-----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, Vwcv3TTSCNkVF9uuVNvxRkpghE5exyymNO8JHYRuscT40FEygFcUvje1m9WzlkGt 3MkTBObQM+EJ5DZie/+XjQ== 0000879136-97-000011.txt : 19970514 0000879136-97-000011.hdr.sgml : 19970514 ACCESSION NUMBER: 0000879136-97-000011 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19970329 FILED AS OF DATE: 19970513 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: 1228 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-24918 FILM NUMBER: 97602330 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-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (MARK ONE) /x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended March 29, 1997 / / 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 Identification No.) incorporation or organization 28 Crosby Drive, Bedford, MA 01730 (Address of principal executive offices, including Zip Code) (617) 270-8300 (Registrant's telephone number, including area code) ____________________________ Indicate whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] YES [ ] NO The number of shares outstanding of the registrant's Common Stock as of March 29, 1997 was 29,049,395. 1 SHIVA CORPORATION INDEX ----- PART 1 Financial Information Item 1 Consolidated Financial Statements Consolidated Balance Sheet March 29, 1997 and December 28, 1996 Consolidated Statement of Operations Three months ended March 29, 1997 and March 30, 1996 Consolidated Statement of Cash Flows Three months ended March 29, 1997 and March 30, 1996 Notes to Consolidated Financial Statements Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations Part II Other Information Item 5 Other Information Item 6 Exhibits and Reports on Form 8-K Signature Exhibit Index 2 Shiva Corporation Consolidated Balance Sheet (in thousands, except share related data)
March 29, December 28, 1997 1996 ------------- ----------- (unaudited) Assets Current assets: Cash and cash equivalents $ 69,209 $ 72,067 Short-term investments 33,843 35,035 Accounts receivable, net of allowances of $21,797 at March 29, 1997 and $10,347 at December 28, 1996 24,436 39,904 Inventories 16,497 17,958 Prepaid expenses and other current assets 11,337 6,022 ------- ------- Total current assets 155,322 170,986 Property, plant and equipment, net 24,546 23,855 Deferred income taxes 1,372 1,372 Other assets 1,644 1,837 ------- ------- Total assets 182,884 198,050 ======= ======= Liabilities and stockholders' equity Current liabilities: Current portion of long-term debt and capital lease obligations $ 349 $ 367 Accounts payable 13,532 17,130 Accrued compensation and benefits 3,988 5,871 Accrued expenses 11,928 13,748 Deferred revenue 3,507 3,406 ------- ------- Total current liabilities 33,304 40,522 Long-term debt and capital lease obligations 8 122 Deferred income taxes 550 572 ------- ------- Total liabilities 33,862 41,216 ------- ------- Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized, at March 29, 1997 and December 28, 1996, none issued - - Common stock, $.01 par value; 100,000,000 shares authorized, 29,049,395 and 28,891,216 shares issued and outstanding at March 29, 1997 and December 28, 1996, respectively 290 289 Additional paid-in capital 150,496 149,564 Unrealized gain on investments 113 175 Cumulative translation adjustment 36 349 Retained earnings (accumulated deficit) (1,913) 6,457 --------- ------------ Total stockholders' equity 149,022 156,834 --------- ------------ Total liabilities and stockholders' equity $ 182,884 $ 198,050 ========= =========== The accompanying notes are an integral part of the consolidated financial statements.
3 Shiva Corporation Consolidated Statement of Operations (in thousands, except per share data) (unaudited)
Three months ended --------------------------- March 29, March 30, 1997 1996 ------------- ------------- Revenues $ 31,159 $ 43,309 Cost of revenues 21,639 17,385 ------ ------ Gross profit 9,520 25,924 ------ ------ Operating expenses: Research and development 5,961 5,194 Selling, general and administrative 17,898 14,706 ------ ------ Total operating expenses 23,859 19,900 ------ ------ Income (loss) from operations (14,339) 6,024 Interest income 962 1,344 Interest and other expense (122) (117) ------- -------- Income (loss) before income taxes (13,499) 7,251 Income tax provision (5,129) 2,912 ----- -------- Net income (loss) $ (8,370)$ 4,339 ===== ======== Net income (loss) per share $ (0.29)$ 0.14 ===== ======== Shares used in computing net income (loss) per share 28,972 30,525 ====== ====== The accompanying notes are an integral part of the consolidated financial statements.
4 Shiva Corporation Consolidated Statement of Cash Flows Increase (Decrease) in Cash and Cash Equivalents (in thousands)
Three Months Ended ____________________________ March 29, March 30, 1997 1996 ------------- ------------- (unaudited) Cash flows from operating activities Net income (loss) $ (8,370) $ 4,339 Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: Depreciation and amortization 2,235 1,086 Changes in assets and liabilities: Accounts receivable 14,901 (3,693) Inventories 1,302 (3,802) Prepaid expenses and other current assets (5,277) 73 Accounts payable (3,389) 1,546 Accrued compensation and benefits (1,771) (883) Accrued expenses (1,273) 3,474 Deferred revenue 119 665 Other long term liabilities (10) (5) ------- -------- Net cash provided (used) by operating activities (1,533) 2,800 ------- -------- Cash flows from investing activities Purchases of property, plant and equipment (3,015) (3,363) Capitalized software development costs (155) (377) Purchases of short-term investments (5,333) - Proceeds from maturity and sales of short-term investments 6,525 2,010 Change in other assets (101) (25) -------- -------- Net cash used by investing activities (2,079) (1,755) -------- -------- Cash flows from financing activities Principal payments on long-term debt and capital lease obligations (118) (310) Proceeds from exercise of stock options and warrants 487 644 ------ ------- Net cash provided by financing activities 369 334 ------ ------- Effects of exchange rate changes on cash and cash equivalents 385 102 -------- -------- Net increase (decrease) in cash and cash equivalents (2,858) 1,481 Cash and cash equivalents, beginning of period 72,067 93,203 ------- -------- Cash and cash equivalents, end of period $ 69,209 $ 94,684 ======= ======== The accompanying notes are an integral part of the consolidated financial statements.
5 SHIVA CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION: The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, and have been prepared by the Company in accordance with generally accepted accounting principles. In the opinion of management, these unaudited consolidated financial statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of the Company's financial position, results of operations and cash flows at the dates and for the periods indicated. While the Company believes that the disclosures presented are adequate to make the information not misleading, these consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 28, 1996. The results of operations for the three-month period ended March 29, 1997 are not necessarily indicative of the results expected for the full fiscal year. 2. 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 their effect is antidilutive. 3. 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, and those with maturities of greater than three months as short-term investments. At March 29, 1997, the Company had cash and cash equivalents of $69,209,000 and $33,843,000 of short-term investments, including an unrealized gain of $113,000 recorded as a separate component of stockholders' equity in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's short-term investments at March 29, 1997, classified as available- for-sale, consist of municipal securities with various maturity dates through April 1999. Realized gains or losses on the sale of securities are calculated using the specific identification method. Realized gains and losses on its securities in the three months ended March 29, 1997 were not material. 4. INVENTORIES: Inventories consist of the following:
March 29, December 28, (in thousands) 1997 1996 --------- ------------ Raw materials $ 5,168 $ 6,218 Work-in-process 2,011 1,506 Finished goods 9,318 10,234 --------- -------- $ 16,497 $ 17,958 ========= ========
6 5. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS: In February 1997, the Financial Accounting Standards Board issued Statement No. 128, "Earnings per Share" (SFAS 128), which replaces primary and fully diluted earnings per share with basic and diluted earnings per share. SFAS 128 is effective for the Company beginning in the fourth quarter of fiscal 1997, and requires restatement of all previously reported interim and annual earnings per share data. Under SFAS 128, the primary earnings per share calculation will be modified to exclude the dilutive effect of common stock equivalents in determining basic earnings per share. The Company expects that basic earnings per share would not be materially different compared to primary earnings per share in the three-month period ended March 29, 1997 due to the net loss, and would result in an increase of $0.02 per share in the comparable period in fiscal 1996. The impact of adoption of SFAS 128 on the calculation of diluted earnings per share is not expected to be material for either period. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Three-Month Period Ended March 29, 1997 Compared with the Three-Month Period Ended March 30, 1996. Results of Operations Revenues. Revenues decreased by 28%, to $31,159,000, in the three-month period ended March 29, 1997 from $43,309,000 in the comparable period in fiscal 1996. This decrease was principally due to lower revenues from the Company's remote access products, which decreased by 22%, to $27,692,000, in the three-month period ended March 29, 1997 from $35,377,000 during the comparable period in fiscal 1996. This decline in remote access revenues was primarily due to a decrease in LanRover(R) revenues and increased price protection provisions of $6,700,000 related to the LanRover and LanRover Access Switch(TM) product lines recorded during the quarter. The price protection provisions relate to first quarter pricing actions taken on the LanRover and LanRover Access Switch product lines to be effective in the second quarter of fiscal 1997, and are in response to increased price competition and the availability of 56K modem technology in the access concentrator market. Revenues from LanRover products decreased by 54% to $12,330,000 in the three-month period ended March 29, 1997 from $26,730,000 in the comparable period in fiscal 1996 due to lower volume shipments, increased return provisions, and price protection provisions of $3,900,000. These decreases were partially offset by increased product and royalty revenues, net of price protection provisions of $2,800,000, from the LanRover Access Switch introduced in the second quarter of 1996. The royalty revenues were recognized in accordance with a recent definitive agreement with Northern Telecom Limited (the "Nortel Agreement"), under which the Company earns royalties based on sales of the Nortel Rapport 112, an OEM version of the LanRover Access Switch, subject to quarterly minimums. Revenues from the LanRover Access Switch accounted for $11,366,000, or 37% of revenues, in the three-month period ended March 29, 1997. Revenues from the Company's other communications products declined 62% over the same period in fiscal 1996, and 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 increased to 33% of revenues in the three-month period ended March 29, 1997 compared to 15% in the comparable period in fiscal 1996, primarily due to the Nortel royalty revenues and the lower revenue base. 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 $10,619,000 and $1,687,000 in the three- month periods ended March 29, 1997 and March 30, 1996, respectively, representing 22% and 4% of gross revenues, respectively. The increase in the provision for product returns was primarily a result of slow-moving and discontinued products in the Company's North American distribution channels. International revenues were $19,360,000, or 62% of revenues, in the three-month period ended March 29, 1997 compared to $18,857,000, or 44% of revenues, in the comparable period in fiscal 1996. International revenues represented a higher proportion of total revenues in the three months ended March 29, 1997 as a result of the decrease in revenues in North America. Gross Profit. Gross profit decreased as a percentage of revenues to 31% in the three-month period ended March 29, 1997, compared to 60% for the comparable period in fiscal 1996. This decrease was primarily attributable to the decrease in revenues which were adversely affected by the previously mentioned price protection provisions of $6,700,000, and an increase in cost of revenues, due in part to provisions for slow moving inventories of $6,463,000. The provisions for slow moving inventories relate to V.34 modem cards, for which demand has decreased due to the availability of 56K modem technology, and certain other products. In addition, LanRover product revenues, which carry higher gross margins than the Company's other products, decreased as a percentage of revenues. These decreases were partially offset by LanRover Access Switch royalty revenues recognized in accordance with the terms of the Nortel Agreement. In the future, gross margins are likely to decrease due to continued price competition. Furthermore, the Company's gross margins may be affected by several factors, including but not limited to, product mix, the distribution channels used, changes in component costs and the introduction of new products. Research and Development. Research and development expenses increased to $5,961,000, or 19% of revenues, in the three-month period ended March 29, 1997 from $5,194,000, or 12% of revenues, during the comparable period in fiscal 1996. The increase in these expenses was primarily due to increased direct and overhead costs associated with the hiring of additional research and development staff, increased expenditures for prototype materials and international travel costs. Research and development expenses during the three-month period ended March 29, 1997 related primarily to continued enhancements and development of the Company's remote access products. Customer-funded development fees reimbursed to the Company, which are reflected as an offset to research and development expenses, were $1,636,000 in the three-month period ended March 29, 1997 compared to $287,000 for the comparable period in fiscal 1996. The increase in customer funded development fees was due primarily to the cost sharing arrangement stipulated in the Nortel Agreement, where Nortel funds costs associated with development of products and product features specific to the carrier and service provider markets. Capitalized software development costs were $155,000 in 8 the three-month period ended March 29, 1997 compared with $377,000 in the comparable period in fiscal 1996. The Company anticipates continued significant investment in research and development. Selling, General and Administrative. Selling, general and administrative expenses increased to $17,898,000 for the three-month period ended March 29, 1997 from $14,706,000 in the comparable period in fiscal 1996. These expenses represented 57% and 34% of revenues in the three-month periods ended March 29, 1997 and March 30, 1996, respectively. The increase in gross expenses was primarily due to the worldwide expansion of sales, marketing and support personnel, as well as increased costs incurred for travel, advertising, trade shows, channel programs, and various professional and consulting fees. The Company plans to further invest in its distribution channels in order to attempt to continue its global market expansion and penetration. Selling, general and administrative expenses in the three-month period ended March 29, 1997, are net of expenses reimbursed by Nortel related to Shiva's Service Provider Group (SPG), a worldwide business unit comprised of technical sales and support personnel dedicated to marketing Nortel's remote access equipment to carriers and service providers. Interest Income and Expense. Interest income decreased during the three- month period ended March 29, 1997 due to the Company's shift to federal tax- exempt securities which resulted in a lower yield on its investment balances. Income Tax Provision (Benefit). The Company's effective income tax rate in the three-month period ended March 29, 1997 was 38%, down from 40% in the three-month period ended March 30, 1996 primarily due to the impact of tax- exempt interest income. 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 impact of such fluctuations is offset to the extent that 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 results of operations in the three-month period ended March 29, 1997 with those of the comparable period in fiscal 1996. Liquidity and Capital Resources As of March 29, 1997, the Company had $69,209,000 of cash and cash equivalents and $33,843,000 of short-term investments. Working capital decreased to $122,018,000 at March 29, 1997 from $130,464,000 at December 28, 1996. Net cash used by operations totaled $1,533,000 for the three-month period ended March 29, 1997 compared with net cash provided by operations of $2,800,000 during the comparable period in fiscal 1996. Net cash used by operations in the three-month period ended March 29, 1997 resulted primarily from the net loss and decreased current liabilities, partially offset by decreased accounts receivable. The decrease in accounts receivable was due to decreased revenue levels and the previously mentioned increase in product return and price protection provisions. Net cash provided by operations in the three-month period ended March 30, 1996 consisted primarily of net income adjusted for non-cash expenses including depreciation and amortization, partially offset by increased accounts receivable and inventories. The increase in accounts receivable was due to increased revenue levels. The increase in inventories was due to higher sales levels and the purchase of materials related to new products, including the LanRover Access Switch. Net cash used by investing activities totaled $2,079,000 for the three- month period ended March 29, 1997, compared to $1,755,000 during the comparable period in fiscal 1996. Investment activity in each of the three- month periods ended March 29, 1997 and March 30, 1996 consisted primarily of purchases of fixed assets to support the Company's growth, partially offset by proceeds from short-term investments upon maturity or sale. Net cash provided by financing activities totaled $369,000 for the three- month period ended March 29, 1997, compared to $334,000 in the comparable period in fiscal 1996. Net cash provided by financing activities in each of 9 the three-month periods ended March 29, 1997 and March 30, 1996 consisted of proceeds from stock option exercises, partially offset by principal payments on long-term debt and capital lease obligations. The Company has a $5,000,000 unsecured revolving credit facility with a bank which expires in June 1997. The Company intends to extend this revolving credit facility upon expiration. The terms of the credit facility require the Company to maintain a minimum level of profitability and specified financial ratios. Borrowings under this facility bear interest at the bank's prime rate. At March 29, 1997, available borrowings were reduced by outstanding letters of credit of $843,000 related to certain office leases. The Company had no borrowings outstanding under this facility at March 29, 1997. The Company also has a foreign credit facility secured by all assets of Shiva Europe Limited of approximately $1,631,000. Available borrowings under the foreign credit facility are reduced by guarantees on certain foreign currency and other 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 March 29, 1997. 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 March 29, 1997, the Company had outstanding forward exchange contracts to sell $7,663,000 in various currencies. The fair value of outstanding forward exchange contracts approximates the original value due to the relatively short terms, generally less than three months. The Company believes that its existing cash and short-term investment balances, together with borrowings available under the Company's bank lines of credit, will be sufficient to meet the Company's cash requirements for at least the next twelve months. 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 has transitioned its relationship with Nortel to one in which Nortel is able to distribute certain of the Company's products to the carrier and service provider market under a royalty-based arrangement. In some instances, the Company has granted Nortel exclusive distribution rights. 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 achieve future revenue growth and 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. The Company's LanRover and LanRover Access Switch products are experiencing increased market competition which has caused the Company to take pricing actions and may require the Company to take 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. These price protection provisions have adversely affected and may continue to adversely affect revenues and profitability in the future. 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 communica- tions products and other remote access products, including the LanRover product, did not meet the Company's expectations in the first quarter of 1997 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 its 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 the Company 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 telphony 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 profita- bility. There can be no assurance that the Company will be able 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 inter- nationally. 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. 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. PART II - OTHER INFORMATION Item 5. Other Information Steven (Woody) Benson resigned as the Company's Senior Vice President of Sales and Marketing, effective June, 1997. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit No. Description of Exhibit - ----------- ---------------------- Exhibit 10.1* Agreement dated March 21, 1997 between the Company and Northern Telecom Limited. Exhibit 10.2 Letter Agreement dated March 12, 1997 by and between the Company and Steven (Woody) Benson Exhibit 11 Statement of Computation of Earnings per share. Exhibit 27 Financial Data Schedule - --------------------------------------------- * Confidential Treatment Requested (b) No reports on Form 8-K were filed during the three-month period ended March 29, 1997. 10 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. SHIVA CORPORATION Date: May 13, 1997 by: /s/ Larry D. Whitman -------------------------- Larry D. Whitman Vice President - Corporate Controller (Principal Financial and Accounting Officer) 11 SHIVA CORPORATION EXHIBIT INDEX Exhibit No. Description of Exhibit ----------- ---------------------- Exhibit 10.1 Agreement dated March 21, 1997 between the Company and Northern Telecom Limited. Exhibit 10.2 Letter Agreement dated March 12, 1997 by and between the Company and Steven (Woody) Benson. Exhibit 11 Statement of Computation of Earnings Per Share. Exhibit 27 Financial Data Schedule. 12 EX-10.1 2 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Exhibit 10.1 This Marketing and Distribution Agreement is made, entered into, and effective as of March 21, 1997 between: SHIVA CORPORATION, a Massachusetts corporation, whose registered office is at 28 Crosby Drive Bedford, MA, USA (hereinafter called "SHIVA") and: NORTHERN TELECOM LIMITED, a Canadian corporation, having executive offices at 8200 Dixie Road, Brampton, Ontario, Canada L6T 5P6 on behalf of itself and its SUBSIDIARIES and AFFILIATES (hereinafter collectively called "NORTEL") WHEREAS, NORTEL and SHIVA have established a relationship where NORTEL purchases Remote LAN Access products from SHIVA; and WHEREAS, the PARTIES desire to change the relationship to permit NORTEL to acquire manufacturing rights from SHIVA for certain of the products and the ability to distribute such products pursuant ************************ bearing licenses, as the case may be; and WHEREAS, the PARTIES wish to explore new opportunities in the *********** ******, as defined below: NOW, THEREFORE, IN CONSIDERATION OF THE MUTUAL PROMISES HEREINAFTER SET FORTH, THE PARTIES AGREE AS FOLLOWS: 1.0 DEFINITIONS Terms in the MARKETING AGREEMENT (other than names of PARTIES and Section headings) which are in capital letters shall have the meanings set forth in this Article 1 for all purposes in connection with the MARKETING AGREEMENT. 1.1 AFFILIATE is defined as any: (i) manufacturing licensee, which is a THIRD PARTY with which NORTEL or its SUBSIDIARIES has entered into an agreement, now or in the future, permitting such THIRD PARTY to manufacture products substantially based upon or equivalent to products designed by or for NORTEL; 1 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. (ii) joint venture, partnership, corporation, or similar association between NORTEL or SHIVA, as the case may be, or their respective SUBSIDIARIES and one (1) or more THIRD PARTIES, in which NORTEL or SHIVA, as the case may be, or their respective SUBSIDIARIES owns or controls, directly or indirectly, a percentage of shares or other mechanism of control that allows NORTEL or SHIVA as the case may be, or their respective SUBSIDIARIES, to effectively control the joint venture, partnership or similar association.; and/or (iii) corporation or other legal entity effectively controlled, directly or indirectly, by NORTEL or SHIVA, as the case may be, through the ownership or control of shares or other securities in such corporation or legal entity. 1.2 AVERAGE SALES PRICE shall mean the calculated average price for SPECIFIC PRODUCT sold and invoiced to the CUSTOMER for a specified period. 1.3 BACKGROUND INTELLECTUAL PROPERTY shall mean INTELLECTUAL PROPERTY of a PARTY that is conceived, created, developed or reduced to practice prior to, or independently of, the activities under the MARKETING AGREEMENT or the MA. 1.4 *********** and ******************are defined as ********************** ********************************************* and ************************** ********************** and ********************************************** and **************************. 1.5 CONFIDENTIAL INFORMATION shall have the meaning set forth in Article 13. 1.6 CUSTOMER means any entity which purchases products, directly or indirectly, from NORTEL. 1.7 DOCUMENTATION means the customer documentation, such as user guides, and design documentation reasonably required by NORTEL to provide first level support to its CUSTOMERS. 1.8 EFFECTIVE DATE means the date the MARKETING AGREEMENT is entered into as written at the beginning of the MARKETING AGREEMENT. 1.9 ENTERPRISE and ENTERPRISES means any organization(s) that is not a ***********. 2 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1.10 ENTERPRISE NETWORKS shall mean the NORTEL line of business of that name that is responsible for development and sale of NORTEL products to ENTERPRISES. 1.11 ************** shall mean the ************** for the ******* and any relevant documentation required to **************** and ******* the ********* contained in *************** and to **************************************** ************ or built in accordance with ***************************** This shall include, but is not limited to *************************************** *********************************. 1.12 FCS shall mean the date of the first customer shipment by either PARTY of a SPECIFIC PRODUCT or FEATURE, including hardware, SOFTWARE and DOCUMENTATION, other than for trial purposes. In the case of SHIVA's FCS to NORTEL, such FCS shall be subject to prior acceptance by NORTEL. 1.13 FEATURE or FEATURES shall mean the implementation in hardware, firmware and/or software of a discrete set of features or functionality as described in a SPECIFIC PRODUCT/FEATURE ADDENDUM, and shall include any future FEATURES added to the MARKETING AGREEMENT by addition to Exhibit E of a SPECIFIC PRODUCT/FEATURE ADDENDUM. 1.14 FOREGROUND INTELLECTUAL PROPERTY shall mean INTELLECTUAL PROPERTY first conceived, created, developed or reduced to practice by, or on behalf of a PARTY in the course of performing activities pursuant to the MARKETING AGREEMENT or the MTDA. 1.15 INTELLECTUAL PROPERTY shall mean any invention, patent, trade mark, utility model, copyright, industrial design, mask work or integrated circuit topography right, or any right of whatsoever nature in processes, techniques, improvements, modifications, computer software and data, CONFIDENTIAL INFORMATION, trade secrets or know-how, or any intangible right or privilege of a nature similar to any of the foregoing, in every case in any part of the world and whether or not registered, and shall include all granted registrations in respect of any such right. 1.16 *********************** shall mean the ************************ in all markets other than *************** including, but not limited to ************* ************************************. 1.17 INTERNET THRUWAY APPLICATION shall mean NORTEL's marketing solution comprised of NORTEL's (i) Access Node product or equivalent product, (ii) Rapport product and (iii) Magellan product, to provide end-to-end congestion relief for local telephone companies. 3 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1.18 MINIMUM MARKET PERFORMANCE OBJECTIVE means NORTEL's achievement of PRODUCT revenues in ************* as described in Exhibit G, which shall be updated as required, by the PARTIES. 1.19 MANUFACTURING KNOW-HOW PACKAGE means the technical information, in digital format where practical, including the hardware design, design drawings, schematics, instructions for manufacturing, testing or assembling products, parts and vendors lists, object code, manufacturing training materials, and any other manufacturing know-how information which is reasonably required to enable NORTEL to manufacture certain PRODUCTS. 1.20 MARKETING AGREEMENT is defined as this Marketing and Distribution Agreement, as amended, modified, supplemented or otherwise altered from time to time. 1.21 MASTER TECHNOLOGY DEVELOPMENT AGREEMENT or MTDA shall mean the agree- ment executed by the PARTIES on or about March 31, 1997, containing the terms governing research and development and the funding thereof. 1.22 NET SALES PRICE shall mean the price computed in accordance with Exhibit H. 1.23 ********************************************** means the named accounts defined in Exhibit A which comprise the market for which SHIVA grants NORTEL ***************************************** according to the terms described in Article 5 and Exhibit E of the MARKETING AGREEMENT. 1.24 PARTY shall mean NORTEL or SHIVA. 1.25 PARTIES shall mean NORTEL and SHIVA. 1.26 PRODUCT or PRODUCTS shall mean the products described in Exhibit E, and such future products as are added to the MARKETING AGREEMENT by addition of a SPECIFIC PRODUCT/FEATURE ADDENDUM to Exhibit E, in each case the PRODUCT is inclusive of hardware, SOFTWARE, firmware and documentation, as is applicable. 4 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 1.27 RIGHT TO MANUFACTURE FEE or RTM FEE shall mean the payment that covers all manufacturing rights for hardware, firmware, SOFTWARE and documentation associated with a SPECIFIC PRODUCT including transfer of the MANUFACTURING KNOW-HOW PACKAGE and assistance for manufacturing start up, as detailed in Article 5 of the MARKETING AGREEMENT. 1.28 SERVICE PROVIDER GROUP or SPG shall mean a group of employees provided by SHIVA ************ to support NORTEL global sales, marketing and support as further described in Article 12 and Exhibit I. 1.29 SHIVA LIST PRICE shall mean SHIVA's then current U.S. customer list price. 1.30 SHIVA R&D DELIVERABLE DEPENDENCIES shall mean the FEATURES as set forth in Exhibit F, and such future FEATURES to be delivered by SHIVA as are agreed upon pursuant to the terms of the MTDA. 1.31 SOFTWARE shall mean software in object code form which shall be used in each PRODUCT. 1.32 SPECIFIC PRODUCT shall mean a specific PRODUCT as designated in a SPECIFIC PRODUCT/FEATURE ADDENDUM in Exhibit E or in a SPECIFIC PRODUCT/FEATURE ADDENDUM added by amendment to Exhibit E. 1.33 SPECIFIC PRODUCT/FEATURE ADDENDUM shall mean an addendum to Exhibit E of the MARKETING AGREEMENT which describes the ownership, licensing, marketing and distribution rights pertaining to a SPECIFIC PRODUCT. 1.34 SPECIFICATION shall mean the functional specifications for a SPECIFIC PRODUCT agreed by the PARTIES and any future functional specifications that are agreed by the PARTIES in the corresponding section of Exhibit E or the MASTER TECHNOLOGY DEVELOPMENT AGREEMENT. 1.35 SUBSIDIARY shall mean any corporation or other legal entity in which Northern Telecom Limited or SHIVA, as the case may be, directly or indirectly owns and controls, and continues to own and control, fifty percent (50%) or more of the shares or other ownership interest entitled to elect the board of directors or its equivalent. 1.36 THIRD PARTY or THIRD PARTIES shall mean an individual(s) or entity(ies) other than NORTEL or SHIVA. 2.0 RESEARCH AND DEVELOPMENT ("R&D") 2.1 Development and Funding Process. SHIVA shall review its development plans, including all patents and patent applications related to the PRODUCTS, with NORTEL on an ongoing basis. The PARTIES shall agree, in writing, upon those features that add demonstrable value within the ****************** which one or both of the PARTIES shall undertake to develop. The terms and conditions of R&D activities and ownership of INTELLECTUAL PROPERTY shall be described in the MTDA. In addition, the PARTIES shall add the newly developed PRODUCT(S) or FEATURE(S), as applicable, to the MARKETING AGREEMENT including 5 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. terms describing any royalty, RTM Fees or marketing terms that may apply to such PRODUCT(S) or FEATURE(S). 2.2 NORTEL agrees to fund the R&D program through quarterly payments in 1997 of ************************************************************ for a total of ************************************************** in 1997. Subject to mutual agreement by the PARTIES and pursuant to a project addendum of the MTDA, the disbursement of the funds toward the development of PRODUCT(S) or FEATURE(S) shall be based on specific feature content which adds demonstrable value within the ****************. NORTEL's quarterly payments of ******* ****************************************************** shall, subject to the terms and conditions of the MTDA, be paid ************************* of NORTEL's receipt of invoice from SHIVA. Such invoice from SHIVA shall be delivered to NORTEL no earlier than the fifteenth day of the third month of each quarter that the quarterly payments are required to be made. SHIVA agrees to fund no less than ******************************************** ************* in 1997 in R&D related to ********************************** related features which shall also be available to ENTERPRISES. As additional consideration for R&D funding by NORTEL, NORTEL shall receive the following: (a) rights to prioritize various future FEATURES and enhancements of the PRODUCT platforms and ***************** FEATURES(S), as required by NORTEL, (b) a list of committed PRODUCT(S) and/or FEATURE(S) for the ************** ****************************************** invested by SHIVA set forth in a project addendum to the MTDA and (c) NORTEL SPECIFIC FEATURES identified as license type E, as the case may be. 2.3 SHIVA's failure to complete work a project set forth in a project addendum of the MTDA, to the extent that such failure is not cured within the terms described in the MTDA thereby constituting a breach of the MTDA and such breach occurs **************, shall have the following effect in relation to this MARKETING AGREEMENT: A. The ****************** provisions described in Exhibit E, Addendum 3, under Rapport 112, ********************, shall be ********* at NORTEL's option. B. At NORTEL's option, NORTEL may *************************, pursuant to the provisions of Article 14, for purposes of development and support but may not create derivative works from the ******************. Consistent with the provisions of Article 14, NORTEL may continue to support existing CUSTOMERS on a *********** basis and may manufacture and pay a royalty to SHIVA *******************************************. 6 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. C. At NORTEL's option, NORTEL may acquire ************************ *******, including the ******************************************************* ****************** by payment of the amounts described in Article 16.5. 3.0 REGULATORY COMPLIANCE 3.1 ***** shall be responsible for ********* any required regulatory approvals for the PRODUCTS designed by ***** even if such PRODUCT is manufactured by or supplied to **** by a party other than *****. ****** shall be responsible for ********* any regulatory approvals for the PRODUCTS that it designs or PRODUCTS of ***** design in the event of ***** changes to such ************. In addition, to the extent that any regulatory approval needs to be acquired solely due to the change in manufacturer from ******** ************** agrees to fund such additional approval. On an ongoing basis, ***** agrees to provide ******* with a bill of materials including all UL approval numbers to assist in obtaining any additional regulatory approvals for the PRODUCTS in achieving compliance with regulations. For PRODUCTS that ***** designs, in the event that ***** has not obtained such approvals in a country in which ****** desires to sell the PRODUCTS, ****** shall use ****************** to obtain such approvals following a written request by ******. The PARTIES shall provide each other with cooperation and assistance to obtain such approvals and any joint approvals, where applicable. In the event that ****** does not make any direct or indirect sales (excluding sales through ******** of the PRODUCTS into such country within *********** of ****** obtaining such approval, ******** shall reimburse ***** for the reasonable costs to ******** of obtaining such approval. 4.0 OWNERSHIP AND LICENSES 4.1 Technology Ownership. Unless otherwise specifically agreed, each PARTY shall retain ownership of its BACKGROUND INTELLECTUAL PROPERTY. The PARTIES shall agree, in writing, on the level of funding and ownership of FOREGROUND INTELLECTUAL PROPERTY developed under the MTDA. 4.2 Licensing Terms. The PARTIES shall agree to the marketing, distribution and licensing rights for PRODUCTS (including terms governing BACKGROUND INTELLECTUAL PROPERTY and FOREGROUND INTELLECTUAL PROPERTY embodied in such PRODUCTS). The marketing, distribution and licensing rights for existing PRODUCTS and FEATURES are set out in the SPECIFIC PRODUCT/FEATURE ADDENDA in Exhibit E. The marketing, distribution and licensing rights for future PRODUCTS and FEATURES, as agreed by the PARTIES, shall be added by addition of SPECIFIC PRODUCT/FEATURE ADDENDA to Exhibit E. If appropriate, future PRODUCTS or FEATURES shall be designated as being subject to Type A, Type B, Type C, Type D, Type E or Type F licenses. In the event that the chosen 7 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. license type is a *********************** or ********************, the royalty payment and ******************* shall be set out in the corresponding SPECIFIC PRODUCT/FEATURE ADDENDUM. The current license categories shall not preclude the PARTIES from augmenting the terms of an ********************** or from creating new license types. Any such augmented or additional license type must be agreed to, in writing, by the PARTIES. 4.3 ******************************************* for ******** Purchase of **************************************************************. 4.3.1 SHIVA grants to NORTEL a ************************************* license under SHIVA's INTELLECTUAL PROPERTY to use, sublicense for use (and in the case of hardware, sell), support, copy and distribute through multiple tiers of distribution, including NORTEL distributors, a SPECIFIC PRODUCT or FEATURE(S) solely as such INTELLECTUAL PROPERTY rights are incorporated in such SPECIFIC PRODUCT or FEATURE(S). 4.4 ************************************************* for a *************** ************ or ********* Manufactured by *******. 4.4.1 SHIVA grants to NORTEL a ************************************** license under SHIVA'S INTELLECTUAL PROPERTY to use, modify, sublicense for use (and in the case of hardware, sell) support, copy, and distribute (with ****************** as described in the corresponding SPECIFIC PRODUCT/FEATURE ADDENDUM) through multiple tiers of distribution, including NORTEL distributors, a SPECIFIC PRODUCT or FEATURE(S) solely as such INTELLECTUAL PROPERTY rights are incorporated in such SPECIFIC PRODUCT or FEATURE(S). 4.5 *********** Distribution by ********* of ********************. 4.5.1 SHIVA grants to NORTEL a ********************************** license under SHIVA's INTELLECTUAL PROPERTY rights to use, modify, sublicense for use (and in the case of hardware, sell), copy, distribute through multiple tiers of distribution, including NORTEL distributors, a SPECIFIC PRODUCT or FEATURE(S) solely as such INTELLECTUAL PROPERTY rights are incorporated in such SPECIFIC PRODUCT or FEATURE(S). SHIVA shall ********** *********************** make available to any THIRD PARTY such SPECIFIC PRODUCT or FEATURE(S). 4.6 ************************************* for a ********************* ************* or **********************************************. 8 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 4.6.1 NORTEL grants to SHIVA a **************************************** license under NORTEL's INTELLECTUAL PROPERTY to use, sublicense for use, copy, distribute through multiple tiers of distribution, including SHIVA distributors, a SPECIFIC PRODUCT or FEATURE(S) solely as such INTELLECTUAL PROPERTY rights are incorporated in such SPECIFIC PRODUCT or FEATURE(S). 4.7 ************* to *************************************************** for further Development pursuant to a project addendum to the MTDA. 4.7.1 NORTEL grants to SHIVA a *************************************** license under NORTEL's INTELLECTUAL PROPERTY to use a SPECIFIC FEATURE(S) solely for the purposes of further developing NORTEL products or NORTEL Feature(s). 4.8 Under all types of licenses, SHIVA grants NORTEL, under SHIVA's INTELLECTUAL PROPERTY, a ******************************* license to use, sublicense for use, copy, modify and distribute through multiple tiers of distribution, including NORTEL distributors, DOCUMENTATION related to a SPECIFIC PRODUCT or FEATURES(S), including release notes for updates. 4.9 SHIVA grants to NORTEL a ********************************************* ***************************** PRODUCTS purchased or manufactured (pursuant to a right to ***********) and DOCUMENTATION during the term of the MARKETING AGREEMENT. Any alteration or use of ************************************** relating to the PRODUCTS and DOCUMENTATION shall require prior review and approval by *****. ****** agrees to ***** the *********************** to any future PRODUCTS that it markets under any ********************************. Design of the *********************** shall be subject to prior review and approval by ******. 5.0 MARKETING CONSIDERATIONS 5.1 First Market Share Review. On or about ******************, NORTEL's (i) VP of Multimedia Solutions, (ii) AVP of Internet Solutions and (iii) VP of Regional Marketing and SHIVA's (i) Senior VP of Sales and Marketing and (ii) VP of Regional Sales and Marketing (collectively, "the SENIOR ADVISORY GROUP") shall review performance against the MINIMUM MARKET PERFORMANCE OBJECTIVE and the SHIVA R&D DELIVERABLES DEPENDENCIES. In the event of deficient performance the deficient PARTY shall identify how it proposes to cure the deficient performance during the following ***********************. In the event that both PARTIES are deficient the PARTIES may elect to. terminate the ******************** of the corresponding license rather than to cure. Upon mutual agreement only, the PARTIES may adjust the MIMIMUM MARKET PERFORMANCE OBJECTIVE and the SHIVA R&D DELIVERABLES DEPENDENCIES. In 9 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. the event that only one PARTY has failed to perform, that PARTY has the unilateral right to cure for *************************. 5.2 Second Market Share Review. On or about *****************, the SENIOR ADVISORY GROUP shall review performance against the MINIMUM MARKET PERFORMANCE OBJECTIVE and the SHIVA R&D DELIVERABLES DEPENDENCIES. In the event that both PARTIES are deficient, the PARTIES may elect to terminate the **************************** of the corresponding license or to continue the *********************. In the event that only one PARTY has failed to perform, the non-breaching PARTY has a unilateral right to ************** ****************** of the corresponding license. In the event that the non- breaching PARTY elects to **************************************** of the corresponding license in accordance with this Section 5, that PARTY shall notify the other PARTY sixty (60) days prior to the effective date of such **********. In the event *********** has been terminated, each PARTY shall be able to distribute the SPECIFIC PRODUCT or FEATURE covered by the corresponding license, and, in the case of ******, to ****************** ************** of those THIRD PARTIES enumerated in Exhibit J to the ****** ************************************. 5.3 Subsequent Market Share Reviews. On or before ****************, and on or before *********** for subsequent *****, the PARTIES shall establish a new MINIMUM MARKET PERFORMANCE OBJECTIVE and SHIVA R&D DELIVERABLES DEPENDENCIES and shall update Exhibits F and G of the MARKETING AGREEMENT accordingly. The PARTIES shall follow the same First Market Share Review and Second Market Share Review process for 1998 and subsequent years, with dates revised, by written amendment to this MARKETING AGREEMENT, as deemed appropriate, by the PARTIES. 5.4 Sales to ********************************. The PARTIES agree to cooperate in establishing a transition program whereby ****** shall ******* *****************************************************************. For a period of time commencing on the EFFECTIVE DATE of the MARKETING AGREEMENT and ****************************, the PARTIES agree to determine distribution rights for ******************************* according to the process described in this Section. The SENIOR ADVISORY GROUP and the senior team leader of the SPG shall hold monthly meetings to review potential ********************************* and determine distribution rights according to the below listed guidelines. In no circumstance shall the lack of ************ restrict ********** pursuit of business opportunities with these accounts. 10 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Guidelines 1. Demonstrable *****************. The PARTY that ****************** ******** in the specific *********************************** and performed *********** activities ********** of the ******************* is given preference for ******************* unless other guideline factors would suggest a different result. 2. **************************************************. Any expressed ****** ********** shall be given the *************** in determining which PARTY should service and support the customer. 3. ***********************************************. The PARTIES shall review the ************************************************************************* **************, rather than ********************************* to either PARTY, in order to determine the best PARTY to service and support the customer. 4. ************************************************************. The PARTIES shall determine which PARTY is most likely to prepare ********************* ******************************. 5. ******************. The PARTIES shall determine which PARTY is best able to provide *****************. 6. ********************************************************************** **********. In the event a ********* or **** is involved in the transaction and is *************************, the PARTIES shall determine the relationship of the *********** and the **************************. ****** shall ***************************************************. 7. ***********************. The PARTIES shall evaluate ******************* ************************************* to determine which PARTY has an *********************************************************************. The PARTIES agree that ******************************* may continue to ******************************************* when there is no involvement by ***************. These guidelines are intended to address only those situations where the PARTIES are determining ****************************** for PRODUCTS and sold to *********************************. 6.0 RIGHT TO MANUFACTURE (RTM) LICENSE 11 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 6.1 SHIVA grants to NORTEL a ********************* RTM license (including, without limitation, the right *********, the right **************** and the right ********************* under SHIVA'S INTELLECTUAL PROPERTY rights (including the MANUFACTURING KNOW-HOW PACKAGE) for *********************** ***************** which NORTEL ********************** and ******************* ********** which NORTEL ********************************** and any future PRODUCT that the PARTIES agree to in writing and for which NORTEL pays the agreed upon RTM FEE. SHIVA shall make the RTM rights to any future products available to NORTEL on similar terms and conditions ***************** as are described in this Section 6 and Section 7. 6.2 The MANUFACTURING KNOW HOW PACKAGE shall include **************** of SHIVA manufacturing engineering support to assist NORTEL in understanding the contents of the MANUFACTURING KNOW HOW PACKAGE. Additional manufacturing engineering support is available *************************************** ******. 6.3 SHIVA shall advise NORTEL of its ********* and has made ************ **************************** available to NORTEL. SHIVA shall use its best efforts to assist NORTEL in obtaining *************************** ********************************************************* (including any and ********************************************************. NORTEL is free to enter into *************** with SHIVA's *********. In the event NORTEL uses SHIVA's ***** and requires access to ********* tools and equipment ***** shall provide technical ********** at the ***************. Such technical ********** shall include (i) engineering change order (ECO) documentation, ************ and **************, (ii) ************ the ************** of any ********** components and (iii) **** and ************* ******************* and *******; SHIVA shall use reasonable efforts to report any technical ******************* to NORTEL. SHIVA shall charge NORTEL a fee no more than **************** of ****************** for NORTEL's use of such ******************. In addition, ********* shall be requested to create separate ************ for ***************. NORTEL shall be required to ********* their ***************************************** with SHIVA *********. SHIVA shall no longer accept Return Material Authorizations RMA's on NORTEL manufactured product. SHIVA shall pay for any ************* ********** with Engineering Change Orders or design changes that are ********* ********. NORTEL shall pay for any ******************** with Engineering Change Orders or design changes that are ******************************** ******. NORTEL acknowledges that the *********** and ******** process described in Section 9 shall differ from the process employed by SHIVA in the event NORTEL ******************************. In the event that NORTEL ********************************, NORTEL shall be responsible for *********** ************************************************************************. 12 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 7.0 PAYMENTS FOR RTM LICENSE 7.1 NORTEL has paid a *************** RTM FEE of ************************* ******************************** for the RTM license for SHIVA's ******** ************************ which NORTEL **************************. Subject to NORTEL's acceptance of all of the *************************************, including but not limited to, **********************, NORTEL shall pay a *** ********** RTM FEE of ********************************* for the RTM for **************. Such payment shall be made *********************** from the date that NORTEL receives an invoice for such RTM from SHIVA. The combined ********************************************************* RTM FEE constitutes the *********************************** (including the *******, associated ************* and ***********, and ****************************** to the ***********************. 7.2 *********************************************************************. Upon NORTEL's acceptance of the performance and functionality of the **, NORTEL shall pay a ************* RTM FEE of ************************** ******************************* for a RTM license for the *********** ************************. Subject to the acceptance of the performance and functionality of the **, such payment shall be made ****************** from the date that NORTEL receives an invoice for the ***** RTM FEE. 7.3 ************ Router. NORTEL has paid SHIVA a ************ RTM FEE of ****************************************** for a license to manufacture the *********** technology which NORTEL ******* as the *******************. The RTM FEE included the **************** to ******* the ****************** ****************************. In the event that SHIVA, in its sole option, selects NORTEL as the ***************************************************** ***************************** RTM FEE shall be *******. 8.0 TRAINING 8.1 NORTEL CUSTOMER Training Courses. SHIVA agrees to provide technical support training and a "Train the Trainer" program to NORTEL as outlined in Exhibit D. ******* for training are assessed apart from the ************ ******** described in Exhibit D including ************** "Train the Trainer" course **********************************************************. SHIVA grants to NORTEL, in exchange for this ************, a ********* license to use, copy, modify and distribute SHIVA'S training materials under NORTEL's **************, ******************************** for the purposes of providing training to ************, ********************* and *********. SHIVA agrees to provide the course materials in an electronic format compatible with NORTEL's current training documentation. 13 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 8.2 NORTEL Support Training. SHIVA agrees to provide NORTEL with additional training courses at NORTEL's request at ******************************* ************* at SHIVA'S training facility. For courses away from SHIVA'S training facility, NORTEL agrees to pay ***************************** ************************************************************************** ******* SHIVA employees providing such courses. SHIVA further agrees that NORTEL shall be entitled to receive further *************** training prices, should SHIVA **********************************************************. 9.0 SHIVA ********************* PRODUCT(S) ** NORTEL 9.1 Purchase Price. All purchase prices are ****************************. SHIVA agrees to sell, and NORTEL agrees to purchase PRODUCTS, ************** ************************************************************************* **********: (a) ***************************************************************** ***********, (b) ********************************************************************* **************************************************************************** **********************************. 9.2 Price and Cost Revisions - SHIVA shall provide NORTEL with at least ********************************** of any changes in the list price for ******************************************* and if possible **************** **************. Any price reductions shall be applied to ************* ************************************************************************** *********************************************************************** *********. SHIVA agrees that it: (i) shall use reasonable efforts to ****** ************ and ****************************** throughout the term of the MARKETING AGREEMENT; (ii) shall proportionally ************************** ********************* to reasonably reflect any substantial reduction in the ***************************************, and (iii) shall ***************** ************************************************************************* *********************************************************************** **************************************************************************** ******************************************. In the event of SHIVA's breach of its ********************** set forth herein, SHIVA shall ************** *************************************************************************** ***************************************************************************** *****************************************************************. 9.3 Order and Acceptance. All orders placed by NORTEL under the MARKETING AGREEMENT shall be initiated by a written purchase order requesting a delivery date; provided, however, that an order may be placed by facsimile. 14 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. if a confirming hard copy of the written purchase order is received by SHIVA. SHIVA shall notify NORTEL of the acceptance or rejection of an order and of the assigned delivery date for accepted orders within a reasonable time **** ******************************** after receipt of the written or oral purchase order. SHIVA shall maintain an adequate inventory of PRODUCTS to meet the forecasts provided under the MARKETING AGREEMENT and shall use its reasonable efforts to deliver the PRODUCTS at the times specified either in the purchase order or as otherwise mutually agreed by the PARTIES. The expectation is that SHIVA shall ship the PRODUCTS to ********************** ***************************** complete and shippable order from NORTEL. 9.4 Forecast. During the term of the MARKETING AGREEMENT, NORTEL shall provide a ***************** rolling forecast of PRODUCT purchases to SHIVA. The first ************** shall be forecasted ******** and the ************ ****** shall be forecasted ********** for the PRODUCTS. This forecast information shall include at a minimum, the PRODUCTS required, the quantities, and the month of planned shipment to NORTEL. SHIVA shall use NORTEL's forecast information to manage its inventory so as to be able to deliver the forecasted-demand within the time frame described in this Section. The PARTIES shall work together to manage any variations from the forecast. NORTEL shall provide a single point of contact for SHIVA to work with to manage the supply and forecast process. NORTEL shall issue ********************************************** ************************************************************. In the event NORTEL's purchase orders exceed the demand forecast, SHIVA agrees to increase production and/or delivery by ************************************* (2), ************************************ (3), ********************************** ****************************************************: Time Frame Demand Forecast Up-Side ********************** ** ******* ****** ******* ****** ****************** ****** In all cases where purchase orders exceed the demand forecast, SHIVA shall provide best effort to meet purchase order requirements within a reasonable time frame. All increases to the demand forecast shall be formally committed to by SHIVA within ******************** of receipt of purchase orders which exceed the demand forecast. For the purpose of ordering material with long lead-times, SHIVA shall use the demand forecast. In the event material unique to NORTEL with long lead-times is required to support the demand forecast, subject to NORTEL 15 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. prior approval, SHIVA shall order such long lead-time material. NORTEL agrees to reimburse SHIVA for the added cost of procuring such material. Unique material shall include NORTEL customized corrugated boxes or packaging, labels for packaging, documentation, overlays for PRODUCTS, and software media. SHIVA agrees to use best effort to minimize NORTEL's liability for such material by canceling orders, returning material for credit or reworking / utilizing common material into other server PRODUCTS. Additionally, SHIVA shall provide to NORTEL documentation in support of any claim made under this Article. 9.5 Shipping. All PRODUCTS delivered pursuant to the terms of the MARKETING AGREEMENT shall be packed as commercially necessary for successful shipment and marked for shipment and delivered to ************************************* **********. Upon delivery to ****************, ************ to the PRODUCTS *****************************************************. 9.6 Payment. **** payment of the purchase price for PRODUCTS shall be made by NORTEL, *********************** from the date that NORTEL receives (i) the PRODUCT or (ii) an invoice for such PRODUCTS. 9.7 Rescheduling. NORTEL may reschedule any delivery date at any time prior to the date of shipping *************************************** provided that the rescheduled delivery date is within the calendar quarter. 9.8 Quality Commitments. The PARTIES agree within **************** from the EFFECTIVE DATE, to develop a quality improvement plan to improve PRODUCT supplied to NORTEL by SHIVA. Upon implementation of the quality improvement plan, SHIVA agrees to abide by such plan to maintain a minimum quality level of ********************************* in PRODUCT shipped to NORTEL as evidenced by NORTEL's system test and field installation results. 9.9 Inspection and Acceptance. The acceptance of PRODUCT purchased from SHIVA is subject to inspection by NORTEL at its delivery location and such acceptance shall be deemed to occur ************* after the receipt of such PRODUCTS at NORTEL's delivery location unless NORTEL shall have provided SHIVA with notice of non-acceptance within such period. PRODUCTS will be inspected by NORTEL for major defects, with major defects being defined as (i) any ******************, or (ii) a ************ *********************************************************************** ********************, or (iii) a **************************************** **********************************************************. 16 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. If any unit of PRODUCT does not conform to the requirements of a purchase order or release of a purchase order or to the warranties set forth in Article 11, as determined by NORTEL's inspection pursuant to the terms stated in this Section 9.9, *********************************************** may be returned to SHIVA ****************** Payment shall neither be deemed to ******************** nor be a **************************************** *********************************************. 9.10 ********************. NORTEL agrees to purchase from SHIVA a cumulative total of ***************************************************************** ***************************************************************************. **** payment for such purchase shall be made ******************* from the date that NORTEL receives (i) such *********** product and (ii) an invoice for such *********** product. SHIVA agrees to ***************************** *************************************************************** which mean those ****************************** that makes **************************** ***************************************************************************** **********. The ******************** for ************** shall only apply until *****************, at which time such ******************. The ******************** for the cumulative *********** in purchases shall apply only to the extent that NORTEL consumes such inventory of purchased PRODUCT for sales on a first in first out basis. For ************************ SHIVA may direct NORTEL **************** to other SHIVA channels for Enterprise market applications globally. In any case, with respect to ************* **********, NORTEL would *********************************************** *********** SHIVA **************************** to be *********************** ************************************** in the event that SHIVA ******* the **********, SHIVA shall ***************** NORTEL for ********************* ***** based on the ************** on the SHIVA ********** and the ******** *******************************. 10.0 SUPPORT 10.1 NORTEL Support Obligations. NORTEL shall generally provide first and second level support to CUSTOMERS. NORTEL shall access SHIVA support resources through NORTEL's Global Technical Support (GTS) group, currently located in Ottawa, Canada. NORTEL GTS shall provide problem descriptions and customer information in a format which shall be mutually agreed with SHIVA. 10.2 SHIVA Support Obligations. SHIVA shall provide support to NORTEL as set forth in Exhibit D. NORTEL agrees to pay SHIVA according to the terms described in Exhibit D for support during the term of the MARKETING AGREEMENT. 17 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. 10.3 Customer Requests. In the event that the CUSTOMER requests support terms that would require the PARTIES to provide additional services or rights (such as support availability guarantees or customer escrow arrangements), the PARTIES shall work together to provide such customer with additional support terms that are acceptable to the CUSTOMER and to both PARTIES. 11.0 WARRANTY 11.1. General. SHIVA warrants that (i) it has all INTELLECTUAL PROPERTY rights including any INTELLECTUAL PROPERTY rights in any THIRD PARTY technology necessary to permit NORTEL to exercise all rights granted to it under the MARKETING AGREEMENT, (ii) any hardware PRODUCT manufactured by SHIVA and delivered to NORTEL for ************************************* shall conform to SPECIFICATION(S) for a period of *********************** from the date of delivery to NORTEL, and (iii) any hardware PRODUCT manufactured by SHIVA and delivered to NORTEL for CUSTOMERS, not including **************************************, shall conform to SPECIFICATION(S) for a period of ********************* from the date of delivery to NORTEL. The SOFTWARE delivered pursuant to the MARKETING AGREEMENT shall be warranted for a period of **************************. The PARTIES agree that major SOFTWARE defects shall be dealt with according to the terms described in the MTDA. SOFTWARE defects that become apparent following FCS of the SOFTWARE shall be remedied according to the terms specified in Exhibit D. NORTEL agrees to consolidate all repair PRODUCTS from the field, whether under warranty or not, and ship to a central SHIVA site. SHIVA'S sole responsibility under this warranty shall be, at SHIVA's option, to either repair or replace the PRODUCT within *************** and ship the replacement PRODUCT to NORTEL. SHIVA warrants the repaired PRODUCTS shall conform to SPECIFICATION(S) for (i) a period of ************* from the date of delivery to NORTEL or (ii) the remainder under the original warranty, whichever is longer. For PRODUCTS returned for repair that fall outside the warranty period, SHIVA shall provide the same service to NORTEL as for items under warranty, and NORTEL shall pay SHIVA for the repair service. SHIVA shall provide NORTEL with a repair price list prior to NORTEL's FCS of any PRODUCT and update the list quarterly for any changes. The repair price list shall reflect SHIVA's associated cost and overhead to repair the defective part. In the event that a PRODUCT has a material defect before NORTEL ships such PRODUCT to its CUSTOMERS, the warranty period shall ************** until SHIVA has provided NORTEL with a replacement that is (1) a ******** or ********, and (2) **** *******************. SHIVA reserves the right to charge NORTEL for ******** ************************ PRODUCTS that are returned to SHIVA for repair. 11.2 Class A Changes. During the term of the MARKETING AGREEMENT and thereafter for *************, in the event that the PRODUCTS supplied by 18 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. SHIVA under the MARKETING AGREEMENT, including, but not limited to, NORTEL's inventory on hand manufactured by SHIVA, but excluding PRODUCTS manufactured by or for NORTEL have a material design defect that causes either (i) ***************************, or (ii) *************************************** **********, SHIVA shall immediately evaluate the problem and as expeditiously as possible provide any change necessary to the component to correct the problem ("Class A Change"). SHIVA shall be responsible for providing all necessary instructions, materials and labor to implement Class A Changes on SHIVA's premises. 11.3. Limitations. Neither PARTY shall have any obligation to provide services under this Article if material defects are caused by (i) malfunction of THIRD PARTY hardware or software other than such THIRD PARTY content as is included by the providing PARTY as part of PRODUCT(S) or FEATURE(S) that are the subject of this MARKETING AGREEMENT, (ii) modification not made or specified by such PARTY, (iii) operator error or (iv) use that is not in accordance with applicable operating instructions. 11.4 Year 2000 Warranty. 11.4.1 SHIVA represents and warrants that by January 1, 1998, all PRODUCTS and FEATURES provided pursuant to this MARKETING AGREEMENT, when used in accordance with their SPECIFICATIONS and DOCUMENTATION, shall (i) process date and time related data without causing any processing interruptions, abnormal terminations, or changes in performance characteristics, and (ii) shall process and manipulate all date and time related functions correctly. Without limiting the generality of the foregoing, all PRODUCTS and FEATURES provided by SHIVA shall: (a) correctly handle date and time related data before, during and after January 1, 2000, including but not limited to accepting date input, providing date output, and performing ongoing operations on dates and portions of dates including, but not limited to, calculating, comparing and sequencing of dates (in both forward and backward operations spanning century boundaries); (b) correctly handle leap year calculations (including but not limited to identification of leap years, interval calculations, day-in-year calculations, day-of-the-week calculations, and week-of-the-year calculations); (c) correctly handle all two digit date and time related input in a manner that resolves ambiguity as to century in a disclosed, defined and predetermined manner; and 19 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. (d) correctly store and provide output of all date and time data in a manner that is unambiguous as to century. 11.4.2 SHIVA shall immediately notify NORTEL of any and all date- related bugs, errors or deficiencies in the PRODUCTS and/or SHIVA supplied FEATURES. For the purpose of problem resolution, any such date related bugs, errors or deficiencies shall be deemed to be bugs, errors or deficiencies of the highest priority level, and shall be resolved according to the procedures provided for such priority level. 11.4.3 Any provisions of the MARKETING AGREEMENT that tend to limit or eliminate the liability of SHIVA shall have no application with respect to the year 2000 compliance warranty set out above. 11.5 LIMITATION OF LIABILITY. IN NO CASE SHALL EITHER PARTY BE RESPONSIBLE TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES HOWEVER CAUSED. EXCEPT FOR THE LIABILITIES OF EITHER PARTY UNDER CONFIDENTIALITY, INDEMNIFICATION AND LIABILITY AND SECTION 11.4 ONE PARTY'S LIABILITY TO THE OTHER SHALL IN NO INSTANCE EXCEED *********. 11.6. Disclaimer. EXCEPT FOR THE WARRANTIES SPECIFICALLY STATED IN THE MARKETING AGREEMENT, SHIVA HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. 12.0 SALES AND MARKETING AND SUPPORT - SERVICE PROVIDER GROUP 12.1 The intent of SPG is to increase NORTEL sales into the ******** ******************. The management structure, functions and mode of operations between NORTEL and SPG are described in Exhibit I. 12.2 NORTEL agrees to pay SHIVA to fund SPG for not more than *********** ******************************************************************* for not more than ******************* people and ******************************** *********************************************************************** ***************** people. Funding requirements for subsequent quarters shall be reviewed for approval by the last day of the first month of the preceding quarter. Subject to such review and if approved, NORTEL shall pay SHIVA to fund SPG for not more than ****************** people in the **************** ******** and for not more than ***************** in the ********************. 20 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NORTEL shall pay for the actual costs incurred by the SPG on a monthly basis ************************ subject to the quarterly caps outlined above and as subsequently established by the PARTIES. In no event shall NORTEL be responsible for any costs in a quarter which exceed the established quarterly cap for such quarter. Shiva agrees to control internal costs within an agreed upon budget. 12.3 SHIVA shall maintain complete and accurate records of all expenditures made or incurred in respect of the SPG. Such records shall be maintained in accordance with generally accepted accounting principles. SHIVA shall retain such records for the preceding seven (7) years. Upon thirty (30) days notice to SHIVA, NORTEL may request an audit of the SPG by an independent auditor reasonably acceptable to SHIVA. During the period in which SHIVA is required to maintain SPG records, such auditors shall have reasonable access to such records at a mutually agreeable time and location for the purposes of conducting an audit NORTEL shall bear all audit expenses unless such audit reveals that SHIVA has overstated its expenditures in respect of the SPG by more than ********* *****, in which case SHIVA shall pay all reasonable costs associated with the audit. Prompt adjustment shall be made to compensate for any overstatement of expenses revealed by the audit. 12.4 Neither SHIVA, nor any of its employees or agents, shall, in any sense, be considered employees or agents of NORTEL, nor shall SHIVA, its employees or agents, be eligible or entitled to any benefits, perquisites or privileges given or extended to NORTEL employees. 12.5 SHIVA represents and warrants to NORTEL that SHIVA shall be solely responsible for: (i) compensating each of its employees performing SPG services under the MARKETING AGREEMENT; (ii) withholding any sums from amounts payable to such employees with respect to federal, state or local taxes, FICA contributions, unemployment insurance, or similar matters; and (iii) paying all such amounts to the appropriate entity. 13.0 CONFIDENTIALITY, PROPRIETARY NOTICES AND LEGENDS 13.1 Confidential Information. Each PARTY may receive, under the terms of the MARKETING AGREEMENT, proprietary, scientific, technical, planning, business, marketing, product or financial information, formulas, patterns, compilations, programs, devices, methods, techniques, processes, data, trade secrets or know-how (hereinafter "INFORMATION") of a PARTY or its SUBSIDIARIES or AFFILIATES which is designated as confidential or similar designation at the time of disclosure or that would be understood by the PARTY receiving such INFORMATION at the time of disclosure, exercising 21 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. reasonable business judgment, to be confidential (hereinafter "CONFIDENTIAL INFORMATION"). The receiving PARTY shall at all times during the term of the MARKETING AGREEMENT, and for ten (10) years after the termination of the MARKETING AGREEMENT, hold such CONFIDENTIAL INFORMATION in confidence and not disclose to THIRD PARTIES except for temporary workers or other contractors who have been retained by a PARTY pursuant to an agreement that contains appropriate confidentiality provisions. The receiving PARTY shall protect the CONFIDENTIAL INFORMATION of the disclosing PARTY to the same extent as it protects its own information of similar type but shall use no less than reasonable care. These obligations shall not apply to information which: (i) was in possession of, or was known by the receiving PARTY prior to its receipt from the disclosing PARTY; (ii) is or becomes public knowledge without the fault of the receiving PARTY; (iii) is received by the receiving PARTY without restriction on disclosure, from a THIRD PARTY who disclosed the information not in violation of any confidentiality restriction or (iv) is disclosed by the receiving PARTY pursuant to statute, regulation, or the order of a court of competent jurisdiction, provided the receiving PARTY previously notifies the disclosing PARTY to permit the taking of appropriate protective measures. The CONFIDENTIAL INFORMATION provisions contained in the MARKETING AGREEMENT shall apply to INFORMATION exchanged between the PARTIES pursuant to prior agreements, or in anticipation of this MARKETING AGREEMENT. 14.0 ****** For PRODUCTS that are the subject of this MARKETING AGREEMENT, SHIVA shall promptly ****** with a THIRD PARTY acceptable to both SHIVA and NORTEL ***************************************************************************, to the extent not previously supplied to NORTEL pursuant to a RTM license, the ***********************************************************************, all of which may be required for a ************************************** ****************. NORTEL shall pay *******************. Neither PARTY shall terminate ******************** without the prior written consent of the other PARTY. The **************** shall provide that in the event that (i) 22 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ***********************, or ************************, (ii) *************** ******* PRODUCTS ** NORTEL for ***************** according to the terms of the MARKETING AGREEMENT, or (iii) *********************************, **************************************************************************** ******************************************************************* MARKETING AGREEMENT ************************************************ MTDA, ********** ********************************************* NORTEL subject to a license that is intended to supplement if required but not to supersede any other license rights granted to NORTEL in this MARKETING AGREEMENT, ********** **************** according to the following terms. In the event of release ******************* due to (i) and (ii) NORTEL may use ************* ****************************************** but may not ******************* *********************************. In the case ************************** **************** (iii) ***************************************************** ***********************. Additionally, *********************** shall provide that (i) NORTEL may continue to **************************************** ************(ii)******************** NORTEL ********, NORTEL *************** ***************************************************************************** ************************************************************************* **************************************************************************** ***************************************************************************** ***********************************************. 15.0 INDEMNIFICATION AND LIABILITY 15.1 Indemnification. SHIVA shall defend, at its expense, any action brought against NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS to the extent that it is based on a claim or threatened claim that the manufacture, use or sale of the PRODUCTS infringe any copyright, patent, trademark, mask work or trade secret or other INTELLECTUAL PROPERTY right and SHIVA shall indemnify and hold NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS harmless from any costs, damages, settlements and fees (including reasonable legal fees and expenses) incurred by NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS in such action which are attributable to such claim or threatened claim provided that NORTEL notifies SHIVA promptly in writing of any claim, permits SHIVA to defend, compromise or settle the claim and provides all reasonably available information and assistance regarding such claim. SHIVA shall not be liable for any costs, damages, or fees incurred by NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS in the defense of such action or claim unless authorized in writing by SHIVA. Should any PRODUCTS become, or in SHIVA's reasonable opinion be likely to become, the subject of a claim for infringement of such copyright, patent, trademark, mask work or trade secret or other INTELLECTUAL PROPERTY rights, SHIVA may (i) procure for NORTEL, at no cost to NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS the right to continue to use the PRODUCTS, (ii) replace or modify the PRODUCTS at no cost to NORTEL, NORTEL's distributors, NORTEL's SUBSIDIARIES, NORTEL's AFFILIATES and CUSTOMERS, to make such non-infringing, provided that the replacement or modified PRODUCTS provides equivalent function and performance; or (iii) if neither (i) or (ii) are commercially feasible, terminate the right to use such PRODUCTS, remove the PRODUCTS, refund to NORTEL all monies paid by 23 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NORTEL to SHIVA in respect of such PRODUCTS, and cancel any further obligations NORTEL may have under the MARKETING AGREEMENT in respect of such PRODUCTS. This Section states the entire liability with respect to infringement of any THIRD PARTY INTELLECTUAL PROPERTY rights and neither PARTY shall have additional liability with respect to any alleged or proven infringement. 15.2 NORTEL and SHIVA each agree to indemnify, defend and hold harmless the other PARTY, and that PARTY'S SUBSIDIARIES, AFFILIATES, officers, directors, employees, agents, successors, and assigns, from any and all liabilities and threatened liabilities arising from, in connection with, or based on allegations of, any of the following: (i) the death or bodily injury of any agent, employee, customer, business invitee, or business visitor or other person caused by the tortious conduct of the indemnitor; (ii) the damage, loss or destruction of any real or tangible personal property caused by the tortious conduct of the indemnitor; and (iii) any claim, demand, charge, action, cause of action, or other proceeding asserted against the indemnitee but resulting from an act or omission of the indemnitor in its capacity as an employer of a person, including alleged or actual employment discrimination and wrongful termination actions. 15.3 Both NORTEL and SHIVA shall maintain, during the term of the MARKETING AGREEMENT, all insurance and/or bonds required by any applicable law, including, but not limited to: (a) workers' compensation insurance as prescribed by the laws of all jurisdictions in which work pursuant to the MARKETING AGREEMENT is performed; (b) employers' liability insurance with limits of at least Five Million Dollars ($5,000,000.00) per occurrence; (c) comprehensive general liability insurance (including products liability coverage, contractual liability, advertising liability, and comprehensive automobile liability coverage) each coverage with limits of at least Five Million Dollars ($5,000,000.00) per occurrence. A PARTY shall furnish certificates or other adequate proof of such insurance to the other PARTY upon written request by the other PARTY. 16.0 TERM AND TERMINATION 16.1 Term. The term of the MARKETING AGREEMENT is three (3) years from the EFFECTIVE DATE. The MARKETING AGREEMENT shall continue in force for the term unless terminated earlier under the provisions of this Article 16. SHIVA'S support obligations under the MARKETING AGREEMENT shall continue for an additional seven (7) years after the initial term has expired. 16.2 Termination for Cause. In the event of any material breach of the MARKETING AGREEMENT, the non-breaching PARTY may terminate the MARKETING AGREEMENT by giving *************** prior written notice to the other PARTY; provided, however, that the MARKETING AGREEMENT shall not terminate if the other PARTY has cured the breach prior to the expiration of such ********** 24 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. *** period, or if such breach cannot be cured within such ************** period, the other PARTY has initiated within such ************** period actions to cure such breach, and thereafter cures such breach as soon as reasonably practical. In the event the MARKETING AGREEMENT is terminated due to SHIVA's breach for not providing PRODUCTS to NORTEL for purchase or services according to the terms of the MARKETING AGREEMENT, ************* ********** shall be *************************** pursuant to ******. Unless otherwise stated in a SPECIFIC PRODUCT/FEATURE ADDENDUM, in the event the ********** provisions set forth in a SPECIFIC PRODUCT/FEATURE ADDENDUM are terminated, NORTEL shall be entitled to ******************************** ******************************* as described below. Any ************************* NORTEL to SHIVA in respect of a SPECIFIC PRODUCT or FEATURE which ******************************* SHIVA ************* *********************************** (as described in the corresponding SPECIFIC PRODUCT/FEATURE ADDENDUM) for such SPECIFIC PRODUCT or FEATURE shall be **************** NORTEL ******************************* NORTEL ******** such SPECIFIC PRODUCT or FEATURE ******************** as described in the SPECIFIC PRODUCT/FEATURE ADDENDUM. 16.3 Termination for Insolvency. Either PARTY may terminate the MARKETING AGREEMENT in the event the other PARTY: (i) admits in writing its inability to pay its debts generally as they become due; (ii) commits an act of bankruptcy, (iii) files a notice of intention to make a proposal under the Bankruptcy and Insolvency Act, commences proceedings under the Companies' Creditors Arrangement Act, or otherwise seeks a reorganization, adjustment or composition under applicable bankruptcy laws or any other similar law or statute of any relevant jurisdiction; (iv) enters into an assignment, arrangement or composition for the benefit of its creditors; or (v) consents to the appointment of a receiver or receiver-manager of itself or of the whole or any substantial part of its property. In the event the MARKETING AGREEMENT is terminated due to SHIVA's ********************************** **************************************************. 16.4 Effect of Termination or Expiration. In the event the MARKETING AGREEMENT is terminated or expires, the following license rights shall remain in effect: (i) CUSTOMER Rights. All sublicenses properly granted by either PARTY for the PRODUCTS or FEATURES prior to the date of the termination shall continue in full force and effect. 25 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. (ii) License Rights. All licenses granted by each PARTY to the other PARTY under Exhibit E shall continue in full force and effect for an indefinite period of time, subject to the following: 1. A PARTY seeking to obtain a ********** license has met the ********************* for a particular major revision of SOFTWARE related to SPECIFIC PRODUCT(S) as such ************************* is described in ********************** 2. A PARTY continues to make royalty payments of ************ *********************** to the granting PARTY. 3. NORTEL shall be granted a ********** license in the event SHIVA ******************************************************** *************************************************************************** *************** breaches the MARKETING AGREEMENT or is in breach of its obligations under the MTDA. In the event of such breach by ************ *********************************************************************** **********************. (iii) Rights to Manufacture. All Rights to Manufacture granted under Article 6.0 shall continue in full force and effect for an indefinite period of time and are perpetual, fully paid up rights. 16.5 ************************ The PARTIES shall agree upon the SPECIFICATION for each major revision of SOFTWARE related to SPECIFIC PRODUCT(S). Once the revision has been agreed to by the PARTIES, the PARTY that develops the SOFTWARE must be paid ************************************** in royalty payments by the other PARTY in order to obtain a *********** license for such revision. This ***************** from and modify the **************** of the SOFTWARE. The PARTIES anticipate that one ****************************************** **************************************************************************** **************************** for each major revision. In no event may the **************************************************************************** ********************************************************* NORTEL shall only be able to ********************************************************* ***************************************************************************** **************************************************************************** 26 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. ************. NORTEL shall be entitled to ******************************** *************************************************************************** ***************************************************************************** ********************************************************************** **********************************. This payment shall be paid in equal *********************************************************************** ******************. 17.0 GENERAL 17.1 Governing Law. The MARKETING AGREEMENT shall be governed in all respects by the laws of Ontario and the federal laws of Canada applicable therein. 17.2 Currency. All currency amounts in the MARKETING AGREEMENT are denominated in U.S. dollars. 17.3 Transfer Rights. Neither PARTY shall assign the MARKETING AGREEMENT to any THIRD PARTY (except a SUBSIDIARY) without the prior written consent of the other PARTY; provided however, the merger or consolidation of one PARTY into, or the sale of all or substantially all of the assets of such PARTY to, a THIRD PARTY shall not be deemed to be an assignment. The MARKETING AGREEMENT shall be binding upon and inure to the benefit of the PARTIES hereto and their permitted successors and assigns and provided that the assigning PARTY shall remain fully responsible for all of its obligations under the MARKETING AGREEMENT unless the other PARTY has expressly agreed in writing to release the assigning PARTY from such obligations. 17.4 Notices. All notices or reports permitted or required under this MARKETING AGREEMENT shall be in writing and shall be delivered by personal delivery, facsimile transmission or by certified or registered mail, return receipt requested, and shall be deemed given upon personal delivery, five (5) days after deposit in the mail, or upon acknowledgment of receipt of electronic transmission. Notices to SHIVA shall be sent to the Corporate Secretary at : Shiva Corporation 28 Crosby Drive Bedford, MA 01730-1437 Attn.: Corporate Secretary Notices to NORTEL shall be sent to: NORTHERN TELECOM, INC. 2221 Lakeside Blvd. Richardson, Texas 75082 Attn.: AVP, Internet Solutions 27 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. NORTHERN TELECOM INC. 2305 Mission College Blvd. Santa Clara, California Attn.: Sr. Manager, Enterprise Licensing cc: Northern Telecom Limited 8200 Dixie Road, Suite 100 Brampton, Ontario Canada L6T 5P6 Attn.: Manager, Technology Law and Licensing 17.5 No Agency. Nothing contained herein shall be construed as creating any agency, joint venture, partnership, or other form of joint enterprise between the PARTIES. 17.6 Force Majeure. Neither PARTY shall be liable by reason of any failure or delay in the performance of its obligations hereunder (except for the payment of money) on account of strikes, shortages, riots, insurrection, fires, flood, storm, explosions, acts of God, war, governmental action, labor conditions, earthquakes, or any other cause which is beyond the reasonable control of such PARTY. If such delays continue for more than sixty (60) consecutive days then either PARTY may elect to terminate this MARKETING AGREEMENT with no further obligations on either PARTY. In the event the MARKETING AGREEMENT is terminated as provided in this Section, NORTEL shall be entitled to credit any future royalty obligations against advance royalty payments as described. Any ******************** NORTEL ** SHIVA in respect of a SPECIFIC PRODUCT or FEATURE which ******************************* SHIVA ************* ******************************* (as described in the corresponding SPECIFIC PRODUCT/FEATURE ADDENDUM) for such SPECIFIC PRODUCT or FEATURE shall be ********************************************************************* ******************************************************. 17.7 Waiver. The failure of either PARTY to require performance by the other PARTY of any provision hereof shall not affect the full right to require such performance at any time thereafter; nor shall the waiver by either PARTY of a breach of any provision hereof be taken or held to be waiver of the provision itself. 17.8 Severability. In the event that any provision of the MARKETING AGREEMENT shall be unenforceable or invalid under any applicable law or be so held by applicable court decision, such unenforceability or invalidity shall not render the MARKETING AGREEMENT unenforceable or invalid as a whole, and, in such event, such provision shall be changed and interpreted so as to best 28 accomplish the objectives of such unenforceable or invalid provision within the limits of applicable law or applicable court decisions. 17.9 Entire Agreement. The MARKETING AGREEMENT and the Exhibits constitute the entire agreement between the PARTIES with respect to the subject matter hereof. The MARKETING AGREEMENT supersedes, and the terms of the MARKETING AGREEMENT govern, any prior or collateral agreements, including but not limited to the agreement between the PARTIES dated May 15, 1995 and all subsequent amendments, with respect to the subject matter hereof (but does not supersede the MTDA between the PARTIES which deals with related subject matter). In the event of a conflict between the MARKETING AGREEMENT and the MTDA, the MARKETING AGREEMENT shall govern. The MARKETING AGREEMENT may only be changed by mutual agreement of authorized representatives of the PARTIES in writing. 17.10 Survivability. Sections 1, 2, 4, 6, 11, 13 ,15, 16, and Section 17.10, 17.12 and any corresponding parts of the exhibits referenced in such Sections shall survive termination of this MARKETING AGREEMENT. 17.11 Except for any announcement intended solely for internal distribution by the PARTIES or any disclosure required by legal, accounting or regulatory requirements beyond the reasonable control of the PARTIES, all media releases, public announcement or public disclosures (including, but not limited to, promotional or marketing material) relating to the MARKETING AGREEMENT or its subject matter shall be coordinated with and approved in writing by both PARTIES prior to the release thereof. 17.12 Both PARTIES shall keep reasonable, proper records relating to: Sections 2.2, 3.1, 5.1, 5.2, 6.3, 8.2, 9.2, 9.4, 11.1, 12.2, Exhibit D, Exhibit E, Exhibit H and Exhibit I for seven (7) years after the termination of the MARKETING AGREEMENT. A chartered or certified public accountant selected by either PARTY may, upon reasonable notice, during normal business hours, but not more than once a year, inspect the reporting PARTY's records as is necessary to verify the accuracy of the reporting PARTY's charges and/or pricing pursuant to Sections 2.2, 3.1, 5.1, 5.2, 6.3, 8.2, 9.2, 9.4, 11.1, 12.2, Exhibit D, Exhibit E, Exhibit H and Exhibit I. 17.13 Employee Restrictions. During the term of the MARKETING AGREEMENT, and for a period of one (1) year thereafter, neither PARTY, without the prior written consent of the other PARTY, shall solicit or employ any employee of the other PARTY who is responsible for completing obligations of the other PARTY under the MARKETING AGREEMENT or the MTDA. 17.14 Export Compliance. The rights and obligations of the PARTIES may be subject to United States and Canadian laws and regulations governing the 29 license and delivery of technology abroad by persons subject to the jurisdiction of the United States and Canada, including the Export Administration Act of 1979, as amended, and the Export Administration regulations issued by the US Department of Commerce, International Trade Administration, Office of Export Administration. Each PARTY shall not, directly or indirectly, export, reexport or transship technology, software, components or PRODUCTS, in such manner as to violate such laws and regulations in effect from time to time to the extent that such laws are applicable to a PARTY. 17.15 NAFTA. (i) Administrative Actions. Both PARTIES shall perform all administrative actions required to qualify each PRODUCT sold under the MARKETING AGREEMENT for preferential treatment under the rules of any applicable trade treaty, including, without limitation, NAFTA. If a PRODUCT qualifies under NAFTA, the PARTY shall prepare and distribute a NAFTA Certificate of Origin, and any other documents required. The PARTIES shall respond to requests from the other PARTY for information regarding any NAFTA Certificate of Origin and assist each other in resolving any eligibility issues. (ii) Certificate of Origin. If a NAFTA Certificate of Origin is prepared for each shipment, each PARTY shall: (a) retain the original NAFTA Certificate of Origin with appropriate backup documentation, (b) attach a copy of the NAFTA Certificate of Origin to the customs/shipping documents for the qualifying component or PRODUCT, and (c) mark the customs/shipping documents with the legend: "Copy of NAFTA Certificate of Origin attached." If a blanket NAFTA Certificate of Origin is prepared, the PARTIES shall: (a) retain the original NAFTA Certificate of Origin with appropriate backup documentation, (b) mark the customs/shipping documents for the qualifying component or PRODUCT with the legend: "Copy of blanket NAFTA Certificate of Origin on file at NORTEL's customs office in Milton, Ontario, Canada." And (c) mail copies of the NAFTA Certificate of Origin to the other PARTY. 17.16 U.N. Convention on Contracts The PARTIES agree that the U.N. Convention on Contracts for the International Sale of Goods (Vienna, 1980) shall not apply to the MARKETING AGREEMENT nor to any dispute or transaction arising out of the MARKETING AGREEMENT. 17.17 Dispute Resolution. In the event that a controversy or claim arises relating to the MARKETING AGREEMENT, or the breach thereof, the PARTIES shall use good faith efforts to resolve such controversy or claim without resort to litigation. Upon written notice of any such dispute ("Dispute Notice"), the project managers for each PARTY must consult with each other to attempt to resolve the matter amicably for a period of at least thirty (30) days. In the event that the PARTIES are unable to reach an accommodation within such 30 thirty (30) day period, senior management from both NORTEL and SHIVA with authority to settle the controversy or claim shall hold a meeting and use good faith efforts to resolve the dispute within the following thirty (30) days. Should the senior management meeting(s) also fail to resolve the dispute, the PARTIES agree to engage the services of a mutually agreeable independent mediator prior to resorting to litigation. An attempt to arrive at a settlement shall be deemed to have failed only if the mediation process fails to resolve the issue within another thirty (30) day period. 31 17.18 Taxes. Prices and fees set forth in the MARKETING AGREEMENT are (a) exclusive of any applicable excise taxes now existing or hereafter imposed by any applicable taxing authority; (b) exclusive of the transportation charges and duty applicable between the shipping location and delivery location; and (c) inclusive of all other taxes, transportation charges and duty for PRODUCT which NORTEL purchases from SHIVA or royalty payments NORTEL makes to SHIVA for which NORTEL is liable shall be separately stated on the invoice from SHIVA to NORTEL. Such taxes, transportation charges and duty for royalty payments SHIVA makes to NORTEL for which SHIVA is liable shall be separately stated on the invoice from NORTEL to SHIVA. NORTEL and SHIVA agree not to assess any applicable excise or sales tax where one PARTY furnishes the other PARTY a tax exemption certificate, a certificate of authority, a direct pay permit and/or any equivalent acceptable to the applicable taxing authority. Either PARTY shall withhold any withholding tax required to be withheld from payments made to the receiving PARTY pursuant to the MARKETING AGREEMENT. To assist in obtaining any tax credits for the amounts withheld from payments made to the receiving PARTY, the paying PARTY shall promptly furnish the receiving PARTY with such evidence as may be required by the appropriate taxing authorities to establish that any such tax has been paid. SHIVA CORPORATION NORTHERN TELECOM LIMITED Signature: Signature: Frank Ingari Klaus Buechner President Group Vice President Multimedia Networks Signature: Name: David Archibald Title: V.P. and Deputy General Counsel 32 EXHIBIT A (THE CONTENTS OF EXHIBIT A CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 33 EXHIBIT B (THE CONTENTS OF EXHIBIT B CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 34 EXHIBIT C (THE CONTENTS OF EXHIBIT C CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 35 EXHIBIT D SHIVA SUPPORT TO NORTEL Support Requirements SHIVA shall provide Technical Support seven (7) days a week, twenty four (24) hours a day. This support shall be manned during normal business hours 9:00 a.m. - 8:00 p.m. EST. During all other hours the support shall be on pager call out. SHIVA shall provide Manager Technical Support seven (7) days a week, twenty four (24) hours a day. This support shall be manned during normal business hours 9:00 a.m. -8:00 p.m. EST. During all other hours the technical support manager shall be on pager call out. SHIVA shall provide NORTEL with Training Material and course work for a Train the Trainer course as required for each new hardware and software general release. SHIVA shall provide written updates to these Materials for the time periods between these general releases. The PARTIES agree to work together in good faith to determine any remaining aspects of the detailed support policy that is not covered in this AGREEMENT. Support Process Technical support is based on three levels of support, NORTEL shall provide the first level of support or primary customer interface which is called NORTEL's Front Line Support (FLS). NORTEL shall provide second level support by its Global Technical Support (GTS) group. NORTEL's GTS group shall be the interface to SHIVA Technical Support (STS) on all global PRODUCT customer issues. Also, designated engineers from NORTEL's Emergency Technical Assistance Support (ETAS) group shall be able to contact the SHIVA technical support group for any critical issues. SHIVA shall provide per mutual agreement by SHIVA and NORTEL senior management first level support in the event of failure to achieve fix to E1 error in 24 hours or a Major error within 30 days. SHIVA technical support engineer response time shall be based on the following: Normal Business hours: 9am - 8pm EST One (1) hour response time Monday to Friday excluding holidays After hours: 8pm - 9am EST NORTEL's GTS group may send problem notification via email or through SHIVA 'S call tracking system 36 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. After Hours Emergencies NORTEL's GTS group shall be provided with a phone number to use to contact SHIVA personnel (engineer pager and manager pager), 15 Minute response time. NORTEL's GTS group shall be able to communicate to SHIVA'S STS group via phone, email, and faxes. *************************************************************************** *********. Problem definition Problems shall be defined as follows: Critical E1 emergency, equipment out of service E3, Follow-Up root cause of E1 outage Major Service affecting problem Minor Non-service affecting problem Service Objective The following time frames shall be used to specify service objectives for each type of problem definition. The time frame is defined from the time that NORTEL notifies SHIVA Technical support of an escalated issue to the time that SHIVA provides an acceptable resolution. Critical E1 < 24 hours service restored with short term fix if applicable. E3 trouble report opened for long term fix. E3, Follow-Up < 30 days Major < 30 days Minor <180 days * Times from when NORTEL informs SHIVA of a problem. All E1 and E3 issues shall be conveyed to SHIVA as soon as reported to NORTEL's GTS group so as to meet the above time frames. Escalation of a Problem NORTEL and SHIVA technical support shall work together to define the escalation process within each organization and establish the appropriate interface between the organizations at the necessary level of responsibility. 37 CONFIDENTIAL MATERIAL OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE SUCH OMISSIONS. Additional Support or Sustaining Engineering Requirements for Internet Thruway Application Customers SHIVA shall use reasonable efforts to implement the Bellcore Software Introduction Process for all new features developed for Software, including Bellcore guidelines for MTBF, Test Plans/Results and Release Notes. NORTEL and SHIVA shall jointly review test plans/results prior to implementation/release. NORTEL must agree, in writing, to any features or functionality that are removed from Software for a NORTEL customer. SHIVA agrees to use reasonable efforts to provide the following documentation to NORTEL for all new PRODUCTS/features: 1. detailed specifications on PRODUCTS/FEATURES, 2. detailed troubleshooting methods and procedures and 3. detailed engineering provisions, capacity. SHIVA and NORTEL support personnel agree to meet within thirty days following execution of the MARKETING AGREEMENT to define acceptable quality statistics and develop a quality assurance program. Support Fees **** for support for an initial period commencing at the period of execution of the MARKETING AGREEMENT ********************************************* ***************************************************************************** **************************************************************************** ********************************************************************* **************************************************************************** *************************************************************************** ***************************************************************************** *************************************************************************** **************************************************************************** ***************************************************************************** ******************************************************************** ************************************************************************* ************************. SOFTWARE and DOCUMENTATION Maintenance/Releases SOFTWARE Maintenance SHIVA shall be responsible for SOFTWARE maintenance of the PRODUCT. This includes the release of bug fixes, patches, SOFTWARE updates and maintenance releases. Maintenance releases shall include previously agreed upon bug fixes and patches. The schedule for SOFTWARE updates shall be mutually determined by SHIVA and NORTEL. 38 SHIVA shall support the current major releases (including release revisions) of SOFTWARE as well as one previous release (including release revisions) of SOFTWARE in the PRODUCTS. SHIVA shall provide NORTEL with a list of known bugs in each release of the PRODUCT SOFTWARE prior to SHIVA's release of such SOFTWARE to NORTEL and upon identification of any bugs in a release of SOFTWARE previously released to NORTEL. SHIVA shall provide all bug fixes (patches) and release notes to NORTEL's technical support for release to NORTEL's customers. SHIVA and NORTEL agree to establish a distribution method for releases. SOFTWARE Releases/Documentation All major SOFTWARE releases and upgrades shall be scheduled by SHIVA and NORTEL in the MTDA. These releases shall contain significant new features and functionality. The time frames for upgrades shall be defined by SHIVA and NORTEL Product management teams. The release content shall ensure that the roll-out plans are synchronized between NORTEL and SHIVA product lines. SHIVA shall provide the standard SHIVA version of documentation for each release of the SOFTWARE. Any customization of documentation shall be negotiated separately. Documentation includes on-line help, user/reference guides, release notes and any other applicable documentation. Knowledge SHIVA shall provide NORTEL's GTS group access to pertinent existing knowledge bases for remote access support and product support issues. Knowledge to include Frequently Asked Questions (FAQS) and Technical Tips, and Lotus Notes databases. It shall also include new tools as developed throughout the life of the project. Each of these shall be updated for each release of the PRODUCTS. NORTEL technical support shall have access to all public on-line forums, such as the World Wide Web site, ftp server, SHIVA BBS and the SHIVA Fax On Demand server. NORTEL shall provide SHIVA with access to pertinent knowledge bases related to frame relay technology. 39 Hardware Support for SPECIFIC PRODUCT Manufactured and Delivered by SHIVA The warranty for hardware relating to SPECIFIC PRODUCT that is manufactured and delivered by SHIVA is specified in Section 11.1. The following repair service procedures shall be followed by NORTEL technical support staff for repairs to SPECIFIC PRODUCT(S) that have been manufactured by SHIVA and supplied to NORTEL: 1) NORTEL shall call SHIVA to obtain a Return Material Authorization (RMA) number. 2) NORTEL shall send the equipment to be repaired to SHIVA as outlined in the letter of shipping instruction that is included in each order. All SPECIFIC PRODUCT(S) to be repaired should be returned in their original or equivalent packing materials. The applicable RMA number must be placed on the address label when the SPECIFIC PRODUCT is shipped to SHIVA. NORTEL shall pay for the cost of shipping SPECIFIC PRODUCT to SHIVA. 3) NORTEL shall call SHIVA to confirm receipt of shipment. 4) SHIVA shall repair or replace the failed system pursuant to Section 9. SHIVA shall pay for the cost of shipping SPECIFIC PRODUCT to NORTEL. NORTEL is responsible for local sparing of required hardware for their customers. SHIVA shall provide recommendations as to the numbers and types of spares to be stocked. SHIVA shall provide NORTEL with appropriate statistics regarding hardware problem tracking. Manufacturer Discontinuation of SPECIFIC PRODUCT SHIVA shall support PRODUCT for a period of seven (7) years after discontinuing manufacture, however, in the event that NORTEL has acquired a RTM for such PRODUCT, NORTEL shall continue to manufacture such PRODUCT itself and shall not have the option of requiring that SHIVA continue manufacture of such PRODUCT. SHIVA further agrees to notify NORTEL twelve (12) months prior to discontinuing manufacture of any PRODUCT. Long term support fees shall be determined on an annual basis. 40 EXHIBIT E (THE CONTENTS OF EXHIBIT E CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 41-48 EXHIBIT F (THE CONTENTS OF EXHIBIT F CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 49 EXHIBIT G (THE CONTENTS OF EXHIBIT G CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 50 EXHIBIT H (THE CONTENTS OF EXHIBIT H CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 51-52 EXHIBIT I (THE CONTENTS OF EXHIBIT I CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 53-57 EXHIBIT J (THE CONTENTS OF EXHIBIT J CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 58 EXHIBIT K (THE CONTENTS OF EXHIBIT K CONSIST OF CONFIDENTIAL INFORMATION WHICH HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.) 59 EX-10.2 3 Exhibit 10.2 March 12, 1997 Woody Benson 14 Forest Avenue Newton, MA 02165 Dear Woody: This letter summarizes revised salary and severance terms that we have agreed to: New base salary, effective from January 1, 1997, is $250,000 annually. Upon notice of termination, whether involuntary or voluntary, the following severance package will take effect: * Employment will be continued for 6 months from date of notice that you will effectively cease active employment. This will enable you to continue to vest in your options and extends the time period during which you are able to exercise such options. You will effectively have 2 additional months following termination to exercise such options for an overall total exercise period of 8 months from date that you cease active employment. * You will continue to receive your base salary for a period of 6 months following the date that you effectively cease active employment. No incentive compensation or commission compensation will be paid during this 6 month period. * You will continue to receive medical and dental benefits for the 6 month period following notice of termination. * You will continue to participate in Shiva's 401(k) Plan for the 6 month period following notice of termination. * You will continue to be eligible for life and disability insurance programs offered by Shiva for the 6 month period following notice of termination. The above benefits are contingent upon my receipt of an executed release at the time of notice of termination. Very truly yours, Frank Ingari President & CEO Shiva Corporation EX-11 4 Exhibit 11 Shiva Corporation Computation of Net Income (Loss) Per Share (1)
Three months ended --------------------------- March 29, March 30, 1997 1996 (2) ------------- ------------- Weighted Average Common and Common Equivalent Shares: Weighted Average Common Shares Outstanding During the Period 28,971,621 27,830,865 Weighted Average Common Equivalent Shares - 2,694,207 ---------- ---------- 28,971,621 30,525,072 ========== ========== Net Income (Loss) ($8,370,000) $4,339,000 Primary Net Income (Loss) Per Share ($0.29) $0.14 (1) Fully diluted net income per share has not been separately presented, as the amounts would not be materially different from primary net income per share. Net loss per share excludes common equivalent shares because their effect is antidilutive. (2) Retroactively adjusted to reflect the one-for-one stock dividend on all shares of the Company's common stock declared by the Company's Board of Directors on April 2, 1996. The stock dividend was paid on April 22, 1996, to all stockholders of record on April 12, 1996.
EX-27 5
5 1000 3-MOS JAN-03-1998 DEC-28-1996 MAR-29-1997 69,209 33,843 46,233 21,797 16,497 150,193 38,376 13,830 177,755 28,175 0 290 0 0 148,732 177,755 31,159 31,159 21,639 21,639 23,859 469 122 (13,499) (5,129) (8,370) 0 0 0 (8,370) (0.29) (0.29)
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