SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 3, 1998

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition period from to
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Commission File Number 0-24918
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SHIVA CORPORATION
(Exact name of registrant as specified in its charter)

Massachusetts 04-2889151
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

28 Crosby Drive, Bedford, MA 01730
(Address of principal executive offices, including Zip Code)

(781) 687-1000
(Registrant's telephone number, including area code)
-----------------------------------

Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Series A Junior Participating Preferred Stock, $.01 par value
(title of class)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

The aggregate market value of the voting stock held by non-
affiliates of the registrant was approximately $280,236,069 based on
the closing price of the Common Stock on the Nasdaq Stock Market
on January 30, 1998.
The number of shares outstanding of the registrant's Common Stock
as of January 30, 1998 was 29,692,315.

DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of the registrant's Proxy Statement for the Annual
Meeting of Stockholders to be held June 18, 1998 are incorporated
by reference into Part III hereof.
2. Portions of the registrant's 1997 Annual Report to
Stockholders for the fiscal year ended January 3, 1998 are
incorporated by reference into Parts I, II and IV hereof.

Shiva, Shiva with design (the company logo), NetModem, NetModem/E,
NetBridge, NetSerial, TeleBridge, Hublet, LanRover, LanRover Access
Switch, AirSoft, ShivaPPP, ShivaIntegrator, ShivaPort, PowerBurst,
WebRover and EtherGate are registered trademarks of Shiva Corporation.
Shiva Connects, VantagePath, ShivOS, Tariff Management, ShivaRemote,
Shiva AccessPort, ISSAK, Remote-Centric and DIAT are trademarks
of Shiva Corporation. All other trademarks belong to their
respective companies.

PART I

ITEM 1. Business

General

Shiva Corporation (the "Company") is a leader in the design,
development, manufacture and sale of hardware and software
products that enable remote connectivity to enterprise networks
from locations having access to analog or digital telephone
service or a connection to a public data network such as the
Internet. Founded in 1985 as a Massachusetts corporation, the
Company has applied its expertise in internetworking, personal
computer ("PC") software and telephony to pioneer the "remote
node" approach to remote network access. Shiva's remote access
solutions enable 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 their corporate network. Shiva servers enable users
to connect to computing resources from home, while traveling, or
as part of a branch office or multi-user worksite.

The Company offers a full line of remote access solutions,
technical training and services supporting telecommuters and
remote offices to large enterprise networks and to the ISPs and
Carriers providing remote access to the public data networks.
The enterprise-based remote access servers, such as the LanRover
Access Switch(R), LanRover(R) and ShivaIntegrator(R) product
families, enable network managers of large networks to link
telecommuters, mobile professionals and branch offices with dial-
in access to Local Area Networks ("LANs") offering either remote
node PC-to-LAN connections or LAN-to-LAN dial up connections
through both public and private telephone networks. The
Company's technology also provides LAN-based users the ability to
make dial-out connections from the desktop to the Internet or
other on-line services. Network managers can control and manage
remote user access into the enterprise-based servers with the
Shiva AccessManager security and accounting solution. Shiva
AccessManager is a Windows-based application that provides
comprehensive, centralized and cost-effective remote access
management. For the remote office and smaller branch, the
Company provides the Shiva AccessPort(TM) ISDN client router and
the NetModem(R) server, as well as ShivaRemote(TM) client
software and PowerBurst(R) remote node acceleration software for
enhanced performance. The Company also offers other
communications products, such as the ShivaPort(TM) product family
of communications servers, that permit users to connect
terminals, printers, modems and other serial devices to Ethernet
networks. The Company markets its products in domestic and
international markets through indirect distribution channels to
reach a wide range of customers.

In February 1998, the Company announced the execution of a
definitive agreement to acquire the majority of the assets of
privately-held Isolation Systems, Limited ("Isolation"), an
Ontario corporation, for approximately US$37 million in cash,
subject to closing adjustments (the "Isolation Acquisition").
Isolation is a leading developer of virtual private network
("VPN") hardware and software solutions, which have been in
production shipment since April 1997. Isolation's InfoCrypt(TM)
network gateway integrates tunneling, firewall, X.509 digital
certificate authentication, encryption and key management into a
single, high-performance solution.

Certain information contained herein, and information provided by
the Company or statements made by its employees from time to
time, may contain "forward-looking" information which involve
risks and uncertainties. The Company's actual results may vary
significantly from those stated in any forward-looking
statements. Factors that may cause such differences include, but
are not limited to, market acceptance of the Company's products,
the development of competitive products, limitations on financial
and other resources required to engage in product development
activities or to acquire or license third party technology,
factors adversely affecting the demand for, or use of, the
Company's products and other factors described herein. The
Company believes that factors affecting the ability of the
Company's products to achieve broad market acceptance include,
but are not limited to, product performance, price, ease of
adoption and displacement of existing approaches. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations - Factors That May Affect Future Operating
Results."

Products

Remote Access Products

The LanRover Access Switch Product Family
The LanRover Access Switch is a high-capacity remote access
concentrator that brings LanRover functionality to a cooperative
multiprocessing architecture with industry standard high-speed
buses and extensive call control capabilities. Designed to
support over one hundred sessions, it addresses the needs of
corporate enterprises, Carriers, and ISPs. The LanRover Access
Switch supports the following major remote networking
functionality including single user dial-in, dial-out for LAN
based users, and LAN-to-LAN routing for branch and home office
connectivity over T1, E1, T1/E1 PRI or 56kbps modems. In 1997,
the Company introduced the LanRover D56. The LanRover D56 can
support up to 30 analog and digital sessions at speeds of up to
64kbps over ordinary analog lines. The LanRover Access Switch
offers extensive management and accounting capabilities via Shiva
Net Manager(TM) or Shiva Net Manager for UNIX, as well as support
for a range of security options including centralized security
and third party security such as TACACS and TACACS+, RADIUS,
Security Dynamics, Vasco and Axent Technologies.

The LanRover Remote Access Server Product Family
Shiva's LanRover family of high-performance, multi-platform,
multi-protocol remote access servers are designed to meet the
needs of both network managers and end-users in corporate
environments. They provide remote node dial-in access to the
full range of network services, including electronic mail and
file transfer, as well as providing access to databases and
mainframe applications. LanRover servers support DOS, Windows,
Macintosh, UNIX, and terminal users and IPX, TCP/IP, AppleTalk,
NetBEUI, and 802.2/LLC protocols. The LanRover family enables
shared dial-out to on-line information services and send-fax
support for LAN-attached PCs, in addition to LAN-to-LAN services
over analog or digital dial-up lines. For network managers, the
LanRover family offers centralized network management from a LAN-
based Windows PC or Macintosh; in-band and out-of-band management
from IPX, TCP/IP and AppleTalk and SNMP support as well as full
security features.

In 1997, the Company introduced the LanRover XP/16. The LanRover
XP/16 is a fixed-port, higher density (16-port) V.34 modem
configuration of the LanRover/E and LanRover/E PLUS products.
The LanRover/E and LanRover/E PLUS products are available for
Ethernet or Token Ring environments in 4 or 8 asynchronous serial
port configurations. The LanRover/PLUS, also available for
Ethernet or Token Ring networks, is a modular remote access
server that supports up to eight V.34 modems, ISDN BRI, or high
speed asynchronous serial modules (or any combination of these
three).

The Shiva AccessPort Product Family
The Shiva AccessPort is an ISDN client router that connects
telecommuters and small office users to the corporate LAN and the
Internet using ISDN. Shiva AccessPort has one basic rate ISDN
interface and support for multi-link PPP which allows for
aggregation of the two ISDN b-channels. In addition, two analog
ports are available for users to integrate phone and fax
capabilities over the ISDN phone line. Shiva AccessPort/D is
available without the analog ports for data only applications.
As a complement to Shiva's LanRover and LanRover Access Switch
central site servers, the Shiva AccessPort includes Wizard
Installation software for ease of installation and use, as well
as Monitor software to monitor ISDN usage statistics and call
activity. Tariff Management technologies are employed in the
Shiva AccessPort to reduce the phone charges associated with
remote access while multiple levels of security ensure that data
is kept private.

The ShivaIntegrator Product Family
ShivaIntegrator is a family of ISDN remote access systems that
combine on-demand ISDN networking with a host of Tariff
Management features designed to save on phone charges. The
ShivaIntegrator 150 is a branch office router with one serial
line interface that supports frame relay and one Basic Rate ISDN
interface for connection to the central site or other branch
offices. The ShivaIntegrator 500 is a central site concentrator
which supports Primary Rate ISDN and provides up to 90
simultaneous connections to remote locations and V.35 interface
for leased line connections.

Shiva AccessManager
The Shiva AccessManager is a standards-based security and
accounting solution that allows large enterprises, Internet
Service Providers, and Carriers to control and manage remote user
access. The Shiva AccessManager is a protocol-independent
authentication, authorization and accounting solution for Windows
NT, Windows 95 and Windows 3.11 environments. The Shiva
AccessManager can act as a proxy client for multiple user list
servers including various UNIX platforms, Microsoft NT Domains,
Novell Netware Bindery and Novell Network Directory Services. It
is interoperable with RADIUS/TACACS compliant network access
servers and a wide variety of third party network security
servers such as Security Dynamics, Vasco and Axent Technologies.
It provides a standards-based (ODBC) database interface that
allows detailed accounting data to be stored and manipulated to
generate user specific billing/charge-back reports. These
reports can provide organizations with detailed cost analyses
that can be supported by graphical management statistics and
allow network and business managers to view utilization and
trends.

In fiscal 1997, 1996 and 1995, revenues from remote access
products were approximately $130,413,000, $174,084,000 and
$83,924,000, respectively, or 90%, 87% and 71% of revenues,
respectively.

Other Communications Products

The Company also develops and sells other communications products
including the ShivaPort product family and Appletalk products.
ShivaPort is a high-performance multi-protocol communications
server for Ethernet networks, available in 8, 16, or 32 port
configurations. ShivaPort products permit users to connect large
numbers of terminals, printers, modems and other serial devices
to a LAN. ShivaPort provides simple terminal access, security,
printing and network management features. The Appletalk products
are designed to meet a variety of LAN communications needs of
Macintosh users.

In fiscal 1997, 1996 and 1995, revenues from communications
products were approximately $6,805,000, $16,847,000 and
$24,061,000, respectively, or 5%, 8% and 20% of revenues,
respectively.

Foreign and Domestic Operations and Export Sales

The required information may be found under Note 12 of the Notes
to Consolidated Financial Statements and under the section
captioned "Management's Discussion and Analysis of Financial
Condition and Results of Operations", contained in the Company's
Annual Report to Stockholders for the fiscal year ending January
3, 1998 (the "1997 Annual Report to Stockholders"), portions of
which are filed as an exhibit hereto, and is incorporated herein
by reference.

Markets and Customers

During 1997, the Company continued to see a split in the use of
remote access in private and public networks. The private
networks market, consisting of corporations and governmental
agencies, and the public market, consisting of Carriers and
Internet Service Providers ("ISP's"), have different requirements
for the type of products and services required, and each is
characterized by different competitive environments. The private
sector is characterized by the need for greater breadth of
protocol and operating systems support, greater network
management resources and more intensive hourly usage over a
concentrated period of time than the public sector. Shiva's
major competition in this segment are Cisco, 3Com and Bay
Networks. By contrast, the public sector is characterized by
higher call volumes, continuous operation and limited network
management staff thereby requiring more support from Shiva. The
major competitors in this segment are Ascend, 3Com and Cisco.

Competition

Competitive factors in both the private and public segment of the
remote access market include breadth of product features, product
quality and functionality, marketing and sales resources and
customer service and support. In 1997, price became a more
significant competitive factor for the public network access
market and at the high-end of the private network access arena.

Many of the Company's current and potential competitors have
greater financial, marketing, technical and other resources than
the Company. There can be no assurance that the Company will be
able to compete successfully with current or new competitors. In
addition, since the lower end segments of both markets have
numerous competitors, the Company's market share may decline in
the event any one or several of its competitors expands its
existing market share. Increased competition could have a
material adverse effect on the Company's business.

Sales and Marketing

The Company markets its products through numerous indirect
distribution channels worldwide, including distributors, value-
added resellers and OEM strategic partners. The Company actively
supports its indirect channel marketing partners with its own
sales and marketing organization whose role is to stimulate
primary demand and ensure adequate training and sales support.
The Company conducts its North American sales and marketing
activities from its principal office in Bedford, Massachusetts,
as well as from four other North American sales offices. In
international markets, the Company markets its products through
its Wokingham, United Kingdom office as well as field sales
offices in France, Germany, Sweden, South Africa, Singapore,
Australia, Japan, Hong Kong, Brazil, Colombia, Canada and the
Netherlands and through distributors and resellers in many
European countries, South America, Asia, Africa and the Pacific
Rim.

Since 1995, the Company has been party to a strategic
relationship with Northern Telecom Limited ("Nortel"), a major
telecommunications equipment company. The relationship has
evolved over time with the most current version refocusing on an
OEM-type model with development services and product purchase
commitments by Nortel for Nortel Rapport branded versions of
certain of the Company's products. Rapport products provide
solutions for ISPs and other telecommunications companies and
include the LanRover Access Switch product family, the LanRover
Remote Access Server product family and the Shiva AccessPort
product family. In addition the Rapport line includes a product
currently in development by the Company, the VantagePath Remote
Access Concentrator, which Nortel has announced plans to market
as the Rapport Carrier Access Switch. In fiscal 1997 and 1996,
sales to Nortel accounted for 16% and 14%, respectively, of the
Company's total revenues.

Under the terms of a new amendment with Nortel signed on February
27, 1998, and effective until March 20, 2000, Nortel will
purchase minimum quarterly amounts of the Company's products up
to a minimum aggregate amount that will be $40,000,000 or
$55,000,000, depending upon the occurrence of certain contract
conditions. There can be no assurance that Nortel will purchase
in excess of the minimum amount or that the Company will be able
to fulfill such orders from Nortel and thus recognize the revenue
associated with such orders in a linear fashion over the
contract term. Non-linear order patterns from Nortel could cause
material fluctuations in the Company's quarterly financial
results. In addition, the Company will receive professional
services revenue during the first two quarters of fiscal 1998
related to the development of carrier class remote access
technology. There is no obligation on the part of Nortel to
contract for additional such development or for the Company to
provide such services beyond the second quarter of fiscal 1998.

The Company provides most of its distributors and resellers with
product return rights for stock balancing or product evaluation.
The Company also provides most of its distributors and resellers
with price protection rights. Stock balancing rights permit
distributors to return products to the Company for credit against
future product purchases, within specified limits. Product
evaluation rights, available in some markets, permit end-users to
return products to the Company, through the distributor or
reseller from whom such products were purchased, within thirty
days of purchase if such end-user is not fully satisfied. Price
protection rights require that the Company grant retroactive
price adjustments for inventories of the Company's products held
by distributors or resellers if the Company lowers its prices for
such products. Although the Company believes that it has
adequate reserves to cover product returns and price reductions,
there can be no assurance that the Company will not experience
significant returns or price protection adjustments in the future
or that such reserves will be adequate to cover such returns and
price reductions.

Customer Service and Support

The Company believes that a high level of user support is
essential to achieving customer satisfaction. The majority of
the Company's service and support activities historically have
been related to software and network configuration issues, which
are provided by telephone and on-line access to and from the
Company's principal offices. With the market acceptance of the
LanRover Access Switch, installation, on-site maintenance and
deployment services have become increasingly important to ensure
successful implementations of the product at customer sites. The
Company also provides technical support and training to channel
and strategic partners. The Company provides a one-year warranty
on its hardware products and a ninety day software media
warranty. After the expiration of the hardware warranty period,
the Company provides hardware repair services on a fee basis.
Software upgrades are also available for purchase on a fee basis.
Both hardware repairs and software upgrades may be purchased as
part of a comprehensive support program as well. Comprehensive
support programs provide toll-free telephone support lines,
overnight exchange of products, on-site hardware maintenance, and
free or discounted hardware and software revisions and upgrades.
In addition, the Company provides on-line services that are used
to distribute technical advice and software updates. On-line
services include a fax back service and an electronic mail access
service, as well as ISSAK(TM), which is the Company's technical
knowledge base.

Research and Development

The Company's research and development efforts are focused on
developing new products and core technologies for the remote
access market and further enhancing the functionality,
reliability, performance and flexibility of existing products.
Extensive input concerning product development is obtained from
users, both directly and through indirect marketing channel
partners. The Company also receives input from active
participation in industry groups responsible for establishing
technical standards.

In 1997, the Company completed development of the LanRover D56, a
30-port server supporting speeds of up to 64kbps, the LanRover
XP/16, a 16-port version of the Company's LanRover product, and a
56kbps module for the LanRover Access Switch product family. The
Company incorporated frame relay support into its ShivOs
operating system servicing Shiva servers, and VPN enhancements,
including L2F. In addition, the Company continued to work with
Nortel in the development of the VantagePath Access
Concentrator/Rapport Carrier Access Switch, a 256-port Carrier
Class product, however development of this product has not been
completed at this time. The Company is also focusing its
development efforts on additional remote access and telecommuter
needs and providing access to switched digital services. Certain
of these emerging digital services are already supported by the
Company's current product design.

With the Isolation Acquisition, the Company will augment its
technology portfolio with additional virtual private network
("VPN") capabilities. Isolation's InfoCrypt network gateway
integrates tunneling, firewall, X.509 digital certificate
authentication, encryption and key management.

The Company's success depends upon its ability to enhance and
expand its existing products, and to develop new products in a
timely manner that will achieve market acceptance. To meet the
challenges of rapidly changing technology, the Company has
invested and expects to continue to invest heavily in the
development of new products and core technologies; however, there
can be no assurance that the Company will be able to respond
effectively to technological changes or new industry standards or
developments. The Company's business would be adversely affected
if the Company were to incur significant delays or were to be
unsuccessful in developing new products or enhancements, or if
any such products or enhancements did not gain market acceptance.

In fiscal 1997, 1996 and 1995, the Company's research and
development expenditures were approximately $25,545,000,
$23,186,000 and $14,787,000, respectively, or 18%, 12% and 12% of
revenues, respectively. Customer-funded development fees
reimbursed to the Company, which are reflected as an offset to
research and development expenses, were approximately $6,664,000,
$1,718,000 and $955,000, respectively for fiscal 1997, 1996 and
1995.

Manufacturing

The Company uses three principal subcontractors, Benchmark
Electronics - Hudson Division, Solectron Scotland Limited and
Avex Electronics, for the manufacture of substantially all of its
products. The Company's internal manufacturing operation, which
iss, located in Bedford, Massachusetts, consists primarily of
material planning, procurement, final assembly and test, quality
assurance and distribution. The Company's products undergo
automated testing, comprehensive quality audits, functional
testing, and environmental stress screening to ensure quality and
reliability.

The Company's manufacturing strategy is to optimize cost,
quality, delivery and flexibility to the Company's customer base
through a leveraged external manufacturing model. This strategy
allows capacity increases while avoiding the capital investment
required to establish and maintain additional manufacturing
facilities. The Company believes that this strategy allows it to
focus its resources on product design, quality assurance,
marketing, and customer support. Although the Company believes
that new suppliers could be evaluated and integrated in a
relatively short period of time, this strategy could lead to
short-term product supply interruptions and could have an adverse
effect on the Company.

Materials used by the Company in its manufacturing processes
include semiconductors, such as microprocessors, memory chips and
other integrated circuits, printed circuit boards, cable
assemblies and pre-formed metal/plastic enclosures. The chipsets
used in certain of the Company's Token Ring connectivity products
and modem products are currently available only from IBM and
Rockwell International, respectively. The Company also sources
certain microprocessors from Motorola. To date, the Company has
not experienced significant delays in the receipt of key
components. The inability to obtain a sufficient supply of key
components as required, or to develop alternative sources if and
as required in the future, could result in delays or reductions
in product shipments which, in turn, could have a material
adverse effect on the Company's results of operations.

Intellectual Property

Although the Company believes that its continued success will
depend primarily on its continuing innovation, sales, marketing
and technical expertise, product support and customer relations,
the Company believes it also needs to protect the proprietary
technology contained in its products. The Company relies primarily
on a combination of patent, copyright, trademark, trade secret
laws and contractual provisions to establish and protect proprietary
rights in its products. The Company has applications pending for
six United States patents and owns one United States patent relating
to remote user network access that expires in 2014. The Company
typically enters into confidentiality and/or license agreements with
its employees, strategic technology partners, indirect channel
marketing partners, customers and suppliers and limits access to and
distribution of its proprietary information.

There can be no assurance that these protections will be adequate
to deter misappropriation of the Company's technologies or
independent third-party development of similar technologies. In
addition, the laws of some countries do not protect the Company's
proprietary rights to the same extent as do the laws of the
United States. The Company is also subject to the risk of
litigation alleging infringement of third-party intellectual
property rights. There can be no assurance that third parties
will not assert infringement claims against the Company with
respect to current or future products. Any such assertion could
require the Company to incur significant legal costs, pay
damages, develop non-infringing technology and acquire licenses
to the technology that is the subject of asserted infringement
resulting in product delays or increased costs.

Employees

At January 3, 1998, the Company employed 610 individuals on a
full-time basis. Of these, 180 were involved in engineering, 290
in sales, marketing and customer support, 49 in manufacturing and
91 in administration, finance and strategic planning. The
Company has no collective bargaining agreement with its
employees. The Company considers its relations with its
employees to be good and has not experienced any interruption of
operations as a result of labor disagreements.

Competition for technical personnel in the Company's industry is
intense. The Company believes that its future success will
depend on its continued ability to attract and retain qualified
personnel.

Executive Officers

The executive officers of the Company as of March 14, 1998, are
as follows:

Name Age Position
--------------------- ---- ----------------------------------

James L. Zucco, Jr. 47 President, Chief Executive Officer
and Chairman of the Board of
Directors

James F. Finucane 49 Senior Vice President, Research and
Development

Michael J. Duffy 40 Senior Vice President, Worldwide
Sales and Marketing

Robert P. Cirrone 51 Senior Vice President, Finance and
Administration, and Chief Financial
Officer

Mr. Zucco has served as a director of the Company since May 1997
and as Chairman of the Board since February 1998. Mr. Zucco was
appointed Chief Operating Officer and President of the Company in
April 1997, and was appointed Chief Executive Officer in October
1997. Prior to joining the Company, Mr. Zucco was President,
Network Communication Software at Lucent Technologies from
February 1997 to April 1997 and was previously Vice President and
General Manager, Network Systems North America Carrier Business
since February 1996. From January 1995 to February 1996 Mr.
Zucco served as Vice President and General Manager of AT&T
Advanced Network Applications at AT&T Business Communications
Services. Mr . Zucco was Chief Information and Chief Technology
Officer at AT&T Business Communications Services from November
1993 to January 1995. Mr. Zucco served as Senior Vice President
at MCI Communications Corporation from February 1991 to November
1993.

Mr. Finucane joined the Company as Senior Vice President,
Research and Development in July 1997. Prior to joining the
Company, Mr. Finucane was Vice President of Internet Services
Division at AT&T Labs from December 1995 to July 1997. From
September 1995 to December 1995, Mr. Finucane served as Vice
President of Computer Science Research in the Network Computing
Division of Bell Laboratories. Mr. Finucane was Director of
Product and Service Architecture at AT&T Business Communications
Services from January 1994 to August 1995. From May 1985 to
December 1993, Mr. Finucane was Senior Manager and Advisory
Engineer at MCI Communications Corporation.

Mr. Duffy joined the Company as Senior Vice President, Worldwide
Sales in August 1997. Prior to joining the Company, Mr. Duffy
was Vice President, Sales and Marketing, at GTE Internetworking
Services (BBN) from February 1996 to September 1997. From May
1995 to February 1996, Mr. Duffy was Vice President, North
American Operations, at Intersolv, Inc., a provider of
open/client server software solutions. Mr. Duffy was Executive
Vice President at Software 2000, Inc. from March 1993 to January
1995. Mr. Duffy also served as Software 2000's Vice President,
Sales and Marketing, from January 1990 to March 1993.

Mr. Cirrone joined the Company as Senior Vice President, Finance
and Administration, and Chief Financial Officer in December 1997.
Prior to joining the Company, Mr. Cirrone was Vice President,
Finance, Internal Audit at Sun Microsystems, Inc., from August
1997 to December 1997. From December 1996 to July 1997, Mr.
Cirrone was Vice President, Operations and Chief Quality Officer
at SunExpress Inc., a wholly owned subsidiary of Sun
Microsystems, Inc. Mr. Cirrone was also Sun Express's Director
of Finance, Planning and Administration, from November 1991 to
November 1996.

Executive officers of the Company are elected by the Board of
Directors and serve until their successors are duly elected and
qualified. There are no family relationships among any of the
executive officers of the Company.

ITEM 2. Properties

The Company's principal offices are located in Bedford,
Massachusetts in a facility of approximately 117,139 square feet
under a lease that expires in February 2006. The Company also
leases approximately 51,000 square feet in Bedford for its
manufacturing and sales training operations under a lease
which expires in September 2003. The Company's primary
European operations are located in a facility it owns consisting
of approximately 35,000 square feet in Edinburgh, United Kingdom.
The Company also leases sales offices in New York, Washington,
Illinois, Georgia, California, Canada, Colombia, France, Italy,
Australia, South Africa, the United Kingdom, Germany, Japan, Hong
Kong, the Netherlands, Sweden, and Singapore. The Company
believes that its facilities are well maintained and in good
operating condition, and are adequate to meet its anticipated
level of operations through 1998, at minimum.

ITEM 3. Legal Proceedings

Certain information required by this item may be found in the
section captioned "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Legal
Proceedings" appearing in the 1997 Annual Report to Stockholders,
and is incorporated herein by reference.

ITEM 4. Submission Of Matters To Vote Of Security Holders

None

PART II

ITEM 5. Market For The Company's Common Equity And Related
Stockholder Matters

Certain information required by this item may be found in the
section captioned "Quarterly Financial Information" appearing in
the 1997 Annual Report to Stockholders, and is incorporated
herein by reference. The Company sold no unregistered securities
in the fourth quarter of fiscal 1997.

ITEM 6. Selected Financial Data

Information required by this item may be found in the section
captioned "Shiva Corporation Financial Highlights" appearing in
the 1997 Annual Report to Stockholders, and is incorporated
herein by reference.

ITEM 7. Management's Discussion And Analysis Of Financial
Condition And Results Of Operations

Information required by this item may be found in the 1997 Annual
Report to Stockholders in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and is incorporated herein by reference.

ITEM 7A. Quantitative and Qualitative Disclosures About Market
Risk

Not applicable.

ITEM 8. Financial Statements And Supplementary Data

Information with respect to this item may be found in the 1997
Annual Report to Stockholders, and is incorporated herein by
reference and indexed by reference under Item 14(a)(1) below.

ITEM 9. Changes In And Disagreements With Accountants On
Accounting And Financial Disclosure

None.

PART III

ITEM 10. Directors And Executive Officers Of The Company

Information with respect to Directors of the Company may be found
in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held June 18, 1998 (the "1998 Proxy
Statement") under the caption "Election of Directors" and is
incorporated herein by reference. Information with respect to
Executive Officers of the Company may be found under the section
captioned "Executive Officers of the Company" in Part I of this
report. Information relating to delinquent filings of Forms 3, 4
or 5 by an executive officer or director or beneficial owner of
more than 10% of the shares of common stock of the Company may be
found under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1998 Proxy Statement and
is incorporated herein by reference. The 1998 Proxy Statement
will be filed with the Securities and Exchange Commission not
later than 120 days after the close of the Company's fiscal year
ended January 3, 1998.

ITEM 11. Executive Compensation

Information required by this item may be found under the captions
"Compensation of Directors" and "Executive Compensation" in the
Company's 1998 Proxy Statement and is incorporated herein by
reference.

ITEM 12. Security Ownership Of Certain Beneficial Owners And
Management

Information required by this item may be found under the caption
"Security Ownership of Certain Beneficial Owners and Management"
in the Company's 1998 Proxy Statement and is incorporated herein
by reference.

ITEM 13. Certain Relationships And Related Transactions

Information required by this item may be found under the caption
"Executive Compensation" in the Company's 1998 Proxy Statement
and is incorporated herein by reference.

PART IV

ITEM 14. Exhibits, Financial Statement Schedules And Reports
On Form 8-K

(a) (1) Consolidated Financial Statements.
----------------------------------
The following consolidated financial statements and the Report of
Independent Accountants are included in the Company's 1997 Annual
Report to Stockholders and are incorporated herein by reference.

Report of Independent Accountants for the years ended January
3, 1998, December 28, 1996 and December 30, 1995
Consolidated Balance Sheet as of January 3, 1998 and December
28, 1996
Consolidated Statement of Operations for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995
Consolidated Statement of Changes in Stockholders Equity for
the years ended January 3, 1998, December 28, 1996 and
December 30, 1995
Consolidated Statement of Cash Flows for the years ended
January 3, 1998, December 28, 1996 and December 30, 1995
Notes to Consolidated Financial Statements

The Company's 1997 Annual Report to Stockholders is not to be
deemed filed as part of this report except for those parts
thereof specifically incorporated herein by reference.

(a) (2) Financial Statement Schedules.
------------------------------
Page
Schedule I Report of Independent
Accountants on Financial
Statement Schedule S-1
Schedule II Valuation and Qualifying
Accounts S-2

Schedules not listed above have been omitted because they are not
applicable, not required, or the information required to be set
forth therein is included in the consolidated financial
statements or the notes thereto.

(a) (3) List of Exhibits.
---------------- The following exhibits are
filed as part of, or incorporated by reference into, this report
on Form 10-K:

Exhibit
No. Description of Exhibits

3.1 Restated Articles of Organization of the Company. (1)(5)

3.2 Restated By-Laws of the Company. (1)

4.1 Specimen certificate representing the Common Stock. (8)

4.2 Rights Agreement dated as of September 29, 1995, between
the Company and American Stock Transfer & Trust Company,
which includes as Exhibit A the Form of Certificate of
Vote of Directors Establishing a Series of a Class of
Stock, as Exhibit B the Form of Rights Certificate, and
as Exhibit C the Summary Rights to Purchase Preferred
Stock. (4)

10.1 Registration Rights Agreement dated as of September 3,
1991 by and among the Company and the Investors named
therein, as amended by the Amendment to Registration
Rights Agreement dated as of March 29, 1993, as further
amended by the Amendment No. 2 to Registration Rights
Agreement dated as of July 28, 1993 and as further
amended by an Amendment dated June 13, 1995. (3)

10.2 Amended and Restated 1988 Stock Plan, as amended. (3)(6)

10.3 1994 Non-Employee Director Stock Option Plan. (1)(6)

10.4 1994 Employee Stock Purchase Plan. (1)(6)

10.5 1997 Stock Incentive Plan (6)

10.6 Employment Agreement dated September 15, 1994 by and
between the Company and Frank A. Ingari. (1)(6)

10.7 Incentive and Non-Qualified Stock Option Agreement dated
October 19, 1993 between the Company and Frank A.
Ingari. (1)(6)

10.8 Promissory Note dated December 22, 1997 by and between
the Company and Frank A. Ingari. (6)

10.9 Letter Agreement dated April 28, 1997 by and between
the Company and James L. Zucco, Jr., regarding offer of
employment as President and Chief Operating Officer and
compensation. (6) (9)

10.10 Promissory Note dated September 8, 1997 by and between
the Company and James L. Zucco, Jr. (6) (10)

10.11 Letter Agreement dated July 9, 1997 by and between the
Company and James F. Finucane, regarding offer of
employment and compensation as Senior Vice President,
Engineering. (6) (10)

10.12 Letter Agreement dated August 27, 1997 by and between
the Company and Michael J. Duffy, regarding offer of
employment and compensation as Senior Vice President,
Worldwide Sales. (6) (10)

10.13 Letter Agreement dated December 18, 1997 by and between
the Company and Robert P. Cirrone regarding offer of
employment and compensation as Senior Vice President,
Finance and Administration and Chief Financial Officer.
(6)

10.14 Agreement and General Release dated October 24, 1997 by
and between the Company and Jean-Pierre Boespflug. (6)

10.15 Agreement dated March 21, 1997 between the Company and
Northern Telecom Limited ("Nortel"). (2) (11)

10.16 Lease by and between Beacon Properties, L.P., Landlord
and the Company Tenant, ("Beacon Lease") dated September
5, 1995. (4)

10.17 Amendment #1 to the Beacon Lease, dated October 23, 1995
(8)

10.18 Amendment #2 to the Beacon Lease, dated January 17,1996
(8)

10.19 Lease by and between Walford Company c/o Bernard H.
Kayden, Landlord, and the Company, Tenant, ("Walford
Lease") dated May 24, 1996 (7)

11.1 Statement re: Computation of Per Share Earnings

13.1 Certain portions of the Company's 1997 Annual Report to
Stockholders that have been incorporated herein by
reference.

21.1 Subsidiaries of the Company.

23.1 Consent of Price Waterhouse LLP

23.2 Consent of Deloitte & Touche LLP

27 Financial Data Schedule
- -------------------------
<FN>
(1) Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 33-84884)
(2) Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the first quarter 1997.
(3) Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 33-94134)
(4) Incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 33-97216)
(5) Incorporated herein by reference to the Company's
Registration Statement on Form S-3 (File No. 333-602)
(6) Indicates a management contract or any compensatory plan or
arrangement
(7) Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for second quarter 1996.
(8) Incorporated herein by reference to the Company's Annual
Report on Form 10-K for fiscal year 1995.
(9) Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the second quarter 1997
(10) Incorporated herein by reference to the Company's Quarterly
Report on Form 10-Q for the third quarter 1997
(11) Confidential treatment granted as to certain portions.
----------------------------------------------------

(b) Reports on Form 8-K: The Company filed a Current Report
on Form 8-K dated February 20, 1998 pursuant to the Item 5
thereof, reporting the Company's announcement of the execution of
a definitive agreement to acquire the majority of the assets of
privately-held Isolation Systems, Limited, an Ontario
corporation, for approximately US$37 million in cash, subject to
closing adjustments.

PAGE

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

SHIVA CORPORATION

By: /s/ James L. Zucco, Jr. By: /s/ Robert P. Cirrone
------------------ ---------------------
James L. Zucco, Jr. Robert P. Cirrone
President and Chief Executive Senior Vice President,
Officer Finance and Administration,
(Principal Executive Officer) Chief Financial Officer
(Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, this report has been signed below by the
following persons on behalf of the registrant and in the
capacities and on the dates indicated:

NAME TITLE DATE
- ---- ----- ----

/s/ James L. Zucco, Jr.
- ------------------- March 25, 1998
James L. Zucco, Jr. Director

/s/ David C. Cole
- -------------------
David C. Cole Director March 25, 1998

- -------------------
L. John Doerr Director March 25, 1998

/s/ Richard J. Egan
- -------------------
Richard J. Egan Director March 25, 1998

- -------------------
Henry F. McCance Director March 25, 1998

- -------------------
Paul C. O'Brien Director March 25, 1998

/s/ David B. Yoffie
- -------------------
David B. Yoffie Director March 25, 1998

Schedule I

Report of Independent Accountants on
Financial Statements Schedule
-------------------------------------

To the Stockholders and Board of Directors
of Shiva Corporation:

Our audits of the consolidated finanacial statements referred to in
our report dated January 27, 1998, except as to Note 16 which is as
of February 19, 1998, appearing in the 1997 Annual Report to
Shareholders of Shiva Corporation (which report and consolidated
financial statements are incorporated by reference in this Annual
Report on Form 10-K) also included an audit of the Financial Statement
Schedule listed in Item 14(a) of this Form 10-K. In our opinion, the
Financial Statement Schedule presents fairly, in all material respects,
the information set forth therein when read in conjunction with the
related consolidated financial statements.

PRICE WATERHOUSE LLP

Boston, Massachusedtts
January 27, 1998, except
as to Note 16 which is
as of February 19, 1998

Schedule II

SHIVA CORPORATION
VALUATION AND QUALIFYING ACCOUNTS

- ---------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------

December 30, 1995 Allowance for doubtful accounts and returns $ $3,963 $ 7,731 $ (22) $ (6,421) $ 5,252

December 28, 1996 Allowance for doubtful accounts and returns $ 5,252 $ 14,993 $ 80 $ (9,977) $ 10,347

January 3, 1998 Allowance for doubtful accounts and returns $ 10,347 $ 23,213 $ (94) $ (25,428) $ 8,037
- --------------------------------------------------------------------------------------------------------------------------

SHIVA CORPORATION
DEFERRED TAX ASSET VALUATION ALLOWANCE

Balance Charged to Charged Balance
For the Period Beginning Costs and to Other at End
Ended Classification of Period Expenses Accounts Deductions of Period
- ---------------------------------------------------------------------------------------------------------------------------

December 30, 1995 Deferred tax asset valuation allowance $ 4,125 $ 730 $ 3,076 $ (1,400) $ 6,531

December 28 ,1996 Deferred tax asset valuation allowance $ 6,531 $ - $ - $ (5,673) $ 858

January 3, 1998 Deferred tax asset valuation allowance $ 858 $ - $ - $ - $ 858

- ---------------------------------------------------------------------------------------------------------------------------

INDEX TO EXHIBITS