<PAGE>
SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarter ended December 31, 1999
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 0-19856
XIRCOM, INC.
2300 Corporate Center Drive
Thousand Oaks, California 91320
Telephone: (805) 376-9300
CALIFORNIA (State of incorporation)
95-4221884 (IRS Employer Identification No.)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
There were 29,692,202 shares of the Registrant's $.001 par value Common Stock
outstanding as of February 3, 2000.
1 XIRCOM, INC.
<PAGE>
Xircom, Inc.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page in Form 10-Q
Part I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<S> <C> <C>
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Income Statements 4
Condensed Consolidated Statements of Cash Flows 5
Notes to Condensed Consolidated Financial Statements 6-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 8-16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 16
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS 16
ITEM 2. CHANGES IN SECURITIES 16
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 16
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 16-17
Item 5. OTHER ITEMS 17
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
SIGNATURES 17
</TABLE>
2 XIRCOM, INC.
<PAGE>
Xircom, Inc.
PART I. FINANCIAL INFORMATION
ITEM I. FINANCIAL STATEMENTS
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
December 31 September 30
(In thousands) 1999 1999
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 62,388 $135,630
Short-term investments 282,205 -
Accounts receivable, net 54,581 38,012
Income tax receivable 1,354 300
Inventories 20,462 23,563
Deferred income taxes 15,195 15,195
Other current assets 6,083 9,696
- ---------------------------------------------------------------------------------------------------------------------
Total current assets 442,268 222,396
Property and equipment, net 47,749 40,536
Other assets 12,880 12,564
- ---------------------------------------------------------------------------------------------------------------------
Total assets $502,897 $275,496
- ---------------------------------------------------------------------------------------------------------------------
Current liabilities:
Notes payable $ - $ 9,138
Accounts payable 21,755 31,591
Accrued liabilities 41,674 42,235
Accrued income taxes - 3,952
- ---------------------------------------------------------------------------------------------------------------------
Total current liabilities 63,429 86,916
Deferred income taxes 13,660 13,660
Shareholders' equity:
Common stock 30 24
Paid-in capital 390,337 151,925
Accumulated other comprehensive loss ( 255) -
Retained earnings 35,696 22,971
- ---------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 425,808 174,920
- ---------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $502,897 $275,496
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3 XIRCOM, INC.
<PAGE>
Xircom, Inc.
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands, except per share information)
Three Months Ended December 31 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $124,111 $98,498
Cost of sales 67,038 59,064
- --------------------------------------------------------------------------------------------------------------------
Gross profit 57,073 39,434
Operating expenses:
Research and development 7,569 5,549
Sales and marketing 24,832 19,419
General and administrative 4,392 3,340
Amortization of goodwill and other
acquisition-related intangibles 608 -
Acquisition-related non-recurring charges 2,865 -
- --------------------------------------------------------------------------------------------------------------------
Total operating expenses 40,266 28,308
- --------------------------------------------------------------------------------------------------------------------
Operating income 16,807 11,126
Other income, net 625 284
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 17,432 11,410
Provision for income taxes 4,707 3,801
- --------------------------------------------------------------------------------------------------------------------
Net income $ 12,725 $ 7,609
- --------------------------------------------------------------------------------------------------------------------
Basic earnings per share $ .49 $ .32
Diluted earnings per share $ .46 $ .30
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4 XIRCOM, INC.
<PAGE>
Xircom, Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended December 31 1999 1998
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating activities:
Net income $ 12,725 $ 7,609
Adjustments to derive cash flows from operating activities:
Depreciation and amortization 4,161 2,415
Non-cash charges 1,451 -
Foreign currency exchange loss 940 173
Changes in assets and liabilities:
Accounts receivable (16,569) 1,161
Inventories 3,101 (701)
Other current assets 2,559 659
Accounts payable and accrued liabilities ( 9,819) ( 623)
Income taxes payable ( 3,952) ( 627)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities (5,403) 10,066
- -----------------------------------------------------------------------------------------------------------------
Investing activities:
Purchases of property and equipment ( 10,768) ( 5,555)
Purchases of short-term investments (368,155) -
Sales of short-term investments 85,950 -
Other ( 923) ( 178)
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (293,896) ( 5,733)
- -----------------------------------------------------------------------------------------------------------------
Financing activities:
Proceeds from issuance of common stock 227,546 9,242
Tax benefit related to employee stock option
and stock purchase plans 3,499 3,992
Net proceeds (repayments) of notes payable (4,988) 1,463
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 226,057 14,697
- -----------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (73,242) 19,030
Cash and cash equivalents at beginning of period 135,630 105,814
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 62,388 $ 124,844
- -----------------------------------------------------------------------------------------------------------------
Supplemental cash flow disclosures:
Cash paid for income taxes $ 6,234 $ 461
Non-cash transactions--Common stock
issued in lieu of indebtedness $ 7,382 $ -
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation
The accompanying condensed consolidated financial statements have been prepared
by the Company without audit (except for the balance sheet information as of
September 30, 1999, which was derived from audited consolidated financial
statements) pursuant to Securities and Exchange Commission regulations. In the
opinion of management, the financial statements reflect all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the consolidated financial position at December 31, 1999 and the consolidated
statements of income and cash flows for the three-month periods ended December
31, 1999 and 1998, in accordance with generally accepted accounting principles.
The accompanying financial statements are condensed and do not include certain
footnotes and financial presentations normally required under generally accepted
accounting principles and, therefore, should be read in conjunction with the
audited financial statements included in the Company's Current Report on Form 8-
K dated November 10, 1999. The results of operations for the three-month period
ended December 31, 1999 are not necessarily indicative of the results to be
expected for the entire fiscal year.
On October 1, 1999, the Company completed its acquisition of Entrega
Technologies, Inc. ("Entrega"). All prior period financial information has been
restated to reflect the combination of the Company and Entrega under pooling-of-
interests accounting.
Cash equivalents and short-term investments
All highly liquid investments with maturities of three months or less at the
date of purchase are considered to be cash equivalents and are carried at cost
plus accrued interest, which approximates market value. Short-term investments
primarily consist of obligations of government agencies, including tax-preferred
and tax-exempt auction rate securities, municipal bonds and investment grade
corporate securities such as auction rate preferred securities. The Company's
short-term investments are carried on the balance sheet at their fair market
value.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
December 31 September 30
(In thousands) 1999 1999
- -------------------------------------------------------------
<S> <C> <C>
Finished goods $ 9,481 $12,757
Subassemblies 2,483 492
Work-in-process 2,076 3,578
Component parts 6,422 6,736
- -------------------------------------------------------------
$20,462 $23,563
- -------------------------------------------------------------
</TABLE>
Revenue recognition
The Company recognizes revenue from product sales when shipped. The Company has
contractual agreements that permit distributors and dealers to return products
or receive price protection credits under certain circumstances. The Company
makes a provision for the estimated amount of product returns or credits that
may occur under these contracts in the period of sale, and has a policy of
reserving channel inventory held by its customers in excess of a one-month
supply. The Company generally provides a lifetime limited warranty against
defects in the hardware component and a two-year limited warranty on the
software component of its network adapters and modem products, and makes
provisions for these costs in the period of sale. In addition, the Company
provides telephone support to purchasers of its products as needed to assist
them in their installation or use.
Foreign currency exchange loss
The functional currency of most of the Company's foreign subsidiaries is the
U.S. dollar. However, beginning October 1, 1999, the majority of the Company's
sales in Europe are denominated in the Euro, and as such, the functional
currency of the Company's European trading subsidiary has been changed to the
Euro. Translation adjustments are recorded in Accumulated other comprehensive
loss.
Earnings per share
Basic earnings per share is calculated using the weighted average common shares
outstanding for the period, and excludes dilutive securities. Diluted earnings
per share reflects the dilution to earnings that would occur if securities,
stock options and other dilutive securities resulted in the issuance of common
6 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
stock. The weighted average number of shares for basic and diluted earnings per
share were as follows:
<TABLE>
<CAPTION>
(In thousands)
Three Months Ended December 31 1999 1998
- ---------------------------------------------------------
<S> <C> <C>
Weighted average number of
shares--basic 25,840 23,579
Effect of dilutive securities:
Employee stock options 2,065 1,485
Warrants - 122
Other - 86
- ---------------------------------------------------------
Weighted average number
of shares--diluted 27,905 25,272
- ---------------------------------------------------------
</TABLE>
Comprehensive income
Comprehensive income was $12,470,000 for the quarter ended December 31, 1999.
The difference between net income and comprehensive income relates to the
Company's foreign currency translation adjustments.
Reclassifications
Certain reclassifications of previously reported amounts have been made to
conform to the current period's presentation.
Acquisition of Entrega Technologies, Inc.
On October 1, 1999, the Company completed its acquisition of Entrega.
Incorporated in January 1998, Entrega designed and manufactured a selection of
standardized devices for connecting peripherals to personal computers, including
Universal Serial Bus hubs, port converters and cables. These devices complement
the Company's own product offerings. The Company issued 266,195 shares of its
common stock in exchange for all of the outstanding shares of Entrega, and
assumed and exchanged all options to purchase Entrega stock for options to
purchase an aggregate of 76,914 shares of the Company's common stock. The
Company also issued 142,397 shares of its common stock to repay certain
indebtedness of Entrega. The acquisition was accounted for as a pooling-of-
interests. There were no intercompany transactions between the two companies.
Separate financial information of the combined entities for the three months
ended December 31, 1998 was as follows:
<TABLE>
<CAPTION>
(in thousands) Xircom Entrega
- -------------------------------------------------------------
<S> <C> <C>
Net sales $ 96,022 $ 2,476
Operating income (loss) 13,199 (2,073)
Net income (loss) 9,774 (2,165)
Total assets 213,741 5,481
Total liabilities $ 54,015 $ 9,555
- -------------------------------------------------------------
</TABLE>
Separate diluted earnings per share for Xircom was $0.39 for the three months
ended December 31, 1998.
Acquisition-related non-recurring charges
The Company incurred approximately $2.9 million of non-recurring transaction and
transition charges during the quarter ended December 31, 1999, related to the
acquisition of Entrega. Transaction charges include certain fees and
accounting and legal expenses. Transition charges include costs of severance
and future operating lease payments related to facilities that will be vacated.
Common stock offering
On December 9, 1999, the Company sold 4,600,000 shares of Common Stock
(including the exercise of the underwriters' overallotment option) in an
underwritten public offering at a price of $51.25, and realized net proceeds of
approximately $223.3 million.
Segment Information
The table below presents information about the Company's reportable segments for
the three-month periods ended December 31, 1999 and 1998.
7 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
(in thousands) Branded OEM Unallocated Total
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended December 31, 1999
<S> <C> <C> <C> <C>
Net sales $93,477 $30,634 $ - $124,111
Operating income $26,382 $ 9,376 $(18,951) $ 16,807
Other income, net $ - $ - $ 625 $ 625
Income before income taxes $26,382 $ 9,376 $(18,326) $ 17,432
- ----------------------------------------------------------------------------------------------------------------------------
Three months ended December 31, 1998
Net sales $81,330 $17,168 $ - $ 98,498
Operating income $18,261 $ 4,106 $(11,241) $ 11,126
Other income, net $ - $ - $ 284 $ 284
Income before income taxes $18,261 $ 4,106 $(10,957) $ 11,410
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Quarterly Report contains trend analysis and other forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
Actual results could differ materially from those projected in the trend
analysis and other forward-looking statements contained herein, as a result of
the risk factors set forth below and elsewhere in this report.
Results of Operations
- ---------------------
The following table sets forth the income statements as a percentage of net
sales:
<TABLE>
<CAPTION>
Three Months Ended December 31 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 54.0% 60.0%
- ----------------------------------------------------------------------------------------------------------------------
Gross profit 46.0% 40.0%
Operating expenses:
Research and development 6.1% 5.6%
Sales and marketing 20.0% 19.7%
General and administrative 3.6% 3.4%
Amortization of goodwill and other
acquisition-related intangibles 0.5% -%
Acquisition-related non-recurring charges 2.3% -%
- ----------------------------------------------------------------------------------------------------------------------
32.5% 28.7%
- ----------------------------------------------------------------------------------------------------------------------
Operating income 13.5% 11.3%
Other income, net 0.5% 0.3%
- ----------------------------------------------------------------------------------------------------------------------
Income before income taxes 14.0% 11.6%
Provision for income taxes 3.7% 3.9%
- ----------------------------------------------------------------------------------------------------------------------
Net income 10.3% 7.7%
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Net sales
Net sales increased 26% to $124.1 million in the three-month period ended
December 31, 1999 from $98.5 million in the corresponding prior-year period. We
derive net sales principally from shipments of Integrated PC Card and PC Card
products with Ethernet and Token Ring local area network ("LAN"), modem, and
multifunction LAN and modem ("Combo cards") functionality (collectively "adapter
products"), which connect notebook PCs to networks, the Internet and online
services. This increase in net sales was primarily due to increased
8 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
These increases in our adapter products were partially offset by a decrease in
the volume of sales we made of lower margin modem-only products. Unit shipments
of adapter products increased 38% in the three-month period ended December 31,
1999 over the comparable prior-year period, 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>
Three Months Ended December 31
(percentage of total revenue) 1999 1998
- -----------------------------------------------------------
<S> <C> <C>
LAN Adapters 31% 28%
LAN+Modem 56% 57%
Modem 8% 12%
Port expansion system 4% 3%
Other 1% -%
- ---------------------------------------------------------
</TABLE>
International sales. Total international sales (shipments to customers located
outside the U.S.) were 53% of total net sales for the three-month period ended
December 31, 1999, compared to 57% for the comparable prior year period. Sales
of our adapter cards grew at a faster rate in the U.S. than in the Europe and
the Asia-Pacific regions during the first quarter of fiscal 2000 from the
comparable prior year period.
Gross profit
Gross profit consists of net sales less cost of sales. Cost of sales includes
material, 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.
Gross profit margins for the quarter ended December 31, 1999 were 46.0% compared
to 40.0% for the comparable prior-year period. The increase in gross profit as
a percentage of net sales was primarily attributable to:
. The greater product mix and higher gross margins of our RealPort Integrated
PC Card family of products 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 percentage sales volume of our modem-only products, which
typically generate lower gross profit margins than our other products.
Operating expenses
We increased our research and development expenses in the three-month period
ended December 31, 1999 by 36% as compared to the corresponding prior-year
period as a result of our decision to increase staffing and expenditures to
support expanded branded and OEM product offerings, including our PortStation
and PortGear port expansion systems, the CompactCard, and the Rex wearable
information accessories lines of products. We expect total expenditures for
research and development to increase through fiscal 2000 due to our planned
expenditures on product enhancements and new product introductions.
Our sales and marketing expenses increased by 28% in the three-month period
ended December 31, 1999 as compared to the corresponding prior-year period
primarily due to:
9 XIRCOM, INC.
<PAGE>
Xircom, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
. Additional staffing and sales and marketing activities required to support
expanded branded markets;
. Expansion of operations in our regional headquarters in Tokyo, Japan;
. Expansion of our OEM sales organization;
. Expenses to support new products such as the PortStation Port expansion
system and the CompactCard line of products introduced during the 1999
fiscal year; and,
. Expenses incurred during the three months ended December 31, 1999 to support
the Rex wearable information accessories line of products.
As we pursue further product and market expansion activities, we expect sales
and marketing expenses for fiscal 2000 to increase.
Our general and administrative expenses for the three-month period ended
December 31, 1999 increased by 31% as compared to the corresponding prior-year
period to support growth in our organization and continued expenditures on our
information systems hardware and software. We expect general and administrative
expenses to increase during the remainder of fiscal 2000 due to the need to
support growth in our organization and continued expansion of information
systems hardware and software.
Amortization of goodwill and other acquisition-related intangibles
As a result of our acquisition of the Rex product line in September 1999 we
recorded goodwill and other acquisition-related intangibles of approximately
$10.9 million, and are amortizing them over 5 years.
Acquisition-related non-recurring charges
As a result of our acquisition of Entrega in October 1999, we recorded
approximately $2.9 million of non-recurring transaction and transition charges.
Transaction charges include certain fees and accounting and legal expenses.
Transition charges include costs of severance and future operating lease
payments related to facilities we will vacate.
Other income, net
Other income, net includes interest and dividend income we earn from our cash
and short-term investments and early payment discounts, offset by early payment
discounts taken by our customers and foreign currency transaction gains and
losses. The increase in other income, net for the three-month period ended
December 31, 1999 compared to the corresponding prior-year period was due
primarily to increased interest income resulting from a higher total balance of
cash and short-term investments and higher interest rates, partially offset by
an increase in foreign exchange losses.
Income taxes
Our effective income tax rate for the three-month period ended December 31, 1999
was 27.0% as compared to 33.3% for the corresponding prior-year period. The
difference between the effective tax rates and the 35% federal statutory tax
rate was due primarily to benefits from the tax holiday status of the Company's
operations in Malaysia, which expires in 2000. We intend to seek renewal of
this tax holiday before its expiration but cannot be assured that this renewal
or extension will be received. In addition, we have invested some of our short-
term investments and cash equivalents in tax preferred investment vehicles to
further reduce our effective tax rate. An income tax benefit has not been
recorded for the losses attributable to Entrega during the 1999 fiscal period
since such losses have been utilized at the shareholder level based on Entrega's
S-Corporation status during that period.
Risk Factors
- ------------
We Face the Risk of Being Unable to Remain Competitive in the Mobile Information
Access Industry.
The market for notebook PC Card adapters has grown rapidly since the Personal
Computer Memory Card International Association (PCMCIA) introduced a standard
form factor for PC Card LAN adapters in 1993. Companies in the PC, desktop LAN
adapter and modem industries with greater name recognition and greater financial
resources than us, have a significant presence in the PC Card adapter market.
As a result, we have faced increased competition in
10 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 PC Card LAN
adapters, modems and Combo cards will continue to be price competitive and thus
we could continue to experience lower selling prices, lower gross profit margins
and reduced profitability levels than earned from such products 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 substantially 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 failures
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 Conditions
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 2000 as compared to fiscal 1999 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 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 substantially all our manufacturing at our facility in Malaysia and we
operate a sales headquarters 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, the majority of our international
11 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
sales are denominated in the Euro. We have not engaged in foreign currency
hedging transactions, although we do mitigate certain of our operating expense
exposures 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 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 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.
12 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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. 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.
We currently use software licensed from third parties in certain of our Combo,
modem-only, Token Ring, port expansion system and wearable information accessory
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 dependant 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 processes, products or
businesses that we create or acquire.
The recent acquisition of Entrega and certain assets of the Rex product line,
including intellectual property, inventory and fixed assets, from Franklin
13 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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 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 have presented any Year 2000 issues for our
customers.
Internal IT and Non-IT Systems. In relation to our internal systems, our plan
to manage the Year 2000 issue 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.
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 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 involved reprogramming or replacing inventoried items. We
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"
14 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
was completed by June 30, 1999. Remediation of the remaining systems, classified
as "low impact", was completed by September 30, 1999.
The testing phase included defining test plans, establishing appropriate test
environments, developing test cases, performing tests 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 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.
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
related disruption. We could be materially and adversely impacted if our
significant suppliers experience Year 2000 related interruptions and are unable
to resolve their Year 2000 issues in a timely fashion.
In summary, we experienced no disruptions to our operations attributable to the
Year 2000 issue, nor have we been made aware of any material disruptions
affecting, associated with or arising from any of our external relationships.
The Company is also subject to additional risk factors as identified in its
Current Report and filing on Form 8-K dated November 10, 1999.
Liquidity and Capital Resources
- -------------------------------
As of December 31, 1999 we had $62.4 million in cash and cash equivalents and
$282.2 million in short-term investments. Our operating activities used cash of
approximately $5.4 million during the quarter ended December 31, 1999, primarily
due to net income before depreciation and amortization expense and non-cash
charges being offset by a an increase in accounts receivable and a decrease in
accounts payable and other accrued liabilities. Our accounts receivables
increased primarily due to higher revenues while accounts payable and other
accrued liabilities decreased primarily due to the timing of payment for
material inventory purchases.
We used $293.9 million of cash in investing activities during the quarter ended
December 31, 1999, primarily for $282.2 million in net purchases of short-term
investments and $10.8 million in capital expenditures. Our short-term
investments consist of certain financial instruments, including auction rate
securities, with interest rates or dividends that reset within 90 days but with
longer-term underlying contractual maturities. Our capital expenditures were for
information systems hardware and software and for increased headcount, and the
purchase of manufacturing equipment for use in our Penang, Malaysia facility. We
anticipate an increase in our rate of capital expeditures over the next twelve
months for information systems hardware and software and our anticipated move to
a new leased corporate facility during the 2001 fiscal year.
Our financing activities provided $226.1 million in cash during the quarter
ended December 31, 1999. This was primarily the result of $223.3 in net proceeds
from the sale of 4,600,000 shares of our Common Stock (including the exercise of
the underwriters' overallotment option) in an underwritten public offering at a
price of $51.25, and from the issuance of common stock through stock option
exercises and employee stock purchase plans. In addition, during the quarter
ended December 31, 1999 we used cash of $5.0 million to repay notes payable and
generated $3.5 million in cash from tax benefits from our employee stock option
and stock purchase plans.
15 XIRCOM, INC.
<PAGE>
Xircom, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
We have an unsecured bank credit facility allowing borrowings up to $25.0
million. We also have credit facilities totaling $5.3 million, denominated in
Malaysian ringgit, with banks in Malaysia. We had no borrowings outstanding and
approximately $30.3 million in borrowings available under our credit facilities
as of December 31, 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, there can be no assurances 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
Since our portfolio of cash equivalents and short-term investments is of a
short-term nature, and since we have no borrowings outstanding, we are not
subject to significant market price risk related to investments. However, our
interest income is sensitive to changes in the general level of short-term U.S.
interest rates. In this regard, a 1% change in short-term market interest rates
would impact earnings by approximately $3.4 million over the next twelve months.
Our operating results are also exposed to weak economic conditions in foreign
markets and changes in exchange rates, primarily between the U.S. dollar and the
Euro, the Malaysian ringgit, and the Japanese yen. When the dollar strengthens
against the Euro or the Yen, we experience a decrease in the value of sales in
currencies other than the functional currency. In our European and Japanese
markets, respectively, we are a net receiver of the Euro, and the Yen. As such,
we benefit from a weaker dollar versus the Euro and the Yen. Our Malaysian
operations are net payers of currencies other than the U.S. dollar. As such, our
operating results may be adversely affected by a weaker U.S. dollar versus the
Malaysian ringgit. To mitigate the short-term effect of changes in currency
exchange rates on our foreign currency-based expenses, we purchase and hold
Malaysian ringgits in advance of the due date of our underlying obligations.
Part II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None.
Item 2. CHANGES IN SECURITIES
During the quarter ended December 31, 1999, KPMG LLP acquired 40,000 shares of
our Common Stock in a private transaction. In addition, the former shareholders
of Entrega Technologies, Inc. acquired 408,588 shares of our Common Stock in a
private transaction in which we acquired Entrega Technologies, Inc., a
California corporation. On December 22, 1999, we filed a Registration Statement
on Form S-3 to register all of the above referenced shares, which became
effective on January 19, 2000.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on January 21, 2000.
The following is a brief description of each matter voted upon at the meeting
and the number of affirmative votes and the number of negative votes cast with
respect to each.
16 XIRCOM, INC.
<PAGE>
Xircom, Inc.
OTHER INFORMATION
(a) The shareholders elected the following persons as directors of the Company
with votes for and against (withheld) each nominee as shown in the following
table.
<TABLE>
<CAPTION>
Votes
Nominee Votes For Withheld
- ---------------------------------------------------------
<S> <C> <C>
Michael F.G. Ashby 21,497,170 201,100
Kenneth J. Biba 21,497,313 200,957
Gary J. Bowen 21,498,153 200,117
Dirk I. Gates 21,498,553 199,717
J. Kirk Mathews 21,497,587 200,683
Carl E. Russo 21,495,270 203,000
William J. Schroeder 21,498,253 200,017
Delbert W. Yocam 21,495,880 202,390
</TABLE>
(b) The shareholders approved the adoption of the Company's 2000 Stock Option
Plan. There were 12,218,728 votes in favor of, and 9,434,972 votes cast against,
the proposal. There were 44,570 abstentions.
(c) The shareholders approved an amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of Common Stock the
Company may issue. There were 16,640,160 votes in favor of, and 5,030,197 votes
cast against, the proposal. There were 27,913 abstentions.
(d) The shareholders ratified the appointment of Ernst & Young LLP as
independent auditors for the Company for the year ending September 30, 2000.
There were 21,647,835 votes cast in favor of, and 18,951 votes cast against, the
appointment of Ernst & Young LLP as independent auditors. There were 31,484
abstentions.
ITEM 5. OTHER ITEMS
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 3.1 Amended and Restated Articles of Incorporation of Xircom,
Inc.
Exhibit 10.36 2000 Stock Option Plan of the Company, as adopted on January
21, 2000
Exhibit 27 Financial Data Schedule
(b) Reports on Form 8-K
We filed a Report on Form 8-K on November 10, 1999, pursuant to Item 5
("Other Events"). We filed the report to provide supplemental financial
statements and related disclosures, which reflect the combined Xircom and
Entrega entities under pooling-of-interests accounting.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
XIRCOM, INC.
-----------------------
(Registrant)
Date: February 14, 2000 /s/ Dirk I. Gates
----------------- -----------------------
Dirk I. Gates
Chairman of the Board, President and
Chief Executive Officer
Date: February 14, 2000 /s/ Steven F. DeGennaro
------------------ -----------------------
Steven F. DeGennaro
Vice President, Finance and
Chief Financial Officer
17 XIRCOM, INC.
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
XIRCOM, INC.
The undersigned, Dirk I. Gates and Randall H. Holliday, hereby certify
that:
A. They are the duly elected and acting President and Secretary,
respectively, of Xircom, Inc., a California corporation.
B. The Articles of Incorporation of said corporation are amended and
restated to read in full as follows:
ARTICLE I
NAME
----
The name of this corporation is Xircom, Inc.
ARTICLE II
PURPOSES
--------
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporation Code.
ARTICLE III
AUTHORIZED SHARES
-----------------
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Preferred Stock" and "Common Stock." The total
number of shares of Preferred Stock this corporation shall have authority to
issue is 2,000,000, par value $0.001 per share, and the total number of shares
of Common Stock this corporation shall have authority to issue is 125,000,000
par value $0.001 per share.
The Preferred Stock may be issued from time to time in one or more series.
The Board of Directors of the Corporation is authorized to determine or alter
the powers, preferences, rights and privileges, and the qualifications,
limitations or restrictions, granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limitations or restrictions stated in
any resolution or resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or decrease (but not below
the number of shares of any such series then
<PAGE>
outstanding) the number of shares of any such series subsequent to the issuance
of shares of that series, to determine the designation of any series, and to fix
the number of shares of any series. In case the number of shares of any series
shall be so decreased, the shares constituting such decrease shall resume the
status which they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
ARTICLE IV
DIRECTORS' LIABILITY AND INDEMNIFICATION OF AGENTS
--------------------------------------------------
1. Liability for Monetary Damages. The liability of the directors of this
------------------------------
corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.
2. Indemnification of Agents. The corporation is authorized to provide
-------------------------
indemnification of directors, officers and other agents (as defined in Section
317 of the California Corporation Code) of the corporation to the fullest extent
permissible under California law.
3. Amendments, Repeals and Modifications. Any amendment, repeal or
-------------------------------------
modification of any provision of this Article IV shall not adversely affect any
right or protection of a director or officer or other agent of the corporation
existing at the time of such amendment, repeal or modification.
C. The foregoing amendment and restatement of articles has been approved
by the Board of Directors of said corporation.
D. The foregoing amendment and restatement of articles has been duly
approved by the required vote of shareholders in accordance with Sections 902
and 903 of the California Corporations Code. The number of shares voting in
favor of the foregoing amendment equaled or exceeded the vote required. The
percentage vote required was more than 50% of the outstanding Common Stock,
voting as a class.
-2-
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this certificate on
February 8, 2000.
/s/ Dirk I. Gates
-----------------
Dirk I. Gates, President
/s/ Randall H. Holliday
-----------------------
Randall H. Holliday, Secretary
The undersigned declare under penalty of perjury that the matters set forth
in the foregoing certificate are true of their own knowledge.
Executed at Thousand Oaks, California, on February 8, 2000.
/s/ Dirk I. Gates
-----------------
Dirk I. Gates, President
/s/ Randall H. Holliday
-----------------------
Randall H. Holliday, Secretary
-3-
<PAGE>
EXHIBIT 10.36
XIRCOM, INC.
2000 STOCK PLAN
As Adopted on January 21, 2000
1. Purposes of the Plan. The purposes of this 2000 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees and Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Code" means the Internal Revenue Code of 1986, as amended.
----
(e) "Committee" means a committee of Directors appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" means the common stock of the Company.
------------
(g) "Company" means Xircom, Inc., a California corporation.
-------
(h) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(i) "Director" means a member of the Board.
--------
<PAGE>
(j) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(k) "Employee" means any Officer employed by the Company or any
--------
Parent or Subsidiary of the Company. A Service Provider shall not cease to be an
Employee in the case of (i) any leave of absence approved by the Company or (ii)
transfers between locations of the Company or between the Company, its Parent,
any Subsidiary, or any successor. For purposes of Incentive Stock Options, no
such leave may exceed ninety days, unless reemployment upon expiration of such
leave is guaranteed by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the 181st day
of such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option.
(l) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(m) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system on
the date the option is granted, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the day of determination, as reported in The Wall
Street Journal or such other source as the Administrator deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(o) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(p) "Notice of Grant" means a written or electronic notice evidencing
---------------
certain terms and conditions of an individual Option or Stock Purchase Right
grant. The Notice of Grant is part of the Option Agreement.
(q) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
-2-
<PAGE>
(r) "Option" means a stock option granted pursuant to the Plan.
------
(s) "Option Agreement" means an agreement between the Company and
----------------
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(t) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(u) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(v) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(w) "Plan" means this 2000 Stock Plan.
----
(x) "Restricted Stock" means shares of Common Stock acquired pursuant
----------------
to a grant of Stock Purchase Rights under Section 11 of the Plan.
(y) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(z) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(aa) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(bb) "Service Provider" means an Employee, Director or Consultant.
----------------
(cc) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
(dd) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ee) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 13 of
-------------------------
the Plan, the maximum aggregate number of Shares that may be optioned and sold
under the Plan is (a) 1,200,000 Shares, plus (b) any Shares which have been
reserved but unissued under the Company's 1992 Stock Option Plan (the "1992
Plan") as of the date of stockholder approval of this Plan, and (c) any Shares
returned to the 1992 Plan after the date of stockholder approval of this Plan as
a result of the
-3-
<PAGE>
termination of options under the 1992 Plan. The Shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, the unpurchased Shares which were subject
thereto shall become available for future grant or sale under the Plan (unless
the Plan has terminated); provided, however, that Shares that have actually been
--------
issued under the Plan, whether upon exercise of an Option or Right, shall not be
returned to the Plan and shall not become available for future distribution
under the Plan, except that if Shares of Restricted Stock are repurchased by the
Company at their original purchase price, such Shares shall become available for
future grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. Different Committees with
------------------------------
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
(i) to determine the Fair Market Value;
(ii) to select the Service Providers to whom Options and Stock
Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to be
covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option or Stock Purchase Right granted
hereunder. Such terms and conditions
-4-
<PAGE>
include, but are not limited to, the exercise price, the time or times when
Options or Stock Purchase Rights may be exercised (which may be based on
performance criteria), any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or Stock
Purchase Right or the shares of Common Stock relating thereto, based in each
case on such factors as the Administrator, in its sole discretion, shall
determine;
(vi) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan;
(vii) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred tax treatment under
foreign tax laws;
(viii) to modify or amend each Option or Stock Purchase Right
(subject to Section 15(c) of the Plan), including the discretionary authority to
extend the post-termination exercisability period of Options longer than is
otherwise provided for in the Plan;
(ix) to allow Optionees to satisfy withholding tax obligations
by electing to have the Company withhold from the Shares to be issued upon
exercise of an Option or Stock Purchase Right that number of Shares having a
Fair Market Value equal to the amount required to be withheld. The Fair Market
Value of the Shares to be withheld shall be determined on the date that the
amount of tax to be withheld is to be determined. All elections by an Optionee
to have Shares withheld for this purpose shall be made in such form and under
such conditions as the Administrator may deem necessary or advisable;
(x) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
(xi) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights may
-----------
be granted to Service Providers. Incentive Stock Options may be granted only to
Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as either
an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options
-5-
<PAGE>
shall be taken into account in the order in which they were granted. The Fair
Market Value of the Shares shall be determined as of the time the Option with
respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right shall
confer upon an Optionee any right with respect to continuing the Optionee's
relationship as a Service Provider with the Company, nor shall they interfere in
any way with the Optionee's right or the Company's right to terminate such
relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal year of
the Company, Options to purchase more than 500,000 Shares.
(ii) In connection with his or her initial service, a Service
Provider may be granted Options to purchase up to an additional 500,000 Shares,
which shall not count against the limit set forth in subsection (i) above.
(iii) The foregoing limitations shall be adjusted proportionately
in connection with any change in the Company's capitalization as described in
Section 13.
(iv) If an Option is cancelled in the same fiscal year of the
Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall become
------------
effective upon its adoption by the Board. It shall continue in effect for a
term of ten (10) years unless terminated earlier under Section 15 of the Plan.
8. Term of Option. The term of each Option shall be stated in the Option
--------------
Agreement. In the case of an Incentive Stock Option, the term shall be ten (10)
years from the date of grant or such shorter term as may be provided in the
Option Agreement. Moreover, in the case of an Incentive Stock Option granted to
an Optionee who, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any Parent or Subsidiary, the term of the
Incentive Stock Option shall be five (5) years from the date of grant or such
shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares to
--------------
be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
-6-
<PAGE>
(A) granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than ten percent (10%) of
the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted with
a per Share exercise price of less than 100% of the Fair Market Value per Share
on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option is
---------------------------------
granted, the Administrator shall fix the period within which the Option may be
exercised and shall determine any conditions that must be satisfied before the
Option may be exercised.
(c) Form of Consideration. The Administrator shall determine the
---------------------
acceptable form of consideration for exercising an Option, including the method
of payment. In the case of an Incentive Stock Option, the Administrator shall
determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a cashless
exercise program implemented by the Company in connection with the Plan;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's participation
in any Company-sponsored deferred compensation program or arrangement;
(vii) any combination of the foregoing methods of payment; or
-7-
<PAGE>
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable according to the terms of the Plan and at
such times and under such conditions as determined by the Administrator and set
forth in the Option Agreement. Unless the Administrator provides otherwise,
vesting of Options granted hereunder shall be tolled during any unpaid leave of
absence. An Option may not be exercised for a fraction of a Share.
An Option shall be deemed exercised when the Company receives:
(i) written or electronic notice of exercise (in accordance with the Option
Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number of
Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option within such period of
time as is specified in the Option Agreement to the extent that the Option is
vested on the date of termination (but in no event later than the expiration of
the term of such Option as set forth in the Option Agreement). In the absence of
a specified time in the Option Agreement, the Option shall remain exercisable
for three (3) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified by the Administrator, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a Service
----------------------
Provider as a result of the Optionee's Disability, the Optionee may exercise his
or her Option within such period of time as is specified in the Option Agreement
to the extent the Option is vested on the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the absence of a specified time in the Option Agreement, the
Option shall
-8-
<PAGE>
remain exercisable for twelve (12) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies (i) while a Service
-----------------
Provider or (ii) after termination as a Service Provider but while the Option
remains outstanding and exercisable, the Option may be exercised within such
period of time as is specified in the Option Agreement (but in no event later
than the expiration of the term of such Option as set forth in the Notice of
Grant), by the Optionee's estate or by a person who acquires the right to
exercise the Option by bequest or inheritance, but only to the extent that the
Option is vested on the date of death. In the absence of a specified time in the
Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's death. If, at the time of death, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall immediately revert to the Plan. The Option may be
exercised by the executor or administrator of the Optionee's estate or, if none,
by the person(s) entitled to exercise the Option under the Optionee's will or
the laws of descent or distribution. If the Option is not so exercised within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer to
-----------------
buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued either
------------------
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing or electronically, by means of a Notice of Grant, of the
terms, conditions and restrictions related to the offer, including the number of
Shares that the offeree shall be entitled to purchase, the price to be paid, and
the time within which the offeree must accept such offer. The offer shall be
accepted by execution of a Restricted Stock Purchase Agreement in the form
determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement shall
----------------
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion.
-9-
<PAGE>
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Non-Transferability of Options and Stock Purchase Rights. Unless
--------------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option and Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Common Stock, or any other increase or
decrease in the number of issued shares of Common Stock effected without receipt
of consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option or Stock
Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
-10-
<PAGE>
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option and Stock Purchase Right shall be
assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
14. Date of Grant. The date of grant of an Option or Stock Purchase Right
-------------
shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment, alteration,
----------------------------------
suspension or termination of the Plan shall impair the rights of any Optionee,
unless mutually agreed otherwise between the Optionee and the Administrator,
which agreement must be in writing and signed by the Optionee and the Company.
Termination of the Plan shall not affect the Administrator's ability to exercise
the powers granted to it hereunder with respect to Options granted under the
Plan prior to the date of such termination.
-11-
<PAGE>
(d) Stock Option Repricing. Notwithstanding anything to the
----------------------
contrary, the Company shall not reduce the exercise price of any outstanding
Options without previously obtaining shareholder approval. This Section 15(d)
may not be amended or deleted from the Plan without prior shareholder approval.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to the
----------------
exercise of an Option or Stock Purchase Right unless the exercise of such Option
or Stock Purchase Right and the issuance and delivery of such Shares shall
comply with Applicable Laws and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise of an
--------------------------
Option or Stock Purchase Right, the Company may require the person exercising
such Option or Stock Purchase Right to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required.
17. Inability to Obtain Authority. The inability of the Company to obtain
-----------------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any Shares hereunder, shall relieve the Company of any liability in respect
of the failure to issue or sell such Shares as to which such requisite authority
shall not have been obtained.
18. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
degree required under Applicable Laws.
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 62,388
<SECURITIES> 282,205
<RECEIVABLES> 65,881
<ALLOWANCES> 11,300
<INVENTORY> 20,462
<CURRENT-ASSETS> 442,268
<PP&E> 82,222
<DEPRECIATION> 34,473
<TOTAL-ASSETS> 502,897
<CURRENT-LIABILITIES> 63,429
<BONDS> 0
0
0
<COMMON> 30
<OTHER-SE> 425,778
<TOTAL-LIABILITY-AND-EQUITY> 502,897
<SALES> 124,111
<TOTAL-REVENUES> 124,111
<CGS> 67,038
<TOTAL-COSTS> 67,038
<OTHER-EXPENSES> 40,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1
<INCOME-PRETAX> 17,432
<INCOME-TAX> 4,707
<INCOME-CONTINUING> 12,725
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,725
<EPS-BASIC> .46
<EPS-DILUTED> .46
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM XIRCOM,
INC.'S FORMS 10-Q FOR THE PERIODS ENDED DECEMBER 31, 1998, MARCH 31, 1999, AND
JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS. THE INTERIM STATEMENTS FOR THE PERIODS ENDED DECEMBER 31, 1998,
MARCH 31, 1999, AND JUNE 30, 1999 HAVE BEEN RESTATED TO REFLECT THE COMBINATION
OF XIRCOM, INC. AND ENTREGA TECHNOLOGIES, INC., UNDER POOLING-OF-INTERESTS
ACCOUNTING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1999 SEP-30-1999 SEP-30-1999
<PERIOD-START> OCT-01-1998 OCT-01-1998 OCT-01-1998
<PERIOD-END> DEC-31-1998 MAR-31-1999 JUN-30-1999
<CASH> 124,844 117,483 130,182
<SECURITIES> 0 0 0
<RECEIVABLES> 38,190 43,080 54,898
<ALLOWANCES> 8,852 8,512 8,302
<INVENTORY> 17,666 19,335 15,044
<CURRENT-ASSETS> 188,041 189,682 209,155
<PP&E> 54,458 56,034 60,994
<DEPRECIATION> 23,956 24,164 29,945
<TOTAL-ASSETS> 219,222 226,217 244,895
<CURRENT-LIABILITIES> 54,454 67,825 74,843
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 24 24 24
<OTHER-SE> 155,628 149,252 160,912
<TOTAL-LIABILITY-AND-EQUITY> 219,222 226,217 244,895
<SALES> 98,498 200,370 308,809
<TOTAL-REVENUES> 98,498 200,370 308,809
<CGS> 59,064 117,707 179,341
<TOTAL-COSTS> 59,064 117,707 179,341
<OTHER-EXPENSES> 28,308 58,343 91,138
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 92 211 370
<INCOME-PRETAX> 11,410 25,082 39,646
<INCOME-TAX> 3,801 8,012 12,712
<INCOME-CONTINUING> 7,609 17,070 26,934
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 7,609 17,070 26,934
<EPS-BASIC> .32 .71 1.12
<EPS-DILUTED> .30 .67 1.06
</TABLE>
