-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OyFfGIjAywQ+pd4NyW6N6pxLEqR0SIYV1B3RoxEcX8XDmWejOtlYlOHR0lwJgZbz 63ZYUl6Ph2HbYX0oCaQlWQ== 0000879136-97-000006.txt : 19970329 0000879136-97-000006.hdr.sgml : 19970329 ACCESSION NUMBER: 0000879136-97-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHIVA CORP CENTRAL INDEX KEY: 0000879136 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 042889151 STATE OF INCORPORATION: MA FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-24918 FILM NUMBER: 97567389 BUSINESS ADDRESS: STREET 1: 28 CROSBY DR CITY: BEDFORD STATE: MA ZIP: 01730 BUSINESS PHONE: 6172708300 MAIL ADDRESS: STREET 1: 28 CROSBY DR CITY: BEDFORD STATE: MA ZIP: 01730 10-K 1 1996 10-K REPORT SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 28, 1996 / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition period from to Commission File Number 0-24918 SHIVA CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2889151 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 28 Crosby Drive, Bedford, MA 01730 (Address of principal executive offices, including Zip Code) (617) 270-8300 (Registrant's telephone number, including area code) --------------------------------------------------- Securities Registered Pursuant to Section 12(b) of the Act: None Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Series A Junior Participating Preferred Stock, $.01 par value (title of class) 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 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. /x/ YES / / NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $483,592,478 based on the closing price of the Common Stock on the Nasdaq Stock Market on January 31, 1997. The number of shares outstanding of the registrant's Common Stock as of January 31, 1997 was 28,989,583. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders to be held May, 14, 1997 are incorporated by reference into Part III hereof. 2. Portions of the registrant's 1996 Annual Report to Stockholders for the fiscal year ended December 28, 1996 are incorporated by reference into Parts I, II and IV hereof. - ------------------------------------------------------------------------------ Shiva, Shiva with design (the company logo), NetModem, NetModem/E, NetBridge, NetSerial, TeleBridge, Hublet, LanRover, AirSoft, ShivaPPP, ShivaIntegrator, PowerBurst, WebRover and EtherGate are registered trademarks of Shiva Corporation. ShivOS, Tariff Management, isdn with design, ShivaPort, ShivaRemote, Shiva Dial-in SDK, Shiva AccessPort, ISSAK, Remote-Centric, DIAT and LanRover Access Switch are trademarks of Shiva Corporation. All other trademarks belong to their respective companies. PART I ITEM 1. Business General Shiva Corporation (the "Company") is a leader in the design, development, manufacture and sale of hardware and software products that enable transparent remote connectivity to enterprise networks from any location having access to switched analog or digital telephone service. The Company also provides Internet Service Providers ("ISPs") and local exchange, inter-exchange and competitive access telephone carriers ("Carriers") a flexible architecture to support their public data network remote access service offerings. Founded in 1985, the Company has applied its expertise in internetworking, personal computer ("PC") software and telephony to pioneer the "remote node" approach to remote network access. Shiva's remote node solution enables a remote PC to access an existing network as a fully functional network node, thereby allowing users to access network resources from their remote PCs as if they were directly connected to the enterprise or public network. Shiva servers enable users to connect to computing resources from home, while traveling, or as part of a branch office or multi-user worksite. The Company offers a full line of remote access solutions, technical training and services supporting telecommuters and remote offices to large enterprise networks and to the ISPs and Carriers providing remote access to the public data networks. The enterprise-based remote access servers, such as the LanRover Access Switch(TM), LanRover(R) and ShivaIntegrator(R) product families, enable network managers of large networks to link telecommuters, mobile professionals and branch offices with dial-in access to Local Area Networks ("LANs") offering either transparent remote node PC-to-LAN connections or LAN-to-LAN dial up connections through both public and private telephone networks. The Company's technology also provides LAN-based users the ability to make dial-out connections from the desktop to the Internet or other on-line services. Network managers can control and manage remote user access into the enterprise-based servers with the Shiva AccessManager security and accounting solution. Shiva AccessManager is a Windows-based application which provides comprehensive, centralized and cost-effective remote access management. For the remote office and smaller branch, the Company provides the Shiva AccessPort(TM) ISDN client router and the NetModem(R) server, as well as ShivaRemote(TM) client software and PowerBurst(R) remote node acceleration software for enhanced performance. The Company also offers other communications products, such as the ShivaPort(TM) product family of communications servers, that permit users to connect terminals, printers, modems and other serial devices to Ethernet networks. The Company markets its products in domestic and international markets through both direct and indirect distribution channels to reach a wide range of customers. In June 1996, the Company issued 691,587 shares of Common Stock in exchange for all the outstanding shares of AirSoft, Inc. (the "AirSoft Acquisition"). AirSoft, Inc. ("AirSoft") designs, manufactures and sells performance enhancement software products, including PowerBurst, a remote node accelerator designed to improve the performance of file-system based applications such as electronic mail, spreadsheets and word processors. In August 1995, the Company acquired Spider Systems Ltd. ("Spider"), a leading digital internetworking company based in Edinburgh, United Kingdom, in exchange for 3,923,606 shares of Common Stock (the "Spider Acquisition"). The Spider Acquisition provided the Company with advanced network access technology including ISDN, frame relay and X.25, a range of internetworking products and network integration services. The ShivaIntegrator and ShivaPort product families incorporate the technologies acquired from Spider. From time to time, information provided by the Company or statements made by its employees may contain "forward looking" information which involve risks and uncertainties. The Company's actual results may vary significantly from those stated in any forward looking statements. Factors that may cause such differences include, but are not limited to, market acceptance of the Company's products, the development of competitive products, limitations on financial and other resources required to engage in product development activities or to acquire or license third party technology and factors adversely affecting the demand for, or use of, the Company's products. The Company believes that factors affecting the ability of the Company's products to achieve broad market acceptance include; but are not limited to product performance, price, ease of adoption and displacement of existing approaches. 1 Products Remote Access Products The LanRover Remote Access Server Product Family Shiva's LanRover family of high-performance, multi-platform, multi-protocol remote access servers are designed to meet the needs of both network managers and end-users in corporate environments. They provide remote node dial-in access to the full range of network services, including electronic mail and file transfer, as well as providing access to databases and mainframe applications. LanRover servers support DOS, Windows, Macintosh, UNIX, and terminal users and IPX, TCP/IP, AppleTalk, NetBEUI, and 802.2/LLC protocols. The LanRover family enables shared dial-out to on-line information services and send-fax support for LAN-attached PCs, in addition to LAN-to-LAN services over analog or digital dial-up lines. For network managers, the LanRover family offers centralized network management from a LAN-based Windows PC or Macintosh; in-band and out-of-band management from IPX, TCP/IP and AppleTalk and SNMP support as well as full security features. The LanRover product family is available for Ethernet or Token Ring environments in 2, 4 or 8 port configurations of either asynchronous ports or V.34 analog modems. The LanRover/PLUS, also available for Ethernet or Token Ring networks, is a modular server that supports up to eight V.34 modems, ISDN BRI, or high speed asynchronous serial modules, or any combination of services. The LanRover/Plus is field upgradable to analog and digital remote access. For branch offices, the Company offers the LanRover/2E PLUS, a two- port LanRover/PLUS with an integrated V.34 modem, ISDN BRI and a high-speed serial card. The LanRover Access Switch Product Family The LanRover Access Switch is a high capacity remote access concentrator which brings LanRover functionality to a new cooperative multiprocessing architecture with industry standard high speed buses and extensive call control capabilities. Designed to support over one hundred sessions, it addresses the needs of corporate enterprises, Carriers, and ISPs. The LanRover Access Switch supports all major remote networking functionality including single user dial-in, dial-out for LAN based users, and LAN-to-LAN routing for branch and home office connectivity over T1, E1, or T1/E1 PRI. The LanRover Access Switch offers extensive management and accounting capabilities via Shiva Net Manager(TM) or Shiva Enterprise Manager(TM), as well as support for a range of security options including centralized security and third party security such as TACACS and TACACS+, RADIUS, Security Dynamics and AssureNet Pathways. PowerBurst Remote Node Acceleration Technology PowerBurst addresses both the bandwidth and latency issues associated with dial-up links by employing caching algorithms that are designed to improve the efficiency of communication over the remote node link, resulting in significant increases in dial-in performance. PowerBurst accelerates a wide variety of applications, including leading file-system-based e-mail, databases, spreadsheets, and word processors. The block-level caching algorithm allows PowerBurst to maximize performance while ensuring data integrity. PowerBurst is currently the only acceleration solution fully integrated into a remote access server operating system and dial-in client. This integration in Shiva's LanRover Plus, LanRover Access Switch, and ShivaRemote(TM) client software, ensures compatibility, interoperability, and ease of deployment. PowerBurst is designed to reduce connect time and the telecommunications charges associated with remote node access and is part of a growing family of Shiva Tariff Management(TM) technologies developed to increase performance and reduce the overall cost of remote access ownership. Shiva AccessManager The Shiva AccessManager is a standards-based security and accounting solution that allows large enterprises, Internet Service Providers, and carriers to control and manage remote user access. The Shiva AccessManager is a protocol-independent authentication, authorization and accounting solution for Windows NT, Windows 95 and Windows 3.11 environments. The Shiva AccessManager can act as a proxy client for multiple user list servers including various UNIX platforms, Microsoft NT Domains, Novell Netware Bindery and Novell Network Directory Services. It is interoperable with any RADIUS/TACACS compliant network access server and a wide variety of third party network security servers such as Security Dynamics, AssureNet Pathways, and Vasco. It provides a standards-based (ODBC) database interface that 2 allows detailed accounting data to be stored and manipulated to generate user specific billing/charge-back reports. These reports can provide organizations with detailed cost analyses that can be supported by graphical management statistics and allow network and business managers to view utilization and trends. The Shiva AccessPort Product Family The Shiva AccessPort is an ISDN client router that connects telecommuters and small office users to the corporate LAN and the Internet using ISDN. Shiva AccessPort has one basic rate ISDN interface and support for multi-link PPP which allows for aggregation of the two ISDN b-channels. In addition, two analog ports are available for users to integrate phone and fax capabilities over the ISDN phone line. Shiva AccessPort/D is available without the analog ports for data only applications. Shiva AccessPort products route both IP and IPX protocols and perform simultaneous bridging. As a complement to Shiva's LanRover and LanRover Access Switch central site servers, the Shiva AccessPort includes Wizard Installation software for ease of installation and use, as well as Monitor software to monitor ISDN usage statistics and call activity. Tariff Management technologies are employed in the Shiva AccessPort to reduce the phone charges associated with remote access while multiple levels of security ensure that data is kept private. The NetModem Product Family The Company provides the single-port NetModem/E 28.8 for the remote access needs of smaller branch offices and workgroups. The NetModem/E 28.8 is an integrated, stand-alone device consisting of a dedicated communications server, V.34 modem and Ethernet interface. In addition to dial-in access, the NetModem/E 28.8 provides shared dial-out access to on-line information services and the Internet which allows users to send faxes from the desktop and support LAN to LAN routing. The ShivaIntegrator Product Family ShivaIntegrator is a family of ISDN remote access systems which combine on- demand ISDN networking with a host of Tariff Management features designed to save on phone charges. The ShivaIntegrator 150 is a branch office router with one serial line interface that supports frame relay and one Basic Rate ISDN interface for connection to the central site or other branch offices. The ShivaIntegrator 500 is a central site concentrator which supports Primary Rate ISDN and provides up to 46 simultaneous connections to remote locations and V.35 interface for leased line connections. In fiscal 1996, 1995, and 1994 revenues from remote access products were approximately $174,084,000 million, $83,924,000 million, and $44,825,000 million, respectively, or 87%, 71% and 55% of revenues, respectively. Communications Products The ShivaPort Product Family ShivaPort is a high performance multi-protocol communications server for Ethernet networks, available in 8, 16, or 32 port configurations. ShivaPort products permit users to connect large numbers of terminals, printers, modems and other serial devices to a LAN. It provides simple terminal access, security, printing and network management features. Other Communications Products The Company also develops and sells other communications products including WAN communications software products and Appletalk products. The Company licensed communications protocol software products on a royalty basis to many of the world's leading computer and information systems manufacturers who sell these software products with their computer systems or embed them in products they sell. The Company sold the protocol software business to Spider Software Limited in December 1996. The Appletalk products are designed to meet a variety of LAN communications needs of Macintosh users. In fiscal 1996, 1995 and 1994 revenues from communications products were approximately $16,847.000 million, $24,061,000 million and $27,763,000 million respectively, or 8%, 20% and 34% of revenues, respectively. 3 Foreign and Domestic Operations and Export Sales The information required by this item may be found under Note 12 of the Notes to Consolidated Financial Statements and under the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations", contained in the Company's Annual Report to Stockholders for the fiscal year ending December 28, 1996 (the "1996 Annual Report to Stockholders") and is incorporated herein by reference. Markets and Customers During 1996 several fundamental changes occurred in the remote access industry that in turn affected the markets that the Company serves. A significant change relates to the broad and rapid adoption of the Internet which significantly affected the Company's two major market segments -- (1) the private sector, consisting of large enterprises such as corporations and governmental bodies and (2) the public sector consisting of Carriers and Internet service providers ("ISP's"). The increased demand for access to the Internet caused an increase in need for remote access products in the private sector and stimulated the market for service providers requiring remote access equipment. The Company has attempted to meet this demand by expanding its research and development activities as well as the scope of its products. Since the two segments have different requirements, the type of product and services required by each is different and each is characterized by different competitive environments. The private sector is characterized by the need for greater breadth of protocol and operating systems support, greater network management resources and more intensive hourly usage over a concentrated period of time than the public sector. Shiva's major competitors in this segment are Cisco, U.S. Robotics and Bay Networks. By contrast, the public sector is characterized by higher call volumes, continuous operation and limited network management staff thereby requiring more support from Shiva. The major competitors in this segment are Ascend, U.S. Robotics and Cisco. Competition Competitive factors in the remote access market include breadth of product features, product quality and functionality, marketing and sales resources and customer service and support. Although historically price has not been a significant factor in the market for the Company's products, the Company witnessed the beginning of pricing pressures in 1996, especially with the LanRover product. Many of the Company's current and potential competitors have greater financial, marketing, technical and other resources than the Company. There can be no assurance that the Company will be able to compete successfully with new competitors. In addition, since the lower end segments of both markets have numerous competitors, the Company's market share may decline in the event any one or several of its competitors expands its existing market. increased competition could have a material adverse effect on the Company's business. Sales and Marketing The Company markets its products through numerous indirect distribution channels worldwide, including distributors, value-added resellers and OEM strategic partners. The Company actively supports its indirect channel marketing partners with its own sales and marketing organization. The Company's sales staff solicits prospective customers, provides technical advice with respect to the Company's products and works closely with particular partners through which larger customers purchase its products. The Company believes that the active participation of its sales staff in the selling process, in conjunction with the efforts of its distributors and resellers, is necessary in order to provide customers with the level of support required for successful integration of remote access solutions in enterprise networks. The Company conducts its North American sales and marketing activities from its principal office in Bedford, Massachusetts, as well as from four other North American sales offices. In international markets, the Company markets its products through its Wokingham, United Kingdom office as well as field sales offices in France, Germany, Sweden, South Africa, Singapore, Australia, and the Netherlands and through distributors and resellers in most European countries, South America, Asia, Africa and the Pacific Rim. 4 In fiscal 1996, sales to a major strategic partner accounted for 14% of the Company's total revenues. A reduction in sales to this partner would adversely affect the Company's operating results. The Company provides most of its distributors and resellers with product return rights for stock balancing or product evaluation. The Company also provides most of its distributors and resellers with price protection rights. Stock balancing rights permit distributors to return products to the Company for credit against future product purchases, within specified limits. Product evaluation rights, available in some markets, permit end-users to return products to the Company, through the distributor or reseller from whom such products were purchased, within thirty days of purchase if such end-user is not fully satisfied. Price protection rights require that the Company grant retroactive price adjustments for inventories of the Company's products held by distributors or resellers if the Company lowers its prices for such products. Although the Company believes that it has adequate reserves to cover product returns and price reductions, there can be no assurance that the Company will not experience significant returns or price protection adjustments in the future or that such reserves will be adequate to cover such returns and price reductions. Strategic Partnerships The Company has developed and maintained strategic partnerships with a major communications equipment company, Northern Telecom Limited ("Nortel"), computer operating system vendors such as Microsoft ("Microsoft"), Internet applications providers such as Netscape ("Netscape"), and major information systems providers, such as IBM, Motorola and Hewlett-Packard ("HP"). The partnerships allow the Company to address the rapid expansion of the remote access market by providing worldwide sales, marketing and service networks for the Company's technology and products. They also provide an opportunity for technology and product exchanges. The Company and Nortel are OEM and joint development partners. Through this relationship, Nortel, which is a major provider of telecommunications equipment, will distribute a Nortel RAPPORT version of the Company's LanRover Access Switch to provide solutions for ISPs and other telecommunications companies. The end-products will allow for the Internet thruway application which is the loading of data calls from a central office switch to a data network, such as a frame relay, resulting in minimization of congestion on the voice network. Nortel will also manufacture and distribute a Nortel RAPPORT version of the Shiva AccessPort. The Company and IBM are OEM and joint development partners. The Company manufactures IBM versions of its LanRover products that IBM markets as its 8235 products worldwide. The 8235 functionality has also been integrated into its 8250/8260 switching hub product line. In addition, all of the Company's Token Ring network products are designed with the IBM Token Ring chip set. During 1996 the Shiva/IBM OEM relationship was expanded to include the Company's LanRover Access Switch product which is marketed as the IBM I-40 line. In general, the IBM partnership is intended to ensure that the Company's products provide effective remote access solutions to IBM SNA networking environments for the Fortune 500 type enterprise accounts. Customer Service and Support The Company believes that a high level of user support is essential to achieving customer satisfaction. The majority of the Company's service and support activities historically have been related to software and network configuration issues which are provided by telephone and on-line access to and from the Company's principal offices. With the market acceptance of the LanRover Access Switch, installation, on-site maintenance and deployment services have become increasingly important to ensure successful implementations of the product at customer sites. The Company also provides technical support and training to channel and strategic partners. The Company provides a one-year warranty on its hardware products and a ninety day software media warranty. After the expiration of the hardware warranty period, the Company provides hardware repair services on a fee basis. Software upgrades are also available for purchase on a fee basis. Both hardware repairs and software upgrades may be purchased as part of a comprehensive support program as well. Comprehensive support programs provide toll-free telephone support lines, overnight exchange of products, on-site hardware maintenance, and free or discounted hardware and software revisions and upgrades. In addition, the Company provides on-line services that are used to distribute technical advice and software updates. On-line services include a fax back service, a bulletin board service and an electronic mail access service, as well as ISSAK(TM), which is the Company's technical knowledge base. 5 Research and Development The Company's research and development efforts are focused on developing new products and core technologies for the remote access market and further enhancing the functionality, reliability, performance and flexibility of existing products. Extensive input concerning product development is obtained from users, both directly and through indirect marketing channel partners. The Company also receives input from active participation in industry groups responsible for establishing technical standards. In 1996, the Company completed development and introduced the LanRover Access Switch high-end remote access switch. It has extended the product line into new markets such as Internet Service Providers and Carrier customers providing Internet access services. The Company is also focusing its development efforts on additional remote access and telecommuter needs and providing access to switched digital services. Certain of these emerging digital services are already supported by the Company's current product design. The Spider Acquisition added ISDN, X.25 and Frame Relay technology to the Company's portfolio. During 1996, ISDN and Frame Relay protocols were introduced into the base ShivOS operating system servicing Shiva servers. With the AirSoft Acquisition, the Company augmented its technology portfolio with protocol acceleration technologies that have been integrated into the Company's remote access server to accelerate performance of Novell file access applications over dial-up lines. Future applications of this technology will include acceleration of web-based (HTTP) applications over the Internet. The Company's success will depend upon its ability to enhance and expand its existing products, and to develop new products in a timely manner that will achieve market acceptance. To meet the challenges of rapidly changing technology, the Company has invested and expects to continue to invest heavily in the development of new products and core technologies; however, there can be no assurance that the Company will be able to respond effectively to technological changes or new industry standards or developments. The Company's business would be adversely affected if the Company were to incur significant delays or were to be unsuccessful in developing new products or enhancements, or if any such products or enhancements did not gain market acceptance. In fiscal 1996, 1995 and 1994, the Company's research and development expenditures were approximately $23,186,000, $14,787,000 and $9,972,000, respectively, or 12% of revenues in each period. Customer-funded development fees reimbursed to the Company and government funded research and development grants, which are reflected as an offset to research and development expenses, were approximately $1,718,000, $955,000 and $901,000, respectively for fiscal 1996, 1995 and 1994. Manufacturing The Company uses two principal subcontractors, Lockheed Commercial Electronics Company and Solectron Scotland Limited, for the manufacture of substantially all of its products. The Company's internal manufacturing operation which is located in Bedford, Massachusetts consists primarily of material planning, procurement, final assembly and test, and quality assurance and distribution. The Company's products undergo automated testing, comprehensive quality audits, functional testing, and environmental stress screening to ensure quality and reliability. The Company's manufacturing strategy is to optimize cost, quality, delivery and flexibility to the Company's customer base through a leveraged external manufacturing model. This strategy allows capacity increases while avoiding the capital investment required to establish and maintain additional manufacturing facilities. The Company believes that this strategy allows it to focus its resources on product design, quality assurance, marketing, and customer support. Although the Company believes that new suppliers could be evaluated and integrated in a relatively short period of time, this strategy could lead to short-term product supply interruptions. Materials used by the Company in its manufacturing processes include semiconductors, such as microprocessors, memory chips and other integrated circuits, printed circuit boards, cable assemblies and pre-formed metal/plastic enclosures. The chipsets used in certain of the Company's Token Ring connectivity products and modem products are currently available only from IBM and Rockwell International, respectively. The Company also sources 6 certain microprocessors from Motorola. To date, the Company has not experienced significant delays in the receipt of key components. The inability to obtain a sufficient supply of key components as required, or to develop alternative sources if and as required in the future, could result in delays or reductions in product shipments which, in turn, could have a material adverse effect on the Company's results of operations. Intellectual Property Although the Company believes that its continued success will depend primarily on its continuing innovation, sales, marketing and technical expertise, product support and customer relations, the Company believes it also needs to protect the proprietary technology contained in its products. The Company has applications pending for six United States patents and received a United States patent in 1996. The Company primarily relies on a combination of copyright, trademark, trade secret laws and contractual provisions to establish and protect proprietary rights in its products. The Company typically enters into confidentiality and/or license agreements with its employees, strategic technology partners, indirect channel marketing partners, customers and suppliers and limits access to and distribution of its proprietary information. There can be no assurance that these protections will be adequate to deter misappropriation of the Company's technologies or independent third-party development of similar technologies. In addition, the laws of some countries do not protect the Company's proprietary rights to the same extent as do the laws of the United States. The Company is subject to the risk of litigation alleging infringement of third-party intellectual property rights. There can be no assurance that third parties will not assert infringement claims against the Company with respect to current or future products. Any such assertion could require the Company to pay damages and could require the Company to develop non- infringing technology or acquire licenses to the technology that is the subject of asserted infringement resulting in product delays or increased costs or both. Employees At December 28, 1996, the Company employed 670 individuals on a full-time basis. Of these, 201 were involved in engineering, 302 in sales, marketing and customer support, 72 in manufacturing and 95 in administration, finance and strategic planning. The Company considers its relations with its employees to be good and has not experienced any interruption of operations as a result of labor disagreements. Competition for technical personnel in the Company's industry is intense. The Company believes that its future success will depend on its continued ability to attract and retain qualified personnel. Executive Officers The executive officers of the Company as of March 14, 1997, are as follows:
Name Age Position - ---- --- -------- Frank A. Ingari 47 President, Chief Executive Officer and Chairman of the Board of Directors Steven J. Benson 38 Senior Vice President, Worldwide Sales and Marketing Jean-Pierre Boespflug (1)(2) 42 Senior Vice President, Research and Development Cynthia M. Deysher 39 Senior Vice President, Finance and Administration and Chief Financial Officer Peter H. Howells (3) 43 Vice President, Shiva Access Manager Division Richard Lanchantin (4) 41 Vice President, Customer Service - ------------------- 7 (1) Mr. Boespflug became an executive officer of the Company in February 1997. (2) Mr. Guy A. Daniello became an executive officer of the Company in January 1996, and Mr. Daniello resigned in February 1997. (3) Effective February 26, 1997, the Company redesignated its "executive officers" under the Securities Exchange Act of 1934. As a result of this redesignation, this person is no longer an "executive officer" of the Company under such Act. (4) Mr. Lanchantin became an executive officer of the Company in March 1996.
Mr. Ingari joined the Company as its President and Chief Executive Officer and as a director in September 1993. He has served as the Chairman of the Board of Directors since July 20, 1995. From September 1995 to January 1996 he served as Acting Vice President, Research and Development. From March 1992 to September 1993, Mr. Ingari was Vice President of Marketing at Lotus Development Corporation. From January 1991 to March 1992, Mr. Ingari served as Chairman and Chief Executive Officer of ONTOS, Inc., a supplier of object- oriented database management systems and application development software. From 1987 to January 1991, Mr. Ingari served as Vice President and General Manager of the Emerging Markets Business Group at Lotus Development Corporation. Mr. Benson joined the Company as its Vice President of Sales in September 1992. In October 1995, Mr. Benson's title changed to Senior Vice President, Worldwide Sales and Marketing. From January 1988 to August 1992, Mr. Benson served as Director of Sales and Marketing for the Portable Computing Group of Lotus Development Corporation. Mr. Boespflug joined the Company as Vice President, International Business Operations in April 1994 and became its Vice President, Strategic Planning in September 1995. Early in 1996 Mr. Boespflug was appointed as Vice President of Shiva's Service Provider Group. Mr. Boespflug was appointed Senior Vice President of Research and Development in February 1997. From October 1991 to February 1994, Mr. Boespflug served as Vice President of European Operations at Wellfleet Communications, Inc., a supplier of internetworking equipment. From November 1988 to October 1991, Mr. Boespflug served as Vice President of European Operations at Cisco Systems, Inc., a supplier of network routers and bridges. Ms. Deysher joined the Company in January 1994 as its Vice President, Finance and Administration, Chief Financial Officer and Treasurer. In October 1995, Ms. Deysher's title changed to Senior Vice President, Finance and Administra- tion and Chief Financial Officer. Ms. Deysher resigned as the Company's Treasurer in September 1995 when she delegated treasury duties to a member of her staff who was elected Treasurer. Ms. Deysher resumed the position of Treasurer in September 1996. From April 1989 to November 1993, Ms. Deysher served as Chief Financial Officer, Corporate Vice President Finance, Administration and Manufacturing of Bytex Corporation, a wide and local area network company. Mr. Howells joined the Company as its Vice President, Network Services Division, when the Spider Acquisition closed in August 1995. In February 1997 Mr. Howells was appointed Vice President, Shiva Access Manager Division. From September 1990 to August 1995, Mr. Howells held various positions at Spider, most recently serving as the Divisional Director of the Networks Division. Mr. Lanchantin joined the Company in March 1996 as Vice President, Customer Service. From November 1994 to March 1996, Mr. Lanchantin served as Senior Director, Global Enterprise, at IBM/Lotus Development Corporation. From June 1992 to November 1994, Mr. Lanchantin served as Director Field Support Services at Lotus Development Corporation. From May 1989 to June 1992, Mr. Lanchantin served as Technical Manager, North American Sales at Lotus Develop- ment Corporation. Executive officers of the Company are elected by the Board of Directors on an annual basis and serve until their successors are duly elected and qualified. There are no family relationships among any of the executive officers of the Company. 8 ITEM 2. Properties In February 1996, the Company relocated its principal offices to a facility of approximately 117,139 square feet in Bedford, Massachusetts. The Company occupies this facility under a lease that expires in February 2006. In addition, in May, 1996 the Company entered into a lease which expires in September, 2003 of a building consisting of approximately 51,000 square feet also in Bedford which houses its manufacturing and sales training operations the Company's primary European headquarters are located in a facility it owns consisting of approximately 35,000 square feet in Edinburgh, United Kingdom. The Company also leases sales offices in New York, Georgia, California, Washington, France, Australia, South Africa, the United Kingdom, Germany, the Netherlands, Sweden, and Singapore. The Company believes that its facilities are well maintained and in good operating condition, and are adequate to meet its anticipated level of operations for the foreseeable future. ITEM 3. Legal Proceedings On January 17, 1997, a Complaint was filed against the Company in the Superior Court of the State of California for the County of Los Angeles, Abraham Schwartz and Norman Marcus v. Shiva Corporation. The plaintiffs purport to bring this action on behalf of a class of purchasers of the Company's common stock between September 17, 1996 and January 7, 1997. The Complaint asserts that the Company made false or misleading statements in violation of state and federal law, including: state law negligent misrepresentation, fraud, and deceit, California Corporation Code Sec. 1507, 25400, and 25500, California Civil Code Sec. 1709-10, and Section 12(2) of the Securities Act of 1933, 15 U.S.C. Sec. 771(2). On behalf of the purported class, the plaintiffs seek compensatory damages, treble damages under California law, punitive damages under California law, punitive damages, attorneys' fees, costs and interest. On February 14, 1997 the Company filed a demurrer to the Complaint. The Company believes the claim to be entirely without merit and intends to vigorously defend against the action. The action is in its earliest stages and the Company is unable to determine at this time the potential liability if any. ITEM 4. Submission Of Matters To Vote Of Security Holders None PART II ITEM 5. Market For The Company's Common Equity And Related Stockholder Matters The information required by this item may be found in the section captioned "Quarterly Financial Information" appearing in the 1996 Annual Report to Stockholders, and is incorporated herein by reference. ITEM 6. Selected Financial Data Information required by this item may be found in the section captioned "Financial Highlights" appearing in the 1996 Annual Report to Stockholders, and is incorporated herein by reference. ITEM 7. Management's Discussion And Analysis Of Financial Condition And Results Of Operations Information required by this item may be found on pages 18 through 25 of the 1996 Annual Report to Stockholders in the section captioned "Management's Discussion and Analysis of Financial Condition and Results of Operations", and is incorporated herein by reference. ITEM 8. Financial Statements And Supplementary Data Information with respect to this item may be found on pages 26 through 42 of the 1996 Annual Report to Stockholders, and is incorporated herein by reference and indexed by reference under Item 14(a)(1) below. The Company's 1996 Annual Report to Stockholders is not to be deemed filed as part of this report except for those parts thereof specifically incorporated herein by reference. 9 ITEM 9. Changes In And Disagreements With Accountants On Accounting And Financial Disclosure Not applicable. PART III ITEM 10. Directors And Executive Officers Of The Company Information with respect to Directors of the Company may be found in the Company's Proxy Statement for the Annual Meeting of Stockholders to be held May 14, 1997 (the "1997 Proxy Statement") under the caption "Election of Directors" and is incorporated herein by reference. Information with respect to Executive Officers of the Company may be found under the section captioned "Executive Officers of the Company" in Part I of this report. Information relating to delinquent filings of Forms 3, 4 or 5 by an executive officer or director or beneficial owner of more than 10% of the shares of common stock of the Company may be found under the caption "Compliance with Section 16(a) of the Securities Exchange Act" in the Company's 1997 Proxy Statement, which 1997 Proxy Statement will be filed with the Securities and Exchange Commission not later than 120 days after the close of the Company's fiscal year ended December 28, 1996, and is incorporated herein by reference. ITEM 11. Executive Compensation Information required by this item may be found under the captions "Compensation of Directors" and "Executive Compensation" in the Company's 1997 Proxy Statement, and is incorporated herein by reference. ITEM 12. Security Ownership Of Certain Beneficial Owners And Management Information required by this item may be found under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's 1997 Proxy Statement, and is incorporated herein by reference. ITEM 13. Certain Relationships And Related Transactions None. ITEM 14 Exhibits, Financial Statement Schedules And Reports On Form 8-K (a) (1) Consolidated Financial Statements. The following consolidated financial statements and the Report of Independent Accountants are included in the Company's 1996 Annual Report to Stockholders and are incorporated herein by reference. Report of Independent Accountants for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 Consolidated Balance Sheet as of December 28, 1996 and December 31, 1995 Consolidated Statement of Operations for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 Consolidated Statement of Changes in Stockholders Equity for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 Consolidated Statement of Cash Flows for the years ended December 28, 1996, December 30, 1995 and December 31, 1994 Notes to Consolidated Financial Statements The Company's 1996 Annual Report to Stockholders is not to be deemed filed as part of this report except for those parts thereof specifically incorporated herein by reference. 10 (a) (2) Financial Statement Schedules. Page Schedule I Report of Independent Accountants on Financial Statement Schedule S-1 Schedule II Valuation and Qualifying Accounts S-2 Schedules not listed above have been omitted because they are not applicable, not required, or the information required to be set forth therein is included in the consolidated financial statements or the notes thereto. (a) (3) List of Exhibits. The following exhibits are filed as part of, or incorporated by reference into, this report on Form 10-K:
Exhibit No. Description of Exhibits 3.1 Restated Articles of Organization of the Company. (1)(5) 3.2 Restated By-Laws of the Company. (1) 4.1 Specimen certificate representing the Common Stock. (8) 4.2 Rights Agreement dated as of September 29, 1995, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A the Form of Certificate of Vote of Directors Establishing a Series of a Class of Stock, as Exhibit the Form of Rights Certificate, and as Exhibit C the Summary Rights to Purchase Preferred Stock. (4) 10.1 Registration Rights Agreement dated as of September 3, 1991 by and among the Company and the Investors named therein, as amended by the Amendment to Registration Rights Agreement dated as of March 29, 1993, as further amended by the Amendment No. 2 to Registration Rights Agreement dated as of July 28, 1993 and as further amended by an Amendment dated June 13, 1995. (3) 10.2 Amended and Restated 1988 Stock Plan, as further amended. (3)(6) 10.3 1994 Non-Employee Director Stock Option Plan. (1)(6) 10.4 1994 Employee Stock Purchase Plan. (1)(6) 10.5 1997 Employee Bonus Plan (6) 10.6 Employment Agreement dated September 15, 1994 by and between the Company and Frank A. Ingari. (1)(6) 10.7 Letter Agreement dated January 27, 1994 by and between the Company and Cynthia M. Deysher. (2)(6) 10.8 Letter Agreement dated January 2, 1996 by and between the Company and Guy A. Daniello. (6) 10.9 Incentive and Non-Qualified Stock Option Agreement dated October 19, 1993 between the Company and Frank A. Ingari. (1)(6) 11 10.10 Incentive and Non-Qualified Stock Option Agreement dated January 29, 1994, between the Company and Cynthia M. Deysher. (1)(6) 10.11 Agreement dated May 15, 1995 between the Company and Northern Telecom Limited ("Nortel") (3) 10.12 Letter Agreement dated March 15, 1996 between the Company and Nortel to amend the Agreement dated May 15,1995 between the Company and Nortel (7) 10.13 First Amendment dated May 16,1996 to the Agreement dated May 15,1995 between the Company and Nortel (7) 10.14+ Memorandum of Understanding ("MOU") dated September 11, 1996 between the Company and Nortel 10.15+ Second Amendment dated October 15, 1996 to the Agreement dated May 15, 1995 between the Company and Nortel 10.16+ Memorandum of Understanding ("MOU") dated December 23, 1996 between the Company and Nortel 10.17+ Letter Agreement dated January 29, 1997 amending the Memorandum of Understanding dated December 23, 1996 between the Company and Nortel 10.18 Lease by and between Beacon Properties, L.P., Landlord and the Company Tenant, ("Beacon Lease") dated September 5, 1995. (4) 10.19 Amendment #1 to the Beacon Lease, dated October 23, 1995 (8) 10.20 Amendment #2 to the Beacon Lease, dated January 17,1996 (8) 10.21 Lease by and between Walford Company c/o Bernard H. Kayden, Landlord, and the Company, Tenant, ("Walford Lease") dated May 24, 1996 (7) 11.1 Statement re: Computation of Per Share Earnings 13.1 1996 Annual Report to Stockholders, certain portions of which have been incorporated herein by reference. 21.1 Subsidiaries of the Company. 23.1 Consent of Price Waterhouse LLP 23.2 Consent of Deloitte & Touche LLP 27 Financial Data Schedule - --------------------------- (1) Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-84884) (2) Incorporated herein by reference to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 (3) Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33-94134) (4) Incorporated herein by reference to the Company's Registration Statement on Form S-1 (File No. 33- 97216) (5) Incorporated herein by reference to the Company's Registration Statement on Form S-3 (File No. 333-602) (6) Indicates a management contract or any compensatory plan, contract or arrangement with officers who are designated as named executive officers in the Company's 1997 Proxy Statement. 12 (7) Incorporated herein by reference to the Company's Quarterly Report on Form 10-Q for second quarter 1996. (8) Incorporated herein by reference to the Company's Annual Report on Form 10-K for fiscal year 1995. + Confidential treatment requested
(b) Reports on Form 8-K The Company filed no reports on Form 8-K during the last quarter of the fiscal year ended December 28, 1996. 13 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHIVA CORPORATION By: /s/ Frank A. Ingari By: /s/ Larry Whitman -------------------- ----------------------- Frank A. Ingari Larry Whitman President and Chief Executive Officer Vice President - (Principal Executive Officer) Corporate Controller (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated: NAME TITLE DATE ---- ----- ---- /s/ Frank A. Ingari - ------------------- Frank A. Ingari President March 14, 1997 Chief Executive Officer and Chairman of the Board /s/ David C. Cole - ----------------- David C. Cole Director March 14, 1997 /s/ L. John Doerr - ----------------- L. John Doerr Director March 14, 1997 /s/ Henry F. McCance - -------------------- Henry F. McCance Director March 14, 1997 /s/Paul C. O'Brien - ------------------ Paul C. O'Brien Director March 14, 1997 /s/Mitchell E. Kertzman - ----------------------- Mitchell E. Kertzman Director March 14, 1997 14 Schedule I REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES To the Board of Directors and Stockholders of Shiva Corporation: Our audits of the consolidated financial statements referred to in our report dated January 23, 1997, appearing on page 43 of the 1996 Annual Report to Stockholders of Shiva Corporation and its subsidiaries (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedule listed in Item 14 (a) of this Form 10-K. In our opinion, the Finanicial Statement Schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ Price Waterhouse LLP - ------------------------ PRICE WATERHOUSE LLP Boston, Massachusetts January 23, 1997 S-1 Schedule II Shiva Corporation Valuation and Qualifying Accounts
Column A Column B Column C Column D - ----------------- ---------------------- --------- ---------- --------- Balance Charged to Charged Beginning Costs and to Other For the Period Classification of Period Expenses Accounts - ----------------- ---------------------- --------- ---------- --------- December 31, 1994 Allowance for doubtful accounts and returns $ 2,376 $ 7,656 $ 17 December 30, 1995 Allowance for doubtful accounts and returns $ 3,963 $ 7,731 $(22) December 28, 1996 Allowance for doubtful accounts and returns $ 5,252 $14,993 $ 80
Column E Column F - ----------------- --------- -------------- Balance at End For the Period Deductions of Period - ----------------- --------- -------------- December 31, 1994 $(6,086) $ 3,963 December 30, 1995 $(6,421) $ 5,252 December 28, 1996 $(9,977) $10,347
Shiva Corporation Deferred Tax Asset Valuation Allowance
Column A Column B Column C Column D - ----------------- ---------------------- --------- ---------- --------- Balance Charged to Charged Beginning Costs and to Other For the Period Classification of Period Expenses Accounts - ----------------- ---------------------- --------- ---------- --------- December 31, 1994 Deferred tax asset valuation allowance $3,275 $ 797 $ 1,031 December 30, 1995 Deferred tax asset valuation allowance $4,125 $ 730 $ 3,076 December 28, 1996 Deferred tax asset valuation allowance $6,531 $ -- $ --
Column E Column F - ----------------- --------- -------------- Balance at End For the Period Deductions of Period - ----------------- --------- -------------- December 31, 1994 $ ( 978) $4,125 December 30, 1995 $ (1,400) $6,531 December 28, 1996 $ (5,673) $ 858
S-2 EX-10.5 2 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit 10.5 1997 Worldwide Employee Bonus Plan Plan Purpose At Shiva, we work hard to provide our customers with high quality products and services each and every day. As a growing company, we can see the tangible results of this dedication and loyalty. We know these results depend on you. We are committed to sharing the company's financial success with our employees. In the true spirit of a bonus, this plan is designed to payout only after Shiva has achieved its goals. If the company comes within **% its plan, we will all share in the rewards of a job well done This year's plan has been revised to take into account our business goals for 1997. It is our hope that the 1997 Employee Bonus Plan will continue to motivate all plan participants to strive for company prosperity. By working together, we can all share financially in the company's growth. Our 1997 Goal There are numerous ways to measure the success of a company, our investors consider growth in our operating income to be a key measure of our performance. And operating income is a measurement that we can all influence through revenue generation and/or expense control. Therefore, the bonus pool will be driven by this measure. If our 1997 operating income does not meet or exceed [*********************], no bonuses will be paid. If our 1997 operating income equals or is greater than [************], 100% of the bonus pool will be available for bonuses. This is an aggressive, but reachable objective. If we exceed our plan by *%, an additional pool will be made available for bonuses. These bonuses will be awarded at management's discretion. Eligibility You are eligible for the Employee Bonus Plan if you are a full-time Shiva employee, hired before or within 1997 and not participating in Sales Commission Plans or eligible for quarterly bonuses (unless compensation plan specifically states otherwise). Your bonus will be pro-rated based upon your full months of consecutive employment through the year end. Employees who have salary and/or level changes in 1997 will receive a pro-rated bonus based on the number of months at each salary level. Your Bonus Opportunity Your bonus will be based on a fixed percentage of your base salary. This percentage is determined by your salary level. (Your direct manager can tell you the specific bonus potential for your salary level.)
Grade Target Bonus I-V **% VI-VIII **% IX **% X **% Exec. **% (or per compensation plan) Sr. V.P. **% (or per compensation plan) CEO **%
CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. There are two parts to your bonus. Your potential bonus is based on our achievement of the operating income goal and your individual performance as determined at year-end. This award will be made at management's discretion and is intended to recognize and reward employees for their overall contribution to the company throughout the year. If Shiva achieves [*****************] or more, a special bonus pool will be established. As mentioned, this pool will be available to provide additional bonuses to those employees who have made significant contributions to our success. The Bonus Pool The bonus pool will depend on our operating income. If our operating income meets or exceeds [************], bonuses will be paid according to the following table:
Operating Income Bonus Award Percentage Below [************] ************* [************] to [*************] ***% to ***% [************] to [*************] ***% [************] and above *********************
The actual amount you receive will be based on the bonus potential for your position. So, for example, if the company's operating income is exactly [**********] and your performance meets your manager's expectations, you could receive 100% of your bonus. The Additional Bonus Pool Trigger - ***%
Operating income Additional Pool ***-***% **% ***-***% **% ***-***% **% above ***% *******************
Example A person earns $50,000 and is eligible for a **% bonus or $*******. Shiva meets our operating income target (100%). Company Operating Income (objective) The employee automatically is eligible to receive $****** (100% of the bonus amount) Employee Performance (subjective) The manager determines what percentage of the $******* the employee will receive based on the individual performance based upon the following guidelines: If person "exceeds expectations" **%-***% "fully meets expectations" **%-***% "meets most expectation" **%-***% "meets some expectations" **%-***% "does not meet expectations" *********** A forced curve will be used. No more than **% of eligible employees may receive ***%. Bonus Payments Bonuses will be paid as soon as possible following completion of the annual audit and release of earings. Bonuses will be paid by check and applicable taxes will be deducted from your payment. If You Leave Shiva You must be on the payroll the day that bonuses are distributed to be eligible for a bonus. If you are on an approved leave, your bonus will be pro-rated, based on your continuous full months of employment during the year. No Guarantees The Employee Bonus Plan will be updated each year. The plan does not guarantee that you will be offered a bonus and does not guarantee your continued employment with the company. The program is based on company and individual performance and management reserves the exclusive right to modify or terminate the plan at its discretion at any time. In Summary At Shiva, we want to recognize everyone's contributions in helping to make the company successful. We believe that the Employee Bonus Plan will assist us in ensuring that individual employees can be recognized for their achievements. We look forward to us all sharing in our company's success. EX-10.8 3 Exhibit 10.8 Shiva Corporation Northwest Park 63 Third Avenue Burlington, MA 01803 617 270-8300 Fax: 617 270-8599 January 2, 1996 Mr. Guy Daniello 8 Atkinson Gate Nepean, Ontario Canada K2G 5H3 Dear Guy, We are pleased to extend you an offer to join Shiva Corporation as Senior Vice President, Research and Development, reporting to me. This letter defines the terms and conditions of the relationship, as follows: Base Salary: $225,000 Bonus: 50% of base salary, based upon Shiva Corporation's attainment of corporate objectives (as defined in each annual Shiva Corporate Bonus Plan) and personal objectives. Stock Options: Grants: A total of 130,000 shares to be granted in four equal installments of 32,500 shares at each of the next four Board of Directors meetings. The price of each option grant will be determined at the applicable Board meeting. At any time prior to the next Board of Directors meeting, you may elect to accelerate the grant of any portion of the total shares remaining. Vesting: Vesting of each option grant will occur according to the following schedule: 25% of each grant will vest immediately upon date of grant.* 75% of each grant will vest annually, 25% per year, over the next four years. *Consistent with the requirement of Section 16(c) of the Exchange Act, you will be eligible to exercise and sell such vested stock six (6) months from the date of grant. Vesting Upon Change of Control: All outstanding options granted will be immediately vested in the event of any material diminution in your position, duties, responsibilities, title or office or any reduction in your standard compensation as a result of any change in control of Shiva Corporation. Relocation: Relocation terms will be mutually agreed upon within the next week. The relocation package is anticipated to include selling and purchase expenditures relating to your primary residence, moving expenses, househunting trips and tax gross up if necessary. We look forward to you joining us at Shiva in this very important position. Please indicate your acceptance by signing and returning, via facsimile at 617 270-8998, a copy of this letter to me. Sincerely, /s/ Frank Ingari Frank A. Ingari, Chairman and Chief Executive Officer Accepted: /s/ Guy A. Daniello Date: January 4, 1996 EX-10.14 4 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit 10.14 Memorandum of Understanding between Nortel and Shiva for the OEM, Development, and Support of the ************************************ The purpose of this M.O.U. is to summarize the discussions between Shiva and Nortel to date, and to confirm the respective intent with respect to the proposed transaction. Nortel and Shiva plan to develop and sign a contract, by October 15, 1996, which will be based on the terms and conditions as outlined in this M.O.U. Manufacturing Rights - - Nortel shall have the option to manufacture the ************************** ********, within the duration of the contract, according to Shiva's design specifications. A proposed ****** fee, paid to Shiva for the manufacturing license, will be negotiated. Reasonable manufacturing transfer and consulting assistance, will be negotiated. Shiva will make the final decision as to ******************* the **********. If ******************** the **************** for *******, the *************************. - - With Shiva's agreement, Nortel shall be *********** to manufacture the ***************** Shiva ************* and Shiva's ********************** ***********. Shiva has the right to ********** from a ******************. - - Nortel shall pay Shiva a royalty, as defined in the royalty structure section, below, for the ************ shipped to Nortel ********** directly, or via Nortel's ***************************. Royalty Structure - - Nortel shall pay Shiva a royalty equivalent to a **************** of *** of the ****** price of the product for volumes of ***** units or greater, over a ******** period, or a *************** of **** of the ******* price of the product for volumes less than ****** units, over a ******* period. In each case, Nortel will pay a ***** of **** royalty for each product within the ********** of the agreement, or for the ********* units (whichever comes first), if the **** or **** royalty is below *****. After the ********, or ********* units, the *** or *** royalty shall only apply. Shiva and Nortel will negotiate an ******** royalty structure ***** **** units (or ********, whichever comes first), and for Nortel *********, in the contract. - - A three months rolling forecast will be provided on a monthly basis (same as with ********) as well as a first year forecast for business planning purposes, independent of *************** direction. - - Prior to Nortel **************, Nortel will work with Shiva to *********** product/components ***************************. Any ************* or *********************** will be ***************** to Nortel. Annual Maintenance and Support - - Shiva will provide ******** level support to Nortel, for the *************, similar to that described in Section 7 and Exhibit H of the Shiva/Nortel Agreement of May 15, 1995 for the ************ product. - - Nortel agrees to pay Shiva ****** for support of the **********, as CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. described in Section 7 and Exhibit H of the Shiva/Nortel Agreement of May 15, 1995 for the ********* product, in the ************** period, with support fees for subsequent years to be negotiated by the parties. Shiva Software Upgrades - - During the term of any period for which Nortel has paid the agreed-upon annual maintenance and support fee, Shiva agrees to provide all Shiva software upgrades to Nortel *************************************. Any *************** of Shiva upgrades will be negotiated between the parties. - - Nortel will be the ************* of ******************* software to Nortel customers (e.g. alpha trial, beta trial, early adopter trial, release version) ************************************************************ ************************. Nortel OEM Requirements - - Nortel will re-label (Nortel branding) the ****************, similar to the ****************** and ************* products. - - Shiva shall, on an ongoing basis, ************** the software, hardware and documentation, as is currently done for the ************. Details will be identified in the contract. - - Shiva shall *********** Nortel's ************* based on ****************** ************* as used for the ****************, for those *************** which both Shiva and Nortel intend ************************************. Nortel will ************************************************************* ************************************************************************* ************************************************************************* ************************************************************************* ************************************************************************* ********************************. - - Shiva shall provide Nortel with a project plan for each release of the **************** software and/or hardware (including *************). - - Nortel shall have the option to ************** the *********** for specific Nortel customers, requiring ************************. ****************************** Features - - It is Nortel's intention to ******************* with ************ features and functions *******************************. Nortel and Shiva will determine which **************** is most appropriate for ************* the requested features ******************************************************** ****************************************************************. These functions will include, but are not limited to, the following: ******************************* ***************************** ********************************* ***************************** *********************** ********************************* Notes: 1. The**************************************** will be sold as part of the **************** brand. Intellectual property rights associated with *********************** that ***********************************************************************. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Intellectual property rights associated with ******************************** ***************************************************************************** with ******************************************************** determined by agreement between the parties. Intellectual property rights associated with **************************************************************************** *************************** with ******************************************* *********** determined by agreement between the parties. This document is a M.O.U. only. Both parties will, in good faith, adhere to the terms and conditions as outlined in this M.O.U. until a contract is signed, at which point the contract will be legal and binding and supersede this M.O.U. Both parties agree to negotiate and sign a contract no later than October 15, 1996, *********************************************. /s/ Micky Tsui /s/ Ed Gregory - ------------------------ ----------------------------- Micky Tsui Ed Gregory AVP Internet Solutions VP Business Development Nortel Shiva Corporation EX-10.15 5 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit 10.15 AMENDMENT 2 Shiva/Nortel Agreement This Second Amendment to the Agreement dated as of 15 May 1995 (the "Agreement") is made as of the 15th day of October, 1996, by and between Northern Telecom Limited ("Nortel"), on behalf of itself and its affiliates (as defined in the Agreement), a Canadian corporation having its principal place of business 8200 Dixie Road, Suite 100, Brampton, Ontario, Canada, and Shiva Corporation ("Shiva"), a Massachusetts corporation having its principal place of business at 28 Crosby Drive, Bedford, Massachusetts, 01730, USA. WHEREAS, Nortel and Shiva want to amend the Agreement to reflect the following changes to the original Agreement; ****************************** Amendment A ************************* of Shiva's current ************************* ************* product (**************************** or ***************** *******) will be added to the Agreement. *********** will include ****** ******* and ********** of the ******** to ********* in the ************ ******** and specified *******************. Nortel will have the right to manufacture the ****************** pursuant to the manufacturing rights set forth in this Amendment. NOW, THEREFORE, the parties agree to amend the Agreement as follows, 1.0 Definitions 1.1 New Definition. In addition to the terms defined in the Agreement, each of the following additional terms shall have the meaning ascribed to it below: 1.1.1 ********* or **************** shall mean the ************** ********************************* product as described in Exhibit R and Exhibit S; 2.0 ****************** of the *************** 2.1 Shiva's Obligations. Shiva will ********* the ****************** ***********************, as described in the Nortel ******************* **************** as set forth in Exhibit R and Exhibit S. 2.2 Nortel's Obligations. Nortel will ****** the ******* contemplated in Section 2.1 and ************ for the ************** as set forth in Exhibit R. 2.3 Ownership of the ******************. Intellectual property rights associated with ************* features that ************** using *********- provided tool kits shall be owned by ********. Intellectual property rights associated with *************** features that ********** using ******* software and/or hardware shall be owned by ******** with **************************************** of such features determined by CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. agreement between the parties. ******* hereby grants, with a full reservation of rights, to ******* a worldwide, ************, ************** perpetual license of such intellectual property rights to use, modify, sublicense, support, copy and distribute through multiple tiers of distribution, including ********* distributors, these intellectual property rights solely as they are incorporated into the ************. ********* hereby grants back to ******* a **********, worldwide, ***********, perpetual license to such modifications. *************************************************** ************************************************************************** **************************************. Intellectual property rights associated with ****** developed modifications using ******* developed software and/or hardware, including, but not limited to, ******************** and the ********************************** product, (**** will be reviewed and determined between the parties), as described in Exhibit S, shall be owned by ***** with ************************************ of such features to ****** to be determined by agreement between the parties. ****** hereby grants to ****** a worldwide, *************, **************** perpetual license of such intellectual property rights to use, modify, create derivative works, support, and copy these intellectual property rights solely as they are incorporated into the **************. ******* hereby grants back to ******* a **************, worldwide, *************, perpetual licwense to modifications. 3.0 Manufacturing Rights 3.1 License Grant. Shiva hereby grants Nortel the option to manufacture the *********************** at anytime, within the duration of the contract, according to Shiva's design specifications. 3.2 Shiva's Obligations. If Nortel elects to manufacture the ************** subject to the terms of this Amendment, Shiva shall provide reasonable manufacturing transfer and consulting assistance as part of the license fee described in Section 3.3. Reasonable manufacturing transfer and consulting assistance shall include the following: (1) ********************************** (2) ************************* (3) **************************************** (4) ********************************************* (5) ************************************** (6) ********************************* (7) *************************** (8) ***************************************** (9) ********************************* (10) ****************************************** (11) ****************************************************************** ********** 3.3 Nortel's Obligations. Nortel shall pay *************************** ********** to Shiva for rights to manufacture the *************** and for reasonable consultation and training to assist Nortel with their initial manufacturing production run, as well as reasonable ongoing manufacturing support. Nortel will share with Shiva, product and quality improvement ideas as part of the ongoing process, as referenced in items 3.5 and 3.6, as well as include a comment such as "Access By Shiva" (to be determined by Shiva) in all ********** documentation, to ******************************* **********************************. In addition Nortel shall CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. pay Shiva a royalty, as defined in the royalty structure section 4.0 below, for the **************** to Nortel *************** directly, or via Nortel's ******************************. 3.4 Shiva Manufacturing Option. If Nortel is ********************** the **************************, the ******************************************* license fee shall **********. With Shiva's agreement, Nortel shall be ********************** the ************ Shiva ************** and Shiva's ********************************. Shiva has the right to ********** from *** *****************************. 3.5 Shiva Manufacturing Consulting Support. Shiva will provide Nortel with reasonable consultation and training to assist Nortel with their initial manufacturing product run at Nortel as well as reasonable ongoing manufacturing support. Nortel will share with Shiva, product and quality improvement ideas as part of the ongoing process. Reasonable consultation, training and ongoing manufacturing support are defined as follows: A total of ****************** of support will be provided to Nortel by Shiva ******************************************************************* to assist Nortel with their initial manufacturing production run, and will be effective with the signing of this Amendment. ***************************** ****************************************************************************. This *************** ongoing support related to changes resulting from the ECO/ECR process as well as Shiva's quarterly Manufacturing/Design review meetings. 3.6 Qualification Support. Nortel and Shiva agree to discuss proposed design and/or component changes, as well as share component sourcing information, on an ongoing basis. Nortel will be proactively included in Shiva's ECO/ECR process as well as Shiva's quarterly Manufacturing/Design review meetings. Major design discontinuities will require agreement between the parties and costs associated with the design discontinuities will be determined by the parties. Shiva will ******************************************************** (as listed in the document "Functional Specification for the Nortel AccessPort") for the ********************. Nortel will not generally be responsible for the associated costs. In those ************************* *********************************************************************** *********************************************************************** *********************************************************************** *********************************************************************** *************************. 4.0 Royalty Structure Nortel shall pay Shiva a royalty equivalent to a ****************** of *** ************* of the ******* price ************ of the product for volumes of ***************** units or greater, over a ****************** period, or a ********************************** of the *************** price of the product for volumes less than ************************ units, over a ****** ******* period. In each case, Nortel will pay a ******* of a ************* ******** royalty for each product within the *********** of the Agreement, or for the ********************* units (whichever comes first), if the *************** or *************** royalty is ************************. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ******** After the ********, or ****************** units, ************** ************* royalty shall apply with a************************* in the ********** and a ************************** in the *********************. Royalties for ****************** will be negotiated between the parties. A three months rolling forecast will be provided on a monthly basis (same as with **********) as well as a first year forecast for business planning purposes, independent of ***************** direction. Prior to Nortel manufacturing, Nortel will work with Shiva to purchase product/components directly from current Shiva suppliers, with the option to source from Nortel vendors of choice, with Shiva's prior agreement. In addition, Nortel and Shiva will discuss the options of sharing costs and sourcing of metal/ plastics components of tooling. Any component or overhead cost reductions will be passed through to Nortel. Royalties for Nortel's ********************* will be calculated *********** **********************************************************, e.g. royalties owed would be calculated ************************************************* ************************************************************************** *****************************. 5.0 Annual *************, Maintenance and Software Support 5.1 Maintenance and Support Shiva will provide ******** level support to Nortel, for the ************, similar to that described in Section 7 and Exhibit H of the Shiva/Nortel Agreement of May 15, 1995 for the ******* product. Nortel agrees to pay Shiva ********************************************* for maintenance and support of the *********, as described in Section 7 and Exhibit H of the Shiva/Nortel Agreement of May 15, 1995 for the ********* product, for the duration of this Agreement. During the term of any period for which Nortel has paid ************************************************, Shiva agrees to provide all Shiva software upgrades to Nortel ****************************** *******************. 5.2 ************************** Shiva will provide Nortel with a ********* of ************************** *************** and *****************************************************. Nortel agrees to pay Shiva *********************************************** *********************************. Nortel will be the **************** of Nortel ************ software to **************** (e.g., alpha trial, beta trial, early adopter trial, release version) ***************************** **************************************************************************** **************************************************************************** ***************************************************************************** **************************************************************************** ***************************************. 6.0 General Changes to Agreement. 6.1 Exhibit R. Exhibit R is added to the Agreement. Exhibit S. Exhibit S is added to the Agreement 6.2 Other Terms. Except as set forth above, all other terms and conditions of the Agreement remain unchanged.] IN WITNESS of this Second Amendment to the Agreement the parties have executed this document on the dates set forth below. SHIVA CORPORATION NORTHERN TELECOM LIMITED Signature:/s/ Cynthia M. Deysher Signature:/s/ John Ryan ---------------------- --------------------- Name: Cynthia M. Deysher Name: John Ryan Title: Senior Vice President, Title: Vice President/General Manager, Finance and Administration, Multimedia and Internet Solutions and CFO Enterprise Networks Signature:/s/ David Archibald ------------------- Name: David Archibald Title: VP and Deputy General Counsel CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit R (THE CONTENTS OF PAGES 1 - 9 OF EXHIBIT R CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit S (THE CONTENTS OF EXHIBIT S CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) EX-10.16 6 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit 10.16 Memorandum of Understanding This Memorandum of Understanding (MOU), effective as of December 23, 1996 between Shiva Corporation, (hereinafter "Shiva"), having executive offices 28 Crosby Drive, Bedford Massachusetts, 01730, U.S.A., and Northern Telecom Inc. on behalf of itself and its Affiliates, Subsidiaries, and for the benefit of Joint Venture partners (hereinafter "Nortel") having offices at 2221 Lakeside Blvd., Richardson, TX 75083. This MOU is intended by the parties to be used solely for the purpose of negotiating a new agreement which would supersede the existing agreement between the parties dated May 15, 1995. The new agreement will reflect the following items: a) The transition from a **************** payment schedule to a ************** payment model. b) Right to Manufacture and ******************* Distribution for ************ ************************************************* *********** into the ********** and ********** (herein referred to *********** *********** are defined as ************************* **************************************************************** ***************************************************************** **********************************************************. c) Right to Distribute Worldwide into the ***************** will be in accordance with the terms outlined in Section 5.1. d) Under this new agreement, the parties will make Joint Investments in product development. ***** investments will be directed toward ************************* while ****** investments will focus on **************************************************************. Rights to the resultant intellectual property is as described in Paragraph 4.3 of this MOU. The following sections of this MOU are legally binding on both parties; Sections 1.1, 1.4, 2.1.1, 2.1.2, 2.2.1, 2.2.2, 2.2.4, 2.3, 5.2. Any further agreement resulting from such negotiation is subjected to management and legal approval of both companies. Overall Objective: The ************************** and **************** ***** is in ****************************************************. The joint resources and skills, together with the ********************* of both companies ***************************************************. This new agreement allows for ***** to be **************************** ********************************************************************** ****************************************************. Intent: It is the intention of both parties to proceed in good faith negotiations for all activities and to conclude a definitive agreement of ************* term before January 31, 1997. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Points of Contact: Shiva: Bob Darabant Nortel: Micky Tsui Senior Director, Worldwide OEMs AVP, Internet Solutions MOU Terms and Conditions 1. **********************: 1.1 ****** grants ******** worldwide ***********************, whereby ************ is defined as ****************************************** ************************************** **************************** *******************************. ***************** will be ******* in the definitive agreement. Both parties agree to update **************** ************* on a quarterly basis to ********************* subject to mutually acceptable criteria. 1.2 ****** will, upon signing of this MOU **************************** ***********, where possible, ******************************************* **********, and will work with ********************************. This includes, but is not limited to, the ********************************** *****************************. The parties understand that *********** **************************************************************8. 1.3 In the event that *********************************************** ***************************************, ***** will *******************, where possible, with *********** and ********************************* *********************************************************************** ****************. 1.4 This ************ set forth in Section 1.1 may only be *********** subject to mutually agreed upon ********** performance measured against specific ********* metrics, which may *******************************, ********************************************************************** ***************************. The ******************* metrics will be established as part of the definitive agreement and will be reviewed and adjusted on a periodic basis. A notification period, which will be agreed upon in the definitive agreement, is required under any situation whereby this ***************************************. In the event the parties are unable to reach a definitive agreement, ******************** ************************************************************************ ************************************************************************ ********************************, will be due. 1.5 ***** agrees that the ******************************* will not, during the period of ************************************************ ********************************************************************** *********************************************************************** ********************************************************************** ***************************************************. ******* reserves the right to ********************************************************** *********************************************************************** *******************************. 2. Right to Manufacture and Royalties CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 2.1 Shiva grants Nortel worldwide manufacturing rights for the ******* *** and for ********************************************************** *********************. The **** fee covers all manufacturing rights for hardware and software associated with the product, transfer manufacturing know-how package, and assistance for manufacturing start- up in one Nortel manufacturing facility. Reasonable additional assistance will be provided with the ******************************* to be determined in the definitive agreement. Nortel has the right to manufacture in multiple facilities globally. 2.1.1 ******* agrees to a ************************* fee *********** ******* for the worldwide manufacturing rights of the ***********. This payment will be due ***************************************. Nortel further agrees to an additional ************* for paid up manufacturing rights to all ************************************* including, but not limited to, ********************************************. This ******* *********** fee will be paid ******* after the acceptance of the ** **************. This combined ************************************** ************* product, which **************************************** ********************************************************************** ******************. 2.1.2 Shiva grants Nortel worldwide manufacturing rights for ********* **************************************************** product ***** or ********************** and all *************************, for a ******* ************************. This product ***************************** *****. This *** payment will be due ******* after Nortel acceptance of the product. 2.2 Royalties 2.2.1 Shiva grants to Nortel worldwide distribution rights of the products listed in Section 2.1 for the ******************* as defined in Section 1.1 at a royalty rate of *********************** price of the product. 2.2.2 Upon signing of this MOU, Nortel agrees to ******************** *********************************************************************** *************************************************************. Nortel will issue purchase orders committing ******************************** ************************************************************************ This payment will give Nortel **************************************** ******************** described in Section 2.2.1 and ****************** **************************************** as described in Section 1.4. 2.2.3 In 1997 and prior to any notification of *********** of the **********************, Nortel agrees to *********************** of ************ on the *********************************** with payment terms of ***********. Payment of these ************************* is ******** upon ****** meeting its *****************************. These *************** will be further defined and scheduled as part of the definitive agreement. Purchase orders for these *********** will be issued prior to the end of each **********************. These payments will also give **************************************** as defined in Section 2.2.1 above. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 2.2.4 At the end of 1997, ****************************************** ****************************************************************. These *********************************************************************** **********************************. The amount applied will not exceed *****************************************************. In the event of notification that **************************************, there will be no *******************************************. In the event that total **********************************************, the difference will be calculated within *********************************** and ************* ********************** payment terms. 2.2.5 For product obtained by ****** for ***************, ********** will owe ********************** calculated on the ******************** ******************************************. These ****************** will be included in the ******************* as described in paragraph 2.2.4. 2.3 In the event the definitive agreement is not reached within the allotted time frame stated above, the ******************************* of ********* (referenced in paragraph 2.2.2) will fully apply to ******** ***************. These ************ will be ******* under the ******** ***************************** through ******************************* ******************************************** 2.4 ****** grants to ******* access to ***************************** ********** under the terms of this Agreement. During this period, rights for ***************, including *******, will be granted by ***** on substantially similar conditions as agreed to in this Amendment, subject to the mutual agreement of both parties. 2.5 ***** grants to ******* the right to ************** from ***** ******** at ******* plus handling and inventory services fee at ***** **********************. ******* agrees to provide a firm forecast for such orders subject to a mutually agreed forecast schedule and process. This process will be further defined in the definitive agreement. Shiva agrees to *************************************** ********* to Nortel. 3. Service ************************** 3.1 ****** agrees to ********* provided **************************** ***************** dedicated to support ****** global ***************** and ******. The intent of this ****** is to increase ****** sales into ****************************** worldwide. The ******* structure, functions, mode of operations between ****** and *** will be established as part of the definitive agreement. 3.2 ******* agrees to ***** the ***** of this ***** to ********* in *****, ** in *****, ** in *****, and to ** in *****. Only the first two ******** are ******** (***************** will be charged to ******, but not more than ***************** in ***** and **************** in *****, unless mutually agreed). *********** for ***************************** will be reviewed and approved in early ****. ******* will only **** the *********** incurred by this ******* 3.3 Shiva agrees to ************************************************ subject to the **********. ********* has right to review and approve CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. the ***************************** to this ***** for the sole purposes of ********************************************. These ************* will continue to be on *************** but ************** to *******. Shiva and *************** will be subjected to ************************** and **************************, as part of the definitive agreement. 4. R&D 4.1 ****** agrees, *****************, to ****** the ************ with ************************************* for a total of **************** in ****. The *************** will be based on specific ****************** which **************************** within the **************** and is agreed to by ******** 4.2 ****** agrees to ****************************** in ***** in R&D related to **************************************************** which also apply to the **************************. 4.3 As additional *********************, ***************** as described in paragraph 4.1, ********* shall receive the following: (a) rights to ***************************************************** **************************************, as required by *******; (b) a list of committed ****************************************** *************; (c) for those ****** that are specific to ************************** ******************************, at a minimum, at the time the agreement is terminated, each party will ***** the other party a ************************************************************** ************************************************************* ****************************, during the term of the agreement, Shiva agrees ************************************************* ******************************************************. The parties agree to determine the specific rights in the definitive agreement. 4.4 Shiva agrees to include ************************************* and ****************** as part of the ****************************. 4.5 Both parties agree to include ********************************* ********************** as part of definitive agreement. 5. Product Purchases 5.1 ******** has the option to purchase product from Shiva at the following **************************************** 5.1.1: ************************************ 5.1.2: ************************************************* ******************************************************* The equivalent of ******************************************* will be ******** to the **************************************** as described in Section 2.2.2 provided the ******************* does ***************** ****************************. CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 5.2 Upon signing of this MOU, ****** agrees to ********************* *********************************************************************** ********************************************************************* ******* also agrees to ********************************************** ********************************************************************** Shiva agrees to ****************************************************** ************************************************************************ **************** The terms of ************************, will be agreed to as a part of the definitive agreement, **************************** ******************************* shall apply with appropriate changes. 6. General 6.1 This agreement does not affect in any form the existing contract on ******** and ****************. 6.2 Services and Support: Shiva agrees to provide service and support levels *************************************, including but not limited to *****************************************************, and *******************************. Modifications to the current service and support agreement will be agreed to as part of the definitive agreement. 7. Co-Marketing: Nortel agrees to provide ********************** of ************* in the ******* product consistent with the *********** ********** concept. Label and art work to be mutually agreed to. 8. Termination: Both parties agree to address in the definitive agreement conditions and disposition of ******************************************************** **********************************************: -*********************************; -************************. 9. Disclosure 9.1 Disclosure by either party ************************************ **************************** will be made only pursuant to the terms and conditions of the ************************************************ **************************** 9.2 *************************************************************** ********************************************************************** *********************************************. This MOU shall remain in force and effect until January 31, 1997, or if canceled in writing by either party. Cancellation of this MOU shall not release both parties regarding sections: 1.1, 1.4, 2.1.1, 2.2.2, 2.2.1, 2.2.2, 2.2.4, 2.3, and 5.2. This MOU may only be extended by the mutual agreement of both parties. AGREED BY: SHIVA CORPORATION NORTHERN TELECOM INC. By: /s/ Woody Benson By: /s/ Richard Faletti - -------------------- ----------------------- Name: Woody Benson Name: Richard Faletti Title: Senior Vice President Title: Vice Presdient, NTI Date: 12/24/96 Date: 12/23/96 EX-10.17 7 Exhibit 10.17 Nortel Telephone: (408) 565-3635 (ESN 655) Fax: 408 565-3325 29 January, 1997 Shiva Corporation 28 Crosby Drive Bedford, Mass 01730 Attn.: Cynthia Deysher RE: Memorandum of Understanding dated December 23, 1996 Northern Telecom Inc. and Shiva Corporation agree that the Memorandum of Understanding made as of December 23, 1996, between Northern Telecom Inc. and Shiva Corporation is amended by changing the date "January 31, 1997" in (i) line 3 of the last paragraph of the second page and (ii) Section 9.2 line 1 of the second paragraph to read "February 28, 1997." If you agree with the foregoing please sign and return the enclosed duplicate of this letter on or before January 31, 1997. Regards, /s/ Ken Heffner Ken Heffner Vice President, Multimedia Solutions Northern Telecom Inc. 2221 Lakeside Blvd. Richardson, Texas 75082 To: Northern Telecom Inc. We agree. Shiva Corporation /s/ Frank Ingari _______________________________ Signature EX-11.1 8 Exhibit 11.1 SHIVA CORPORATION Computation of Net Income Per Share (1)
Year Ended -------------------------------------------- December 28, December 30, December 31, 1996 1995 1994 ----------- ----------- ------------ Weighted Average Common and Common Equivalent Shares: Weighted Average Common Shares Outstanding During the Period 28,424,797 25,079,951 12,829,790 Weighted Average Common Equivalent Shares 3,034,100 2,256,903 8,248,847 Dilutive Effect of Common and Common Equivalent Shares issued subsequent to October 7, 1993 (2) -- -- 1,866,284 ----------- ----------- ------------ 31,458,897 27,336,854 22,944,921 =========== =========== ============ Net Income (Loss) $16,841,000 $(4,852,000) $2,040,000 Primary Net Income (Loss) Per Share $ 0.54 $ (0.18) $ 0.09 - ---------------------- (1) Fully diluted net income (loss) per share has not been separately presented, as the amounts would not be materially different from primary net income (loss) per share. (2) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, certain common and common equivalent shares issued by the Company during the twelve months immediately preceding the initial filing of the registration statement relating to the Company's initial public offering have been included in the calculation of weighted average shares, using the treasury stock method and the initial public offering price, as if these shares were outstanding for all periods prior to the initial public offering.
EX-13.1 9 Exhibit 13.1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. Overview Founded in 1985, Shiva develops, manufactures, markets and supports a full line of digital and analog remote access products. The Company's products enable users and user sites at enterprises to connect with corporate information resources, on-line services and the Internet. The Company markets its products worldwide through distributors, systems integrators, value-added resellers and strategic partners that include Northern Telecom Limited ("Nortel"), IBM, Hewlett-Packard and Motorola. In August 1995, the Company acquired Spider Systems Limited ("Spider"), a leading digital internetworking company based in Edinburgh, UK, through the issuance of approximately 3,923,606 shares of its common stock (the "Spider Acquisition"). In June 1996, the Company issued approximately 691,587 shares of its common stock in exchange for all the outstanding shares of AirSoft, Inc. (the "AirSoft Acquisition"). AirSoft, Inc. ("AirSoft") designs, manufactures and sells performance enhancement software products. These products include PowerBurst(R), a remote node accelerator designed to improve the performance of file-system-based applications such as electronic mail, spreadsheets and word processors. The Spider Acquisition and the AirSoft Acquisition have been accounted for as poolings of interests, and therefore the consolidated financial information contained herein has been retroactively combined for all periods presented. See Notes 1 and 2 of Notes to Consolidated Financial Statements. The Company derives its revenues from remote access products and other communications products and services. Remote access products include the LanRover(R), LanRover Access Switch(TM), Shiva AccessPort(TM), ShivaIntegrator(R) and the NetModem(R) product lines. Other communications products and services include communications servers, third-party products, AppleTalk products, and communications software. The Company also provides a wide range of service offerings which include consulting, training and maintenance services. 18 Results of Operations The following table sets forth consolidated statement of operations data of the Company expressed as a percentage of revenues for the periods indicated:
Fiscal Years Percentage Change ---------------------- ------------------- 1996 1995 1994 1996 to 1995 to 1995 1994 ---------------------- ------------------- Revenues 100% 100% 100% 69% 46% Cost of revenues 42 41 43 69 41 ---- ---- ---- ---- ---- Gross profit 58 59 57 69 50 Operating expenses: Research and development 12 12 12 57 48 Selling, general and administrative 34 38 40 55 38 Merger expenses 1 12 -- (86) * ---- ---- ---- ---- ---- Total operating expenses 47 62 52 28 73 ---- ---- ---- ---- ---- Income (loss) from operations 11 (3) 5 * * Interest expense (income) (2) (1) 1 112 * ---- ---- ---- ---- ---- Income (loss) before income taxes 13 (2) 4 * * ---- ---- ---- ---- ---- Income tax provision 5 2 1 285 159 ---- ---- ---- ---- ---- Net income (loss) 8% (4)% 3% *% *% ==== ==== ==== ==== ==== * Percentages not meaningful.
Fiscal 1996 Compared to Fiscal 1995 Results of Operations Revenues. Revenues increased by 69%, to $200,119,000 in fiscal 1996, from $118,581,000 in fiscal 1995. Revenues from the Company's remote access products increased 107% to $174,084,000, or 87% of revenues, in fiscal 1996 from $83,924,000, or 71% of revenues, in fiscal 1995 primarily due to initial shipments of the LanRover Access Switch and higher unit shipments of the LanRover product line. Revenues from the LanRover Access Switch, introduced in the second quarter of fiscal 1996, were $59,015,000, and revenues from LanRover products were $89,588,000 and $62,892,000 in fiscal 1996 and 1995, respectively. These increases were partially offset by a 30% decline in revenues from the Company's other communications products. The Company anticipates that revenues from other communications products will continue to decline and will account for a decreasing percentage of revenue in future periods. Sales to OEM customers accounted for 22% of revenues in fiscal 1996, compared with 10% in 1995. Sales to one major OEM customer accounted for 14% of revenues in fiscal 1996. The Company provides its distributors and resellers with product return rights for stock balancing and product evaluation. Revenues were reduced by provisions for product returns of $13,421,000 and $7,410,000 in fiscal 1996 and fiscal 1995, respectively, representing 6% of gross revenues in each period. International revenues increased to $74,779,000, or 37% of revenues, in fiscal 1996, from $55,197,000, or 47% of revenues, in fiscal 1995. The percentage decrease in international revenues in fiscal 1996 was primarily due to increased revenues to the OEM channel which are classified as domestic. 19 Gross Profit. Gross profit decreased as a percentage of revenues to 58% in fiscal 1996, compared to 59% in fiscal 1995. This decrease was primarily attributable to increased revenues of remote access products to the OEM channel, which typically result in lower gross margins than the Company's other sales channels. The overall decrease was partially offset by a change in product mix towards the LanRover and the LanRover Access Switch, which carry higher gross margins than the Company's other products. Research and Development. Research and development expenses increased to $23,186,000 in fiscal 1996 from $14,787,000 in fiscal 1995, representing 12% of revenues in each period. The absolute increase in these expenses was primarily due to the hiring of additional research and development staff. Research and development expenses in fiscal 1996 related primarily to continued enhancement and development of the Company's remote access products, including the LanRover Access Switch, a high-end remote access concentrator, and the Shiva AccessPort, an ISDN client router. Customer-funded development costs reimbursed to the Company, which are reflected as an offset to research and development expenses, were $1,718,000 in fiscal 1996, compared to $955,000 in fiscal 1995. Capitalized software development costs were $1,186,000 in fiscal 1996, compared to $827,000 in fiscal 1995. The Company anticipates continued significant investment in research and development. Selling, General and Administrative. Selling, general and administrative expenses increased to $69,087,000 in fiscal 1996 from $44,662,000 in fiscal 1995. These expenses represented 34% and 38% of revenues in fiscal 1996 and 1995, respectively. The absolute increase in expenses was primarily due to worldwide expansion of the Company's sales, marketing and administrative operations necessary to support the Company's growth. Expenses as a percentage of revenues decreased due to revenues growing at a faster rate than expenses. The Company plans to further invest in its distribution channels in order to continue its global market penetration. Merger Expenses. In fiscal 1996, merger-related expenses of $1,987,000 were expensed in connection with the AirSoft Acquisition. Merger-related expenses included $1,675,000 of transaction costs for financial advisor, legal, regulatory, and accounting fees and other related expenses, and $312,000 of employee severance payments and other costs. In fiscal 1995, merger-related expenses of $13,986,000 were expensed in connection with the Spider Acquisition. Merger-related expenses included $6,275,000 of transaction costs for financial advisor, legal, regulatory, and accounting fees and other related expenses, $1,482,000 of employee severance payments, $2,644,000 of phantom stock compensation and $3,585,000 of integration costs, including elimination of duplicative assets, employee relocation and travel, and marketing costs related to the introduction of the combined entity. Interest Income and Expense. Interest income, net of interest expense, increased to $3,344,000 in fiscal 1996 from $1,574,000 in fiscal 1995 due to higher investment balances related to funds generated by the Company's secondary public offering in November 1995. Income Tax Provision. The Company's effective tax rate was 35% in fiscal 1996. The Company's effective tax rate differs from the combined federal and state statutory rates primarily due to the utilization of net operating loss carryforwards and the impact of tax-exempt interest income, partially offset by non-deductible merger expenses. In fiscal 1995 the Company had an income tax provision of $2,386,000, despite a pre-tax loss, primarily due to nondeductible merger costs incurred in connection with the Spider Acquisition. 20 Fiscal 1995 Compared to Fiscal 1994 Revenues. Revenues increased by 46%, to $118,581,000 in fiscal 1995 from $81,058,000 in fiscal 1994, primarily due to higher unit sales of the Company's products. Revenues from the Company's remote access products increased by 87%, to $83,924,000, or 71% of revenues in fiscal 1995 from $44,825,000, or 55% of revenues, in fiscal 1994, primarily due to higher revenues from the Company's LanRover and ShivaIntegrator products. These increases were partially offset by a 13% decline in revenues from the Company's other communications products. Sales to OEM customers accounted for 10% and 9% of revenues in fiscal 1995 and 1994, respectively. The Company provides its distributors and resellers with product return rights for stock balancing and product evaluation. Revenues were reduced by provisions for product returns of $7,410,000 in fiscal 1995 and $7,092,000 in fiscal 1994 representing 6% and 8% of gross revenues in fiscal 1995 and 1994, respectively. International revenues increased to $55,197,000, or 47% of revenues, in fiscal 1995 from $41,942,000, or 52% of revenues, in fiscal 1994. Gross Profit. Gross profit increased as a percentage of revenues to 59% in fiscal 1995, compared to 57% in fiscal 1994. This increase was primarily attributable to increased revenues from the Company's LanRover products, which carry higher gross margins than other communications products, partially offset by increased European sales of lower-priced products through large volume distributors. Research and Development. Research and development expenses increased to $14,787,000, or 12% of revenues, in fiscal 1995 from $9,972,000, or 12% of revenues, in fiscal 1994. The absolute increase in these expenses was primarily due to the hiring of additional research and development staff. Research and development expenses during fiscal 1995 related primarily to continued enhancements of the Company's remote access products, including the ShivaIntegrator product line and a new software release for its LanRover and NetModem product lines. Customer-funded development costs reimbursed to the Company and government-funded research and development grants, which are reflected as an offset to research and development expenses, were $955,000 in fiscal 1995, compared to $901,000 in fiscal 1994. Capitalized software development costs were $827,000 in fiscal 1995 compared with $293,000 in fiscal 1994. Selling, General and Administrative. Selling, general and administrative expenses increased to $44,662,000, or 38% of revenues, in fiscal 1995 from $32,427,000, or 40% of revenues, in fiscal 1994. The absolute increase in expenses was primarily due to expansion of the Company's worldwide sales and support operations, as the Company continued to build its distribution channels. Merger Expenses. In fiscal 1995, merger-related expenses of $13,986,000 were expensed in connection with the Spider Acquisition. Merger-related expenses include $6,275,000 of transaction costs for financial advisor, legal, regulatory, and accounting fees and other related expenses, $1,482,000 of employee severance payments, $2,644,000 of phantom stock compensation and $3,585,000 of integration costs, including elimination of duplicative assets, employee relocation and travel, and marketing costs related to the introduction of the combined entity. Interest Income and Expense. The Company had higher interest income in fiscal 1995, due to investment balances related to funds generated by the Company's public stock offerings in November 1995 and November 1994. Interest expense consists primarily of interest incurred on the Company's mortgage on its European headquarters and capitalized lease obligations. 21 Income Tax Provision. The Company had an income tax provision of $2,386,000 in fiscal 1995, despite a pre-tax loss, primarily due to nondeductible merger costs incurred in connection with the Spider Acquisition. The Company's effective tax rate was 31% in fiscal 1994. Foreign Currency Fluctuations A substantial portion of the Company's international revenues is denominated in currencies other than the U.S. dollar and is consequently subject to foreign exchange fluctuations. The net income impact of such fluctuations, however, is offset to the extent expenses of the Company in international operations are incurred in the same currencies as its revenues. Foreign currency fluctuations did not have a significant impact on the comparison of the results of operations for the periods presented. Liquidity and Capital Resources As of December 28, 1996, the Company had $72,067,000 of cash and cash equivalents and $35,035,000 of short-term investments. Working capital increased to $130,464,000 at December 28, 1996 from $109,376,000 at December 30, 1995. Net cash provided by operations totaled $19,552,000 in fiscal 1996. Net cash provided by operations in fiscal 1996 consisted primarily of net income adjusted for non-cash expenses including depreciation and amortization, and increased current liabilities, partially offset by increased accounts receivable and inventories. The increase in accounts receivable was due to increased revenue levels and increased days sales outstanding due in part to changes in the timing of product shipments where shipments occurred late in the quarter. The increase in inventories was in anticipation of fourth quarter sales that did not materialize and to support increased revenue levels over the prior year. Net cash provided by operations was $2,799,000 in fiscal 1995, despite a net loss and increased accounts receivable, due to increased current liabilities and non-cash expenses included in the net loss such as depreciation, amortization and certain merger expenses. The increase in accounts receivable was due to increased revenue levels. Net cash used by investing activities totaled $43,517,000 in fiscal 1996, compared to $16,993,000 in fiscal 1995. Investment activity in fiscal 1996 and 1995 consisted primarily of net purchases of short-term investments as well as property, plant and equipment to support the Company's growth. Net cash provided by financing activities, which consisted of proceeds from stock option exercises, partially offset by payments on long-term debt and capital lease obligations, totaled $3,595,000 in fiscal 1996. Net cash provided by financing activities was $72,174,000 in fiscal 1995, and consisted primarily of proceeds from the Company's secondary offering in November 1995, partially offset by payments on the Company's outstanding debt and capital lease obligations. The Company has a $5,000,000 unsecured revolving credit facility with a bank which expires in June 1997. Borrowings under the revolving credit facility bear interest at the bank's prime rate. The terms of the credit facility require the Company to maintain a minimum level of profitability and specified financial ratios. At December 28, 1996, available borrowings were reduced by outstanding letters of credit of $843,000 which expire at various dates in 1997. The Company had no borrowings outstanding under this line at December 28, 1996. The Company also has a foreign credit facility of approximately $1,695,000 of which approximately $1,259,000 was available at December 28, 1996. Available borrowings under this facility are decreased by the value of the outstanding debt payable to the European Coal and Steel Community Fund and 22 guarantees on certain foreign currency transactions. The terms of the foreign credit facility require the Company to maintain a minimum level of profitability and specified financial ratios. There were no borrowings outstanding under this foreign credit facility at December 28, 1996. The Company enters into forward exchange contracts to hedge against certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The forward exchange contracts have maturities that do not exceed one year. At December 28, 1996, the Company had outstanding forward exchange contracts to purchase $575,000 and to sell $8,380,000 in various foreign currencies which matured and settled on January 15, 1997. The Company believes that its existing cash and short-term investment balances, together with borrowings available under the Company's bank credit facilities, are sufficient to meet the Company's cash requirements for the foreseeable future. Recently Enacted Accounting Pronouncements In June 1996, the Financial Accounting Standards Board issued Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" (SFAS 125), which provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. SFAS 125 will be effective for the Company's fiscal year 1997. The Company has reviewed the implications of the statement, and based on its initial evaluation, believes that it will not have a material impact on the Company's financial position or results of operations upon adoption. Factors That May Affect Future Results From time to time, information provided by the company or statements made by its employees may contain "forward-looking" information which involve risks and uncertainties. In particular, statements contained in the Management's Discussion and Analysis of Financial Condition and Results of Operations which are not historical facts may be "forward-looking" statements. The Company's actual future results may differ significantly from those stated in any forward-looking statements. Factors that may cause such differences include, but are not limited to, the factors discussed below and the accuracy of the Company's internal estimates of revenue and operating expense levels. The Company is in the process of transitioning its relationship with Nortel to one in which Nortel is able to distribute certain of the Company's products to the telco market under a royalty-based arrangement. The new relationship may result in decreased Company product revenues and the loss of direct control over those market sectors that Nortel will supply with the Company's products. The Company's quarterly operating results may vary significantly from quarter to quarter depending on factors such as the timing of significant orders and shipments of its products, changes and delays in product development, new product introductions by the Company and its competitors, the mix of distribution channels through which the Company's products are sold and seasonal customer buying patterns. There can be no assurance that the Company will be able to continue its growth in revenues or sustain its profitability on a quarterly or annual basis. Revenues can be difficult to forecast due to the fact that the Company's sales cycle varies substantially depending upon market, distribution mechanism and end user customer. The Company's expense levels are based, in part, on its expectations as to future revenues. If revenue levels are below expectations, operating results may be adversely affected. In addition, the Company's distribution partners typically stock significant levels of inventory, and the Company's revenues may fluctuate based on the level of partner inventories in any particular quarter. 23 The Company's LanRover product is experiencing increased market competition which may require future pricing actions. The Company provides most of its distribution partners with product return rights for stock balancing or product evaluation and price protection rights. Stock balancing rights permit a return of products to the Company for credit against future product purchases, within specified limits. Product evaluation rights permit end- users to return products to the Company through the distribution partner from whom such products were purchased, within 30 days of purchase if such end-user is not fully satisfied. Price protection rights require the Company to grant retroactive price adjustments for inventories of the Company's products held by distribution partners if the Company lowers its prices for such products. There can be no assurance that the Company will not experience significant returns or price protection adjustments in the future or that the Company's reserves will be adequate to cover such returns and price reductions. The Company increasingly relies on sales of the LanRover Access Switch to achieve its revenue and profitability objectives. Sales of other communications products and other remote access products, including the LanRover product, did not meet the Company's expectations in 1996 due in part to increased competition. There can be no assurance that the Company will be successful in modifying current product offerings to increase sales of LanRover products. The market for the Company's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. The Company's future success will depend on its ability to enhance its existing products and to introduce new products and services to meet and adapt to changing customer requirements and emerging technologies. The Company's success in accomplishing development objectives depends in large part upon its ability to attract and retain highly skilled technical personnel including, in particular, management personnel in the areas of research and development and technical support. Competition for such personnel is intense. There can be no assurance that Shiva will be successful in attracting and retaining the personnel it requires to accomplish its objectives. Delays in new product development or the failure of new products to achieve market acceptance could have a material adverse effect on the Company's operating results. In addition, there can be no assurance that the Company will be successful in identifying, developing, manufacturing or marketing new product or service offerings or enhancing its existing offerings. The Company operates in a highly competitive market that is characterized by an increasing number of well-funded competitors from diverse industry sectors, including but not limited to suppliers of software, modems, terminal servers, routers, hubs, data communications products and companies offering remote access solutions based on emerging technologies such as switched digital telephone services, remote access service offerings by telephony providers via telephone networks and other providers through public networks such as the Internet. Increased competition could result in price reductions and loss of market share which would adversely affect the Company's revenues and profitability. There can be no assurance that the Company will be able to continue to compete successfully with new or existing competitors. The Company does business worldwide, both directly and via sales to United States-based original equipment manufacturers, who sell such products internationally. Global and/or regional economic factors and potential changes in laws and regulations affecting the Company's business, including without limitation, communications regulatory standards, safety and emissions control standards, currency exchange rate fluctuations, changes in monetary policy and tariffs, difficulties in enforcement of intellectual property rights and political uncertainties, could have an adverse impact on the Company's financial condition or future results of operations. 24 The market price of the Company's securities could be subject to wide fluctuations in response to quarter-to-quarter variations in operating results, changes in earnings estimates by analysts, and market conditions in the industry, as well as general economic conditions and other factors external to the Company. Contingencies On January 17, 1997, a complaint, Abraham Schwartz and Norman Marcus v. Shiva Corporation, was filed against the Company in the Superior Court of the State of California for the County of Los Angeles. The plaintiffs purport to bring this action on behalf of a class of purchasers of the Company's common stock between September 17, 1996 and January 7, 1997. The Complaint asserts that the Company made false or misleading statements in violation of state and federal law, including: state law negligent misrepresentation, fraud, and deceit, California Corporation Code Chapters 1507, 25400, and 25500, California Civil Code Chapters 1709-10, and Section 12(2) of the Securities Act of 1933, 15 U.S.C. Chapter 771(2). On behalf of the purported class, the plaintiffs seek compensatory damages, treble damages under California law, punitive damages under California law, punitive damages, attorneys' fees, costs and interest. On February 24, 1997, the Company filed a demurrer to the complaint. The Company believes the claim to be without merit and intends to vigorously defend against the action. The action is in its earliest stages and the Company is unable to determine at this time the potential liability, if any. 25 SHIVA CORPORATION Consolidated Balance Sheet (In thousands, except share related data)
December 28, December 30, 1996 1995 -------- -------- Assets Current assets: Cash and cash equivalents $ 72,067 $ 93,203 Short-term investments 35,035 9,125 Accounts receivable, net of allowances of $10,347 at December 28, 1996 and $5,252 at December 30, 1995 39,904 22,982 Inventories 17,958 7,846 Prepaid expenses and other current assets 6,022 2,351 -------- -------- Total current assets 170,986 135,507 Property, plant and equipment, net 23,855 12,965 Deferred income taxes 1,372 548 Other assets 1,837 1,103 -------- -------- Total assets $198,050 $150,123 ======== ======== Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt and capital lease obligations $ 367 $ 700 Accounts payable 17,130 9,032 Accrued compensation and benefits 5,871 5,367 Accrued expenses 13,748 7,509 Deferred revenue 3,406 3,523 -------- -------- Total current liabilities 40,522 26,131 Long-term debt and capital lease obligations 122 452 Other long-term liabilities -- 401 Deferred income taxes 572 235 -------- -------- Total liabilities 41,216 27,219 -------- -------- Commitments and Contingencies (Notes 13 and 14) Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized at December 28, 1996 and December 30, 1995, none issued -- -- Common stock, $.01 par value; 100,000,000 and 50,000,000 shares authorized, 28,891,216 and 27,960,580 shares issued and outstanding at December 28, 1996 and December 30, 1995, respectively 289 280 Additional paid-in capital 149,564 133,457 Unrealized gain on investments 175 137 Cumulative translation adjustment 349 (586) Retained earnings (accumulated deficit) 6,457 (10,384) -------- -------- Total stockholders' equity 156,834 122,904 -------- -------- Total liabilities and stockholders' equity $198,050 $150,123 ======== ======== The accompanying notes are an integral part of the consolidated financial statements.
26 Shiva Corporation Consolidated Statement of Operations (In thousands, except per share data)
Year Ended December 28, December 30, December 31, 1996 1995 1994 ------------ ----------- ------------ (Fiscal 1996) (Fiscal 1995) (Fiscal 1994) ------------ ----------- ------------ Revenues $200,119 $118,581 $81,058 Cost of revenues 83,177 49,186 34,800 ------------ ----------- ------------ Gross profit 116,942 69,395 46,258 ------------ ----------- ------------ Operating expenses: Research and development 23,186 14,787 9,972 Selling, general and administrative 69,087 44,662 32,427 Merger expenses 1,987 13,986 --- ------------ ----------- ------------ Total operating expenses 94,260 73,435 42,399 ------------ ----------- ------------ Income (loss) from operations 22,682 (4,040) 3,859 Interest income 4,139 2,279 224 Interest and other expense (795) (705) (1,122) ------------ ----------- ------------ Income (loss) before income taxes 26,026 (2,466) 2,961 Income tax provision 9,185 2,386 921 ------------ ----------- ------------ Net income (loss) $ 16,841 $ (4,852) $ 2,040 ============ =========== ============ Net income (loss) per share $ 0.54 $ (0.18) $ 0.09 ============ =========== ============ Shares used in computing net income (loss) per share 31,459 27,337 22,945 ============ =========== ============ The accompanying notes are an integral part of the consolidated financial statements.
27 Shiva Corporation Consolidated Statement of Changes in Stockholders Equity (In thousands, except share related data)
Convertible Preferred Stock Common Stock --------------------- ----------------- Number of Number of Par Shares Amount Shares Value --------- ------ --------- ----- Balance At January 1, 1994 4,621,294 $6,174 11,268,265 $113 Exercise of Class C convertible preferred stock warrants 409,836 2,000 -- -- Issuance of common stock to officer -- -- 177,778 2 Issuance of common stock -- -- 396,608 4 Initial public offering, net of stock issuance costs of $1,032 -- -- 4,130,266 41 Conversion of preferred stock (5,031,130) (8,174) 7,719,536 77 Exercise of stock options -- -- 785,634 8 ESOP transactions, net -- -- -- -- Tax benefit related to stock options -- -- -- -- Currency translation adjustments -- -- -- -- Net income -- -- -- -- Dividends paid -- -- -- -- --------- ------ --------- ----- Balance at December 31, 1994 -- -- 24,478,087 245 Exercise of stock options -- -- 1,117,557 11 Issuance of common stock in settlement of dividend payable -- -- 20,014 -- Issuance of common stock in settlement of phantom stock plan -- -- 31,462 1 Issuance of common stock under employee stock purchase plan -- -- 21,582 -- Secondary public offering, net of stock issuance costs of $583 -- -- 2,291,878 23 Tax benefit related to stock options -- -- -- -- Unrealized gain on investments -- -- -- -- Currency translation adjustments -- -- -- -- Net loss -- -- -- -- Elimination of Spider net income for the three-month period ended March 31, 1995 -- -- -- -- --------- ------ --------- ----- Balance at December 30, 1995 -- -- 27,960,580 280 Exercise of stock options -- -- 899,048 9 Issuance of common stock under employee stock purchase plan -- -- 31,588 -- Tax benefit related to stock options -- -- -- -- Unrealized gain on investments -- -- -- -- Currency translation adjustments -- -- -- -- Net income -- -- -- -- --------- ------ --------- ----- Balance at December 28, 1996 -- $ -- 28,891,216 $289 ========= ====== ========= ===== The accompanying notes are an integral part of the consolidated financial statements.
Shiva Corporation Consolidated Statement of Changes in Stockholders' Equity (In thousands, except share related data)
Additional Unrealized Cumulative Paid-In gain on translation capital investments adjustment ---------- ----------- ----------- Balance At January 1, 1994 $ 6,804 $ -- $ (897) Exercise of Class C convertible preferred stock warrants -- -- -- Issuance of common stock to officer 998 -- -- Issuance of common stock 4,547 -- -- Initial public offering, net of stock issuance costs of $1,032 27,737 -- -- Conversion of preferred stock 8,097 -- -- Exercise of stock options 644 -- -- ESOP transactions, net -- -- -- Tax benefit related to stock options 448 -- -- Currency translation adjustments -- -- 429 Net income -- -- -- Dividends paid -- -- -- ---------- ----------- ----------- Balance at December 31, 1994 49,275 -- (468) Exercise of stock options 1,736 -- -- Issuance of common stock in settlement of dividend payable 406 -- -- Issuance of common stock in settlement of phantom stock plan 2,283 -- -- Issuance of common stock under employee stock purchase plan 314 -- -- Secondary public offering, net of stock issuance costs of $583 76,115 -- -- Tax benefit related to stock options 3,328 -- -- Unrealized gain on investments -- 137 -- Currency translation adjustments -- -- (118) Net loss -- -- -- Elimination of Spider net income for the three-month period ended March 31, 1995 -- -- -- ---------- ----------- ----------- Balance at December 30, 1995 133,457 137 (586) Exercise of stock options 3,516 -- -- Issuance of common stock under employee stock purchase plan 772 -- -- Tax benefit related to stock options 11,819 -- -- Unrealized gain on investments -- 38 -- Currency translation adjustments -- -- 935 Net income -- -- -- ---------- ----------- ----------- Balance at December 28, 1996 $149,564 $175 $ 349 ========== =========== =========== The accompanying notes are an integral part of the consolidated financial statements.
Shiva Corporation Consolidated Statement of Changes in Stockholders' Equity (In thousands, except share related data)
Retained Unearned earnings Total ESOP (accumulated stockholders' compensation deficit) equity ------------ ------------- ------------- Balance At January 1, 1994 $ -- $(6,122) $ 6,072 Exercise of Class C convertible preferred stock warrants -- -- 2,000 Issuance of common stock to officer -- -- 1,000 Issuance of common stock -- -- 4,551 Initial public offering, net of stock issuance costs of $1,032 -- -- 27,778 Conversion of preferred stock -- -- -- Exercise of stock options -- -- 652 ESOP transactions, net (305) -- (305) Tax benefit related to stock options -- -- 448 Currency translation adjustments -- -- 429 Net income -- 2,040 2,040 Dividends paid -- (551) (551) ------------ ------------- ------------- Balance at December 31, 1994 (305) (4,633) 44,114 Exercise of stock options -- -- 1,747 Issuance of common stock in settlement of dividend payable -- -- 406 Issuance of common stock in settlement of phantom stock plan 305 -- 2,589 Issuance of common stock under employee stock purchase plan -- -- 314 Secondary public offering, net of stock issuance costs of $583 -- -- 76,138 Tax benefit related to stock options -- -- 3,328 Unrealized gain on investments -- -- 137 Currency translation adjustments -- -- (118) Net loss -- (4,852) (4,852) Elimination of Spider net income for the three-month period ended March 31, 1995 -- (899) (899) ------------ ------------- ------------- Balance at December 30, 1995 -- (10,384) 122,904 Exercise of stock options -- -- 3,525 Issuance of common stock under employee stock purchase plan -- -- 772 Tax benefit related to stock options -- -- 11,819 Unrealized gain on investments -- -- 38 Currency translation adjustments -- -- 935 Net income -- 16,841 16,841 ------------ ------------- ------------- Balance at December 28, 1996 $ -- $ 6,457 $156,834 ============ ============= ============= The accompanying notes are an integral part of the consolidated financial statements.
28 Shiva Corporation Consolidated Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (In thousands)
Year Ended --------------------------------------- December 28, December 30, December 31, 1996 1995 1994 ------------ ------------ ----------- (Fiscal 1996) (Fiscal 1995)(Fiscal 1994) Cash flows from operating activities Net income (loss) $16,841 $(4,852) $2,040 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Merger expenses -- 3,766 -- Depreciation and amortization 6,968 3,756 2,716 Deferred income taxes (2) (811) (336) Changes in assets and liabilities: Accounts receivable (15,675) (7,906) (3,496) Inventories (9,804) (2,023) (865) Prepaid expenses and other current assets 391 (67) (330) Accounts payable 7,585 122 1,750 Accrued compensation and benefits 360 2,444 601 Accrued expenses 13,434 6,548 2,011 Deferred revenue (134) 1,846 804 Other long-term liabilities (412) (24) (23) ------------ ------------ ----------- Net cash provided by operating activities 19,552 2,799 4,872 ------------ ------------ ----------- Cash flows from investing activities Purchase of property, plant and equipment (16,089) (7,031) (3,300) Capitalized software development costs (1,183) (827) (293) Purchases of short-term investments (34,136) (11,188) -- Proceeds from maturities of short-term investments 8,264 2,200 -- Change in other assets (373) (147) (173) ---------- ------------ --------- Net cash used by investing activities (43,517) (16,993) (3,766) ------------ ------------ ----------- Cash flows from financing activities Net repayments under short-term debt -- (1,885) (1,213) Proceeds from long-term debt -- -- 615 Principal payments on long-term debt and capital lease obligations (702) (4,075) (1,080) Proceeds from issuance of convertible preferred stock, net -- -- 2,000 Proceeds from issuance of common stock, net -- 76,138 33,328 Proceeds from exercise of stock options 4,297 2,054 652 Dividends paid -- (58) (235) ------------ ------------ --------- Net cash provided by financing activities 3,595 72,174 34,067 --------- ------------ --------- Effects of exchange rate changes on cash and cash equivalents (766) 153 72 ------------ ------------ --------- Net increase (decrease) in cash and cash equivalents (21,136) 58,133 35,245 Cash and cash equivalents, beginning of period 93,203 36,068 823 Elimination of Spider net cash activity for the three months ended March 31, 1995 -- (998) -- ------------ ------------ --------- Cash and cash equivalents, end of period $72,067 $93,203 $36,068 ============ ============ ========= Supplemental disclosure of cash flow information Interest paid $ 195 $ 748 $ 1,127 Income taxes paid $ 471 $ 143 $ 366 Supplemental disclosure of noncash financing activities Issuance of common stock in settlement of dividend payable $ -- $ 406 $ -- The accompanying notes are an integral part of the consolidated financial statements.
29 SHIVA CORPORATION Notes to Consolidated Financial Statements 1. Nature of Business And Summary of Significant Accounting Policies Shiva Corporation (the "Company") is a leading provider of mission-critical remote access solutions that enable users to connect with corporate information resources, on-line services, and the Internet. The Company markets its products worldwide primarily through distributors, systems integrators, resellers and original equipment manufacturers. A summary of the Company's significant accounting policies follows: Fiscal Year The Company's fiscal year ends on the Saturday closest to December 31. Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The consolidated financial information contained herein include the accounts of Spider Systems Limited ("Spider") and AirSoft, Inc. ("AirSoft") for all periods presented (see Note 2). Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition Revenue from product sales is recognized upon shipment provided that no significant Company obligations remain and collection of the related receivable is probable. The Company provides most of its distributors and resellers with price protection rights and return rights for stock rotation or product evaluation. An allowance for estimated future returns is recorded at the time revenue is recognized based on the Company's return policies and historical experience. Although the Company believes it has adequate reserves to cover product returns and price protection rights, there can be no assurance that the Company will not experience significant returns or price protection adjustments in the future or that such reserves will be adequate to cover such returns and price protection rights. Revenue from technical support and product maintenance contracts is deferred and recognized ratably over the period the services are performed. The Company provides a one-year warranty on hardware products and a ninety-day warranty on software media. A provision is made at the time of sale for product warranty costs. The Company has historically provided customers with a variety of technical support services, including free services which it is not contractually obligated to provide. A provision is made at the time of sale for the cost of such free services. Cash Equivalents and Short-Term Investments The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company invests its excess cash in U.S. Treasury securities, municipal securities, money market funds of major financial institutions, high-grade commercial paper and time deposits that are subject to minimal credit and market risk. All of the Company's cash equivalents and short-term investments are recorded at fair value and classified as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's investments at December 28, 1996 and December 30, 1995 include unrealized gains of $175,000 and $137,000, 30 respectively, recorded as a separate component of stockholders' equity. The Company's short-term investments at December 28, 1996 have various maturity dates through 1998. Realized gains or losses on the sale of securities are calculated using the specific identification method. There were no such realized gains or losses in fiscal 1996 or 1995. Concentration of Credit Risk Financial instruments which potentially expose the Company to concentrations of credit risk include accounts receivable which are primarily due from distributors, resellers and OEM customers throughout North America and Europe. The Company performs ongoing evaluations of customers' financial condition and, generally, does not require collateral. In addition, the Company maintains reserves for potential credit losses, and such losses, in the aggregate, have not exceeded management expectations. At December 28, 1996, one customer accounted for 19% of the accounts receivable balance. Financial Instruments The carrying amounts of the Company's financial instruments, which include cash, cash equivalents and short-term investments, accounts receivable, accounts payable, long-term debt and capital lease obligations approximate their fair value at December 28, 1996, and December 30, 1995. Forward Foreign Exchange Contracts The Company enters into forward foreign exchange contracts as a hedge against exposure to fluctuations in exchange rates associated with certain transactions denominated in foreign currencies, including intercompany and trade accounts receivable and payable, and does not use them for trading purposes. The contracts are marked to market with gains and losses, not material in amount, recognized currently in interest and other expense in the accompanying financial statements and generally offset exchange gains or losses on the related transactions. Cash flows from the contracts are classified as cash flows from operating activities. Exposure to credit risk for these contracts is minimal since the counterparties are major financial institutions, and is generally limited to the unrealized gains on such contracts should any counterparties fail to perform as contracted. Exposure to market risk is limited to movements in currency rates. At December 28, 1996, the Company had outstanding forward exchange contracts to purchase $575,000 and to sell $8,380,000 in various foreign currencies which matured and settled on January 15, 1997. The fair value of outstanding forward exchange contracts approximates the original value due to the relatively short terms, generally less than three months. Inventories Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. The market for the Company's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. There can be no assurance that products or technologies developed by others will not make the Company's inventories obsolete. The Company is currently dependent on two subcontractors for the manufacture of significant portions of its products. Although the Company believes that there are a limited number of other qualified subcontract manufacturers for its products, a change in subcontractors could result in delays or reductions in product shipments. In addition, certain components of the Company's products are only available from a limited number of suppliers. The inability to obtain sufficient key components as required could also result in delays or reductions in product shipments. Such delays or reductions could have an adverse effect on the Company's results of operations. Property, Plant and Equipment Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Equipment held under capital leases is stated at the lower of the fair market value of the equipment or the present value of the minimum lease payments at 31 the inception of the leases and is amortized on a straight-line basis over the shorter of the lives of the related assets or the term of the leases. Maintenance and repair costs are expensed as incurred. Upon sale or retire- ment of property, plant and equipment, the applicable cost of the disposed asset and the related accumulated depreciation are eliminated. Any resulting gains or losses are reflected in results of operations. Research and Development and Capitalized Software Development Costs Research and development costs, other than certain software development costs, are charged to expense as incurred. Software development costs incurred subsequent to the establishment of technological feasibility, and prior to general release of the product to the public, are capitalized and amortized to cost of sales on a straight-line basis over the estimated useful lives of the related products, generally eighteen to thirty-six months. It is reasonably possible that the remaining estimated useful lives of the related products could be reduced in the future due to competitive pressures. Unamortized software development costs of $1,134,000 and $703,000 are included in other assets at December 28, 1996 and December 30, 1995, respectively. Amortization expense was $777,000, $370,000 and $310,000 in fiscal 1996, 1995 and 1994, respectively. The Company receives fees under product development contracts with certain customers. Product development fees are recorded as a reduction of research and development costs as work is performed pursuant to the related contracts and defined milestones are attained. Losses, if any, are provided for at the time that management determines that development costs will exceed related fees. Payments received under product development contracts prior to the completion of the related work and attainment of milestones are recorded as deferred liabilities. In fiscal 1996, 1995 and 1994 the Company recorded product development fees of $1,718,000, $955,000 and $766,000, respectively, and incurred development costs of $922,000, $1,135,000 and $820,000, respectively, under such contracts. Advertising Costs Advertising costs, other than certain direct-response advertising costs, are charged to expense as incurred. The Company has not incurred significant costs associated with direct-response advertising in fiscal 1996, 1995, and 1994, and there were no capitalized advertising costs at December 28, 1996, or December 30, 1995. Advertising costs were $3,177,000, $3,042,000, and $2,589,000 in fiscal 1996, 1995, and 1994, respectively. Income Taxes The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes", which is an asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences, utilizing current tax rates, of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for the estimated future tax effects of deductible temporary differences and tax operating loss and credit carryforwards. Deferred income tax expense represents the change in the net deferred tax asset and liability balances. Stock-based Compensation The Company accounts for stock-based compensation in accordance with Accounting Principles Board Opinion No. 25 (APB No. 25), "Accounting for Stock Issued to Employees." Since it is the Company's policy to grant options with an exercise price equal to the quoted market price of the underlying stock on the grant date, no compensation cost has been recognized for its stock option and employee stock purchase plans. In January 1996, the Company adopted the disclosure requirements of Statement of Financial Accounting Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation." (See Note 10). 32 Foreign Currency Translation Financial statements of international subsidiaries, where the local currency is the functional currency, are translated using period-end exchange rates for assets and liabilities and at average rates during the period for results of operations. The resulting foreign currency translation adjustments are included as a separate component of stockholders' equity. For international subsidiaries where the functional currency is other than the local currency, monetary assets and liabilities are translated using period-end exchange rates, non-monetary assets and liabilities are translated at historical rates and results of operations are translated at average rates for the period. The resulting foreign currency translation adjustments are included in interest and other expense in the accompanying financial statements. Gains or losses resulting from foreign currency translation were immaterial in fiscal 1996, 1995, and 1994. Net Income (Loss) Per Share Net income per share is calculated based on the weighted average number of common shares and common equivalent shares assumed outstanding during the period. Net loss per share excludes common equivalent shares because the effect is antidilutive. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, certain common and common equivalent shares issued by the Company during the twelve months immediately preceding the initial filing of the registration statement relating to the Company's initial public offering have been included in the calculation of weighted average shares, using the treasury stock method and the initial public offering price, as if these shares were outstanding for all periods prior to the initial public offering. 2. Business Combinations In June 1996, the Company issued approximately 691,587 shares of common stock in exchange for all outstanding shares of AirSoft (the "AirSoft Acquisition") in a business combination accounted for as a pooling of interests. AirSoft designs, develops, manufactures and sells performance enhancement software products. The consolidated financial statements for all periods presented have been retroactively combined to reflect the AirSoft Acquisition. No adjustments to conform accounting methods were required; however, certain amounts have been reclassified with regard to the presentation of the financial information of the companies. The following information shows revenue and net income (loss) for the separate companies for the periods preceding the AirSoft Acquisition:
Year Ended Three Months Ended ------------------------------------------------------- December 30, December 31, March 30, 1995 1994 1996 ------------ ----------- ------------------ (Fiscal 1995) (Fiscal 1994) (unaudited) Revenues: Shiva $117,721 $80,971 $42,513 AirSoft 860 87 796 ------------ ----------- ------------------ $118,581 $81,058 $43,309 Net income (loss): Shiva ($2,879) $3,881 $ 4,366 AirSoft (1,973) (1,841) (27) ------------ ----------- ------------------ ($4,852) $2,040 $ 4,339 ============ =========== ==================
Merger-related expenses of $1,987,000 were expensed upon consummation of the AirSoft Acquisition in the quarter ended June 29, 1996. Merger-related expenses include $1,675,000 of transaction costs for financial advisor, legal, regulatory, and accounting fees and other related expenses, and $312,000 of employee severance payments and other costs. 33 In August 1995, the Company issued approximately 3,923,606 shares of common stock in exchange for all outstanding shares of Spider (the "Spider Acquisition") in a business combination accounted for as a pooling of interests. Spider is a digital internetworking company based in Edinburgh, UK which designs, develops, manufactures and sells advanced network access hardware and software products. The consolidated financial statements for all periods presented have been retroactively combined to reflect the Spider Acquisition. Spider's fiscal year end of March 31 has been changed to conform to the Company's fiscal year end. Spider's results of operations for the year ended March 31, 1995 have been combined with the Company's results of operations for the year ended December 31, 1994. The results of operations for fiscal 1995 are for the twelve months ended December 30, 1995, for both Shiva and Spider. Spider's unaudited results of operations for the three months ended March 31, 1995 (including revenues, operating income, and net income of $12,592,000, $1,350,000 and $899,000 respectively) have been included in the combined results of operations for fiscal 1994 and 1995. Therefore, Spider's net income for the three-month period ended March 31, 1995 has been eliminated from stockholders' equity. Merger-related expenses of $13,986,000 were expensed upon consummation of the Spider Acquisition in the quarter ended September 30, 1995. Merger-related expenses include $6,275,000 of transaction costs for financial advisor, legal, regulatory and accounting fees and other related expenses, $1,482,000 of employee severance payments, $2,644,000 of phantom stock compensation and $3,585,000 of integration costs, including elimination of duplicative assets, employee relocation and travel, and marketing costs related to the introduction of the combined entity. 3. Cash, Cash Equivalents and Short-Term Investments Cash, cash equivalents and short-term investments consist of the following:
(In thousands) December 28, 1996 Amortized Unrealized Cost Gain Market Value --------- ---------- ------------ Cash and cash equivalents: Municipal securities $ 48,204 $ 16 $ 48,220 Money market funds 6,921 -- 6,921 Cash held in banks 16,926 -- 16,926 --------- ---------- ------------ Total cash and cash equivalents 72,051 16 72,067 Short-term investments: Municipal securities 34,876 159 35,035 --------- ---------- ------------ Total cash, cash equivalents and short-term investments $ 106,927 $ 175 $ 107,102 ======== ========== ============ Amortized Unrealized December 30, 1995 Cost Gain Market Value --------- ---------- ------------ Cash and cash equivalents: Money market funds $ 75,382 $ -- $ 75,382 Cash held in banks 16,825 -- 16,825 Commercial paper 996 -- 996 Total cash and cash equivalents 93,203 -- 93,203 Short-term investments: U.S. Treasury securities 8,988 137 9,125 Total cash, cash equivalents and short-term investments $ 102,191 $ 137 $ 102,328 ========= ======== =========
34 4. Inventories Inventories consist of the following:
(In thousands) December 29, 1996 December 30, 1995 ----------------- ----------------- Raw materials $ 6,218 $3,137 Work-in-process 1,506 1,037 Finished goods 10,234 3,672 ----------------- ----------------- $17,958 $7,846 ================= =================
5. Property, Plant and Equipment Property, plant and equipment consist of the following:
Useful life December 28, December 30, (In thousands) (in years) 1996 1995 ----------- ----------- ------------ Land $ 339 $ 310 Buildings 50 4,301 3,801 Furniture and fixtures 5 3,589 2,395 Machinery and equipment 3-5 25,288 17,009 Leasehold improvements Lease Term 2,461 494 ----------- ------------ 35,978 24,009 Less - Accumulated depreciation and amortization 12,123 11,044 ----------- ------------ $23,855 $12,965 =========== ============
Furniture and fixtures include equipment under capital leases of $170,000 at December 30, 1995. Machinery and equipment include equipment under capital leases of $206,000 at December 28, 1996 and $2,004,000 at December 30, 1995. Accumulated amortization related to equipment under capital leases totals $153,000 and $1,889,000 at December 28, 1996, and December 30, 1995, respectively. Amortization of equipment under capital leases is included in depreciation expense. In fiscal 1996, the Company disposed of approximately $5,474,000 in property and equipment. The resulting loss on these disposals was not material. 6. Accrued Expenses Accrued expenses consist of the following:
December 28, December 30, (In thousands) 1996 1995 ------------ ------------ Accrued sales and marketing expenses $ 6,360 $2,265 Other accrued expenses 7,388 5,244 ------------ ------------ $13,748 $7,509 ============ ============
7. Debt Short-term Debt Under the terms of a credit agreement (the "Credit Agreement") with a U.S. bank, the Company has a $5,000,000 unsecured revolving credit facility (the "Revolver") which bears interest at the bank's prime rate. At December 28, 1996, available borrowings were reduced by outstanding letters of credit of $843,000 related to certain office leases. These letters of credit expire at various dates through 1997. While the Company may repay all or a portion of 35 the Revolver borrowings at any time, any outstanding principal must be repaid in full by June 1997. The terms of the Credit Agreement require the Company to maintain a minimum level of profitability and specified financial ratios. There were no borrowings outstanding under the Revolver at December 28, 1996 or December 30, 1995. The Company also has a foreign credit facility secured by all assets of Shiva Europe Limited of approximately $1,695,000, of which $1,259,000 was available at December 28, 1996. Available borrowings under this facility are decreased by the value of the outstanding debt payable to the European Coal and Steel Community Fund and guarantees on certain foreign currency and other transactions. Borrowings under the foreign credit facility bear interest at the bank's prime rate plus 2.5% (8.5% at December 28, 1996). The terms of the foreign credit facility require the Company to maintain a minimum level of profitability and specified financial ratios. There were no borrowings outstanding under the foreign credit facility at December 28, 1996. Long-Term Debt and Capital Lease Obligations Long-term debt and capital lease obligations consist of the following:
December 28, December 30, (In thousands) 1996 1995 ----------- ------------ Capital lease obligations at rates of 11.4% to 14.3%, secured by certain equipment; expiring at various dates through July 1998 $ 65 $378 Mortgage loans: European Coal and Steel Community Fund ("ECSC") Loan A payable in semi-annual installments of $97 plus interest at 8.5%, due March 1997 106 290 Loan C payable in semi-annual installments of $97 plus interest at 10.0%, due January 1998 318 484 ----------- ------------ 489 1,152 Less - Current portion 367 700 ----------- ------------ $122 $452 =========== ============
The ECSC mortgage loans are secured by the Company's European headquarters property in Edinburgh, U.K. 8. Income Taxes The components of income (loss) before income taxes are as follows:
Year Ended --------------------------------------------- December 28, December 30, December 31, (In thousands) 1996 1995 1994 ------------ ------------ ------------ (Fiscal 1996) (Fiscal 1995) (Fiscal 1994) ------------ ------------ ------------ Domestic $22,906 $ 2,387 $1,113 Foreign 3,120 (4,853) 1,848 ------------ ------------ ------------ $26,026 $(2,466) $2,961 ============ ============ ============
36 The components of the income tax provision are as follows:
(In thousands) Year Ended -------------------------------------------- December 28, December 30, December 31, 1996 1995 1994 ------------ ------------- ------------- (Fiscal 1996) (Fiscal 1995) (Fiscal 1994) ------------- ------------- ------------ Current: Federal $7,561 $3,401 $725 State 1,013 186 (39) Foreign 613 (390) 571 ------------- ------------- ------------ 9,187 3,197 1,257 Deferred: Federal (1,244) (333) (34) State 923 (75) (192) Foreign 319 (403) (110) ------------- ------------- ------------ (2) (811) (336) ------------- ------------- ------------ $9,185 $2,386 $921 ============= ============= ============
The significant components of the net deferred tax asset (liability) are as follows:
December 28, December 30, (In thousands) 1996 1995 ------------ ------------ Deferred tax assets: Reserves not currently deductible $4,275 $2,675 Net operating loss carryforwards 2,381 4,635 Tax credit carryforwards 597 891 Other 58 424 ------------ ------------ Gross deferred tax assets 7,311 8,625 ============ ============ Deferred tax liabilities: Capitalized software development costs (406) (245) Depreciation (736) (832) Other (91) (244) ------------ ------------ Gross deferred tax liabilities (1,233) (1,321) Deferred tax asset valuation allowance (858) (6,531) ------------ ------------ $5,220 $ 773 ============ ============
The difference between the income tax provision and income taxes computed using the applicable U.S. statutory federal tax rate are as follows:
Year Ended --------------------------------------------- December 28, December 30, December 31 1996 1995 1994 ------------ ----------- ----------- (Fiscal 1996) (Fiscal 1995) (Fiscal 1994) ------------ ----------- ----------- Taxes computed at federal statutory rate 35% 35% 35% State income taxes, net of federal tax benefit 5 (16) (1) Foreign income taxed at different rates -- (2) -- Research and development tax credits -- 3 (9) Change in valuation allowance (6) 27 (6) Non-deductible merger expenses 3 (127) -- Tax exempt interest (3) -- -- Other 1 (17) 12 Effective income tax rate 35% (97)% 31%
At December 28, 1996, the Company had federal and state net operating loss carryforwards of approximately $4,352,000 which expire at various dates through 2011. The Company also had federal and state research and development tax credit carryforwards of $597,000, which expire at various dates through 2011. Ownership changes, as defined by the Internal Revenue Code, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The deferred tax valuation allowance decreased by $5,673,000 due to the realization of deferred tax assets related to employee stock options and the change in the amount of AirSoft's net operating losses and tax credits expected to be utilized in the carryforward period. Of this amount, $3,976,000 related to employee stock options and was therefore recorded as a credit to stockholders' equity. The Company has recorded a valuation allowance for the tax benefit of certain net operating loss carryforwards with substantial limitations since realization of these future benefits is not sufficiently assured at December 28, 1996. The deferred tax asset recognized reflects the benefit of future deductible temporary differences and net operating loss and credit carryforwards expected to be realized. Realization of the asset is dependent on generating sufficient taxable income and, although not assured, management believes that it is more likely than not that the deferred tax asset will be realized. 9. Stockholders' Equity Stockholder Rights Plan On September 20, 1995 the Company's Board of Directors adopted a Stockholder Rights Plan and pursuant thereto declared a dividend of one preferred stock purchase right for each outstanding share of common stock to stockholders of record at the close of business on October 13, 1995. Each right entitles holders of the Company's common stock to purchase one one-hundredth of a share (a "Unit") of a new series of junior participating preferred stock, $.01 par value per share, at an exercise price of $300.00 per unit, subject to adjustment. The rights are exercisable and become exercisable for common stock only under certain circumstances and in the event of particular events relating to a change in control of the Company. The rights may be redeemed by the Company under certain circumstances pursuant to the plan. The rights expire on October 13, 2005, unless earlier redeemed or exchanged. The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. Common Stock On October 21, 1994, the stockholders approved a 1-for-1.5 reverse split (effective upon the closing of the Company's initial public offering) of the Company's common stock. On April 2, 1996, the Company's Board of Directors declared a two-for-one split of the Company's common stock which was effective on April 22, 1996. All shares and per share amounts included in the accompanying consolidated financial statements have been adjusted to give retroactive effect to such stock splits for all periods presented. On November 30, 1995, the stockholders approved an increase in the authorized shares of common stock from 25,000,000 shares to 50,000,000 shares. On May 15, 1996, the stockholders approved an increase in the authorized shares of common stock from 50,000,000 to 100,000,000 shares. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the Board of Directors, subject to any preferential dividend rights of any preferred stockholders. 38 10. Stock Plans 1988 Stock Plan The 1988 Stock Plan (the "1988 Plan") provides for the grant of incentive stock options, stock awards, and stock purchase rights for the purchase of up to an aggregate of 8,200,000 shares of the Company's common stock by officers, employees, consultants and directors of the Company. In May 1996, the stockholders approved an increase in the number of shares issuable under the 1988 Plan from 8,200,000 to 9,700,000 and extended the expiration date of the 1998 Plan from December 31, 1997 to December 31, 2000. The Compensation Committee of the Board of Directors is responsible for administration of the 1988 Plan. The Compensation Committee determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. Options generally vest ratably over four years. The Company may not grant an employee incentive stock options with fair value in excess of $100,000 that are first exercisable during any one calendar year. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of the fair value in the case of holders of more than 10% of the Company's voting stock). Nonqualified stock options may be granted to an officer, employee, consultant, or director at an exercise price per share of not less than either the book value per common share or 50% of the fair value per common share on the date of grant. Options granted under the 1988 Plan generally expire ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). The Compensation Committee, at the request of any optionee, may convert incentive stock options that have not been exercised at the date of conversion into nonqualified stock options. In connection with the AirSoft Acquisition, the Company assumed 119,076 options in June 1996. These assumed options were granted at prices equal to the fair market value at the date of grant, become exercisable in installments (generally ratably over four years), and expire ten years from the date of grant. The Company does not intend to issue any additional options under the AirSoft stock option plan. 1994 Director Stock Option Plan On October 21, 1994, stockholders approved the 1994 Director Stock Option Plan (the "1994 Director Option Plan") under which options to purchase up to an aggregate of 550,000 shares of the Company's common stock may be granted to nonemployee directors at an exercise price per share equal to the fair value per common share on the date of grant. Under the 1994 Director Option Plan, each nonemployee director was granted an option to purchase 33,000 common shares (the "initial shares") on July 17, 1995, and an option to purchase an additional 7,000 common shares on the third Monday in July of each year thereafter, through December 31, 1999. Eligible directors who were previously granted stock options under the 1988 Plan were not granted an option to purchase the initial shares. Twenty-five percent of the options granted under the 1994 Director Option Plan are exercisable one year from the date of grant and every year thereafter, provided that the optionee remains a director. Options generally expire ten years from the date of grant. 39 Transactions under the 1988 Plan and the 1994 Director Option Plan during fiscal 1996 and 1995 are summarized as follows:
Fiscal 1996 Fiscal 1995 -------------------- ---------------- Weighted Weighted Average Average Exercise Exercise Shares Price Shares Price -------------------- ---------------- Outstanding at beginning of period 4,056,159 $11.06 3,709,354 $ 1.88 Granted 2,325,422 38.98 1,581,848 27.32 Exercised 899,048 3.94 1,100,059 1.35 Canceled 396,350 25.08 134,984 14.42 -------------------- ---------------- Outstanding at end of period 5,086,183 $24.86 4,056,159 $11.06 Options exercisable at end of period 1,258,216 683,814 ========= ======= ========= ======= Weighted average fair value of options granted during the period 24.73 16.25 Options available for future grant 2,148,746 2,583,793
The following table summarizes information about options outstanding at December 28, 1996 for both the 1988 Plan and the 1994 Director Option Plan:
Options Outstanding Option Exerciseable -------------------------- --------------------------------- Weighted Average Weighted Weighted Range of Number Remaining Average Number Average Exercise Outstanding Contractual Exercise Exercisable Exercise Prices at 12/28/96 Life (in years) Price at 12/28/96 Price - ---------- ----------- --------------- -------- ----------- --------- $ .75- 1.88 1,208,012 6.7 $ 1.00 604,469 $ .89 3.00- 6.80 544,316 7.5 4.38 215,926 4.12 16.75-31.25 1,051,412 8.6 27.69 202,296 28.62 31.63-40.50 1,384,693 9.0 33.38 235,525 32.53 41.00-51.75 606,650 9.5 45.71 - - $57.38-80.00 291,100 9.5 67.94 - - --------- --- ------- --------- ------ 5,086,183 8.3 $ 24.86 1,258,216 $11.65
The fair value of each option grant under the 1998 Plan and the 1994 Director Option Plan is estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
Fiscal 1996 Fiscal 1995 ----------- ----------- Expected life (years) 5 5 Risk-free interest rate 6.19% 6.02% Volatility 64.00% 61.00% Dividend yield 0.00% 0.00%
40 Employee Stock Purchase Plan On October 21, 1994, the stockholders approved the 1994 Employee Stock Purchase Plan (the "1994 Stock Purchase Plan") which enables eligible employees to purchase shares of common stock. Under the 1994 Stock Purchase Plan, eligible employees may purchase up to an aggregate of 700,000 shares of common stock during six-month plan periods commencing on February 1 and August 1 of each year at a price per share of 85% of the lower of the market price per share on the first or last business day of the six-month plan period. An employee's rights terminate upon voluntary withdrawal from the 1994 Stock Purchase Plan or upon termination of employment. At December 28, 1996 and December 30, 1995, 646,830 and 678,418 shares were available for issuance. In fiscal 1996 and 1995, employees purchased 31,588 and 21,582 shares of stock, respectively. The weighted average fair value of shares granted during 1996 and 1995 were $24.73 and $16.25 per share, respectively. The fair value of shares issued under the 1994 Stock Purchase Plan is estimated using the Black-Scholes option pricing model with the following assumptions:
Fiscal 1996 Fiscal 1995 ----------- ----------- Expected life (years) 5 5 Risk-free interest rate 6.19% 6.02% Volatility 64.00% 61.00% Dividend yield 0.00% 0.00%
Fair Value Disclosures Had compensation cost for the Company's Stock Plans been determined based on the fair value at the grant dates, as prescribed in SFAS 123, the Company's net income (loss) and net income (loss) per share would have been as follows (In thousands, except per share information):
Fiscal 1996 Fiscal 1995 ----------- ----------- Pro forma net income (loss): $4,814 $(6,277) Pro forma net income (loss) per share $ .15 $ (.23)
11. Retirement Plans The Company sponsors a 401(k) retirement savings plan covering all domestic employees of the Company who meet minimum age and service requirements. The plan allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company matches 50% of the first 3% of each participating employee's contributions, subject to certain limitations and may, at its discretion, make additional contributions to the plan. The Company made matching contributions of $230,000, $150,000 and $119,000, to the plan in fiscal 1996, 1995 and 1994, respectively. The Company also sponsors a defined contribution plan for all eligible European employees of the Company. Participation in the plan is available to substantially all salaried employees and to certain groups of hourly paid employees. Company contributions are based on a percentage of the employees' base salaries. The Company made contributions of $437,000, $318,000 and $267,000 to the plan in fiscal 1996, 1995 and 1994, respectively. 12. Industry Segment and Geographic Information The Company operates in a single industry segment: the development, manufacture, sale and support of network communications products and services. In fiscal 1996, one OEM customer accounted for $27,905,000 (14%) of revenues. Intercompany sales and transfers between geographic areas are accounted for at prices which are designed to be representative of unaffiliated party transactions. 41
North America Europe Eliminations Total -------- ------ ------------ ----- 1996 Revenues to unaffiliated customers $145,506 $54,613 $ -- $200,119 Intercompany revenue 10,269 4,443 (14,712) -- -------- ------ ------------ ------ Total revenues 155,775 59,056 (14,712) 200,119 -------- ------ ------------ ------ Income from operations 19,604 3,745 (667) 22,682 Identifiable assets 163,050 35,749 $ (749) 198,050 1995 Revenues to unaffiliated customers $ 70,083 $48,498 -- $118,581 Intercompany revenue -- 607 (607) -- -------- ------ ------------ ------ Total revenues 70,083 49,105 (607) 118,581 -------- ------ ------------ ------ Loss from operations (797) (3,243) -- (4,040) Identifiable assets 140,006 24,581 (14,464) 150,123 1994 Revenues to unaffiliated customers $ 41,646 $39,412 $ -- $ 81,058 Intercompany revenue -- -- -- -- -------- ------ ------------ ------ Total revenues 41,646 39,412 -- 81,058 -------- ------ ------------ ------ Income from operations 1,285 2,574 -- 3,859 Identifiable assets 51,048 23,611 (2,099) 72,560
13. Commitments Lease Commitments The Company leases office and operating facilities and certain equipment under operating and capital leases (See Notes 5 and 7) that expire through February, 2006. Future minimum lease payments under operating and capital leases with initial or remaining noncancellable terms of one or more years are as follows as of December 28, 1996:
(In thousands) Operating Capital Fiscal Leases Leases - ------------- ---------- ---------- 1997 $ 3,348 $54 1998 3,123 16 1999 2,793 -- 2000 2,645 -- 2001 2,650 -- Thereafter 8,973 -- --------- ---------- Total minimum lease payments $23,532 70 ======= ===== Less - Amount representing interest 5 ----------- ---------- Net present value of minimum lease payments $65 ==========
Rental expenses under operating leases was $3,244,000, $1,934,000 and $1,877,000 in fiscal 1996, 1995, and 1994, respectively. 14 Contingencies On January 17, 1997, a complaint, Abraham Schwartz and Norman Marcus v. Shiva Corporation, was filed against the Company in the Superior Court of the State of California for the County of Los Angeles. The plaintiffs purport to bring this action on behalf of a class of purchasers of the Company's common stock between September 17, 1996 and January 7, 1997. The Complaint asserts that the Company made false or misleading statements in violation of state and federal law, including: state law negligent misrepresentation, fraud, and deceit, California Corporation Code Chapters 1507, 25400, and 25500, California Civil Code Chapters 1709-10, and Section 12(2) of the Securities Act of 1933, 15 U.S.C. Chapter 771(2). On behalf of the purported class, the plaintiffs seek compensatory damages, treble damages under California law, punitive damages under California law, punitive damages, attorneys' fees, costs and interest. On February 24, 1997, the Company filed a demurrer to the complaint. The Company believes the claim to be without merit and intends to vigorously defend against the action. The action is in its earliest stages and the Company is unable to determine at this time the potential liability, if any. 42 Report of Independent Accountants To the Board of Directors and Stockholders of Shiva Corporation In our opinion, based upon our audits and the reports of other auditors, the accompanying consolidated balance sheet and related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Shiva Corporation and its subsidiaries at December 28, 1996 and December 30, 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 28, 1996, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of AirSoft, Inc., a wholly-owned subsidiary, which statements reflect total assets of $3,285,000 at December 31, 1995, and total revenues of $860,000 and $87,000 for the years ended December 31, 1995, and 1994 respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for AirSoft, Inc. as of and for the periods described above, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts January 23, 1997 43 Quarterly Financial Information (unaudited)
First Second Third Fourth (In thousands, except per share data) Quarter Quarter Quarter Quarter ------- ------- ------- ------- Fiscal 1996 Revenues $43,309 $51,485 $57,109 $48,216 Gross profit 25,924 30,088 33,348 27,582 Merger expenses -- 1,987 -- -- Net income 4,339 4,975 6,027 1,500 Net income per share $ 0.14 $ 0.16 $ 0.19 $ 0.05 Common Stock Prices ----- High $ 48.13 $ 87.25 $ 85.88 $ 58.50 Low $ 25.13 $ 44.38 $ 41.25 $ 33.25 ------- ------- ------- ------- Fiscal 1995 Revenues $25,737 $26,376 $30,033 $36,435 Gross profit 14,659 15,197 17,663 21,876 Merger Expenses -- -- 13,986 -- Net income (loss) 1,382 973 (11,552) 4,345 Net income (loss) per share $ 0.05 $ 0.04 $( 0.46) $ 0.15 Common Stock Prices ----- High $ 21.00 $ 22.25 $ 31.63 $ 38.75 Low $ 13.50 $ 14.13 $ 19.38 $ 21.13 ------- ------- ------- -------
As of January 31, 1997 the closing price was $18.06 per share and as of that same date there were 726 record holders of the Company's common stock. This does not reflect persons or entities who hold their stock in nominee or "street" name through various brokerage firms. The Company has never paid any cash dividends on its common stock and does not anticipate paying any cash dividends in the foreseeable future. The Company currently intends to retain future earnings to fund the development and growth of its business. 44 EX-21.1 10 Exhibit 21.1 SHIVA CORPORATION LIST OF SUBSIDIARIES as of January 17, 1997
State or Jurisdiction of Name Incorporation Shiva Credit Corporation Massachusetts Shiva Securities Corporation Massachusetts Shiva Foreign Sales Corporation St. Thomas, U.S. Virgin Islands Shiva Europe Limited United Kingdom Spider Shiva International Systems France Shiva Asia Pacific Limited Delaware Shiva Australia Pty Ltd Australia Shiva Europe Holdings I B.V. Netherlands Shiva Communications Singapore Pte Ltd Singapore
EX-23.1 11 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (File Nos 333- 10663 and 333-10951) and Registration Statements on Form S-8 (File Nos 33- 86514, 333-04231, 333-08561 and 333-12895) of Shiva Corporation and its subsidiaries of our report dated January 23, 1997, appearing in this Form 10-K. We also consent to the incorporation by reference of our report on the Financial Statement Schedule, which appears in this Form 10-K. /s/ Price Waterhouse LLP - ------------------------ Price Waterhouse LLP Boston, Massachusetts March 27, 1997 EX-23.2 12 Exhibit 23.2 CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in the Registration Statements Nos. 333-10663 and 333-10951 of Shiva Corporation on Form S-3 and Registration Statement Nos. 33-86514, 333-04231, 333-08561 and 333-12895 of Shiva Corporation on Form S-8 of our report dated March 28, 1996 (June 16, 1996 as to Note 8)(relating to the financial statements of AirSoft, Inc. not presented separately herein), appearing in Amendment No. 2 to the Current Report on Form 8-K/A of Shiva Corporation dated August 13, 1996. /s/ Deloitte & Touche LLP - ------------------------ Deloitte & Touche LLP San Jose, California March 25, 1997 EX-27 13
5 1,000 YEAR DEC-28-1996 DEC-31-1995 DEC-28-1996 72,067 35,035 50,251 10,347 17,958 170,986 35,978 12,123 198,050 40,522 122 0 0 289 156,545 198,050 200,119 200,119 83,177 83,177 94,260 1,046 795 26,026 9,185 16,841 0 0 0 16,841 0.54 0.54
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