<PAGE> 1
As filed with the Securities and Exchange Commission on August 23, 1996
Registration No. 333-10663
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1 TO 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 (I.R.S. employer identification number)
incorporation or organization)
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.
<PAGE> 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. / /
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.
<PAGE> 3
SUBJECT TO COMPLETION: DATED AUGUST 23, 1996
SHIVA CORPORATION
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284,035 SHARES
COMMON STOCK
$.01 PAR VALUE PER SHARE
-----------------------
This Prospectus relates to the resale of 284,035 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 Spider
Systems Limited. 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 21, 1996, the last reported sale price for the
Common Stock was $43.75.
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THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
-----------------------
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.
<PAGE> 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.
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<PAGE> 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.
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<PAGE> 6
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.
<TABLE>
<CAPTION>
Six Months Ended
FISCAL YEARS -------------------
---------------------------------------------------------------------------- June 29, July 1,
1995 1994 1993 1992 1991 1996 1995
(In thousands, except per share data) -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
<CAPTION>
December 30, December 31, January 1, January 2, December 31, June 29,
1995 1994 1994 1993 1991 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
<FN>
* 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.
</TABLE>
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
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<TABLE>
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
- -------------------------------------------
<CAPTION>
First Second Third Fourth
(In thousands, except per share data) Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
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
<FN>
(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.
</TABLE>
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<PAGE> 8
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.
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<PAGE> 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,
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<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 16
<TABLE>
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:
<CAPTION>
Fiscal Years Six Months Ended
-------------------------- --------------------
June 29, July 1,
1995 1994 1993 1996 1995
------ ------ ------ ------ ------
(unaudited)
<S> <C> <C> <C> <C> <C>
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%
=== === === === ===
</TABLE>
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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.
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<PAGE> 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 in
the Company's Annual Report to Stockholders, Form 10-K and the Company's other
Securities and Exchange Commission filings.
-19-
<PAGE> 22
SELLING STOCKHOLDERS
<TABLE>
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 Spider (the "Majority Stockholders") and others (the
"Other Stockholders"). 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."
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
MAJORITY STOCKHOLDERS
<S> <C> <C>
Peter Howells(2) 1,992 1,992
W&J Burness Trustees Ltd. as 133,196 133,196
Trustees of the Peter Palmer
Liferent Trust(3)
Barnes Thomson Mngt Services Ltd.(4) 14,425 14,425
Andrew Broughton Davis(5) 12,915 12,915
W&J Burness (Trustees) Ltd. as 10,501 10,501
Trustees of the Nicholas Felisiak
Liferent Trust(6)
William Martin Ritchie(7) 12,915 12,915
Donald John McLeod Martin(8) 14,669 14,669
Graham Alexander Drummond 2,784 2,784
Wallace(9)
OTHER STOCKHOLDERS
CIN Investors Nominees Limited 93 93
CIN Venture Nominees Limited 12,610(10) 12,610
Robert Shaun Downey(11) 1,533 1,533
Nicholas Christopher Felisiak 2,257 2,257
Thomas Rodrick McBeath(12) 355 355
Gerald M. Meyer 470 470
NatWest Ventures Investments Ltd. 19,054(13) 19,054
Railway Pension Venture Capital Ltd. 6,351(14) 6,351
Scottish Enterprise 13,888 13,888
</TABLE>
-20-
<PAGE> 23
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Simpson Research Limited 427 427
Clare Adamson 8 8
Elizabeth Aitken 3 3
Michael Allan 127 127
Andrew Allan 15 15
Anne Ambler 292 292
Steven Anderson 15 15
Tim Anderson 5 5
Susan Anthony 69 69
Nigel Arthur 12 12
Alex Bathgate 11 11
Eric Beattie 207 207
Peter Biggs 5 5
Susan Birks 23 23
Gordon Black 15 15
Neil Black 15 15
Didier Bourgeot 326 326
Stuart Boutell 16 16
Robet Bowden 38 38
Hayley Bowman 18 18
Richard Bradley 45 45
Steve Bremner 5 5
Ian Bruce 38 38
Harry Bryson 58 58
Brendan Burke 8 8
Eric Burns 94 94
William Butt 14 14
Peter Cameron 95 95
Malcolm Campbell 14 14
</TABLE>
-21-
<PAGE> 24
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Andrew Cannon 11 11
Philip Cantore 16 16
Nigel Cartwright 5 5
HS Chahal 20 20
Nigel Chappell 1,009 1,009
Suzanne Clarke 8 8
Susan Coombs 2 2
John Cramb 3 3
Janice Cutting 9 9
Tom Daniel 47 47
Kathryn Davey 8 8
Davina Davies 7 7
Jonathon Davies 30 30
Laurence Dearling 162 162
Ian Donaldson 14 14
Roy Donaldson 14 14
Clare Edmonstone 3 3
Richard Edmonstone 25 25
Shaun Ellery 5 5
Paul Elliot 3 3
Dougal Featherstone 3 3
Laura Fergusson 8 8
Francois Ferveur 2 2
Keith Flower 94 94
Michael Fogg 8 8
David Fraser 21 21
Brian Gavin 8 8
Carol Gillespie 10 10
J Goodale 20 20
</TABLE>
-22-
<PAGE> 25
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Douglas Gordon 18 18
Neil Gordon 1 1
Paul Gowans 30 30
Linda Grant 69 69
Brian Dunlop Gray 1,214 1,214
Martin Gray 331 331
Marion Greenway 5 5
Angus Grossart 18 18
Dilys Groves 27 27
Graham Haley 16 16
Simon Hall 4 4
Lynn Hammond-Riley 704 704
Alan Harman 5 5
Tom Harris 16 16
Paul Harrison 8 8
Ian P Heavens 166 166
Steven Horle 3 3
Scott Hosking 2 2
Margaret Hume 14 14
Neil Hutton 45 45
Sharon Izon 5 5
Andrew Jamieson 2 2
Francis Kent 16 16
Chris Key 2 2
Rahail Khan 8 8
Matt Kinnear 8 8
Michael Lamont 5 5
Ian Lartey 8 8
Jean Lavin 20 20
</TABLE>
-23-
<PAGE> 26
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Brian Lesbirel 17 17
Andrew Malone 38 38
Harry Manley 36 36
Ralph Masterton 7 7
James Mathieson 34 34
Suzanne Mazeau 16 16
Gavin McCallum 15 15
Chris McEvilly 10 10
Neil McGill 8 8
Colin McGlynn 57 57
Neil McIntosh 18 18
Adrian McKie 67 67
Robert McKinlay 5 5
Lavinia McTeggart 2 2
Thomas Michel 28 28
Derek Mifsud 7 7
Colin Montgomery 85 85
Debbie Montgomery 38 38
John Morris 38 38
David Morris 3 3
Jayne Mountain 12 12
Mahmood Nasir 1,315 1,315
Clive Orchard 233 233
Colin Ormiston 58 58
David Peat 8 8
Sandrine Perino 20 20
P Perkins 714 714
David Portnell 17 17
Craig Ramage 50 50
</TABLE>
-24-
<PAGE> 27
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Bruce Ramsay 16 16
Peter Reid 534 534
Mary Reid 18 18
Helen Richards 24 24
Adalbert Riedl 68 68
Alan Robertson 38 38
Horst Rodel 1,009 1009
Steve Rose 7 7
Patrick Ruddy 8 8
Isobel Russell 8 8
Colin Saywood 24 24
Gavin Shearer 67 67
Annette Short 30 30
Kevin Smart 3 3
Ruth Smith 5 5
Ian Smith 3 3
Keith Richard Smith 9,482 9,482
David Spencer 182 182
C Stabler 633 633
David Stevenson 77 77
James W Stewart 826 826
Julia Sweatman 9 9
Rachet Tagg 1 1
Katherine Taylor 24 24
Robert Thomson 8 8
Stephen Thurlow 33 33
Colin Tinto 8 8
Martine Tomassini 12 12
June Turnbull 45 45
</TABLE>
-25-
<PAGE> 28
<TABLE>
<CAPTION>
Number of Shares of Number of Shares of
Common Stock Owned Common Stock Which May
Name Prior to this Offering(1) Be Sold in this Offering(1)
- ---- ---------------------- ------------------------
<S> <C> <C>
Mark Valentine 130 130
Gerry Vincett 5 5
Duncan Walker 178 178
William Walker 5 5
Beverly Walker 3 3
Elizabeth Watt 21 21
Graham Waugh 62 62
Jon Weatherall 50 50
Kate M Weatherall 97 97
Dawn Webster 10 10
Julian Welch 8 8
Clare White 28 28
Ian Whitman 15 15
George Wilkie 36 36
Rachel Willmer 58 58
Valerie June Wilson 704 704
Iam Wilson 30 30
Stuart Wilson 8 8
Steve Wines 17 17
Heather Winter 8 8
Peter Woodhouse 33 33
TOTAL 284,035 284,035
- ----------
<FN>
(1) The total shares of Common Stock listed as owned by the Selling
Stockholders does not include an aggregate of 78,476 shares held in an
escrow account to secure certain indemnification obligations of the
Spider stockholders to the Company. It is expected that these shares
(less any shares which may be distributed from the escrow acount in
satisfaction of indemnification claims) will be released from escrow
and distributed to these Selling Stockholders on the earlier of August
22, 1998 or upon the settlement of all potential claims to which the
escrow account relates. 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) Mr. Howells serves as the Company's Vice President, Network Services
Division.
(3) The Trustees of such trust have the sole authority to hold or dispose
of, and to vote all securities held by the trust. The income of the
trust is payable to Peter Palmer and charitable beneficiaries; the
principal of such trust may be paid to Mr. Palmer and charitable
beneficiaries at the discretion of the Trustees.
(4) Barnes Thomson Management Services Limited is the general partner of
Syntech Information Technology Second Fund (the "Fund"), an investment
partnership formed under the laws of the United Kingdom, and holds
such shares for the benefit of its partners. The limited partners of
</TABLE>
-26-
<PAGE> 29
the Fund include CIN Venture Nominees Limited, Railway Pension Venture
Capital Limited and NatWest Ventures Investments Limited. David
Thomson, a director of Barnes Thomson Management Services Limited,
was a director and Chairman of Spider prior to its acquisition by the
Company.
(5) Includes 1,447 shares owned by the A.B. Davis Liferent Trust of which
Mr. Davis and Valerie June Wilson are co-trustees. The Trustees of
such trust have the sole authority to hold or dispose of, and to vote
all securities held by the trust. The income of the trust is payable
to Mr. Davis; the principal of such trust may be paid to Mr. Davis at
the discretion of the Trustees. Mr. Davis was a director of Spider
prior to its acquisition by the Company.
(6) The Trustees of such trust have the sole authority to hold or dispose
of; and to vote all securities held by the trust. The income of the
trust is payable to Nicholas C. Felisiak; the principal of such trust
may be paid to Mr. Felisiak at the discretion of the Trustees.
(7) Includes 2,895 shares owned by the Wm Ritchie Liferent Trust, 627
shares owned by the Amy Ritchie Liferent Trust and 627 shares owned by
the Kate Ritchie Liferent Trust, of each of which Mr. Ritchie and Mrs.
Marie Ritchie are co-trustees. The Trustees of such trusts have the
sole authority to hold or dispose of, and to vote all securities held
by the trusts. The income of the trusts is payable, respectively, to
Wm. Martin Ritchie and each of his children; the principal of such
trusts may be paid to such persons at the discretion of the Trustees.
Mr. Ritchie was a director of Spider prior to its acquisition by the
Company.
(8) Includes 965 shares owned by the Alice Martin Trust, 8,686 shares
owned by the DJ Martin Liferent Trust, 965 shares owned by the James
Martin Trust and 965 shares owned by the Rachel Martin Trust, of each
of which Mr. Martin and Mrs. Jean Katharine Baillie Martin are
co-trustees. The Trustees of such trusts have the sole authority to
hold or dispose of, and to vote all securities held by the trusts. The
income of the trusts is payable, respectively, to D. John M. Martin,
and each of his children; the principal of such trusts may be paid to
such persons at the discretion of the Trustees.
(9) Mr. Wallace was a director and Secretary of Spider prior to its
acquisition by the Company.
(10) Excludes shares beneficially owned by CIN Venture Nominees Limited as
a limited partner of Syntech Information Technology Second Fund. See
Note 4.
(11) Mr. Downey is the Vice President, Europe, Middle East and Africa of
the Company and was a director of Spider prior to its acquisition by
the Company.
(12) Mr. McBeath is the Vice President of Edinburgh Research & Development
of the Company.
(13) Excludes shares beneficially owned by NatWest Ventures Investments
Ltd. as a limited partner of Syntech Information Technology Second
Fund. See Note 4.
(14) Excludes shares beneficially owned by Railway Pension Venture Capital
Ltd. as a limited partner of Syntech Information Technology Second
Fund. See Note 4.
-27-
<PAGE> 30
In June 1995, the Company entered into an agreement to acquire 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 was completed on
August 22, 1995, and has been accounted for as a pooling of interests.
Approximately 235,428 of the 3,923,606 shares of Common Stock issued in the
Spider Acquisition were placed in escrow (the "Escrow Shares") to satisfy any
indemnification claims brought by Shiva based on a breach of any of the
representations and warranties relating to the business of Spider and a possible
claim against Spider by former employees of Spider relating to the purchase by
the Spider ESOP Trust of their Spider ordinary shares.
In connection with the Spider Acquisition, certain stockholders of Spider,
including the Majority Stockholders, executed a Registration Rights Agreement
(the "Registration Rights Agreement") pursuant to which they were granted
certain registration rights for the Common Stock of the Company issued pursuant
to the Spider Acquisition. The Company is fulfilling certain of its obligations
under the terms of the Registration Rights Agreement in connection with the
registration of the Shares being offered pursuant to this Prospectus.
The Spider Acquisition is more fully described in the Company's Current
Report on Form 8-K dated as of August 22, 1995.
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 of
1933, 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 of 1933, as amended, may be sold under Rule
144 rather than pursuant to this Prospectus.
The Company intends to maintain the effectiveness of this Prospectus for
approximately a 31 day period; 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.
-28-
<PAGE> 31
The Registration Rights Agreement entered into by the Company and certain
of the Selling Stockholders provides that the Company will indemnify such
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, such agreements provide that
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 of 1933 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 Act and is
therefore unenforceable.
The Company will inform the Selling Stockholders that the antimanipulative
rules under the Securities and Exchange Act of 1934 (Rules 10b-5, 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.
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 Systems 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.
-29-
<PAGE> 32
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-8
Notes to Consolidated Financial Statements ..................... F-9
F-1
<PAGE> 33
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
<PAGE> 34
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
<PAGE> 35
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
<PAGE> 36
SHIVA CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<CAPTION>
DECEMBER 30, DECEMBER 31, JUNE 29,
1995 1994 1996
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-5
<PAGE> 37
SHIVA CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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
======== ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-6
<PAGE> 38
SHIVA CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<CAPTION>
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
---------- ------- ---------- ----- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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)
========== ======= ========== ==== ======== ==== =====
</TABLE>
<PAGE> 39
<TABLE>
<CAPTION>
UNEARNED TOTAL
ESOP ACCUMULATED STOCKHOLDERS'
COMPENSATION DEFICIT EQUITY
------------ ----------- -------
<S> <C> <C> <C>
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
===== ======== ========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
F-7
<PAGE> 40
SHIVA CORPORATION
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(IN THOUSANDS)
<CAPTION>
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)
<S> <C> <C> <C> <C> <C>
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 $ - $ -
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements
F-8
<PAGE> 41
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:
<TABLE>
<CAPTION>
(in thousands)
<S> <C>
Revenues $12,592
Expenses 11,242
Income taxes 451
-------
Net income $ 899
=======
</TABLE>
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-9
<PAGE> 42
SHIVA CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In thousands)
Year Ended Six Months Ended
-------------------------------- --------------------------
December 31, January 1, July 1, July 2,
1994 1994 1995 1994
---- ---- ---- ----
(Fiscal 1994) (Fiscal 1993) (unaudited)
<S> <C> <C> <C> <C>
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
======= ======= ======= =======
</TABLE>
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-10
<PAGE> 43
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-11
<PAGE> 44
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-12
<PAGE> 45
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-13
<PAGE> 46
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-14
<PAGE> 47
SHIVA CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
(In thousands)
December 30, December 31,
1995 1994
---- ----
<S> <C> <C>
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
======== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(In thousands)
December 30, December 31, June 29,
1995 1994 1996
---- ---- --------
(Unaudited)
<S> <C> <C> <C>
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
====== ====== =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
(In thousands)
Useful life December 30, December 31,
(in years) 1995 1994
----------- ---- ----
<S> <C> <C> <C>
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
======= =======
</TABLE>
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-15
<PAGE> 48
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)
<TABLE>
<CAPTION>
(In Thousands)
December 30, December 31,
1995 1994
----- ----
<S> <C> <C>
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
====== =======
</TABLE>
F-16
<PAGE> 49
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:
<TABLE>
<CAPTION>
(In thousands) Year Ended
----------------------------------------------------
December 30, December 31, January 1,
1995 1994 1994
---- ---- ----
(Fiscal 1995) (Fiscal 1994) (Fiscal 1993)
<S> <C> <C> <C>
Domestic $ 2,387 $ 1,113 $ (429)
Foreign (4,853) 1,848 1,145
------- ------- -------
$(2,466) $ 2,961 $ 716
======= ======= =======
</TABLE>
The components of the income tax provision (benefit) are as follows:
<TABLE>
<CAPTION>
(In thousands) Year Ended
--------------------------------------------------
December 30, December 31, January 1,
1995 1994 1994
---- ---- ----
(Fiscal 1995) (Fiscal 1994) (Fiscal 1993)
<S> <C> <C> <C>
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
======= ======= =======
</TABLE>
F-17
<PAGE> 50
SHIVA CORPORATION
Notes to Consolidated Financial Statements
<TABLE>
The significant components of the net deferred tax asset (liability) are as
follows:
<CAPTION>
(In thousands)
December 30, December 31,
1995 1994
---- ----
<S> <C> <C>
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)
======= =======
</TABLE>
<TABLE>
The differences between the income tax provision and income taxes computed using
the applicable U.S. statutory federal tax rate are as follows:
<CAPTION>
(In thousands) Year Ended
---------------------------------------------
December 30, December 31, January 1,
1995 1994 1994
---- ---- ----
(Fiscal 1995) (Fiscal 1994) (Fiscal 1993)
<S> <C> <C> <C>
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
====== ====== =====
</TABLE>
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-18
<PAGE> 51
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-19
<PAGE> 52
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-20
<PAGE> 53
SHIVA CORPORATION
Notes to Consolidated Financial Statements
The following table summarizes all stock option activity under the 1988 Plan:
<TABLE>
<CAPTION>
Number Exercise
of Shares Price
--------- --------
<S> <C> <C>
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
==========
</TABLE>
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-21
<PAGE> 54
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-22
<PAGE> 55
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.
<TABLE>
<CAPTION>
(In thousands)
NORTH
AMERICA EUROPE ELIMINATIONS TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
</TABLE>
F-23
<PAGE> 56
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:
<TABLE>
<CAPTION>
(In thousands)
Operating Capital
Fiscal leases leases
- ------ --------- -------
<S> <C> <C>
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
=======
</TABLE>
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:
<TABLE>
<CAPTION>
(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)
<S> <C> <C> <C> <C> <C>
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
========= ========= ========= ========= =========
</TABLE>
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-24
<PAGE> 57
===============================================================================
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
Summary Financial Data .......................................... 4
The Company ..................................................... 6
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 ............................................ 28
Legal Matters ................................................... 29
Experts ......................................................... 29
Index to Financial Statements ................................... F-1
===============================================================================
284,035 shares
Shiva Corporation
Common Stock
-------------------
PROSPECTUS
--------------------
______________, 1996
===============================================================================
<PAGE> 58
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
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.
<S> <C>
SEC registration fee $ 4,273
Legal fees and expenses 5,000
Accounting fees and expenses 30,000
Miscellaneous 2,727
-------
Total $42,000
=======
</TABLE>
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-1
<PAGE> 59
(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 the Selling Stockholders of directors, officers and
controlling persons of the Company against certain liabilities, including
liabilities under the Act, under certain circumstances.
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:
--------
2.3(1) Agreement and Undertaking dated as of June 13, 1995 between the
Registrant, Spider, Certain Shareholders of Spider and the
Executive Directors of Spider.
2.4(1) Recommended Offers by Dundas & Wilson CS on behalf of Shiva
Corporation for the whole of the issued and to be issued share
capital of Spider Systems Limited.
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.
24.1* Power of Attorney.
27.0 Financial Data Schedule.
------------------
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-l (File No. 33-94134).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-97216).
* Previously filed.
II-2
<PAGE> 60
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
<PAGE> 61
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 Amendment
to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Town of Bedford, Commonwealth of
Massachusetts, on the 23rd day of August, 1996.
SHIVA CORPORATION
By: /s/ M. Elizabeth Potthoff
-----------------------------------------
Clerk and General Counsel
[THIS SPACE INTENTIONALLY LEFT BLANK]
II-4
<PAGE> 62
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to 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
---------- -------- ----
* President, Chief Executive Officer August 23, 1996
- -------------------------- and Chairman of the Board of
Frank A. Ingari Directors (principal executive
officer)
* Senior Vice President, August 23, 1996
- -------------------------- Finance and Administration and
Cynthia M. Deysher Chief Financial Officer (principal
financial and accounting officer)
* Director August 23, 1996
- --------------------------
David C. Cole
* Director August 23, 1996
- --------------------------
L. John Doerr
* Director August 23, 1996
- --------------------------
Henry F. McCance
* Director August 23, 1996
- --------------------------
Paul C. O'Brien
* Director August 23, 1996
- --------------------------
Mitchell E. Kertzman
*By: /s/ M. Elizabeth Potthoff
--------------------------
M. Elizabeth Potthoff
Attorney-in-fact
II-5
<PAGE> 63
Exhibit Index
-------------
2.3(1) Agreement and Undertaking dated as of June 13, 1995 between the
Registrant, Spider, Certain Shareholders of Spider and the
Executive Directors of Spider.
2.4(1) Recommended Offers by Dundas & Wilson CS on behalf of Shiva
Corporation for the whole of the issued and to be issued share
capital of Spider Systems Limited.
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.
24.1* Power of Attorney.
27.0 Financial Data Schedule.
------------------
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-l (File No. 33-94134).
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 30, 1995.
(3) Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 33-97216).
* Previously filed.
II-6
<PAGE> 64
- -------------------------------------------------------------------------------
Schedule II
SHIVA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
(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
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SHIVA CORPORATION
DEFERRED TAX ASSET VALUATION ALLOWANCE
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
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
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 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 22, 1996
<PAGE> 1
Exhibit 23.2
------------
CONSENT OF DELOITTE & TOUCHE LLP
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-10663 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
<PAGE> 1
Exhibit 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in Amendment No. 1 to this registration statement
on Form S-3 (No. 33-10663) of our report dated June 12, 1995, on our audits
of the financial statemnts of Spider Systems Limited. We also consent to the
reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND
Edinburgh, United Kingdom
August 23, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-02-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 36,068
<SECURITIES> 0
<RECEIVABLES> 20,306
<ALLOWANCES> 3,963
<INVENTORY> 6,974
<CURRENT-ASSETS> 61,668
<PP&E> 18,013
<DEPRECIATION> 7,642
<TOTAL-ASSETS> 72,559
<CURRENT-LIABILITIES> 23,661
<BONDS> 4,037
<COMMON> 245
0
0
<OTHER-SE> 43,868
<TOTAL-LIABILITY-AND-EQUITY> 72,559
<SALES> 81,058
<TOTAL-REVENUES> 81,058
<CGS> 34,800
<TOTAL-COSTS> 34,800
<OTHER-EXPENSES> 42,399
<LOSS-PROVISION> 564
<INTEREST-EXPENSE> 1,122
<INCOME-PRETAX> 2,961
<INCOME-TAX> 921
<INCOME-CONTINUING> 2,040
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,040
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-30-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-30-1995
<EXCHANGE-RATE> 1
<CASH> 93,203
<SECURITIES> 9,125
<RECEIVABLES> 28,234
<ALLOWANCES> 5,252
<INVENTORY> 7,846
<CURRENT-ASSETS> 135,507
<PP&E> 24,009
<DEPRECIATION> 11,044
<TOTAL-ASSETS> 150,123
<CURRENT-LIABILITIES> 26,131
<BONDS> 452
<COMMON> 280
0
0
<OTHER-SE> 122,624
<TOTAL-LIABILITY-AND-EQUITY> 150,123
<SALES> 118,581
<TOTAL-REVENUES> 118,581
<CGS> 49,186
<TOTAL-COSTS> 49,186
<OTHER-EXPENSES> 73,435
<LOSS-PROVISION> 321
<INTEREST-EXPENSE> 705
<INCOME-PRETAX> (2,466)
<INCOME-TAX> 2,386
<INCOME-CONTINUING> (4,852)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,852)
<EPS-PRIMARY> (.18)
<EPS-DILUTED> (.18)
</TABLE>
