 73,500 $ 705,255 5,000 50,000 $ 31,250 $ 231,874
Jerry N. Ulrich 55,000 $ 357,500 37,500 55,000 $ 253,125 $ 343,750
</TABLE>
(1) Total value of vested and unvested options based on the market value of the
Company's Common Stock on September 30, 1996 ($16.25 per share).

15
<PAGE> 17
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT, CHANGE-IN-CONTROL ARRANGEMENTS
AND CERTAIN TRANSACTIONS

From time to time, the Company has entered into letter employment
agreements with certain of its executive officers which have set the officer's
base salary and state that options to purchase the Company's Common Stock will
be granted to the officer. The Company has entered into indemnification
agreements with each of its directors and executive officers. Such agreements
require the Company to indemnify such individuals to the fullest extent
permitted by law.

Pursuant to a resolution adopted by its Board of Directors, the
Company entered into Change in Control Agreements (the "CIC Agreements")
effective October 1, 1996 with each executive officer of the Company other than
the Company's chief executive officer. Each CIC Agreement has an initial term
of one year, and renews automatically thereafter on an annual basis unless
terminated upon written notice by the Company. The CIC Agreement provides that
in the event of a Change in Control, as defined, each executive shall receive
acceleration of twelve (12) months of vesting under then existing stock
options. In addition, upon any involuntary termination of an executive's
employment within two years following a Change in Control, or voluntary
termination by the executive after a Change in Control and for Good Reason, as
defined, the executive is entitled to certain severance payments and
entitlements. Such severance payments and entitlements include continuation of
payment of base salary, bonuses and benefits, and acceleration of vesting under
then existing stock option grants, for a period of one (1) year if termination
of employment or resignation for Good Reason occurs within twelve (12) months
after the Change in Control, or for a period of six (6) months if termination
of employment or resignation for Good Reason occurs within the thirteenth to
twenty fourth (13th-24th) month after the Change in Control. A Change in
Control is generally defined to be (1) acquisition by a third party of greater
than fifty per cent (50%) of the voting power of the Company, or (2) a merger,
sale of assets, or comparable transaction, which results in a Board of
Directors in which the Directors who were members of the Board prior to the
event represent less than a majority of the Board of Directors following the
event. Good Reason is generally defined as a substantial alteration or
reduction in duties and responsibilities, a reduction in salary or bonus
eligibility affecting the executive individually (as opposed to across the
board reductions impacting all executives equally), reassignment to a different
geographic location, or refusal of the successor entity to assume the CIC
Agreement.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934, as amended (the
Exchange Act") requires the Company's executive officers and directors and
persons who own more than ten percent of a registered class of the Company's
equity securities to file an initial report of ownership on Form 3 and changes
in ownership on Form 4 or 5 with the Securities and Exchange Commission (the
"SEC") and the National Association of Securities Dealers, Inc. Executive
Officers, directors and greater-than-ten-percent shareholders are also required
by SEC rules to furnish the Company with copies of all Section 16(a) forms they
file. Based solely on its review of copies of such forms received by it, or
written representations from certain reporting persons, the Company believes
that during the period from October 1, 1995 to September 30, 1996, a delayed
Form 3 filing was made on behalf of Phil H. Belanger and a delayed Form 4
filing was made on behalf of Dirk I. Gates. Other than these delayed filings,
again based solely on its review of copies of such forms received by it or
written representations from certain reporting persons, the Company believes
that all other filing requirements applicable to its officers, directors and
ten percent shareholders were complied with.

COMPENSATION COMMITTEE REPORT

The Compensation Committee of the Board of Directors consists of the
independent directors of the Company listed below. The committee is
responsible for determining the Company's executive compensation policies at
the beginning of each year, including the base salary levels and target
incentives for executive officers of the Company. The committee also evaluates
the performance of the Company's Chief Executive Officer against the Company's
overall objectives and administers the Company's Stock Option Plan and Employee
Stock Purchase Plan. The Company's President and Chief Executive Officer, and
the Company's Vice President, Human

16
<PAGE> 18
Resources, have provided executive officer background and independent salary
survey information from third party providers for the committee's use.

The Company's policy is that executive compensation should meet two
objectives: (1) to ensure that the compensation and incentives provided to the
executive officers are closely aligned with the Company's financial performance
and ultimately shareholder value and (2) to enable the Company to attract and
retain, through a competitive compensation structure, those key executives
critical to the long-term success of the Company.

To ensure that the first objective is met, the Committee has provided
that a significant portion of officers' total potential compensation is earned
as bonuses under a bonus plan on achievement of targeted financial objectives
established at the beginning of the fiscal year. In addition, significant
remuneration is tied to the Company's stock price performance, through the
grant of stock options to key executive officers. With respect to the Chief
Executive Officer, Mr. Gates is a founder of the Company, and as of October 31,
1996 owned 1,243,202 shares of common stock. This substantial equity interest
further ensures that increasing shareholder value is a key element of the total
earnings of Mr. Gates.

The second objective of the overall executive compensation policy is
addressed by establishing compensation levels based on consideration of the
salaries and total compensation of executive officers in similar positions with
comparable companies in its industry, the Company's financial performance
during the past year and each officer's performance against objectives related
to their areas of responsibility.

For fiscal year 1996, the Company's Chief Executive Officer's bonus
plan provided for incentive bonuses, at specified targets, of up to 55% of
salary based on achievement of (i) specific annual financial goals (30% bonus
at target), (ii) a specific annual sales goal (10% bonus at target), (iii)
specific quarterly financial goals (7 1/2% bonus at target) and (iv) annual
individual objectives (7 1/2% bonus upon achievement). The other executive
officers also had bonus incentives at specified targets ranging up to 40% or
45% of base salary based on similar annual and quarterly financial goals,
individual objectives measured quarterly, and for those officers with sales
responsibilities, specific sales volume incentives. No bonus would have been
paid unless the Company achieved at least 90% of its targeted goal. The plans
provided for higher percentages if targeted goals were exceeded.

Based on attainment of individual performance objectives and financial
objectives for fiscal year 1996, the Chief Executive Officer received bonuses
for fiscal 1996 totaling 100% of base salary (for a total bonus of $214,731).
The other executive officers received bonuses ranging from 60% to 78% of base
salary earned during the fiscal year.

For fiscal year 1997, the Chief Executive Officer bonus plan again
provides for a bonus to be based on achievement of specific financial
objectives. The total bonus available under the CEO plan is up to 60% of base
salary based on achievement of targeted goals. The bonus plan for other
executive officers provides for bonuses up to a range of 50% to 60% based on
achievement of specified financial and sales goals. The plans provide for
higher percentages if targeted goals are exceeded.

The committee considers granting stock options to an executive officer
based on a number of factors, including such officer's responsibilities and
relative position in the company, any changes in such officer's responsibility
and position and such officer's equity interest in the Company in the form of
stock and options held by such individual. Options are granted at the current
market price of the Company's common stock on the date of the grant. During
fiscal 1996, options for 510,000 shares were granted to the executive officers
as a group.

No member of the Compensation Committee is a former or current officer
or employee of the Company or any of its subsidiaries.

Compensation Committee: Michael F.G. Ashby, Gary J. Bowen, William J.
Schroeder and Delbert Yocam (Bruce C. Edwards October 1, 1995 through
July 2, 1996)

17
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

No member of the Compensation Committee has a relationship that would
constitute an interlocking relationship with executive officers or directors of
another entity.

STOCK PERFORMANCE GRAPH

The following graph compares the change in the Company's cumulative
total shareholder return on its Common Stock with the Standard and Poor's 500
Stock Index and the Hambrecht & Quist High Growth Index for the 54 month period
since the Company completed its initial public offering.

<TABLE>
<CAPTION>
MAR. 31, 1992 SEPT. 30, 1992 SEPT. 30, 1993 SEPT. 30, 1994 SEPT. 30, 1995 SEPT. 30, 1996
------------- -------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Xircom $ 100 $ 80 $ 130 $ 148 $ 98 $ 116
S&P 500 $ 100 $ 103 $ 116 $ 121 $ 157 $ 189
H&Q Growth $ 100 $ 80 $ 102 $ 103 $ 172 $ 207
</TABLE>

[STOCK PERFORMANCE GRAPH]

Note: The Company's return is calculated based on the assumption that $100
was invested on March 31, 1992 at the initial public offering price of $14 per
share.

18
<PAGE> 20
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding
beneficial ownership of the Company's Common Stock as of October 31, 1996, by
each person (or group of affiliated persons) who is known by the Company to own
beneficially more than 5% of the Company's Common Stock, each director, each
executive officer named in the Executive Officer Compensation table, and all
current directors and executive officers as a group. Except as indicated in
the footnotes to this table, the persons named in the table have sole voting
and investment power with respect to all shares of Common Stock shown as
beneficially owned by them, subject to community property laws where
applicable.

<TABLE>
<CAPTION>
Name and Address Number of Shares Percent of Total
- ---------------- ---------------- ----------------
<S> <C> <C>
Kopp Investment Advisors, Inc. ("Kopp")(1).................................................... 2,683,805 13.5%
6600 France Avenue South, Suite 672
Edina, Minnesota 55435
George D. Bjurman & Associates (2)............................................................ 1,305,890 6.6%
10100 Santa Monica Boulevard, Suite 1200
Los Angeles, CA 90067
Dirk I. Gates (3)............................................................................. 1,243,202 6.2%
2300 Corporate Center Drive
Thousand Oaks, California 91320
J. Kirk Mathews (4)........................................................................... 236,202 1.2%
Marc M. Devis (5)............................................................................. 85,844 0.4%
Kenneth J. Biba .............................................................................. 70,200 0.4%
Jerry N. Ulrich (6)........................................................................... 46,365 0.2%
Carl E. Russo (7)............................................................................. 42,291 0.2%
William J. Schroeder (8)...................................................................... 25,000 0.1%
Thomas V. Brown (9)........................................................................... 13,647 0.1%
Gary J. Bowen (10)............................................................................ 7,500 0.0%
Robert W. Bass (11)........................................................................... 6,874 0.0%
Michael F.G. Ashby ........................................................................... 5,000 0.0%
Delbert W. Yocam ............................................................................. - 0.0%
All current directors and executive officers as a group
(17 persons) (12)............................................................................. 1,829,901 9.1%
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 40,000 shares for which Kopp possessed sole voting and investment
power; 80,000 shares for which Kopp holds sole voting power and shares
investment power; and 2,563,805 shares for which Kopp has shared investment
power but no voting power.
(2) Includes 1,225,630 shares for which Geo. D. Bjurman & Assoc. possessed sole
voting power. Geo. D. Bjurman & Assoc. holds sole investment power over all
shares owned.
(3) Includes 4,400 shares held by an irrevocable trust, as to which Mr. Gates
denies beneficial ownership and 1,238,802 held by the Dirk I. Gates Trust
dated October 4, 1994 of which Mr. Gates is Trustee.
(4) Includes 7,500 shares subject to outstanding options held by Mr. Mathews
that were exercisable as of October 31, 1996 or within 60 days of such date.
(5) Includes 24,374 shares subject to outstanding options held by Mr. Devis that
were exercisable as of October 31, 1996 or within 60 days of such date.
(6) Includes 40,835 shares subject to outstanding options held by Mr. Ulrich
that were exercisable as of October 31, 1996 or within 60 days of such date.
(7) Includes 41,667 shares subject to outstanding options held by Mr. Russo that
were exercisable as of October 31, 1996 or within 60 days of such date.
(8) Mr. Schroeder's shares are held in the name of William J. Schroeder and
Marilee J. Schroeder Revocable Trust.
(9) Includes 12,502 shares subject to outstanding options held by Mr. Brown that
were exercisable as of October 31, 1996 or within 60 days of such date.
(10)Consists of 7,500 shares subject to outstanding options held by Mr. Bowen
that were exercisable as of October 31, 1996 or within 60 days of such date.
(11)Includes 5,625 shares subject to outstanding options held by Mr. Bass that
were exercisable as of October 31, 1996 or within 60 days of such date.
(12)Includes 171,757 shares subject to outstanding options held by all current
directors and executive officers as a group that were exercisable as of
October 31, 1996 or within 60 days of such date.

19
<PAGE> 21
OTHER MATTERS

The Board of Directors knows of no other matters to be submitted to the
shareholders at the Annual Meeting. If any other matters properly come before
the shareholders at the Annual Meeting, it is the intention of the persons
named on the enclosed proxy card to vote the shares they represent as the Board
of Directors may recommend.

By Order of the Board of Directors

/s/ RANDALL H. HOLLIDAY
-----------------------------------
Randall H. Holliday
Secretary

Thousand Oaks, California
December 12, 1996

20
<PAGE> 22

DETACH HERE XIR F

XIRCOM, INC.
P
R PROXY FOR ANNUAL MEETING OF SHAREHOLDERS -- JANUARY 17, 1997
O
X THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Y
The undersigned shareholder of Xircom, Inc. hereby constitutes and
appoints DIRK I. GATES and STEVEN F. DeGENNARO, and each of them, proxies and
attorneys-in-fact of the undersigned, each with full power of substitution, to
vote all the shares of Common Stock of Xircom, Inc. standing in the name of the
undersigned at the Annual Meeting of Shareholders of Xircom, Inc. to be held at
the Hyatt Westlake Plaza Hotel, located at 800 S. Westlake Boulevard, Westlake
Village, California, on January 17, 1997 at 10:00 a.m., local time, and at any
adjournment(s) or postponement(s) thereof.

UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1, FOR PROPOSALS 2, 3, 4 AND 5, AND IN
ACCORDANCE WITH THE JUDGMENT OF THE PROXIES AS TO THE BEST INTERESTS OF THE
COMPANY UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT(S) OR POSTPONEMENT(S) THEREOF. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.

PLEASE FILL IN, DATE, SIGN AND MAIL THIS PROXY IN THE ENCLOSED
POSTAGE-PAID RETURN ENVELOPE.

-----------
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE) SEE REVERSE
SIDE
-----------
<PAGE> 23

DETACH HERE XIR 2F

[ X ] Please mark
votes as in
this example.

1. To elect directors to serve for the ensuing year and until their
successors are elected and duly qualified.

NOMINEES: Michael F.G. Ashby, Kenneth J. Biba, Gary J. Bowen, Dirk I.
Gates, J. Kirk Mathews, William J. Schroeder and Delbert W. Yocam

FOR WITHHELD
[ ] [ ]

[ ] MARK HERE [ ]
----------------------------- FOR ADDRESS
For all nominees except those CHANGE AND
indicated on the above line. NOTE BELOW

2. To approve an amendment to the Company's FOR AGAINST ABSTAIN
Employee Stock Option Plan to increase [ ] [ ] [ ]
the number of shares of common stock
reserved for issuance thereunder from
6,000,000 shares to 6,600,000 shares.

3. To approve an amendment to the Company's FOR AGAINST ABSTAIN
Director Stock Option Plan to increase [ ] [ ] [ ]
the number of shares of common stock
reserved for issuance thereunder from
225,000 shares to 425,000 shares.

4. To approve an amendment to the Company's FOR AGAINST ABSTAIN
Employee Stock Purchase Plan to increase [ ] [ ] [ ]
the number of shares of common stock
reserved for issuance thereunder from
250,000 shares to 400,000 shares.

5. To ratify the appointment of Ernst & FOR AGAINST ABSTAIN
Young LLP as independent auditors of [ ] [ ] [ ]
the Company for the fiscal year ending
September 30, 1997.

6. To transact such other business as may properly come before
the meeting or any adjournment thereof.

The proxies are authorized to cumulate votes and vote on such other business
as is properly brought before the Annual Meeting for action in accordance
with their judgment as to the best interests of the Company.

Please sign exactly as name appears on your stock certificate. If the stock
is registered in the names of two or more persons, each should sign.
Executors, administrators, trustees, guardians, attorneys and corporate
officers should insert their titles.

Signature: ______________ Date: ______ Signature: ______________ Date: ______