<PAGE>
As filed with the Securities and Exchange Commission on November 12, 1999
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
XIRCOM, INC.
(Exact Name of Registrant as Specified in Its Charter)
--------------
<TABLE>
<S> <C>
California 95-4221884
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification Number)
</TABLE>
2300 Corporate Center Drive
Thousand Oaks, California 91320
(805) 376-9300
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Steven F. DeGennaro
Chief Financial Officer
Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320
(805) 376-9300
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
--------------
Copies to:
<TABLE>
<S> <C>
Howard Zeprun, Esq. Alan F. Denenberg, Esq.
Wilson Sonsini Goodrich & Rosati, Shearman & Sterling
Professional Corporation 1550 El Camino Real
650 Page Mill Road Menlo Park, CA 94025
Palo Alto, California 94304 (650) 330-2200
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the registration statement becomes effective.
--------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
<CAPTION>
Proposed
maximum Proposed
Amount offering maximum Amount of
Title of each class of to be price per offering registration
securities to be registered registered(1) unit(2) price(2) fee
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value
Total....................................... 4,025,000 $53.8125 $216,595,312.50 $60,213.50
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes 525,000 shares pursuant to the underwriters over-allotment
option.
(2) Estimated solely for the purpose of computing the registration fee
pursuant to Rule 457(o).
--------------
The Registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell the securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED NOVEMBER 12, 1999
3,500,000 Shares
XIRCOM, INC.
Common Stock
--------
We are selling 3,500,000 shares of common stock.
Our common stock is listed on The Nasdaq National Market under the symbol
"XIRC." On November 11, 1999, the last reported sale price of our common stock
was $54.25 per share.
The underwriters have an option to purchase a maximum of 525,000 additional
shares to cover over-allotments of shares.
Investing in the common stock involves risks. See "Risk Factors" on page 8.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Xircom, Inc.
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 1999.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
CIBC World Markets
SG Cowen
The date of this prospectus is , 1999.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Price Range of Common Stock.............................................. 14
Capitalization........................................................... 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Description of Capital Stock............................................... 25
Underwriting............................................................... 26
Notice to Canadian Residents............................................... 28
Legal Matters.............................................................. 29
Experts.................................................................... 29
Additional Information .................................................... 29
</TABLE>
------------
You should rely only on information contained in this document or to which we
have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information concerning our company and the common stock being sold in this
offering and our financial statements and related material appearing in this
prospectus and in the documents incorporated by reference in this prospectus.
Because this is only a summary, you should read the rest of this prospectus,
including the documents incorporated by reference in this prospectus, before
you invest in our common stock. Read this entire prospectus carefully,
especially the risks described under "Risk Factors." Unless otherwise stated,
information in this prospectus assumes that the underwriters' over-allotment
option to purchase an additional 525,000 shares of common stock is not
exercised.
XIRCOM, INC.
We are a leading global provider of mobile networking and information access
solutions for mobile professionals. Our products enable connectivity between
notebook computers and handheld computer devices and corporate networks, the
Internet and other online services from a wide variety of locations.
Our Market
Competitive and productivity demands are requiring an ever larger number of
professionals to maintain remote and mobile connectivity to their corporate
databases, intranets, email and the Internet. This trend toward mobile
computing has resulted in the increased use of notebook PCs and handheld
computing devices both on the road and in the office. International Data
Corporation ("IDC") estimates that the total remote and mobile computing
workforce in the U.S., including work extenders, mobile professionals,
telecommuters and mobile data collectors, will be 37.8 million people in 2000,
increasing to 47.1 million in 2003. These industry trends are creating a strong
demand for notebook computers. IDC further estimates that total annual
worldwide notebook PC shipments will be 22.3 million units in 2000 and 31.2
million units in 2003.
The principal device for portable computing connectivity is the PC Card, a
credit card-sized electronic component that contains a modem, a local area
network ("LAN") connection, or a combination of these, and can be inserted into
a slot on a portable computer. IDC estimates that in the year 2000,
19.6 million PC Cards will be shipped worldwide. In addition, we believe there
will be a significant market for connectivity devices smaller than PC Cards,
for use with new generations of sub-notebook PCs and handheld computing
devices.
Our Products
We have consistently pioneered the development of new mobile networking
technologies and products. In 1992, we were the first company to ship a LAN
adapter in the PC Card form factor, compliant with the standards set by the
Personal Computer Memory Card International Association (also known as PCMCIA
Cards). We expanded our product offerings in 1994 to include the first combo
LAN and modem PC Cards. We believe combo cards continue to represent the
fastest growing segment of the PC Card market. In 1998, we introduced our
RealPort family of Integrated PC Cards, which eliminate the need for pop-out
jacks and external cables. In 1999, we introduced Universal Serial Bus ("USB")
port expansion systems, both through our own internal product offering
introduced in August 1999 and through our acquisition of Entrega Technologies,
Inc. ("Entrega") in October 1999. Through our acquisition in September 1999 of
the Rex personal information manager product line from Franklin Electronic
Publishers, we have also entered the market for sub-handheld information
accessories.
4
<PAGE>
Our products, which are recognized for innovative technology, high
reliability and broad compatibility, currently include:
. PC Cards and Integrated PC Cards. Our PC Cards and Integrated PC Cards
enable LAN, modem or combination LAN and modem connectivity for portable
PCs. Our line of RealPort Integrated PC Cards features a patented
connection point consisting of a built-in, standard connector,
eliminating the need for pop-out jacks and external cables, which are
often broken or lost.
. Mini PCI Cards. Our Mini PCI Cards provide to OEMs a flexible and low-
cost means to add internal communication functionality to notebook and
sub-notebook computers and handheld computing devices.
. Handheld Connectivity Cards. We have recently introduced a line of LAN
and modem connectivity cards for handheld information appliances,
including our CompactCards for Windows CE devices.
. USB Port Expansion Systems. Our recently introduced PortGear and
PortStation products are USB port expansion systems that provide
peripheral-to-PC connectivity, including modem, LAN and Ethernet
connectivity. Our PortStation products consist of mix-and-match modular
connectivity ports that can be individually configured and snapped
together, connecting to a single USB port on the host PC. PortStation
products are targeted for the enterprise market. PortGear products are
USB connection devices targeted for value-focused OEM and consumer
markets.
. Wearable Information Accessories. Our Rex line of sub-handheld
information accessories provides convenient mobile information access by
combining a personal organizer into a PC Card.
Our technological leadership and innovative product designs are reflected in
the numerous industry awards our products have received. These include:
. RealPort Ethernet 10/100+Modem 56: Notebook & Organizer "Best PC Card
Modem 1999"
. RealPort CardBus Ethernet 10/100+Modem 56: PC Computing "1998 MVP Award"
Hardware, PC Card Network Adapter
. CreditCard Ethernet 10/100+Modem 56: PC Computing "1997 MVP Winner"
. CreditCard Ethernet Adapter 10/100: Network Computing 1996 Editor's
Choice
. CreditCard Ethernet+Modem: PC Magazine 1995 Technical Excellence Award--
Networking Hardware category
We sell our products primarily through domestic and international
distributors. Domestic distributors include Ingram Micro Inc., Tech Data
Corporation and Merisel, Inc., and reseller organizations such as MicroAge,
Inc. and Inacom Corp. International distributors include Tech-Pacific Ltd.,
LANDIS and C2000/Tech Data and international resellers such as Computacenter
Ltd. We also sell our products to a number of large OEM customers, such as
Compaq Computer Corporation, Dell Computer Corporation, Gateway Inc.,
International Business Machines, Intel Corporation and Toshiba Corporation.
U.S. enterprise customers standardized on our products include Wal-Mart Stores,
Inc., AT&T Corp., Bell Atlantic Corporation, Lucent Technologies, Inc., The
Walt Disney Company, Bank One Corporation, Pfizer Inc., McDonald's Corporation
and the Federal Reserve Board. Examples of customers standardized globally on
our products include Oracle Corporation, PricewaterhouseCoopers LLP, Cisco
Systems Inc., McKinsey & Company Inc., Microsoft Corporation, DaimlerChrysler
AG, Hewlett-Packard Company, Volvo AB, Novartis AG and BP Amoco Plc.
5
<PAGE>
We intend to continue to develop our existing product offerings to support
leading edge connectivity standards. We expect customers for our PC Card and
port expansion system products to continue to demand higher speeds and
bandwidth. We are focusing our development efforts on new versions of
Integrated PC Card and PC Card LAN adapters, modem-only cards, multifunction
cards and port expansion systems. Such new versions may combine LAN, modem,
ISDN, digital subscriber line, cable modem, local and/or wide area wireless
communications, and home networking technologies. We also plan to introduce an
enterprise version of the Xircom Rex wearable information accessory that
combines its current information management capabilities with two-factor
authentication technology to offer an integrated user authentication solution
for corporate networks.
We also intend to continue to develop new product lines to complement our
existing product offerings and capitalize on opportunities created by
advancements in notebook PC and handheld computer technology. For example, the
Palm-based Visor handheld computer, launched by Handspring, Inc. in September
1999, includes an external expansion slot that accepts devices referred to as
"Springboard Modules." The Springboard external expansion slot is the first
attempt to create a standardized expansion slot for Palm-based handheld
devices, and could become the de-facto standard. We are developing products
based on this Springboard standard for the Palm segment, to complement our
handheld connectivity products to support handheld computers using the
Windows CE operating system.
Recent Developments
We recently completed two acquisitions, enhancing our leading position in the
mobile networking market. On September 27, 1999, we completed the acquisition
of certain assets of the Rex product line, including intellectual property,
inventory and fixed assets, from Franklin Electronic Publishers for $13.25
million in cash. The Rex product line allows us to enter the wearable
information accessory market. These products, which will be marketed under the
Xircom Rex brand name, are expected to be offered through leading retail
channels as well as our worldwide distributor network. On October 1, 1999, we
completed the acquisition of Entrega, a leader in the consumer USB port
expansion market. Entrega's products will be marketed as Xircom PortGear
products and are expected to be offered worldwide through mass merchandise,
retail and OEM channels. We expect from time to time to continue to evaluate
the acquisition of additional businesses, products and technologies.
We were incorporated in 1988 in California. Our principal executive offices
are located at 2300 Corporate Center Drive, Thousand Oaks, California 91320.
Our telephone number is (805) 376-9300.
The Offering
<TABLE>
<C> <S>
Common Stock Offered........................ 3,500,000 shares
Common Stock Outstanding after this
Offering................................... 28,453,217
Use of Proceeds............................. General corporate purposes and
potentially for acquisition
opportunities that may arise in
the future. See "Use of
Proceeds."
Nasdaq National Market Symbol............... XIRC
</TABLE>
6
<PAGE>
Summary Financial Data
The following summary consolidated financial data gives retroactive effect to
our acquisition of Entrega on October 1, 1999. The acquisition was accounted
for as a pooling-of-interests.
<TABLE>
<CAPTION>
Year Ended September 30,
----------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales...................... $119,528 $166,757 $184,575 $276,947 $424,436
Gross profit................... 40,480 59,320 58,275 97,570 181,188
In-process research and
development and other
nonrecurring charges(1)....... 5,745 1,505 2,163 -- 4,596
Operating income (loss) from
continuing operations......... (22,467) 9,012 (7,958) 19,515 49,544
Income (loss) from continuing
operations(1)................. (15,032) 5,168 (3,349) 15,854 34,605
Discontinued operations:
Operating income (loss) net
of income taxes............. (43,772) 784 (226) -- --
Loss on disposal, net of
income taxes................ -- -- (6,275) -- --
Net income (loss).............. $(58,804) $ 5,952 $ (9,850) $ 15,854 $ 34,605
Diluted earnings (loss) per
share(1):
Continuing operations........ $ (0.88) $ 0.26 $ (0.16) $ 0.68 $ 1.35
Net income (loss)............ $ (3.44) $ 0.30 $ (0.46) $ 0.68 $ 1.35
Balance Sheet Data:
Working capital................ $ 25,909 $ 34,711 $ 95,501 $116,062 $135,480
Total assets................... $ 85,649 $107,201 $147,930 $197,935 $275,496
Long-term obligations, net of
current portion............... $ 597 $ 1,860 $ -- $ -- $ --
Shareholders' equity........... $ 53,095 $ 65,603 $113,427 $134,751 $174,920
</TABLE>
- --------
(1) Fiscal 1999 includes $4,596 ($3,309 net of tax benefit) or $0.13 per share
for write-off of in-process research and development and other nonrecurring
charges. Fiscal 1997 includes $2,163 ($1,514 net of tax benefit) or $0.07
per share for write-off of in-process research and development. Fiscal 1996
includes $1,505 ($1,023 net of tax benefit) or $0.05 per share for loss on
sale of Netwave product line. Fiscal 1995 includes $5,745 ($3,561 net of
tax benefit) or $0.21 per share for other nonrecurring charges.
7
<PAGE>
RISK FACTORS
We face the risk of being unable to remain competitive in the mobile
information access industry.
Companies in the PC, desktop LAN adapter and modem industries with greater
name recognition and greater financial resources than us have a significant
presence in the PC Card adapter market, including, in particular, 3Com. As a
result, we have faced significant competition in our industry. Actions by our
competitors which continue to influence this competitive environment include
price reductions, new product introductions, promotional efforts, and changes
in the level of channel inventory. We expect competition to remain intense and
as a result, we may lose some of our business to our competitors. Further, we
believe that the market for our products will continue to be price competitive
and thus we could continue to experience lower selling prices, lower gross
profit margins and reduced profitability levels for such products than in the
past.
We face the risk of being unable to compete if our manufacturing facility
becomes unable to produce our products efficiently.
Our manufacturing facility, located in Malaysia, produces all of our PC Card
adapter products. We may be unable to achieve significant additional
efficiencies from this facility. If we are unable to achieve additional cost
reductions through increased production or manufacturing efficiencies we may be
unable to keep pace with our competitors' cost or price reductions to an extent
necessary to maintain or increase our market share without adversely affecting
gross profit margins. In addition, interruptions in the supply of products
could occur if we are unable to accurately forecast demand levels or react
sufficiently rapidly to changes. This in turn could adversely affect future
sales. We also face risks associated with maintaining production facilities
overseas, including management of a distant and remote manufacturing facility,
currency fluctuations and potential instability in the local country. This is
particularly of concern to us in light of recent economic and political
uncertainty in Malaysia and in Asia generally.
We face the risk of declining margins resulting from changes in the mix of
products we sell and in the types of customers to whom we sell.
Certain of our products have lower gross profit margins than others. As a
result, changes in our product mix could result in variations in overall gross
profit margin. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of the relative margins of our
different products. In addition, shipments to our OEM customers generally
result in lower average selling prices and gross profit margins than sales made
through our distribution partners. Furthermore, the increased percentage of
revenue from OEM customers during fiscal 1999 as compared to fiscal 1998 has
resulted in an increased concentration in our customer base. With this
increased customer concentration, we have increased our dependency on a more
limited number of customers at lower average selling prices and gross profit
margins than sales made through our distribution partners. These trends may
continue, as we anticipate a continuing increase in OEM revenues as a
percentage of sales.
We face certain risks as a result of our international sales and
manufacturing activities.
Our sales may be subject to government controls and other risks such as:
. 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 such as currency fluctuations and
economic instability impacting international markets, we could encounter
difficulties in accessing new and existing international markets or
8
<PAGE>
experience increased credit risks. Such credit risks could include insolvency
of customers or other impairments of customers' ability to repay amounts owed
to us. These credit risks could also include insolvency of vendors or other
impairments of vendors' ability to supply materials to us.
Foreign currency fluctuations could adversely affect our results.
We do all our manufacturing at our facility in Malaysia and our European
sales headquarters is located in Belgium. As a result, a significant portion of
our operating expenses are currently denominated in the Malaysian ringgit and
the Belgian franc. The majority of our international sales have been
denominated in U.S. dollars in 1999 and prior fiscal years. However, beginning
with fiscal year 2000, we expect that the majority of our international sales
will be denominated in the Euro. We do not engage in foreign currency hedging
transactions, although we do mitigate our operating expense exposure to some
extent by purchasing in advance a portion of the currency expected to be needed
for overseas operating expenses. Accordingly, our results of operations could
be adversely affected as a result of foreign currency fluctuations. In
particular, in September 1998, the Malaysian government fixed the exchange rate
of the Malaysian currency at 3.8 ringgits per U.S. dollar. Any potential
reversion to a floating exchange rate could have an adverse effect on our
results of operations.
We face the risk of incurring unnecessary expenses if we are unable to
accurately predict sales of our products.
We generally ship products within one to four weeks after receipt of orders.
Therefore, our sales backlog is typically minimal. Accordingly, our
expectations of future net sales are based largely on our own estimates of
future demand and not on firm customer orders. If our net sales do not meet
expectations, profitability would be adversely affected, as we may not be able
to reduce expenses at the same pace in the near term.
We face the risk of a reduction in our sales if we are unable to respond
quickly to changes in demand for our products.
Our net sales can be affected by changes in the quantity of products that our
distributor and OEM customers maintain in their inventories. Due to steps we
took beginning in the fourth quarter of fiscal 1997, we believe that our
distribution partners carry relatively low quantities of our inventory compared
to our competitors'. We also have taken steps, beginning in the second quarter
of fiscal 1999, to reduce the levels of inventory maintained by our OEM
customers. We believe that these actions enable us to react more quickly to
changes in market demand. However, we may also be more directly and more
rapidly affected by changes in the market, including the impact of any slowdown
or rapid increase in end user demand. Despite our efforts to reduce channel
inventory exposure, distribution partners and OEM customers may still choose to
reduce their inventories below current levels, which could cause a reduction in
our net sales.
We face the risk of being unable to compete if we are not able to develop new
products in a timely manner.
Our continued success is dependent on our ability to continue to introduce
new products with advanced features, functionality and solutions that our
customers demand. We may not be able to continue to introduce new products on a
timely basis that are accepted by the market, or that sell through to end users
in quantities sufficient to make the products viable for the long-term. Sales
of our new products may negatively impact sales of existing products. In
addition, we may have difficulty establishing our products' presence in markets
where we do not currently have significant brand recognition.
We face the risk of being unable to manufacture our products because we are
dependent on a limited number of qualified suppliers for our components.
Because of frequent technology changes and rapid industry growth, the cost
and availability of components used to manufacture our products may fluctuate.
Because some components, including custom
9
<PAGE>
chipsets, are available from sole suppliers, we risk having an inadequate
supply of components due to a number of factors, including:
. Supplier manufacturing constraints;
. Excess of demand versus supply;
. National political or economic changes; and
. Other risks not within our control.
Although we have not experienced any significant parts shortages over the past
year, many components we use require long-lead purchase orders thereby limiting
our flexibility to change order quantities in the event of changes in demand.
Any supply source interruptions, limitations on availability, or inability to
develop alternative sources as needed could adversely affect our ability to
deliver products and, in turn, our future earnings.
We face the risk that rapid technological changes and short product life
cycles in our industry could harm our business.
Rapid technological change and short product life cycles characterize the
industry in which we operate. The industry includes competitors with greater
financial and technical resources than us, including, in particular, 3Com.
While we have historically been successful in developing or integrating leading
technology into our products, ongoing investment in research and development is
required for us to maintain our technological position. We may need to increase
the rate of such investment depending on competitive factors, and we may not be
able to innovate as quickly as our competitors.
If networking capability is included in extension modules to PCs or in the PC
itself, it could result in a reduction in the demand for add-on networking
devices. In addition, while we believe our Realport connection port is a
competitive strength, as computing devices become ever smaller, connectivity
device form factors may become too small to permit use of the Realport
connector. Our operating results and ability to retain our market share are
also dependent on continued growth in the underlying markets for notebook
networking products, and notebook computers, and the notebook-to-network
connection rate.
We face the risk that we could become involved in intellectual property
disputes and may be unable to enforce our intellectual property rights.
We may not be able to protect our intellectual property adequately through
patent, copyright, trademark and other protection. For example, patents issued
to us may not be upheld as valid if litigation over the patent were initiated.
If we are unable to protect our intellectual property adequately, it could
allow competitors to duplicate our technology or may otherwise limit any
competitive technological advantage we may have. Because of the rapid pace of
technological change in the communications industry we believe our success is
likely to depend more upon continued innovation, technical expertise, marketing
skills and customer support and service rather than upon legal protection of
our proprietary rights. However, we will aggressively assert our intellectual
property rights when necessary.
With the proliferation of new products and rapidly changing technology in the
mobile information access market, there has been a significant volume of
patents or similar intellectual property rights held by third parties. Given
the nature of our products and development efforts, there are risks that claims
associated with such patents or intellectual property rights could be asserted
against us by third parties. These risks include the cost of licensing or
designing around a given technology. If a claimant refuses to offer such a
license on terms acceptable to us, there is a risk of incurring substantial
litigation or settlement costs regardless of the merits of the allegations. In
the event of litigation, if we do not prevail we may be required to pay
significant damages and/or to cease sales and production of infringing
products.
10
<PAGE>
We currently use software licensed from third parties in certain of our
Combo, modem-only and Token Ring products. Our operating results could be
adversely affected by a number of factors relating to this third-party
software, including:
. Failure by a licensor to accurately develop, timely introduce, promote or
support the software;
. Delays in shipment of our products;
. Excess customer support or product return costs experienced by us due to
errors in licensed software; or
. Termination of our relationship with such licensors.
We face the risk of being unable to attract and retain qualified managerial
and other skilled personnel.
Our continued success depends, in part, on our ability to identify, attract,
motivate and retain qualified managerial, technical and sales personnel.
Because our future success is dependent on our ability to manage effectively
the enhancement and introduction of existing and new products and the marketing
of such products, we are particularly dependent on our ability to identify,
attract, motivate and retain qualified managers, engineers and salespersons.
The loss of the services of a significant number of our engineers or sales
people or one or more of our senior officers or managers could be disruptive to
our development efforts or business relationships and could seriously harm our
business.
We face the risk of being unable to integrate effectively businesses or
assets that we acquire.
The recent acquisition of Entrega and certain assets of the Rex product line,
including intellectual property, inventory and fixed assets, from Franklin
Electronic Publishers must be integrated with our existing business structure.
If we fail to integrate Entrega and the Rex assets within our business
effectively or fail to do so with acquisitions that we have made in the past or
may make in the future, we may face disruptions to our business activities and
our business may be seriously harmed.
We face the risk of being unable to renew our tax holiday status in Malaysia.
We have received tax holiday status on our manufacturing operations in
Malaysia. Under this tax holiday, the earnings of our manufacturing subsidiary
are not taxable in Malaysia. This tax holiday expires in 2000, and we cannot be
assured that we will be able to renew or extend this tax holiday.
We face the risk of continued high volatility in our stock price.
The market price of our common stock has been, and may continue to be,
subject to a high degree of volatility. Numerous factors relating to us or our
competitors may have a significant impact on the market price of our common
stock, including:
. General conditions in the networking and computer industries;
. Product pricing;
. New products;
. Market growth forecasts;
. Technological innovations;
. Acquisitions; and
. Announcements of quarterly operating results.
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 ours, in many cases for reasons unrelated to the operating
performance of the specific companies. Our common stock has experienced
volatility not necessarily related to announcements of our performance.
11
<PAGE>
We face the risk that Year 2000 compliance issues could harm our business.
The Year 2000 issue is the result of computer programs and hardware using two
digits rather than four to define the applicable year. Such computer programs
and hardware may have date-sensitive software or embedded chips that always
assume the century is "19". This could cause miscalculations or failure in our
affected information systems and/or manufacturing equipment. Such system
miscalculations or failure could disrupt our business operations by, for
example, causing a temporary inability to process transactions or engage in our
normal business activities. Such disruptions may also occur if our key
suppliers or customers experience disruptions in their ability to transact with
us due to Year 2000 issues.
Products
We have reviewed and tested our PC Card, PortStation port expansion system,
and Rex products and believe they do not present any Year 2000 issues. Products
associated with the Entrega acquisition had been tested independently by
Entrega prior to our acquisition. Pursuant to that testing, Entrega had issued
its own statement on Year 2000 readiness of its products, in which Entrega
noted that its products were found to be fully Year 2000 compliant. In
addition, as part of our acquisition of the Rex product line, we have, where
applicable, secured representations, warranties, and/or certifications of Year
2000 compliance from key suppliers of operating software contained in such
products, and from parties selling products to us for our resale. We do not
believe any of our products will present any Year 2000 issues. All of our
products are used primarily as accessories to, and operate in dependence upon,
related systems. The related systems may themselves contain or demonstrate Year
2000 issues. We do not believe that any such Year 2000 issues in such systems
are or may be attributable to our products.
Internal IT and Non-IT Systems
In relation to our internal systems, our plan to manage the Year 2000 issue
has involved four phases: inventory/assessment, remediation, testing, and
contingency planning.
During late fiscal 1998 through early fiscal 1999, we performed our
inventory/assessment phase which analyzed the major information systems that
could be significantly affected by the Year 2000 issue and we engaged personnel
and resources to resolve potential issues. Through this initial analysis, we
concluded that the Year 2000 issue could be mitigated with respect to our
internal information systems and manufacturing equipment with modifications or
replacements of certain existing software and hardware where necessary or
advisable. Based on our analysis, we determined that we would be required to
modify or replace certain portions of our internal hardware and software so
that those systems would properly use dates beyond December 31, 1999.
Our inventory/assessment plan for both information technology ("IT") and non-
IT systems is essentially completed. As part of the inventory/assessment phase,
we initiated communications to create awareness, both internally and
externally, of the need to identify Year 2000 issues and the risks the issues
create. We have collected and analyzed inventories of systems, equipment, and
processes from our global locations. Based on our inventory/assessment phase,
most of our significant systems were determined to be Year 2000 compliant. The
inventory/assessment indicated, however, that our customer interaction system
could be affected. This system was successfully replaced with a Year 2000
compliant system in May 1999 as part of the remediation phase of our project
noted below.
The remediation phase involves reprogramming or replacing inventoried items.
We have completed the remediation phase with respect to our internal systems'
(IT and non-IT) Year 2000 exposure. Remediation of all systems classified as
"mission critical" was completed by March 31, 1999 and remediation of all
systems classified as "priority" was completed by June 30, 1999. Remediation of
the remaining systems, classified as "low impact", was completed by September
30, 1999.
12
<PAGE>
The testing phase included defining test plans, establishing appropriate test
environments, developing test cases, performing testing with appropriate
personnel, and certifying/documenting the results. The certification process
entailed having applicable in-house subject matter experts (i.e. functional
managers) review test results, including computer screens and printouts,
against pre-established criteria to ensure system(s) compliance. Additionally,
in relation to equipment used in our manufacturing lines, we engaged qualified
personnel from the applicable equipment manufacturer to perform run time on-
site testing in our manufacturing facility of the given manufacturer's
equipment. Services performed by such equipment manufacturer personnel included
installation of any applicable patches, upgrades, or other modifications, if
any, as necessary to ensure full Year 2000 compliance on the applicable
manufacturer's equipment. As of September 30, 1999, our testing phase was
substantially completed.
We are developing a contingency plan for organizing responses in case of
shutdown of certain of our critical applications due to Year 2000 issues. This
contingency plan involves, among other things, IT and non-IT systems and
external systems. In addition, we have initiated plans to secure certain
contingent levels of key materials and components for stocking purposes near
the end of calendar year 1999. These efforts are intended to provide for any
unanticipated disruption in the supply chain affecting suppliers of designated
critical components. We believe that the most likely worst case of a Year 2000-
related failure within systems we manage, given our state of readiness today,
would be a temporary (i.e. recoverable and correctable) loss of 10% of our
internal IT capability with no material impact on our ability to conduct normal
revenue-generating operations.
External relationships
Our 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 our ability to avoid disruption of
operations.
We have queried our significant suppliers regarding their Year 2000
readiness. To date, we are not aware of any such significant supplier with a
Year 2000 issue that would materially affect our operating results. While we
have no means of ensuring that all of our significant suppliers will be Year
2000 ready, we performed secondary evaluations, of our most critical suppliers
including site visits where deemed necessary, and found no Year 2000 issues
that we believe would lead to an interruption of our manufacturing schedules.
We could be materially impacted if our significant suppliers are unable to
resolve their Year 2000 issues in a timely fashion. The adverse effect on us of
non-compliance by these parties could adversely affect us.
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of securities offered by this prospectus will
be used for general corporate purposes, including capital expenditures. We
expect from time to time to evaluate the acquisition of businesses, products
and technologies for which a portion of the net proceeds may be used. Pending
such uses, we will invest the net proceeds in interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid any cash dividend on the corporation's capital
stock and do not anticipate paying any cash dividends on such stock in the
foreseeable future. We currently intend to retain future earnings, if any, for
use in our business.
PRICE RANGE OF COMMON STOCK
The following table presents the high and low closing stock price for
Xircom's Common Stock as quoted on The Nasdaq National Market for fiscal years
1998 and 1999 and fiscal year 2000 to date.
<TABLE>
<CAPTION>
High Low
Fiscal 2000 --------- ---------
<S> <C> <C>
October 1 to November 10, 1999......................... $55 1/2 $43 1/4
Fiscal 1999
July 1 to September 30................................. $47 7/16 $30 7/32
April 1 to June 30..................................... $30 1/16 $18 13/16
January 1 to March 31.................................. $45 1/4 $23 15/16
October 1 to December 31, 1998......................... $35 17/32 $17 1/2
Fiscal 1998
July 1 to September 30................................. $27 1/16 $14 3/4
April 1 to June 30..................................... $17 5/16 $13 3/8
January 1 to March 31.................................. $14 1/4 $ 9 9/16
October 1 to December 31, 1997......................... $12 3/8 $ 9
</TABLE>
14
<PAGE>
CAPITALIZATION
The table below sets forth the following information:
. our capitalization as of September 30, 1999, after giving retroactive
effect to the acquisition of Entrega consummated on October 1, 1999,
accounted for using the pooling-of-interests accounting method; and
. our capitalization as adjusted to give effect to (i) our repayment on
October 1, 1999 of Entrega's indebtedness of $9.138 million in part by
cash and in part in shares, and (ii) the sale of the 3,500,000 shares of
common stock we are offering hereby at an assumed initial offering price
of $54.25 per share after deducting underwriter's discounts and
commissions and estimated offering expenses.
<TABLE>
<CAPTION>
September 30, 1999
------------------------
Actual As Adjusted
---------- -------------
(in thousands, except
share information)
<S> <C> <C>
Cash and cash equivalents............................... $ 135,630 $ 310,473
Notes payable........................................... 9,138 --
Shareholders' equity:
Preferred Stock, 2,000,000 shares authorized, none
issued...............................................
Common Stock, $.001 par value, 50,000,000 shares
authorized; 24,563,614 shares outstanding at
September 30, 1999, 28,171,685 shares outstanding as
adjusted(1).......................................... 24 28
Paid-in capital....................................... 151,925 335,902
Retained earnings..................................... 22,971 22,971
---------- ----------
Total shareholders' equity.......................... 174,920 358,901
---------- ----------
Total capitalization................................ $ 184,058 $ 358,901
========== ==========
</TABLE>
- --------
(1) Excludes 4,537,062 shares issuable upon exercise of outstanding stock
options as of September 30, 1999 (which number includes shares issuable
upon exercise of assumed Entrega options), and excludes 34,327 shares
issued to Entrega's financial advisors upon the closing of the Entrega
transaction.
15
<PAGE>
SELECTED FINANCIAL DATA
The following table presents selected balance sheet and statement of
operations data as of and for the fiscal years ended September 30, 1995 through
1999. This data gives retroactive effect to our acquisition of Entrega on
October 1, 1999. The acquisition was accounted for as a pooling-of-interests.
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.................. $119,528 $166,757 $184,575 $276,947 $424,436
Cost of sales.............. 79,048 107,437 126,300 179,377 243,248
-------- -------- -------- -------- --------
Gross profit............... 40,480 59,320 58,275 97,570 181,188
Operating Expenses:
Research and development
expenses................ 13,085 9,537 12,799 16,599 24,557
Sales and marketing
expenses................ 37,086 32,723 43,012 50,699 87,348
General and
administrative
expenses................ 7,031 6,543 8,259 10,757 15,143
In-process research and
development and other
nonrecurring
charges(1).............. 5,745 1,505 2,163 -- 4,596
-------- -------- -------- -------- --------
Operating income (loss)
from continuing
operations................ (22,467) 9,012 (7,958) 19,515 49,544
Other income (expense),
net....................... 435 (1,338) 3,172 4,191 1,785
-------- -------- -------- -------- --------
Income (loss) from
continuing operations
before income taxes....... (22,032) 7,674 (4,786) 23,706 51,329
Income tax provision
(benefit)................. (7,000) 2,506 (1,437) 7,852 16,724
-------- -------- -------- -------- --------
Income (loss) from
continuing operations(1).. (15,032) 5,168 (3,349) 15,854 34,605
Discontinued operations:
Operating income (loss),
net of income taxes....... (43,772) 784 (226) -- --
Loss on disposal, net of
income taxes.............. -- -- (6,275) -- --
-------- -------- -------- -------- --------
Net income (loss)(1)....... $(58,804) $ 5,952 $ (9,850) $ 15,854 $ 34,605
======== ======== ======== ======== ========
Diluted earnings (loss) per
share(1):
Continuing operations.... $ (0.88) $ 0.26 $ (0.16) $ 0.68 $ 1.35
Net income (loss)........ $ (3.44) $ 0.30 $ (0.46) $ 0.68 $ 1.35
Balance sheet data:
Working capital............ $ 25,909 $ 34,711 $ 95,501 $116,062 $135,480
Total assets............... $ 85,649 $107,201 $147,930 $197,935 $275,496
Long-term obligations, net
of current portion........ $ 597 $ 1,860 $ -- $ -- $ --
Shareholders' equity....... $ 53,095 $ 65,603 $113,427 $134,751 $174,920
</TABLE>
- --------
(1) Fiscal 1999 includes $4,596 ($3,309 net of tax benefit) or $0.13 per share
for write-off of in-process research and development and other nonrecurring
charges. Fiscal 1997 includes $2,163 ($1,514 net of tax benefit) or $0.07
per share for write-off of in-process research and development. Fiscal 1996
includes $1,505 ($1,023 net of tax benefit) or $0.05 per share for loss on
sale of Netwave product line. Fiscal 1995 includes $5,745 ($3,561 net of
tax benefit) or $0.21 per share for other nonrecurring charges.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This discussion contains trend analysis and other forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and 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 other cautionary language contained elsewhere in
this prospectus.
Overview
We are a leading global provider of mobile networking and information access
solutions for mobile professionals. Our products enable connectivity between
notebook and handheld computer devices and corporate networks, the Internet and
other online services from a wide variety of locations.
We were incorporated in 1988 and shipped our first product in 1989. In 1992,
we were the first company in the industry to ship a LAN adapter in the PC Card
form factor, compliant with the standards set by the Personal Computer Memory
Card International Association (also known as PCMCIA Cards). We expanded our
product offerings in 1994 to include the first combo LAN and modem PC Cards. We
believe combo cards continue to represent the fastest growing segment of the PC
Card market. In 1998, we introduced our RealPort family of Integrated PC Cards,
which eliminates the need for pop-out jacks and external cables. During
February 1999, we began shipping 56K modems in the MiniPCI form factor,
providing OEMs a flexible and low cost configuration alternative for
communications functionality in notebook computers and handheld PCs. During
June 1999, we began shipping our first products for handheld computers--the
CompactCard line for Windows CE machines. In 1999, we entered the USB port
expansion market with the introduction of our PortStation port expansion system
products, a line of configurable products designed to offer a broad set of
access and port expansion capabilities to both enterprise and small office/home
office users through a single USB connection to a PC.
We recently completed two acquisitions intended to expand our product
offerings and enhance our leading position in the mobile networking market. On
September 27, 1999, we completed the acquisition of certain assets of the Rex
product line, including intellectual property, inventory and fixed assets, from
Franklin Electronic Publishers. The Rex line of portable information devices
allows customers to access personal data at any location. On October 1, 1999,
we completed the acquisition of Entrega, a leader in the USB port expansion
market. Entrega provides standardized devices for peripheral-to-PC
connectivity, including USB hubs, port converters and cables for PC and
Macintosh platforms. We expect from time to time to continue to evaluate the
acquisition of additional businesses, products and technologies.
Our net sales consist primarily of sales of our mobile networking and
information access products. We recognize revenue from product sales when
shipped. We make a provision for the estimated amount of product returns or
credits that may occur under these contracts in the period of sale and have a
policy of reserving channel inventory held by our customers in excess of one
month supply. We record a provision for product returns and credits based on
both contractual agreements, which allows distributors and dealers to return
products or receive price protection credits under certain circumstances, and
historical return rates. We sell our products primarily through domestic and
international distributors as well as to a number of OEM customers.
Our cost of sales consists of materials, labor, manufacturing overhead and
other costs of sales. Other costs of sales include provisions for excess and
obsolete inventory, warranty expense and royalty payments to licensors of
software incorporated into our products. Our gross margin is affected by our
product mix and from the proportion of net sales derived from sales to OEMs,
which typically carry lower gross margins than sales through our distribution
partners.
Research and development expenses consist primarily of labor and project
materials and are expensed as incurred.
17
<PAGE>
Sales and marketing expenses consist primarily of salaries, commissions and
marketing, advertising and promotional activities.
General and administrative expenses consist primarily of salaries and related
expenses, finance, accounting and human resources expenses, professional fees,
bad debt expenses and other general corporate expenses.
Quarterly Results of Operations
<TABLE>
<CAPTION>
Quarter Ended
----------------------------------------------------------------------------------------------
December 31, March 31, June 30, September 30, December 31, March 31, June 30, September 30,
1997 1998 1998 1998 1998 1999 1999 1999(1)
------------ --------- -------- ------------- ------------ --------- -------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net sales............... $52,545 $64,134 $71,312 $88,956 $98,498 $101,872 $108,439 $115,627
Cost of sales........... 34,417 42,546 47,118 55,296 59,064 58,643 61,634 63,907
------- ------- ------- ------- ------- -------- -------- --------
Gross profit............ 18,128 21,588 24,194 33,660 39,434 43,229 46,805 51,720
Operating expenses:
Research and
development expenses.. 3,539 3,940 4,120 5,000 5,549 5,439 6,520 7,049
Sales and marketing
expenses.............. 10,277 11,545 12,172 16,705 19,419 20,928 22,604 24,397
General and
administrative
expenses.............. 2,071 2,491 2,763 3,432 3,340 3,668 3,671 4,464
In-process research and
development and other
nonrecurring charges.. -- -- -- -- -- -- -- 4,596
------- ------- ------- ------- ------- -------- -------- --------
Total operating
expenses............... 15,887 17,976 19,055 25,137 28,308 30,035 32,795 40,506
------- ------- ------- ------- ------- -------- -------- --------
Income from operations.. 2,241 3,612 5,139 8,523 11,126 13,194 14,010 11,214
Other income, net....... 1,224 799 642 1,526 284 478 554 469
------- ------- ------- ------- ------- -------- -------- --------
Income from operations
before income taxes.... 3,465 4,411 5,781 10,049 11,410 13,672 14,564 11,683
Income tax provision.... 1,035 1,409 2,018 3,390 3,801 4,211 4,700 4,012
------- ------- ------- ------- ------- -------- -------- --------
Net income.............. $ 2,430 $ 3,002 $ 3,763 $ 6,659 $ 7,609 $ 9,461 $ 9,864 $ 7,671
======= ======= ======= ======= ======= ======== ======== ========
Basic earnings per
share.................. $ 0.11 $ 0.13 $ 0.16 $ 0.29 $ 0.32 $ 0.39 $ 0.41 $ 0.31
======= ======= ======= ======= ======= ======== ======== ========
Diluted earnings per
share.................. $ 0.11 $ 0.13 $ 0.16 $ 0.27 $ 0.30 $ 0.37 $ 0.39 $ 0.29
======= ======= ======= ======= ======= ======== ======== ========
As a Percentage of Net Revenues:
Net sales............... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 34.5 33.7 33.9 37.8 40.0 42.4 43.2 44.7
Research and development
expenses............... 6.7 6.1 5.7 5.6 5.6 5.3 6.0 6.1
Sales and marketing
expenses............... 19.6 18.0 17.1 18.8 19.7 20.6 20.8 21.1
General and
administrative
expenses............... 3.9 3.9 3.9 3.8 3.4 3.6 3.5 3.8
In-process research and
development and other
non-recurring charges.. 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.0
------- ------- ------- ------- ------- -------- -------- --------
Total operating
expenses............... 30.2 28.0 26.7 28.2 28.7 29.5 30.3 35.0
------- ------- ------- ------- ------- -------- -------- --------
Income from operations.. 4.3 5.6 7.2 9.6 11.3 12.9 12.9 9.7
Other income, net....... 2.3 1.3 0.9 1.7 0.3 0.5 0.5 0.4
------- ------- ------- ------- ------- -------- -------- --------
Income from operations
before income taxes.... 6.6 6.9 8.1 11.3 11.6 13.4 13.4 10.1
Income tax provision.... 2.0 2.2 2.8 3.8 3.9 4.1 4.3 3.5
------- ------- ------- ------- ------- -------- -------- --------
Net income.............. 4.6% 4.7% 5.3% 7.5% 7.7% 9.3% 9.1% 6.6%
======= ======= ======= ======= ======= ======== ======== ========
</TABLE>
- -------
(1) The fourth quarter of fiscal 1999 includes $4,596 ($3,309 net of tax
benefit) or $0.13 per diluted share for write-off of in-process research
and development and other nonrecurring charges.
18
<PAGE>
Net sales
Over the eight quarters ended September 30, 1999, our quarterly sales
increased from $52.5 million to $115.6 million. Our quarterly sales have grown
in each of the eight quarters ended September 30, 1999 primarily due to growth
in the overall demand for local and wide area network connectivity products,
increasing unit sales of our adapter products by our distributors and OEM
customers and the introduction of new products such as our RealPort Integrated
PC Card family of products.
Gross profit
Over the eight quarters ended September 30, 1999, our quarterly gross profit
increased from 34.5% of quarterly sales to 44.7% of quarterly sales. Our gross
profit as a percentage of net sales has increased in each of the eight
quarters, except the quarter ended March 31, 1998, primarily due to:
. The higher gross margins of our RealPort Integrated PC Card family of
products, which began shipping in the quarter ended June 30, 1998, versus
the comparably featured Type II PC Card products;
. Increased mix and sales volumes of our PC Card LAN adapters and PC Card
LAN+Modem adapters, which typically generate higher gross profit margins
than our other products, and decreased sales of modem-only products to
our OEM customers, which generate lower gross profit margins than sales
made through our distribution partners; and
. Decreased fixed manufacturing costs as a percentage of sales.
Operating expenses
Operating expenses increased in absolute amounts in each of the eight
quarters ended September 30, 1999, and as a percentage of net sales, these
expenses increased in each of these quarters, except in the quarters ended
December 31, 1997, and March 31, 1998, due to increased staffing and the
expansion of sales and marketing activities.
Results of Operations
<TABLE>
<CAPTION>
Year ended
September 30,
--------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
As a Percentage of Net Revenue:
Net sales............................................... 100.0 % 100.0% 100.0%
Cost of sales........................................... 68.4 64.8 57.3
----- ----- -----
Gross profit............................................ 31.6 35.2 42.7
Operating expenses:
Research and development expenses..................... 6.9 6.0 5.8
Sales and marketing expenses.......................... 23.3 18.3 20.6
General and administrative expenses................... 4.5 3.9 3.5
In-process research and development and other
nonrecurring charges................................... 1.2 0.0 1.1
----- ----- -----
Operating income (loss) from continuing operations...... (4.3) 7.0 11.7
Other income, net....................................... 1.7 1.5 0.4
----- ----- -----
Income (loss) from continuing operations before income
taxes.................................................. (2.6) 8.5 12.1
Provision for income taxes.............................. (0.8) 2.8 3.9
----- ----- -----
Income (loss) from continuing operations................ (1.8)% 5.7% 8.2%
===== ===== =====
</TABLE>
19
<PAGE>
Net Sales
Net sales--1999 versus 1998
Net sales increased 53% to $424.4 million in fiscal 1999 from $276.9 million
in fiscal 1998. We derive net sales principally from shipments of Ethernet PC
Card adapters, modems and multifunction Ethernet and modem cards ("Combo
cards") (collectively "adapter products"), which connect notebook PCs to
networks, the Internet and online services. The increase in net sales in 1999
from 1998 was primarily due to increased shipments of Ethernet PC Cards and
Combo cards. We attribute this increase to growth in overall market demand for
local and wide area network connectivity products and an increase in unit sales
of our adapter products by our distribution customers (the "branded" business)
and OEM customers. We believe this growth in sales of our adapter products in
our branded business and by OEM customers may be indicative of several factors:
. Increased growth rate in shipments of notebook PCs, which in turn require
network and modem connections;
. An increase in the rate that notebook PCs are attached to information
sources;
. Continuing increased market acceptance of our Combo cards and Fast
Ethernet cards; and
. Increased market acceptance of our RealPort Integrated PC Card family of
products.
We also introduced our port expansion system products in 1999 through the
acquisition of Entrega on October 1, 1999, which was accounted for as a
pooling-of-interests, and in addition, we began shipping Xircom PortStation
port expansion system products in September 1999.
These increases were partially offset by a decrease in the volume of lower
margin modem-only product sales we made to our OEM customers. Unit shipments of
adapter products increased 47% in 1999 over 1998 but average selling prices
declined due to increased competition in the market for adapter products.
Revenues from our products as a percentage of total revenues were as follows:
<TABLE>
<CAPTION>
Year ended
September 30,
----------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
PC Card LAN+Modem Adapters.................................... 43% 48% 57%
PC Card LAN Adapters.......................................... 42% 30% 28%
PC Card Modem Adapters........................................ 11% 21% 10%
Port expansion system products................................ -- -- 4%
Other......................................................... 4% 1% 1%
</TABLE>
Total international sales (shipments to our customers located outside the
U.S.) as a percentage of total sales was 53% in 1999 and 52% in both 1998 and
1997. Sales of our PC Cards in Europe grew at a faster rate than in the U.S.
Net sales--1998 versus 1997
Net sales increased 50% to $276.9 million in fiscal 1998 from $184.6 million
in fiscal 1997 due to increased shipments of our adapter products. We attribute
the increase in net sales primarily to growth in overall market demand for
local and wide area network connectivity products and an increase in unit sales
of our adapter products by our distribution and OEM customers. During the
fourth quarter of fiscal 1997, we reduced shipments to our distributors in
order to reduce the levels of inventories they hold and to enable us to quickly
react to market changes. Unit shipments of our adapter products increased 54%
in 1998 over 1997 but average selling prices declined due to increased
competition in the PC Card LAN adapter market and a greater mix of revenue sold
through OEM partners where average selling prices are generally lower.
20
<PAGE>
Gross Profit
Gross profit--1999 versus 1998
Gross profit consists of net sales less cost of sales. Cost of sales includes
materials, labor, manufacturing overhead and other costs of sales. Other costs
of sales include provisions for excess and obsolete inventory, warranty expense
and royalty payments to licensers of software incorporated into our products.
The increase in gross profit as a percent of net sales in 1999 compared to 1998
was primarily attributable to:
. The higher gross margins of our RealPort Integrated PC Card family of
products, which began shipping in the third quarter of fiscal 1998,
versus the comparably featured Type II PC Card products;
. A decrease in our fixed manufacturing costs as a percentage of sales; and
. A decrease in the sales volume of our modem-only products, which
typically generate lower gross profit margins than our other products,
and in particular, reduced sales of modem-only products to our OEM
customers, which generate lower gross profit margins than sales made
through our distribution partners.
This increase in gross profit as a percent of net sales was partially offset
by the relatively lower gross profit as a percent of net sales earned by
Entrega during 1999, as compared to that of Xircom's traditional products.
Gross profit--1998 versus 1997
The increase in gross profit as a percent of net sales in 1998 compared to
1997 was primarily attributable to a decrease in fixed manufacturing costs as a
percentage of sales. In addition, the RealPort Integrated PC Card family of
products, which began shipping in the third quarter of fiscal 1998, has higher
gross margins than the comparably featured Type II PC Card products. This
increase in the gross profit percentage was partially offset by the increase in
modem-only product sales to our OEM customers at lower gross profit margins
than sales made through the Company's distribution partners, and by lower
average selling prices on adapter products.
Research and Development
Our research and development expenses increased in 1999 in absolute dollars
compared to 1998 as a result of our decision to increase staffing and
expenditures to support expanded branded and OEM product offerings, including
our PortStation port expansion system and the CompactCard line of products.
Research and development expenses increased in 1998 in absolute dollars
compared to 1997. This increase was a result of additional staffing and
expenditures to support expanded branded and OEM product offerings, including
our RealPort Integrated PC Card family of products, and expenditures by Entrega
during 1999. We expect total expenditures for research and development to
increase in fiscal 2000 due to our planned expenditures on product enhancements
and new product introductions.
Sales and Marketing
We increased sales and marketing expenses in 1999 in both absolute dollars
and as a percentage of net sales as compared to 1998 primarily due to:
. Additional staffing and sales and marketing activities required to
support expanded branded markets;
. The opening and operation of a new regional headquarters in Tokyo, Japan;
. Expansion of our OEM sales organization;
. Expenses to support the launch of new products such as the PortStation
Port expansion system and the CompactCard line of products; and
. Expenses incurred by Entrega during 1999, to support the launch of its
line of port expansion system products.
21
<PAGE>
As we pursue further product and market expansion activities, we expect sales
and marketing expenses for fiscal 2000 to increase.
Our sales and marketing expenses increased in 1998 and decreased as a
percentage of net sales as compared to 1997. The increase in expenses were due
to sales and marketing activities and additional staffing required to support
expanded branded markets and establishment of our OEM sales organization.
Partially offsetting these increases were the lower sales and marketing
expenditures that generally are associated with OEM sales versus branded
business sales, reduced expenses associated with lower levels of inventories
maintained by distributors, and cooperative advertising reimbursements. Sales
and marketing expenses were higher as a percentage of net sales in 1997 because
we reduced the volume of our shipments to our distributors during the fourth
quarter of fiscal 1997 in order to reduce the levels of inventories they held.
General and Administrative
Our general and administrative expenses increased in 1999 as compared to 1998
to support growth in our organization and, to a lesser extent, continued
expenditures on our information systems hardware and software, including Year
2000 upgrades. During 1998, we initiated modification efforts of computer
software issues associated with the Year 2000 project. General and
administrative expenses include costs incurred by Entrega to build its
infrastructure and grow its operations. We expect general and administrative
expenses to increase during fiscal 2000 due to the need to support growth in
our organization and continued expansion of information systems hardware and
software. In addition, during the first quarter of fiscal 2000, we expect to
incur transaction and transition-related expenses for Entrega of approximately
$2,500,000 to $3,000,000. See "Risk Factors" for a further discussion of our
Year 2000 project.
In-process Research and Development and Other Nonrecurring Charges
In the fourth quarter of fiscal 1999, we recorded a charge to operations of
$2,364,000 ($1,702,000 net of tax benefit) for future operating lease payments
related to facilities we will vacate, and a charge of $2,232,000 ($1,607,000,
net of tax benefit) for the write-off of in-process research and development in
connection with the purchase of the Rex product line. The total lease payment
accrual is net of expected sublease income and does not include any period in
which we will continue to occupy the facility. The Rex product line was
acquired from Franklin Electronic Publishers Incorporated, a developer and
marketer of handheld electronic reference products. In fiscal 1997, we recorded
a charge to operations of $2,163,000 ($1,514,000, net of tax benefit) for the
write-off of in-process research and development in connection with the
purchase of certain assets from Angia Communications, Inc., a developer and
manufacturer of PC Card products.
We based the amounts allocated to in-process research and development on
established valuation techniques in the high technology industry. At the date
of each acquisition mentioned above, the projects associated with the in-
process efforts had not yet reached technological feasibility and the research
and development in process had no alternative future uses. Accordingly, we
charged these amounts to expense on the respective dates of each acquisition.
Other Income, Net
Net other income includes interest income from the investment of available
cash and net gains on our foreign currency transactions. This amount is offset
by discounts earned by our customers on early payments, interest expense, and
losses on disposals of fixed assets. Our interest income was $4,911,000,
$4,256,000 and $2,195,000, and our net foreign currency transaction gains were
$438,000, $1,426,000 and $2,119,000, in 1999, 1998 and 1997, respectively. Net
other income for 1999 decreased as compared to 1998 primarily due to an
increase in discounts earned by our customers on early payments to us, a
decrease in gains on our foreign currency transactions, and an increase in
interest expense relating to Entrega. Net other income for 1998 increased as
compared to 1997 primarily due to higher interest income and lower interest
expense in 1998 as a result of increased cash and cash equivalents and reduced
borrowings under credit facilities.
22
<PAGE>
Income Tax Provision
Our effective tax rate was 32.6% in 1999, 33.1% in 1998, and 30.0% in 1997.
The difference between our effective tax rates during these years and the 35%
federal statutory tax rate was due primarily to benefits we received from the
tax holiday status of our manufacturing operations in Malaysia, which expires
in 2000. We intend to seek renewal of this tax holiday before its expiration
but cannot assure that this renewal will be received. In fiscal 1999 we began
using tax preferred investment vehicles for our cash equivalents to further
reduce our effective tax rate. An income tax benefit has not been recorded for
the losses attributable to Entrega during the 1999 and 1998 fiscal years since
such losses have been utilized at the shareholder level based on Entrega's S-
Corporation status during those periods. We expect an effective tax rate of 28%
for our 2000 fiscal year.
Discontinued Operations
Discontinued operations in 1997 include the financial results of Netaccess,
our subsidiary, which included remote access server and multi-port modem
products sold to OEMs and through two-tier distribution channels. On June 30,
1997, we completed the sale of Netaccess resulting in a loss of $6,275,000, net
of income tax benefit. Operating loss from discontinued operations, net of
income taxes, for 1997 was $226,000.
Net Income
Net income and net income per diluted share for 1999, excluding acquisition-
related costs and other nonrecurring charges, was $37,914,000 and $1.48,
respectively, compared to $15,854,000 and $0.68, respectively, for 1998. Net
income and net income per diluted share for 1999 was $34,605,000 and $1.35,
respectively, compared to $15,854,000 and $0.68, respectively, for 1998.
Liquidity and Capital Resources
As of September 30, 1999 we had $135.6 million in cash and cash equivalents.
Our continuing operating activities provided cash of approximately $61.4
million in 1999, primarily due to net income and increases in accounts payable
and other accrued liabilities, partially offset by increases in accounts
receivable, inventories and other current assets. Income taxes payable
increased primarily due to the timing of payments for income taxes. Accounts
payable and other accrued liabilities increased primarily due to the timing of
payments for component inventory purchases. Accounts receivable increased due
to higher fourth quarter net sales in 1999 versus that of 1998. Other current
assets increased due to a deposit paid during 1999 for securing contingent
rights to use certain intangible assets. Our use of these rights was contingent
upon approval of the transfer of these rights by the court having jurisdiction
over the assets. In September 1999 the court denied such approval and we became
entitled to a refund of the deposit, which was received in October 1999.
We used $42.5 million in cash in investing activities in 1999, primarily for
capital expenditures and for an acquisition. The capital expenditures were for
the purchase of manufacturing equipment for use in our Penang, Malaysia
facility, information systems hardware and software, and equipment for
increased headcount. We used $13.3 million in cash to acquire the Rex product
line from Franklin Electronic Publishers Incorporated. We have no material
fixed commitments and do not expect an increase in the rate of capital
expenditures in the normal course of business during fiscal 2000.
Our financing activities provided $10.9 million in cash in 1999, primarily
from the issuance of capital stock through our stock option and employee stock
purchase plans, tax benefits related to employee stock option and stock
purchase plans, and increases in notes payable, offset by net payment under
warrant agreement. On February 18, 1999, Intel Corporation exercised its
warrant to purchase additional shares of our common stock. Under the terms of
the warrant agreement, Intel elected to receive 514,314 shares at no additional
cost in lieu of purchasing 1,509,903 shares at an exercise price of $27.01.
Concurrent with the warrant exercise, we repurchased 514,314 shares of common
stock held by Intel for a total price of
23
<PAGE>
$19.8 million, or $38.45 per share. We generated cash of $15.6 million from the
issuance of capital stock through our stock option and employee stock purchase
plans. In addition, we generated $8,549,000 in cash in 1999 from tax benefits
from our employee stock option and stock purchase plans.
We have a bank credit facility for borrowings up to $25.0 million. Loans
under the agreement are secured by all of our U.S.-based assets. The agreement
expires in December 2000. We also have credit facilities totaling $5.3 million,
denominated in Malaysian ringgits, with banks in Malaysia. As of September 30,
1999, Entrega had borrowings of $4,988,000 outstanding under a line of credit
with a bank. This agreement expired and was fully repaid on October 1, 1999. As
of September 30, 1999, Entrega also had borrowings outstanding of $4,150,000
under notes payable to its former principal shareholder. On October 1, 1999,
the notes were converted into 142,397 shares of Xircom Common Stock. We had
approximately $30.3 million in borrowings available under our credit facilities
as of September 30, 1999.
We believe that cash on hand, borrowings available under our existing
facilities or from other financing sources and cash provided by operations will
be sufficient to support our working capital and capital expenditure
requirements for at least the next twelve months. However, we cannot assure
that future cash requirements to fund operations will not require us to seek
additional capital sooner than the twelve months, or that such additional
capital will be available when required on terms acceptable to us.
Market Risk Disclosures
The following discussion about our 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 our portfolio of highly liquid cash
equivalents, and that we have no borrowings outstanding, we are not subject to
significant interest rate risk.
We manufacture the majority of our products in Malaysia and sell our products
worldwide. Our financial results, therefore, could be significantly impacted by
factors such as changes in foreign currency exchange rates and weak economic
conditions in foreign markets. Our operating results are exposed to the impact
of weakening economic conditions in the countries in which we sell our
products.
Since the majority of our sales are denominated in U.S. dollars, our foreign
operations are net payers of currencies other than the U.S. dollar,
particularly the Malaysian ringgit and the Belgian franc. As such, our
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 our foreign currency
based expenses, we purchase and hold Malaysian ringgits and Belgian francs in
advance of the due date of the underlying obligations. We do not otherwise
engage in any foreign currency risk hedging activity.
24
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of (1) 50,000,000 shares designated as
common stock, $0.001 par value, and (2) 2,000,000 shares designated as
preferred stock, $0.001 par value. The only equity securities currently
outstanding are shares of common stock. As of October 1, 1999, there were
approximately 24,671,685 shares of common stock issued and outstanding.
Common Stock
Holders of common stock are entitled to receive dividends declared by the
Board of Directors, out of funds legally available for the payment of
dividends, subject to the rights of holders of preferred stock. Currently, we
are not paying a dividend. Each holder of common stock is entitled to one vote
per share. Upon any liquidation, dissolution or winding up of our business, the
holders of common stock are entitled to share equally in all assets available
for distribution after payment of all liabilities and provision for liquidation
preference of shares of preferred stock then outstanding. The holders of common
stock have no preemptive rights and no rights to convert their common stock
into any other securities. There are also no redemption or sinking fund
provisions applicable to the common stock.
All outstanding shares of common stock are fully paid and nonassessable.
Our common stock is listed on The Nasdaq National Market under the symbol
"XIRC." The transfer agent and registrar for the common stock is Equiserve.
Preferred Stock
There are no shares of preferred stock outstanding. The Board of Directors
has the authority, without further action by the shareholders, to issue up to
2,000,000 shares of preferred stock in one or more series and to fix the
following terms of the preferred stock:
. designations, powers, preferences, privileges,
. relative participating, optional or special rights, and
. the qualifications, limitations or restrictions, including dividend
rights, conversion rights, voting rights, terms of redemption and
liquidation preferences.
Any or all of these rights may be greater than the rights of the common
stock.
The Board of Directors, without stockholder approval, can issue preferred
stock with voting, conversion or other rights that could negatively affect the
voting power and other rights of the holders of common stock. Preferred stock
could thus be issued quickly with terms calculated to delay or prevent a change
in control of Xircom or make it more difficult to remove our management.
Additionally, the issuance of preferred stock may have the effect of decreasing
the market price of the common stock.
25
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, we have agreed to sell to the underwriters
named below, for whom Credit Suisse First Boston Corporation, CIBC World
Markets Corp. and SG Cowen Securities Corporation are acting as
representatives, the following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation............................
CIBC World Markets Corp...........................................
SG Cowen Securities Corporation...................................
---------
Total........................................................... 3,500,000
=========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of the non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro-rata
basis up to 525,000 additional shares at the public offering price less the
underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at the
public offering price on the cover page of this prospectus and to selling group
members at that price less a concession of $ per share. The underwriters and
selling group members may allow a discount of $ per share on sales to other
broker/dealers. After the public offering of the common stock, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
------------------- -------------------
Without With Without With
Over- Over- Over- Over-
allotment allotment allotment allotment
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Underwriting Discounts and
Commissions paid by us...........
Expenses payable by us............
</TABLE>
We and our directors and executive officers have agreed that we and they will
not offer, sell, contract to sell, pledge or otherwise dispose of, directly or
indirectly, or file with the Securities and Exchange Commission a registration
statement under the Securities Act relating to any shares of our common stock
or securities convertible into or exchangeable or exercisable for any shares of
our common stock, whether now owned or hereafter acquired, or publicly disclose
the intention to make any such offer, sale, pledge, disposition or filing,
without the prior written consent of Credit Suisse First Boston Corporation for
a period of 90 days after the date of this prospectus, except in the case of
issuances as a result of the grant of employee stock options outstanding on the
date of this prospectus, issuances of our common stock upon any exercise of
such options or the exercise of any other employee stock options outstanding on
the date of this prospectus. In addition, a transfer of such securities to a
family member or a trust will be permitted, provided that the transferee agrees
to be bound in writing by the restrictions in this paragraph.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act or contribute to payments which the underwriters may be required
to make in that respect.
Our common stock is listed on The Nasdaq's National Market under the symbol
XIRC.
26
<PAGE>
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, penalty bids and "passive" market making in
accordance with Regulation M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the shares of the
common stock in the open market after the distribution has been completed
in order to cover syndicate short positions.
. Penalty bids permit the underwriters to reclaim a selling concession from
a syndicate member when the shares of common stock originally sold by
that syndicate member are purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
. In "passive" market making, market makers in the common stock who are
underwriters or prospective underwriters may, subject to certain
limitations, make bids for or purchases of the common stock until the
time, if any, at which a stabilizing bid is made.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
27
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase confirmation
will be deemed to represent to us and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such common stock without the benefit of
a prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
Rights of Actions (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against such
issuer or persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser pursuant to this offering. Such report
must be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from us. Only one such report
must be filed in respect of common stock acquired on the same date and under
the same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
28
<PAGE>
LEGAL MATTERS
The validity of the issuance of the securities we are offering by this
prospectus will be passed upon for us by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California and for the underwriters by
Shearman & Sterling, Menlo Park, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule included in our Annual Report on Form 10-K,
and have audited our supplemental consolidated financial statements and
schedule included in our Current Report on Form 8-K for the year ended
September 30, 1999, as set forth in their reports, which are incorporated by
reference in this prospectus and elsewhere in the registration statement. Our
financial statements and supplemental financial statements, and related
schedules are incorporated by reference in reliance on Ernst & Young LLP's
reports, given on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We file reports, proxy statements and other information with the Commission,
in accordance with the Securities Exchange Act of 1934. You may read and copy
our reports, proxy statements and other information filed by us at the public
reference facilities of the Commission in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Commission at 1-800-SEC-0330 for further
information about the public reference rooms. Our reports, proxy statements and
other information filed with the Commission are available to the public over
the Internet at the Commission's World Wide Web site at http://www.sec.gov. Our
web address is http://www.xircom.com. Information on our website is not
incorporated by reference.
We have filed a registration statement on Form S-3 under the Securities Act
of 1933 with respect to our common stock. This prospectus, which forms a part
of the registration statement, does not contain all of the information included
in the registration statement. Some information is omitted and you should refer
to the registration statement and its exhibits.
The Commission allows us to "incorporate by reference" the information we
filed with them, which means that we can disclose important information by
referring you to those documents. The information incorporated by reference is
considered to be a part of this prospectus, and information that we file later
with the Commission will automatically update and supersede this information.
We incorporate by reference the documents listed below and any future filings
made by us with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act until our offering is complete:
. Our Annual Report on Form 10-K for the fiscal year ended September 30,
1999;
. Our Current Report on Form 8-K dated November 10, 1999; and
. Our Proxy Statement dated December 11, 1998 from Annual Meeting of
Shareholders held on January 22, 1999.
You may request a copy of these filings, at no cost, by writing or calling us
at the following address:
Steven F. DeGennaro
Chief Financial Officer
Xircom, Inc.
2300 Corporate Center Drive
Thousand Oaks, California 91320
(805) 376-9300
29
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. Other Expenses of Issuance and Distribution
The aggregate estimated (other than the registration fee) expenses to be paid
by the Registrant in connection with this offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $ 60,213
NASD filing fee.................................................. 22,160
Fee for NASDAQ additional listing fee............................ 17,500
Accounting fees and expenses..................................... 100,000
Legal fees and expenses.......................................... 125,000
Printing and engraving fees...................................... 125,000
Blue sky fees and expenses....................................... 10,000
Transfer agent fees and expenses................................. 10,000
Miscellaneous.................................................... 80,127
--------
Total.......................................................... $550,000
========
</TABLE>
ITEM 15. Indemnification of Directors and Officers of Xircom
Articles of Incorporation
Article IV of our Amended and Restated Articles of Incorporation provides
that liability of the directors for monetary damages shall be eliminated to the
fullest extent permitted by California law and that we are authorized to
provide indemnification of directors, officers and other agents to the fullest
extent permissible under California law. California law provides that directors
of a corporation will not be personally liable for monetary damages for breach
of their fiduciary duties as directors, except for liability:
. for acts or omissions that involve intentional misconduct or a knowing
and culpable violation of law,
. for acts or omissions that a director believes to be contrary to the best
interests of the corporation or its shareholders or that involve the
absence of good faith on the part of the director,
. for any transaction from which the director derived an improper personal
benefit,
. for acts or omissions that show a reckless disregard for the director's
duty to the corporation or its shareholders in circumstances in which the
director was aware, or should have been aware, in the ordinary course of
performing a director's duties, of a risk of serious injury to the
corporation or its shareholders,
. for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the corporation
or its shareholders,
. for transactions between the corporation and one or more of its directors
or between the corporation and any corporation in which one or more of
its directors has a material financial interest, or
. for approving certain corporate actions including distributions to
shareholders or committing the corporation to certain loans or guaranty
as provided in Section 316 of the California General Corporation Law.
Bylaws
Article IV of our Bylaws provides that we will, to the maximum extent
permitted by the California General Corporation Law, have power to indemnify
any person who is or was a director, officer, employee or other agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or who was a director, officer, employee or
agent of the corporation which was a predecessor corporation of the corporation
II-1
<PAGE>
or of another enterprise at the request of such predecessor corporation against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the corporation.
Our Bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the corporation would have the
power to indemnify the agent against such liability. We currently maintain
liability insurance for our officers and directors.
We have entered into agreements to indemnify our directors and officers, in
addition to the indemnification provided for in our Articles of Incorporation
and Bylaws. These agreements, among other things, indemnify our directors and
officers for certain expenses, including attorney's fees, judgments, fines and
settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of Xircom, arising out of such person's
services as a director or officer of Xircom, any subsidiary of Xircom or any
other company or enterprise to which the person provides services at the
request of Xircom.
The form of proposed Underwriting Agreement to be filed as an Exhibit hereto
includes provisions regarding the indemnification of our officers and directors
against certain liabilities by the several Underwriters.
ITEM 16. Exhibits
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1++ Amended Articles of Incorporation of Xircom, Inc. (incorporated by
reference to Exhibit 3.1 of the Company's report on Form 10-Q for the
quarter ended March 31, 1992)
3.2++ Bylaws of Xircom, Inc. (incorporated by reference to Exhibit 3.3 of
Amendment No. 3 to the Company's registration statement on Form S-1,
No. 33-45667)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
24.1 Power of Attorney of certain directors and officers of Xircom, Inc.
(see page II-4)
</TABLE>
- --------
*To be filed by amendment.
++Previously filed.
II-2
<PAGE>
ITEM 17. Undertakings
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities, other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding, is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-3 and has duly caused this Registration Statement on Form
S-3 to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Thousand Oaks, State of California, on November 11, 1999.
XIRCOM, INC.
/s/ Dirk I. Gates
By: _________________________________
Chairman of the Board
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS that each individual whose signature appears below
constitutes and appoints Dirk I. Gates and Steven F. DeGennaro, and each of
them, as his true and lawful attorneys-in-fact and agents, each with the power
of substitution, for him in his name, place and stead, in any and all
capacities, to sign the Registration Statement filed herewith and any and all
amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-
effective amendments thereto, and to file the same, with all exhibits thereto
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, each of them, full
power and authority to do and perform each and every act and thing requisite
and necessary to be done in and about the foregoing, as full to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ Dirk I. Gates President and Chief November 11, 1999
____________________________________ Executive Officer
Dirk I. Gates
/s/ Steven F. DeGennaro Chief Financial Officer November 11, 1999
____________________________________ (Principal Financial
Steven F. DeGennaro and Accounting
Officer)
/s/ Michael F. G. Ashby Director November 11, 1999
____________________________________
Michael F. G. Ashby
/s/ Kenneth J. Biba Director November 11, 1999
____________________________________
Kenneth J. Biba
/s/ Gary J. Bowen Director November 11, 1999
____________________________________
Gary J. Bowen
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ J. Kirk Mathews Director November 11, 1999
____________________________________
J. Kirk Mathews
/s/ Carl E. Russo Director November 11, 1999
____________________________________
Carl E. Russo
/s/ William J. Schroeder Director November 11, 1999
____________________________________
William J. Schroeder
/s/ Delbert W. Yocam Director November 11, 1999
____________________________________
Delbert W. Yocam
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Title
------- -------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1++ Amended Articles of Incorporation of Xircom, Inc. (incorporated by
reference to Exhibit 3.1 of the Company's report on Form 10-Q for the
quarter ended March 31, 1992)
3.2++ Bylaws of Xircom, Inc. (incorporated by reference to Exhibit 3.3 of
Amendment No. 3 to the Company's registration statement on Form S-1,
No. 33-45667)
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1)
24.1 Power of Attorney of certain directors and officers of Xircom, Inc.
(see page II-4)
</TABLE>
- --------
*To be filed by amendment.
++Previously filed.
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of Xircom, Inc., filed
on November 12, 1999, for the registration of 3,500,000 shares of its common
stock and to the incorporation by reference therein of our report dated October
18, 1999, with respect to the consolidated financial statements and schedule of
Xircom, Inc. included in its Annual Report on Form 10-K for the year ended
September 30, 1999 and our report dated November 5, 1999 with respect to the
supplemental consolidated financial statements and schedule of Xircom, Inc.
included in its Current Report on Form 8-K dated November 10, 1999, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Woodland Hills, California
November 10, 1999
