-----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, GYVxE7eWn+0XuTC0MG7KmyWluhL7W5MYN5RJ8j9APhtD6PjgI8MX/A8TpU77lmcJ 4TqD0/OnckwHuuhQBxZwWg== 0000950135-96-003848.txt : 19960829 0000950135-96-003848.hdr.sgml : 19960829 ACCESSION NUMBER: 0000950135-96-003848 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19960828 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHIVA CORP CENTRAL INDEX KEY: 0000879136 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] IRS NUMBER: 042889151 STATE OF INCORPORATION: MA FISCAL YEAR END: 0101 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 333-10951 FILM NUMBER: 96622218 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 S-3 1 SHIVA CORP REGISTRATION STATEMENT ON FORM S-3 1 As filed with the Securities and Exchange Commission on August 28, 1996 Registration No. 333-___________ - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 -------------------------- SHIVA CORPORATION (Exact name of registrant as specified in its charter) Massachusetts 04-2889151 (State or other jurisdiction of incorporation (I.R.S. employer identification or organization) number) 28 Crosby Drive Bedford, MA 01730 (617) 270-8300 (Address, including zip code, and telephone number, including area code, of Registrant's principal executive offices) -------------------------- FRANK A. INGARI President and Chief Executive Officer Shiva Corporation 28 Crosby Drive Bedford, MA 01730 (617) 270-8300 (Name and address, including zip code, and telephone number, including area code, of agent for service) -------------------------- Copy to: MARK G. BORDEN, ESQ. Hale and Dorr 60 State Street Boston, MA 02109 (617) 526-6000 -------------------------- Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. 2 If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, other than securities offered only in connection with dividend or interest reinvestment plans, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / _______________ If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / _______________ If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / CALCULATION OF REGISTRATION FEE
========================================================================================================================= TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF SECURITIES TO BE REGISTERED REGISTERED(1) OFFERING PRICE PER SHARE(1) AGGREGATE OFFERING PRICE(1) REGISTRATION FEE - ------------------------------------------------------------------------------------------------------------------------- Common Stock par value $.01 per share 691,587 shares $ 43.75 $30,256,931.25 $10,433.23 ========================================================================================================================= (1) The price of $43.75 per share, which is based upon prices of the Common Stock on the Nasdaq National Market on August 21, 1996, is set forth solely for the purpose of calculating the registration fee, in accordance with Rule 457(c) under the Securities Act of 1933. =========================================================================================================================
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. 3 SUBJECT TO COMPLETION: DATED AUGUST 28, 1996 SHIVA CORPORATION ------------------------- 691,587 SHARES COMMON STOCK $.01 PAR VALUE PER SHARE ------------------------- This Prospectus relates to the resale of 691,587 shares of Common Stock, $.01 par value per share (the "Shares"), of Shiva Corporation (the "Company" or "Shiva") by certain selling stockholders (the "Selling Stockholders") who acquired the Shares in connection with the acquisition by Shiva of AirSoft, Inc. The Shares may be sold from time to time by the Selling Stockholders in brokers' transactions, to market makers or in block placements, at market prices prevailing at the time of sale or at prices otherwise negotiated. See "Selling Stockholders" and "Plan of Distribution." The Company will not receive any of the proceeds from the sale of the Shares. The Company has agreed to bear certain expenses in connection with the registration of the Shares being offered and sold by the Selling Stockholders. The Company's Common Stock is quoted on the Nasdaq National Market under the symbol "SHVA". On August 27, 1996, the last reported sale price for the Common Stock was $48.25. ----------------------- THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 5. ----------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ----------------------- The date of this Prospectus is ____________, 1996. 4 AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information are available for inspection and copying at the public reference facilities maintained by the Commission at 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549, and at the following regional offices of the Commission: Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Section of the Commission at 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549 at prescribed rates. In addition, the Company is required to file electronic versions of these documents with the Commission through the Commission's Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. The Commission maintains a World Wide Web site at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. The Common Stock of the Company is quoted on the Nasdaq National Market. Reports and other information filed by the Company can also be inspected at the offices of the National Association of Securities Dealers, Inc., Reports Section, 1735 K Street, N.W., Washington, D.C. 20006. The Company has filed with the Commission a Registration Statement on Form S-3 (including all amendments thereto, the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Common Stock offered hereby. This Prospectus does not contain all information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. For further information regarding the Company and the Common Stock offered hereby, reference is hereby made to the Registration Statement and to the exhibits and schedules filed therewith. Statements contained in this Prospectus regarding the contents of any agreement or other document filed as an exhibit to the Registration Statement are not necessarily complete, and in each instance reference is made to the copy of such agreement filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference. The Registration Statement, including the exhibits and schedules thereto, may be inspected at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or any part thereof may be obtained from such office upon payment of the prescribed fees. The Company will provide without charge to each person to whom a Prospectus is delivered, on the written or oral request of any such person, a copy of any or all of the documents incorporated by reference herein (other than exhibits to such documents unless such exhibits are specifically incorporated by reference into such documents). Written requests for such copies should be directed to Shiva Corporation, Attention: M. Elizabeth Potthoff, 28 Crosby Drive, Bedford, Massachusetts 01730. Telephone requests may be directed to M. Elizabeth Potthoff at (617) 270-8300. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE The following documents filed by the Company with the Commission pursuant to the Exchange Act are incorporated in this Prospectus by reference (File No. 0-24918): 1. The Company's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. 2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 1996. 3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 29, 1996. 4. The Company's Current Report on Form 8-K dated as of June 28, 1996. 5. The Company's Current Report on Form 8-K/A (Amendment No. 1 to Form 8-K dated as of June 28, 1996) dated as of July 8, 1996. -2- 5 6. The Company's Current Report on Form 8-K/A (Amendment No. 2 to Form 8-K dated as of June 28, 1996) dated as of August 13, 1996. 7. The description of the Company's Common Stock, $.01 par value per share, contained in the Registration Statement on Form 8-A filed under the Exchange Act and declared effective on November 17, 1994, including any amendment or report filed for the purpose of updating such description. All documents subsequently filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the offering of the Shares, shall be deemed to be incorporated by reference in this Prospectus and made a part hereof from the date of filing of such documents. Any statement contained in a document incorporated or deemed to be incorporated by reference in this Prospectus shall be deemed to be modified or superseded for purposes of this Prospectus to the extent that a statement contained herein or in any other subsequently filed document which also is or is deemed to be incorporated by reference herein or in any Prospectus Supplement modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. TRADEMARKS SHIVA[Registered Trademark], SHIVA WITH DESIGN[Registered Trademark] (Shiva's logo), NETMODEM/E[Registered Trademark], NETMODEM[Registered Trademark], NETBRIDGE[Registered Trademark], NETSERIAL[Registered Trademark], TELEBRIDGE[Registered Trademark], HUBLET[Registered Trademark], LANROVER[Registered Trademark], SPIDER[Registered Trademark], AIRSOFT[Registered Trademark] and ETHERGATE[Registered Trademark] are registered trademarks of Shiva and Shiva PPP[Trademark], ShivOS[Trademark], Tariff Management[Trademark], isdn[Trademark], ShivaPort[Trademark], ShivaIntegrator[Trademark], WebRover[Trademark], ShivaRemote[Trademark], Shiva Dial-In SDK[Trademark] LanRover Access Switch[Trademark], Shiva AccessPort[Trademark], ISSAK[Trademark], PowerBurst[Trademark], PowerSurf[Trademark], PowerNet[Trademark] and AirAccess[Trademark] are trademarks of Shiva. This Prospectus also includes other trade names and marks of companies other than Shiva. -3- 6 THE COMPANY Shiva is a leader in the design, development, manufacture and sale of hardware and software products that enable transparent remote connectivity to enterprise networks from any location having access to switched analog or digital telephone service. Founded in 1985, Shiva has applied its expertise in internetworking, personal computer ("PC") software and telephony to pioneer the "remote node" approach to remote network access. Shiva's remote node solution enables a remote PC to access an existing network as a fully functional network node, thereby allowing users to access network resources from their remote PCs as if they were directly connected to the enterprise network. Shiva servers enable users to connect to computing resources from home, while traveling, or as part of a branch office or multi-user worksite. The Company has three remote access product lines: (i) the LanRover family, introduced in 1992 (including the LanRover Access Switch, introduced in 1996), which provides enterprise-wide remote access, (ii) the Integrator, introduced in 1994, which provides ISDN (Integrated Services Digital Network) LAN-to-LAN (local area network) remote access for enterprises, workgroups and the small office, home office (SOHO) market and (iii) the NetModem/E, introduced in 1991, which provides remote access for workgroups and the SOHO market. These products include server hardware and software, client software and network management software. Shiva remote access products enable single- user dial-in to LANs over analog or digital lines, individual dial-out from LANs to other locations and routed LAN-to-LAN dial-up connections. The Company's remote access products support all major desktop computing platforms, including IBM-compatible PCs, Apple Macintoshes and UNIX workstations. The Company also has a family of communications server products, including ShivaPort, which provides remote access for TCP/IP devices, as well as multiprotocol terminal server functionality to connect terminals and printers to a LAN. Shiva has developed strategic partnerships with computer operating systems vendors, such as Microsoft, major information systems providers, such as IBM, Motorola and Hewlett-Packard, and a major communications equipment company, Northern Telecom Limited. Shiva markets its products in domestic and international markets through both direct and indirect distribution channels to reach a wide range of customers. On August 22, 1995, the Company acquired Spider Systems Limited ("Spider"), a leading digital internetworking company based in Edinburgh, United Kingdom, in exchange for approximately 3,923,606 shares of Common Stock (the "Spider Acquisition"). The acquisition of Spider provides Shiva with a range of advanced network access products incorporating Wide Area Network (WAN) technologies such as ISDN, X.25 and Frame Relay, as well as network consulting services. On June 17, 1996, the Company acquired AirSoft, Inc. ("AirSoft"), a developer of performance enhancement software products and technologies for remote network computing based in California, in exchange for approximately 691,587 shares of Common Stock (the "AirSoft Acquisition"). The AirSoft Acquisition enables Shiva to add AirSoft's technologies to its portfolio of remote access solutions and to complement the market strength of Shiva PPP, Shiva's OEM client software package that is included in both the Netscape Navigator Personal Edition and the Microsoft Internet Explorer. Spider and AirSoft are collectively referred to herein as the "Acquired Companies," and the Spider Acquisition and the AirSoft Acquisition are collectively referred to as the "Recent Acquisitions." The Company's principal offices are located at 28 Crosby Drive, Bedford, Massachusetts 01730, and the Company's telephone number is (617) 270-8300. -4- 7 SELECTED CONSOLIDATED FINANCIAL DATA The following data as of December 30, 1995 and December 31, 1994 and for each of the three years in the period ended December 30, 1995 have been derived from, and are qualified by reference to, the Company's financial statements audited by Price Waterhouse LLP, independent accountants. The consolidated balance sheet at December 30, 1995 and December 31, 1994 and the related consolidated statements of operations and of cash flows for the three years ended December 30, 1995 and notes thereto appear elsewhere herein. The Price Waterhouse LLP report on the financial statements is based in part on the report of other independent accountants. These accountants' reports also appear elsewhere in this Prospectus. The following data as of January 2, 1993 have been derived from, and are qualified by reference to, the Company's unaudited financial statements, not included in this Prospectus. The following data as of December 31, 1991 and for the year then ended have been derived from, and are qualified by reference to, the Company's unaudited financial statements, not included in this Prospectus, and include all adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the results of such periods. The following data as of June 29, 1996 and for each of the six-month periods ended June 29, 1996 and July 1, 1995 have been derived from, and are qualified by reference to, the Company's unaudited financial statements also appearing herein and which, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the resuls for the unaudited interim periods. The selected consolidated financial data presented below should be read in conjunction with and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and Notes thereto, appearing elsewhere herein. The Spider Acquisition has been accounted for as a pooling of interest and therefore the financial data of the Company below are presented as if the Companies had been combined for all periods presented. Spider's results of operations for the years ended March 31, 1992 through 1994 have been combined with Shiva's results of operations for fiscal 1991 through 1994, respectively. Spider's financial position as of March 31, 1992 through 1995 has been combined with Shiva's financial position as of fiscal 1991 through 1994, respectively. The Airsoft Acquisition has been accounted for as a pooling of interests and therefore the financial data of the Company below are presented as if the companies had been combined for all periods presented. Airsoft was incorporated and commenced operations on January 5, 1993. Airsoft's results of operations for the years ended December 31, 1993 through 1995 have been combined with Shiva's results of operations for fiscal years 1993 through 1995, respectively. Airsoft's financial position as of December 31, 1993 through 1995 has been combined with the Company's financial position as of fiscal 1993 through 1995, respectively. The interim periods presented are for the six-month periods ended June 29, 1996 and July 1, 1995 for both Shiva and Airsoft.
Six Months Ended FISCAL YEARS ------------------- ---------------------------------------------------------------------------- June 29, July 1, 1995 1994 1993 1992 1991 1996 1995 (In thousands, except per share data) ------------------- STATEMENT OF OPERATIONS DATA Revenues $118,581 $81,058 $61,262 $52,815 $54,199 $94,794 $52,113 Merger expenses 13,986 - - - - 1,987 - Operating income (loss) before merger expenses 9,946 3,859 1,764 (2,790) (2,888) 13,850 3,468 Net income (loss) (4,852)* 2,040 416 (4,063) (3,216) 9,314 2,355 Net income (loss) per share (0.18) 0.09 0.02 (0.32) (0.26) .30 .09 Weighted average common and common equivalent shares outstanding 27,337 22,945 16,832 12,828 12,586 31,296 27,045 December 30, December 31, January 1, January 2, December 31, June 29, 1995 1994 1994 1993 1991 1996 ---- ---- ---- ---- ---- ---- BALANCE SHEET DATA Working capital 109,376 38,307 1,252 738 4,668 $117,882 Total assets 150,123 72,559 29,514 23,275 32,228 176,238 Long-term obligations 1,088 5,085 3,418 4,267 5,865 863 Stockholders' equity 122,904 44,113 6,072 4,195 8,142 141,182 * In the absence of merger expenses incurred in FY95, net income and net income per share would have been $8.5 million and $0.31, respectively. In the absence of merger expenses incurred in the six months ended June 29, 1996, net income and net income per share would have been $11.3 million and $0.36, respectively.
Spider's unaudited results of operations for the three-month period ended March 31, 1995, which are included in both the results of operations in fiscal 1994 and the nine-month period ended September 30, 1995, were as follows (in thousands): Revenues ......................................... $12,592 Income from operations ........................... 1,350 Net Income ....................................... $ 899 -5- 8 QUARTERLY FINANCIAL INFORMATION (UNAUDITED) - -------------------------------------------
First Second Third Fourth (In thousands, except per share data) Quarter Quarter Quarter Quarter ------- ------- ------- ------- FISCAL 1995 Revenues $25,737 $26,377 $ 30,033 $36,434 Gross profit 14,659 15,197 17,663 21,875 Merger expenses - - 13,986 - Net income 1,382 973 (11,552) 4,346 Net income (loss) per share $ 0.05 $ 0.04 $ (0.42) $ 0.15 Common Stock Prices ----- High $ 21.00 $ 22.25 $ 31.63 $ 38.75 Low $ 13.50 $ 14.13 $ 19.38 $ 21.13 First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- FISCAL 1994 (1) Revenues $19,677 $17,956 $19,875 $21,412 Gross profit 10,693 10,349 11,606 12,566 Net income 682 (31) 365 867 Net income per share $ 0.03 $ 0.00 $ 0.02 $ 0.03 Common Stock Prices ----- High - - - $ 21.50 Low - - - $ 13.25 (1) Fiscal 1994 quarterly results include comparable periods for the Company and Spider and therefore differ from the audited consolidated statement of operations in that the audited consolidated statement of operations combine Spider's results of operations for the year ended March 31, 1995 with the Company's results of operations for the year ended December 31, 1994.
-6- 9 RISK FACTORS An investment in the shares of Common Stock offered hereby involves a high degree of risk. Prospective investors should carefully consider the following risk factors, in addition to the other information contained in this Prospectus and the documents incorporated by reference herein, before purchasing the shares of Common Stock being offered hereby. This Prospectus and the documents incorporated by reference herein contain forward-looking statements that involve risks and uncertainties. For this purpose, any statements that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "believes," "anticipates," "plans," "expects" and similar expressions are intended to identify forward-looking statements. The Company's actual results may differ materially from the results discussed in the forward-looking statements as a result of certain factors, including those set forth in the following risk factors and elsewhere in this Prospectus. UNCERTAINTIES RELATING TO THE RECENT ACQUISITIONS RISKS ASSOCIATED WITH THE INTEGRATION OF THE ACQUIRED COMPANIES The successful and timely integration of Shiva and the Acquired Companies is critical to the future financial performance of the combined company. The combination of these companies will require, among other things, continuing integration of the companies' respective product offerings and coordination of their sales and marketing and research and development efforts. The diversion of the attention of management created by the integration process, and any difficulties encountered in the transition process, could have an adverse impact on the revenues and operating results of the combined company. In addition, the process of combining these organizations could cause the interruption of, or a loss of momentum in, the activities of any or all of the companies' businesses, which could have an adverse effect on their combined operations. The difficulty of combining the three companies may be increased by the need to integrate personnel and the geographic distance between the three companies. Changes brought about by the Recent Acquisitions may cause key employees to leave. There can be no assurance that the combined company will retain the employees it wants to retain or that the combined company will realize any of the other anticipated benefits of the Recent Acquisitions. RESELLERS, DISTRIBUTORS AND CUSTOMERS There can be no assurance that resellers, distributors and present and potential customers of Shiva will continue their recent buying patterns without regard to the Recent Acquisitions, and any significant delay or reduction in orders could have an adverse effect on the Company's near-term business and results of operations. TRANSACTION CHARGES In connection with the Spider Acquisition, Shiva recorded charges to operations of approximately $14.0 million in the quarter ended September 30, 1995, the quarter in which the acquisition was consummated. These charges reflect costs associated with combining the operations of the two companies and transaction fees and costs incident to the Spider Acquisition. There can be no assurance that Shiva will not incur additional material charges in subsequent quarters to reflect costs associated with the Spider Acquisition. In connection with the AirSoft Acquisition, Shiva recorded charges to earnings of approximately $2.0 million in the quarter ended June 29, 1996, the quarter in which the acquisition was consummated. These charges reflect costs associated with combining the operations of the two companies and transaction fees and costs incident to the AirSoft Acquisition. There can be no assurance that Shiva will not incur additional material charges in subsequent quarters to reflect costs associated with the AirSoft Acquisition. ADVERSE EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS; SEASONALITY OF RESULTS OF OPERATIONS Shiva's quarterly operating results may vary significantly depending on factors such as the timing of significant orders, the timing of new product introductions by Shiva and its competitors and the mix of distribution channels through which Shiva's products are sold. Spider's quarterly operating results have historically been highly seasonal, with sales and earnings generally stronger in the six-month period ended March 31 of each year and generally weaker in the six-month period ended September 30 of each year. There can be no assurance that Shiva will be able to continue its growth in revenues or sustain its profitability on a quarterly or annual basis. Revenues can be difficult to forecast due to the early stage of development of the remote access market and the fact that the Company's sales cycle, from initial inquiry to trial to multiple product purchases, varies substantially from customer to customer. Shiva'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. Moreover, -7- 10 Shiva's resellers typically stock significant levels of inventory, and the Company's revenues may fluctuate based on the level of the resellers' inventories in any particular quarter. NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE The market for Shiva's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. Shiva's future success will depend on its ability to enhance its existing products and to introduce new products and features to meet and adapt to changing customer requirements and emerging technologies. The Company recently introduced the LanRover Access Switch, a new high-end remote access switch, and AccessPort, a new ISDN client router, each in 1996, and any delay by the Company in completing the development of these products, or the failure of these products to achieve market acceptance, could have a material adverse effect on the Company's financial condition or results of operations. In addition, there can be no assurance that Shiva will be successful in identifying, developing, manufacturing or marketing other new products or enhancing its existing products. Also, there can be no assurance that services, products or technologies developed by others will not render Shiva's products or technologies uncompetitive or obsolete. HIGHLY COMPETITIVE ENVIRONMENT The market for remote access products is highly competitive. Shiva competes with traditional vendors of modems, remote control software, terminal emulation software and application specific remote access solutions. Shiva also competes with suppliers of terminal servers, routers, hubs and other data communications products, and companies offering remote access solutions based on emerging technologies such as switched digital telephone services. In addition, Shiva may encounter increased competition from operating system and network operating system vendors to the extent such vendors include full remote access capabilities in their products. The Company currently licenses a version of its client software that can also operate with non-Shiva servers, and there can be no assurance that the licensing of such software will not enable other vendors to develop competitive remote access solutions. The Company may also encounter competition from telephone service providers (such as AT&T or the regional Bell operating companies) that may offer remote access services through their telephone networks. The typical method of corporate remote access using Shiva's products involves a remote user establishing a connection directly to a remote access server located on the corporation's network. This method of remote access could migrate to one in which the remote user establishes a connection to a public network, such as the Internet, to which the corporate network is also connected. Increased competition from remote access service offerings through public networks could have a material adverse effect on the Company's business. The Spider Acquisition has added products to Shiva's portfolio that compete more directly with those offered by large internetworking and communications server companies than did Shiva's products prior to the Spider Acquisition. As a result, the Company is in more direct competition across a broader product line with these companies, many of whom have substantially greater resources than Shiva. Increased competition could result in price reductions and loss of market share which would adversely affect Shiva's revenues and profitability. Many of Shiva's current and potential competitors have greater financial, marketing, technical and other resources than Shiva. There can be no assurance that Shiva will be able to continue to compete successfully with its existing competitors or will be able to compete successfully with new competitors. RISKS ASSOCIATED WITH INTERNATIONAL REVENUES, REGULATORY STANDARDS AND FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS The Company's international revenues accounted for approximately 39%, 47%, 52%, 55% and 57% of total revenues in the first six months of fiscal 1996 and in fiscal 1995, 1994, 1993 and 1992, respectively. In addition to direct international sales, Shiva also sells products to U.S. original equipment manufacturers, such as IBM, that sell such products internationally. While many of Shiva's current products are designed to meet the regulatory standards of foreign markets, any inability to obtain foreign regulatory approvals with respect to future -8- 11 products on a timely basis could have an adverse effect on operating results. In addition, Shiva is subject to the usual risks of doing business abroad, including fluctuations in currency exchange rates, increases in duty rates, difficulties in obtaining export licenses, difficulties in enforcement of intellectual property rights and political uncertainties. To the extent that the Company makes sales denominated in currencies other than U.S. dollars, gains and losses on the conversion of such sales to U.S. dollars may in the future contribute to fluctuations in the Company's business and operating results. In addition, fluctuations in exchange rates could affect demand for the Company's products. POTENTIAL VOLATILITY OF STOCK PRICE The Company's shares of Common Stock have been listed on the Nasdaq National Market since November 1994. The market price of the Common Stock has experienced significant variations during this period, ranging from a high of $87.25 to a low of $13.25, and there can be no assurance that the market price of the Common Stock will not experience similar fluctuations in the future or will not fall below such levels. The market price of the Company's Common Stock 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. In addition, the stock market has experienced volatility that has particularly affected the market prices for many companies' stock and that often has been unrelated to the operating performance of such companies. These market fluctuations may adversely affect the market price of the Company's Common Stock. RELIANCE ON REMOTE ACCESS MARKET; EARLY STAGE OF MARKET; CLIENT SOFTWARE LICENSING STRATEGY Shiva currently devotes a significant portion of its research and development, manufacturing, marketing and sales resources to service the private and public remote access market and expects to continue to do so. Although Shiva believes that its concentrated focus provides it with competitive advantages in the remote access market, this focus also may leave the Company more vulnerable to a decline in the remote access market than companies with more diverse product offerings. Moreover, the Company's future financial performance will depend in large part on continued growth in the remote access market, which in turn will depend in part on the growth in the number of organizations utilizing remote access products and the number of applications developed for use with those products. There can be no assurance that these markets will continue to grow or that the Company will be able to respond effectively to the evolving requirements of these markets. Moreover, many of the Company's customers have not yet standardized upon any particular remote access solution, and there can be no assurance that Shiva's products will be the standard adopted by its customers. The Company grants unlimited use licenses of its client software, which operates solely with Shiva servers, as part of each sale of a remote access server. The Company has implemented a strategy of licensing a version of its client software that can also operate with non-Shiva servers to third-party vendors who desire to provide remote access functionality in their own product offerings. There can be no assurance that the Company will achieve significant revenues from the licensing of its client software. POTENTIAL ADVERSE IMPACT OF PRODUCT RETURNS AND PRICE REDUCTIONS Shiva provides most of its distributors and resellers with product return rights for stock balancing or product evaluation. Shiva also provides most of its distributors and resellers with price protection rights. Stock balancing rights permit distributors to return products to Shiva for credit against future product purchases, within specified limits. Product evaluation rights permit end-users to return products to Shiva, through the distributor or reseller from whom such products were purchased, within 30 days of purchase if such end-user is not fully satisfied. Price protection rights require that Shiva grant retroactive price adjustments for inventories of Shiva products held by distributors or resellers if Shiva lowers its prices for such products. Revenues were reduced by provisions for product returns of $3,978,000, $7,410,000, $7,092,000 and $4,938,000 in the first six months of fiscal 1996 and in fiscal 1995, 1994 and 1993, respectively. Reserves for product returns were $4,983,000, $4,581,000, $3,309,000 and $2,054,000 at June 29, 1996, December 30, 1995, December 31, 1994 and January 1, 1994, respectively. Although Shiva believes that it has adequate reserves to cover product returns and price reductions, there can be -9- 12 no assurance that the Company will not experience significant returns or price protection adjustments in the future or that such reserves will be adequate to cover such returns and price reductions. DEPENDENCE ON SUBCONTRACTORS AND SUPPLIERS Shiva is dependent on two subcontractors for the manufacture of significant portions of its remote access products. If these subcontractors were to become unable or unwilling to continue to manufacture Shiva's key products in required volumes, the Company would have to identify and qualify acceptable additional subcontractors. This qualification process could be lengthy and no assurances can be given that any additional sources will become available to the Company on a timely basis. In addition, the chipsets used in certain of Shiva's Token Ring connectivity products and modem products are currently available only from IBM and Rockwell, respectively. To date, Shiva has not experienced significant delays in the receipt of key components. Certain of the components of the Integrator product line are currently available only from Intel, Motorola and Matra Harris. The inability to obtain sufficient key components as required, or to develop alternative sources if and as required in the future, could result in delays or reductions in product shipments which, in turn, could have a material adverse effect on Shiva's results of operations. POTENTIAL ADVERSE EFFECT OF ANY INABILITY TO MANAGE GROWTH Shiva is currently experiencing a period of rapid growth which has placed, and could continue to place, a significant strain on its resources. This strain has been increased by the Recent Acquisitions. If Shiva's management is unable to manage any future growth effectively, Shiva's results of operations could be adversely affected. DEPENDENCE ON HIGHLY-SKILLED PERSONNEL Shiva believes that its future success will also depend in large part upon its ability to attract and retain highly skilled technical, managerial and marketing personnel including, in particular, additional management personnel in the areas of research and development and technical support. Competition for such personnel is intense. There can be no assurance that Shiva will be successful in attracting and retaining the personnel it requires to continue to grow. DEPENDENCE ON PROPRIETARY TECHNOLOGY Although Shiva believes that its continued success will depend primarily on continuing innovation, sales, marketing and technical expertise, the quality of product support and customer relations, Shiva must also protect the proprietary technology contained in its products. Shiva does not currently hold any patents, relying instead on a combination of copyright, trademark, trade secret laws and contractual provisions to establish and protect proprietary rights in its products. There can be no assurance that the steps taken by Shiva in this regard will be adequate to deter misappropriation or independent third-party development of its technology. Although Shiva believes that its products and technology do not infringe proprietary rights of others, there can be no assurance that third parties will not assert infringement claims or that Shiva will not be required to obtain licenses of third-party technologies. ADVERSE EFFECT OF FLUCTUATIONS IN ECONOMIC AND MARKET CONDITIONS The demand for Shiva's products depends in large part upon the general demand for computer networks. General demand for computing related equipment fluctuates from time to time based on numerous factors, including capital spending levels and general economic conditions. The market for remote access products is relatively new, and therefore Shiva believes that current economic conditions have not had an adverse effect on its business. However, there can be no assurance that future declines of computer and related equipment sales, as a result of general economic conditions, or any other reason, would not have an adverse effect on the Company's results of operations. -10- 13 SHARES ELIGIBLE FOR FUTURE SALE Sales of substantial numbers of shares of the Company's Common Stock in the public market could adversely affect the market price of the Common Stock. POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS; RIGHTS PLAN; POSSIBLE ISSUANCE OF PREFERRED STOCK The Company's Restated Articles of Organization and Restated By-laws contain provisions that may make it more difficult for a third party to acquire, or discourage acquisition bids for, the Company. Moreover, the Company is subject to an anti-takeover provision of the Massachusetts General Laws which prohibits, subject to certain exceptions, a holder of 5% or more of the outstanding voting stock of the Company from engaging in certain activities with the Company, including a merger, stock or asset sale. These provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock. In addition, the Company has adopted a Rights Plan pursuant to which the Company has distributed to its stockholders rights to purchase shares of junior participating preferred stock. Upon certain triggering events, such rights become exercisable to purchase the Company's Common Stock at a price substantially discounted from the then applicable market price of the Company's Common Stock. The Rights Plan could have the effect of discouraging a merger or tender offer involving the securities of the Company that is not approved by the Company's Board of Directors by increasing the cost of effecting any such transaction and, accordingly, could have an adverse impact on stockholders who might want to vote in favor of such merger or participate in such tender offer. Also, shares of the Company's Preferred Stock may be issued in the future without further stockholder approval and upon such terms and conditions, and having such rights, privileges and preferences, as the Board of Directors may determine. The rights of the holders of Common Stock will be subject to, and may be adversely affected by, the rights of any holders of Preferred Stock that may be issued in the future. The issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or discouraging a third party from acquiring, a majority of the outstanding voting stock of the Company. The Company has no present plans to issue any shares of Preferred Stock, although shares of Preferred Stock are reserved for issuance under the Rights Plan. USE OF PROCEEDS The Company will not receive any of the proceeds from the sale of the Shares of Common Stock by the Selling Stockholders. -11- 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company's Consolidated Financial Statements and Notes thereto. OVERVIEW The Company was incorporated in 1985 and initially specialized in the development of networking products for AppleTalk LANs (local area networks). In late fiscal 1991, the Company began a transition toward the sale of remote access products with the introduction of NetModem/E, its first multiplatform, multiprotocol remote access product for workgroups. In fiscal 1992, the Company continued its strategic shift towards remote access products and introduced its LanRover product line, a multiport, enterprise-wide remote access solution. In fiscal 1993, the Company established an OEM relationship with IBM, resulting in the release of IBM's 8235 product, a LanRover server customized for IBM environments. In fiscal 1994, the Company introduced the LanRover/PLUS server and released LanRover 3.0 server, which provides multiprotocol capability. In fiscal 1995, the Company continued to focus on its core remote access products including a new software release for its LanRover and NetModem product lines, Release 3.5, and broadened its base of strategic partners by establishing relationships with Hewlett-Packard ("HP"), Motorola and Northern Telecom Limited ("Nortel"). In August 1995, the Company acquired Spider Systems Limited ("Spider"), a leading digital internetworking company based in Edinburgh, U.K., through the issuance of approximately 3,923,606 shares of its common stock (the "Spider Acquisition"). The Spider Acquisition has been accounted for as a pooling of interests. Therefore, the consolidated financial statements for all periods presented have been restated to include the financial results of Spider. Spider's results of operations in the years ended March 31, 1995 and 1994 have been combined with Shiva's results of operations in fiscal 1994 and 1993, respectively. Spider's results of operations in the twelve-month period ended December 30, 1995 have been combined with Shiva's results of operations in fiscal 1995. Spider's unaudited results of operations in the three-month period ended March 31, 1995 have therefore been included in the Company's results of operations in fiscal 1994 and fiscal 1995. See Note 1 of Notes to Consolidated Financial Statements. As a result of the Spider Acquisition, Shiva acquired technologically advanced network access hardware and software products. These products connect remote LANs and individual users to a corporate network, facilitating network access using advanced switched digital communication protocols such as ISDN, X.25 and Frame Relay. These products include the ShivaIntegrator product line, communications servers and communications software. The ShivaIntegrator product line provides switched digital LAN-to-LAN remote access for enterprises and workgroups. Communications servers provide remote access for TCP/IP devices and multiprotocol terminal server functionality to connect terminals and printers to a LAN. In addition to these product offerings, Shiva now provides network integration services and also sells, installs and supports products manufactured by the Company and third parties. In June 1996, the Company issued approximately 691,587 shares of its common stock in exchange for all the outstanding shares of AirSoft, Inc. (the "AirSoft Acquisition"). AirSoft, Inc. ("AirSoft") designs, manufactures and sells performance enhancement software products. The AirSoft Acquisition has been accounted for as a pooling of interests, and therefore the consolidated financial -12- 15 statements for all periods prior to the AirSoft Acquisition have been restated to include the accounts and operations of AirSoft with those of the Company. The Company derives its revenues from remote access products, other communications products and services. Remote access products include the LanRover, ShivaIntegrator and NetModem product lines. Other communications products include communications servers, third-party products (including those of 3Com), AppleTalk product, and communications software. The Company also provides a wide range of service offerings which include network integration and training and maintenance services. -13- 16 RESULTS OF OPERATIONS The following table sets forth consolidated statement of operations data of the Company expressed as a percentage of revenues for the periods indicated:
Fiscal Years Six Months Ended -------------------------- -------------------- June 29, July 1, 1995 1994 1993 1996 1995 ------ ------ ------ ------ ------ (unaudited) Revenues 100 100 100 100 100 Cost of revenues 41 43 46 41 43 --- --- --- --- --- Gross profit 59 57 54 59 57 --- --- --- --- --- Operating expenses: Research and development 12 12 13 11 12 Selling, general and administrative 38 40 38 33 38 Merger expenses 12 - - 2 - --- --- --- --- --- Total operating expenses 62 52 51 46 50 --- --- --- --- --- Income (loss) from operations (3) 5 3 13 7 Interest expense (income) (1) 1 2 (2) (1) --- --- --- --- --- Income (loss) before income taxes (2) 4 1 15 8 Income tax provision 2 1 1 5 3 --- --- --- --- --- Net income (loss) (4)% 3% 0% 10% 5% === === === === ===
-14- 17 SIX-MONTH PERIOD ENDED JUNE 29, 1996 COMPARED WITH THE SIX-MONTH PERIOD ENDED JULY 1, 1995. RESULTS OF OPERATIONS REVENUES. Revenues increased by 82%, to $94,794,000, for the six-month period ended June 29, 1996, from $52,113,000 in the comparable period in fiscal 1995. This increase was principally due to higher revenues from the Company's remote access products. Remote access product revenues increased by 136%, to $79,016,000, in the six-month period ended June 29, 1996, from $33,497,000 during the comparable period in fiscal 1995, principally due to higher revenues from the Company's LanRover product family, including the LanRover AccessSwitch. Sales to OEM customers accounted for 20% of revenues in the six months ended June 29, 1996 and were not significant in the comparable period in fiscal 1995. These increases were partially offset by a 24% decline in revenues from the Company's other communications products. The Company anticipates that revenues from other communications products will continue to decline and will account for a decreasing percentage of revenue in future periods. 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 $3,978,000 and $4,077,000 in the six month periods ended June 29, 1996 and July 1, 1995, respectively, representing 4% and 7% of gross revenues, respectively. International revenues increased to $37,247,000, or 39% of revenues, in the six-month period ended June 29, 1996, from $27,259,000, or 52% of revenues, in the comparable period in fiscal 1995. GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in the six-month period ended June 29, 1996, compared to 57% for the comparable period in fiscal 1995. This increase was primarily attributable to increased revenues from the Company's LanRover product family, which carry higher gross margins than the Company's other products, partially offset by increased revenues from lower gross margin OEM remote access products. RESEARCH AND DEVELOPMENT. Research and development expenses increased to $10,656,000, or 11% of revenues, in the six-month period ended June 29, 1996, from $6,356,000, or 12% of revenues, during the comparable period in fiscal 1995. The absolute increase in these expenses was primarily due to the hiring of additional research and development staff. Research and development expenses during the six-month period ended June 29, 1996 related primarily to continued enhancement and development of the Company's remote access products, including the LanRover Access Switch and the Shiva AccessPort, a new ISDN client router. Customer-funded development fees reimbursed to the Company, which are reflected as an offset to research and development expenses, were $851,000 in the six-month period ended June 29, 1996, compared to $515,000 for the comparable period in fiscal 1995. Capitalized software development costs were $593,000 in the six-month period ended June 29, 1996, compared to $264,000 in the comparable period in fiscal 1995. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $31,506,000 for the six-month period ended June 29, 1996, from $20,032,000 for the comparable period in fiscal 1995. These expenses represented 33% and 38% of revenues in the six-month periods ended June 29, 1996 and July 1, 1995, respectively. The absolute increase in expenses was primarily due to worldwide expansion of the Company's sales, marketing and administrative operations necessary to support the Company's growth. The Company plans to further invest in its distribution channels in order to continue its global market penetration. MERGER EXPENSES. In connection with the AirSoft Acquisition, the Company incurred charges to operations of $1,987,000 in the quarter ended June 29, 1996, the quarter in which the acquisition was consummated. Such charges include: (a) transaction costs to effect the acquisition, consisting of financial advisor fees of $1,350,000 plus $325,000 for legal, regulatory and accounting expenses and (b) employee severance payments and other miscellaneous expenses of $312,000. Approximately $778,000 of such expenses were paid in the quarter ended June 29, 1996, and the remaining $1,209,000 of these charges are expected to be cash outflows in the third quarter of fiscal 1996. -15- 18 INTEREST INCOME AND EXPENSE. The Company had higher interest income during the six-month period ended June 29, 1996, due to higher investment balances related to funds generated by the Company's secondary public offering in November 1995. Interest expense decreased due to the Company's repayment of the outstanding debt of Spider Systems, Ltd. assumed as part of the Spider Acquisition, with the exception of the European Coal and Steel Community Fund loans, in the third quarter of fiscal 1995. INCOME TAX PROVISION. The Company's effective tax rate was 33% for the six-month period ended June 29, 1996, compared to 41% for the comparable period in fiscal 1995. The decrease in the effective tax rate for the six-month period ended June 29, 1996 was due to a reduction in the net deferred tax asset valuation allowance as a result of certain net operating losses that could now be realized, partially offset by non-deductible merger expenses. FISCAL 1995 COMPARED TO FISCAL 1994 REVENUES. Revenues increased by 46%, to $118,581,000, in fiscal 1995 from $81,058,000 in fiscal 1994. This increase was principally due to higher revenues from the Company's remote access products. Remote access product revenues increased by 87%, to $83,924,000, in fiscal 1995 from $44,825,000 in fiscal 1994, principally due to higher revenues from the Company's LanRover and ShivaIntegrator products. Sales of OEM products to IBM were 10% and 9% of revenues in fiscal 1995 and 1994, respectively. These increases were partially offset by a 13% decline in revenues from the Company's other communications products. The Company anticipates that revenues from other communications products will account for a decreasing percentage of revenues in future periods. The Company provides its distributors and resellers with product return rights for stock balancing and product evaluation. Revenues were reduced by provisions for product returns of $7,410,000 in fiscal 1995 and $7,092,000 in fiscal 1994, representing 6% and 8% of gross revenues in fiscal 1995 and 1994, respectively. International revenues increased to $55,197,000, or 47% of revenues, in fiscal 1995 from $41,942,000, or 52% of revenues, in fiscal 1994. GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in fiscal 1995, compared to 57% in fiscal 1994. This increase was primarily attributable to increased revenues from the Company's LanRover products, which carry higher gross margins than other communications products, partially offset by increased European sales of lower priced products through large volume distributors. RESEARCH AND DEVELOPMENT. Research and development expenses increased to $14,787,000, or 12% of revenues, in fiscal 1995 from $9,972,000, or 12% of revenues, in fiscal 1994. The absolute increase in these expenses was primarily due to the hiring of additional research and development staff. Research and development expenses during fiscal 1995 related primarily to continued enhancements of the Company's remote access products, including the ShivaIntegrator product line and a new software release for its LanRover and NetModem product lines. Customer-funded development fees reimbursed to the Company and government funded research and development grants, which are reflected as an offset to research and development expenses, were $955,000 in fiscal 1995, compared to $901,000 in fiscal 1994. Capitalized software development costs were $827,000 in fiscal 1995, compared with $293,000 in fiscal 1994. The Company anticipates continued significant investment in research and development. -16- 19 SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $44,662,000, or 38% of revenues, in fiscal 1995 from $32,427,000, or 40% of revenues, in fiscal 1994. The absolute increase in expenses was primarily due to expansion of the Company's worldwide sales and support operations, as the Company continued to build its distribution channels. The Company plans to further invest in its distribution channels in order to continue its global market penetration. MERGER EXPENSES. In connection with the Spider Acquisition, the Company incurred charges to operations of approximately $13,986,000 in the quarter ended September 30, 1995, the quarter in which the Spider Acquisition was consummated. Such charges include: (a) transaction costs to effect the acquisition, consisting of $2,619,000 for financial advisor fees plus $3,656,000 for legal, regulatory and accounting fees, printing expenses and other miscellaneous expenses; (b) employee severance payments of $1,482,000 and phantom stock compensation of $2,644,000 and (c) $3,585,000 for the integration of operational activities of the companies, including elimination of duplicative assets, employee relocation and travel, and the marketing costs related to the introduction of the combined entity. In fiscal 1995, approximately $10,220,000 million of these expenses were funded from existing cash and short-term investment balances. Phantom stock compensation and the elimination of duplicative assets, totaling $3,766,000, were non-cash transactions in this period. INTEREST INCOME AND EXPENSE. The Company had higher interest income in fiscal 1995, due to investment balances related to funds generated by the Company's public stock offerings in November 1995 and November 1994. Interest expense consists primarily of interest incurred on the Company's mortgage on its European headquarters and capitalized lease obligations. INCOME TAX PROVISION. The Company had an income tax provision of $2,386,000 in fiscal 1995, despite a pre-tax loss, primarily due to non-tax deductible merger costs incurred in connection with the Spider Acquisition. The Company's effective tax rate was 31% in fiscal 1994. FISCAL 1994 COMPARED TO FISCAL 1993 REVENUES. Revenues increased by 32%, to $81,058,000, in fiscal 1994, from $61,262,000 in fiscal 1993. This increase was principally due to higher revenues from the Company's remote access products. Remote access product revenues increased by 119%, to $44,825,000, in fiscal 1994 from $20,510,000 in fiscal 1993, principally due to higher unit sales and average selling prices of the Company's LanRover and ShivaIntegrator products. Sales of OEM products to IBM, which began in the second half of fiscal 1993, also contributed significantly to this increase. These increases in remote access product revenues were partially offset by a 21% decline in revenues from the Company's other communications products. The Company provides its distributors and resellers with product return rights for stock balancing and product evaluation. Revenues were reduced by provisions for product returns of $7,092,000, or 8% of gross revenues, in fiscal 1994 and $4,938,000, or 7% of gross revenues, in fiscal 1993. International revenues increased to $41,942,000, or 52% of revenues, in fiscal 1994 from $33,974,000, or 55% of revenues, in fiscal 1993. GROSS PROFIT. Gross profit increased as a percentage of revenues to 57% in fiscal 1994, compared to 54% in fiscal 1993. This improvement was primarily attributable to increased revenues from LanRover products, which carry higher gross margins than the Company's other communications products, increased prices on certain products and cost reductions. This improvement was partially offset by increased revenues from lower gross margin OEM remote access products. -17- 20 RESEARCH AND DEVELOPMENT. Research and development expenses increased to $9,972,000, or 12% of revenues, in fiscal 1994 from $8,162,000, or 13% of revenues, in fiscal 1993. Research and development expenses in fiscal 1994 related primarily to continued enhancements of the Company's remote access products, including LanRover 3.0, released in June 1994, and LanRover/PLUS, released in March 1994 and continued enhancements of ShivaIntegrator products. Customer funded development fees reimbursed to the Company and government funded research and development grants, which are reflected as an offset to research and development expenses, were $901,000 in fiscal 1994, compared to $1,438,000 in fiscal 1993. SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative expenses increased to $32,427,000, or 40% of revenues, in fiscal 1994 from $23,367,000, or 38% of revenues, in fiscal 1993. The absolute increase in expenses was due primarily to expansion of the Company's worldwide sales operation, as the Company continued to build its distribution channels. INTEREST INCOME AND EXPENSE. The Company had interest income in fiscal 1994 due to investment balances related to funds generated by the Company's initial public offering in November 1994. Interest expense consists primarily of interest incurred on the Company's mortgage on its European headquarters, its line of credit and capitalized lease obligations. INCOME TAX PROVISION (BENEFIT). The Company's effective tax rate was 31% in fiscal 1994 compared to 42% in fiscal 1993. The decrease in the effective tax rate was primarily due to a reduction in the net deferred tax asset valuation allowance and increased research and development credits. FOREIGN CURRENCY FLUCTUATIONS A substantial portion of the Company's international revenues is denominated in currencies other than the U.S. dollar and is consequently subject to foreign exchange fluctuations. The net income impact of such fluctuations, however, is offset to the extent expenses of the Company in international operations are incurred in the same currencies as its revenues. Foreign currency fluctuations did not have a significant impact on the comparison of the results of operations for the periods presented. LIQUIDITY AND CAPITAL RESOURCES As of June 29, 1996, the Company had $95,233,000 of cash and cash equivalents and $4,992,000 of short-term investments. Working capital increased to $117,882,000 at June 29, 1996 from $109,376,000 at December 30, 1995. Net cash provided by operations totaled $5,616,000 for the six-month period ended June 29, 1996, compared with net cash provided by operations of $4,418,000 during the comparable period in fiscal 1995. Net cash provided by operations during the six-month period ended June 29, 1996 consisted primarily of net income adjusted for non-cash expenses including depreciation and amortization, and increased current liabilities, partially offset by increased accounts receivable and inventories. The increase in accounts receivable was due to increased revenue levels. The increase in inventories is necessary to support the Company's revenue growth and the introduction of the LanRover Access Switch product. -18- 21 Net cash used by investing activities totaled $4,435,000 for the six-month period ended June 29, 1996, compared to $12,875,000 during the comparable period in fiscal 1995. Investment activity in the six months ended June 29, 1996 consisted primarily of purchases of property and equipment to support the Company's growth, partially offset by proceeds from short-term investments upon maturity. Investment activity for the comparable period in fiscal 1995 consisted primarily of purchases of short-term investments and property, plant and equipment. Net cash provided by financing activities, which consisted of proceeds from stock option exercises, partially offset by payments on long-term debt and capital lease obligations, totaled $899,000 for the six-month period ended June 29, 1996. Net cash used by financing activities was $1,084,000 during the comparable period in fiscal 1995, and consisted primarily of payments on the Company's outstanding debt and capital lease obligations. The Company has a $5,000,000 unsecured revolving credit facility with a bank which expires in June 1997. Borrowings under the revolving credit facility bear interest at the bank's prime rate. The terms of the Credit Agreement require the Company to maintain a minimum level of profitability and specified financial ratios. The Company had no borrowings outstanding under this line at June 29, 1996. The Company also has a foreign credit facility of approximately $1,552,000, of which approximately $587,000 was available at June 29, 1996. Available borrowings under this facility are decreased by the value of the outstanding debt payable to the European Coal and Steel Community Fund and guarantees on certain foreign currency 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 June 29, 1996. The Company enters into forward exchange contracts to hedge against certain foreign currency transactions for periods consistent with the terms of the underlying transactions. The forward exchange contracts have maturities that do not exceed one year. At June 29, 1996, the total amount of forward exchange transactions covered by hedging contracts was $17,020,000. The Company believes that its existing cash and short-term investment balances, together with borrowings available under the Company's bank credit facilities, are sufficient to meet the Company's cash requirements for the foreseeable future. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS In October 1995, the Financial Accounting Standards Board issued Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which establishes a fair-value-based method of accounting for employee stock-based compensation plans. However, it allows companies to continue to apply the intrinsic value method based on APB No. 25, provided certain pro forma disclosures are made (including net income and earnings per share) as if the fair-value-based method had been applied. The Company will be required to implement SFAS 123 in fiscal 1996 and will adopt this standard through the pro forma disclosure method. 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 (including, but not limited to, statements concerning anticipated operating expense levels and the availability of funds to meet cash requirements) 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 are discussed more fully above under the caption "Risk Factors" and in the Company's Annual Report to Stockholders, Form 10-K and the Company's other Securities and Exchange Commission filings. -19- 22 SELLING STOCKHOLDERS The following table provides certain information with respect to the Shares held of record by each Selling Stockholder, certain of whom may be deemed to have been affiliates of AirSoft. The Shares may be offered from time to time by any of the Selling Stockholders. Because the Selling Stockholders may sell all or any part of their Shares pursuant to this Prospectus, no estimate can be given as to the number of Shares that will be held by each Selling Stockholder upon termination of this offering. See "Plan of Distribution."
Number of Shares of Common Stock Number of Shares of Owned Prior Common Stock which may Name to this Offering (1) be Sold in this Offering (1) - ---- -------------------- ---------------------------- S.P.S. Anand 14,712 14,712 Hunter Ryan Colby 2,060 2,060 Paul Gennari 1,177 1,177 Ed and Joanne Gizdich 1,486 1,486 Manoj Goel 1,471 1,471 Dr. R. Paul Hoff 1,373 1,373 Richard Hubener 1,962 1,962 Marcus W. Lee 2,060 2,060 Marco Foods, Inc. 936 936 Power Curve, Inc. 41,955 41,955 Brian E. Power 1,569 1,569 John C. Power (2) 10,821 10,821 Margaret Power 883 883 Colorado National Bank as Custodian 40,995 40,995 for Redwood Microcap Fund, Inc. The Rockies Fund, Inc. 26,310 26,310 Sioupyn Shen 736 736 Jagdeep Singh (3) 141,824 141,824 Steven Trewitt III 883 883 Douglas Trewitt 883 883 Curtis Van Carter 883 883 Craig W. Johnson 1,686 1,686 Venrock Associates (4) 167,243 167,243 Venrock Associates II, L.P. (4) 74,984 74,984
-20- 23 VLG Investments 1994 2,227 2,227 Greylock Equity Limited Partnership(5) 150,468 150,468 TOTAL: 691,587 691,587 ======= ======= - ---------- (1) Of the total shares of Common Stock listed as owned by the Selling Stockholders, an aggregate of 69,157 shares are held in an escrow account to secure indemnification obligations of the AirSoft stockholders to the Company. It is expected that these shares (less any shares which may be distributed from the escrow account to the Company in satisfaction of indemnification claims) will be released from escrow and distributed to these Selling Stockholders on March 31, 1997. The number of shares indicated as owned by each Selling Stockholder includes those shares (representing 10% of the number of shares listed as beneficially owned by such Selling Stockholder) which such Selling Stockholder is entitled to receive upon distribution of these shares from the escrow account. The number of shares reflected in each of these columns does not take account of any sales of shares by the individuals listed since the Registration Statement to which this Prospectus relates was declared effective by the Securities and Exchange Commission on __________, 1996. (2) John C. Power served as a director of AirSoft prior to its acquisition by the Company. (3) Jagdeep Singh served as President of AirSoft prior to its acquisition by the Company. (4) Anthony Sun, an affiliate of Venrock Associates and Venrock Associates II, L.P., served as a director of AirSoft prior to its acquisition by the Company. (5) Roger Evans and Howard Cox, affiliates of Greylock Equity Limited Partnership, served as directors of AirSoft prior to its acquisition by the Company.
On June 16, 1996, the Company entered into an agreement to acquire AirSoft, a developer of performance enhancement software products and technologies for remote network computing based in California, through the issuance of approximately 691,587 shares of its Common Stock plus the assumption of stock options exercisable for approximately 119,076 shares of Common Stock. The AirSoft Acquisition was completed on June 17, 1996, and has been accounted for as a pooling of interests. Approximately 69,155 of the 691,587 shares of Common Stock issued in the AirSoft Acquisition were placed in escrow to satisfy any indemnification claims brought by Shiva based on a breach of any of the representations and warranties relating to the business of AirSoft. The Agreement and Plan of Merger dated as of June 16, 1996 by and among the Company, a wholly-owned subsidiary of the Company and AirSoft (the "Merger Agreement") grants certain stockholders of AirSoft certain registration rights for the Common Stock of the Company issued pursuant to the AirSoft Acquisition. The Company is fulfilling its obligations under the terms of the Merger Agreement with respect to such registration rights in connection with the registration of the Shares being offered pursuant to this Prospectus. The AirSoft Acquisition is more fully described in the Company's Current Report on Form 8-K dated as of June 28, 1996, as amended by the Company's Current Reports on Form 8-K/A dated as of July 8, 1996 and August 13, 1996. -21- 24 PLAN OF DISTRIBUTION The Shares offered hereby are being sold by the Selling Stockholders for their own accounts. The Company will receive none of the proceeds from this offering. The Shares covered by this Prospectus may be sold by the Selling Stockholders or by pledgees, donees, transferees or other successors in interest. Such sales may be made at fixed prices that may be changed, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, or at negotiated prices. The Shares may be sold by one or more of the following: (a) one or more block trades in which a broker or dealer so engaged will attempt to sell all or a portion of the Shares held by a Selling Stockholder as agent but may position and resell a portion of the block as principal to facilitate the transaction; (b) purchases by a broker or dealer as principal and resale by such broker or dealer for its account pursuant to this Prospectus; and (c) ordinary brokerage transactions and transactions in which the broker solicits purchasers. The Selling Stockholders may effect such transactions by selling shares to or through broker-dealers, and such broker-dealers will receive compensation in negotiated amounts in the form of discounts, concessions, commissions or fees from the Selling Stockholders and/or the purchasers of the shares for whom such broker-dealers may act as agent or to whom they sell as principal, or both (which compensation to a particular broker-dealer might be in excess of customary commissions). Such brokers or dealers or other participating brokers or dealers and the Selling Stockholders may be deemed to be "underwriters" within the meaning of the Securities Act, in connection with such sales, and any profits realized by the Selling Stockholders and compensation of such brokers or dealers may be deemed to be underwriting discounts and commissions. Any securities covered by this Prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than pursuant to this Prospectus. The Company intends to maintain the effectiveness of this Prospectus through the earlier of June 17, 1998 or the date on which all of the Shares offered hereby have been sold by the Selling Stockholders; provided, however, that if at certain times the Company is in possession of material nonpublic information that it determines in good faith that it is not advisable to disclose in a registration statement but which information would otherwise be required by the Securities Act to be disclosed in a registration statement, then Shiva may by written notice immediately suspend the right of the Selling Stockholders to sell shares pursuant to this registration statement. The Merger Agreement provides, with respect to the registration rights thereunder, that the Company will indemnify the Selling Stockholders for any losses incurred by them in connection with actions arising from any untrue statement of a material fact in the Registration Statement or any omission of a material fact required therein, unless such statement or omission was made in reliance on written information furnished to the Company by the Selling Stockholders. Similarly, each Selling Stockholder will indemnify the Company and its officers and directors for any losses incurred by them in connection with any actions arising from any untrue statement of material fact in the Registration Statement or any omission of a material fact required therein, if such statement or omission was made in reliance on written information furnished to the Company by such Selling Stockholders. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. The Company will inform the Selling Stockholders that the antimanipulative rules under the Exchange Act (Rules 10b-6 and 10b-7) may apply to sales in the market and will furnish upon request the Selling Stockholders with a copy of these Rules. The Company will also inform the Selling Stockholders of the need for delivery of copies of this Prospectus. -22- 25 LEGAL MATTERS The validity of the issuance of the securities offered hereby will be passed upon for the Company by Hale and Dorr, 60 State Street, Boston, Massachusetts 02109. EXPERTS The financial statements included in this Prospectus, except as they relate to Spider Systems Limited as of March 31, 1994 and for the year then ended, and the financial statements of Airsoft, Inc. as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, have been audited by Price Waterhouse LLP, independent accountants, and, insofar as they relate to Spider System Limited as of March 31, 1994 and the year then ended, have been audited by Coopers & Lybrand, independent accountants, and, insofar as they relate to Airsoft, Inc. as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995, have been audited by Deloitte & Touche, LLP, independent accountants, whose reports thereon appear herein. Such financial statements have been so included in reliance on the reports of such independent accountants given on the authority of said firms as experts in auditing and accounting. The financial statements of AirSoft, Inc. as of December 31, 1995 and 1994, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995 incorporated in this Prospectus by reference from Amendment No. 2 to the Company's Current Report on Form 8-K/A dated August 13, 1996 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their reports, which are included and incorporated herein by reference, and have been so included and incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. -23- 26 INDEX TO FINANCIAL STATEMENTS Page ---- Report of Price Waterhouse LLP ................................. F-2 Report of Deloitte & Touche LLP ................................ F-3 Report of Coopers & Lybrand .................................... F-4 Consolidated Balance Sheet ..................................... F-5 Consolidated Statement of Operations ........................... F-6 Consolidated Statement of Changes in Stockholders' Equity ...... F-7 Consolidated Statement of Cash Flows ........................... F-9 Notes to Consolidated Financial Statements ..................... F-10 F-1 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Shiva Corporation In our opinion, based upon our audits and the reports of other auditors, the accompanying consolidated balance sheet and related consolidated statements of operations, of changes in stockholders' equity and of cash flows present fairly, in all material respects, the financial position of Shiva Corporation and its subsidiaries at December 30, 1995 and December 31, 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 30, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of Spider Systems Limited, a wholly-owned subsidiary, for fiscal 1994, which statements reflect total revenues of $31,735,000 for the year ended March 31, 1994 or the financial statements of Airsoft, Inc., a wholly-owned subsidiary, which statements reflect total assets of $3,285,000 and $2,795,000 at December 31, 1995 and 1994, respectively, and total revenues of $860,000, $87,000 and $3,000 for the years ended December 31, 1995, 1994, and 1993, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for Spider Systems Limited and Airsoft, Inc. as of and for the periods described above, is based solely on the reports of the other auditors. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for the opinion expressed above. Price Waterhouse LLP Boston, Massachusetts January 23, 1996, except as to Note 12 which is as of June 17, 1996 F-2 28 INDEPENDENT AUDITORS' REPORT To the Board of Directors AirSoft, Inc.: We have audited the balance sheets of AirSoft, Inc. as of December 31, 1995 and 1994, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the reponsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements present fairly, in all material respects, the financial position of AirSoft, Inc. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP March 28, 1996 (June 16, 1996 as to Note 8) F-3 29 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders of Spider Systems Limited: We have audited the consolidated balance sheet of Spider Systems Limited as of March 31, 1994, and the related consolidated statements of income, stockholders' equity and cash flows for each of the two years in the period ended March 31, 1994 (not presented separately herein). These financial statements are the responsibility of the Company's management. Our responsiblity is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statments referred to above present fairly, in all material respects, the consolidated financial position of Spider Systems Limited as of March 31, 1994, and the consolidated results of its operations and its cash flows for each of the two years in the period ended March 31, 1994 in conformity with generally accepted accounting principles. COOPERS & LYBRAND Edinburgh, United Kingdom Chartered Accountants and Registered Auditors June 12, 1995 F-4 30 SHIVA CORPORATION CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT SHARE RELATED DATA)
DECEMBER 30, DECEMBER 31, JUNE 29, 1995 1994 1996 ------------ ------------ ------------ (unaudited) Assets Current assets: Cash and cash equivalents $ 93,203 $36,068 $ 95,233 Short-term investments 9,125 - 4,992 Accounts receivable, net of allowances of $5,252 at December 30, 1995, $3,963 at December 31, 1994, and $5,941 at June 29, 1996 (unaudited) 22,982 16,343 36,260 Inventories 7,846 6,974 11,852 Prepaid expenses and other current assets 2,351 2,283 3,738 -------- ------- -------- Total current assets 135,507 61,668 152,075 Property, plant and equipment, net 12,965 10,371 18,371 Deferred income taxes 548 - 4,219 Other assets 1,103 520 1,573 -------- ------- -------- Total assets $150,123 $72,559 $176,238 ======== ======= ======== Liabilities and stockholders' equity Current liabilities: Short-term debt $ - $ 683 - Current portion of long-term debt and capital lease obligations 700 1,301 478 Accounts payable 9,032 10,384 13,453 Accrued compensation and benefits 5,367 2,958 6,018 Accrued expenses 7,509 5,818 11,478 Deferred revenue 3,523 2,217 2,766 -------- ------- -------- Total current liabilities 26,131 23,361 34,193 Long-term debt and capital lease obligations 452 4,037 235 Other long-term liabilities 401 440 393 Deferred income taxes 235 608 235 -------- ------- -------- Total liabilities 27,219 28,446 35,056 -------- ------- -------- Commitments (Note 11) Stockholders' equity: Preferred stock, $.01 par value; 1,000,000 shares authorized at December 30, 1995, December 31, 1994 and June 29, 1996, none issued - - - Common stock, $.01 par value; 50,000,000 and 25,000,000 shares authorized, 27,960,580 and 24,478,087 shares issued and outstanding at December 30, 1995 and December 31, 1994, respectively; 100,000,000 shares authorized and 28,493,368 issued and outstanding at June 29, 1996 (unaudited) 280 245 285 Additional paid-in capital 133,457 49,275 142,383 Unrealized gain on investments 137 - 112 Cumulative translation adjustment (586) (468) (528) Unearned ESOP compensation - (305) - Accumulated deficit (10,384) (4,634) (1,070) -------- ------- -------- Total stockholders' equity 122,904 44,113 141,182 -------- ------- -------- Total liabilities and stockholders' equity $150,123 $72,559 $176,238 ======== ======= ========
The accompanying notes are an integral part of the consolidated financial statements. F-5 31 SHIVA CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED SIX MONTHS ENDED ------------- ------------- ------------- ---------------------------- DECEMBER 30, DECEMBER 31, JANUARY 1, JUNE 29, JULY 1, 1995 1994 1994 1996 1995 ------------- ------------- ------------- ------------- -------------- (FISCAL 1995) (FISCAL 1994) (FISCAL 1993) (UNAUDITED) Revenues $118,581 $81,058 $61,262 $94,794 $52,113 Cost of revenues 49,186 34,800 27,969 38,782 22,257 -------- ------- ------- ------- ------- Gross profit 69,395 46,258 33,293 56,012 29,856 -------- ------- ------- ------- ------- Operating expenses: Research and development 14,787 9,972 8,162 10,656 6,356 Selling, general and administrative 44,662 32,427 23,367 31,506 20,032 Merger expenses 13,986 - - 1,987 - -------- ------- ------- ------- ------- Total operating expenses 73,435 42,399 31,529 44,149 26,388 -------- ------- ------- ------- ------- Income (loss) from operations (4,040) 3,859 1,764 11,863 3,468 Interest income 2,279 224 - 2,331 980 Interest expense (705) (1,122) (1,048) (298) (462) -------- ------- ------- ------- ------- Income (loss) before income taxes (2,466) 2,961 716 13,896 3,986 Income tax provision 2,386 921 300 4,582 1,631 ======== ======= ======= ======= ======= Net income (loss) $ (4,852) $ 2,040 $ 416 $ 9,314 $ 2,355 ======== ======= ======= ======= ======= Net income (loss) per share $ (0.18) $ 0.09 $ 0.02 $ 0.30 $ 0.09 ======== ======= ======= ======= ======= Shares used in computing net income (loss) per share 27,337 22,945 16,832 31,296 27,045 ======== ======= ======= ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-6 32 SHIVA CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS)
CONVERTIBLE PREFERRED STOCK COMMON STOCK -------------------- ------------------ ADDITIONAL UNREALIZED CUMULATIVE NUMBER NUMBER PAR PAID-IN GAIN ON TRANSLATION OF SHARES AMOUNT OF SHARES VALUE CAPITAL INVESTMENTS ADJUSTMENT ---------- ------- ---------- ----- ---------- ----------- ----------- BALANCE AT JANUARY 2, 1993 3,621,294 $ 5,185 10,695,762 $107 $ 6,114 $ - $(840) Issuance of Class D convertible preferred stock, net of stock issuance costs of $11 1,000,000 989 - - - - - Common stock options granted in lieu of cash payment for services - - - - 25 - - Issuance of Common Stock - - 294,241 3 414 - - Exercise of stock options - - 278,262 3 251 - - Currency translation adjustments - - - - - - (57) Net income - - - - - - - Dividends paid - - - - - - - ---------- ------- ---------- ---- -------- ---- ----- BALANCE AT JANUARY 1, 1994 4,621,294 6,174 11,268,265 113 6,804 - (897) Exercise of Class C convertible preferred stock warrants 409,836 2,000 - - - - - Issuance of common stock to officer - - 177,778 2 998 - - Issuance of common stock - - 396,608 4 4,547 - - Initial public offering, net of stock issuance costs of $1,032 - - 4,130,266 41 27,737 - - Conversion of preferred stock (5,031,130) (8,174) 7,719,536 77 8,097 - - Exercise of stock options - - 756,468 8 579 - - Exercise of common stock purchase warrants - - 29,166 - 65 - - ESOP transactions, net - - - - - - - Tax benefit related to stock options - - - - 448 - - Currency translation adjustments - - - - - - 429 Net income - - - - - - - Dividends paid - - - - - - - ---------- ------- ---------- ---- -------- ---- ----- BALANCE AT DECEMBER 31, 1994 - - 24,478,087 245 49,275 - (468) Exercise of stock options - - 1,100,059 11 1,697 - - Exercise of common stock purchase warrants - - 17,498 - 39 - - Issuance of common stock in settlement of dividend payable - - 20,014 - 406 - - Issuance of common stock in settlement of phantom stock plan - - 31,462 1 2,283 - - Issuance of common stock under employee stock purchase plan - - 21,582 - 314 - - Secondary public offering, net of stock issuance costs of $583 - - 2,291,878 23 76,115 - - Tax benefit related to stock options - - - - 3,328 - - Unrealized gain on investments - - - - - 137 - Currency translation adjustments - - - - - - (118) Net loss - - - - - - - Elimination of Spider net income for the three-month period ended March 31, 1995 - - - - - - - ---------- ------- ---------- ---- -------- ---- ----- BALANCE AT DECEMBER 30, 1995 - - 27,960,580 $280 $133,457 $137 $(586) Exercise of stock options - - 515,646 5 998 - - Issuance of common stock under employee stock purchase plan - - 17,142 - 335 - - Tax benefit related to stock options - - - - 7,593 - - Unrealized loss on investments - - - - - (25) - Currency translation adjustment - - - - - - 58 Net income - - - - - - - BALANCE AT JUNE 29, 1996 (unaudited) - - 28,493,368 $285 $142,383 $112 $(528) ========== ======= ========== ==== ======== ==== =====
F-7 33
UNEARNED TOTAL ESOP ACCUMULATED STOCKHOLDERS' COMPENSATION DEFICIT EQUITY ------------ ----------- ------- BALANCE AT JANUARY 2, 1993 $ - $ (6,371) $ 4,195 Issuance of Class D convertible preferred stock, net of stock issuance costs of $11 - - 989 Common stock options granted in lieu of cash payment for services - - 25 Issuance of Common Stock - - 417 Exercise of stock options - - 254 Currency translation adjustments - - (57) Net income - 416 416 Dividends paid - (167) (167) ----- -------- -------- BALANCE AT JANUARY 1, 1994 - (6,122) 6,072 Exercise of Class C convertible preferred stock warrants - - 2,000 Issuance of common stock to officer - - 1,000 Issuance of common stock - - 4,551 Initial public offering, net of stock issuance costs of $1,032 - - 27,778 Conversion of preferred stock - - - Exercise of stock options - - 587 Exercise of common stock purchase warrants - - 65 ESOP transactions, net (305) - (305) Tax benefit related to stock options - - 448 Currency translation adjustments - - 429 Net income - 2,040 2,040 Dividends paid - (552) (552) ----- -------- -------- BALANCE AT DECEMBER 31, 1994 (305) (4,634) 44,113 Exercise of stock options - - 1,708 Exercise of common stock purchase warrants - - 39 Issuance of common stock in settlement of dividend payable - - 406 Issuance of common stock in settlement of phantom stock plan 305 - 2,589 Issuance of common stock under employee stock purchase plan - - 314 Secondary public offering, net of stock issuance costs of $583 - - 76,138 Tax benefit related to stock options - - 3,328 Unrealized gain on investments - - 137 Currency translation adjustments - - (118) Net loss - (4,852) (4,852) Elimination of Spider net income for the three-month period ended March 31, 1995 - (899) (899) ----- -------- -------- BALANCE AT DECEMBER 30, 1995 - (10,384) 122,904 Exercise of stock options - - 1,003 Issuance of common stock under - - employee stock purchase plan - - 335 Tax benefits related to stock options - - 7,593 Unrealized loss on investments - - (25) Currency translation adjustments - - 58 Net income - 9,314 9,314 ----- -------- -------- BALANCE AT JUNE 29, 1996 (unaudited) $ - $ (1,070) $141,182 ===== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-8 34 SHIVA CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (IN THOUSANDS)
FISCAL YEAR ENDED SIX MONTHS ENDED ------------------------------------------- ----------------------- DECEMBER 30, DECEMBER 31, JANUARY 1, JUNE 29, JULY 1, 1995 1994 1994 1996 1995 ------------- ------------- ------------- -------- ----------- (FISCAL 1995) (FISCAL 1994) (FISCAL 1993) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $(4,852) $ 2,040 $ 416 $ 9,314 $ 2,355 Adjustments to reconcile net income to net cash provided by operating activities: Merger expenses 3,766 - - - - Depreciation and amortization 3,821 2,886 2,109 2,726 1,686 Gain on sale of property, plant and equipment (65) (170) (108) (42) (22) Common stock options granted in lieu of cash payment for services - - 25 - - Deferred income taxes (811) (336) (7) (1,511) 95 Changes in assets and liabilities: Accounts receivable (7,906) (3,496) (5,146) (13,199) (896) Inventories (2,023) (865) (1,188) (4,028) (1,717) Prepaid expenses and other current assets (67) (330) 323 444 (463) Accounts payable 122 1,750 1,822 4,416 (483) Accrued compensation and benefits 2,444 601 989 644 452 Accrued expenses 6,548 2,011 941 7,595 1,802 Deferred revenue 1,846 804 (235) (734) 1,621 Other long-term liabilities (24) (23) (23) (9) (12) ------- ------- ------- -------- -------- Net cash provided by operating activities 2,799 4,872 (82) 5,616 4,418 ------- ------- ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property, plant and equipment (7,031) (3,300) (2,277) (7,739) (2,686) Capitalized software development costs (827) (293) (341) (593) (264) Purchases of short-term investments (11,188) - - - (10,334) Proceeds from sales of short-term investments 2,200 - - 4,108 550 Change in other assets (147) (173) 22 (211) (141) -------- ------- ------- -------- -------- Net cash used by investing activities (16,993) (3,766) (2,596) (4,435) (12,875) -------- ------- ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Net borrowings (repayment) under short-term debt (1,885) (1,213) 481 - (677) Proceeds from sale and leaseback of fixed assets - - 999 - - Proceeds from long-term debt - 615 - - - Principal payments on long-term debt and capital lease obligations (4,075) (1,080) (903) (439) (880) Proceeds from issuance of convertible preferred stock, net - 2,000 989 - - Proceeds from issuance of common stock, net 76,143 33,328 388 - - Proceeds from exercise of stock options and warrants 2,049 652 255 1,338 473 Dividends paid (58) (235) - - - ------- ------- ------- -------- -------- Net cash provided by financing activities 72,174 34,067 2,209 899 (1,084) ------- ------- ------- -------- -------- Effects of exchange rate changes on cash and cash equivalents 153 72 (8) (50) 22 ------- ------- ------- -------- -------- Net increase (decrease) in cash and cash equivalents 58,133 35,245 (477) 2,030 (9,519) Cash and cash equivalents, beginning of period 36,068 823 1,300 93,203 36,068 Elimination of Spider net cash activity for the three months ended March 31, 1995 (998) - - - (998) ======= ======= ======= ======== ======== Cash and cash equivalents, end of period $93,203 $36,068 $ 823 $ 95,233 $ 25,551 ======= ======= ======= ======== ======== SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Interest paid $ 748 $ 1,127 $ 1,038 $ 96 $ 391 Income taxes paid $ 143 $ 366 $ 38 $ 220 $ 103 SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES Additions to capital lease obligations for purchases of fixed assets $ - $ - $ 215 $ - $ - Additions to capital lease obligations for leaseback of fixed assets $ - $ - $ 999 $ - $ - Issuance of common stock in settlement of dividend payable $ 406 $ - $ - $ - $ - Issuance of common stock for notes receivable $ - $ - $ 70 $ - $ -
The accompanying notes are an integral part of the consolidated financial statements F-9 35 SHIVA CORPORATION Notes to Consolidated Financial Statements 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Shiva Corporation (the "Company") designs, develops, manufactures and sells hardware and software products and services that enable transparent remote connectivity to enterprise networks from any location having access to switched analog or digital telephone service. The Company markets its products worldwide primarily through distributors, resellers and original equipment manufacturers. A summary of the Company's significant accounting policies follows: FISCAL YEAR The Company's fiscal year ends on the Saturday closest to December 31. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. In August 1995, the Company issued approximately 3,923,606 shares of its common stock in exchange for all the outstanding shares of Spider Systems Limited ("the Spider Acquisition"). Spider Systems Limited ("Spider") now operates as a wholly-owned subsidiary of Shiva under the name of Shiva Europe Limited. The Spider Acquisition has been accounted for as a pooling of interests, and therefore the consolidated financial statements for all periods prior to the Spider Acquisition have been restated to include the accounts and operations of Spider with those of the Company. Spider's results of operations for the years ended March 31, 1995 and 1994 have been combined with the Company's results of operations for the years ended December 31, 1994 and January 1, 1994, respectively. The results of operations for fiscal 1995 are for the twelve months ended December 30, 1995 for both Shiva and Spider. Spider's financial position as of March 31, 1995 has been combined with the Company's financial position as of December 31, 1994. Spider's unaudited results of operations for the three months ended March 31, 1995 included in both the results of operations in fiscal 1994 and fiscal 1995, were as follows:
(in thousands) Revenues $12,592 Expenses 11,242 Income taxes 451 ------- Net income $ 899 =======
No adjustments to conform accounting methods were required. Certain amounts have been reclassified with regard to presentation of the financial information of the two companies. Revenues and net income for each of the previously separate companies for the periods prior to the Spider Acquisition are as follows: F-10 36 SHIVA CORPORATION Notes to Consolidated Financial Statements
(In thousands) Year Ended Six Months Ended -------------------------------- -------------------------- December 31, January 1, July 1, July 2, 1994 1994 1995 1994 ---- ---- ---- ---- (Fiscal 1994) (Fiscal 1993) (unaudited) Revenues: Shiva $41,559 $29,524 $28,833 $19,049 Spider 39,412 31,735 23,232 18,559 ------- ------- ------- ------- $80,971 $61,259 $52,065 $37,608 ======= ======= ======= ======= Net income: Shiva $ 2,668 $ 213 $ 2,883 $ 609 Spider 1,213 696 843 724 ------- ------- ------- ------- $ 3,881 $ 909 $ 3,726 $ 1,333 ======= ======= ======= =======
In connection with the Spider Acquisition, the Company incurred charges to operations of $13,986,000 in the quarter ended September 30, 1995, the quarter in which the Spider Acquisition was consummated. Such charges include (a) transaction costs to effect the acquisition, consisting of $2,619,000 for financial advisor fees plus $3,656,000 for legal, regulatory and accounting fees, printing expenses and other miscellaneous expenses and (b) employee severance payments of $1,482,000 and phantom stock compensation of $2,644,000 and (c) $3,585,000 for the integration of operational activities of the companies, including elimination of duplicative assets, employee relocation and travel, and the marketing costs related to the introduction of the combined entity. F-11 37 SHIVA CORPORATION Notes to Consolidated Financial Statements INTERIM FINANCIAL DATA (UNAUDITED) The interim financial data included in the accompanying consolidated financial statements and notes thereto is unaudited; however in the opinion of the Company, the interim financial data include all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the interim periods. The interim financial data are not necessarily indicative of the results of operations for a full fiscal year. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. REVENUE RECOGNITION Revenue from product sales is recognized upon shipment provided that no significant Company obligations remain and collection of the related receivable is probable. The Company provides most of its distributors and resellers with return rights for stock rotation or product evaluation. The Company also provides its distributors and resellers with price protection rights. An allowance for estimated future returns is recorded at the time revenue is recognized based on the Company's return policies and historical experience. Although the Company believes it has adequate reserves to cover product returns and price protection rights, there can be no assurance that the Company will not experience significant returns or price protection adjustments in the future or that such reserves will be adequate to cover such returns and price protection rights. The Company provides a one-year warranty on hardware products and a ninety-day warranty on software media. A provision is made at the time of sale for product warranty costs. Accrued warranty costs are included in accrued expenses in the accompanying financial statements. Revenue from technical support and product maintenance contracts is deferred and recognized ratably over the period the services are performed. Revenue from integration contracts is recognized over the duration of such contracts as work is performed and defined milestones are attained. F-12 38 SHIVA CORPORATION Notes to Consolidated Financial Statements The Company has historically provided customers with a variety of technical support services, including free services which it is not contractually obligated to provide. A provision is made at the time of sale for the cost of such free services. Accrued product support expenses are included in accrued expenses in the accompanying financial statements. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company invests its excess cash in U.S. Treasury securities, money market funds of major financial institutions, high-grade commercial paper and time deposits that are subject to minimal credit and market risk. All of the Company's cash equivalents and short-term investments are classified as available-for-sale in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Company's short-term investments at December 30, 1995 include an unrealized gain of $137,000 recorded as a separate component of stockholders' equity and have various maturity dates through September 1996. Realized gains or losses on the sale of securities are calculated using the specific identification method. There were no such realized gains or losses in fiscal 1995 or 1994. CONCENTRATION OF CREDIT RISK Financial instruments which potentially expose the Company to concentrations of credit risk include accounts receivable. The Company performs ongoing evaluations of customers' financial condition and, generally, does not require collateral. In addition, the Company maintains reserves for potential credit losses, and such losses, in the aggregate, have not exceeded management expectations. At December 30, 1995, one customer accounted for 10% of the accounts receivable balance. FINANCIAL INSTRUMENTS The carrying amounts of the Company's financial instruments, which include cash and cash equivalents, accounts receivable, short-term debt, accounts payable, long-term debt and capital lease obligations approximate their fair value at December 30, 1995 and December 31, 1994. FORWARD FOREIGN EXCHANGE CONTRACTS The Company enters into transactions denominated in foreign currencies and includes the gain or loss arising from such transactions in results of operations. The Company enters into foreign exchange contracts to hedge specific foreign currency denominated receivables, which require the Company at maturity of the contract to exchange foreign currencies for U.K. Pounds at rates agreed to at inception of the contracts. The forward exchange contracts have maturities which do not exceed one year. The Company had approximately $11,253,000 and $2,163,000 of forward exchange contracts outstanding at December 30, 1995 and December 31, 1994, respectively. Cash flows from the forward exchange contracts are classified with the related receivable. INVENTORIES Inventories are stated at the lower of cost or market, cost being determined using the first-in, first-out method. F-13 39 SHIVA CORPORATION Notes to Consolidated Financial Statements The market for the Company's products is characterized by rapidly changing technology, evolving industry standards and frequent new product introductions. There can be no assurance that products or technologies developed by others will not make the Company's inventories obsolete. The Company is currently dependent on two subcontractors for the manufacture of significant portions of its products. Although the Company believes that there are a limited number of other qualified subcontract manufacturers for its products, a change in subcontractors could result in delays or reductions in product shipments. In addition, certain components of the Company's products are only available from a limited number of suppliers. The inability to obtain sufficient key components as required could also result in delays or reductions in product shipments. Such delays or reductions could have a material adverse effect on the Company's results of operations. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at cost and depreciated using the straight-line method over the estimated useful lives of the related assets. Equipment held under capital leases is stated at the lower of the fair market value of the equipment or the present value of the minimum lease payments at the inception of the leases and is amortized on a straight-line basis over the shorter of the lives of the related assets or the term of the leases. Maintenance and repair costs are expensed as incurred. Gains on sale and leaseback transactions are amortized to income over the term of the underlying lease agreements. RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS Research and development costs, other than certain software development costs, are charged to expense as incurred. Software development costs incurred subsequent to the establishment of technological feasibility, and prior to general release of the product to the public, are capitalized and amortized to cost of sales on a straight-line basis over the estimated useful lives of the related products, generally eighteen to thirty-six months. It is reasonably possible that the remaining estimated useful lives of the related products could be reduced in the future due to competitive pressures. Unamortized software development costs of $703,000 and $246,000 are included in other assets at December 30, 1995 and December 31, 1994, respectively. Amortization expense was $370,000, $310,000 and $118,000 in fiscal 1995, 1994 and 1993, respectively. The Company receives fees under product development contracts with certain customers. Product development fees are recorded as a reduction of research and development costs as work is performed pursuant to the related contracts and defined milestones are attained. Losses, if any, are provided for at the time that management determines that development costs will exceed related fees. Payments received under product development contracts prior to the completion of the related work and attainment of milestones are recorded as deferred liabilities. In fiscal 1995, 1994 and 1993, the Company recorded product development fees of $955,000, $766,000 and $987,000, respectively, and incurred development costs of $1,135,000, $820,000 and $741,000, respectively, under such contracts. The Company has also received foreign government sponsored grants to fund qualified research and development activities. Grant income is recorded as a reduction of research and development costs and was $135,000 and $451,000 in fiscal 1994 and 1993, respectively. There was no grant income recorded in fiscal 1995. F-14 40 SHIVA CORPORATION Notes to Consolidated Financial Statements ADVERTISING COSTS Advertising costs, other than certain direct-response advertising costs, are charged to expense as incurred. The Company has not incurred significant costs associated with direct-response advertising in fiscal 1995, 1994 and 1993, and there were no capitalized advertising costs at December 30, 1995 or December 31, 1994. Advertising costs were $3,042,000, $2,589,000 and $1,446,000 in fiscal 1995, 1994 and 1993, respectively. INCOME TAXES The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes", which is an asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences, utilizing current tax rates, of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred tax assets are recognized, net of any valuation allowance, for the estimated future tax effects of deductible temporary differences and tax operating loss and credit carryforwards. Deferred income tax expense represents the change in the net deferred tax asset and liability balances. FOREIGN CURRENCY TRANSLATION Financial statements of international subsidiaries, where the local currency is the functional currency, are translated using period-end exchange rates for assets and liabilities and at average rates during the period for results of operations. The resulting foreign currency translation adjustments are included as a separate component of stockholders' equity. For international subsidiaries where the functional currency is other than the local currency, monetary assets and liabilities are translated using period-end exchange rates, nonmonetary assets and liabilities are translated at historical rates and results of operations are translated at average rates for the period. The resulting foreign currency translation adjustments are included in results of operations. Gains or losses resulting from foreign currency transactions are included in results of operations and were insignificant in fiscal 1995, 1994 and 1993. NET INCOME (LOSS) PER SHARE Net income per share is calculated based on the weighted average number of common shares and common equivalent shares assumed outstanding during the period. Net loss per share excludes common equivalent shares because the effect is antidilutive. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, certain common and common equivalent shares issued by the Company during the twelve months immediately preceding the initial filing of the registration statement relating to the Company's initial public offering have been included in the calculation of weighted average shares, using the treasury stock method and the initial public offering price, as if these shares were outstanding for all periods prior to the initial public offering. 2. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS Cash, cash equivalents and short-term investments consist of the following: F-15 41 SHIVA CORPORATION Notes to Consolidated Financial Statements
(In thousands) December 30, December 31, 1995 1994 ---- ---- CASH AND CASH EQUIVALENTS: Money market funds $ 75,382 $ 22,603 Cash held in banks 16,825 4,421 Commercial paper 996 9,044 -------- -------- Total cash and cash equivalents 93,203 36,068 -------- -------- SHORT-TERM INVESTMENTS: U.S. Treasury securities 9,125 - -------- -------- Total cash, cash equivalents and short-term investments $102,328 $ 36,068 ======== ========
3. INVENTORIES Inventories consist of the following:
(In thousands) December 30, December 31, June 29, 1995 1994 1996 ---- ---- -------- (Unaudited) Raw materials $3,137 $1,596 $ 5,871 Work-in-process 1,037 972 1,043 Finished goods 3,672 4,406 4,938 ------ ------ ------- $7,846 $6,974 $11,852 ====== ====== =======
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consist of the following:
(In thousands) Useful life December 30, December 31, (in years) 1995 1994 ----------- ---- ---- Land $ 310 $ 326 Buildings 50 3,801 3,979 Furniture and fixtures 5 2,395 2,251 Machinery and equipment 3 - 5 17,009 11,239 Leasehold improvements Lease term 494 218 ------- ------- 24,009 18,013 Less - Accumulated depreciation and amortization 11,044 7,642 ------- ------- $12,965 $10,371 ======= =======
Furniture and fixtures include equipment under capital leases of $170,000 at December 30, 1995 and $222,000 at December 31, 1994. Machinery and equipment include equipment under capital leases of $2,004,000 at December 30, 1995 and $2,784,000 at December 31, 1994. Accumulated amortization related to equipment under capital leases totals $1,889,000 and $2,255,000 at December 30, 1995 and December 31, 1994, respectively. Amortization of equipment under capital leases is included in depreciation expense. F-16 42 SHIVA CORPORATION Notes to Consolidated Financial Statements 5. DEBT SHORT-TERM DEBT Under the terms of a credit agreement (the "Credit Agreement") with a U.S. bank, the Company has a $5,000,000 unsecured revolving credit facility (the "Revolver") which bears interest at the bank's prime rate. At December 30, 1995, available borrowings were reduced by outstanding letters of credit of $881,000 related to certain office leases. These letters of credit expire at various dates through September 1996. While the Company may repay all or a portion of the Revolver borrowings at any time, any outstanding principal must be repaid in full on June 30, 1996. There were no borrowings outstanding under the Revolver at December 30, 1995 or December 31, 1994. The terms of the Credit Agreement require the Company to maintain a minimum level of profitability and specified financial ratios and restrict the payment of cash dividends to stockholders. The Company also has a foreign credit facility of approximately $1,548,000 which is secured by all assets of Shiva Europe Limited. Available borrowings under this facility are decreased by the value of the outstanding debt payable to the European Coal and Steel Community Fund. Borrowings under the foreign credit facility bear interest at the bank's prime rate plus 2.5%. There were no borrowings outstanding under the foreign credit facility at December 30, 1995. The terms of the foreign credit facility require the Company to maintain a minimum level of profitability and specified financial ratios. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS Long-term debt and capital lease obligations consist of the following: (in thousands)
(In Thousands) December 30, December 31, 1995 1994 ----- ---- Capital lease obligations at rates of 11.4% to 14.3%, secured by certain equipment; expiring at various dates through July 1998 $ 378 $ 936 Term loan payable to bank in monthly installments of $17 plus interest at the bank's prime rate plus 1% (9.5% at December 31, 1994), due May 1997 - 513 Bank of Scotland loan at interest rate of the bank's prime rate plus 3.0% (9.75% at December 31, 1994) - 672 Mortgage loans: Scottish Enterprise Loan A payable in monthly installments of $12 including interest at 11.0%, due February 2004 - 810 Loan B payable in monthly installments of $18 including interest at 11.0%, due May 2005 - 1,288 European Coal and Steel Community Fund ("ECSC") Loan A payable in semi-annual installments of $97 plus interest at 8.5%, due March 1997 290 508 Loan C payable in a semi-annual installments of $97 plus interest at 10.0%, due January 1998 484 611 ------ ------- 1,152 5,338 Less - Current portion 700 1,301 ------ ------- $ 452 $ 4,037 ====== =======
F-17 43 SHIVA CORPORATION Notes to Consolidated Financial Statements The ECSC mortgage loans are secured by the Company's European headquarters property in Edinburgh, U.K. 6. INCOME TAXES The components of income (loss) before income taxes are as follows:
(In thousands) Year Ended ---------------------------------------------------- December 30, December 31, January 1, 1995 1994 1994 ---- ---- ---- (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) Domestic $ 2,387 $ 1,113 $ (429) Foreign (4,853) 1,848 1,145 ------- ------- ------- $(2,466) $ 2,961 $ 716 ======= ======= =======
The components of the income tax provision (benefit) are as follows:
(In thousands) Year Ended -------------------------------------------------- December 30, December 31, January 1, 1995 1994 1994 ---- ---- ---- (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) Current: Federal $ 3,401 $ 725 $ 57 State 186 (39) 17 Foreign (390) 571 233 ------- ------- ------- 3,197 1,257 307 ------- ------- ------- Deferred: Federal (333) (34) (58) State (75) (192) - Foreign (403) (110) 51 ------- ------- ------- (811) (336) (7) ------- ------- ------- $ 2,386 $ 921 $ 300 ======= ======= =======
F-18 44 SHIVA CORPORATION Notes to Consolidated Financial Statements The significant components of the net deferred tax asset (liability) are as follows:
(In thousands) December 30, December 31, 1995 1994 ---- ---- Deferred tax assets: Reserves not currently deductible $ 2,675 $ 2,072 Net operating loss carryforwards 4,635 2,287 Tax credit carryforwards 891 659 Other 424 424 ------- ------- Gross deferred tax assets 8,625 5,442 ------- ------- Deferred tax liabilities: Capitalized software development costs (245) (99) Depreciation (832) (1,039) Other (244) (187) ------- ------- Gross deferred tax liabilities (1,321) (1,325) Deferred tax asset valuation allowance (6,531) (4,125) ------- ------- $ 773 $ (8) ======= =======
The differences between the income tax provision and income taxes computed using the applicable U.S. statutory federal tax rate are as follows:
(In thousands) Year Ended --------------------------------------------- December 30, December 31, January 1, 1995 1994 1994 ---- ---- ---- (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) Taxes computed at federal statutory rate $ (863) $1,037 $ 250 State income taxes, net of federal tax benefit 406 (17) 20 Foreign income taxed at different rates 51 (8) 69 Alternative minimum tax - - 28 Research and development tax credits (85) (257) - Change in valuation allowance (670) (181) (100) Non-deductible merger expenses 3,139 - - Other 408 347 33 ------ ------ ----- $2,386 $ 921 $ 300 ====== ====== =====
At December 30, 1995, the Company has federal net operating loss carryforwards of $9,341,000, which expire at various dates through 2010, and state net operating loss carryforwards of $9,515,000, which expire at various dates through 2000. The Company also has federal and state research and development tax credit carryforwards of $1,014,000, which expire at various dates through 2010. Additionally, the Company has federal alternative minimum tax credit carryforwards of $77,000, which may be used indefinitely to reduce regular federal income taxes. Ownership changes, as defined in the Internal Revenue Code, may limit the amount of net operating loss and tax credit carryforwards that can be utilized to offset future taxable income or tax liability. The amount of the annual limitation is determined based upon the Company's value immediately prior to the ownership change. Subsequent significant ownership changes could further affect the limitation in future years. F-19 45 SHIVA CORPORATION Notes to Consolidated Financial Statements The Company has recorded a deferred tax asset and realized a portion of the benefits. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Although realization is not assured, management believes it is more likely than not that the deferred tax asset which has been recognized to date will be realized. The deferred tax asset valuation allowance increased by $3,806,000 (of which $3,076,000 related to the tax effect of the exercise of employee stock options) and decreased by $1,400,000 to recognize the benefit of deferred tax assets not related to employee stock options which has reduced income taxes currently payable. Of the total deferred tax asset valuation allowance at December 30, 1995, $3,976,000 relates to the tax benefit resulting from the exercise of employee stock options in fiscal 1995 and 1994. The tax benefit, when realized, will be accounted for as a credit to stockholders' equity rather than as a reduction in the income tax provision. 7. STOCKHOLDERS' EQUITY PREFERRED STOCK In connection with the completion of the Company's initial public offering in November 1994, all shares of convertible preferred stock then outstanding automatically converted into 7,719,536 shares of common stock. COMMON STOCK On October 21, 1994, the stockholders approved a 1-for-1.5 reverse split (effective upon the closing of the Company's initial public offering) of the Company's common stock. All shares and per share amounts included in the accompanying consolidated financial statements have been adjusted to give retroactive effect to the reverse stock split for all periods presented. On November 30, 1995, the stockholders approved an increase in the authorized shares of common stock from 25,000,000 shares to 50,000,000 shares. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders. Common stockholders are entitled to receive dividends, if any, as may be declared by the Board of Directors, subject to any preferential dividend rights of any preferred stockholders. In connection with the execution of an equipment sale and leaseback agreement (See Note 4) in fiscal 1993, the Company issued a warrant for the purchase of 46,664 shares of the Company's common stock at an exercise price of $2.25 per share, which expires on July 28, 1998. The common stock purchase warrant was determined to have an insignificant value on the date of issuance. In November 1994, the Company issued 29,166 shares of common stock upon partial exercise of this common stock purchase warrant. In fiscal 1995, the Company issued the remaining 17,498 shares of common stock related to this common stock purchase warrant. F-20 46 SHIVA CORPORATION Notes to Consolidated Financial Statements 8. STOCK PLANS 1988 STOCK PLAN The 1988 Stock Plan (the "1988 Plan") provides for the grant of incentive stock options and nonqualified stock options, stock awards and stock purchase rights for the purchase of up to an aggregate of 8,200,000 shares of the Company's common stock by officers, employees, consultants and directors of the Company. In fiscal 1995, the Company's stockholders approved increases in the number of shares issuable under the Plan from 5,333,332 shares to 8,200,000 shares. The Compensation Committee of the Board of Directors is responsible for administration of the Plan. The Compensation Committee determines the term of each option, the option exercise price, the number of shares for which each option is granted and the rate at which each option is exercisable. The Company may not grant an employee incentive stock options with a fair value in excess of $100,000 that are first exercisable during any one calendar year. Incentive stock options may be granted to any officer or employee at an exercise price per share of not less than the fair value per common share on the date of the grant (not less than 110% of the fair value in the case of holders of more than 10% of the Company's voting stock). Nonqualified stock options may be granted to any officer, employee, consultant or director at an exercise price per share of not less than either the book value per common share or 50% of the fair value per common share on the date of the grant. Options granted under the Plan generally expire ten years from the date of the grant (five years for incentive stock options granted to holders of more than 10% of the Company's voting stock). The Compensation Committee, at the request of any optionee, may convert incentive stock options that have not been exercised at the date of conversion into nonqualified stock options. F-21 47 SHIVA CORPORATION Notes to Consolidated Financial Statements The following table summarizes all stock option activity under the 1988 Plan:
Number Exercise of Shares Price --------- -------- Outstanding at January 2, 1993 2,556,266 $ .29 - $ 2.38 Granted 2,074,944 .75 - 5.10 Cancelled (823,930) .34 - 2.38 Exercised (278,262) .29 - 2.38 ---------- Outstanding at January 1, 1994 3,529,018 .29 - 5.10 Granted 1,131,149 1.88 - 6.80 Cancelled (194,345) .34 - 6.80 Exercised (756,468) .29 - 3.00 ---------- Outstanding at December 31, 1994 3,709,354 .75 - 6.80 Granted 1,482,848 4.21 - 35.38 Cancelled (134,984) .75 - 31.25 Exercised (1,100,059) .29 - 6.80 ---------- Outstanding at December 30, 1995 3,957,159 .75 - 35.38 ========== Exercisable at December 30, 1995 683,814 $.75 - $ 6.80 ========== Available for grant at December 30, 1995 2,132,793 ==========
In fiscal 1993, the Company granted options, in lieu of cash payment, to a consultant of the Company to purchase up to 66,666 shares of common stock for $.75 per share. The fair value of the services of $25,000 has been included in selling, general and administrative expenses in fiscal 1993 and additional paid-in capital has been increased accordingly. All such options were exercised in fiscal 1994. The Company has reserved a total of 5,991,084 shares of common stock for issuance under the 1988 Stock Plan. 1994 DIRECTOR STOCK OPTION PLAN On October 21, 1994, the stockholders approved the 1994 Director Stock Option Plan (the "Director Plan") under which options to purchase up to an aggregate of 550,000 shares of the Company's common stock may be granted to nonemployee directors at an exercise price per share equal to the fair value per common share on the date of the grant. Under the Director Plan, each nonemployee director was granted an option to purchase 33,000 common shares (the "initial shares") on July 17, 1995 and an option to purchase an additional 7,000 common shares on the third Monday in July of each year thereafter, through December 31, 1999. Eligible directors who have been previously granted stock options under the 1988 Plan will not be granted an option to purchase the initial shares. Twenty-five percent of the options granted under the Director Plan are exercisable one year from the date of grant and every year thereafter, provided that the optionee remains a director. Options granted under the Director Plan generally expire ten years from the date of grant. In fiscal 1995, options to purchase 99,000 shares of common stock were granted at an exercise price of $25.63 per share. The Company has reserved 550,000 shares of common stock for issuance under the Director Plan. F-22 48 SHIVA CORPORATION Notes to Consolidated Financial Statements 1994 EMPLOYEE STOCK PURCHASE PLAN On October 21, 1994 the stockholders approved the 1994 Employee Stock Purchase Plan (the "1994 Plan") which enables eligible employees to purchase shares of the Company's common stock. Under the 1994 Plan, eligible employees may purchase up to an aggregate of 700,000 shares during six-month payment periods commencing on February 1 and August 1 of each year at a price per share of 85% of the lower of the market price per share on the first or last business day of the six-month period. Participating employees may elect to have up to 10% of regular pay withheld and applied toward the purchase of such shares up to a maximum of 20,000 shares in any six-month payment period. An employee's rights under the 1994 Plan terminate upon voluntary withdrawal from the plan at any time or upon termination of employment. The Company has reserved 678,418 shares of common stock for issuance under the 1994 Plan. STOCKHOLDER RIGHTS PLAN On September 20, 1995 the Company's Board of Directors adopted a Stockholders Rights Plan and pursuant thereto declared a dividend of one preferred stock purchase right for each outstanding share of common stock to stockholders of record at the close of business on October 13, 1995. Each right entitles holders of the Company's common stock to purchase one one-hundredth of a share (a "Unit") of a new series of junior participating preferred stock, $.01 par value per share, at an exercise price of $300.00 per unit, subject to adjustment. The rights are exercisable and become exercisable for common stock only under certain circumstances and in the event of particular events relating to a change in control of the Company. The rights may be redeemed by the Company under certain circumstances pursuant to the plan. The rights expire on October 13, 2005 unless earlier redeemed or exchanged. The rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to acquire a significant interest in the Company on terms not approved by the Board of Directors. 9. RETIREMENT PLANS The Company sponsors a 401(k) retirement savings plan covering all domestic employees of the Company who meet minimum age and service requirements. The plan allows participants to defer a portion of their annual compensation on a pre-tax basis. The Company matches 50% of the first 3% of each participating employee's contributions, subject to certain limitations and may, at its discretion, make additional contributions to the plan. The Company made matching contributions of $150,000, $119,000 and $76,000, to the plan in fiscal 1995, 1994 and 1993, respectively. The Company also sponsors a defined contribution plan for all eligible European employees of the Company. Participation in the plan is available to substantially all salaried employees and to certain groups of hourly paid employees. Company contributions are based on a percentage of the employees' base salaries. The Company made contributions of $318,000, $267,000 and $226,000 to the plan in fiscal 1995, 1994 and 1993, respectively. F-23 49 SHIVA CORPORATION Notes to Consolidated Financial Statements 10. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION The Company operates in a single industry segment: the development, manufacture, sale and support of network communications products and services. In fiscal 1995, one OEM customer accounted for $11,259,000 (10%) of revenues. In fiscal 1993, one domestic distributor accounted for $5,905,000 (10%) of revenues. Intercompany sales and transfers between geographic areas are accounted for at prices which are designed to be representative of unaffiliated party transactions.
(In thousands) NORTH AMERICA EUROPE ELIMINATIONS TOTAL - --------------------------------------------------------------------------------------------- 1995 Revenues to unaffiliated customers $ 70,083 $ 48,498 $ - $ 118,581 Intercompany revenues - 607 (607) - - --------------------------------------------------------------------------------------------- Total revenues 70,083 49,105 (607) 118,581 - --------------------------------------------------------------------------------------------- Income (loss) from operations (797) (3,243) - (4,040) Identifiable assets 140,006 24,581 (14,464) 150,123 1994 Revenues to unaffiliated customers $ 41,646 $ 39,412 $ - $ 81,058 Intercompany revenues - - - - - --------------------------------------------------------------------------------------------- Total revenues 41,646 39,412 - 81,058 - --------------------------------------------------------------------------------------------- Income from operations 1,285 2,574 - 3,859 Identifiable assets 51,048 23,611 (2,099) 72,560 1993 Revenues to unaffiliated customers $ 29,527 $ 31,735 $ - $ 61,262 Intercompany revenues - - - - - --------------------------------------------------------------------------------------------- Total revenues 29,527 31,735 - 61,262 - --------------------------------------------------------------------------------------------- Income from operations (111) 1,875 - 1,764 Identifiable assets 11,259 18,255 - 29,514
F-24 50 SHIVA CORPORATION Notes to Consolidated Financial Statements 11. COMMITMENTS LEASE COMMITMENTS The Company leases office and operating facilities and certain equipment under operating and capital leases (See Notes 4 and 5) that expire through March 2014. Future minimum lease payments under operating and capital leases with initial or remaining noncancelable terms of one or more years are as follows as of December 31, 1995:
(In thousands) Operating Capital Fiscal leases leases - ------ --------- ------- 1996 $ 2,354 $ 335 1997 2,561 54 1998 2,257 16 1999 2,169 - 2000 2,281 - Thereafter 11,410 - --------- ------- Total minimum lease payments $ 23,032 405 ========= Less - Amount representing interest 27 ------- Net present value of minimum lease payments $ 378 =======
Rental expense under operating leases was $1,934,000, $1,877,000 and $1,434,000 in fiscal 1995, 1994 and 1993, respectively. The Company no longer occupies a property which is leased through March 2014. The loss on this lease is included in other long-term liabilities. 12. SUBSEQUENT EVENTS On April 2, 1996, the Company's Board of Directors declared a two-for-one stock split, payable in the form of a stock dividend on all shares of its Common Stock, which was paid on April 22, 1996 to stockholders of Record on April 12, 1996. These financial statements and related notes have been retroactively adjusted, where appropriate, to reflect this two-for-one stock split. In May 1996, the stockholders of the Company approved (i) an increase in the number of authorized shares of common stock of the Company from 50,000,000 to 100,000,000 shares and (ii) an increase in the number of shares available for issuance under the Company's Amended and Restated 1988 Stock Plan from 8,200,000 to 9,700,000 shares. In June 1996, the Company issued approximately 691,587 shares of its common stock in exchange for all the outstanding shares of Airsoft, Inc. (the "Airsoft Acquisition"). The Airsoft Acquisition has been accounted for as a pooling of interests, and therefore the consolidated financial statements for all periods prior to the Airsoft Acquisition have been restated to include the accounts and operations of Airsoft, Inc. ("Airsoft") with those of the Company. Certain amounts have been reclassified with regard to presentation of the financial information of the two companies. Revenues and net income (loss) for each of the previously separate companies for the periods prior to the Airsoft Acquisition are as follows:
(In thousands) Year Ended Three Months Ended -------------------------------------------- ----------------------- December 30, December 31, January 1, March 30, April 1, 1995 1994 1994 1996 1995 ---- ---- ---- ---- ---- (Fiscal 1995) (Fiscal 1994) (Fiscal 1993) (unaudited) Revenues: Shiva $ 117,721 $ 80,971 $ 61,259 $ 42,513 $ 25,703 Airsoft 860 87 3 796 34 --------- --------- --------- --------- --------- $ 118,581 $ 81,058 $ 61,262 $ 43,309 $ 25,737 ========= ========= ========= ========= ========= Net income (loss): Shiva $ (2,879) $ 3,881 $ 909 $ 4,366 $ 2,157 Airsoft (1,973) (1,841) (493) (27) (775) --------- --------- --------- --------- --------- $ (4,852) $ 2,040 $ 416 $ 4,339 $ 1,382 ========= ========= ========= ========= =========
In connection with the Airsoft Acquisition, the Company incurred charges to operations of $1,987,000 in the quarter ended June 29, 1996, the quarter in which the acquisition was consummated. Such charges include: (a) transaction costs to effect the acquisition, consisting of financial advisor fees of $1,350,000 plus $325,000 for legal, regulatory and accounting expenses and (b) employee severance payments and other miscellaneous expenses of $312,000. F-25 51 ================================================================================ No dealer, salesperson or any other person has been authorized to give any information or to make any representations not contained in this Prospectus, and, if given or made, such information or representations must not be relied upon as having been authorized by the Company or the Selling Stockholders. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to sell, any securities other than the registered securities to which it relates, or an offer to or solicitation of any person in any jurisdiction where such an offer or solicitation would be unlawful. Neither the delivery of this Prospectus nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any time subsequent to the date hereof. --------------- TABLE OF CONTENTS PAGE ---- Available Information ............................................. 2 Incorporation of Certain Information by Reference ................. 2 Trademarks ........................................................ 3 The Company ....................................................... 4 Selected Consolidated Financial Data............................... 5 Risk Factors ...................................................... 7 Use of Proceeds ................................................... 11 Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 12 Selling Stockholders .............................................. 20 Plan of Distribution .............................................. 22 Legal Matters ..................................................... 23 Experts ........................................................... 23 Index to Financial Statements ..................................... F-1 ================================================================================ ================================================================================ 691,587 shares Shiva Corporation Common Stock ------------------- PROSPECTUS ------------------- ______________, 1996 ================================================================================ 52 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the expenses in connection with the distribution of the securities being registered. All amounts shown are estimates except the SEC registration fee. SEC registration fee $10,434 Legal fees and expenses 5,000 Accounting fees and expenses 12,000 Miscellaneous 2,566 ------- Total $30,000 =======
All of the above expenses will be paid by the Company. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 67 of Chapter 156B of the Massachusetts General Laws ("Section 67") provides that a corporation may indemnify its directors and officers to the extent specified in or authorized by: (i) the articles of organization, (ii) a by-law adopted by the stockholders, or (iii) a vote adopted by the holders of a majority of the shares of stock entitled to vote on the election of directors. In all instances, the extent to which a corporation provides indemnification to its directors and officers under Section 67 is optional. In its Restated By-Laws, the Company has elected to commit to provide indemnification to its directors and officers in specified circumstances. Generally, Article V, Section 2 of the Company's Restated By-laws indemnifies directors and officers of the Company against liabilities and expenses arising out of legal proceedings brought against them by reason of their status as directors or officers or by reason of their agreeing to serve, at the request of the Company, as a director or officer with another organization. Under this provision, a director or officer of the Company shall be indemnified by the Company for all costs and expenses (including attorneys' fees), judgments, liabilities and amounts paid in settlement of such proceedings, liabilities and amounts paid in settlement of such proceedings, even if he is not successful on the merits, if he acted in good faith in the reasonable belief that his action was in the best interest of the Company. The board of directors may authorize advancing litigation expenses to a director or officer at his request upon receipt of an undertaking by such director or officer to repay such expenses if it is ultimately determined that he is not entitled to indemnification for such expenses. Article 6 of the Company's Restated Articles of Organization eliminates the personal liability of the Company's directors to the Company or its stockholders for monetary damages for breach of a director's fiduciary duty, except to the extent Chapter 156B of the Massachusetts General Laws prohibits the elimination or limitation of such liability. The "Recommended Offers by Dundas and Wilson CS on behalf of Shiva Corporation" dated June 16, 1995 (the "Offer Document") provides that the Majority Stockholders (as defined therein) of Spider will indemnify the Company and its officers and directors with respect to the statements of the business and affairs of Spider as set forth in the Offer Document. Any indemnification pursuant to this section shall be limited to the shares of Common Stock held in escrow following the closing date. In addition, each Majority Stockholder, severally and not jointly, has agreed to indemnify the Company and its officers and directors against and has agreed to hold the Company and its officers and directors harmless from any and all damage, loss, liability and expense (including, without limitation, reasonable expenses of investigation and reasonable attorneys' fees and expenses in connection with any action, suit or proceeding) ("Loss") incurred or suffered by the Company and its officers and directors arising out of any misrepresentation or breach of a warranty made by such Majority Stockholder pursuant to the Agreement and Undertaking dated as of June 13, 1995, provided that (i) a Majority Stockholder shall only be liable for any misrepresentations or breaches of warranties made by himself or itself and (ii) a Majority Stockholder's maximum liability shall not extend beyond the number of shares of the Company's Common Stock received by such Majority Stockholder in connection with the Spider Acquisition (including shares of the Company's Common Stock held in escrow on his or its behalf.) The Registration Rights Agreement executed in connection with the Spider Acquisition provides for indemnification by stockholders selling shares of the Company's Common Stock pursuant to such Registration Rights Agreement of directors, officers and controlling persons of the Company against certain liabilities, including liabilities under the Act, under certain circumstances. II-1 53 The registration rights provisions of the Agreement and Plan of Merger dated as of June 16, 1996 between the Company, a wholly-owned subsidiary of the Company and AirSoft (the "Merger Agreement") provides that the former stockholders of AirSoft will indemnify the Stockholders of the Company and its directors and officers against certain liabilities, including liabilities under the Act, under certain circumstances. See "Plan of Distribution." Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company has obtained directors and officer's liability insurance for the benefit of its directors and certain of its officers. ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. EXHIBITS: --------- 2.1(1) Agreement and Plan of Merger dated as of June 16, 1996 by and among the Registrant, SV Acquisition Corp. and AirSoft, Inc. 4.1(2) Specimen certificate representing the Common Stock. 4.2(3) Rights Agreement dated as of September 29, 1995, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A the Form of Certificate of Vote of Directors Establishing a Series of a Class of Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary Rights to Purchase Preferred Stock. 5.1 Opinion of Hale and Dorr. 23.1 Consent of Price Waterhouse LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Coopers & Lybrand. 23.4 Consent of Hale and Dorr (contained in Exhibit 5.1). 24.1 Power of Attorney (contained on pages II-4 and II-5 of this Registration Statement). 27.1 Financial Data Schedule for fiscal year 1994. 27.2 Financial Data Schedule for fiscal year 1995. - ------------------- (1) Incorporated by reference to the Registrant's Current Report on Form 8-K, filed June 27, 1996, as amended. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-97216). FINANCIAL STATEMENT SCHEDULE: - ----------------------------- Schedule II - Valuation of Qualifying Accounts II-2 54 ITEM 17. UNDERTAKINGS (a) The undersigned Registrant hereby undertakes: (1) To file during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933 (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of this Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in this Registration Statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement; and (iii) To include any material information with respect to the plan of distribution not previously disclosed in this Registration Statement or any material change to such information in this Registration Statement; PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed with or furnished to the Commission by the Registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 (the "Exchange Act") that are incorporated by reference in this Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (b) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Exchange Act) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under Item 15 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person or the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 55 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all the requirements for filing on Form S-3 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Bedford, Commonwealth of Massachusetts, on the 28th day of August, 1996. SHIVA CORPORATION By: /s/ Cynthia M. Deysher ------------------------------------------ Cynthia M. Deysher, Senior Vice President, Finance and Administration and Chief Financial Officer EACH PERSON WHOSE SIGNATURE appears below this Registration Statement constitutes and appoints Frank A. Ingari, Cynthia M. Deysher and M. Elizabeth Potthoff, and each of them, with full power to act without the other, his or her true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead in any and all capacities (until revoked in writing) to sign all amendments (including post-effective amendments) to this Registration Statement on Form S-3 of Shiva Corporation, and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, or any state securities commission or other governmental entity pertaining to such registration and sale, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary fully to all intents and purposes as he or she might or could do in person thereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his or her substitute, may lawfully do or cause to be done by virtue hereof. [THIS SPACE INTENTIONALLY LEFT BLANK] II-4 56 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement on Form S-3 has been signed by the following persons in the capacities and on the date indicated:
Signatures Title(s) Date ---------- -------- ---- /s/ Frank A. Ingari President, Chief Executive Officer and Chairman August 28, 1996 - -------------------------- of the Board of Directors (principal executive Frank A. Ingari officer) /s/ Cynthia M. Deysher Senior Vice President, Finance and Administration August 28, 1996 - -------------------------- and Chief Financial Officer (principal financial and Cynthia M. Deysher accounting officer) /s/ David C. Cole Director August 28, 1996 - -------------------------- David C. Cole /s/ L. John Doerr Director August 28, 1996 - -------------------------- L. John Doerr /s/ Henry F. McCance Director August 28, 1996 - -------------------------- Henry F. McCance /s/ Paul C. O'Brien Director August 28, 1996 - -------------------------- Paul C. O'Brien /s/ Mitchell E. Kertzman Director August 28, 1996 - -------------------------- Mitchell E. Kertzman
II-5 57 Exhibit Index -------------
Exhibit ------- 2.1(1) Agreement and Plan of Merger dated as of June 16, 1996 by and among the Registrant, SV Acquisition Corp. and AirSoft, Inc. 4.1(2) Specimen certificate representing the Common Stock. 4.2(3) Rights Agreement dated as of September 29, 1995, between the Company and American Stock Transfer & Trust Company, which includes as Exhibit A the Form of Certificate of Vote of Directors Establishing a Series of a Class of Stock, as Exhibit B the Form of Rights Certificate, and as Exhibit C the Summary Rights to Purchase Preferred Stock. 5.1 Opinion of Hale and Dorr. 23.1 Consent of Price Waterhouse LLP. 23.2 Consent of Deloitte & Touche LLP. 23.3 Consent of Coopers & Lybrand. 23.4 Consent of Hale and Dorr (contained in Exhibit 5.1). 24.1 Power of Attorney (contained on pages II-4 and II-5 of this Registration Statement). 27.1 Financial Data Schedule for fiscal year 1994. 27.2 Financial Data Schedule for fiscal year 1995. - ------------------- (1) Incorporated by reference to the Registrant's Current Report on Form 8-K, filed June 27, 1996, as amended. (2) Incorporated by reference to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 30, 1995. (3) Incorporated by reference to the Registrant's Registration Statement on Form S-1 (File No. 33-97216).
II-6 58 - ------------------------------------------------------------------------------- Schedule II SHIVA CORPORATION VALUATION AND QUALIFYING ACCOUNTS
(In thousands) - ---------------------------------------------------------------------------------------------------------------------------- COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F - ---------------------------------------------------------------------------------------------------------------------------- BALANCE CHARGED TO CHARGED BALANCE FOR THE PERIOD BEGINNING COSTS AND TO OTHER AT END ENDED CLASSIFICATION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD - ---------------------------------------------------------------------------------------------------------------------------- January 1, 1994 Allowance for doubtful accounts and returns $1,169 $5,249 $ - $(4,042) $2,376 December 31, 1994 Allowance for doubtful accounts and returns $2,376 $7,656 $ 17 $(6,086) $3,963 December 30, 1995 Allowance for doubtful accounts and returns $3,963 $7,731 $(22) $(6,421) $5,252 June 29, 1996 (unaudited) Allowance for doubtful accounts and returns $5,252 $4,318 $ (1) $(3,628) $5,941 - ----------------------------------------------------------------------------------------------------------------------------
SHIVA CORPORATION DEFERRED TAX ASSET VALUATION ALLOWANCE
- ------------------------------------------------------------------------------------------------------------------- Column A Column B Column C Column D Column E Column F - ------------------------------------------------------------------------------------------------------------------- Balance Charged to Charged Balance For the Period Beginning Costs and to Other at End Ended Classification of Period Expenses Accounts Deductions of Period - ------------------------------------------------------------------------------------------------------------------- January 1, 1994 Deferred tax asset valuation allowance $3,375 $170 $ - $ (270) $3,275 December 31, 1994 Deferred tax asset valuation allowance $3,275 $797 $1,031 $ (978) $4,125 December 30, 1995 Deferred tax asset valuation allowance $4,125 $730 $3,076 $(1,400) $6,531 June 29, 1996 (unaudited) Deferred tax asset valuation allowance $6,531 $ - $ - $(5,673) $ 858 - -------------------------------------------------------------------------------------------------------------------
S-1 EX-5.1 2 OPINION OF HALE AND DORR 1 Exhibit 5.1 ----------- HALE AND DORR Counsellors at Law 60 State Street Boston, Massachusetts 02109 August 28, 1996 Shiva Corporation 28 Crosby Drive Bedford, Massachusetts 01730 Ladies and Gentlemen: We have assisted in the preparation of a Registration Statement on Form S-3 (the "Registration Statement") to be filed with the Securities and Exchange Commission relating to 691,587 shares (the "Shares") of Common Stock, $.01 par value per share, of Shiva Corporation, a Massachusetts corporation ("Shiva"), issued to the former stockholders of AirSoft, Inc. ("AirSoft") pursuant to the Agreement and Plan of Merger dated as of June 16, 1996 by and among Shiva, SV Acquisition Corp. and AirSoft. We have examined the Restated Articles of Organization of the Company, as amended, the Restated By-laws of the Company, as amended, and originals, or copies certified to our satisfaction, of all pertinent records of the meetings of the directors and stockholders of the Company, the Registration Statement and such other documents relating to the Company as we have deemed material for the purposes of this opinion. In examination of the foregoing documents, we have assumed the genuineness of all signatures and the authenticity of all documents submitted to us as originals, the conformity to original documents of all documents submitted to us as certified, photostatic or facsimile copies, and the authenticity of the originals of any such documents. Based upon and subject to the foregoing, we are of the opinion that the Shares have been duly authorized for issuance, legally issued and are fully paid and nonassessable. We hereby consent to the filing of this opinion with the Securities and Exchange Commission in connection with the Registration Statement. Very truly yours, /s/ Hale and Dorr HALE AND DORR EX-23.1 3 CONSENT OF PRICE WATERHOUSE LLP 1 Exhibit 23.1 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS ---------------------------------- We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-3 of our report dated January 23, 1996, except as to Note 12 which is as of June 17, 1996, relating to the financial statements of Shiva Corporation, which appears in such Prospectus. We also consent to the application of such report to the Financial Statement Schedule for the three years ended December 30, 1995 listed under Item 16 of this Registration Statement when such schedule is read in conjunction with the financial statements referred to in our report. The audits referred to in such report also included this schedule. We also consent to references to us under the headings "Experts" and "Selected Consolidated Financial Data" in such Prospectus. However, it should be noted that Price Waterhouse LLP has not prepared or certified such "Selected Consolidated Financial Data." /s/ PRICE WATERHOUSE LLP Boston, Massachusetts August 27, 1996 EX-23.2 4 CONSENT OF DELOITTE & TOUCHE LLP 1 Exhibit 23.2 ------------ CONSENT OF DELOITTE & TOUCHE LLP We consent to the incorporation by reference in this Registration Statement of Shiva Corporation on Form S-3 of our report dated March 28, 1996 (June 16, 1996 as to Note 8) relating to the financial statements of AirSoft, Inc., appearing in Amendment No. 2 to the Current Report on Form 8-K/A of Shiva Corporation dated August 13, 1996 and to the use of our report dated March 28, 1996 (June 16, 1996 as to Note 8) (relating to such financial statements of AirSoft, Inc. not presented separately herein), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in the Prospectus, which is part of this Registration Statement. /s/ DELOITTE & TOUCHE LLP San Jose, California August 22, 1996 EX-23.3 5 CONSENT OF COOPERS & LYBRAND 1 Exhibit 23.3 ------------ CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-3 (No. 333- ) of our report dated June 12, 1995, on our audits of the financial statements of Spider Systems Limited. We also consent to the reference to our firm under the caption "Experts." /s/ COOPERS & LYBRAND Edinburgh, United Kingdom August 27, 1996 EX-27.1 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-31-1994 JAN-02-1994 DEC-31-1994 1 36,068 0 20,306 3,963 6,974 61,668 18,013 7,642 72,559 23,661 4,037 245 0 0 43,868 72,559 81,058 81,058 34,800 34,800 42,399 564 1,122 2,961 921 2,040 0 0 0 2,040 .09 .09
EX-27.2 7 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE SHEET AND STATEMENT OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS YEAR DEC-30-1995 JAN-01-1995 DEC-30-1995 1 93,203 9,125 28,234 5,252 7,846 135,507 24,009 11,044 150,123 26,131 452 280 0 0 122,624 150,123 118,581 118,581 49,186 49,186 73,435 321 705 (2,466) 2,386 (4,852) 0 0 0 (4,852) (.18) (.18)
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