SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 28, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
----- -----
Commission File Number 0-24918
SHIVA CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 04-2889151
--------------------- ------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
28 Crosby Drive, Bedford, MA 01730
(Address of principal executive offices, including Zip Code)
(617) 270-8300
(Registrant's telephone number, including area code)
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports re-
quired to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES __x__ NO _____
The number of shares outstanding of the registrant's Common Stock as of June
28, 1997 was 29,173,658.
<PAGE> 1
INDEX
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Part I Financial Information Page
Item 1 Consolidated Financial Statements
Consolidated Balance Sheet
June 28, 1997 and December 28, 1996 3
Consolidated Statement of Operations
Three and six months ended June 28, 1997
and June 29, 1996 4
Consolidated Statement of Cash Flows
Six months ended June 28, 1997 and
June 29, 1996 5
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II Other Information
Item 1 Legal Proceedings 13
Item 4 Submission of Matters to a Vote of Security
Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature 15
<PAGE> 2
<TABLE>
SHIVA CORPORATION
Consolidated Balance Sheet
(in thousands, except share related data)
<CAPTION>
June 28, December 28,
1997 1996
----------- ------------
(unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 71,920 $ 72,067
Short-term investments 29,612 35,035
Accounts receivable, net of
allowances of $13,345 at June 28,
1997 and $10,347 at December 28,
1996 25,655 39,904
Inventories 15,622 17,958
Prepaid expenses and other current
assets 12,485 6,022
---------- ---------
Total current assets 155,294 170,986
Property, plant and equipment, net 25,552 23,855
Deferred income taxes 1,372 1,372
Other assets 2,287 1,837
---------- ---------
Total assets $ 184,505 $ 198,050
========== =========
Liabilities and stockholders' equity
Current liabilities:
Current portion of long-term debt
and capital lease obligations $ 247 $ 367
Accounts payable 12,695 17,130
Accrued compensation and benefits 4,783 5,871
Accrued expenses 13,629 13,748
Deferred revenue 3,965 3,406
--------- --------
Total current liabilities 35,319 40,522
Long-term debt and capital lease
obligations 2 122
Deferred income taxes 562 572
--------- --------
Total liabilities 35,883 41,216
--------- --------
Commitments and contingencies:
Stockholders' equity:
Preferred stock, $.01 par value;
1,000,000 shares authorized at
June 28, 1997 and December 28,
1996, none issued - -
Common stock, $.01 par value;
100,000,000 shares authorized,
29,173,658 and 28,891,216
shares issued and outstanding at
June 28, 1997 and December 28,
1996, respectively 292 289
Additional paid-in capital 150,857 149,564
Unrealized gain on investments 131 175
Cumulative translation adjustment 251 349
Retained earnings (accumulated
deficit) (2,909) 6,457
--------- -------
Total stockholders' equity 148,622 156,834
--------- --------
Total liabilities and stock-
holders' equity $ 184,505 $198,050
========= ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 3
<TABLE>
SHIVA CORPORATION
Consolidated Statement of Operations
(in thousands, except per share data)
(unaudited)
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Product and other revenues $ 35,226 $ 51,485 $ 62,135 $ 94,794
Royalty revenues 4,512 - 8,762 -
--------- --------- -------- --------
Total revenues 39,738 51,485 70,897 94,794
Cost of product and other
revenues 15,949 21,397 37,588 38,782
--------- --------- -------- --------
Gross profit 23,789 30,088 33,309 56,012
========= ========= ======== ========
Operating expenses:
Research and development 5,778 5,462 11,739 10,656
Selling, general and
administrative 20,409 16,801 38,307 31,506
Merger expenses - 1,987 - 1,987
--------- --------- -------- --------
Total operating expenses 26,187 24,250 50,046 44,149
--------- --------- -------- --------
Income (loss) from operations ( 2,398) 5,838 (16,737) 11,863
Interest income 938 987 1,900 2,331
Interest and other expense (146) (180) (268) (298)
--------- --------- -------- --------
Income (loss) before income
taxes (1,606) 6,645 (15,105) 13,896
Income tax provision (benefit) (610) 1,670 (5,739) 4,582
--------- --------- -------- --------
Net income (loss) $ (996) $ 4,975 $ (9,366) $ 9,314
========= ========= ========= ========
Net income (loss) per share $ (0.03) $ 0.16 $ (0.32) $ 0.30
========= ========= ========= ========
Shares used in computing net
income (loss) per share 29,128 32,067 29,050 31,296
========= ========= ======== ========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements.
</TABLE>
<PAGE> 4
<TABLE>
SHIVA CORPORATION
Consolidated Statement of Cash Flows
Increase (Decrease) in Cash and Cash Equivalents
(in thousands)
<CAPTION>
Six Months Ended
--------------------------
June 28, June 29,
1997 1996
-------- --------
(unaudited)
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (9,366) $ 9,314
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 4,631 2,684
Deferred income taxes (6,443) (1,511)
Changes in assets and liabilities:
Accounts receivable 13,640 (13,199)
Inventories 2,162 (4,028)
Prepaid expenses and other current assets 19 444
Accounts payable (4,239) 4,416
Accrued compensation and benefits (981) 644
Accrued expenses 561 7,595
Deferred revenue 571 (734)
Other long term liabilities (17) (9)
--------- ---------
Net cash provided by operating activities 538 5,616
--------- ---------
Cash flows from investing activities
Purchases of property, plant and equipment (5,910) (7,739)
Capitalized software development costs (399) (593)
Purchases of short-term investments (10,686) -
Proceeds from maturity and sales of
short-term investments 16,109 4,108
Change in other assets (824) (211)
--------- ---------
Net cash used by investing activities (1,710) (4,435)
--------- ---------
Cash flows from financing activities
Principal payments on long-term debt
and capital lease obligations (229) (439)
Proceeds from exercise of stock options
and stock purchase plans 671 1,338
--------- ---------
Net cash provided by financing activities 442 899
--------- ---------
Effects of exchange rate changes on cash
and cash equivalents 583 (50)
--------- ---------
Net increase (decrease) in cash and cash
equivalents (147) 2,030
Cash and cash equivalents, beginning of period 72,067 93,203
--------- ---------
Cash and cash equivalents, end of period $71,920 $ 95,233
========= =========
<FN>
The accompanying notes are an integral part of the consolidated financial
statements
</TABLE>
<PAGE> 5
SHIVA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION:
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, and have been
prepared by the Company in accordance with generally accepted accounting
principles. In the opinion of management, these unaudited consolidated
financial statements contain all adjustments, consisting only of those of a
normal recurring nature, necessary for a fair presentation of the Company's
financial position, results of operations and cash flows at the dates and for
the periods indicated. While the Company believes that the disclosures
presented are adequate to make the information not misleading, these con-
solidated financial statements should be read in conjunction with the con-
solidated financial statements and related notes included in the Company's
Annual Report on Form 10-K for the fiscal year ended December 28, 1996.
The results of operations for the three-month and six-month periods ended June
28, 1997 are not necessarily indicative of the results expected for the full
fiscal year.
2. NET INCOME (LOSS) PER SHARE:
Net income per share is calculated based on the weighted average number of
common shares and common equivalent shares assumed outstanding during the
period. Net loss per share excludes common equivalent shares because their
effect is antidilutive.
3. CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS:
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents, and those with
maturities of greater than three months as short-term investments. At June 28,
1997, the Company had cash and cash equivalents of $71,920,000 and $29,612,000
of short-term investments, including an unrealized gain of $131,000 recorded
as a separate component of stockholders' equity in accordance with Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." The Company's short-term investments at June
28, 1997, classified as available-for-sale, consist of municipal securities
with various maturity dates through June 1999. Realized gains or losses on
the sale of securities are calculated using the specific identification
method. Realized gains and losses on its securities in the three-month and
six-month periods ended June 28, 1997 were not material.
4. INVENTORIES:
Inventories consist of the following:
<TABLE>
<CAPTION>
June 28, December 28,
(in thousands) 1997 1996
-------- ----------
<S> <C> <C>
Raw materials $ 7,001 $ 6,218
Work-in-process 464 1,506
Finished goods 8,157 10,234
------- -------
$15,622 $17,958
======= =======
</TABLE>
<PAGE> 6
5. RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS:
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share", which
replaces primary and fully diluted earnings per share with basic and diluted
earnings per share. SFAS No. 128 is effective for the Company beginning in
the fourth quarter of fiscal 1997, and requires restatement of all previously
reported interim and annual earnings per share data. Under SFAS No. 128, the
primary earnings per share calculation will be modified to exclude the dilutive
effect of common stock equivalents in determining basic earnings per share. The
Company expects that basic earnings per share would not be materially different
compared to primary earnings per share in the three-month and six-month periods
ended June 28, 1997 due to the net loss, and would result in an increase of
$.01 and $.03 per share in the three-month and six-month periods in fiscal
1996, respectively. The impact of adoption of SFAS No. 128 on the calculation
of fully diluted earnings per share is not expected to be material for either
period.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information." The Company will implement SFAS No.
130 and SFAS No. 131 as required in fiscal 1998 which require the Company to
report and display certain information related to comprehensive income and
operating segments.
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues. Revenues in the three-month and six-month periods ended June 28,
1997 were $39,738,000 and $70,897,000, respectively. These totals represent
decreases of 23% and 25% from the corresponding periods in fiscal 1996. These
declines were primarily due to lower revenues from the Company's LanRover [R]
product line and other communications products. Revenues from LanRover
products were $13,433,000 and $25,763,000 in the three-month and six-month
periods ended June 28, 1997, respectively, compared to $20,362,000 and
$47,092,000 in the corresponding periods in fiscal 1996. These declines in
LanRover revenues were primarily due to lower volume shipments in the three-
month and six-month periods ended June 28, 1997, as well as increased return
provisions and price protection provisions of $3,900,000 recorded in the first
quarter of fiscal 1997. The price protection provisions related to the
LanRover were recorded to account for first quarter pricing actions, which
became effective in the second quarter of fiscal 1997, taken in response to
increased price competition. Revenues from other communications products
decreased 65% and 64% in the three-month and six-month periods ended June 28,
1997, respectively, primarily due to lower volume shipments. 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. These decreases were partially offset by increased product and
minimum royalty revenues from the LanRover Access Switch [TM]. The royalty
revenues were attributable to an agreement with Northern Telecom Limited (the
"Nortel Agreement"), under which the Company earns royalties based on sales of
the Nortel Rapport 112, an OEM version of the LanRover Access Switch, subject
to quarterly minimums in fiscal 1997. Revenues from the LanRover Access Switch
were $19,882,000 and $31,248,000 in the three-month and six-month periods ended
June 28, 1997, respectively. Revenues from the LanRover Access Switch were
$18,924,000 in the three-month period ended June 29, 1996, the quarter in which
the Company began volume shipments of the product. Revenues from the LanRover
Access Switch in the six-month period ended June 28, 1997 were negatively
impacted by price protection provisions of $2,800,000 recorded in the first
quarter of fiscal 1997 to account for first quarter price reductions that
became effective in the second quarter of fiscal 1997. The price reductions
were in response to increased price competition and price reductions on V.34
modem cards due in part to the availability of 56K modem technology in the
access concentrator market.
International revenues accounted for 45% and 53% of revenues in the three-month
and six-month periods ended June 28, 1997, respectively, inclusive of a large
order from a European telecommunications carrier that represented nearly 9% of
total revenues in the three-month period ended June 28, 1997. There can be no
assurance that the Company will receive orders of this size in future periods.
International revenues accounted for 36% and 39% of revenues in the correspond-
ing periods in fiscal 1996. International revenues represented a higher
proportion of total revenues in fiscal 1997 due to decreased revenues in North
America primarily as a result of the previously mentioned price protection
reserves and the Company's efforts to reduce channel inventories at certain
North American distributors and resellers. Sales to OEM customers accounted
for 19% and 25% of revenues in the three-month and six-month periods ended
June 28, 1997, respectively, compared to 24% and 20% in the corresponding
periods in fiscal 1996. The decline in OEM revenues in the three-month period
ended June 28, 1997 compared to the corresponding period in fiscal 1996 is
primarily due to the transition of the Nortel relationship from an OEM
relationship where Nortel purchased certain products from the Company for
resale, to a royalty arrangement, which results in lower, but pure margin,
revenues. OEM revenues in the six-month period ended June 28, 1997 decreased
only slightly in absolute dollars from the comparable period in fiscal 1996.
The Company provides its distributors and resellers with product return rights
for stock balancing and product evaluation. Revenues were reduced by
provisions for product returns of $726,000, or 2% of gross revenues, and
$11,345,000, or 14% of gross revenues, in the three-month and six-month
periods ended June 28, 1997, respectively. Provisions for product returns
in the corresponding periods in fiscal 1996 were $2,291,000 and $3,978,000,
respectively, and represented 4% of gross revenues in each period. The
<PAGE> 8
increase in the provision for product returns in the six-month period ended
June 28, 1997 compared to the same period in fiscal 1996 was primarily a
result of provisions recorded in the first quarter of fiscal 1997 to account
for slow-moving and discontinued products in the Company's North American
distribution channels.
Gross Profit. Gross profit as a percentage of revenues was 60% and 47% in the
three-month and six-month periods ended June 28, 1997, respectively, compared
to 58% and 59% in the corresponding periods in fiscal 1996. Gross profit as a
percentage of revenue increased in the three-month period ended June 28, 1997
over the same period in fiscal 1996 primarily due to LanRover Access Switch
minimum royalty revenues recognized in accordance with the terms of the Nortel
Agreement. Gross profit as a percentage of revenues decreased in the six-
month period ended June 28, 1997 from the corresponding period in fiscal 1996
primarily due to reserves recorded in the first quarter of fiscal 1997,
consisting of the previously mentioned price protection reserves totaling
$6,700,000, and provisions for slow-moving inventories of $6,463,000. The
provisions for slow-moving inventories increased cost of revenues and related
primarily to V.34 modem cards, for which demand has slowed due to the availa-
bility of 56K modem technology, and certain other products. In the future,
gross margins are likely to decrease due to continued price competition. The
Company's gross margins may also be affected by several factors, including,
but not limited to product mix, the distribution channels used, changes in
component costs and the introduction of new products. In addition, the Company
recently unbundled several software components, formerly incorporated in the
LanRover, from the base hardware and software (the "LanRover Power Base"). The
Company will sell the LanRover Power Base separately from three value-added
feature software modules, known as the LanRover Power Series, which are
designed to enhance the connectivity, security and performance of the LanRover
Power Base, depending upon the module. Since sales of the LanRover Power Base
will carry lower gross margins than the LanRover Power Series software modules,
the gross margins from the LanRover product line may decline depending upon the
number of LanRover Power Series software modules sold.
Research and Development. Research and development expenses increased to
$5,778,000 and $11,739,000 in the three-month and six-month periods ended
June 28, 1997, respectively, from $5,462,000 and $10,656,000 in the correspond-
ing periods in fiscal 1996. These expenses represented 15% and 17% of revenues
in the three-month and six-month periods ended June 28, 1997, respectively,
compared to 11% in each of the corresponding periods in fiscal 1996. The
increase in these expenses was primarily due to increased expenditures related
to the design and layout of new and existing remote access products, as well
as increased costs of prototype materials, temporary help, certifications and
approvals, and travel. Customer-funded development fees reimbursed to the
Company, which are reflected as an offset to research and development expenses,
increased to $1,818,000 and $3,454,000 in the three-month and six-month periods
ended June 28, 1997, respectively, from $564,000 and $851,000 in the corres-
ponding periods of fiscal 1996. The increase in customer-funded development
fees in fiscal 1997 was primarily due to cost sharing arrangements under the
Nortel Agreement, where Nortel funds costs associated with development of
products and product features specific to the carrier and service provider
markets. Capitalized software costs were $245,000 and $400,000 in the three-
month and six-month periods ended June 28, 1997, respectively, compared to
$216,000 and $593,000 in the corresponding periods in fiscal 1996. The Company
anticipates continued significant investment in research and development.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $20,409,000 and $38,307,000 in the three-month and
six-month periods ended June 28, 1997, respectively, from $16,801,000 and
$31,506,000 in the comparable periods in fiscal 1996. These expenses rep-
resented 51% and 54% of revenues in the three-month and six-month periods
ended June 28, 1997, respectively, compared to 33% in each of the corres-
ponding periods in fiscal 1996. The increase in gross expenses was primarily
due to increased costs incurred for advertising, trade shows, channel
programs, travel, sales incentives, various professional fees and facilities.
The Company plans to further invest in its distribution channels in order to
attempt to continue its global market expansion and penetration. Selling,
general and administrative expenses in the three-month and six-month periods
ended June 28, 1997, are net of expenses reimbursed by Nortel related to
Shiva's Service Provider Group (SPG), a worldwide business unit comprised of
technical sales and support personnel dedicated to marketing Nortel's remote
access equipment to carriers and service providers.
Interest Income and Expense. Interest income decreased in the three-month and
six-month periods ended June 28, 1997 compared to the corresponding periods in
fiscal 1996 primarily due to the Company's shift to federal tax-exempt
securities, which resulted in a lower yield on its investment balances.
<PAGE> 9
Income Tax Provision (Benefit). The Company's effective income tax rate in each
of the three-month and six-month periods ended June 28, 1997 was 38%, compared
to 25% and 33% in the three-month and six-month periods ended June 29, 1996,
respectively. The effective income tax rate for the periods in fiscal 1996
reflect a reduction in the net deferred tax asset valuation allowance as a
result of certain net operating losses that were realized in the second
quarter, partially offset by non-deductible merger expenses.
Foreign Currency Fluctuations
A substantial portion of the Company's international revenues is denominated in
currencies other than the U.S. dollar and is consequently subject to foreign
exchange fluctuations. The impact of such fluctuations is offset to the extent
that expenses of the Company in international operations are incurred in the
same currencies as its revenues. Foreign currency fluctuations did not have a
significant impact on the comparison of results of operations in the three-
month and six-month periods ended June 28, 1997 with those of the comparable
periods in fiscal 1996. However, the Company's international operations and
non-dollar denominated sales will continue to be exposed to adverse movements
in foreign currency exchange rates which may have a material adverse impact on
the Company's financial results. The Company enters into forward exchange
contracts to hedge those currency exposures related to certain assets and
liabilities denominated in non-functional currencies and does not generally
hedge anticipated foreign currency cash flows.
Year 2000
The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by Year 2000 software failures (the "Year 2000
issue") which can arise in time-sensitive software applications with two-year
digits to define the applicable year. In such applications, a date using "00"
as the year may be recognized as the year 1900 rather than the year 2000. All
of the Company's products are currently Year 2000 compliant and therefore will
not have to undertake additional research and development efforts in this
regard. In addition, the Company is in the process of replacing many of its
business and operating computer systems with software which, when upgraded, are
Year 2000 compatible. The Company is planning to complete all necessary Year
2000 upgrades of its major systems in 1998, and is currently identifying and
developing conversion strategies for its remaining systems that may be impacted
by the Year 2000 issue.
Liquidity and Capital Resources
As of June 28, 1997, the Company had $71,920,000 of cash and cash equivalents
and $29,612,000 of short-term investments. Working capital decreased to
$119,975,000 at June 28, 1997 from $130,464,000 at December 28, 1996.
Net cash provided by operations totaled $538,000 for the six-month period ended
June 28, 1997 compared to $5,616,000 in the comparable period in fiscal 1996.
Net cash provided by operations in the six-month period ended June 28, 1997
resulted primarily from the decrease in accounts receivable partially offset by
the net loss adjusted for non-cash expenses and the increase in deferred income
taxes. The decrease in accounts receivable was primarily due to decreased
revenue levels and the previously mentioned increase in product return and
price protection provisions, as well as increased collection activity. Net
cash provided by operations in the six-month period ended June 29, 1996 con-
sisted 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 was necessary to support the Company's revenue growth and the
introduction of the LanRover Access Switch product.
Net cash used by investing activities totaled $1,710,000 for the six-month
period ended June 28, 1997, compared to $4,435,000 during the comparable
period in fiscal 1996. Investment activity in each of the six-month periods
ended June 28, 1997 and June 29, 1996 consisted primarily of purchases of
fixed assets to support the Company's growth, partially offset by proceeds
from short-term investments upon maturity or sale.
<PAGE> 10
Net cash provided by financing activities totaled $442,000 for the six-month
period ended June 28, 1997, compared to $899,000 in the comparable period in
fiscal 1996. Net cash provided by financing activities in each of the six-
month periods ended June 28, 1997 and June 29, 1996 consisted of proceeds from
stock option exercises and purchases of stock under the Company's stock
purchase plan, partially offset by principal payments on long-term debt and
capital lease obligations.
The Company has a $5,000,000 unsecured revolving credit facility with a bank
that expires in September 1997. The terms of the credit facility require the
Company to maintain a minimum level of profitability and specified financial
ratios. Borrowings under this facility bear interest at the bank's prime
rate. At June 28, 1997, available borrowings were reduced by outstanding
letters of credit of $839,000 related to certain office leases. At June 28,
1997, the Company was in violation of certain covenants of this credit
facility, which have been waived by the bank. The Company had no borrowings
outstanding under this facility at June 28, 1997.
The Company enters into forward exchange contracts to hedge those currency
exposures related to certain assets and liabilities denominated in non-
functional currencies and does not generally hedge anticipated foreign currency
cash flows. The hedging activity is intended to offset the impact of currency
fluctuations on certain non-functional currency assets and liabilities. The
forward exchange contracts have maturities that do not exceed one year. At
June 28, 1997, the Company had outstanding forward exchange contracts to sell
approximately $14,815,000 and purchase $1,111,000 in various currencies. The
fair value of outstanding forward exchange contracts approximates the original
value due to the relatively short terms, generally less than three months.
The Company believes that its existing cash and short-term investment balances,
together with borrowings available under the Company's bank lines of credit,
will be sufficient to meet the Company's cash requirements for at least the
next twelve months.
Factors That May Affect Future Results
From time to time, information provided by the Company or statements made by
its employees may contain "forward-looking" information which involve risks
and uncertainties. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts may be "forward-looking" statements. The Company's
actual future results may differ significantly from those stated in any
forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below and the accuracy of the
Company's internal estimates of revenue and operating expense levels.
The Company has transitioned its relationship with Nortel to one in which
Nortel is able to distribute certain of the Company's products to the carrier
and service provider market under a royalty-based arrangement. In some
instances, the Company has granted Nortel exclusive distribution rights.
Therefore, the Company is dependent on Nortel to devote the resources
necessary to successfully sell into the carrier and service provider market
in those instances where Nortel has exclusive distribution rights. The
new relationship may result in decreased product revenues for the Company
and the loss of direct control over those market sectors that Nortel will
supply with the Company's products. In addition, royalty revenues from
Nortel, which are subject to quarterly minimums only in fiscal 1997, have
accounted for greater than 10% of total revenues in the three-month and
six-month periods ended June 28, 1997. There can be no assurance that these
royalty revenues from Nortel will continue at these levels beyond fiscal 1997
or that Nortel will be successful at distributing those products that generate
royalty revenues for the Company. The loss of royalty revenues from Nortel
in future periods could have a significant impact on the Company's financial
statements.
The Company's quarterly operating results may vary significantly from quarter
to quarter depending on factors such as the timing of significant orders and
shipments of its products, changes and delays in product development, new
product introductions by the Company and its competitors, the mix of distri-
bution channels through which the Company's products are sold and seasonal
customer buying patterns. There can be no assurance that the Company will be
able to achieve future revenue growth and profitability on a quarterly or
annual basis. Revenues can be difficult to forecast due to the fact that the
Company's sales cycle varies substantially depending upon market, distribution
mechanism and end user customer. The Company's expense levels are based, in
part, on its expectations as to future revenues. If revenue levels are below
expectations, operating results may be adversely affected. In addition, the
Company's distribution partners typically stock significant levels of inven-
tory, and the Company's revenues may fluctuate based on the level of partner
inventories in any particular quarter.
<PAGE> 11
The Company's LanRover and LanRover Access Switch products are experiencing
increased market competition which has caused the Company to take pricing
actions and may require the Company to take future pricing actions. The
Company provides most of its distribution partners with product return rights
for stock balancing or product evaluation and price protection rights. Stock
balancing rights permit a return of products to the Company for credit against
future product purchases, within specified limits. Product evaluation rights
permit end-users to return products to the Company through the distribution
partner from whom such products were purchased, within 30 days of purchase if
such end-user is not fully satisfied. Price protection rights require the
Company to grant retroactive price adjustments for inventories of the Company's
products held by distribution partners if the Company lowers its prices for
such products. These price protection provisions have adversely affected and
may continue to adversely affect revenues and profitability in the future.
There can be no assurance that the Company will not experience significant
returns or price protection adjustments in the future or that the Company's
reserves will be adequate to cover such returns and price reductions.
The Company increasingly relies on sales of the LanRover Access Switch to
achieve its revenue and profitability objectives. Sales of other communica-
tions products and other remote access products, including the LanRover
product, decreased in the first six months of 1997, due in part to increased
competition. There can be no assurance that the Company will be successful in
modifying current product offerings to increase sales of its products.
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's future success will depend on its ability to enhance its
existing products and to introduce new products and services to meet and adapt
to changing customer requirements and emerging technologies, such as 56K and
other modem technologies. The Company's success in accomplishing development
objectives depends in large part upon its ability to attract and retain highly
skilled technical personnel including, in particular, management personnel in
the areas of research and development and technical support. Competition for
such personnel is intense. There can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to accomplish
its objectives. Delays in new product development or the failure of new
products to achieve market acceptance, could have a material adverse effect on
the Company's operating results. In addition, there can be no assurance that
the Company will be successful in identifying, developing, manufacturing or
marketing new product or service offerings or enhancing its existing offerings.
The Company operates in a highly competitive market that is characterized by an
increasing number of well-funded competitors from diverse industry sectors,
including but not limited to suppliers of software, modems, terminal servers,
routers, hubs, data communications products and companies offering remote
access solutions based on emerging technologies, such as switched digital
telephone services, remote access service offerings by telephony providers via
telephone networks and other providers through public networks such as the
Internet. Increased competition could result in price reductions and loss of
market share which would adversely affect the Company's revenues and profita-
bility. There can be no assurance that the Company will be able to continue to
compete successfully with new or existing competitors.
The Company does business worldwide, both directly and via sales to United
States-based original equipment manufacturers, who sell such products
internationally. Global and/or regional economic factors and potential
changes in laws and regulations affecting the Company's business, including
without limitation, communications regulatory standards, safety and emissions
control standards, currency exchange rate fluctuations, changes in monetary
policy and tariffs, difficulties in enforcement of intellectual property
rights and political uncertainties, could have an adverse impact on the
Company's financial condition or future results of operations.
The market price of the Company's securities could be subject to wide
fluctuations in response to quarter-to-quarter variations in operating
results, changes in earnings estimates by analysts, and market conditions
in the industry, as well as general economic conditions and other factors
external to the Company.
<PAGE> 12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On May 21, 1997, a complaint, Jesse P. Lisette, Sr., Robert W. Benzinger, Andre
Kraiem and Victor Kraiem v. Shiva Corporation, was filed against the Company
and on June 11, 1997, a second complaint, Michael Prozan, Morris Satloff and
Mark R. Katz v. Shiva Corporation, was filed against the Company, both in the
United States District Court of Massachusetts. The plaintiffs purport to bring
these actions on behalf of a class of purchasers of the Company's common stock
between September 10, 1996 and March 31, 1997. The complaints assert that the
Company violated Section 10(b) of the Securities Exchange Act of 1934 by
disseminating allegedly false and misleading information regarding the demand
for and market acceptance of the Company's products, the strength of its
technologies and its competitiveness, and the trends in its business, as well
as filing allegedly false and misleading financial statements. On behalf of
the purported classes, the plaintiffs seek compensatory damages, attorneys'
fees, costs and expenses. The Company expects that both lawsuits will be
consolidated because they are, in substance, identical. The Company expects
that before any response to the lawsuits is made by the defendants, the Court
will appoint a lead plaintiff for the actions and consider the lead
plaintiff's choice of counsel for the class, as required by the Private
Securities Litigation Reform Act of 1995. The Company believes it has
meritorious defenses to the claims asserted, and intends to defend these
cases vigorously. The actions are in their earliest stages and the Company
is unable to determine at this time the potential liability, if any.
On January 17, 1997, a complaint, Abraham Schwartz and Norman Marcus v. Shiva
Corporation, was filed against the Company in the Superior Court of the State
of California for the County of Los Angeles. The plaintiffs purport to bring
this action on behalf of a class of purchasers of the Company's common stock
between September 17, 1996 and January 7, 1997. The complaint asserts that the
Company made false or misleading statements in violation of state and federal
law, including: state law negligent misrepresentation, fraud, and deceit,
California Corporation Code Sections 1507, 25400, and 25500, California Civil
Code Sections 1709-10, and Section 12(2) of the Securities Act of 1933,
15 U.S.C. Section 771(2). On behalf of the purported class, the plaintiffs
seek compensatory damages, treble damages under California law, punitive
damages under California law, punitive damages, attorneys' fees, costs and
interest. The Company filed a demurrer to the complaint. In response, the
plaintiffs abandoned their complaint and filed an amended complaint. The
amended complaint did not assert claims under Section 12(a) of the Securities
Act of 1933, as amended, but added additional claims under the California
Corporations Code and asserted claims against certain current or former
officers of the Company. The Company demurred to the amended complaint, and
the individuals moved to quash service of the amended complaint alleging lack
of personal jurisdiction. A hearing was held on July 17, 1997. At the
hearing on those motions, the judge dismissed without leave to amend all
claims brought against the Company under the California Corporation Code, but
allowed certain claims based on fraud and negligent misrepresentation
(including California Civil Code Sections 1709-1710) to proceed. The court
granted the individual defendants' motion to quash. The Company believes it
has meritorious defenses to the claims asserted and intends to vigorously
defend against the action. The action is in its earliest stages and the
Company is unable to determine at this time the potential liability, if any.
<PAGE> 13
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Stockholders (the "Annual Meeting") held on May 14,
1997, the stockholders of the Company approved:
(i) the election of two Class III Directors. The following table sets forth
each Class III Director elected at the Annual Meeting (with the vote results)
and each Director whose term of office extended beyond the Annual Meeting:
<TABLE>
<CAPTION>
Name Class Will Expire For Withheld
- ---- ----- ----------- --- --------
<S> <C> <C> <C> <C>
Henry F. McCance I 1998
Paul C. O'Brien I 1998
David C. Cole II 1999
Mitchell E. Kertzman* II 1999
L. John Doerr III 2000 26,069,192 610,585
Frank A. Ingari III 2000 24,172,833 2,506,944
<FN>
*Effective May 15, 1997, Mr. Kertzman resigned as a member of the Board of
Directors, and was replaced by James L. Zucco, Jr.
</TABLE>
(ii) by vote of 24,203,599 shares of Common Stock in favor, 2,323,128 shares
opposed, 153,000 shares abstaining and 50,000 broker non-votes, the stock-
holders approved the adoption of the 1997 Stock Incentive Plan (the "1997
Plan"), providing for the issuance of up to 1,400,000 shares of Common Stock,
par value $.01 per share of the Company.
Item 5. Other Information
Effective April 30 , 1997, Frank A. Ingari resigned as president and James L.
Zucco was appointed president and chief operating officer of the Company. The
Company intends to promote Mr. Zucco to the additional post of chief
executive officer within approximately one year, at which time it is
anticipated that Mr. Ingari will become an active operating chairman of the
Board of Driectors.
Effective May 15, 1997, Mitchell E. Kertzman resigned as a member of the Board
of Directors and was replaced by James L. Zucco, Jr.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.1 Letter Agreement dated February 18, 1997 Between Shiva Corporation
and Angelo Santinelli, regarding offer of employment and
compensation as Vice President, Worldwide Marketing/Enterprise
Sales.
10.2 Letter Agreement dated April 28, 1997 Between Shiva Corporation
and James L. Zucco, Jr., regarding offer of employment as
President and Chief Operating Officer and compensation.
10.3 Shiva Corporation Incentive and Non-Qualified Stock Option
Agreement dated April 28, 1997 Between Shiva Corporation and
James L. Zucco, Jr.
11.0 Statement of Computation of Earnings per share.
27.0 Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K: The Company filed no reports on Form 8-K during the
three month period ended June 28, 1997.
<PAGE> 14
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SHIVA CORPORATION
Date: August 8, 1997 by: /s/ Larry D. Whitman
-------------------------
Larry D. Whitman
Vice President - Corporate Controller
(Principal Financial and Accounting
Officer)
<PAGE> 15
SHIVA CORPORATION
EXIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
- ----------- ----------------------
<S> <C>
10.1 Letter Agreement dated February 18, 1997 Between Shiva
Corporation and Angelo Santinelli, regarding offer of
employment and compensation as Vice President, Worldwide
Marketing/Enterprise Sales.
10.2 Letter Agreement dated April 28, 1997 Between Shiva
Corporation and James L. zucco, Jr., regarding offer of
employment as President and Chief Operating Officer and
compensation.
10.3 Shiva corporation Incentive and Non-Qualified Stock Option
Agreement dated April 28, 1997 Between Shiva Corporation and
James L. Zucco, Jr.
11.0 Statement of Computation of Earnings per share.
27 Financial Data Schedule
</TABLE>
<PAGE> 16
Exhibit 10.1
February 18, 1997
Angelo Santinelli
51 Silver Hill Road
Sudbury, MA 01776
Dear Angelo:
I am pleased that you have accepted the position of Vice President, Worldwide
Marketing/Enterprise Sales. A copy of your new compensation plan is attached
for your review.
In addition to the compensation described on the attached documentation, the
following special arrangements have been agreed to: in the event of
involuntary termination of your employment from Shiva, you will be eligible
to receive your then current base salary for up to six months following your
termination or until you commence subsequent employment, whichever comes
first. In addition, Shiva would continue your Medical and Dental coverage,
under COBRA, with Shiva paying the COBRA premiums for up to twelve months, or
until you obtain similar coverage elsewhere.
I am confident that you will be successful in this new role and will be
instrumental in moving Shiva toward it's 1997 goals.
Sincerely,
/s/ Woody Benson
Woody Benson
Sr. Vice President, WW Sales and Marketing
Shiva Corporation
<PAGE>
Exhibit 10.2
April 28, 1997
Mr. James L. Zucco, Jr.
3 Roebling Road
Bernardsville, NJ 07924
Dear Jim:
On behalf of Shiva and its Board of Directors, I am pleased to offer you
the position of President and Chief Operating Officer of Shiva, reporting
to me. In your new position you will be responsible for directing all of
Shiva's worldwide operations. All the company's organizations will report
to you.
Furthermore, it is the company's intent to communicate immediately our plan
to promote you into the additional role of Chief Executive Officer, with a
stated transition time of first-half 1998. As we discussed, it is our
actual plan to effect this transition in the first quarter of 1998.
Your recurring compensation will include a base salary of $320,000, and an
annual bonus, pursuant to the Shiva Corporate Bonus Plan, targeted at 125%
of this amount or $400,000 based on the company meeting its operating plan
and other objectives set between us and with the Board of Directors. The
pro-rata size of this bonus for the rest of 1997 is $266,640. For this
year alone, Shiva will guarantee $200,000 of this available bonus amount,
to be paid with other employee bonuses in the first quarter of 1998. In
addition Shiva offers you a signing bonus of $200,000, payable upon
receipt of your signature accepting this offer of employment.
Shiva will also make available $700,000 for your use as a no-interest loan
in order to allow you to exercise-to-hold Lucent stock options so that
you may take advantage of capital gains treatment for approximately one
quarter of your currently vested Lucent options. This money will be
provided as a loan which will be repaid when the stock is sold, or in five
years time, whichever comes first.
In addition, the company will make available at the end of 1998 and 1999 a
per-year no-interest loan of up to $200,000, but not more than the
difference between $800,000 and your total salary and earned bonus for the
preceding year. If you leave Shiva by your own decision prior to May,
2001, whatever loan funds you have accepted, up to the maximum of $400,000,
will be repayable to Shiva; otherwise the used portion of the loan will be
forgiven after May 2001.
Shiva is pleased to offer you 700,000 options in Shiva stock at a price to
be set by the Board of Directors at the day-ending price of the day upon
which we receive your signed acceptance. One fourth of these options will
vest immediately. The additional three-fourths will begin vesting
quarterly on August 1, 1998 and complete vesting May 1, 2001. In
addition, however, as an added incentive the last one-fourth of these
options, scheduled to vest from May 1, 2000 to May 1, 2001, will
accelerate immediately when the company's stock price has maintained a 90-
day trailing average day-ending price of $35 for a period of 90 days.
In the event of a change of control of Shiva within one year, 50% of your
total 700,000 stock options will vest immediately. In the event of a
change of control of Shiva after one year, 100% of your total 700,000
stock options will vest immediately.
Shiva expects that you will be pleased with the company's medical and
disability programs. Upon your furnishing us with information about your
life insurance program, the company will undertake to effect a transfer of
that cost to Shiva. Reasonable relocation and family visit expenses will
be provided.
In the event of your termination other than for cause, you will be eligible
to receive severance pay for one year or until you find other suitable
employment.
Jim, we are all extremely pleased that you will be joining Shiva. Please
sign the agreement, which is in effect until 5:00pm EDT on Tuesday, April
29, 1997, and return it to me via facsimile at 617-270-8998.
Sincerely,
/s/ Frank A. Ingari
Frank A. Ingari
President and Chief Executive Officer
FAI/ns
Enclosure (Employee Non Competition Agreement)
Accepted: /s/ James L. Zucco, Jr.
------------------------------------------------
Date: 28 April 1997
------------------------------------------------
<PAGE>
Adjustment in Payments in the Event of a
Change of Control
-----------------
Attachment to James L. Zucco, Jr. Employment Offer Letter
Dated April 28, 1997
Basic Rule. Any provision of this Offer Letter (the "Offer Letter") to
the contrary notwithstanding, in the event that the independent
auditors retained by Shiva Corporation (the "Corporation") most
recently prior to a change in control (the "Auditors') determine that
any payment or transfer by the Corporation to or for the benefit of
James L. Zucco, Jr. (the "Employee"), whether paid or payable (or
transferred or transferable) pursuant to the terms of this Offer Letter
or otherwise (a "Payment"), would be nondeductible by the Corporation
for federal income tax purposes because of section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of all Payments to Employee shall be reduced (but not
below zero) to the Reduced Amount. For purposes of this paragraph, the
"Reduced Amount" shall be the amount which maximizes the value of the
Payments without causing any Payment to be nondeductible by the
Corporation because of section 280G of the Code.
Reduction of Payments. If the Auditors determine under the above Basic
Rule that any Payment would be nondeductible by the Corporation because
of section 280G of the Code, then the Corporation, within ten business
days after being notified by the Auditors, shall give the Employee
notice to that effect and a copy of the detailed calculation thereof
and of the Reduced Amount. The Employee may then elect, in the
Employee's sole discretion, which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate
present value of the Payments equals the Reduced Amount) and shall
advise the Corporation in writing of his election with 30 days of
receipt of notice. If no such election is made by the Employee within
such 30-day period, then the Corporation may elect which and how much of
the Payments shall be eliminated or reduced (as long as after such
election the aggregate present value of the Payments equals the Reduced
Amount) and shall notify the Employee promptly of such election. For
purposes of this paragraph, present value shall be determined in
accordance with section 280G(d)(4) of the Code. All determinations
made by the Auditors under this paragraph shall be binding upon the
Corporation and the Employee and shall be made within 60 days of the
date of the employment termination.
/s/ James L. Zucco, Jr.
------------------------
James L. Zucco, Jr.
SHIVA CORPORATION
By: /s/ Frank A. Ingari
-------------------
<PAGE>
Exhibit 10.3
Shiva Corporation
Incentive and Non-Qualified Stock Option Agreement
Shiva Corporation, a Massachusetts corporation (the "Company"), hereby grants
this 28th day of April, 1997 to James L. Zucco (the "Employee"), an option
to purchase a maximum of 700,000 shares of its Common Stock, $.01 par value,
at the price of $8.3125 per share, on the following terms and conditions:
1. Granted Under 1988 Stock Plan. This option is granted pursuant to and is
governed by the Company's 1988 Stock Plan (the "Plan") and, unless the
context otherwise requires, terms used herein shall have the same meaning as
in the Plan. Determinations made in connection with this option pursuant to
the Plan shall be governed by the Plan as it exists on this date.
2. Grant as Incentive Stock Option; Other Options. Except as described
below, this option is intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986 (the "Code"). Pursuant to
Section 6(c) of the Plan, the Company may not grant incentive stock options
("ISOs") to the extent that the aggregate fair market value (FMV) of stock
with respect to which the options are exercisable for the first time (during
any taxable year) by the employee exceeds $100,000 (the FMV being determined
as the time the option with respect to such stock is granted).
Consequently, in accordance with the provisions of Section 6(c) of the Plan,
the Company hereby designates any options granted in excess of such
limitation as "Non-Qualified Options" under the Plan. For example, for
options vested in calendar year 1997, as set forth below, options to
purchase 12,030 shares shall be considered ISOs and options to purchase
162,970 shares shall be considered Non-Qualified Options. This option is in
addition to any other options heretofore or hereafter granted to the
Employee by the Company, but a duplicate original of the instrument shall
not effect the grant of another option.
3. Extent of Option if Employment Continues. If the Employee has continued
to be employed by the Company on the following dates, the Employee may
exercise this option for the number of shares set opposite the applicable
date:
April 28, 1997 up to 175,000 shares
On the first day of each August, up to an additional 43,750
November, February and May shares (until all 700,000 shares
beginning August 1, 1998 with subject to this agreement are
vesting complete on May 1, 2001. fully vested)
In addition, the last quarter, or 175,000 shares that will vest from
May 2, 2000 to May 1, 2001 will accelerate and vest immediately if
and when the Company's stock has maintained a ninety day trailing
average day-ending price of $35 per share for a period of ninety days.
The foregoing to the contrary notwithstanding, if the Board of
Directors of the Company approves a proposed "change in control" of the
Company (as defined below), if such transaction is thereafter consummated
and if the Employee has continued to be employed by the Company on the date
of consummation, the Employee may exercise this option for (a) if such Board
approval occurred on or before April 28, 1998, up to 350,000 shares in
total, or (b) if such Board approval occurred on or after April 29, 1998 up
to 700,000 shares.
<PAGE>
The foregoing rights are cumulative and, while the Employee continues
to be employed by the Company, may be exercised up to and including the date
which is ten (10) years from the date this option is granted. All of the
foregoing rights are subject to Articles 4 and 5, as appropriate, if the
employee ceases to be employed by the Company or dies or becomes disabled
while in the employ of the Company.
For purposes of this Agreement, the term "change in control" shall mean the
occurrence of any one or more of the following events:
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934 becomes a "beneficial owner" (as such term
is defined in Rule 13d-3 promulgated under the Securities Exchange Act of
1934) directly or indirectly of securities representing 50% or more of the
total number of votes that may be cast for the election of directors of the
Company, provided such person beneficially owned less than 5% of such
securities on the date hereof: or
(b) the sale or other disposition of substantially all of the assets or
other business of the Company.
4. Termination of Employment. If the Employee ceases to be employed by the
Company, other than by reason of death or disability as defined in Article 5,
no further installments of this option shall become exercisable and this
option shall terminate after the passage of sixty (60) days from the date
employment ceases, but in no event later than the scheduled expiration date.
In such a case, the Employee's only rights hereunder shall be those which
are properly exercised before the termination of this option.
5. Death; Disability. If the Employee dies while in the employ of the
Company, this option may be exercised, to the extent of the number of shares
with respect to which the Employee could have exercised it on the date of
his death, by his estate, personal representative or beneficiary to whom this
option has been assigned pursuant to Article 10, at any time within 180 days
after the date of death, but not later than the scheduled expiration date.
If the Employee ceases to be employed by the Company by reason of his
disability (as defined by the Plan), this option may be exercised, to the
extent of the number of shares with respect to which he could have exercised
it on the date of the termination, but not later than the scheduled
expiration date. At the expiration of such 180 day period or the scheduled
expiration date, whichever is earlier, this option shall terminate and the
only rights hereunder shall be those as to which the option was properly
exercised before such termination.
6. Partial Exercise. Exercise of this option up to the extent above stated
may be made in part at any time and from time to time within the above
limits, except that this option may not be exercised for a fraction of a
share unless such exercise is with respect to the final installment of stock
subject to this option and a fractional share (or cash in lieu thereof) must
be issued to permit the Employee to exercise completely such final
installment. Any fractional share with respect to which an installment of
this option cannot be exercised because of the limitation contained in the
preceding sentence shall remain subject to this option and shall be
available for later purchase by the Employee in accordance with terms
thereof.
7. Payment of Price. The option price is payable in United States dollars
and may be paid in cash or by check, or any combination of the foregoing,
equal to the amount of the option price.
<PAGE>
8. Method of Exercising Option. Subject to the terms and conditions of this
Agreement, this option may be exercised by written notice to the Company, at
the principal executive office of the Company, or at such transfer agent as
the Company shall designate. Such notice shall state the election to
exercise this option and the number of shares in respect of which it is
being exercised and shall be signed by the person or persons so exercising
this option. Upon any exercise of vested options, the Employee shall be
entitled to designate whether and to what extent he is exercising vested
ISOs or Non-Qualified Options, in each case up to the maximum number of
vested options of each type, and in the absence of any designation, the
Employee shall be deemed to have exercised ISOs to the maximum extent
possible, and any excess shall be deemed to be an exercise of Non-Qualified
Options. Such notice shall be accompanied by payment of the full purchase
price of such shares, and the Company shall deliver a certificate or
certificates representing such shares as soon as practicable after the
notice shall be received. The certificate or certificates for the shares as
to which this option shall have been so exercised shall be registered in the
name of the person or persons so exercising this option (or, if the option
shall be exercised by the Employee and if the Employee shall so request in
the notice exercising this option, shall be registered in the name of the
Employee and another person jointly, with the right of survivorship) and
shall be delivered as provided above to or upon the written order of the
person or persons exercising this option. In the event this option shall be
exercised, pursuant to Article 5 hereof, by any person or persons other than
the Employee, such notice shall be accompanied by appropriate proof of the
right of such person or persons to exercise this option. All shares that
shall be purchased upon the exercise of this option as provided herein shall
be fully paid and nonassessable.
9. Option Not Transferable. This option is not transferable or assignable
except by will or by the laws of the descent and distribution. During the
Employee's lifetime only the Employee can exercise this option.
10. No Obligation to Exercise Option. The grant and acceptance of this
option imposes no obligation on the Employee to exercise it.
11. No Obligation to Continue Employment. The Company and any Related
Corporations are not by the Plan or this option obligated to continue the
Employee in employment.
12. No Rights as a Stockholder Until Exercise. The Employee shall have no
rights as a stockholder with respect to shares subject to this agreement
until the stock certificate has been issued to the Employee and is fully
paid for. Except as is expressly provided in the Plan with respect to
certain changes in the capitalization of the Company, no adjustment shall be
made for dividends or similar rights for which the record date is prior to
the date such stock certificate is issued.
13. Capital Changes and Business Successions. It is the purpose of this
option to encourage the Employee to work for the best interests of the
Company and its stockholders. Since, for example, that might require the
issuance of a stock dividend or a merger with another corporation, the
purpose of this option would not be served if such as stock dividend, merger
or similar occurrence would cause the Employee's rights hereunder to be
diluted or terminated and thus be contrary to the Employee's interest. The
Plan contains extensive provisions designed to preserve options at full
value in a number of contingencies. Therefore, provisions in the Plan for
adjustment with respect to stock subject to options and the related
provisions with respect to successors to the business of the Company are
hereby made applicable hereunder and are incorporated herein by reference.
<PAGE>
In particular, without affecting the generality of the foregoing, it is
understood that for the purposes of Articles 3 through 5 hereof, both
inclusive, employment by the Company includes employment by a related
Corporation as defined by the Plan.
14. Early Disposition. The Employee agrees to notify the Company in writing
immediately after the Employee makes a Disqualifying Disposition of any
Common Stock received pursuant to the exercise of any ISO portion of this
option. A Disqualifying Disposition is any disposition (including any sale)
of such Common Stock acquired upon exercise of an ISO before the later of
(a) two years after the date the Employee was granted this option or (b) one
year after the date the Employee acquired Common Stock by exercising this
option. If the Employee has died before such stock is sold, these holding
period requirements do not apply and no Disqualifying Disposition can occur
thereafter. The Employee acknowledges that he or she will forfeit the
favorable income tax treatment otherwise available with respect to the
exercise of any ISO portion of this stock option if he makes a Disqualifying
Disposition of the stock received on exercise of any ISO portion of this
option.
15. Withholding Taxes. If the Company in its discretion determines that it
is obligated to withhold tax with respect to an exercise of Non-Qualified
Options or a Disqualifying Disposition (as defined in Article 14) of Common
Stock received by the Employee on exercise of any ISO portion of this
option, the Employee hereby agrees that the Company may withhold from the
Employee's wages the appropriate amount of federal, state and local
withholding taxes attributable to such Disqualifying Disposition or exercise
of Non-Qualified Options. At the Company's discretion, the amount required
to be withheld may be withheld in cash from such wages, or (with respect to
compensation income attributable to the exercise of this option) in kind
from Common Stock otherwise deliverable to the Optionee on exercise of this
Option. The Employee further agrees that, if the Company does not withhold
an amount from the Employee's wages sufficient to satisfy the Company's
withholding obligation, the Employee will reimburse the Company on demand,
in cash, for the amount underwithheld.
16. Governing Law. This Agreement shall be governed by and interpreted in
accordance with the internal laws of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the Company and the Employee have caused this
instrument to be executed as of the date set forth above, and the Employee
whose signature appears below acknowledges receipt of a copy of the Plan and
acceptance of an original copy of this Agreement.
/s/ James L. Zucco
------------------------
James L. Zucco
SHIVA CORPORATION
By: /s/ Frank A. Ingari
---------------------
Exhibit 11.0
<TABLE>
SHIVA CORPORATION
Computation of Net Income (Loss) Per Share (1)
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
-------- -------- -------- --------
Weighted Average Common and
Common Equivalent Shares:
<S> <C> <C> <C> <C>
Weighted Average Common
Shares Outstanding During
the Period 29,128,123 28,541,041 29,049,872 28,185,953
Weighted Average Common
Equivalent Shares - 3,525,482 - 3,109,845
---------- ---------- --------- ----------
29,128,123 32,066,523 29,049,872 31,295,798
========== ========== ========== ==========
Net Income (Loss) ($996,000) $4,975,000 ($9,366,000) $9,314,000
Primary Net Income (Loss)
Per Share ($0.03) $0.16 ($.032) $0.30
<FN>
(1) Fully diluted net income per share has not been separately presented, as
the amounts would not be materially different from primary net income per
share. Net loss per share excludes common equivalent shares because their
effect is antidilutive.
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-29-1996
<PERIOD-END> JUN-28-1997
<CASH> 71,920
<SECURITIES> 29,612
<RECEIVABLES> 39,000
<ALLOWANCES> 13,345
<INVENTORY> 15,622
<CURRENT-ASSETS> 155,294
<PP&E> 41,524
<DEPRECIATION> 15,972
<TOTAL-ASSETS> 184,505
<CURRENT-LIABILITIES> 35,319
<BONDS> 0
<COMMON> 292
0
0
<OTHER-SE> 148,332
<TOTAL-LIABILITY-AND-EQUITY> 184,505
<SALES> 62,135
<TOTAL-REVENUES> 8,762
<CGS> 37,588
<TOTAL-COSTS> 37,588
<OTHER-EXPENSES> 50,046
<LOSS-PROVISION> 469
<INTEREST-EXPENSE> 268
<INCOME-PRETAX> (15,105)
<INCOME-TAX> (5,739)
<INCOME-CONTINUING> (9,366)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,366)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
</TABLE>
