<PAGE>
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarter ended December 31, 1998
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-19856
XIRCOM, INC.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Telephone: (805) 376-9300
CALIFORNIA (State of incorporation)
95-4221884 (IRS Employer Identification No.)
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 [_]
There were 23,930,115 shares of the Registrant's $.001 par value Common Stock
outstanding as of February 3, 1999.
1
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Xircom, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page in Form 10-Q
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Income Statements 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6-13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 13
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 13
ITEM 2. CHANGES IN SECURITIES 13
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 14
ITEM 5. OTHER ITEMS 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 14
</TABLE>
2
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Xircom, Inc.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
(In thousands) 1998 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $123,522 $105,796
Accounts receivable, net 28,356 29,280
Income tax receivable 285 285
Inventories 15,584 16,121
Deferred income taxes 11,659 11,659
Other current assets 3,998 4,874
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 183,404 168,015
Property and equipment, net 29,731 26,730
Other assets 606 479
- ---------------------------------------------------------------------------------------------------------------------
Total assets $213,741 $195,224
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Current liabilities:
Accounts payable $ 9,323 $ 17,269
Accrued liabilities 32,895 28,813
Accrued income taxes 2,681 3,308
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 44,899 49,390
Deferred income taxes 9,116 9,116
Shareholders' equity:
Common stock 24 23
Paid-in capital 159,095 145,862
Retained earnings (accumulated deficit) 607 (9,167)
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 159,726 136,718
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $213,741 $195,224
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
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Xircom, Inc.
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share information)
Three Months Ended December 31 1998 1997
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $96,022 $52,545
Cost of sales 56,460 34,417
- --------------------------------------------------------------------------------------------------------------------
Gross profit 39,562 18,128
Operating expenses:
Research and development 5,190 3,539
Sales and marketing 18,282 10,277
General and administrative 2,891 2,071
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 26,363 15,887
- --------------------------------------------------------------------------------------------------------------------
Operating income 13,199 2,241
Other income, net 376 1,224
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 13,575 3,465
Provision for income taxes 3,801 1,035
- --------------------------------------------------------------------------------------------------------------------
Net income $ 9,774 $ 2,430
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .42 $ .11
Diluted earnings per share $ .39 $ .11
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
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Xircom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended December 31 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 9,774 $ 2,430
Adjustments to derive cash flows from operating activities:
Depreciation and amortization 2,355 1,733
Foreign currency exchange (gain) loss 173 (228)
Changes in assets and liabilities:
Accounts receivable 924 (8,341)
Inventories 537 1,424
Other current assets 876 56
Accounts payable and accrued liabilities (4,037) 5,686
Income taxes payable 3,365 1,003
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 13,967 3,763
- -----------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of property and equipment (5,277) (7,490)
Other (206) (107)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (5,483) (7,597)
- -----------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of capital stock 9,242 684
Repayment of debt obligations - (2,541)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,242 (1,857)
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 17,726 (5,691)
Cash and cash equivalents at beginning of period 105,796 75,109
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $123,522 $69,418
- -----------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Cash paid for income taxes $ 461 $ -
Non-cash transactions--tax benefit related to employee stock options $ 3,992 $ 6
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
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Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit (except for the balance sheet information as of
September 30, 1998, which was derived from audited consolidated financial
statements) pursuant to Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at December 31, 1998 and the consolidated
statements of income and cash flows for the three-month periods ended December
31, 1998 and 1997, in accordance with generally accepted accounting principles.
The accompanying financial statements are condensed and do not include footnotes
and certain financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's 1998 annual report on
Form 10-K. The results of operations for the three-month period ended December
31, 1998 are not necessarily indicative of the results to be expected for the
entire fiscal year.
Cash and cash equivalents
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.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
December 31 September 30
(In thousands) 1998 1998
- -------------------------------------------------------------
<S> <C> <C>
Finished goods $ 6,126 $ 4,165
Subassemblies 844 1,092
Work-in-process 6,026 5,383
Component parts 2,588 5,481
- -------------------------------------------------------------
$15,584 $16,121
- -------------------------------------------------------------
</TABLE>
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. In addition, the Company provides telephone
support to purchasers of its products as needed to assist them in their
installation or use. The Company makes provisions for these costs in the period
of sale. The Company also has contractual agreements which permit distributors
and dealers to return products or receive price protection credits under certain
circumstances. The Company makes a provision for the estimated amount of
product returns or credits that may occur under these contracts in the period of
sale.
Earnings per share
Basic earnings per share is calculated using the weighted average common shares
outstanding for the period, and excludes dilutive securities. Diluted earnings
per share reflects the dilution to earnings that would occur if securities,
stock options and other dilutive securities resulted in the issuance of common
stock. The weighted average number of shares for basic and diluted earnings per
were as follows:
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended December 31 1998 1997
- --------------------------------------------------------
<S> <C> <C>
Weighted average number of
shares--basic 23,454 22,723
Effect of dilutive
securities:
Employee stock options 1,485 57
Warrants 122 -
- --------------------------------------------------------
Weighted average number of 25,061 22,780
shares--diluted
- --------------------------------------------------------
</TABLE>
Effects of recent accounting pronouncements
As of December 31, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130"). SFAS 130
establishes new rules for the reporting of comprehensive income and its
components. The adoption of SFAS 130 had no impact on the Company's net income
or shareholders' equity.
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Quarterly Report contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and
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XIRCOM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the trend analysis and other
forward-looking statements contained herein, as a result of the risk factors set
forth below and elsewhere in this report.
Results of Operations
- ---------------------
The following table sets forth the income statements as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended December 31 1998 1997
---------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 58.8% 65.5%
- ---------------------------------------------------------
Gross profit 41.2% 34.5%
Operating expenses:
Research and development 5.4% 6.7%
Sales and marketing 19.1% 19.6%
General and administrative 3.0% 3.9%
- ---------------------------------------------------------
27.5% 30.2%
- ---------------------------------------------------------
Operating income 13.7% 4.3%
Other income, net 0.4% 2.3%
- ---------------------------------------------------------
Income before income taxes 14.1% 6.6%
Provision for income taxes 3.9% 2.0%
- ---------------------------------------------------------
Net income 10.2% 4.6%
- ---------------------------------------------------------
</TABLE>
Net sales
Net sales of LAN adapters, modems and multifunction LAN and modem cards ("Combo
cards") for the three-month period ended December 31, 1998 increased 83% from
the corresponding prior-year period. The increase was primarily due to growth
in overall market demand for local and wide area network connectivity products
and an increase in unit sales of the Company's adapter products by its domestic
and international distribution customers (the "branded business") and original
equipment manufacturer ("OEM") customers. Total unit shipments for the three-
month period ended December 31, 1998 increased 94% from the corresponding prior
year period. Average selling prices declined due to an increase in shipments to
OEM customers, as compared to the prior year quarter, and increased competition
in the PC Card adapter market. Such competition resulted in price reductions on
the LAN adapter, Combo card and modem PC Card products. These declines were
offset partially, however, by the higher average selling prices of the Company's
RealPort Integrated PC Card family of products introduced during the third
quarter of fiscal 1999.
International sales. Total international sales (shipments to customers located
outside the U.S.) were 57% of total net sales for the three-month period ended
December 31, 1998, compared to 52% for the comparable prior year period. PC
Card sales in Europe and in the U.S. grew at faster rates than in the Asia-
Pacific region during the first quarter of fiscal 1998, which the Company
attributes primarily to economic uncertainty in Asian countries.
Gross profit
Gross profit consists of net sales less cost of sales, which includes product
costs (including materials, labor and manufacturing overhead) and other costs of
sales (including royalty payments to licensors of software incorporated into the
Company's products, warranty expense and provisions for excess and obsolete
inventory). Gross profit margins for the quarter ended December 31, 1998 were
41.2% compared to 34.5% for the comparable prior-year period. The increase in
gross profit as a percentage of net sales was primarily attributable to higher
gross margins of the Company's RealPort Integrated PC Card family of products as
compared to PC Card products.
Operating expenses
Research and development expenses increased by 47% in absolute dollars but
decreased as a percentage of sales for the quarter ended December 31, 1998 as
compared to the corresponding prior-year period. These increased expenses were
due to additional staffing to support feature enhancement and cost reduction of
current products, continued development of higher-speed and higher bandwidth
Integrated PC Cards and PC Cards, development of Compact Flash communications
adapters, and support for the Company's OEM customers, including development of
Mini-PCI adapters. Research and development expenses decreased as a percentage
of sales for the quarter ended December 31, 1998, as compared to the
corresponding prior-
7
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Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
year period, primarily due to the increase in sales.
Research and development expenses are expected to continue to increase due to
planned expenditures on product enhancements and new product introductions, and
may vary as a percentage of sales.
Sales and marketing expenses for the quarter ended December 31, 1998 increased
by 78% compared to the corresponding prior-year period. The increase was
primarily due to additional headcount and sales and marketing activities to
support expanding markets and increased OEM sales levels. Sales and marketing
expenses decreased as a percentage of sales for the quarter ended December 31,
1998, as compared to the corresponding prior-year period, primarily due to the
increased mix of OEM sales versus distribution sales. Lower sales and marketing
expenditures are generally associated with OEM sales. Sales and marketing
expenses are expected to increase through the remainder of fiscal 1999 as
further market expansion activities are pursued.
General and administrative expenses for the quarter ended December 31, 1998
increased by 40% compared to the corresponding prior-year period. The increase
was to support growth in the organization and, to a lesser extent, continued
noncapitalizable expenditures on information systems hardware and software,
including Year 2000 upgrades. See Risk Factors for a more detailed discussion
of Year 2000 issues. These expenses decreased as a percentage of sales, as
compared to the corresponding prior-year period, primarily due to increased
sales. General and administrative expenses are expected to increase modestly for
the remainder of fiscal 1999 and may vary as a percentage of sales.
Other income, net
Net other income includes interest income from the investment of available cash
and early payment discounts earned by the Company, offset by early payment
discounts taken by customers and foreign currency transaction gains and losses.
The decrease in net other income for the fiscal 1999 period compared to the
corresponding prior-year period was due primarily to lower interest income
resulting from the Company's use of tax preferred cash equivalents, foreign
exchange losses versus gains, and an increase in early payment discounts taken
by customers.
Income taxes
The Company's effective income tax rate for the three month period ended
December 31, 1998 was 28% as compared to 30% for the comparable prior-year
period. The difference between the effective tax rates and the 35% federal
statutory tax rate was due primarily to benefits from the tax holiday status of
the Company's operations in Malaysia. In addition, during the December 1998
quarter the Company began investing in tax preferred cash equivalents, thereby
further reducing its effective tax rate.
Risk Factors
- ------------
Competition. The market for notebook PC Card adapters has grown rapidly since
the Personal Computer Memory Card International Association (PCMCIA) introduced
a standard form factor for PC Card LAN adapters in 1993. Companies in the PC,
desktop LAN adapter and modem industries with greater name recognition and
greater financial resources than the Company, now have a significant presence in
the PC Card adapter market. As a result, the Company's net sales and gross
profit margins have been and are expected to continue to remain subject to
adverse competitive pressure. Actions by the Company's competitors which
continue to influence this competitive environment include price reductions, new
product introductions, promotional efforts, and changes in the level of channel
inventory. Competition is expected to remain intense and the Company could
experience fluctuations in its market share. Moreover, the Company believes
that the market for PC Card LAN adapters, modems and Combo cards will continue
to be price competitive and thus could continue to result in lower selling
prices, lower gross profit margins and reduced profitability levels than earned
from such products in the past.
Manufacturing. The Company believes that its in-house manufacturing facility is
operating at a greater efficiency level than during prior years. This
manufacturing facility, located in Malaysia, began volume production in early
fiscal 1996 and is now
8
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Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
producing all of the Company's products. While the manufacturing facility and
increased production is expected to have a continuing positive impact on cost
reduction efforts, the Company may be unable to achieve significant additional
efficiencies from this facility. If the Company is unable to achieve additional
cost reductions through increased manufacturing efficiency or through increased
production it may be unable to keep pace with competitors' cost or price
reductions to an extent necessary to maintain or increase market share without
adversely affecting gross profit margins. Because all products are being
manufactured at its own facility, if the Company is unable to accurately
forecast or react to changes in product demand, interruptions in the supply of
products could occur which in turn could adversely affect future sales. The
Company also faces risks associated with operations overseas, including
management of a distant manufacturing facility, currency fluctuations and
potential instability in the local country, particularly in light of recent
economic and political uncertainty in Malaysia and in Asia generally.
International markets. All of the Company's international sales are denominated
in U.S. dollars and may be subject to government controls and other risks.
These controls and risks may include federal restrictions on export, export
licenses, trade restrictions, changes in tariff and freight rates, currency
fluctuations, and political instability. As a result of recent and potential
factors impacting international markets, such as currency fluctuations and
economic instability, the Company could encounter difficulties in accessing new
and existing international markets or experience increased credit risks (such as
customer insolvencies or other impairments of customers' ability to repay
existing obligations).
The Company has implemented and may continue to implement certain strategies to
limit the impact of foreign currency fluctuations on its Asian distributors. In
doing so, the Company may assume greater foreign currency risk in the future.
Continued instability or other adverse changes in local economies could affect
the future operations of the Company. In September 1998, the Malaysian
government fixed the exchange rate of the Malaysian ringgit at 3.8 ringgits per
U.S. dollar. The Company believes that the fixing, or any potential reversion
to a floating exchange rate, will not have a significant impact on its results
of operations.
Several European countries have adopted a Single European Currency (the "Euro")
as of January 1, 1999 with a transition period continuing through January 1,
2002. The Company is reviewing the anticipated impact the Euro may have on its
internal systems and on its competitive environment. The Company believes its
internal systems will be Euro capable without material modification cost.
Further, the Company does not presently expect the introduction of the Euro
currency to have a material adverse impact on the Company's financial condition
or results of operations.
Product mix. Revenues derived from the Company's Combo and modem-only PC Cards
typically have lower gross profit margins than LAN PC Cards. In addition,
shipments to OEMs generally result in lower average selling prices and gross
profit margins than sales made through the Company's distribution partners.
Increases in the proportion of modem-only and Combo PC Cards and in shipments to
OEMs have negatively impacted overall gross margins and may continue to offset
any improvements from manufacturing and design efficiencies. This trend may
continue as the Company anticipates an increased mix of OEM revenues as a
percentage of sales. In addition, the increased percentage of revenue from OEM
customers during fiscal 1999 as compared to fiscal 1998 has resulted in an
increased concentration in the Company's customer base. With this increased
customer concentration, the Company has increased its dependency on a more
limited number of customers at lower average selling prices and gross profit
margins than sales made through the Company's distribution partners.
Backlog. The Company generally ships products within one to four 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
9
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Xircom, Inc.
MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
future demand and not on firm customer orders. If net sales do not meet
expectations, profitability would be adversely affected, as the Company may not
be able to reduce expenses commensurately in the near-term.
Channel inventory. The Company's net sales may be affected by its distributors'
decisions as to the quantity of the Company's products to be maintained in their
inventories. Since the fourth quarter of fiscal 1997, the Company has taken
steps to reduce the levels of inventories maintained by its distributors and to
enable it to react more quickly to market changes. As a result, the Company may
be more directly affected by changes in the market, including the impact of any
slowdown or rapid increase in end user demand. Despite the Company's efforts to
reduce channel inventory exposure, distributors may still choose to reduce their
inventories below the already reduced levels, adversely affecting the Company's
net sales.
New product introductions. The Company's continued success is dependent on its
ability to continue to introduce new products offering advanced features,
functionality and solutions demanded by end users. The Company cannot assure
that it will be able to continue to introduce advanced products in a timely
manner or that new products it introduces will achieve market acceptance or sell
through to end users in sufficient quantities to make them viable for the long-
term. Sales of such new products may have lower gross margins than and may
negatively impact sales of the Company's existing products. In addition, the
Company may have difficulty in establishing its products' presence in markets in
which it does not currently have significant brand recognition.
Component availability. Because of frequent technology changes and rapid
industry growth, the cost and availability of components used to manufacture the
Company's products may fluctuate. Because some components, including custom
chipsets, are available from only one supplier, they are subject to the risk of
reduced availability due to manufacturing constraints, excess of demand versus
supply, national political or economic changes, and other risks not within the
Company's control. Although the Company has not experienced any significant
parts shortages over the past year, many of these components require long-lead
purchase orders thereby limiting flexibility to change order quantities due to
changes in demand. Any supply source interruptions, limitations on
availability, or inability to develop alternative sources as needed could affect
the Company's ability to deliver its products and, in turn, adversely affect its
future earnings.
Gross margin. In summary, gross profit margins are impacted by a number of
factors including sales growth rates, competitive pricing pressures, product
sales mix, channel sales mix, frequency of product transitions, component cost,
and manufacturing cost. In addition, new products often have lower gross profit
margins until market acceptance when increased volumes may permit component cost
reductions and manufacturing efficiencies.
Technology shifts. Rapid technological change and short product life cycles
characterize the industry in which the Company operates. The industry includes
competitors with greater financial and technical resources than the Company.
While the Company has historically been successful in developing or integrating
leading technology into its products, ongoing investment in research and
development is required to maintain its technological position. The Company may
need to increase the rate of such investment depending on competitive factors.
If networking capability is included in extension modules to PCs or in the PC
itself, a reduction in the demand for add-on networking devices could result.
The Company's operating results and ability to retain its market share are also
dependent on continued growth in the underlying markets for notebook networking
products, notebook computers, and the notebook-to-network connection rate.
Intellectual property. The Company cannot assure that its patents, copyrights,
trademarks and other efforts to protect its intellectual property will prevent
duplication of its technology or provide a competitive advantage. The Company
also cannot assure that any patent issued to it would be upheld as valid if
litigation over the patent were initiated.
10
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Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Because of the rapid pace of technological change in the communications
industry, and while the Company will aggressively assert its intellectual
property rights when necessary, the Company believes its success is likely to
depend more upon continued innovation, technical expertise, marketing skills and
customer support and service rather than upon legal protection of the Company's
proprietary rights.
With the proliferation of new products and rapidly changing technology in the PC
Card market, there is a significant volume of patents or similar intellectual
property rights held by third parties. Given the nature of the Company's
products and development efforts, there are risks that claims associated with
such patents or intellectual property rights could be asserted by third parties.
These risks include the cost of licensing a given technology. If a claimant
refuses to offer such a license on terms acceptable to the Company, there is a
risk of incurring a substantial cost of litigation or settlement of such claims
regardless of the merits of the allegations. In the event of litigation, if the
Company does not prevail, it may be required to pay significant damages, and/or
to cease sales and production of infringing products, and only make future sales
of a noninfringing design.
The Company currently uses software licensed from third parties in certain of
its Combo, modem-only and Token Ring products. The Company's operating results
could be adversely affected by a number of factors relating to this third-party
software. Such factors include: failure by a licensor to accurately develop,
timely introduce, promote or support the software; resultant delays in shipment
of the Company's products; 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 licensors.
Stock price. The market price of the Company's common stock has been, and may
continue to be, subject to a high degree of volatility. Certain factors may
have a significant impact on the market price of the Company's common stock.
These factors include general conditions in the networking and computer
industries; announcements of quarterly operating results; acquisitions; pricing;
new products or technological innovations by the Company or its competitors; and
other events. In addition, stock markets have experienced extreme price
volatility and broad market fluctuations in recent years. This volatility has
had a substantial effect on the market price of securities issued by many high
technology companies, including Xircom, in many cases for reasons unrelated to
the operating performance of the specific companies. The Company's common stock
has experienced volatility not necessarily related to announcements of Company
performance.
Year 2000. The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Such computer
programs or hardware may have date-sensitive software or embedded chips that
always assume the century is "19". This could cause miscalculations or failure
in the Company's information systems and/or manufacturing equipment. Such
system miscalculations or failure could cause disruptions of operations
including, among other things, a temporary inability to process transactions or
engage in normal business activities. Disruptions of the Company's operations
may also occur if key suppliers or customers experience disruptions in their
ability to purchase, supply or transact with the Company due to Year 2000
issues. The Company's global operations rely heavily on the infrastructures
within the countries in which they do business. The Year 2000 readiness within
infrastructure suppliers (utilities, government agencies, and shipping
organizations) will be crucial to the Company's ability to avoid disruption of
its operations.
The Company has reviewed its own products and believes they do not present any
Year 2000 issues. These products are used as accessories to systems which may
contain Year 2000 issues and the Company believes that any such Year 2000 issues
in systems are not to be attributed to the Company's products.
The Company has completed its initial analysis of the major information systems
that could be significantly
11
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Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
affected by the Year 2000 issue and has committed personnel and resources to
resolve potential issues. Based on the initial analysis, the Company determined
that it would be required to modify or replace certain portions of its internal
hardware and software so that those systems will properly use dates beyond
December 31, 1999. The Company presently believes that the Year 2000 issue can
be mitigated with respect to its internal information systems and manufacturing
equipment with modifications or replacements of certain existing software and
hardware.
The Company's plan to resolve the Year 2000 issue involves four phases:
assessment, remediation, testing, and contingency planning. The Company's
assessment plan for both information technology ("IT") and non-IT systems is
currently in process. A communications plan has been initiated to create
awareness, both internally and externally, of the need to identify Year 2000
issues and the risks the issues create. Inventories of systems, equipment, and
processes from Xircom's global locations are in the process of being collected
and analyzed. Thus far, the assessment has indicated that most of the Company's
significant IT systems are Year 2000 compliant. The assessment indicated,
however, that the Company's customer interaction system could be affected. This
system is currently in the process of being replaced, with completion scheduled
for June 1999.
The Company is 15% complete with its remediation phase with respect to its IT
exposures and expects to complete all software reprogramming or replacement no
later than September 30, 1999. Upon completion of software reprogramming or
replacement for a particular system, the Company tests and implements the
modifications.
Awareness and assessment of any Year 2000 issues relating to operating equipment
has been completed. The initial conclusion of this assessment is that the
Company's operating equipment is Year 2000 compliant. The Company has queried
its significant suppliers regarding their Year 2000 readiness. To date, the
Company is not aware of any such supplier with a Year 2000 issue that would
materially affect the Company's operating results. The Company has no means of
ensuring that such suppliers will be Year 2000 ready and, accordingly, is
planning to perform a secondary evaluation by June 30, 1999 of its critical
suppliers to obtain further assurances about their readiness. The Company could
be materially impacted if its significant suppliers are unable to complete their
Year 2000 resolution process in a timely fashion. The ultimate effect of non-
compliance by these parties is not determinable.
The Company is using both internal and external resources to replace, test and
implement software and operating equipment needing Year 2000 modifications. The
total cost of the Year 2000 project is estimated at $1.1 million and is being
funded by cash flows from operations. To date, the Company has incurred
approximately $750,000 ($385,000 expensed and $365,000 capitalized for new
software), related to all phases of the Year 2000 project. Of the total
remaining project costs, approximately $105,000 is attributable to the purchase
of new software and hardware and is expected to be capitalized. The remaining
$275,000 is expected to be expensed as incurred.
The Company is developing a contingency plan for organizing responses in case of
shutdown of certain critical applications due to Year 2000 issues. This
contingency plan involves, among other things, IT and non-IT systems and
external systems. The Company believes that the most likely worst case of a
Year 2000-related failure given its state of readiness today would be a
temporary loss of 10% of its internal IT capability with no material impact on
its ability to conduct normal revenue-generating operations.
The Company is also subject to additional risk factors as identified in its
Annual Report to Shareholders and filing on Form 10-K for the year ended
September 30, 1998.
Liquidity and Capital Resources
- -------------------------------
At December 31, 1998 the Company had $123.5 million in cash and cash
equivalents. The Company's operating activities provided cash of approximately
$14.0 million in the quarter ended December 31, 1998, primarily as a result of
income
12
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANAYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
from operations partially offset by a decrease in accounts payable and
other accrued liabilities. Accounts payable and other accrued liabilities
decreased primarily due to the timing of payment for material inventory
purchases.
The Company used $5.5 million in cash in investing activities during the quarter
ended December 31, 1998, primarily for capital expenditures. These capital
expenditures were for the purchase of manufacturing equipment for use in the
Company's Penang, Malaysia facility, equipment for increased headcount, and
information systems hardware and software. The Company has no material fixed
commitments and does not expect an increase in the rate of capital expenditures
in the normal course of business during the remainder of fiscal 1999.
The Company's financing activities provided $9.2 million in cash during the
three-month period ended December 31, 1998, primarily from the issuance of
capital stock through its stock option and employee stock purchase plans. The
Company has a bank credit facility allowing borrowings up to $25.0 million.
Loans under the agreement are secured by all U.S.-based assets of the Company.
The Company also has a credit facility totaling $10.8 million, denominated in
Malaysian ringgit, with a bank in Malaysia. The Company had no borrowings
outstanding and approximately $29 million in borrowings available under its
credit facilities as of December 31, 1998.
The Company believes that cash on hand, borrowings available under its existing
facilities 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. However, 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 when required on terms acceptable to the
Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following discussion about the Company's market risk disclosures involves
forward-looking statements. Actual results could differ materially from those
projected in the forward-looking statements.
Given the short-term nature of its portfolio of highly liquid cash equivalents,
and that it has no borrowings outstanding, the Company is not subject to
significant interest rate risk. The Company is exposed to market risk related
to changes in interest rates and foreign currency exchange rates. The Company
does not use derivative financial instruments.
The Company manufactures its products in Malaysia and sells its products
worldwide. Its financial results, therefore, could be significantly impacted by
factors such as changes in foreign currency exchange rates and weak economic
conditions in foreign markets. The Company's operating results are exposed to
the impact of weakening economic conditions in the countries in which it sells
its products. Since all of the Company's sales are denominated in U.S. dollars,
its foreign operations are net payers of currencies other than the U.S. dollar,
particularly the Malaysian ringgit and the Belgian franc. As such, the
Company's operating results may be adversely affected by the impacts of a
stronger Malaysian ringgit or Belgian franc relative to the U.S. dollar. To
mitigate the short-term effect of changes in currency exchange rates on its
foreign currency based expenses, the Company purchases and holds Malaysian
ringgits and Belgian francs in advance of the due date of their underlying
obligations.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
13
<PAGE>
Xircom, Inc.
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on January 23, 1999.
The following is a brief description of each matter voted upon at the meeting
and the number of affirmative votes and the number of negative votes cast with
respect to each.
(a) The shareholders elected the following persons as directors of the Company
with votes for and against (withheld) each nominee as shown in the
following table.
<TABLE>
<CAPTION>
Votes
Nominee Votes For Withheld
- ---------------------------------------------------------
<S> <C> <C>
Michael F.G. Ashby 21,348,400 247,713
Kenneth J. Biba 21,349,585 246,528
Gary J. Bowen 21,350,400 245,713
Dirk I. Gates 21,351,300 244,813
J. Kirk Mathews 21,350,000 246,113
William J. Schroeder 21,347,343 248,770
Delbert W. Yocam 21,347,785 248,328
Carl E. Russo (new
candidate) 21,343,316 252,797
</TABLE>
(b) The shareholders approved an amendment to the Company's 1992 Director Stock
Option Plan to increase the number of shares of common stock reserved for
issuance thereunder from 425,000 shares to 725,000 shares, and to increase the
initial grant to 40,000 shares and increase the annual grant to 10,000 shares
under the Plan. There were 14,525,603 votes in favor of and 6,986,843 votes cast
against the amendment. There were 83,667 abstentions .
(c) The shareholders approved an amendment to the Company's 1994 Employee Stock
Purchase Plan to increase the number of shares of common stock reserved for
issuance thereunder from 600,000 shares to 1,400,000 shares. There were
21,221,277 votes in favor of and 300,073 votes cast against the amendment. There
were 74,763 abstentions.
(d) The shareholders ratified the appointment of Ernst & Young LLP as
independent auditors for the Company for the year ending September 30, 1999.
There were 21,556,112 votes in favor of and 19,894 votes cast against the
appointment of Ernst & Young LLP as independent auditors. There were 20,107
abstentions.
ITEM 5. OTHER ITEMS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 10.10 1992 Director Stock Option Plan of the Company, as
amended and restated on January 22, 1999
Exhibit 10.26 1994 Employee Stock Purchase Plan of the Company, as
amended and restated as of January 22, 1999, and forms
of agreement thereunder
Exhibit 10.33 1995 Stock Option Plan of the Company, as amended and
restated on December 18, 1998
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements 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.
----------------------
(Registrant)
Date: February 12, 1999 /s/ Dirk I. Gates
----------------- ------------------------
Dirk I. Gates
Chairman of the Board, President and
Chief Executive Officer
Date: February 12, 1999 /s/ Steven F. DeGennaro
------------------ ------------------------
Steven F. DeGennaro
Vice President, Finance and
Chief Financial Officer
14
<PAGE>
EXHIBIT 10.10
XIRCOM, INC.
1992 DIRECTOR STOCK OPTION PLAN
As amended and restated on January 22, 1999
1. Purpose of the Plan. The purpose of this 1992 Director Stock Option
-------------------
Plan is to attract and retain the best available personnel to serve as Outside
Directors of the Company.
All options granted hereunder shall be "non-statutory stock options".
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "Code" means the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" means the Common Stock of the Company.
------------
(d) "Company" means Xircom, Inc., a California corporation.
-------
(e) "Continuous Status as a Director" means the absence of any
-------------------------------
interruption or termination of service as a Director.
(f) "Director" means a member of the Board.
--------
(g) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(i) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the
<PAGE>
Wall Street Journal or such other source as the Board deems reliable; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board.
(j) "Option" means a stock option granted pursuant to the Plan.
------
(k) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(l) "Optionee" means an Outside Director who receives an Option.
--------
(m) "Outside Director" means a Director who is not an Employee.
----------------
(n) "Parent" means a "parent corporation", whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(o) "Plan" means this 1992 Director Stock Option Plan.
----
(p) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(q) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 725,000 Shares (the "Pool") of Common Stock. The Shares may
be authorized but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. Administration of and Grants of Options under the Plan.
------------------------------------------------------
(a) Administrator. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) Procedure for Grants. The provisions set forth in this Section
--------------------
4(b) shall not be amended more than once every six months, other than to comply
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) On July 1, 1992 and on each July 1 thereafter during the term
of this Plan, each Outside Director who shall have been an Outside Director for
at least six (6) months as of such date shall automatically receive an Option to
purchase 10,000 Shares (an "Annual Grant"). In addition, each new Outside
Director who shall first join the Board on or after May 1, 1992 shall
automatically be granted an Option to purchase 40,000 Shares upon the date on
which such person first becomes an Outside Director, whether through election by
the shareholders of the Company, appointment by the Board to fill a vacancy, or
termination of employment by the Company while remaining as a Director (a "One-
Time Grant").
<PAGE>
(iii) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall be ten (10) years;
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 8
hereof;
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option;
(D) each One-Time Grant shall become exercisable in
installments cumulatively as to 25% of the Optioned Stock on each anniversary of
the date of grant, so that 100% of the Optioned Stock granted under any One-Time
Grant shall be exercisable four years after the date of grant of the Option,
assuming Continuous Status as a Director; and,
(E) each Annual Grant shall become exercisable in its
entirety on the fourth anniversary of the date of grant of the Option, assuming
Continuous Status as a Director.
(iv) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased upon exercise of Options to exceed the Pool, then
each such automatic grant shall be for that number of Shares determined by
dividing the total number of Shares remaining available for grant by the number
of Outside Directors entitled to receive Options on the grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(c) Powers of the Board. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
2(i) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret
the Plan; (iii) to prescribe, amend and rescind rules and regulations relating
to the Plan; (iv) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
hereunder; and (v) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) Effect of Board's Decision. All decisions, determinations and
--------------------------
interpretations of the Board shall be final.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board or its approval by the stockholders of the
Company as described in Section 16 of the Plan. It shall continue in effect
until December 31, 2002, unless sooner terminated under Section 11 of the Plan.
<PAGE>
7. Consideration. The consideration to be paid for the Shares to be
-------------
issued upon exercise of an Option, including the method of payment, shall be
determined by the Board and may consist entirely of (i) cash, (ii) check, (iii)
promissory note, (iv) other shares which have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised and which, in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than 12 months
on the date of surrender, (v) delivery of a properly executed exercise notice
together with irrevocable instructions to a broker to promptly deliver to the
Company the amount of sale or loan proceeds required to pay the exercise price,
(vi) delivery of an irrevocable subscription agreement for the Shares which
irrevocably obligates the Optionee to take and pay for the Shares not more than
12 months after the date of delivery of the subscription agreement, (vii) any
combination of the foregoing methods of payment, or (viii) such other
consideration and method of payment for the issuance of Shares to the extent
permitted under applicable law.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after exercise of the Option. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. In the event an
----------------------------------------------
Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within 90 days from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of its five-year term). To the extent that
the Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) Disability of Optionee. In the event Optionee's Continuous Status
----------------------
as a Director terminates as a result of total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her
Option, but only
<PAGE>
within six months from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of its five-year term). To the extent that
the Optionee was not entitled to exercise an Option at the date of termination,
or if he or she does not exercise such Option (to the extent otherwise so
entitled) within the time specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death while a
-----------------
Director or within 90 days after ceasing to be a Director, the Optionee's estate
or a person who acquired the right to exercise the Option by bequest or
inheritance may exercise the Option, but only within one year following the date
of death, and only to the extent that the Optionee was entitled to exercise it
at the date of death (but in no event later than the expiration of its five-year
term). To the extent that the Optionee was not entitled to exercise an Option
at the date of death, and to the extent that the Optionee's estate or a person
who acquired the right to exercise such Option does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will, by the laws of descent or distribution or pursuant to a qualified domestic
relations order, and may be exercised, during the lifetime of the Optionee, only
by the Optionee or a permitted transferee.
10. Adjustments.
-----------
(a) Changes in Capitalization. In the event that the stock of the
-------------------------
Company is changed by reason of any stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company, or
converted into or exchanged for other securities as a result of any merger,
consolidation or reorganization, or in the event that the outstanding number of
shares of stock of the Company is increased through payment of a stock dividend,
appropriate proportionate adjustments shall be made in the number and class of
shares of stock subject to the Plan, the number and class of shares subject to
any Option outstanding under the Plan, and the exercise price of any such
outstanding Option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustment. Any such adjustment
shall be made upon approval by the Board, whose determination shall be
conclusive. If there is any other change in the number or type of the
outstanding shares of stock of the Company, or of any other security into which
such stock shall have been changed or for which it shall have been exchanged,
and if the Board in its sole discretion determines that such change equitably
requires an adjustment in the Options then outstanding under the Plan, such
adjustment shall be made in accordance with the determination of the Board. No
adjustments shall be required by reason of the issuance or sale by the Company
for cash or other consideration of additional shares of its stock or securities
convertible into or exchangeable for shares of its stock.
(b) Corporate Transactions. New Options (substantially equivalent to
----------------------
the Options) may be substituted for the Options granted under the Plan, or the
Company's duties as to Options outstanding under the Plan may be assumed, by an
employer corporation other than the Company or by a parent or subsidiary of such
employer corporation, in connection with any merger, consolidation, acquisition
of assets or stock, separation, reorganization, liquidation or like occurrence
in which the Company is involved; provided, however, in the event such employer
corporation or parent or subsidiary of such employer corporation does not assume
the Options granted hereunder or substitute for such Options substantially
equivalent options, or if the Board determines, in its sole discretion, that
Options outstanding under the Plan should not then continue to be outstanding,
the Options granted hereunder shall terminate and thereupon become null and void
(i) upon dissolution or liquidation of the Company, acquisition, separation, or
similar occurrence, or (ii) upon any merger,
<PAGE>
consolidation or similar occurrence, where the Company will not be a surviving
corporation, provided, however, that each Optionee shall be given notice of such
dissolution, liquidation, merger, consolidation, acquisition, separation or
similar occurrence and shall have the right, at any time prior to, but
contingent upon the consummation of such transaction, to exercise (x) any
unexpired Options granted hereunder to the extent they are then exercisable, and
(y) in the case of a merger, consolidation or similar occurrence where the
Company is not the surviving corporation, those Options which are not then
otherwise exercisable; provided, further, that such exercise right shall not in
any event expire less than 30 days after the date notice of such transaction is
sent to the Optionee.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act (or any other applicable law or regulation), the Company shall obtain
stockholder approval of any Plan amendment in such a manner and to such a degree
as required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws and the requirements of any stock exchange or
market system upon which the Shares may then be listed, and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
<PAGE>
16. Stockholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the first granting of an Option
hereunder. Such stockholder approval shall be obtained in the degree and manner
required under applicable state and federal law.
<PAGE>
EXHIBIT 10.26
XIRCOM, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
As Amended and restated as of January 22, 1999
The following constitute the provisions of the 1994 Employee Stock Purchase
Plan of Xircom, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Xircom, Inc.
-------
(e) "Compensation" shall mean wages, salaries, and fees for
------------
professional services and any other amounts received (without regard to whether
or not an amount is paid in cash) for personal services actually rendered in the
course of employment with the Company to the extent that such amounts are
included in gross income (including, but not limited to, commissions paid
salesmen, compensation for services on the basis of a percentage of profits,
bonuses, fringe benefits, reimbursements and expense allowances), and excluding
the following:
(1) Company contributions to a plan of deferred compensation which
are not included in the Employee's gross income for the taxable year in which
contributed, or Company contributions under a simplified employee pension plan
to the extent such contributions are deductible by the Employee, or any
distributions from a plan of deferred compensation;
(2) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the Employee either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture; and
(3) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option.
(f) "Designated Subsidiaries" shall mean the Subsidiaries which have
-----------------------
been designated by the Board from time to time in its sole discretion as
eligible to participate in the Plan.
<PAGE>
(g) "Employee" shall mean any individual who is an employee of the
--------
Company or any Designated Subsidiary for purposes of tax withholding under the
Code whose customary employment with the Company or any Designated Subsidiary is
at least twenty (20) hours per week and more than five (5) months in any
calendar year. For purposes of the Plan, the employment relationship shall be
treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship will be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering Period
---------------
or Extended Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering Period,
-------------
or with respect to an Extended Offering Period, the last day of each Purchase
Period.
(j) "Extended Offering Period" shall mean a period of not more than
------------------------
approximately twelve (12) months, commencing on the date or dates so specified
by the Board, during which options granted pursuant to the Plan may be
exercised. The duration, commencement and termination of Extended Offering
Periods may be changed pursuant to Section 4 of this Plan.
(k) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sale
price for the Common Stock (or the mean of the closing bid and asked prices, if
no sales were reported), as quoted on such exchange (or the exchange with the
greatest volume of trading in Common Stock) or system on the date of such
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(2) If the Common Stock is quoted on the NASDAQ system (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable, or;
(3) In the absence of an established market for the Common Stock,
the Fair Market Value thereof shall be determined in good faith by the Board.
(l) "Offering Period" shall mean a period of approximately six (6)
---------------
months, commencing on a date determined by the Board, during which an option
granted pursuant to the Plan may be exercised. The duration, commencement and
termination of Offering Periods may be changed pursuant to Section 4 of this
Plan.
(m) "Plan" shall mean this 1994 Employee Stock Purchase Plan.
----
(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
--------------
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(o) "Purchase Period" shall mean, with respect to an Extended Offering
---------------
Period, the approximately six (6) month period commencing after one Exercise
Date and ending with the next Exercise Date, except that the first Purchase
Period of any Extended Offering Period shall commence on the Enrollment Date and
end with the next
<PAGE>
Exercise Date. The duration, commencement and termination of Purchase Periods
may be changed pursuant to Section 4 of this Plan.
(p) "Reserves" shall mean the number of shares of Common Stock covered
--------
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the Plan
but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent his or her rights to purchase stock under
all "employee stock purchase plans" qualified under Section 423 of the Code of
the Company and its subsidiaries to accrue at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods and Extended Offering Periods. The Plan shall be
----------------------------------------------
implemented by Offering Periods and/or Extended Offering Periods which may be
consecutive and/or overlapping, as determined by the Board, commencing on such
dates as the Board shall determine, and continuing thereafter until terminated
in accordance with Section 19 hereof. Except as noted in the next sentence, the
Board shall have the power to change the duration, commencement and termination
of Offering Periods, Extended Offering Periods and/or Purchase Periods with
respect to future offerings without shareholder approval if such change is
announced at least five (5) days prior to the scheduled beginning of the first
Offering Period, Extended Offering Period or Purchase Period to be affected
thereafter. No such change may result in any Offering Period, Extended Offering
Period or Purchase Period exceeding twelve (12) months in duration without the
prior approval of the shareholders of the Company. Unless otherwise provided by
the Board, the first Offering Period under the Plan shall commence on the first
business day on or after May 1, 1994 and terminate on the last business day in
the period ending October 31, and shall continue with successive Offering
Periods thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's Stock Plan
Administrator prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made in an amount not exceeding
ten percent (10%) of the Compensation which he or she receives during the
Offering Period or Extended Offering Period, (or such lesser percentage as may
be determined by the Board at least five days prior to the beginning of an
Offering Period or Extended Offering Period). Deductions shall be made in the
applicable percentage on each pay day, and on any other payment date for
Compensation paid to the participant, during the Offering Period or Extended
Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period or Extended Offering Period by
completing or filing with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period or Extended
Offering Period. The change in rate shall be effective with the first full
payroll period following five (5) business days after the Company's receipt of
the new subscription agreement unless the Company elects to process a given
change in participation more quickly. A participant's subscription agreement
shall remain in effect for successive Offering Periods or Extended Offering
Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to 0% at such time during any Offering
Period or Extended Offering Period which is scheduled to end during the current
calendar year (the "Current Offering Period or Extended Offering Period") that
the aggregate of all payroll deductions which were previously used to purchase
stock under the Plan in a prior Offering Period or Extended Offering Period
which ended during that calendar year plus all payroll deductions accumulated
with respect to the Current Offering Period or Extended Offering Period equal
$21,250. Payroll deductions shall recommence at the rate provided in such
participant' s subscription agreement at the beginning of the first Offering
Period or Extended Offering Period which is scheduled to end in the following
calendar year, unless terminated by the participant as provided in Section 10
hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but will not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period or
---------------
Extended Offering Period, each eligible Employee participating in such Offering
Period or Extended Offering Period shall be granted an option to purchase on the
Exercise Date(s) of such Offering Period or Extended Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase
<PAGE>
during any Offering Period or Extended Offering an amount in excess of the
amount then permitted under Code Section 423(b)(8). Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof, and shall expire on the last day of the Offering
Period or Extended Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares will
be exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant' s account for the subsequent
Offering Period or Extended Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10 hereof. Any other moneys left over in
a participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal; Termination of Employment.
-------------------------------------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account will be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period or Extended Offering Period will be automatically terminated, and no
further payroll deductions for the purchase of shares will be made during the
Offering Period or Extended Offering Period or Extended Offering Period. If a
participant withdraws from an Offering Period or Extended Offering Period,
payroll deductions will not resume at the beginning of the succeeding Offering
Period or Extended Offering Period unless the participant delivers to the
Company a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee (as defined in
Section 2(g) hereof ), for any reason, including by virtue of him or her having
failed to remain an Employee of the Company for at least twenty (20) hours per
week during an Offering Period or Extended Offering Period in which the Employee
is a participant, he or she will be deemed to have elected to withdraw from the
Plan and the payroll deductions credited to such participant' s account during
the Offering Period or Extended Offering Period but not yet used to exercise the
option will be returned to such participant or, in the case of his or her death,
to the person or persons entitled thereto under Section 14 hereof, and such
participant's option will be automatically terminated.
(c) A participant's withdrawal from an Offering Period or Extended
Offering Period will not have any effect upon his or her eligibility to
participate in any similar plan which may hereafter be adopted by the Company or
in succeeding Offering Periods or Extended Offering Periods which commence after
the termination of the Offering Period or Extended Offering Period from which
the participant withdraws.
11. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
<PAGE>
12. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall be one million, four-
hundred thousand (1,400,000) shares, subject to adjustment upon changes in
capitalization of the Company as provided in Section 18 hereof. If on a given
Exercise Date the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant will have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant and
his or her spouse.
13. Administration.
--------------
(a) Administrative Body. The Plan shall be administered by the Board
-------------------
or a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
----------------------
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or
any successor provision ("Rule 16b-3") provides specific requirements for the
administrators of plans of this type, the Plan shall be only administered by
such a body and in such a manner as shall comply with the applicable
requirements of Rule 16b-3. Unless permitted by Rule 16b-3, no discretion
concerning decisions regarding the Plan shall be afforded to any committee or
person that is not "disinterested" as that term is used in Rule 16b-3.
14. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is living
at the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or
<PAGE>
relative is known to the Company, then to such other person as the Company may
designate.
15. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period or Extended Offering Period in accordance with
Section 10 hereof.
16. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant
-------
in the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
18. Adjustments Upon Changes in Capitalization.
------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves as well as the price per share of
Common Stock covered by each option under the Plan which has not yet been
exercised shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be deemed
to have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by the
Company of shares of stock of any class, or securities convertible into shares
of stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock subject
to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period or Extended
Offering Period will terminate immediately prior to the consummation of such
proposed action, unless otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each option under the Plan shall be assumed or
an equivalent option shall be substituted by such successor corporation or a
parent or subsidiary of such successor corporation. In the event the successor
corporation refuses to assume or substitute for the option, the Board shall, in
lieu of such assumption or substitution, shorten the Offering Period(s) or
Extended Offering Period(s) then in progress by setting a new Exercise Date (the
"New Exercise Date") to a date which is prior to the effective date of any such
sale or merger, and the Offering Period and the Plan shall terminate immediately
after the New Exercise Date. If the Board shortens the Offering Period(s) or
Extended Offering Period(s) then in progress in lieu of assumption or
substitution in the event of a merger or sale of assets, the Board shall notify
each participant in writing, at least ten (10) business days prior to the New
Exercise Date, that the Exercise Date for his option has been changed to the New
Exercise Date and that his option will be exercised automatically on the New
Exercise Date, unless prior to such date he has withdrawn from the Offering
Period(s) or Extended Offering Period(s) as provided in Section 10 hereof. For
purposes of this
<PAGE>
paragraph, an option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately prior
to the sale of assets or merger, the consideration (whether stock, cash or other
securities or property) received in the sale of assets or merger by holders of
Common Stock for each share of Common Stock held on the effective date of the
transaction (and if such holders were offered a choice of consideration, the
type of consideration chosen by the holders of a majority of the outstanding
shares of Common Stock); provided, however, that if such consideration received
in the sale of assets or merger was not solely common stock of the successor
corporation or its parent (as defined in Section 424(e) of the Code), the Board
may, with the consent of the successor corporation, provide for the
consideration to be received upon exercise of the option to be solely common
stock of the successor corporation or its parent equal in fair market value to
the per share consideration received by holders of Common Stock and the sale of
assets or merger.
19. Amendment or Termination.
------------------------
(a) Except as noted below in this Section 19 (a), the Board of
Directors of the Company may at any time and for any reason terminate or amend
the Plan. No such amendment may result in any Offering Period, Extended
Offering Period or Purchase Period exceeding twelve (12) months in duration
without the prior approval of the shareholders of the Company. Except as
provided in Section 18 hereof, no such termination can affect options previously
granted, provided that an Offering Period or Extended Offering Period may be
terminated by the Board of Directors on any Exercise Date if the Board
determines that the termination of the Plan is in the best interests of the
Company and its shareholders. Except as provided in Section 18 hereof, no
amendment may make any change in any option there to fore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or under Section 423 of the Code (or any successor rule
or provision or any other applicable law or regulation), the Company shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Except as noted below in this Section 19(b), without shareholder
consent and without regard to whether any participant rights may be considered
to have been "adversely affected," the Board (or its committee) shall be
entitled to change the Offering Periods or Extended Offering Periods, limit the
frequency and/or number of changes in the amount withheld during an Offering
Period or Extended Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan. Notwithstanding the
foregoing, no such change may result in any Offering Period, Extended Offering
Period or Purchase Period exceeding twelve (12) months in duration without the
prior approval of the shareholders of the Company.
20. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as
<PAGE>
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, and the requirements of any stock exchange
upon which the shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are being purchased only for investment and without any
present intention to sell or distribute such shares if, in the opinion of
counsel for the Company, such a representation is required by any of the
aforementioned applicable provisions of law.
22. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 19 hereof.
<PAGE>
Exhibit A
---------
XIRCOM, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ________________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________________________________________ hereby elects to participate
in the Xircom, Inc. 1994 Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (not to exceed 10%) during the
Offering Period or Extended Offering Period in accordance with the Employee
Stock Purchase Plan. (Please note that no fractional percentages are
permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period or Extended
Offering Period, any accumulated payroll deductions will be used to
automatically exercise my option.
4. I have received a copy of the complete "Employee Stock Purchase Plan." I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that the
purchase of shares under this Subscription Agreement is subject to
obtaining shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse as Joint Tenants
with Rights of Survivorship only):
__________________________________________________.
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period or Extended Offering Period during which I purchased such
shares), or one year from the Exercise Date, I will be treated for federal
income tax purposes as having received ordinary income at the time of such
disposition in an amount equal to the excess of the fair market value of
the shares at the time such shares were purchased by me over the price
which I paid for the shares. I hereby agree to notify the Company in
---------------------------------------
writing within 30 days after the date of any disposition of shares and I
------------------------------------------------------------------------
will make adequate provision for Federal, state or other tax withholding
------------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
-------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
<PAGE>
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period or Extended Offering Period. The remainder of the gain, if
any, recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon
my eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
Beneficiary name/address: _____________________________________________
_____________________________________________
Relationship _____________________________________________
Beneficiary name/address: _____________________________________________
_____________________________________________
Relationship _____________________________________________
Employee's Social
Security Number: _____________________________________________
Employee's Address: _____________________________________________
_____________________________________________
_____________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS OR EXTENDED OFFERING PERIODS UNLESS TERMINATED BY
ME.
Dated: __________________ _____________________________________________
Print Employee's Name (Last, First)
_____________________________________________
Signature of Employee
_____________________________________________
Spouse's Signature (If beneficiary
other than spouse)
<PAGE>
Exhibit B
---------
XIRCOM, INC.
1994 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period or Extended Offering
Period of the Xircom, Inc. 1994 Employee Stock Purchase Plan which began on
__________________ 199___ (the "Enrollment Date") hereby notifies the Company
that he or she hereby withdraws from the Offering Period or Extended Offering
Period. He or she hereby directs the Company to pay to the undersigned as
promptly as practicable all the payroll deductions credited to his or her
account with respect to such Offering Period or Extended Offering Period. The
undersigned understands and agrees that his or her option for such Offering
Period or Extended Offering Period will be automatically terminated. The
undersigned understands further that no further payroll deductions will be made
for the purchase of shares in the current Offering Period or Extended Offering
Period and the undersigned shall be eligible to participate in succeeding
Offering Periods or Extended Offering Periods only by delivering to the Company
a new Subscription Agreement.
Name and Address of Participant: ____________________________________
____________________________________
____________________________________
Signature: ____________________________________
Date: ____________________________________
<PAGE>
EXHIBIT 10.33
XIRCOM, INC.
1995 STOCK OPTION PLAN
As amended and restated on December 18, 1998
1. Purposes of the Plan. The purposes of this Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan will be Nonstatutory Stock Options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall be
-------------
administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee appointed by the Board in accordance
---------
with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
------------
(g) "Company" means Xircom, Inc., a California corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by the
----------
Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any person employed by the Company or any Parent or
--------
Subsidiary of the Company. A Service Provider shall not cease to be an Employee
in the case of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor. Neither service as a Director nor payment of
a director's fee by the Company shall be sufficient to constitute "employment"
by the Company.
<PAGE>
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common Stock
-----------------
determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, the
Fair Market Value of a share of Common Stock shall be the closing sales price
for such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system on the day of determination (or, if the day of determination
is not a market trading day, then on the last market trading day prior to the
day of determination), as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination (or, if the day of
determination is not a market trading day, then on the last market trading day
prior to the day of determination), as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(n) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option grant. The Notice of Grant
is part of the Option Agreement.
(o) "Officer" means a person who is an officer of the Company within the
-------
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(p) "Option" means a nonstatutory stock option granted pursuant to the
------
Plan, that is not intended to qualify as an incentive stock option within the
meaning of Section 422 of the Code and the regulations promulgated thereunder.
(q) "Option Agreement" means an agreement between the Company and an
----------------
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(r) "Option Exchange Program" means a program whereby outstanding
-----------------------
options are surrendered in exchange for options with a lower exercise price.
(s) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(t) "Optionee" means the holder of an outstanding Option granted under
--------
the Plan.
(u) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1998 Nonstatutory Stock Plan.
----
(w) "Service Provider" means an Employee including an Officer,
----------------
Consultant or Director.
(x) "Share" means a share of the Common Stock, as adjusted in accordance
-----
with Section 12 of the Plan.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
<PAGE>
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 2,249,857 Shares. The Shares may be authorized, but unissued,
or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, or is surrendered pursuant to an Option Exchange Program, the
unpurchased Shares which were subject thereto shall become available for future
grant or sale under the Plan (unless the Plan has terminated).
4. Administration of the Plan.
--------------------------
(a) Administration. The Plan shall be administered by (i) the Board or
--------------
(ii) a Committee, which committee shall be constituted to satisfy Applicable
Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan,
---------------------------
and in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock;
(ii) to select the Service Providers to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), any
vesting acceleration or waiver of forfeiture restrictions, and any restriction
or limitation regarding any Option or the shares of Common Stock relating
thereto, based in each case on such factors as the Administrator, in its sole
discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common Stock covered
by such Option shall have declined since the date the Option was granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(xi) to modify or amend each Option (subject to Section 14(b) of
the Plan), including the discretionary authority to extend the post-termination
exercisability period of Options longer than is otherwise provided for in the
Plan;
(xii) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option or previously granted
by the Administrator;
(xiii) to determine the terms and restrictions applicable to
Options;
<PAGE>
(xiv) to allow Optionees to satisfy withholding tax obligations by
electing to have the Company withhold from the Shares to be issued upon exercise
of an Option or Stock Purchase Right that number of Shares having a Fair Market
Value equal to the amount required to be withheld. The Fair Market Value of the
Shares to be withheld shall be determined on the date that the amount of tax to
be withheld is to be determined. All elections by an Optionee to have Shares
withheld for this purpose shall be made in such form and under such conditions
as the Administrator may deem necessary or advisable; and
(xv) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
----------------------------------
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
5. Eligibility. Options may be granted to Service Providers; provided,
-----------
however, that notwithstanding anything to the contrary contained in the Plan,
Options may not be granted to Officers and Directors.
6. Limitation. Neither the Plan nor any Option shall confer upon an
----------
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon its adoption by the
------------
Board. It shall continue in effect for ten (10) years, unless sooner terminated
under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to be
--------------
issued pursuant to exercise of an Option shall be determined by the
Administrator.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions which must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In making its determination as to the type of consideration to
accept, the Administrator shall consider if acceptance of such consideration may
be reasonably expected to benefit the Company. Such consideration may consist
entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall
<PAGE>
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price;
(vi) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws; or
(vii) any combination of the foregoing methods of payment.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
-----------------------------------------------
hereunder shall be exercisable according to the terms of the Plan and at such
times and under such conditions as determined by the Administrator and set forth
in the Option Agreement. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company receives: (i)
written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an Optionee
-------------------------------------------------
ceases to be a Service Provider, other than upon the Optionee's death or
Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his
or her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option
Agreement, to the extent the Option is vested on the date of termination (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service Provider,
-----------------
the Option may be exercised within such period of time as is specified in the
Option
<PAGE>
Agreement (but in no event later than the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who acquires the right to exercise the Option by bequest or inheritance, but
only to the extent that the Option is vested on the date of death. In the
absence of a specified time in the Option Agreement, the Option shall remain
exercisable for twelve (12) months following the Optionee's termination. If, at
the time of death, the Optionee is not vested as to his or her entire Option,
the Shares covered by the unvested portion of the Option shall immediately
revert to the Plan. The Option may be exercised by the executor or administrator
of the Optionee's estate or, if none, by the person(s) entitled to exercise the
Option under the Optionee's will or the laws of descent or distribution. If the
Option is not so exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to buy
-----------------
out for a payment in cash or Shares, an Option previously granted based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
11. Non-Transferability of Options . Unless determined otherwise by the
-------------------------------
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or Asset
------------------------------------------------------------------------
Sale.
----
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company with
--------------------
or into another corporation, or the sale of substantially all of the assets of
the
<PAGE>
Company, each outstanding Option shall be assumed or an equivalent option or
right substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall fully vest in and have
the right to exercise the Option as to all of the Optioned Stock, including
Shares as to which it would not otherwise be vested or exercisable. If an
Option becomes fully vested and exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee in writing or electronically that the Option shall be fully
vested and exercisable for a period of fifteen (15) days from the date of such
notice, and the Option shall terminate upon the expiration of such period. For
the purposes of this paragraph, the Option shall be considered assumed if,
following the merger or sale of assets, the option or right confers the right to
purchase or receive, for each Share of Optioned Stock, immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or property) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of a majority of the outstanding Shares); provided,
--------
however, that if such consideration received in the merger or sale of assets is
not solely common stock of the successor corporation or its Parent, the
Administrator may, with the consent of the successor corporation, provide for
the consideration to be received upon the exercise of the Option, for each Share
of Optioned Stock to be solely common stock of the successor corporation or its
Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
13. Date of Grant. The date of grant of an Option shall be, for all
-------------
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend, alter,
-------------------------
suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to options granted under the
Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option unless the exercise of such Option and the issuance and
delivery of such Shares shall comply with Applicable Laws and shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being purchased
only for investment and without any present intention to sell or distribute such
Shares if, in the opinion of counsel for the Company, such a representation is
required.
16. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
<PAGE>
17. Reservation of Shares. The Company, during the term of this Plan, will
---------------------
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 123,522
<SECURITIES> 0
<RECEIVABLES> 36,924
<ALLOWANCES> 8,568
<INVENTORY> 15,584
<CURRENT-ASSETS> 183,404
<PP&E> 53,591
<DEPRECIATION> 23,860
<TOTAL-ASSETS> 213,741
<CURRENT-LIABILITIES> 44,899
<BONDS> 0
0
0
<COMMON> 24
<OTHER-SE> 159,702
<TOTAL-LIABILITY-AND-EQUITY> 213,741
<SALES> 96,022
<TOTAL-REVENUES> 96,022
<CGS> 56,460
<TOTAL-COSTS> 56,460
<OTHER-EXPENSES> 26,363
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 13,575
<INCOME-TAX> 3,801
<INCOME-CONTINUING> 9,774
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,774
<EPS-PRIMARY> .42
<EPS-DILUTED> .39
</TABLE>
