content: <PAGE>   1
        As filed with the Securities and Exchange Commission on September 27,
                                        1996
  
                                                          Registration No. 333-
  
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      Form S-8
  
                               REGISTRATION STATEMENT
                                        under
                             THE SECURITIES ACT OF 1933
  
                                  SHIVA CORPORATION
               (Exact name of registrant as specified in its charter)
  
           MASSACHUSETTS                                         04-2889151
  (State or other jurisdiction of                (IRS Employer Identification No.)
   incorporation or organization)
  
  28 Crosby Drive, Bedford, Massachusetts                                 01730
  (Address of Principal Executive Offices)                              (Zip Code)
  
                            AIRSOFT, INC. 1993 STOCK PLAN
                              (Full title of the plan)
  
                                  FRANK A. INGARI,
                                  SHIVA CORPORATION
                        PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                   28 CROSBY DRIVE
                            BEDFORD, MASSACHUSETTS 01730
                                   (617) 270-8300
             (Name and address including zip code and telephone number,
                     including area code, of agent for service)
  
  <TABLE>
                           CALCULATION OF REGISTRATION FEE
  
                                                     Proposed
                                      Maximum        Maximum        Proposed
  Title of              Amount        Offering       Aggregate      Amount of
  Securities to         to be         Price Per      Offering       Registration
  be Registered         Registered    Share (1)      Price (1)      Fee
  - --------------------------------------------------------------------------------
  <S>                   <C>           <C>            <C>            <C>
  Common Stock          2,059         $60.75         $125,084.25    $43.14
  par value $.01
  per share
  
  <FN>
  
  (1) Estimated solely for the purposes of calculating the registration fee, and
  based upon the average of the high and low prices of the Common Stock on the
  Nasdaq National Market on September 23, 1996 in accordance with Rules 457(c) and
  457(h) of the Securities Act of 1933, as amended.
  </TABLE>
  
                                       Page 1
  
  
  <PAGE>   2
  
       PART I. INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
  
  Item 1. Plan Information
          ----------------
    
       The information required by Part I of Form S-8 relating to the 2,059
  restricted securities registered hereunder for resale pursuant to General
  Instruction C of Form S-8 is included in the Reoffer Prospectus filed together
  with this Registration Statement.
  
       PART II. INFORMATION REQUIRED IN THE REGISTRATION STATEMENT.
  
  Item 3. Incorporation of Documents by Reference
          ---------------------------------------
    
       Shiva Corporation, a Massachusetts corporation (the "Registrant"), is
  subject to the informational and reporting requirements of Sections 13(a), 14
  and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
  Act"), and in accordance therewith files reports, proxy statements and other
  information with the Securities and Exchange Commission. The following
  documents, which are on file with the Securities and Exchange Commission, are
  incorporated in this Registration Statement by reference:
  
       (a) The Registrant's latest annual report filed pursuant to Section 13(a)
  or 15(d) of the Exchange Act or either (1) the latest prospectus filed pursuant
  to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities
  Act"), that contains audited financial statements for the Registrant's latest
  fiscal year for which such financial statements have been filed or (2) the
  Registrant's effective registration statement on Form 10 or 20-F filed under the
  Exchange Act containing audited financial statements for the Registrant's latest
  fiscal year.
  
       (b) All other reports filed pursuant to Section 13(a) or 15(d) of the
  Exchange Act since the end of the fiscal year covered by the Registrant document
  referred to in (a) above.
  
       (c) The description of the common stock of the Registrant, par value $.01
  per share (the "Common Stock"), which is contained in a registration statement
  filed under the Exchange Act, including any amendment or report filed for the
  purpose of updating such description.
  
       All documents subsequently filed by the Registrant pursuant to Sections
  13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a
  post-effective amendment which indicates that all shares offered hereby have
  been sold or which deregisters all shares then remaining unsold, shall be deemed
  to be incorporated in this Registration Statement by reference and to be a part
  hereof from the date of filing of such documents.
  
  Item 4. Description of Securities
          -------------------------
   
       Not applicable.
  
  Item 5. Interests of Named Experts and Counsel
          --------------------------------------
  
       Not  applicable.
  
  Item 6. Indemnification
          ---------------
  
                                       Page 2
  
  
  <PAGE>   3
  
  
  
       Article 6 of the Registrant's Restated Articles of Organization provides
  that no director of the Registrant shall be liable for any breach of fiduciary
  duty, except to the extent that (1) the Massachusetts Corporation Law prohibits
  the elimination or limitation of liability of directors for breach of fiduciary
  duty, or (2) the act or omission occurred prior to the effective date of the
  provision.
  
       Section 2 of Article V of the Registrant's Restated By-Laws provides that
  directors, officers, employees and other agents of the Registrant and any person
  who, at the request of the corporation, serves as a director, officer, employee
  or other agent of another organization in which the Registrant directly or
  indirectly owns shares or of which it is a creditor shall be indemnified by the
  Registrant against all cost, expense (including attorneys' fees), judgment,
  liability and/or amount paid in settlement reasonably incurred by or imposed
  upon him in connection with any action, suit or proceeding (including any
  proceeding before any administrative or legislative body or agency) to which he
  may be made a party or otherwise involved or with which he shall be threatened,
  by reason of his being, or related to his status as a director, officer,
  employee or other agent of the Registrant or of any other organization in which
  the Registrant directly or indirectly owns shares or of which the Registrant is
  a creditor, which other organization he serves or has served as director,
  officer, employee or other agent at the request of the Registrant (whether or
  not he continues to be an officer, director, employee or other agent of the
  corporation or such other organization at the time such action, suit or
  proceeding is brought or threatened), unless such indemnification is prohibited
  by the Business Corporation Law of the Commonwealth of Massachusetts.
  
       Chapter 156B of the General Laws of Massachusetts (the "Massachusets
  Business Corporation Law") prohibits the elimination or limitation of directors'
  liability for any of the following:
  
            (a) Breaches of the director's duty of loyalty to the Registrant or
            its stockholders;
  
            (b) Acts or omissions not in good faith or which involve intentional
            misconduct or a knowing violation of law;
  
            (c) Acts covered by Sections 61 or 62 of the Massachusetts Business
            Corporation Law (which relate generally to the liability of directors
            for authorizing distributions to stockholders at a time when the
            Registrant is insolvent or bankrupt and the liability of directors for
            approving loans to officers or directors of the Registrant which are
            not repaid and which were not approved or ratified by a majority of
            disinterested directors or stockholders); and
  
            (d) Transactions from which the director derived an im proper personal
            benefit.
  
       The Massachusetts Business Corporation Law authorizes Massachusetts
  corporations to indemnify directors and officers for actions taken in good faith
  and in a manner such person reasonably believed to be in the best interests of
  the corporation.
  
       The right of indemnification is in addition to any rights to which any such
  person may otherwise be entitled and inures to the benefit of the executors or
  administrators of each such person. The Registrant may pay the expenses incurred
  by any such person in defending a civil or criminal action, suit or proceeding
  in advance of the final disposition
  
                                       Page 3
  
  
  <PAGE>   4
  
  
  
  of such action, suit, or proceeding, upon receipt of an undertaking by such
  person to repay such payment if it is determined that such person is not
  entitled to indemnification hereunder. This section is subject to amendment or
  repeal only by action of the stockholders.
  
       Insofar as indemnification for liabilities arising under the Securities Act
  may be permitted to directors, officers and controlling persons of the
  Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
  has been advised that in the opinion of the Securities and Exchange Commission
  such indemnification is against public policy as expressed in the Act and is,
  therefore, unenforceable. In the event that a claim for indemnification against
  such liabilities (other than the payment by the Registrant of expenses incurred
  or paid by a director, officer or controlling person of the Registrant in the
  successful defense of any action, suit or proceeding) is asserted by such
  director, officer or controlling person in connection with the securities being
  registered, the Registrant will, unless in the opinion of its counsel the matter
  has been settled by controlling precedent, submit to a court of appropriate
  jurisdiction the question whether such indemnification by it is against public
  policy as expressed in the Securities Act and will be governed by the final
  adjudication of such issue.
  
       The "Recommended Offers by Dundas and Wilson CS on behalf of Shiva
  Corporation" dated June 16, 1995 (the "Offer Document") provides that the
  Majority Stockholders (as defined therein) of Spider Systems Limited ("Spider")
  will indemnify the Registrant and its officers and directors with respect to the
  statements of the business and affairs of Spider as set forth in the Offer
  Document. Any indemnification pursuant to this section shall be limited to the
  shares of Common Stock held in escrow following the closing date of the
  Registrant's acquisition of Spider. In addition, each Majority Stockholder,
  severally and not jointly, has agreed to indemnify the Registrant and its
  officers and directors against and has agreed to hold the Registrant and its
  officers and directors harmless from any and all damage, loss, liability and
  expense (including, without limitation, reasonable expenses of investigation and
  reasonable attorneys' fees and expenses in connection with any action, suit or
  proceeding) ("Loss") incurred or suffered by the Registrant and its officers and
  directors arising out of any misrepresentation or breach of a warranty made by
  such Majority Stockholder pursuant to the Agreement and Undertaking dated as of
  June 13, 1995, provided that (i) a Majority Stockholder shall only be liable for
  any misrepresentations or breaches of warranties made by himself or itself and
  (ii) a Majority Stockholder's maximum liability shall not extend beyond the
  number of shares of the Registrant's Common Stock received by such Majority
  Stockholder in connection with the Spider acquisition (including shares of the
  Registrant's Common Stock held in escrow on his or its behalf.) The Registration
  Rights Agreement executed in connection with the Spider acquisition provides for
  indemnification by the Selling Stockholders of directors, officers and
  controlling persons of the Registrant against certain liabilities, including
  liabilities under the Act, under certain circumstances.
  
       The registration rights provisions of the Agreement and Plan of Merger
  dated as of June 16, 1996 between the Registrant, a wholly-owned subsidiary of
  the Registrant and AirSoft, Inc. (the "Merger Agreement") provides that the
  former stockholders of AirSoft, Inc. will indemnify the Stockholders of the
  Registrant and its directors and officers against certain liabilities, including
  liabilities under the Act, under certain circumstances.
  
                                       Page 4
  
  
  <PAGE>   5
  
  
  
       The Registrant maintains on behalf of its directors and officers insurance
  protection against certain liabilities arising out of the discharge of their
  duties. The Registrant also maintains insurance covering the Registrant against
  indemnification payments to its directors and officers for certain liabilities.
  However, to the extent such coverage is inadequate to cover claims against
  directors or officers, the Registrant may be required pursuant to the By-Laws to
  reimburse the directors or officers for the uninsured portion of such claims. In
  such an event, the Registrant's indemnification obligations to its directors and
  officers could have a material negative impact on the Registrant's financial
  condition and on stockholder equity.
  
  Item 7. Exemption from Registration Claimed
          -----------------------------------
  
       All of the shares of Common Stock of the Registrant covered by this
  Registration Statement are being offered for resale by stockholders of the
  Registrant. These shares were issued to said stockholders by the Registrant in
  reliance on [Section] 4(2) of the Securities Act relating to sales by an issuer
  not involving a public offering upon the exercise of stock options originally
  granted to the stockholders by AirSoft, Inc., which options were assumed by the
  Registrant in connection with the Registrant's acquisition of AirSoft, Inc. 
  
  Item 8. Exhibits
          --------
  
       The Exhibit Index immediately preceding the exhibits is attached hereto and
  incorporated herein by reference.
  
  Item 9. Undertakings
          ------------
    
       1.   The Registrant hereby undertakes:
  
            (a) To file, during any period in which offers or sales are being
  made, a post-effective amendment to this Registration Statement:
  
            (i) To include any prospectus required by Section 10(a)(3) of the
  Securities Act;
  
            (ii) To reflect in the prospectus any facts or events arising after
  the effective date of the Registration Statement (or the most recent
  post-effective amendment thereof) which, individually or in the aggregate,
  represent a fundamental change in the information set forth in the Registration
  Statement. Notwithstanding the foregoing, any increase or decrease in volume of
  securities offered (if the total dollar value of securities offered would not
  exceed that which was registered) and any deviation from the low or high end of
  the estimated maximum offering range may be reflected in the form of prospectus
  filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
  changes in volume and price represent no more than a 20% change in the maximum
  aggregate offering price set forth in the "Calculation of Registration Fee"
  table in the effective registration statement; and
  
            (iii) To include any material information with respect to the plan of
  distribution not previously disclosed in the Registration statement or any
  material change to such information in the Registration Statement;
  
            PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
  Registration Statement is on Form S-3 or Form S-8, and the
  
                                       Page 5
  
  
  <PAGE>   6
  
  
  
  information required to be included in a post-effective amendment by those
  paragraphs is contained in periodic reports filed by the Registrant pursuant to
  Section 13 or Section 15(d) of the Exchange Act that are incorporated by
  reference in the Registration Statement.
  
            (b) That, for the purpose of determining any liability under the
  Securities Act, each such post-effective amendment shall be deemed to be a new
  registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial bona
  fide offering thereof.
  
            (c) To remove from registration by means of a post-effective
  amendment, any of the securities being registered which remain unsold at the
  termination of the offering.
  
       2. The undersigned Registrant hereby undertakes that, for purposes of
  determining any liability under the Securities Act, each filing of the
  Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
  Exchange Act (and, where applicable, each filing of an employee benefit plan's
  annual report pursuant to Section 15(d) of the Exchange Act) that is
  incorporated by reference in the registration statement shall be deemed to be a
  new registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial bona
  fide offering thereof.
  
       3. Insofar as indemnification for liabilities arising under the Securities
  Act may be permitted to directors, officers, and controlling persons of the
  Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
  been advised that in the opinion of the Securities and Exchange Commission such
  indemnification is against public policy as expressed in the Securities Act and
  is, therefore, unenforceable. In the event that a claim for indemnification
  against such liabilities (other than the payment by the Registrant of expenses
  incurred or paid by a director, officer or controlling person of the Registrant
  in the successful defense of any action, suit or proceeding) is asserted by such
  director, officer or controlling person in connection with the securities being
  registered, the Registrant will, unless in the opinion of its counsel the matter
  has been settled by controlling precedent, submit to a court of appropriate
  jurisdiction on the question whether such indemnification by it is against
  public policy as expressed in the Act and will be governed by final adjudication
  of such issue.
  
                                       Page 6
  
  
  <PAGE>   7
  
  
  
                                     SIGNATURES
  
       Pursuant to the requirements of the Securities Act, the Registrant
  certifies that it has reasonable grounds to believe that it meets all of the
  requirements for filing on Form S-8 and has duly caused this Registration
  Statement to be signed on its behalf by the undersigned, thereunto duly
  authorized, in the Town of Bedford, Commonwealth of Massachusetts, on the 27th
  day of September, 1996.
  
                                                    SHIVA CORPORATION
  
                                                    By: /s/ Frank A. Ingari
                                                        -------------------   
                                                        Frank A. Ingari
                                                        President and Chief
                                                        Executive Officer
  
  
                                  POWER OF ATTORNEY
  
       We, the undersigned officers and directors of Shiva Corporation hereby
  severally constitute Frank A. Ingari, Cynthia Deysher and M. Elizabeth Potthoff,
  and each of them singly, our true and lawful attorneys with full power to them,
  and each of them singly, to sign for us and in our names in the capacities
  indicated below, the Registration Statement on Form S-8 filed herewith and any
  and all subsequent amendments to said Registration Statement, and generally to
  do all such things in our names and behalf in our capacities as officers and
  directors to enable Shiva Corporation to comply with all requirements of the
  Securities and Exchange Commission, hereby ratifying and confirming our
  signatures as they may be signed by said attorneys, or any of them, to said
  Registration Statement and any and all amendments thereto.
  
                                       Page 7
  
  
  <PAGE>   8
  
  
  
       Pursuant to the requirements of the Securities Act, this Registration
  Statement has been signed below by the following persons in the capacities and
  on the dates indicated.
  
  Signature                    Title                            Date
  - ---------                    -----                            ----
  
  /s/ Frank A. Ingari          President, Chief Executive       September 27, 1996
  - ------------------------     Officer and Chairman of the
  Frank A. Ingari              Board (Principal Executive
                               Officer)
  
  /s/ Cynthia Deysher          Senior Vice President,           September 27, 1996
  - ------------------------     Finance and Administration
  Cynthia Deysher              and Chief Financial Officer
                               (Principal Financial and
                               Accounting Officer)
  
  /s/ David C. Cole            Director                         September 27, 1996
  - ------------------------
  David C. Cole
  
  /s/ Henry F. McCance         Director                         September 27, 1996
  - ------------------------
  Henry F. McCance
  
                               Director                         
  - ------------------------
  L. John Doerr
  
  /s/ Paul C. O'Brien          Director                         September 27, 1996
  - ------------------------
  Paul C. O'Brien
  
  /s/ Mitchell E. Kertzman     Director                         September 27, 1996
  - ------------------------
  Mitchell E. Kertzman
  
                                       Page 8
  
  
  <PAGE>   9
  
  
  
                                    EXHIBIT INDEX
  
  Exhibit
  Number            Description
  - ------            -----------
  
  4.1  (1)          Restated Articles of Organization of the
                    Registrant, as amended.
  
  4.2  (2)          Restated By-Laws of the Registrant, as amended.
  
  5.1               Opinion of Hale and Dorr.
  
  10.1 (3)          Agreement and Plan of Merger dated as of
                    June 16, 1996 by and among Shiva Corporation,
                    a Massachusetts corporation, SV Acquisition
                    Corp., a Delaware corporation, and AirSoft,
                    Inc., a Delaware corporation.
  
  23.1              Consent of Price Waterhouse LLP.
  
  23.2              Consent of Deloitte & Touche LLP.
  
  23.3.             Consent of Coopers & Lybrand.
  
  23.4              Consent of Hale and Dorr (included in Exhibit 5.1)
  
  24.1              Power of Attorney (included on the signature page
                    of this Registration Statement)
  
  27.1              Financial Data Schedule for fiscal year 1994.
  
  27.2              Financial Data Schedule for fiscal year 1995.
  
  
  
  
  
  
  
  
  - -------------------------------
  (1)  Incorporated herein by reference from the Registrant's Registration
  Statement on Form S-1, filed October 24, 1994 (Registration No. 33-
  84884), as amended by Amendment No. 1, filed November 4, 1994; Amendment
  No. 2, filed November 8, 1994; and Amendment No. 3, filed November 16,
  1994.
  
  (2) Incorporated by reference from the Registrant's Form 10-K, filed October 24,
  1994.
  
  (3) Incorporated by reference from the Registrant's Form 8-K, filed June 27,
  1996, as amended by Amendment No. 1 on Form 8-K/A filed July 9, 1996.
  
                                       Page 9
  
  <PAGE>   10
  REOFFER PROSPECTUS
  - ------------------
  
  
                                SHIVA CORPORATION
                                        
                            -------------------------
                                        
                                   2,059 SHARES
                                        
                                   COMMON STOCK
                                        
                             $.01 PAR VALUE PER SHARE
                                        
                            -------------------------
  
          This Prospectus relates to the resale of 2,059 shares of Common Stock,
  $.01 par value per share (the "Shares"), of Shiva Corporation (the "Company" or
  "Shiva") by certain selling stockholders (the "Selling Stockholders") who
  acquired the Shares in a private placement made in connection with the exercise
  of stock options granted under the AirSoft, Inc. 1993 Stock Plan which
  options were assumed by the Company in connection with the acquisition by Shiva
  of AirSoft, Inc. The Shares may be sold from time to time by the Selling
  Stockholders in brokers' transactions, to market makers or in block placements,
  at market prices prevailing at the time of sale or at prices otherwise
  negotiated. See "Selling Stockholders" and "Plan of Distribution."
  
           The Company will not receive any of the proceeds from the sale of the
  Shares. The Company has agreed to bear certain expenses in connection with the
  registration of the Shares being offered and sold by the Selling Stockholders.
  
           The Company's Common Stock is quoted on the Nasdaq National Market
  under the symbol "SHVA". On September 24, 1996, the last reported sale price
  for the Common Stock was $59.25.
  
                               -----------------------
  
           THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
  "RISK FACTORS" BEGINNING ON PAGE 5.
  
                               -----------------------
  
      THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
         AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
           THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
               COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
                   PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
                               IS A CRIMINAL OFFENSE.
  
                               -----------------------
  
           The Selling Stockholders have advised the Company that they propose to
  offer, from time to time, all or part of the shares of Common Stock on the
  Nasdaq National Market in ordinary brokerage transactions, in negotiated
  transactions, or otherwise, at such prices and on such terms as may be
  obtainable and satisfactory to the Selling Stockholders. No underwriting
  discounts or commissions will be paid other than normal brokerage commissions
  and fees which will be payable by the Selling Stockholders. No sales or
  distributions other than as described herein will be effected until this
  Prospectus shall have been appropriately amended or supplemented. See
  "Plan of Distribution."
  
  
                 The date of this Prospectus is September 27, 1996.
  
  
  <PAGE>   11
  
  
                                AVAILABLE INFORMATION
  
           The Company is subject to the informational requirements of the
  Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
  accordance therewith, files reports, proxy statements and other information with
  the Securities and Exchange Commission (the "Commission"). Such reports, proxy
  statements and other information are available for inspection and copying at the
  public reference facilities maintained by the Commission at 450 Fifth Street,
  Room 1024, N.W., Washington, D.C. 20549, and at the following regional offices
  of the Commission: Seven World Trade Center, 13th Floor, New York, New York
  10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
  Illinois 60661. Copies of such material can also be obtained from the Public
  Reference Section of the Commission at 450 Fifth Street, Room 1024, N.W.,
  Washington, D.C. 20549 at prescribed rates. In addition, the Company is
  required to file electronic versions of these documents with the Commission
  through the Commission's Electronic Data Gathering, Analysis and Retrieval
  (EDGAR) system. The Commission maintains a World Wide Web site at
  http://www.sec.gov that contains reports, proxy and information statements and
  other information regarding registrants that file electronically with the
  Commission. The Common Stock of the Company is quoted on the Nasdaq National
  Market. Reports and other information filed by the Company can also be
  inspected at the offices of the National Association of Securities Dealers,
  Inc., Reports Section, 1735 K   Street, N.W., Washington, D.C. 20006.
  
           The Company has filed with the Commission a Registration Statement on
  Form S-8 (including all amendments thereto, the "Registration Statement") under
  the Securities Act of 1933, as amended (the "Securities Act"), with respect to
  the Common Stock offered hereby. This Prospectus does not contain all
  information set forth in the Registration Statement, certain parts of which are
  omitted in accordance with the rules and regulations of the Commission. For
  further information regarding the Company and the Common Stock offered hereby,
  reference is hereby made to the Registration Statement and to the exhibits and
  schedules filed therewith. Statements contained in this Prospectus regarding the
  contents of any agreement or other document filed as an exhibit to the
  Registration Statement are not necessarily complete, and in each instance
  reference is made to the copy of such agreement filed as an exhibit to the
  Registration Statement, each such statement being qualified in all respects by
  such reference. The Registration Statement, including the exhibits and schedules
  thereto, may be inspected at the public reference facilities maintained by the
  Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
  or any part thereof may be obtained from such office upon payment of the
  prescribed fees.
  
           The Company will provide without charge to each person to whom a
  Prospectus is delivered, on the written or oral request of any such person, a
  copy of any or all of the documents incorporated by reference herein (other than
  exhibits to such documents unless such exhibits are specifically incorporated by
  reference into such documents). Written requests for such copies should be
  directed to Shiva Corporation, Attention: M. Elizabeth Potthoff, 28 Crosby
  Drive, Bedford, Massachusetts 01730. Telephone requests may be directed to M.
  Elizabeth Potthoff at (617) 270-8300.
  
  
                  INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
  
           The following documents filed by the Company with the Commission
  pursuant to the Exchange Act are incorporated in this Prospectus by reference
  (File No. 0-24918):
  
            1.   The Company's Annual Report on Form 10-K for the fiscal year
                 ended December 30, 1995.
  
            2.   The Company's Quarterly Report on Form 10-Q for the fiscal
                 quarter ended March 30, 1996.
  
            3.   The Company's Quarterly Report on Form 10-Q for the fiscal
                 quarter ended June 29, 1996.
  
            4.   The Company's Current Report on Form 8-K dated as of June 28,
                 1996.
  
            5.   The Company's Current Report on Form 8-K/A (Amendment No. 1 to
                 Form 8-K dated as of June 28, 1996) dated as of July 8, 1996.
  
  
                                         -2-
  
  <PAGE>   12
  
  
  
            6.   The Company's Current Report on Form 8-K/A (Amendment No. 2 to
                 Form 8-K dated as of June 28, 1996) dated as of August 13, 1996.
  
            7.   The description of the Company's Common Stock, $.01 par value per
                 share, contained in the Registration Statement on Form 8-A filed
                 under the Exchange Act and declared effective on November 17,
                 1994, including any amendment or report filed for the purpose of
                 updating such description.
  
           All documents subsequently filed by the Company pursuant to Section
  13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
  offering of the Shares, shall be deemed to be incorporated by reference in this
  Prospectus and made a part hereof from the date of filing of such documents.
  
           Any statement contained in a document incorporated or deemed to be
  incorporated by reference in this Prospectus shall be deemed to be modified or
  superseded for purposes of this Prospectus to the extent that a statement
  contained herein or in any other subsequently filed document which also is or is
  deemed to be incorporated by reference herein or in any Prospectus Supplement
  modifies or supersedes such statement. Any such statement so modified or
  superseded shall not be deemed, except as so modified or superseded, to
  constitute a part of this Prospectus.
  
  
                                     TRADEMARKS
  
           SHIVA[Registered Trademark], SHIVA WITH DESIGN[Registered Trademark]
  (Shiva's logo), NETMODEM/E[Registered Trademark], NETMODEM[Registered   
  Trademark], NETBRIDGE[Registered Trademark], NETSERIAL[Registered Trademark],
  TELEBRIDGE[Registered Trademark], HUBLET[Registered Trademark],
  LANROVER[Registered Trademark], SPIDER[Registered Trademark],
  AIRSOFT[Registered Trademark] and ETHERGATE[Registered Trademark] are
  registered trademarks of Shiva and Shiva PPP[Trademark], ShivOS[Trademark],
  Tariff Management[Trademark], isdn[Trademark], ShivaPort[Trademark],
  ShivaIntegrator[Trademark], WebRover[Trademark], ShivaRemote[Trademark], Shiva
  Dial-In SDK[Trademark] LanRover Access Switch[Trademark], Shiva
  AccessPort[Trademark], ISSAK[Trademark], PowerBurst[Trademark],
  PowerSurf[Trademark], PowerNet[Trademark] and AirAccess[Trademark] are
  trademarks of Shiva. This Prospectus also includes other trade names and marks
  of companies other than Shiva.
  
                                         -3-
  
  <PAGE>   13
  
  
  
                                     THE COMPANY
  
           Shiva is a leader in the design, development, manufacture and sale of
  hardware and software products that enable transparent remote connectivity to
  enterprise networks from any location having access to switched analog or
  digital telephone service. Founded in 1985, Shiva has applied its expertise in
  internetworking, personal computer ("PC") software and telephony to pioneer the
  "remote node" approach to remote network access. Shiva's remote node solution
  enables a remote PC to access an existing network as a fully functional network
  node, thereby allowing users to access network resources from their remote PCs
  as if they were directly connected to the enterprise network. Shiva servers
  enable users to connect to computing resources from home, while traveling, or as
  part of a branch office or multi-user worksite.
  
           The Company has three remote access product lines: (i) the LanRover 
  family, introduced in 1992 (including the LanRover Access Switch, introduced 
  in 1996), which provides enterprise-wide remote access, (ii) the Integrator, 
  introduced in 1994, which provides ISDN (Integrated Services Digital Network) 
  LAN-to-LAN (local area network) remote access for enterprises, workgroups and 
  the small office, home office (SOHO) market and (iii) the NetModem/E, 
  introduced in 1991, which provides remote access for workgroups and the SOHO 
  market. These products include server hardware and software, client software 
  and network management software. Shiva remote access products enable single-
  user dial-in to LANs over analog or digital lines, individual dial-out from 
  LANs to other locations and routed LAN-to-LAN dial-up connections. The 
  Company's remote access products support all major desktop computing platforms,
  including IBM-compatible PCs, Apple Macintoshes and UNIX workstations. The 
  Company also has a family of communications server products, including 
  ShivaPort, which provides remote access for TCP/IP devices, as well as 
  multiprotocol terminal server functionality to connect terminals and printers 
  to a LAN.
  
           Shiva has developed strategic partnerships with computer operating
  systems vendors, such as Microsoft, major information systems providers, such as
  IBM, Motorola and Hewlett-Packard, and a major communications equipment company,
  Northern Telecom Limited. Shiva markets its products in domestic and
  international markets through both direct and indirect distribution channels to
  reach a wide range of customers.
  
           On August 22, 1995, the Company acquired Spider Systems Limited
  ("Spider"), a leading digital internetworking company based in Edinburgh, United
  Kingdom, in exchange for approximately 3,923,606 shares of Common Stock (the
  "Spider Acquisition"). The acquisition of Spider provides Shiva with a range of
  advanced network access products incorporating Wide Area Network (WAN)
  technologies such as ISDN, X.25 and Frame Relay, as well as network consulting
  services.
  
           On June 17, 1996, the Company acquired AirSoft, Inc. ("AirSoft"), a
  developer of performance enhancement software products and technologies for
  remote network computing based in California, in exchange for approximately
  691,587 shares of Common Stock (the "AirSoft Acquisition"). The AirSoft
  Acquisition enables Shiva to add AirSoft's technologies to its portfolio of
  remote access solutions and to complement the market strength of Shiva PPP,
  Shiva's OEM client software package that is included in both the Netscape
  Navigator Personal Edition and the Microsoft Internet Explorer. Spider and
  AirSoft are collectively referred to herein as the "Acquired Companies," and the
  Spider Acquisition and the AirSoft Acquisition are collectively referred to as
  the "Recent Acquisitions."
  
           The Company's principal offices are located at 28 Crosby Drive,
  Bedford, Massachusetts 01730, and the Company's telephone number is (617)
  270-8300.
  
                                         -4-
  
  <PAGE>   14
  
                       SELECTED CONSOLIDATED FINANCIAL DATA
  
          The following data as of December 30, 1995 and December 31, 1994 and
  for each of the three years in the period ended December 30, 1995 have been
  derived from, and are qualified by reference to, the Company's financial
  statements audited by Price Waterhouse LLP, independent accountants.  The
  consolidated balance sheet at December 30, 1995 and December 31, 1994 and the
  related consolidated statements of operations and of cash flows for the three
  years ended December 30, 1995 and notes thereto appear elsewhere herein.  The
  Price Waterhouse LLP report on the financial statements is based in part on the
  report of other independent accountants. These accountants' reports also
  appear elsewhere in this Prospectus. The following data as of January 2, 1993
  have been derived from, and are qualified by reference to, the Company's
  unaudited financial statements, not included in this Prospectus. The following 
  data as of December 31, 1991 and for the year then ended have been derived from,
  and are qualified by reference to, the Company's unaudited financial statements,
  not included in this Prospectus, and include all adjustments, consisting only 
  of normal recurring adjustments, which management considers necessary for a fair
  presentation of the results of such periods.  The following data as of June
  29, 1996 and for each of the six-month periods ended June 29, 1996 and July 1,
  1995 have been derived from, and are qualified by reference to, the Company's
  unaudited financial statements also appearing herein and which, in the opinion
  of management, include all adjustments, consisting only of normal recurring
  adjustments, necessary for a fair statement of the results for the unaudited 
  interim periods.  The selected consolidated financial data presented below 
  should be read in conjunction with and are qualified by reference to, 
  "Management's Discussion and Analysis of Financial Condition and Results of 
  Operations" and the Company's Consolidated Financial Statements and Notes 
  thereto, appearing elsewhere herein.
  
          The Spider Acquisition has been accounted for as a pooling of interest
  and therefore the financial data of the Company below are presented as if the
  Companies had been combined for all periods presented. Spider's results of
  operations for the years ended March 31, 1992 through 1994 have been combined
  with Shiva's results of operations for fiscal 1991 through 1994, respectively.
  Spider's financial position as of March 31, 1992 through 1995 has been combined
  with Shiva's financial position as of fiscal 1991 through 1994, respectively.
   
          The Airsoft Acquisition has been accounted for as a pooling of interests
  and therefore the financial data of the Company below are presented as if the
  companies had been combined for all periods presented.  Airsoft was
  incorporated and commenced operations on January 5, 1993.  Airsoft's results
  of operations for the years ended December 31, 1993 through 1995 have been
  combined with Shiva's results of operations for fiscal years 1993 through 1995,
  respectively.  Airsoft's financial position as of December 31, 1993 through
  1995 has been combined with the Company's financial position as of fiscal 1993
  through 1995, respectively.  The interim periods presented are for the six-month
  periods ended June 29, 1996 and July 1, 1995 for both Shiva and Airsoft.
  
  <TABLE>
  
  <CAPTION>
                                                                                                                    Six Months Ended
                                                                    FISCAL YEARS                                   -------------------
                                  ----------------------------------------------------------------------------     June 29,    July 1,
                                     1995              1994            1993            1992           1991           1996      1995
                                                      (In thousands, except per share data)                        -------------------
  <S>                             <C>                <C>              <C>            <C>             <C>           <C>         <C>
  STATEMENT OF OPERATIONS DATA
  Revenues                        $118,581           $81,058          $61,262        $52,815         $54,199       $94,794     $52,113
  Merger expenses                   13,986                 -               -             -               -           1,987         -
  Operating income (loss) before 
    merger expenses                  9,946             3,859            1,764         (2,790)         (2,888)       13,850       3,468
  Net income (loss)                 (4,852)*           2,040              416         (4,063)         (3,216)        9,314       2,355
  Net income (loss) per share        (0.18)             0.09             0.02          (0.32)          (0.26)          .30         .09
  Weighted average common and     
    common equivalent shares      
    outstanding                     27,337            22,945           16,832        12,828          12,586        31,296      27,045
                                  
  <CAPTION>                           
                                 December 30,      December 31,      January 1,     January 2,     December 31,    June 29,
                                    1995              1994             1994           1993            1991           1996
                                    ----              ----             ----           ----            ----           ----
  <S>                             <C>               <C>              <C>            <C>              <C>           <C>
  BALANCE SHEET DATA              
  Working capital                 109,376            38,307            1,252            738           4,668        $117,882
  Total assets                    150,123            72,559           29,514         23,275          32,228         176,238
  Long-term obligations             1,088             5,085            3,418          4,267           5,865             863
  Stockholders' equity            122,904            44,113            6,072          4,195           8,142         141,182
                                  
  <FN>
  
  * In the absence of merger expenses incurred in FY95, net income and net income per share would have been $8.5 million 
    and $0.31, respectively. In the absence of merger expenses incurred in the six months ended June 29, 1996, net income and net 
    income per share would have been $11.3 million and $0.36, respectively.
  
  </TABLE>
  
          Spider's unaudited results of operations for the three-month period
  ended March 31, 1995, which are included in both the results of operations in
  fiscal 1994 and the nine-month period ended September 30, 1995, were as follows
  (in thousands):
  
          Revenues .........................................  $12,592
          Income from operations ...........................    1,350
          Net Income .......................................  $   899
  
                                        -5-
  
  <PAGE>   15
  
  <TABLE>
  
  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  - -------------------------------------------
  <CAPTION>
  
                                             First         Second          Third       Fourth
  (In thousands, except per share data)     Quarter        Quarter        Quarter      Quarter
                                            -------        -------        -------      -------
  <S>                                       <C>            <C>           <C>           <C>
  FISCAL 1995
  
  Revenues                                  $25,737        $26,377       $ 30,033      $36,434
  Gross profit                               14,659         15,197         17,663       21,875
  Merger expenses                                 -              -         13,986            -
  Net income                                  1,382            973        (11,552)       4,346
  Net income (loss) per share               $  0.05        $  0.04       $  (0.42)     $  0.15
  
  Common Stock Prices -----  High           $ 21.00        $ 22.25       $  31.63      $ 38.75
                             Low            $ 13.50        $ 14.13       $  19.38      $ 21.13
  
  
  <CAPTION>
  
                                             First         Second          Third       Fourth
                                            Quarter        Quarter        Quarter      Quarter
                                            -------        -------        -------      -------
  <S>                                       <C>            <C>            <C>          <C>
  FISCAL 1994 (1)
  
  Revenues                                  $19,677        $17,956        $19,875      $21,412
  Gross profit                               10,693         10,349         11,606       12,566
  Net income                                    682            (31)           365          867
  Net income per share                      $  0.03        $  0.00        $  0.02      $  0.03
  
  Common Stock Prices -----  High              -              -              -         $ 21.50
                             Low               -              -              -         $ 13.25
  
  <FN>
  
  (1) Fiscal 1994 quarterly results include comparable periods for the Company and
  Spider and therefore differ from the audited consolidated statement of
  operations in that the audited consolidated statement of operations combine
  Spider's results of operations for the year ended March 31, 1995 with the
  Company's results of operations for the year ended December 31, 1994.
  
  
  </TABLE>
  
                                        -6-
  
  <PAGE>   16
  
  
                                    RISK FACTORS
  
           An investment in the shares of Common Stock offered hereby involves a
  high degree of risk. Prospective investors should carefully consider the
  following risk factors, in addition to the other information contained in this
  Prospectus and the documents incorporated by reference herein, before
  purchasing the shares of Common Stock being offered hereby. This Prospectus and
  the documents incorporated by reference herein contain forward-looking
  statements that involve risks and uncertainties. For this purpose, any
  statements that are not statements of historical fact may be deemed to be
  forward-looking statements. Without limiting the foregoing, the words
  "believes," "anticipates," "plans," "expects" and similar expressions are
  intended to identify forward-looking statements. The Company's actual results
  may differ materially from the results discussed in the forward-looking
  statements as a result of certain factors, including those set forth in the
  following risk factors and elsewhere in this Prospectus.
  
  UNCERTAINTIES RELATING TO THE RECENT ACQUISITIONS
  
  RISKS ASSOCIATED WITH THE INTEGRATION OF THE ACQUIRED COMPANIES
  
           The successful and timely integration of Shiva and the Acquired
  Companies is critical to the future financial performance of the combined
  company. The combination of these companies will require, among other things,
  continuing integration of the companies' respective product offerings and
  coordination of their sales and marketing and research and development efforts.
  The diversion of the attention of management created by the integration process,
  and any difficulties encountered in the transition process, could have an
  adverse impact on the revenues and operating results of the combined company. In
  addition, the process of combining these organizations could cause the
  interruption of, or a loss of momentum in, the activities of any or all of the
  companies' businesses, which could have an adverse effect on their combined
  operations. The difficulty of combining the three companies may be increased by
  the need to integrate personnel and the geographic distance between the three
  companies. Changes brought about by the Recent Acquisitions may cause key
  employees to leave. There can be no assurance that the combined company will
  retain the employees it wants to retain or that the combined company will
  realize any of the other anticipated benefits of the Recent Acquisitions.
  
  RESELLERS, DISTRIBUTORS AND CUSTOMERS
  
           There can be no assurance that resellers, distributors and present and
  potential customers of Shiva will continue their recent buying patterns without
  regard to the Recent Acquisitions, and any significant delay or reduction in
  orders could have an adverse effect on the Company's near-term business and
  results of operations.
  
  TRANSACTION CHARGES
  
           In connection with the Spider Acquisition, Shiva recorded charges to
  operations of approximately $14.0 million in the quarter ended September 30,
  1995, the quarter in which the acquisition was consummated. These charges
  reflect costs associated with combining the operations of the two companies and
  transaction fees and costs incident to the Spider Acquisition. There can be no
  assurance that Shiva will not incur additional material charges in subsequent
  quarters to reflect costs associated with the Spider Acquisition.
  
           In connection with the AirSoft Acquisition, Shiva recorded charges to
  earnings of approximately $2.0 million in the quarter ended June 29, 1996, the
  quarter in which the acquisition was consummated. These charges reflect costs
  associated with combining the operations of the two companies and transaction
  fees and costs incident to the AirSoft Acquisition. There can be no assurance
  that Shiva will not incur additional material charges in subsequent quarters to
  reflect costs associated with the AirSoft Acquisition.
  
  ADVERSE EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS;
  SEASONALITY OF RESULTS OF OPERATIONS
  
           Shiva's quarterly operating results may vary significantly depending on
  factors such as the timing of significant orders, the timing of new product
  introductions by Shiva and its competitors and the mix of distribution channels
  through which Shiva's products are sold. Spider's quarterly operating results
  have historically been highly seasonal, with sales and earnings generally
  stronger in the six-month period ended March 31 of each year and generally
  weaker in the six-month period ended September 30 of each year. There can be no
  assurance that Shiva will be able to continue its growth in revenues or sustain
  its profitability on a quarterly or annual basis. Revenues can be difficult to
  forecast due to the early stage of development of the remote access market and
  the fact that the Company's sales cycle, from initial inquiry to trial to
  multiple product purchases, varies substantially from customer to customer.
  Shiva's expense levels are based, in part, on its expectations as to future
  revenues. If revenue levels are below expectations, operating results may be
  adversely affected. Moreover,
  
  
                                         -7-
  
  <PAGE>   17
  
  
  
  Shiva's resellers typically stock significant levels of inventory, and the
  Company's revenues may fluctuate based on the level of the resellers'
  inventories in any particular quarter.
  
  NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
  
           The market for Shiva's products is characterized by rapidly changing
  technology, evolving industry standards and frequent new product introductions.
  Shiva's future success will depend on its ability to enhance its existing
  products and to introduce new products and features to meet and adapt to
  changing customer requirements and emerging technologies. The Company recently
  introduced the LanRover Access Switch, a new high-end remote access switch, and
  AccessPort, a new ISDN client router, each in 1996, and any delay by the 
  Company in completing the development of these products, or the failure of 
  these products to achieve market acceptance, could have a material adverse 
  effect on the Company's financial condition or results of operations. In 
  addition, there can be no assurance that Shiva will be successful in 
  identifying, developing, manufacturing or marketing other new products or 
  enhancing its existing products. Also, there can be no assurance that services,
  products or technologies developed by others will not render Shiva's products 
  or technologies uncompetitive or obsolete.
  
  HIGHLY COMPETITIVE ENVIRONMENT
  
           The market for remote access products is highly competitive. Shiva
  competes with traditional vendors of modems, remote control software, terminal
  emulation software and application specific remote access solutions. Shiva also
  competes with suppliers of terminal servers, routers, hubs and other data
  communications products, and companies offering remote access solutions based on
  emerging technologies such as switched digital telephone services. In addition,
  Shiva may encounter increased competition from operating system and network
  operating system vendors to the extent such vendors include full remote access
  capabilities in their products. The Company currently licenses a version of its
  client software that can also operate with non-Shiva servers, and there can be
  no assurance that the licensing of such software will not enable other vendors
  to develop competitive remote access solutions. The Company may also encounter
  competition from telephone service providers (such as AT&T or the regional Bell
  operating companies) that may offer remote access services through their
  telephone networks.
  
           The typical method of corporate remote access using Shiva's products
  involves a remote user establishing a connection directly to a remote access
  server located on the corporation's network. This method of remote access could
  migrate to one in which the remote user establishes a connection to a public
  network, such as the Internet, to which the corporate network is also connected.
  Increased competition from remote access service offerings through public
  networks could have a material adverse effect on the Company's business.
  
           The Spider Acquisition has added products to Shiva's portfolio that
  compete more directly with those offered by large internetworking and
  communications server companies than did Shiva's products prior to the Spider
  Acquisition. As a result, the Company is in more direct competition across a
  broader product line with these companies, many of whom have substantially
  greater resources than Shiva.
  
           Increased competition could result in price reductions and loss of
  market share which would adversely affect Shiva's revenues and profitability.
  Many of Shiva's current and potential competitors have greater financial,
  marketing, technical and other resources than Shiva. There can be no assurance
  that Shiva will be able to continue to compete successfully with its existing
  competitors or will be able to compete successfully with new competitors.
  
  RISKS ASSOCIATED WITH INTERNATIONAL REVENUES, REGULATORY STANDARDS AND
  FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
  
           The Company's international revenues accounted for approximately 39%,
  47%, 52%, 55% and 57% of total revenues in the first six months of fiscal 1996
  and in fiscal 1995, 1994, 1993 and 1992, respectively. In addition to direct
  international sales, Shiva also sells products to U.S. original equipment
  manufacturers, such as IBM, that sell such products internationally. While many
  of Shiva's current products are designed to meet the regulatory standards of
  foreign markets, any inability to obtain foreign regulatory approvals with
  respect to future
  
                                         -8-
  
  <PAGE>   18
  
  
  
  products on a timely basis could have an adverse effect on operating results. In
  addition, Shiva is subject to the usual risks of doing business abroad,
  including fluctuations in currency exchange rates, increases in duty rates,
  difficulties in obtaining export licenses, difficulties in enforcement of
  intellectual property rights and political uncertainties. To the extent that the
  Company makes sales denominated in currencies other than U.S. dollars, gains and
  losses on the conversion of such sales to U.S. dollars may in the future
  contribute to fluctuations in the Company's business and operating results. In
  addition, fluctuations in exchange rates could affect demand for the Company's
  products.
  
  POTENTIAL VOLATILITY OF STOCK PRICE
  
           The Company's shares of Common Stock have been listed on the Nasdaq
  National Market since November 1994. The market price of the Common Stock has
  experienced significant variations during this period, ranging from a high of
  $87.25 to a low of $13.25, and there can be no assurance that the market price
  of the Common Stock will not experience similar fluctuations in the future or
  will not fall below such levels. The market price of the Company's Common Stock
  could be subject to wide fluctuations in response to quarter-to-quarter
  variations in operating results, changes in earnings estimates by analysts and
  market conditions in the industry, as well as general economic conditions. In
  addition, the stock market has experienced volatility that has particularly
  affected the market prices for many companies' stock and that often has been
  unrelated to the operating performance of such companies. These market
  fluctuations may adversely affect the market price of the Company's Common
  Stock.
  
  RELIANCE ON REMOTE ACCESS MARKET; EARLY STAGE OF MARKET; CLIENT SOFTWARE 
  LICENSING STRATEGY
  
           Shiva currently devotes a significant portion of its research and
  development, manufacturing, marketing and sales resources to service the private
  and public remote access market and expects to continue to do so. Although Shiva
  believes that its concentrated focus provides it with competitive advantages in
  the remote access market, this focus also may leave the Company more vulnerable
  to a decline in the remote access market than companies with more diverse
  product offerings. Moreover, the Company's future financial performance will
  depend in large part on continued growth in the remote access market, which in
  turn will depend in part on the growth in the number of organizations utilizing
  remote access products and the number of applications developed for use with
  those products. There can be no assurance that these markets will continue to
  grow or that the Company will be able to respond effectively to the evolving
  requirements of these markets. Moreover, many of the Company's customers have
  not yet standardized upon any particular remote access solution, and there can
  be no assurance that Shiva's products will be the standard adopted by its
  customers.
  
           The Company grants unlimited use licenses of its client software, which
  operates solely with Shiva servers, as part of each sale of a remote access
  server. The Company has implemented a strategy of licensing a version of its
  client software that can also operate with non-Shiva servers to third-party
  vendors who desire to provide remote access functionality in their own product
  offerings. There can be no assurance that the Company will achieve significant
  revenues from the licensing of its client software.
  
  POTENTIAL ADVERSE IMPACT OF PRODUCT RETURNS AND PRICE REDUCTIONS
  
           Shiva provides most of its distributors and resellers with product
  return rights for stock balancing or product evaluation. Shiva also provides
  most of its distributors and resellers with price protection rights. Stock
  balancing rights permit distributors to return products to Shiva for credit
  against future product purchases, within specified limits. Product evaluation
  rights permit end-users to return products to Shiva, through the distributor or
  reseller from whom such products were purchased, within 30 days of purchase if
  such end-user is not fully satisfied. Price protection rights require that Shiva
  grant retroactive price adjustments for inventories of Shiva products held by
  distributors or resellers if Shiva lowers its prices for such products. Revenues
  were reduced by provisions for product returns of $3,978,000, $7,410,000,
  $7,092,000 and $4,938,000 in the first six months of fiscal 1996 and in
  fiscal 1995, 1994 and 1993, respectively. Reserves for product returns were
  $4,983,000, $4,581,000, $3,309,000 and $2,054,000 at June 29, 1996,
  December 30, 1995, December 31, 1994 and January 1, 1994, respectively.
  Although Shiva believes that it has adequate reserves to cover product returns 
  and price reductions, there can be
  
                                         -9-
  
  <PAGE>   19
  
  
  
  no assurance that the Company will not experience significant returns or price
  protection adjustments in the future or that such reserves will be adequate to
  cover such returns and price reductions.
  
  DEPENDENCE ON SUBCONTRACTORS AND SUPPLIERS
  
           Shiva is dependent on two subcontractors for the manufacture of
  significant portions of its remote access products. If these subcontractors were
  to become unable or unwilling to continue to manufacture Shiva's key products in
  required volumes, the Company would have to identify and qualify acceptable
  additional subcontractors. This qualification process could be lengthy and no
  assurances can be given that any additional sources will become available to the
  Company on a timely basis. In addition, the chipsets used in certain of Shiva's
  Token Ring connectivity products and modem products are currently available only
  from IBM and Rockwell, respectively. To date, Shiva has not experienced
  significant delays in the receipt of key components. Certain of the components
  of the Integrator product line are currently available only from Intel, Motorola
  and Matra Harris. The inability to obtain sufficient key components as required,
  or to develop alternative sources if and as required in the future, could result
  in delays or reductions in product shipments which, in turn, could have a
  material adverse effect on Shiva's results of operations.
  
  POTENTIAL ADVERSE EFFECT OF ANY INABILITY TO MANAGE GROWTH
  
           Shiva is currently experiencing a period of rapid growth which has
  placed, and could continue to place, a significant strain on its resources. This
  strain has been increased by the Recent Acquisitions. If Shiva's management is
  unable to manage any future growth effectively, Shiva's results of operations
  could be adversely affected.
  
  DEPENDENCE ON HIGHLY-SKILLED PERSONNEL
  
           Shiva believes that its future success will also depend in large part
  upon its ability to attract and retain highly skilled technical, managerial and
  marketing personnel including, in particular, additional management personnel in
  the areas of research and development and technical support. Competition for
  such personnel is intense. There can be no assurance that Shiva will be
  successful in attracting and retaining the personnel it requires to continue to
  grow.
  
  DEPENDENCE ON PROPRIETARY TECHNOLOGY
  
           Although Shiva believes that its continued success will depend
  primarily on continuing innovation, sales, marketing and technical expertise,
  the quality of product support and customer relations, Shiva must also protect
  the proprietary technology contained in its products. Shiva does not currently
  hold any patents, relying instead on a combination of copyright, trademark,
  trade secret laws and contractual provisions to establish and protect
  proprietary rights in its products. There can be no assurance that the steps
  taken by Shiva in this regard will be adequate to deter misappropriation or
  independent third-party development of its technology. Although Shiva believes
  that its products and technology do not infringe proprietary rights of others,
  there can be no assurance that third parties will not assert infringement claims
  or that Shiva will not be required to obtain licenses of third-party
  technologies.
  
  ADVERSE EFFECT OF FLUCTUATIONS IN ECONOMIC AND MARKET CONDITIONS
  
           The demand for Shiva's products depends in large part upon the general
  demand for computer networks. General demand for computing related equipment
  fluctuates from time to time based on numerous factors, including capital
  spending levels and general economic conditions. The market for remote access
  products is relatively new, and therefore Shiva believes that current economic
  conditions have not had an adverse effect on its business. However, there can be
  no assurance that future declines of computer and related equipment sales, as a
  result of general economic conditions, or any other reason, would not have an
  adverse effect on the Company's results of operations.
  
  
  
                                       -10-
  
  <PAGE>   20
  SHARES ELIGIBLE FOR FUTURE SALE
  
           Sales of substantial numbers of shares of the Company's Common Stock in
  the public market could adversely affect the market price of the Common Stock.
  
  POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS; RIGHTS PLAN; POSSIBLE 
  ISSUANCE OF PREFERRED STOCK
  
           The Company's Restated Articles of Organization and Restated By-laws
  contain provisions that may make it more difficult for a third party to acquire,
  or discourage acquisition bids for, the Company. Moreover, the Company is
  subject to an anti-takeover provision of the Massachusetts General Laws which
  prohibits, subject to certain exceptions, a holder of 5% or more of the
  outstanding voting stock of the Company from engaging in certain activities with
  the Company, including a merger, stock or asset sale. These provisions could
  limit the price that certain investors might be willing to pay in the future for
  shares of the Company's Common Stock. In addition, the Company has adopted a
  Rights Plan pursuant to which the Company has distributed to its stockholders
  rights to purchase shares of junior participating preferred stock. Upon certain
  triggering events, such rights become exercisable to purchase the Company's
  Common Stock at a price substantially discounted from the then applicable market
  price of the Company's Common Stock. The Rights Plan could have the effect of
  discouraging a merger or tender offer involving the securities of the Company
  that is not approved by the Company's Board of Directors by increasing the cost
  of effecting any such transaction and, accordingly, could have an adverse impact
  on stockholders who might want to vote in favor of such merger or participate in
  such tender offer. Also, shares of the Company's Preferred Stock may be issued
  in the future without further stockholder approval and upon such terms and
  conditions, and having such rights, privileges and preferences, as the Board of
  Directors may determine. The rights of the holders of Common Stock will be
  subject to, and may be adversely affected by, the rights of any holders of
  Preferred Stock that may be issued in the future. The issuance of Preferred
  Stock, while providing desirable flexibility in connection with possible
  acquisitions and other corporate purposes, could have the effect of making it
  more difficult for a third party to acquire, or discouraging a third party from
  acquiring, a majority of the outstanding voting stock of the Company. The
  Company has no present plans to issue any shares of Preferred Stock, although
  shares of Preferred Stock are reserved for issuance under the Rights Plan.
  
  
                                   USE OF PROCEEDS
  
           The Company will not receive any of the proceeds from the sale of the
  Shares of Common Stock by the Selling Stockholders.
  
  
                                         -11-
  
  <PAGE>   21
  
                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
       The following discussion of the financial condition and results of
  operations of the Company should be read in conjunction with the Company's
  Consolidated Financial Statements and Notes thereto.
  
  OVERVIEW
  
       The Company was incorporated in 1985 and initially specialized in the
  development of networking products for AppleTalk LANs (local area networks). In
  late fiscal 1991, the Company began a transition toward the sale of remote
  access products with the introduction of NetModem/E, its first multiplatform,
  multiprotocol remote access product for workgroups. In fiscal 1992, the Company
  continued its strategic shift towards remote access products and introduced its
  LanRover product line, a multiport, enterprise-wide remote access solution. In
  fiscal 1993, the Company established an OEM relationship with IBM, resulting in
  the release of IBM's 8235 product, a LanRover server customized for IBM
  environments. In fiscal 1994, the Company introduced the LanRover/PLUS server
  and released LanRover 3.0 server, which provides multiprotocol capability. In
  fiscal 1995, the Company continued to focus on its core remote access products
  including a new software release for its LanRover and NetModem product lines,
  Release 3.5, and broadened its base of strategic partners by establishing
  relationships with Hewlett-Packard ("HP"), Motorola and Northern Telecom Limited
  ("Nortel").
  
       In August 1995, the Company acquired Spider Systems Limited ("Spider"), a
  leading digital internetworking company based in Edinburgh, U.K., through the
  issuance of approximately 3,923,606 shares of its common stock (the "Spider
  Acquisition"). The Spider Acquisition has been accounted for as a pooling of
  interests. Therefore, the consolidated financial statements for all periods
  presented have been restated to include the financial results of Spider.
  Spider's results of operations in the years ended March 31, 1995 and 1994 have
  been combined with Shiva's results of operations in fiscal 1994 and 1993,
  respectively. Spider's results of operations in the twelve-month period ended
  December 30, 1995 have been combined with Shiva's results of operations in
  fiscal 1995. Spider's unaudited results of operations in the three-month period
  ended March 31, 1995 have therefore been included in the Company's results of
  operations in fiscal 1994 and fiscal 1995. See Note 1 of Notes to Consolidated
  Financial Statements.
  
       As a result of the Spider Acquisition, Shiva acquired technologically
  advanced network access hardware and software products. These products connect
  remote LANs and individual users to a corporate network, facilitating network
  access using advanced switched digital communication protocols such as ISDN,
  X.25 and Frame Relay. These products include the ShivaIntegrator product line,
  communications servers and communications software. The ShivaIntegrator product
  line provides switched digital LAN-to-LAN remote access for enterprises and
  workgroups. Communications servers provide remote access for TCP/IP devices and
  multiprotocol terminal server functionality to connect terminals and printers to
  a LAN. In addition to these product offerings, Shiva now provides network
  integration services and also sells, installs and supports products manufactured
  by the Company and third parties.
  
       In June 1996, the Company issued approximately 691,587 shares of its common
  stock in exchange for all the outstanding shares of AirSoft, Inc. (the "AirSoft
  Acquisition"). AirSoft, Inc. ("AirSoft") designs, manufactures and sells
  performance enhancement software products. The AirSoft Acquisition has been
  accounted for as a pooling of interests, and therefore the consolidated
  financial
  
                                        -12-
  
  <PAGE>   22
  statements for all periods prior to the AirSoft Acquisition have been restated
  to include the accounts and operations of AirSoft with those of the Company.
  
       The Company derives its revenues from remote access products, other
  communications products and services. Remote access products include the
  LanRover, ShivaIntegrator and NetModem product lines. Other communications
  products include communications servers, third-party products (including those
  of 3Com), AppleTalk product, and communications software. The Company also 
  provides a wide range of service offerings which include network integration 
  and training and maintenance services.
  
                                        -13-
  <PAGE>   23
  <TABLE>
  
  RESULTS OF OPERATIONS
  
  The following table sets forth consolidated statement of operations data of the
  Company expressed as a percentage of revenues for the periods indicated: 
  
  <CAPTION>
  
                                                     Fiscal Years                Six Months Ended
                                               --------------------------       --------------------
                                                                                June 29,     July 1,
                                               1995       1994       1993        1996         1995
                                              ------     ------     ------      ------       ------
                                                                                     (unaudited)
  <S>                                          <C>        <C>        <C>         <C>          <C>
  Revenues                                     100        100        100         100          100
  Cost of revenues                              41         43         46          41           43
                                               ---        ---        ---         ---          ---
  Gross profit                                  59         57         54          59           57
                                               ---        ---        ---         ---          ---
  
  Operating expenses:
  
    Research and development                    12         12         13          11           12
    Selling, general and administrative         38         40         38          33           38
    Merger expenses                             12          -          -           2            -
                                               ---        ---        ---         ---          ---
             Total operating expenses           62         52         51          46           50
                                               ---        ---        ---         ---          ---
  Income (loss) from operations                 (3)         5          3          13            7
  Interest expense (income)                     (1)         1          2          (2)          (1)
                                               ---        ---        ---         ---          ---
  Income (loss) before income taxes             (2)         4          1          15            8
  Income tax provision                           2          1          1           5            3
                                               ---        ---        ---         ---          ---
  Net income (loss)                             (4)%        3%         0%         10%           5%
                                               ===        ===        ===         ===          ===
  </TABLE>
  
                                        -14-  
  
  
  
  
  <PAGE>   24
  SIX-MONTH PERIOD ENDED JUNE 29, 1996 COMPARED WITH THE SIX-MONTH PERIOD ENDED
  JULY 1, 1995.
  
  RESULTS OF OPERATIONS
  
       REVENUES. Revenues increased by 82%, to $94,794,000, for the six-month
  period ended June 29, 1996, from $52,113,000 in the comparable period in fiscal
  1995. This increase was principally due to higher revenues from the Company's
  remote access products. Remote access product revenues increased by 136%, to
  $79,016,000, in the six-month period ended June 29, 1996, from $33,497,000
  during the comparable period in fiscal 1995, principally due to higher revenues
  from the Company's LanRover product family, including the LanRover AccessSwitch.
  Sales to OEM customers accounted for 20% of revenues in the six months ended
  June 29, 1996 and were not significant in the comparable period in fiscal 1995.
  These increases were partially offset by a 24% decline in revenues from the
  Company's other communications products. The Company anticipates that revenues
  from other communications products will continue to decline and will account for
  a decreasing percentage of revenue in future periods. The Company provides its
  distributors and resellers with product return rights for stock balancing and
  product evaluation. Revenues were reduced by provisions for product returns of
  $3,978,000 and $4,077,000 in the six month periods ended June 29, 1996 and July
  1, 1995, respectively, representing 4% and 7% of gross revenues, respectively.
  International revenues increased to $37,247,000, or 39% of revenues, in the
  six-month period ended June 29, 1996, from $27,259,000, or 52% of revenues, in
  the comparable period in fiscal 1995.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in
  the six-month period ended June 29, 1996, compared to 57% for the comparable
  period in fiscal 1995. This increase was primarily attributable to increased
  revenues from the Company's LanRover product family, which carry higher gross
  margins than the Company's other products, partially offset by increased
  revenues from lower gross margin OEM remote access products.
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $10,656,000, or 11% of revenues, in the six-month period ended June 29, 1996,
  from $6,356,000, or 12% of revenues, during the comparable period in fiscal
  1995. The absolute increase in these expenses was primarily due to the hiring of
  additional research and development staff. Research and development expenses
  during the six-month period ended June 29, 1996 related primarily to continued
  enhancement and development of the Company's remote access products, including
  the LanRover Access Switch and the Shiva AccessPort, a new ISDN client router.
  Customer-funded development fees reimbursed to the Company, which are reflected
  as an offset to research and development expenses, were $851,000 in the
  six-month period ended June 29, 1996, compared to $515,000 for the comparable
  period in fiscal 1995. Capitalized software development costs were $593,000 in
  the six-month period ended June 29, 1996, compared to $264,000 in the comparable
  period in fiscal 1995.
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $31,506,000 for the six-month period ended June 29, 1996,
  from $20,032,000 for the comparable period in fiscal 1995. These expenses
  represented 33% and 38% of revenues in the six-month periods ended June 29, 1996
  and July 1, 1995, respectively. The absolute increase in expenses was primarily
  due to worldwide expansion of the Company's sales, marketing and administrative
  operations necessary to support the Company's growth. The Company plans to
  further invest in its distribution channels in order to continue its global
  market penetration.
  
       MERGER EXPENSES. In connection with the AirSoft Acquisition, the Company
  incurred charges to operations of $1,987,000 in the quarter ended June 29, 1996,
  the quarter in which the acquisition was consummated. Such charges include: (a)
  transaction costs to effect the acquisition, consisting of financial advisor
  fees of $1,350,000 plus $325,000 for legal, regulatory and accounting expenses
  and (b) employee severance payments and other miscellaneous expenses of
  $312,000. Approximately $778,000 of such expenses were paid in the quarter ended
  June 29, 1996, and the remaining $1,209,000 of these charges are expected to be
  cash outflows in the third quarter of fiscal 1996.
  
                                        -15-
  
  <PAGE>   25
  
       INTEREST INCOME AND EXPENSE. The Company had higher interest income during
  the six-month period ended June 29, 1996, due to higher investment balances
  related to funds generated by the Company's secondary public offering in
  November 1995. Interest expense decreased due to the Company's repayment of the
  outstanding debt of Spider Systems, Ltd. assumed as part of the Spider
  Acquisition, with the exception of the European Coal and Steel Community Fund
  loans, in the third quarter of fiscal 1995.
  
       INCOME TAX PROVISION. The Company's effective tax rate was 33% for the
  six-month period ended June 29, 1996, compared to 41% for the comparable period
  in fiscal 1995. The decrease in the effective tax rate for the six-month period
  ended June 29, 1996 was due to a reduction in the net deferred tax asset
  valuation allowance as a result of certain net operating losses that could now
  be realized, partially offset by non-deductible merger expenses.
  
  FISCAL 1995 COMPARED TO FISCAL 1994
  
       REVENUES. Revenues increased by 46%, to $118,581,000, in fiscal 1995 from
  $81,058,000 in fiscal 1994. This increase was principally due to higher revenues
  from the Company's remote access products. Remote access product revenues
  increased by 87%, to $83,924,000, in fiscal 1995 from $44,825,000 in fiscal
  1994, principally due to higher revenues from the Company's LanRover and
  ShivaIntegrator products. Sales of OEM products to IBM were 10% and 9% of
  revenues in fiscal 1995 and 1994, respectively. These increases were partially
  offset by a 13% decline in revenues from the Company's other communications
  products. The Company anticipates that revenues from other communications
  products will account for a decreasing percentage of revenues in future periods.
  The Company provides its distributors and resellers with product return rights
  for stock balancing and product evaluation. Revenues were reduced by provisions
  for product returns of $7,410,000 in fiscal 1995 and $7,092,000 in fiscal 1994,
  representing 6% and 8% of gross revenues in fiscal 1995 and 1994, respectively.
  International revenues increased to $55,197,000, or 47% of revenues, in fiscal
  1995 from $41,942,000, or 52% of revenues, in fiscal 1994.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in
  fiscal 1995, compared to 57% in fiscal 1994. This increase was primarily
  attributable to increased revenues from the Company's LanRover products, which
  carry higher gross margins than other communications products, partially offset
  by increased European sales of lower priced products through large volume
  distributors.
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $14,787,000, or 12% of revenues, in fiscal 1995 from $9,972,000, or 12% of
  revenues, in fiscal 1994. The absolute increase in these expenses was primarily
  due to the hiring of additional research and development staff. Research and
  development expenses during fiscal 1995 related primarily to continued
  enhancements of the Company's remote access products, including the
  ShivaIntegrator product line and a new software release for its LanRover and
  NetModem product lines. Customer-funded development fees reimbursed to the
  Company and government funded research and development grants, which are
  reflected as an offset to research and development expenses, were $955,000 in
  fiscal 1995, compared to $901,000 in fiscal 1994. Capitalized software
  development costs were $827,000 in fiscal 1995, compared with $293,000 in fiscal
  1994. The Company anticipates continued significant investment in research and
  development.
  
                                        -16-
  <PAGE>   26
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $44,662,000, or 38% of revenues, in fiscal 1995 from
  $32,427,000, or 40% of revenues, in fiscal 1994. The absolute increase in
  expenses was primarily due to expansion of the Company's worldwide sales and
  support operations, as the Company continued to build its distribution channels.
  The Company plans to further invest in its distribution channels in order to
  continue its global market penetration.
  
       MERGER EXPENSES. In connection with the Spider Acquisition, the Company
  incurred charges to operations of approximately $13,986,000 in the quarter ended
  September 30, 1995, the quarter in which the Spider Acquisition was consummated.
  Such charges include: (a) transaction costs to effect the acquisition,
  consisting of $2,619,000 for financial advisor fees plus $3,656,000 for legal,
  regulatory and accounting fees, printing expenses and other miscellaneous
  expenses; (b) employee severance payments of $1,482,000 and phantom stock
  compensation of $2,644,000 and (c) $3,585,000 for the integration of operational
  activities of the companies, including elimination of duplicative assets,
  employee relocation and travel, and the marketing costs related to the
  introduction of the combined entity. In fiscal 1995, approximately $10,220,000
  million of these expenses were funded from existing cash and short-term
  investment balances. Phantom stock compensation and the elimination of
  duplicative assets, totaling $3,766,000, were non-cash transactions in this
  period.
  
       INTEREST INCOME AND EXPENSE. The Company had higher interest income in
  fiscal 1995, due to investment balances related to funds generated by the
  Company's public stock offerings in November 1995 and November 1994. Interest
  expense consists primarily of interest incurred on the Company's mortgage on its
  European headquarters and capitalized lease obligations.
  
       INCOME TAX PROVISION. The Company had an income tax provision of $2,386,000
  in fiscal 1995, despite a pre-tax loss, primarily due to non-tax deductible
  merger costs incurred in connection with the Spider Acquisition. The Company's
  effective tax rate was 31% in fiscal 1994.
  
  FISCAL 1994 COMPARED TO FISCAL 1993
  
       REVENUES. Revenues increased by 32%, to $81,058,000, in fiscal 1994, from
  $61,262,000 in fiscal 1993. This increase was principally due to higher revenues
  from the Company's remote access products. Remote access product revenues
  increased by 119%, to $44,825,000, in fiscal 1994 from $20,510,000 in fiscal
  1993, principally due to higher unit sales and average selling prices of the
  Company's LanRover and ShivaIntegrator products. Sales of OEM products to IBM,
  which began in the second half of fiscal 1993, also contributed significantly to
  this increase. These increases in remote access product revenues were partially
  offset by a 21% decline in revenues from the Company's other communications
  products. The Company provides its distributors and resellers with product
  return rights for stock balancing and product evaluation. Revenues were reduced
  by provisions for product returns of $7,092,000, or 8% of gross revenues, in
  fiscal 1994 and $4,938,000, or 7% of gross revenues, in fiscal 1993.
  International revenues increased to $41,942,000, or 52% of revenues, in fiscal
  1994 from $33,974,000, or 55% of revenues, in fiscal 1993.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 57% in
  fiscal 1994, compared to 54% in fiscal 1993. This improvement was primarily
  attributable to increased revenues from LanRover products, which carry higher
  gross margins than the Company's other communications products, increased prices
  on certain products and cost reductions. This improvement was partially offset
  by increased revenues from lower gross margin OEM remote access products.
  
                                        -17-
  <PAGE>   27
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $9,972,000, or 12% of revenues, in fiscal 1994 from $8,162,000, or 13% of
  revenues, in fiscal 1993. Research and development expenses in fiscal 1994
  related primarily to continued enhancements of the Company's remote access
  products, including LanRover 3.0, released in June 1994, and LanRover/PLUS,
  released in March 1994 and continued enhancements of ShivaIntegrator products.
  Customer funded development fees reimbursed to the Company and government funded
  research and development grants, which are reflected as an offset to research
  and development expenses, were $901,000 in fiscal 1994, compared to $1,438,000
  in fiscal 1993.
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $32,427,000, or 40% of revenues, in fiscal 1994 from
  $23,367,000, or 38% of revenues, in fiscal 1993. The absolute increase in
  expenses was due primarily to expansion of the Company's worldwide sales
  operation, as the Company continued to build its distribution channels.
  
       INTEREST INCOME AND EXPENSE. The Company had interest income in fiscal 1994
  due to investment balances related to funds generated by the Company's initial
  public offering in November 1994. Interest expense consists primarily of
  interest incurred on the Company's mortgage on its European headquarters, its
  line of credit and capitalized lease obligations.
  
       INCOME TAX PROVISION (BENEFIT). The Company's effective tax rate was 31% in
  fiscal 1994 compared to 42% in fiscal 1993. The decrease in the effective tax
  rate was primarily due to a reduction in the net deferred tax asset valuation
  allowance and increased research and development credits.
  
  FOREIGN CURRENCY FLUCTUATIONS
  
  A substantial portion of the Company's international revenues is denominated in
  currencies other than the U.S. dollar and is consequently subject to foreign
  exchange fluctuations. The net income impact of such fluctuations, however, is
  offset to the extent expenses of the Company in international operations are
  incurred in the same currencies as its revenues. Foreign currency fluctuations
  did not have a significant impact on the comparison of the results of operations
  for the periods presented.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
       As of June 29, 1996, the Company had $95,233,000 of cash and cash
  equivalents and $4,992,000 of short-term investments. Working capital increased
  to $117,882,000 at June 29, 1996 from $109,376,000 at December 30, 1995.
  
       Net cash provided by operations totaled $5,616,000 for the six-month period
  ended June 29, 1996, compared with net cash provided by operations of $4,418,000
  during the comparable period in fiscal 1995. Net cash provided by operations
  during the six-month period ended June 29, 1996 consisted primarily of net
  income adjusted for non-cash expenses including depreciation and amortization,
  and increased current liabilities, partially offset by increased accounts
  receivable and inventories. The increase in accounts receivable was due to
  increased revenue levels. The increase in inventories is necessary to support
  the Company's revenue growth and the introduction of the LanRover Access Switch
  product.
  
                                        -18-
  <PAGE>   28
  
       Net cash used by investing activities totaled $4,435,000 for the six-month
  period ended June 29, 1996, compared to $12,875,000 during the comparable period
  in fiscal 1995. Investment activity in the six months ended June 29, 1996
  consisted primarily of purchases of property and equipment to support the
  Company's growth, partially offset by proceeds from short-term investments upon
  maturity. Investment activity for the comparable period in fiscal 1995 consisted
  primarily of purchases of short-term investments and property, plant and
  equipment.
  
       Net cash provided by financing activities, which consisted of proceeds from
  stock option exercises, partially offset by payments on long-term debt and
  capital lease obligations, totaled $899,000 for the six-month period ended June
  29, 1996. Net cash used by financing activities was $1,084,000 during the
  comparable period in fiscal 1995, and consisted primarily of payments on the
  Company's outstanding debt and capital lease obligations.
  
       The Company has a $5,000,000 unsecured revolving credit facility with a
  bank which expires in June 1997. Borrowings under the revolving credit facility
  bear interest at the bank's prime rate. The terms of the Credit Agreement
  require the Company to maintain a minimum level of profitability and specified
  financial ratios. The Company had no borrowings outstanding under this line at
  June 29, 1996. The Company also has a foreign credit facility of approximately
  $1,552,000, of which approximately $587,000 was available at June 29, 1996.
  Available borrowings under this facility are decreased by the value of the
  outstanding debt payable to the European Coal and Steel Community Fund and
  guarantees on certain foreign currency transactions. The terms of the foreign
  credit facility require the Company to maintain a minimum level of profitability
  and specified financial ratios. There were no borrowings outstanding under this
  foreign credit facility at June 29, 1996.
  
       The Company enters into forward exchange contracts to hedge against certain
  foreign currency transactions for periods consistent with the terms of the
  underlying transactions. The forward exchange contracts have maturities that do
  not exceed one year. At June 29, 1996, the total amount of forward exchange
  transactions covered by hedging contracts was $17,020,000.
  
       The Company believes that its existing cash and short-term investment
  balances, together with borrowings available under the Company's bank credit 
  facilities, are sufficient to meet the Company's cash requirements for the 
  foreseeable future.
  
  RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
  
       In October 1995, the Financial Accounting Standards Board issued Statement
  No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
  establishes a fair-value-based method of accounting for employee stock-based
  compensation plans. However, it allows companies to continue to apply the
  intrinsic value method based on APB No. 25, provided certain pro forma
  disclosures are made (including net income and earnings per share) as if the
  fair-value-based method had been applied. The Company will be required to
  implement SFAS 123 in fiscal 1996 and will adopt this standard through the pro
  forma disclosure method.
  
  FACTORS THAT MAY AFFECT FUTURE RESULTS
  
       From time to time, information provided by the Company or statements made
  by its employees may contain `forward-looking' information which involve risks
  and uncertainties. In particular, statements contained in the Management's
  Discussion and Analysis of Financial Condition and Results of Operations which
  are not historical facts (including, but not limited to, statements concerning
  anticipated operating expense levels and the availability of funds to meet cash
  requirements) may be `forward-looking' statements. The Company's actual future
  results may differ significantly from those stated in any forward-looking
  statements. Factors that may cause such differences are discussed more fully
  above under the caption "Risk Factors" and in the Company's Annual Report to
  Stockholders, Form 10-K and the Company's other Securities and Exchange
  Commission filings.
  
                                        -19-
  <PAGE>   29
  
  
  
                                SELLING STOCKHOLDERS
  
  
  <TABLE>
  
           The following table provides certain information with respect to the
  Shares held of record by each Selling Stockholder, certain of whom may be
  deemed to have been affiliates of AirSoft. The Shares may be offered from time
  to time by any of the Selling Stockholders. Because the Selling Stockholders
  may sell all or any part of their Shares pursuant to this Prospectus, no
  estimate can be given as to the number of Shares that will be held by each
  Selling Stockholder upon termination of this offering. See "Plan of
  Distribution."
  
  <CAPTION>
                                  Number of Shares of      Number of Shares of
                                     Common Stock            Common Stock   
                                     Owned Prior           which may be Sold 
  Name                            to this Offering (1)     in this Offering (1)
  - ----                            --------------------     --------------------
                                                  
                                          
  <S>                                     <C>                     <C>   
  Sunil Bopardikr                           772                     772
  Richard Maddox and Celia Maddox         1,287                   1,287
                                          -----                   -----
  TOTAL                                   2,059                   2,059
                                          =====                   =====
                                                  
                                                  
  <FN>                                            
  - ----------                                      
  
  (1)     The number of shares reflected in each of these columns does not take 
          account of any sales of shares by the individuals listed since 
          September 27, 1996.
  </TABLE>
  
  
  
  
                                        -20-
  
  <PAGE>   30
  
          On June 16, 1996, the Company entered into an Agreement and Plan of
  Merger by and among the Company, a wholly-owned subsidiary of the Company and
  AirSoft (the "Merger Agreement"), pursuant to which the Company acquired 
  AirSoft, a developer of performance enhancement software products and
  technologies for remote network computing based in California, through the
  issuance of approximately 691,587 shares of its Common Stock plus the assumption
  of stock options exercisable for approximately 119,076 shares of Common Stock.
  The AirSoft Acquisition was completed on June 17, 1996, and has been accounted
  for as a pooling of interests. Approximately 69,155 of the 691,587 shares of
  Common Stock issued in the AirSoft Acquisition were placed in escrow to satisfy
  any indemnification claims brought by Shiva based on a breach of any of the
  representations and warranties relating to the business of AirSoft.
  
          The AirSoft Acquisition is more fully described in the Company's Current
  Report on Form 8-K dated as of June 28, 1996, as amended by the Company's
  Current Reports on Form 8-K/A dated as of July 8, 1996 and August 13, 1996.
  
  
  
  
                                        -21-
  
  <PAGE>   31
                                PLAN OF DISTRIBUTION
  
          The Shares offered hereby are being sold by the Selling Stockholders for
  their own accounts. The Company will receive none of the proceeds from this
  offering.
  
          The Shares covered by this Prospectus may be sold by the Selling
  Stockholders or by pledgees, donees, transferees or other successors in
  interest. Such sales may be made at fixed prices that may be changed, at market
  prices prevailing at the time of sale, at prices related to such prevailing
  market prices, or at negotiated prices. The Shares may be sold by one or more of
  the following: (a) one or more block trades in which a broker or dealer so
  engaged will attempt to sell all or a portion of the Shares held by a Selling
  Stockholder as agent but may position and resell a portion of the block as
  principal to facilitate the transaction; (b) purchases by a broker or dealer as
  principal and resale by such broker or dealer for its account pursuant to this
  Prospectus; and (c) ordinary brokerage transactions and transactions in which
  the broker solicits purchasers. The Selling Stockholders may effect such
  transactions by selling shares to or through broker-dealers, and such
  broker-dealers will receive compensation in negotiated amounts in the form of
  discounts, concessions, commissions or fees from the Selling Stockholders and/or
  the purchasers of the shares for whom such broker-dealers may act as agent or to
  whom they sell as principal, or both (which compensation to a particular
  broker-dealer might be in excess of customary commissions). Such brokers or
  dealers or other participating brokers or dealers and the Selling Stockholders
  may be deemed to be "underwriters" within the meaning of the Securities Act, in
  connection with such sales, and any profits realized by the Selling Stockholders
  and compensation of such brokers or dealers may be deemed to be underwriting
  discounts and commissions.
  
          Any securities covered by this Prospectus that qualify for sale pursuant
  to Rule 144 under the Securities Act may be sold under Rule 144 rather than
  pursuant to this Prospectus.
  
          The Company will inform the Selling Stockholders that the
  antimanipulative rules under the Exchange Act (Rules 10b-6 and 10b-7) may
  apply to sales in the market and will furnish upon request the Selling 
  Stockholders with a copy of these Rules. The Company will also inform the 
  Selling Stockholders of the need for delivery of copies of this Prospectus.
  
  
  
                                        -22-
  <PAGE>   32
                                    LEGAL MATTERS
  
          The validity of the issuance of the securities offered hereby will be 
  passed upon for the Company by Hale and Dorr, 60 State Street, Boston,
  Massachusetts 02109. 
  
  
                                       EXPERTS
  
          The financial statements included in this Prospectus, except as they
  relate to Spider Systems Limited as of March 31, 1994 and for the year then
  ended, and the financial statements of Airsoft, Inc. as of December 31, 1995 and
  1994 and for each of the three years in the period ended December 31, 1995, have
  been audited by Price Waterhouse LLP, independent accountants, and, insofar as
  they relate to Spider System Limited as of March 31, 1994 and the year then
  ended, have been audited by Coopers & Lybrand, independent accountants, and,
  insofar as they relate to Airsoft, Inc. as of December 31, 1995 and 1994 and for
  each of the three years in the period ended December 31, 1995, have been audited
  by Deloitte & Touche, LLP, independent accountants, whose reports thereon appear
  herein. Such financial statements have been so included in reliance on the
  reports of such independent accountants given on the authority of said firms as
  experts in auditing and accounting.
  
          The financial statements of AirSoft, Inc. as of December 31, 1995 and
  1994, and the related statements of operations, stockholders' equity and cash
  flows for each of the three years in the period ended December 31, 1995
  incorporated in this Prospectus by reference from Amendment No. 2 to the
  Company's Current Report on Form 8-K/A dated August 13, 1996 have been audited
  by Deloitte & Touche LLP, independent auditors, as stated in their reports,
  which are included and incorporated herein by reference, and have been so 
  included and incorporated in reliance upon the reports of such firm given upon
  their authority as experts in accounting and auditing.
  
  
  
  
                                       -23-
  
  <PAGE>   33
                          INDEX TO FINANCIAL STATEMENTS
  
  
                                                                   Page
                                                                   ----
  
  Report of Price Waterhouse LLP .................................  F-2
                                                                 
  Report of Deloitte & Touche LLP ................................  F-3
                                                                 
  Report of Coopers & Lybrand ....................................  F-4
                                                                 
  Consolidated Balance Sheet .....................................  F-5
                                                                 
  Consolidated Statement of Operations ...........................  F-6
                                                                 
  Consolidated Statement of Changes in Stockholders' Equity ......  F-7
                                                             
  Consolidated Statement of Cash Flows ...........................  F-9
  
  Notes to Consolidated Financial Statements .....................  F-10
  
                                       F-1
  
  <PAGE>   34
                         REPORT OF INDEPENDENT ACCOUNTANTS
  
  To the Board of Directors and
  Stockholders of Shiva Corporation
  
  In our opinion, based upon our audits and the reports of other auditors, the
  accompanying consolidated balance sheet and related consolidated statements of  
  operations, of changes in stockholders' equity and of cash flows present
  fairly, in all material respects, the financial position of Shiva Corporation
  and its subsidiaries at December 30, 1995 and December 31, 1994, and the
  results of their operations and their cash flows for each of the three years in
  the period ended December 30, 1995, in conformity with generally accepted
  accounting principles. These financial statements are the responsibility of the
  Company's management; our responsibility is to express an opinion on these
  financial statements based on our audits. We did not audit the financial
  statements of Spider Systems Limited, a wholly-owned subsidiary, for fiscal 
  1994, which statements reflect total revenues of $31,735,000 for the year ended
  March 31, 1994 or the financial statements of Airsoft, Inc., a wholly-owned 
  subsidiary, which statements reflect total assets of $3,285,000 and $2,795,000
  at December 31, 1995 and 1994, respectively, and total revenues of $860,000, 
  $87,000 and $3,000 for the years ended December 31, 1995, 1994, and 1993, 
  respectively. Those statements were audited by other auditors whose reports 
  thereon have been furnished to us, and our opinion expressed herein, insofar 
  as it relates to the amounts included for Spider Systems Limited and Airsoft, 
  Inc. as of and for the periods described above, is based solely on the reports
  of the other auditors. We conducted our audits of these statements in accordance
  with generally accepted auditing standards which require that we plan and 
  perform the audit to obtain reasonable assurance about whether the financial 
  statements are free of material misstatement. An audit includes examining, on 
  a test basis, evidence supporting the amounts and disclosures in the financial 
  statements, assessing the accounting principles used and significant estimates
  made by management, and evaluating the overall financial statement presentation.
  We believe that our audits and the reports of other auditors provide a 
  reasonable basis for the opinion expressed above.
  
  Price Waterhouse LLP
  
  Boston, Massachusetts
  January 23, 1996,
  except as to Note 12 which is
  as of June 17, 1996
  
                                        F-2
  <PAGE>   35
                           INDEPENDENT AUDITORS' REPORT
  
  To the Board of Directors
  AirSoft, Inc.:
  
  We have audited the balance sheets of AirSoft, Inc. as of December 31, 1995 and
  1994, and the related statements of operations, stockholders' equity and cash
  flows for each of the three years in the period ended December 31, 1995.  These
  financial statements are the responsibility of the Company's management.  Our
  responsibility is to express an opinion on these financial statements based
  on our audits.
  
  We conducted our audits in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement.  An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements.  An audit
  also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statements presentation.  We believe that our audits provide a reasonable basis
  for our opinion.
  
  In our opinion, such financial statements present fairly, in all material
  respects, the financial position of AirSoft, Inc. as of December 31, 1995 and
  1994, and the results of its operations and its cash flows for each of the
  three years in the period ended December 31, 1995 in conformity with generally
  accepted accounting principles.
  
  DELOITTE & TOUCHE LLP
  
  March 28, 1996
  (June 16, 1996 as to Note 8)
  
  
  
                                       F-3
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  <PAGE>   36
  
                         REPORT OF INDEPENDENT ACCOUNTANTS
  
  To the Stockholders of Spider Systems Limited:
  
  We have audited the consolidated statements of income, stockholders' equity and
  cash flows for the year ended March 31, 1994 (not presented separately herein).
  These financial statements are the responsibility of the Company's management.
  Our responsiblity is to express an opinion on these financial statements based
  on our audit.
  
  We conducted our audit in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free
  from material misstatement.  An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements. 
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statement presentation.  We believe that our audit provides a reasonable basis
  for our opinion.
  
  In our opinion, the consolidated financial statments referred to above present
  fairly, in all material respects, the consolidated results of operations and
  cash flows of Spider Systems Limited for the year ended March 31, 1994 in
  conformity with generally accepted accounting principles.
  
  COOPERS & LYBRAND
  
  Edinburgh, United Kingdom
  Chartered Accountants and Registered Auditors
  June 12, 1995
  
                                       F-4
  
  <PAGE>   37
                                 SHIVA CORPORATION
  <TABLE>
                             CONSOLIDATED BALANCE SHEET
                      (IN THOUSANDS, EXCEPT SHARE RELATED DATA)
  <CAPTION>
  
                                                                           DECEMBER 30,     DECEMBER 31,       JUNE 29,
                                                                              1995              1994             1996
                                                                           ------------     ------------      ------------
                                                                                                               (unaudited)
  <S>                                                                        <C>               <C>              <C>     
                                                                                                                                    
  Assets                                                                                                       
  Current assets:                                                                                              
    Cash and cash equivalents                                                $ 93,203          $36,068          $ 95,233
    Short-term investments                                                      9,125                -             4,992
    Accounts receivable, net of allowances of $5,252 at                                                        
       December 30, 1995, $3,963 at December 31, 1994, and 
       $5,941 at June 29, 1996 (unaudited)                                     22,982           16,343            36,260
    Inventories                                                                 7,846            6,974            11,852
    Prepaid expenses and other current assets                                   2,351            2,283             3,738
                                                                             --------          -------          --------
       Total current assets                                                   135,507           61,668           152,075
  
  Property, plant and equipment, net                                           12,965           10,371            18,371
  Deferred income taxes                                                           548                -             4,219
  Other assets                                                                  1,103              520             1,573
                                                                             --------          -------          --------
       Total assets                                                          $150,123          $72,559          $176,238
                                                                             ========          =======          ========
                                                                                                               
  Liabilities and stockholders' equity 
  Current liabilities:                                                    
    Short-term debt                                                          $      -          $   683                 -
    Current portion of long-term debt and capital lease obligations               700            1,301               478
    Accounts payable                                                            9,032           10,384            13,453
    Accrued compensation and benefits                                           5,367            2,958             6,018
    Accrued expenses                                                            7,509            5,818            11,478
    Deferred revenue                                                            3,523            2,217             2,766
                                                                             --------          -------          --------
       Total current liabilities                                               26,131           23,361            34,193
  
  Long-term debt and capital lease obligations                                    452            4,037               235
  Other long-term liabilities                                                     401              440               393
  Deferred income taxes                                                           235              608               235
                                                                             --------          -------          --------
       Total liabilities                                                       27,219           28,446            35,056
                                                                             --------          -------          --------
                                                                                                               
  Commitments (Note 11)                                                                                        
                                                                                                               
  Stockholders' equity:                                                                                        
    Preferred stock, $.01 par value; 1,000,000 shares authorized                                                       
     at December 30, 1995, December 31, 1994 and June 29, 1996, none
     issued                                                                         -                 -                -         
    Common stock, $.01 par value; 50,000,000 and 25,000,000 shares                                                     
      authorized, 27,960,580 and 24,478,087 shares issued and outstanding                                      
      at December 30, 1995 and December 31, 1994, respectively; 
      100,000,000 shares authorized and 28,493,368 issued and outstanding
      at June 29, 1996 (unaudited)                                                280              245               285
    Additional paid-in capital                                                133,457           49,275           142,383
    Unrealized gain on investments                                                137                -               112
    Cumulative translation adjustment                                            (586)            (468)             (528)
    Unearned ESOP compensation                                                      -             (305)                -
    Accumulated deficit                                                       (10,384)          (4,634)           (1,070)
                                                                             --------          -------          --------
       Total stockholders' equity                                             122,904           44,113           141,182
                                                                             --------          -------          --------
       Total liabilities and stockholders' equity                            $150,123          $72,559          $176,238
                                                                             ========          =======          ========
                                                                                                          
  </TABLE>
                    The accompanying notes are an integral part
                     of the consolidated financial statements.
  
  
                                        F-5
  <PAGE>   38
  
                                  SHIVA CORPORATION
  <TABLE>
                        CONSOLIDATED STATEMENT OF OPERATIONS
                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
  <CAPTION>
  
                                                          YEAR ENDED                        SIX MONTHS ENDED
                                           ------------- -------------  ------------- ----------------------------
                                           DECEMBER 30,  DECEMBER 31,    JANUARY 1,     JUNE 29,         JULY 1,
                                                1995         1994          1994           1996            1995
                                           ------------- -------------  ------------- ------------- --------------
                                           (FISCAL 1995) (FISCAL 1994)  (FISCAL 1993)         (UNAUDITED)
  
  <S>                                         <C>            <C>           <C>           <C>           <C>    
  Revenues                                    $118,581       $81,058       $61,262       $94,794       $52,113
  Cost of revenues                              49,186        34,800        27,969        38,782        22,257
                                              --------       -------       -------       -------       -------
  Gross profit                                  69,395        46,258        33,293        56,012        29,856
                                              --------       -------       -------       -------       -------
  Operating expenses:                                                                               
     Research and development                   14,787         9,972         8,162        10,656         6,356
     Selling, general and administrative        44,662        32,427        23,367        31,506        20,032
     Merger expenses                            13,986             -             -         1,987             -
                                              --------       -------       -------       -------       -------
     Total operating expenses                   73,435        42,399        31,529        44,149        26,388
                                              --------       -------       -------       -------       -------
  Income (loss) from operations                 (4,040)        3,859         1,764        11,863         3,468
  
  Interest income                                2,279           224           -           2,331           980
  Interest expense                                (705)       (1,122)       (1,048)         (298)         (462)
                                              --------       -------       -------       -------       -------
  Income (loss) before income taxes             (2,466)        2,961           716        13,896         3,986
  Income tax provision                           2,386           921           300         4,582         1,631
                                              ========       =======       =======       =======       =======
  Net income (loss)                           $ (4,852)      $ 2,040       $   416       $ 9,314       $ 2,355
                                              ========       =======       =======       =======       =======
  Net income (loss) per share                 $  (0.18)      $  0.09       $  0.02       $  0.30       $  0.09
                                              ========       =======       =======       =======       =======
  Shares used in computing net income                                                               
     (loss) per share                           27,337        22,945        16,832        31,296        27,045
                                              ========       =======       =======       =======       =======
                                                                                                    
                                                                                                  
  
  </TABLE>
                                                                               
                    The accompanying notes are an integral part
                     of the consolidated financial statements.
  
                                        F-6
  <PAGE>   39
  
                                  SHIVA CORPORATION
  <TABLE>
  
                                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                            (IN THOUSANDS)
  <CAPTION>
  
                                                         CONVERTIBLE
                                                      PREFERRED STOCK          COMMON STOCK           
                                                   --------------------     ------------------  ADDITIONAL   UNREALIZED   CUMULATIVE
                                                      NUMBER                   NUMBER     PAR    PAID-IN      GAIN ON    TRANSLATION 
                                                    OF SHARES    AMOUNT      OF SHARES   VALUE   CAPITAL    INVESTMENTS  ADJUSTMENT  
                                                   ----------   -------     ----------   -----  ----------  -----------  ----------- 
  
  <S>                                              <C>          <C>         <C>           <C>    <C>            <C>         <C>     
  BALANCE AT JANUARY 2, 1993                        3,621,294   $ 5,185     10,695,762    $107   $  6,114       $  -        $(840)  
  Issuance of Class D convertible                                                                                        
     preferred stock, net of stock                                                                                       
     issuance costs of $11                          1,000,000       989              -       -          -          -            -   
  Common stock options granted                                                                                           
     in lieu of cash payment                                                                                             
     for services                                           -         -              -       -         25          -            -   
  Issuance of Common Stock                                  -         -        294,241       3        414          -            -   
  Exercise of stock options                                 -         -        278,262       3        251          -            -   
  Currency translation adjustments                          -         -              -       -          -          -          (57)  
  Net income                                                -         -              -       -          -          -            -   
  Dividends paid                                            -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT JANUARY 1, 1994                        4,621,294     6,174     11,268,265     113      6,804          -         (897)  
  Exercise of Class C convertible                                                                                        
     preferred stock warrants                         409,836     2,000              -       -          -          -            -   
  Issuance of common stock to officer                       -         -        177,778       2        998          -            -   
  Issuance of common stock                                  -         -        396,608       4      4,547          -            -   
  Initial public offering, net of stock                                                                                  
     issuance costs of $1,032                               -         -      4,130,266      41     27,737          -            -   
  Conversion of preferred stock                    (5,031,130)   (8,174)     7,719,536      77      8,097          -            -   
  Exercise of stock options                                 -         -        756,468       8        579          -            -   
  Exercise of common stock purchase  warrants               -         -         29,166       -         65          -            -   
  ESOP transactions, net                                    -         -              -       -          -          -            -   
  Tax benefit related to stock options                      -         -              -       -        448          -            -   
  Currency translation adjustments                          -         -              -       -          -          -          429   
  Net income                                                -         -              -       -          -          -            -   
  Dividends paid                                            -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT DECEMBER 31, 1994                              -         -     24,478,087     245     49,275          -         (468)  
  Exercise of stock options                                 -         -      1,100,059      11      1,697          -            -   
  Exercise of common stock purchase warrants                -         -         17,498       -         39          -            -   
  Issuance of common stock in settlement                                                                                 
     of dividend payable                                    -         -         20,014       -        406          -            -   
  Issuance of common stock in settlement of                                                                              
     phantom stock plan                                     -         -         31,462       1      2,283          -            -   
  Issuance of common stock under employee stock                                                                          
     purchase plan                                          -         -         21,582       -        314          -            -   
  Secondary public offering, net of stock                                                                                
     issuance costs of $583                                 -         -      2,291,878      23     76,115          -            -   
  Tax benefit related to stock options                      -         -              -       -      3,328          -            -   
  Unrealized gain on investments                            -         -              -       -          -        137            -   
  Currency translation adjustments                          -         -              -       -          -          -         (118)  
  Net loss                                                  -         -              -       -          -          -            -   
  Elimination of Spider net income for the                                                                               
     three-month period ended March 31, 1995                -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT DECEMBER 30, 1995                              -         -     27,960,580    $280   $133,457       $137        $(586)  
  Exercise of stock options                                 -         -        515,646       5        998          -            -   
  Issuance of common stock under employee                                                                                
     stock purchase plan                                    -         -         17,142       -        335          -            -   
  Tax benefit related to stock options                      -         -              -       -      7,593          -            -   
  Unrealized loss on investments                            -         -              -       -          -        (25)           -   
  Currency translation adjustment                           -         -              -       -          -          -           58   
  Net income                                                -         -              -       -          -          -            -   
                                                                                                                         
  BALANCE AT JUNE 29, 1996 (unaudited)                      -         -     28,493,368    $285   $142,383       $112        $(528)   
                                                   ==========   =======     ==========    ====   ========       ====        =====
  </TABLE>
  
  
  
                                       F-7
  <PAGE>   40
  
  <TABLE>
  <CAPTION>
                                                  UNEARNED                      TOTAL
                                                    ESOP        ACCUMULATED  STOCKHOLDERS'   
                                                COMPENSATION      DEFICIT      EQUITY      
                                                ------------    -----------   -------   
                                                                                                 
  <S>                                               <C>          <C>         <C>          
  BALANCE AT JANUARY 2, 1993                        $   -        $ (6,371)   $  4,195        
  Issuance of Class D convertible                                                                
     preferred stock, net of stock                                                               
     issuance costs of $11                              -               -         989      
  Common stock options granted                                                                   
     in lieu of cash payment                                                                     
     for services                                       -               -          25      
  Issuance of Common Stock                              -               -         417      
  Exercise of stock options                             -               -         254      
  Currency translation adjustments                      -               -         (57)       
  Net income                                            -             416         416      
  Dividends paid                                        -            (167)       (167)     
                                                    -----        --------    --------        
  BALANCE AT JANUARY 1, 1994                            -          (6,122)      6,072        
  Exercise of Class C convertible                                                                
     preferred stock warrants                           -               -       2,000      
  Issuance of common stock to officer                   -               -       1,000      
  Issuance of common stock                              -               -       4,551      
  Initial public offering, net of stock                                                          
     issuance costs of $1,032                           -               -      27,778      
  Conversion of preferred stock                         -               -           -        
  Exercise of stock options                             -               -         587      
  Exercise of common stock purchase  warrants           -               -          65      
  ESOP transactions, net                             (305)              -        (305)     
  Tax benefit related to stock options                  -               -         448      
  Currency translation adjustments                      -               -         429        
  Net income                                            -           2,040       2,040      
  Dividends paid                                        -            (552)       (552)     
                                                    -----        --------    --------        
  BALANCE AT DECEMBER 31, 1994                       (305)         (4,634)     44,113        
  Exercise of stock options                             -               -       1,708      
  Exercise of common stock purchase warrants            -               -          39      
  Issuance of common stock in settlement                                                         
     of dividend payable                                -               -         406      
  Issuance of common stock in settlement of                                                      
     phantom stock plan                               305               -       2,589      
  Issuance of common stock under employee stock                                 
     purchase plan                                      -               -         314      
  Secondary public offering, net of stock                                                        
     issuance costs of $583                             -               -      76,138      
  Tax benefit related to stock options                  -               -       3,328      
  Unrealized gain on investments                        -               -         137      
  Currency translation adjustments                      -               -        (118)       
  Net loss                                              -          (4,852)     (4,852)     
  Elimination of Spider net income for the                                                       
     three-month period ended March 31, 1995            -            (899)       (899)
                                                    -----        --------    --------          
  BALANCE AT DECEMBER 30, 1995                          -         (10,384)    122,904        
  Exercise of stock options                             -               -       1,003
  Issuance of common stock under                        -               -
     employee stock purchase plan                       -               -         335   
  Tax benefits related to stock options                 -               -       7,593   
  Unrealized loss on investments                        -               -         (25)    
  Currency translation adjustments                      -               -          58
  Net income                                            -           9,314       9,314
                                                    -----        --------    --------          
  BALANCE AT JUNE 29, 1996 (unaudited)              $   -        $ (1,070)   $141,182
                                                    =====        ========    ========    
  </TABLE>
                    The accompanying notes are an integral part
                     of the consolidated financial statements.
  
                                        F-8
  <PAGE>   41
  
                                  SHIVA CORPORATION
  <TABLE>
                        CONSOLIDATED STATEMENT OF CASH FLOWS
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                   (IN THOUSANDS)
  <CAPTION>
  
                                                                              FISCAL YEAR ENDED                  SIX MONTHS ENDED
                                                                -------------------------------------------   -----------------------
                                                                 DECEMBER 30,  DECEMBER 31,    JANUARY 1,     JUNE 29,      JULY 1,
                                                                     1995         1994           1994           1996         1995
                                                                -------------  -------------  -------------   --------    -----------
                                                                (FISCAL 1995)  (FISCAL 1994)  (FISCAL 1993)        (UNAUDITED)
  <S>                                                              <C>           <C>          <C>            <C>         <C>     
  
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                              $(4,852)      $ 2,040      $   416        $  9,314    $  2,355
    Adjustments to reconcile net income to net cash
       provided by operating activities:
       Merger expenses                                               3,766             -            -               -           -
       Depreciation and amortization                                 3,821         2,886        2,109           2,726       1,686
       Gain on sale of property, plant and equipment                   (65)         (170)        (108)            (42)        (22)
       Common stock options granted in lieu of cash
          payment for services                                           -             -           25               -           -
       Deferred income taxes                                          (811)         (336)          (7)         (1,511)         95
       Changes in assets and liabilities:
          Accounts receivable                                       (7,906)       (3,496)      (5,146)        (13,199)       (896)
          Inventories                                               (2,023)         (865)      (1,188)         (4,028)     (1,717)
          Prepaid expenses and other current assets                    (67)         (330)         323             444        (463)
          Accounts payable                                             122         1,750        1,822           4,416        (483)
          Accrued compensation and benefits                          2,444           601          989             644         452
          Accrued expenses                                           6,548         2,011          941           7,595       1,802
          Deferred revenue                                           1,846           804         (235)           (734)      1,621
          Other long-term liabilities                                  (24)          (23)         (23)             (9)        (12)
                                                                   -------       -------      -------        --------    --------
       Net cash provided by operating activities                     2,799         4,872          (82)          5,616       4,418
                                                                   -------       -------      -------        --------    --------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property, plant and equipment                      (7,031)       (3,300)      (2,277)         (7,739)     (2,686)
    Capitalized software development costs                            (827)         (293)        (341)           (593)       (264)
    Purchases of short-term investments                            (11,188)            -            -               -     (10,334)
    Proceeds from sales of short-term investments                    2,200             -            -           4,108         550
    Change in other assets                                            (147)         (173)          22            (211)       (141)
                                                                  --------       -------      -------        --------    --------
      Net cash used by investing activities                        (16,993)       (3,766)      (2,596)         (4,435)    (12,875)
                                                                  --------       -------      -------        --------    --------
  CASH FLOWS FROM FINANCING ACTIVITIES
    Net borrowings (repayment) under short-term debt                (1,885)       (1,213)         481               -        (677)
    Proceeds from sale and leaseback of fixed assets                     -             -          999               -           -
    Proceeds from long-term debt                                         -           615            -               -           -
    Principal payments on long-term debt and capital
       lease obligations                                            (4,075)       (1,080)        (903)           (439)       (880)
    Proceeds from issuance of convertible preferred stock, net         -           2,000          989               -           -
    Proceeds from issuance of common stock, net                     76,143        33,328          388               -           -
    Proceeds from exercise of stock options and warrants             2,049           652          255           1,338         473
    Dividends paid                                                     (58)         (235)           -               -           -
                                                                   -------       -------      -------        --------    --------
       Net cash provided by financing activities                    72,174        34,067        2,209             899      (1,084)
                                                                   -------       -------      -------        --------    --------
  Effects of exchange rate changes on cash and cash equivalents        153            72           (8)            (50)         22
                                                                   -------       -------      -------        --------    --------
  Net increase (decrease) in cash and cash equivalents              58,133        35,245         (477)          2,030      (9,519)
  Cash and cash equivalents, beginning of period                    36,068           823        1,300          93,203      36,068
  Elimination of Spider net cash activity for the three
     months ended March 31, 1995                                      (998)            -            -               -        (998)
                                                                   =======       =======      =======        ========    ========
  Cash and cash equivalents, end of period                         $93,203       $36,068      $   823        $ 95,233    $ 25,551
                                                                   =======       =======      =======        ========    ========
  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid                                                    $   748       $ 1,127      $ 1,038        $     96    $    391
  Income taxes paid                                                $   143       $   366      $    38        $    220    $    103
  
  SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
  Additions to capital lease obligations for purchases of
    fixed assets                                                   $     -       $     -      $   215        $      -    $      -
  Additions to capital lease obligations for leaseback of
    fixed assets                                                   $     -       $     -      $   999        $      -    $      -
  Issuance of common stock in settlement of dividend payable       $   406       $     -      $     -        $      -    $      -
  Issuance of common stock for notes receivable                    $     -       $     -      $    70        $      -    $      -
  
  
  </TABLE>
                       The accompanying notes are an integral
                    part of the consolidated financial statements
  
                                        F-9
  <PAGE>   42
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
  
         Shiva Corporation (the "Company") designs, develops, manufactures and
  sells hardware and software products and services that enable transparent remote
  connectivity to enterprise networks from any location having access to switched
  analog or digital telephone service. The Company markets its products worldwide
  primarily through distributors, resellers and original equipment manufacturers.
  
  A summary of the Company's significant accounting policies follows:
  
  FISCAL YEAR
  
  The Company's fiscal year ends on the Saturday closest to December 31.
  
  PRINCIPLES OF CONSOLIDATION
  
         The consolidated financial statements include the accounts of the Company
  and its wholly-owned subsidiaries. All significant intercompany accounts and
  transactions have been eliminated. In August 1995, the Company issued
  approximately 3,923,606 shares of its common stock in exchange for all the
  outstanding shares of Spider Systems Limited ("the Spider Acquisition"). Spider
  Systems Limited ("Spider") now operates as a wholly-owned subsidiary of Shiva
  under the name of Shiva Europe Limited. The Spider Acquisition has been
  accounted for as a pooling of interests, and therefore the consolidated
  financial statements for all periods prior to the Spider Acquisition have been
  restated to include the accounts and operations of Spider with those of the
  Company. Spider's results of operations for the years ended March 31, 1995 and
  1994 have been combined with the Company's results of operations for the years
  ended December 31, 1994 and January 1, 1994, respectively. The results of
  operations for fiscal 1995 are for the twelve months ended December 30, 1995 for
  both Shiva and Spider. Spider's financial position as of March 31, 1995 has been
  combined with the Company's financial position as of December 31, 1994. Spider's
  unaudited results of operations for the three months ended March 31, 1995
  included in both the results of operations in fiscal 1994 and fiscal 1995, were
  as follows:
  
  <TABLE>
  <CAPTION>
                                              (in thousands)
  <S>                                            <C>    
                      Revenues                   $12,592
                      Expenses                    11,242
                      Income taxes                   451
                                                 -------
                      Net income                 $   899
                                                 =======
  </TABLE>
                    
         No adjustments to conform accounting methods were required. Certain
  amounts have been reclassified with regard to presentation of the financial
  information of the two companies. Revenues and net income for each of the
  previously separate companies for the periods prior to the Spider Acquisition
  are as follows:
  
                                       F-10
  
  <PAGE>   43
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  <TABLE>
  <CAPTION>
              (In thousands)
                          Year Ended                        Six Months Ended
              --------------------------------         --------------------------
              December 31,         January 1,          July 1,            July 2,
                  1994                1994              1995               1994
                  ----                ----              ----               ----
              (Fiscal 1994)      (Fiscal 1993)                 (unaudited)
  
  <S>            <C>                <C>                <C>                <C>    
  Revenues:
    Shiva        $41,559            $29,524            $28,833            $19,049
    Spider        39,412             31,735             23,232             18,559
                 -------            -------            -------            -------
                 $80,971            $61,259            $52,065            $37,608
                 =======            =======            =======            =======
  Net income:                                                             
    Shiva        $ 2,668            $   213            $ 2,883            $   609
    Spider         1,213                696                843                724
                 -------            -------            -------            -------
                 $ 3,881            $   909            $ 3,726            $ 1,333         
                 =======            =======            =======            =======
  </TABLE>
  
         In connection with the Spider Acquisition, the Company incurred charges
  to operations of $13,986,000 in the quarter ended September 30, 1995, the
  quarter in which the Spider Acquisition was consummated. Such charges include
  (a) transaction costs to effect the acquisition, consisting of $2,619,000 for
  financial advisor fees plus $3,656,000 for legal, regulatory and accounting
  fees, printing expenses and other miscellaneous expenses and (b) employee
  severance payments of $1,482,000 and phantom stock compensation of $2,644,000
  and (c) $3,585,000 for the integration of operational activities of the
  companies, including elimination of duplicative assets, employee relocation and
  travel, and the marketing costs related to the introduction of the combined
  entity.
  
                                       F-11
  <PAGE>   44
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  
  INTERIM FINANCIAL DATA (UNAUDITED)
  
  The interim financial data included in the accompanying consolidated financial
  statements and notes thereto is unaudited; however in the opinion of the
  Company, the interim financial data include all adjustments, consisting only of
  normal recurring adjustments, necessary for a fair statement of the results for
  the interim periods. The interim financial data are not necessarily indicative
  of the results of operations for a full fiscal year.
  
  USE OF ESTIMATES
  
         The preparation of financial statements in conformity with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the reported amounts of assets and liabilities and
  disclosure of contingent assets and liabilities at the date of the financial
  statements and the reported amounts of revenue and expenses during the reporting
  period. Actual results could differ from those estimates.
  
  REVENUE RECOGNITION
  
         Revenue from product sales is recognized upon shipment provided that no
  significant Company obligations remain and collection of the related receivable
  is probable. The Company provides most of its distributors and resellers with
  return rights for stock rotation or product evaluation. The Company also
  provides its distributors and resellers with price protection rights. An
  allowance for estimated future returns is recorded at the time revenue is
  recognized based on the Company's return policies and historical experience.
  Although the Company believes it has adequate reserves to cover product returns
  and price protection rights, there can be no assurance that the Company will not
  experience significant returns or price protection adjustments in the future or
  that such reserves will be adequate to cover such returns and price protection
  rights. The Company provides a one-year warranty on hardware products and a
  ninety-day warranty on software media. A provision is made at the time of sale
  for product warranty costs. Accrued warranty costs are included in accrued
  expenses in the accompanying financial statements. Revenue from technical
  support and product maintenance contracts is deferred and recognized ratably
  over the period the services are performed. Revenue from integration contracts
  is recognized over the duration of such contracts as work is performed and
  defined milestones are attained.
  
                                       F-12
  <PAGE>   45
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
         The Company has historically provided customers with a variety of
  technical support services, including free services which it is not
  contractually obligated to provide. A provision is made at the time of sale for
  the cost of such free services. Accrued product support expenses are included in
  accrued expenses in the accompanying financial statements.
  
  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  
         The Company considers all highly liquid investments purchased with an
  original maturity of three months or less to be cash equivalents. The Company
  invests its excess cash in U.S. Treasury securities, money market funds of major
  financial institutions, high-grade commercial paper and time deposits that are
  subject to minimal credit and market risk.
  
         All of the Company's cash equivalents and short-term investments are
  classified as available-for-sale in accordance with Statement of Financial
  Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
  Equity Securities." The Company's short-term investments at December 30, 1995
  include an unrealized gain of $137,000 recorded as a separate component of
  stockholders' equity and have various maturity dates through September 1996.
  Realized gains or losses on the sale of securities are calculated using the
  specific identification method. There were no such realized gains or losses in
  fiscal 1995 or 1994.
  
  CONCENTRATION OF CREDIT RISK
  
         Financial instruments which potentially expose the Company to
  concentrations of credit risk include accounts receivable. The Company performs
  ongoing evaluations of customers' financial condition and, generally, does not
  require collateral. In addition, the Company maintains reserves for potential
  credit losses, and such losses, in the aggregate, have not exceeded management
  expectations. At December 30, 1995, one customer accounted for 10% of the
  accounts receivable balance.
  
  FINANCIAL INSTRUMENTS
  
         The carrying amounts of the Company's financial instruments, which
  include cash and cash equivalents, accounts receivable, short-term debt,
  accounts payable, long-term debt and capital lease obligations approximate their
  fair value at December 30, 1995 and December 31, 1994.
  
  FORWARD FOREIGN EXCHANGE CONTRACTS
  
         The Company enters into transactions denominated in foreign currencies
  and includes the gain or loss arising from such transactions in results of
  operations. The Company enters into foreign exchange contracts to hedge specific
  foreign currency denominated receivables, which require the Company at maturity
  of the contract to exchange foreign currencies for U.K. Pounds at rates agreed
  to at inception of the contracts. The forward exchange contracts have maturities
  which do not exceed one year. The Company had approximately $11,253,000 and
  $2,163,000 of forward exchange contracts outstanding at December 30, 1995 and
  December 31, 1994, respectively. Cash flows from the forward exchange contracts
  are classified with the related receivable.
  
  INVENTORIES
  
         Inventories are stated at the lower of cost or market, cost being
  determined using the first-in, first-out method.
  
  
                                        F-13
  <PAGE>   46
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
         The market for the Company's products is characterized by rapidly
  changing technology, evolving industry standards and frequent new product
  introductions. There can be no assurance that products or technologies developed
  by others will not make the Company's inventories obsolete.
  
         The Company is currently dependent on two subcontractors for the
  manufacture of significant portions of its products. Although the Company
  believes that there are a limited number of other qualified subcontract
  manufacturers for its products, a change in subcontractors could result in
  delays or reductions in product shipments. In addition, certain components of
  the Company's products are only available from a limited number of suppliers.
  The inability to obtain sufficient key components as required could also result
  in delays or reductions in product shipments. Such delays or reductions could
  have a material adverse effect on the Company's results of operations.
  
  PROPERTY, PLANT AND EQUIPMENT
  
         Property, plant and equipment are stated at cost and depreciated using
  the straight-line method over the estimated useful lives of the related assets.
  Equipment held under capital leases is stated at the lower of the fair market
  value of the equipment or the present value of the minimum lease payments at the
  inception of the leases and is amortized on a straight-line basis over the
  shorter of the lives of the related assets or the term of the leases.
  Maintenance and repair costs are expensed as incurred. Gains on sale and
  leaseback transactions are amortized to income over the term of the underlying
  lease agreements.
  
  RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
  
         Research and development costs, other than certain software development
  costs, are charged to expense as incurred. Software development costs incurred
  subsequent to the establishment of technological feasibility, and prior to
  general release of the product to the public, are capitalized and amortized to
  cost of sales on a straight-line basis over the estimated useful lives of the
  related products, generally eighteen to thirty-six months. It is reasonably
  possible that the remaining estimated useful lives of the related products could
  be reduced in the future due to competitive pressures. Unamortized software
  development costs of $703,000 and $246,000 are included in other assets at
  December 30, 1995 and December 31, 1994, respectively. Amortization expense was
  $370,000, $310,000 and $118,000 in fiscal 1995, 1994 and 1993, respectively.
  
         The Company receives fees under product development contracts with
  certain customers. Product development fees are recorded as a reduction of
  research and development costs as work is performed pursuant to the related
  contracts and defined milestones are attained. Losses, if any, are provided for
  at the time that management determines that development costs will exceed
  related fees. Payments received under product development contracts prior to the
  completion of the related work and attainment of milestones are recorded as
  deferred liabilities. In fiscal 1995, 1994 and 1993, the Company recorded
  product development fees of $955,000, $766,000 and $987,000, respectively, and
  incurred development costs of $1,135,000, $820,000 and $741,000, respectively,
  under such contracts.
  
         The Company has also received foreign government sponsored grants to fund
  qualified research and development activities. Grant income is recorded as a
  reduction of research and development costs and was $135,000 and $451,000 in
  fiscal 1994 and 1993, respectively. There was no grant income recorded in fiscal
  1995.
  
                                        F-14
  
  <PAGE>   47
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  ADVERTISING COSTS
  
         Advertising costs, other than certain direct-response advertising costs,
  are charged to expense as incurred. The Company has not incurred significant
  costs associated with direct-response advertising in fiscal 1995, 1994 and 1993,
  and there were no capitalized advertising costs at December 30, 1995 or December
  31, 1994. Advertising costs were $3,042,000, $2,589,000 and $1,446,000 in fiscal
  1995, 1994 and 1993, respectively.
  
  INCOME TAXES
  
         The Company accounts for income taxes in accordance with Statement of
  Financial Accounting Standards No.109, "Accounting for Income Taxes", which is
  an asset and liability method of accounting for income taxes. Under this method,
  deferred tax assets and liabilities are recognized for the expected future tax
  consequences, utilizing current tax rates, of temporary differences between the
  carrying amounts and the tax bases of assets and liabilities. Deferred tax
  assets are recognized, net of any valuation allowance, for the estimated future
  tax effects of deductible temporary differences and tax operating loss and
  credit carryforwards. Deferred income tax expense represents the change in the
  net deferred tax asset and liability balances.
  
  FOREIGN CURRENCY TRANSLATION
  
         Financial statements of international subsidiaries, where the local
  currency is the functional currency, are translated using period-end exchange
  rates for assets and liabilities and at average rates during the period for
  results of operations. The resulting foreign currency translation adjustments
  are included as a separate component of stockholders' equity. For international
  subsidiaries where the functional currency is other than the local currency,
  monetary assets and liabilities are translated using period-end exchange rates,
  nonmonetary assets and liabilities are translated at historical rates and
  results of operations are translated at average rates for the period. The
  resulting foreign currency translation adjustments are included in results of
  operations. Gains or losses resulting from foreign currency transactions are
  included in results of operations and were insignificant in fiscal 1995, 1994
  and 1993.
  
  NET INCOME (LOSS) PER SHARE
  
  
         Net income per share is calculated based on the weighted average number
  of common shares and common equivalent shares assumed outstanding during the
  period. Net loss per share excludes common equivalent shares because the effect
  is antidilutive. Pursuant to Securities and Exchange Commission Staff Accounting
  Bulletin No. 83, certain common and common equivalent shares issued by the
  Company during the twelve months immediately preceding the initial filing of the
  registration statement relating to the Company's initial public offering have
  been included in the calculation of weighted average shares, using the treasury
  stock method and the initial public offering price, as if these shares were
  outstanding for all periods prior to the initial public offering.
  
  
  
  2.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  
  Cash, cash equivalents and short-term investments consist of the following:
  
  
                                        F-15
  <PAGE>   48
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  <TABLE>
  <CAPTION>
                                                                          (In thousands)
                                                                   December 30,    December 31,
                                                                       1995            1994
                                                                       ----            ----
  <S>                                                              <C>             <C>     
  CASH AND CASH EQUIVALENTS:
   Money market funds                                                $ 75,382        $ 22,603
   Cash held in banks                                                  16,825           4,421
   Commercial paper                                                       996           9,044
                                                                     --------        --------
     Total cash and cash equivalents                                   93,203          36,068
                                                                     --------        --------
  SHORT-TERM INVESTMENTS:
   U.S. Treasury securities                                             9,125               -
                                                                     --------        --------
      Total cash, cash equivalents and short-term investments        $102,328        $ 36,068
                                                                     ========        ========
  </TABLE>
  
  
  3.  INVENTORIES
  <TABLE>
  
  Inventories consist of the following:
  <CAPTION>
                                                          (In thousands)
                                               December 30,         December 31,         June 29,
                                                  1995                  1994               1996
                                                  ----                  ----             --------
                                                                                        (Unaudited)
  <S>                                            <C>                   <C>                <C>
  Raw materials                                  $3,137                $1,596             $ 5,871
  Work-in-process                                 1,037                   972               1,043
  Finished goods                                  3,672                 4,406               4,938
                                                 ------                ------             -------
                                                 $7,846                $6,974             $11,852
                                                 ======                ======             =======
  </TABLE>
  
  
  4.  PROPERTY, PLANT AND EQUIPMENT
  
  <TABLE>
  Property, plant and equipment consist of the following:
  
  <CAPTION>
                                                            (In thousands)
                                       Useful life    December 30,    December 31,
                                       (in years)        1995            1994
                                       -----------       ----            ----
  <S>                                   <C>             <C>            <C>
  Land                                                  $   310        $   326
  Buildings                                 50            3,801          3,979
  Furniture and fixtures                    5             2,395          2,251
  Machinery and equipment                 3 - 5          17,009         11,239
  Leasehold improvements                Lease term          494            218
                                                        -------        -------
                                                         24,009         18,013
  Less - Accumulated depreciation                    
      and amortization                                   11,044          7,642
                                                        -------        -------
                                                        $12,965        $10,371
                                                        =======        =======
  </TABLE>
                                                    
  
         Furniture and fixtures include equipment under capital leases of $170,000
  at December 30, 1995 and $222,000 at December 31, 1994. Machinery and equipment
  include equipment under capital leases of $2,004,000 at December 30, 1995 and 
  $2,784,000 at December 31, 1994. Accumulated amortization related to equipment
  under capital leases totals $1,889,000 and $2,255,000 at December 30, 1995 and
  December 31, 1994, respectively. Amortization of equipment under capital leases
  is included in depreciation expense.
  
  
                                        F-16
  
  <PAGE>   49
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  5.  DEBT
  
  SHORT-TERM DEBT
  
         Under the terms of a credit agreement (the "Credit Agreement") with a
  U.S. bank, the Company has a $5,000,000 unsecured revolving credit facility (the
  "Revolver") which bears interest at the bank's prime rate. At December 30, 1995,
  available borrowings were reduced by outstanding letters of credit of $881,000
  related to certain office leases. These letters of credit expire at various
  dates through September 1996. While the Company may repay all or a portion of
  the Revolver borrowings at any time, any outstanding principal must be repaid in
  full on June 30, 1996. There were no borrowings outstanding under the Revolver
  at December 30, 1995 or December 31, 1994. The terms of the Credit Agreement
  require the Company to maintain a minimum level of profitability and specified
  financial ratios and restrict the payment of cash dividends to stockholders.
  
         The Company also has a foreign credit facility of approximately
  $1,548,000 which is secured by all assets of Shiva Europe Limited. Available
  borrowings under this facility are decreased by the value of the outstanding
  debt payable to the European Coal and Steel Community Fund. Borrowings under the
  foreign credit facility bear interest at the bank's prime rate plus 2.5%. There
  were no borrowings outstanding under the foreign credit facility at December 30,
  1995. The terms of the foreign credit facility require the Company to maintain
  a minimum level of profitability and specified financial ratios.
  
  
  LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  
  <TABLE>
  Long-term debt and capital lease obligations consist of the following:
  (in thousands)
  
  
  <CAPTION>
                                                                             (In Thousands)
                                                                     December 30,       December 31,
                                                                         1995              1994
                                                                        -----              ----
  <S>                                                                  <C>                <C>
  Capital lease obligations at rates of 11.4% to 14.3%,
       secured by certain equipment; expiring at various
       dates through July 1998                                         $  378             $   936
  Term loan payable to bank in monthly installments of $17
       plus interest at the bank's prime rate plus 1% (9.5% at
       December 31, 1994), due May 1997                                     -                 513
  Bank of  Scotland loan at interest rate of the bank's prime
       rate plus 3.0% (9.75% at December 31, 1994)                          -                 672
  Mortgage loans:
   Scottish Enterprise
     Loan A payable in monthly installments of $12 including
       interest at 11.0%, due February 2004                                 -                 810
     Loan B payable in monthly installments of $18 including
       interest at 11.0%, due  May 2005                                     -               1,288
   European Coal and Steel Community Fund ("ECSC")
     Loan A payable in semi-annual installments of $97 plus
       interest at 8.5%, due March 1997                                   290                 508
    Loan C payable in a semi-annual installments of $97 plus
       interest at 10.0%, due January 1998                                484                 611
                                                                       ------             -------
                                                                        1,152               5,338
  Less - Current portion                                                  700               1,301    
                                                                       ------             -------      
       
                                                                       $  452             $ 4,037
                                                                       ======             =======
  </TABLE>
                                        F-17
  <PAGE>   50
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
         The ECSC mortgage loans are secured by the Company's European
  headquarters property in Edinburgh, U.K.
  
  
  6.  INCOME TAXES
  
  <TABLE>
  The components of income (loss) before income taxes are as follows:
  
  <CAPTION>
                                             (In thousands) Year Ended
                                ----------------------------------------------------
                                December 30,         December 31,       January 1,
                                    1995                1994               1994 
                                    ----                ----               ----
                                (Fiscal 1995)       (Fiscal 1994)      (Fiscal 1993)
  <S>                              <C>                  <C>                <C>     
  Domestic                         $ 2,387              $1,113             $ (429)
  Foreign                           (4,853)              1,848              1,145
                                   -------              ------             ------
                                   $(2,466)             $2,961             $  716
                                   =======              ======             ======
  </TABLE>
  
  
  <TABLE>
  The components of the income tax provision (benefit) are as follows:
  
  <CAPTION>
                                             (In thousands) Year Ended
                                 --------------------------------------------------
                                  December 30,      December 31,        January 1,
                                      1995              1994              1994 
                                      ----              ----              ----
                                 (Fiscal 1995)     (Fiscal 1994)      (Fiscal 1993)
  <S>                                <C>               <C>                <C>    
  Current:
    Federal                          $3,401             $  725            $ 57
    State                               186                (39)             17
    Foreign                            (390)               571             233
                                     ------             ------            -----
                                      3,197              1,257             307
                                     ------             ------            -----
  Deferred:
    Federal                            (333)               (34)            (58)
    State                               (75)              (192)              -
    Foreign                            (403)              (110)             51
                                     ------             ------            ----
                                       (811)              (336)             (7)
                                     ------             ------            ----
                                     $2,386             $  921            $300
                                     ======             ======            ====
  </TABLE>
  
                                        F-18
  <PAGE>   51
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  <TABLE>
  The significant components of the net deferred tax asset (liability) are as 
  follows:
  
  <CAPTION>
                                                       (In thousands)
                                                December 30,    December 31,
                                                   1995            1994
                                                   ----            ----
  <S>                                             <C>             <C>    
  Deferred tax assets:
    Reserves not currently deductible             $ 2,675         $ 2,072
    Net operating loss carryforwards                4,635           2,287
    Tax credit carryforwards                          891             659
    Other                                             424             424
                                                  -------         -------
      Gross deferred tax assets                     8,625           5,442
                                                  -------         -------
  
  Deferred tax liabilities:
    Capitalized software development costs           (245)            (99)
    Depreciation                                     (832)         (1,039)
    Other                                            (244)           (187)
                                                  -------         -------
      Gross deferred tax liabilities               (1,321)         (1,325)
  Deferred tax asset valuation allowance           (6,531)         (4,125)
                                                  -------         -------
                                                  $   773         $    (8)
                                                  =======         =======
  </TABLE>
  
  
  <TABLE>
  The differences between the income tax provision and income taxes computed using
  the applicable U.S. statutory federal tax rate are as follows:
  
  <CAPTION>
                                                             (In thousands) Year Ended
                                                     ---------------------------------------------
                                                     December 30,    December 31,     January 1,
                                                         1995            1994            1994 
                                                         ----            ----            ----
                                                     (Fiscal 1995)   (Fiscal 1994)   (Fiscal 1993)
  
  <S>                                                   <C>             <C>              <C>    
  Taxes computed at federal statutory rate              $ (863)         $1,037           $ 250
  State income taxes, net of federal tax benefit           406             (17)             20
  Foreign income taxed at different rates                   51              (8)             69
  Alternative minimum tax                                    -               -              28
  Research and development tax credits                     (85)           (257)              -
  Change in valuation allowance                           (670)           (181)           (100)
  Non-deductible merger expenses                         3,139               -               -
  Other                                                    408             347              33
                                                        ------          ------           -----
                                                        $2,386          $  921           $ 300
                                                        ======          ======           =====
  </TABLE>
  
         At December 30, 1995, the Company has federal net operating loss
  carryforwards of $9,341,000, which expire at various dates through 2010, and
  state net operating loss carryforwards of $9,515,000, which expire at various
  dates through 2000. The Company also has federal and state research and
  development tax credit carryforwards of $1,014,000, which expire at various
  dates through 2010. Additionally, the Company has federal alternative minimum
  tax credit carryforwards of $77,000, which may be used indefinitely to reduce
  regular federal income taxes.
         Ownership changes, as defined in the Internal Revenue Code, may limit the
  amount of net operating loss and tax credit carryforwards that can be utilized
  to offset future taxable income or tax liability. The amount of the annual
  limitation is determined based upon the Company's value immediately prior to the
  ownership change. Subsequent significant ownership changes could further affect
  the limitation in future years.
  
                                        F-19
  <PAGE>   52
  
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
           The Company has recorded a deferred tax asset and realized a portion of
  the benefits. Realization is dependent on generating sufficient taxable income
  prior to expiration of the loss carryforwards. Although realization is not
  assured, management believes it is more likely than not that the deferred tax
  asset which has been recognized to date will be realized.
  
           The deferred tax asset valuation allowance increased by $3,806,000 (of
  which $3,076,000 related to the tax effect of the exercise of employee stock
  options) and decreased by $1,400,000 to recognize the benefit of deferred tax
  assets not related to employee stock options which has reduced income taxes
  currently payable. Of the total deferred tax asset valuation allowance at
  December 30, 1995, $3,976,000 relates to the tax benefit resulting from the
  exercise of employee stock options in fiscal 1995 and 1994. The tax benefit,
  when realized, will be accounted for as a credit to stockholders' equity rather
  than as a reduction in the income tax provision.
  
  
  7.  STOCKHOLDERS' EQUITY
  
  PREFERRED STOCK
  
           In connection with the completion of the Company's initial public
  offering in November 1994, all shares of convertible preferred stock then
  outstanding automatically converted into 7,719,536 shares of common stock.
  
  COMMON STOCK
  
           On October 21, 1994, the stockholders approved a 1-for-1.5 reverse
  split (effective upon the closing of the Company's initial public offering) of
  the Company's common stock. All shares and per share amounts included in the
  accompanying consolidated financial statements have been adjusted to give
  retroactive effect to the reverse stock split for all periods presented. On
  November 30, 1995, the stockholders approved an increase in the authorized
  shares of common stock from 25,000,000 shares to 50,000,000 shares.
  
           Each share of common stock entitles the holder to one vote on all
  matters submitted to a vote of the Company's stockholders. Common stockholders
  are entitled to receive dividends, if any, as may be declared by the Board of
  Directors, subject to any preferential dividend rights of any preferred
  stockholders.
  
           In connection with the execution of an equipment sale and leaseback
  agreement (See Note 4) in fiscal 1993, the Company issued a warrant for the
  purchase of 46,664 shares of the Company's common stock at an exercise price of
  $2.25 per share, which expires on July 28, 1998. The common stock purchase
  warrant was determined to have an insignificant value on the date of issuance.
  In November 1994, the Company issued 29,166 shares of common stock upon partial
  exercise of this common stock purchase warrant. In fiscal 1995, the Company
  issued the remaining 17,498 shares of common stock related to this common stock
  purchase warrant.
  
                                        F-20
  <PAGE>   53
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  
  8.  STOCK PLANS
  
  1988 STOCK PLAN
  
           The 1988 Stock Plan (the "1988 Plan") provides for the grant of
  incentive stock options and nonqualified stock options, stock awards and stock
  purchase rights for the purchase of up to an aggregate of 8,200,000 shares of
  the Company's common stock by officers, employees, consultants and directors of
  the Company. In fiscal 1995, the Company's stockholders approved increases in
  the number of shares issuable under the Plan from 5,333,332 shares to 8,200,000
  shares. The Compensation Committee of the Board of Directors is responsible for
  administration of the Plan. The Compensation Committee determines the term of
  each option, the option exercise price, the number of shares for which each
  option is granted and the rate at which each option is exercisable. The Company
  may not grant an employee incentive stock options with a fair value in excess of
  $100,000 that are first exercisable during any one calendar year.
  
           Incentive stock options may be granted to any officer or employee at an
  exercise price per share of not less than the fair value per common share on the
  date of the grant (not less than 110% of the fair value in the case of holders
  of more than 10% of the Company's voting stock). Nonqualified stock options may
  be granted to any officer, employee, consultant or director at an exercise price
  per share of not less than either the book value per common share or 50% of the
  fair value per common share on the date of the grant.
  
           Options granted under the Plan generally expire ten years from the date
  of the grant (five years for incentive stock options granted to holders of more
  than 10% of the Company's voting stock). The Compensation Committee, at the
  request of any optionee, may convert incentive stock options that have not been
  exercised at the date of conversion into nonqualified stock options.
  
  
                                        F-21
  <PAGE>   54
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  <TABLE>
  
  The following table summarizes all stock option activity under the 1988 Plan:
  <CAPTION>
                                                                        Number             Exercise
                                                                       of Shares             Price
                                                                       ---------           --------
  <S>                                                                  <C>              <C>           
  Outstanding at January 2, 1993                                       2,556,266        $ .29 - $ 2.38
  Granted                                                              2,074,944          .75 -   5.10
  Cancelled                                                             (823,930)         .34 -   2.38
  Exercised                                                             (278,262)         .29 -   2.38
                                                                      ----------
  Outstanding at January 1, 1994                                       3,529,018          .29 -   5.10
  Granted                                                              1,131,149         1.88 -   6.80
  Cancelled                                                             (194,345)         .34 -   6.80
  Exercised                                                             (756,468)         .29 -   3.00
                                                                      ----------
  Outstanding at December 31, 1994                                     3,709,354          .75 -   6.80
  Granted                                                              1,482,848         4.21 -  35.38
  Cancelled                                                             (134,984)         .75 -  31.25
  Exercised                                                           (1,100,059)         .29 -   6.80
                                                                      ----------
  Outstanding at December 30, 1995                                     3,957,159          .75 -  35.38
                                                                      ==========
  Exercisable at December 30, 1995                                       683,814         $.75 - $ 6.80  
                                                                      ==========
  Available  for grant at December 30, 1995                            2,132,793
                                                                      ==========
  </TABLE>
  
           In fiscal 1993, the Company granted options, in lieu of cash payment,
  to a consultant of the Company to purchase up to 66,666 shares of common stock
  for $.75 per share. The fair value of the services of $25,000 has been included
  in selling, general and administrative expenses in fiscal 1993 and additional
  paid-in capital has been increased accordingly. All such options were exercised
  in fiscal 1994.
  
           The Company has reserved a total of 5,991,084 shares of common stock
  for issuance under the 1988 Stock Plan.
  
  1994 DIRECTOR STOCK OPTION PLAN
  
           On October 21, 1994, the stockholders approved the 1994 Director Stock
  Option Plan (the "Director Plan") under which options to purchase up to an
  aggregate of 550,000 shares of the Company's common stock may be granted to
  nonemployee directors at an exercise price per share equal to the fair value per
  common share on the date of the grant. Under the Director Plan, each nonemployee
  director was granted an option to purchase 33,000 common shares (the "initial
  shares") on July 17, 1995 and an option to purchase an additional 7,000 common
  shares on the third Monday in July of each year thereafter, through December 31,
  1999. Eligible directors who have been previously granted stock options under
  the 1988 Plan will not be granted an option to purchase the initial shares.
  
           Twenty-five percent of the options granted under the Director Plan are
  exercisable one year from the date of grant and every year thereafter, provided
  that the optionee remains a director. Options granted under the Director Plan
  generally expire ten years from the date of grant. In fiscal 1995, options to
  purchase 99,000 shares of common stock were granted at an exercise price of
  $25.63 per share. The Company has reserved 550,000 shares of common stock for
  issuance under the Director Plan.
  
                                        F-22
  <PAGE>   55
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  1994 EMPLOYEE STOCK PURCHASE PLAN
  
           On October 21, 1994 the stockholders approved the 1994 Employee Stock
  Purchase Plan (the "1994 Plan") which enables eligible employees to purchase
  shares of the Company's common stock. Under the 1994 Plan, eligible employees
  may purchase up to an aggregate of 700,000 shares during six-month payment
  periods commencing on February 1 and August 1 of each year at a price per share
  of 85% of the lower of the market price per share on the first or last business
  day of the six-month period. Participating employees may elect to have up to 10%
  of regular pay withheld and applied toward the purchase of such shares up to a
  maximum of 20,000 shares in any six-month payment period. An employee's rights
  under the 1994 Plan terminate upon voluntary withdrawal from the plan at any
  time or upon termination of employment. The Company has reserved 678,418 shares
  of common stock for issuance under the 1994 Plan.
  
  STOCKHOLDER RIGHTS PLAN
  
           On September 20, 1995 the Company's Board of Directors adopted a
  Stockholders Rights Plan and pursuant thereto declared a dividend of one
  preferred stock purchase right for each outstanding share of common stock to
  stockholders of record at the close of business on October 13, 1995. Each right
  entitles holders of the Company's common stock to purchase one one-hundredth of
  a share (a "Unit") of a new series of junior participating preferred stock, $.01
  par value per share, at an exercise price of $300.00 per unit, subject to
  adjustment. The rights are exercisable and become exercisable for common stock
  only under certain circumstances and in the event of particular events relating
  to a change in control of the Company. The rights may be redeemed by the Company
  under certain circumstances pursuant to the plan. The rights expire on October
  13, 2005 unless earlier redeemed or exchanged. The rights have certain
  anti-takeover effects, in that they would cause substantial dilution to a person
  or group that attempts to acquire a significant interest in the Company on terms
  not approved by the Board of Directors.
  
  9.       RETIREMENT PLANS
  
           The Company sponsors a 401(k) retirement savings plan covering all
  domestic employees of the Company who meet minimum age and service requirements.
  The plan allows participants to defer a portion of their annual compensation on
  a pre-tax basis. The Company matches 50% of the first 3% of each participating
  employee's contributions, subject to certain limitations and may, at its
  discretion, make additional contributions to the plan. The Company made matching
  contributions of $150,000, $119,000 and $76,000, to the plan in fiscal 1995,
  1994 and 1993, respectively.
  
           The Company also sponsors a defined contribution plan for all eligible
  European employees of the Company. Participation in the plan is available to
  substantially all salaried employees and to certain groups of hourly paid
  employees. Company contributions are based on a percentage of the employees'
  base salaries. The Company made contributions of $318,000, $267,000 and $226,000
  to the plan in fiscal 1995, 1994 and 1993, respectively.
  
  
                                        F-23
  <PAGE>   56
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  10.      INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
  
           The Company operates in a single industry segment: the development,
  manufacture, sale and support of network communications products and services.
  
           In fiscal 1995, one OEM customer accounted for $11,259,000 (10%) of
  revenues. In fiscal 1993, one domestic distributor accounted for $5,905,000
  (10%) of revenues.
  
           Intercompany sales and transfers between geographic areas are accounted
  for at prices which are designed to be representative of unaffiliated party
  transactions.
  
  <TABLE>
  <CAPTION>
                                                            (In thousands)
                                             NORTH
                                            AMERICA           EUROPE   ELIMINATIONS     TOTAL
  - ---------------------------------------------------------------------------------------------
  <S>                                      <C>                <C>      <C>             <C>
  1995                                                        
  Revenues to unaffiliated customers       $ 70,083           $48,498  $      -        $118,581
  Intercompany revenues                           -               607      (607)              -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             70,083            49,105      (607)        118,581
  - ---------------------------------------------------------------------------------------------
  Income (loss) from operations                (797)           (3,243)        -          (4,040)
  Identifiable assets                       140,006            24,581   (14,464)        150,123
  
  1994
  Revenues to unaffiliated customers       $ 41,646           $39,412  $      -        $ 81,058
  Intercompany revenues                           -                 -         -               -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             41,646            39,412         -          81,058
  - ---------------------------------------------------------------------------------------------
  Income from operations                      1,285             2,574         -           3,859
  Identifiable assets                        51,048            23,611    (2,099)         72,560
  
  1993
  Revenues to unaffiliated customers       $ 29,527           $31,735  $      -        $ 61,262
  Intercompany revenues                           -                 -         -               -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             29,527            31,735         -          61,262
  - ---------------------------------------------------------------------------------------------
  Income from operations                       (111)            1,875         -           1,764
  Identifiable assets                        11,259            18,255         -          29,514
  </TABLE>
  
                                        F-24
  <PAGE>   57
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  
  
  11.      COMMITMENTS
  
  LEASE COMMITMENTS
  
  <TABLE>
           The Company leases office and operating facilities and certain
  equipment under operating and capital leases (See Notes 4 and 5) that expire
  through March 2014. Future minimum lease payments under operating and capital
  leases with initial or remaining noncancelable terms of one or more years are as
  follows as of December 31, 1995:
  
  CAPTION>
                                                                              (In thousands)
                                                                         Operating        Capital
  Fiscal                                                                   leases          leases
  - ------                                                                 ---------        -------
  <S>                                                                       <C>              <C>
  1996                                                                      $ 2,354          $335
  1997                                                                        2,561            54
  1998                                                                        2,257            16
  1999                                                                        2,169             -
  2000                                                                        2,281             -       
  Thereafter                                                                 11,410             -
                                                                            -------          ----
  Total minimum lease payments                                              $23,032           405         
                                                                            =======
  Less - Amount representing interest                                                          27
                                                                                             ----
  Net present value of minimum lease payments                                                $378
                                                                                             ====
  </TABLE>
  
  Rental expense under operating leases was $1,934,000, $1,877,000 and $1,434,000
  in fiscal 1995, 1994 and 1993, respectively.
  
  The Company no longer occupies a property which is leased through March 2014.
  The loss on this lease is included in other long-term liabilities.
  
  12.      SUBSEQUENT EVENTS
  
           On April 2, 1996, the Company's Board of Directors declared a
  two-for-one stock split, payable in the form of a stock dividend on all shares
  of its Common Stock, which was paid on April 22, 1996 to stockholders of Record
  on April 12, 1996. These financial statements and related notes have been
  retroactively adjusted, where appropriate, to reflect this two-for-one stock 
  split.
  
           In May 1996, the stockholders of the Company approved (i) an increase
  in the number of authorized shares of common stock of the Company from
  50,000,000 to 100,000,000 shares and (ii) an increase in the number of shares
  available for issuance under the Company's Amended and Restated 1988 Stock Plan
  from 8,200,000 to 9,700,000 shares.
  
           In June 1996, the Company issued approximately 691,587 shares of its
  common stock in exchange for all the outstanding shares of Airsoft, Inc. (the
  "Airsoft Acquisition"). The Airsoft Acquisition has been accounted for as a
  pooling of interests, and therefore the consolidated financial statements for
  all periods prior to the Airsoft Acquisition have been restated to include the
  accounts and operations of Airsoft, Inc. ("Airsoft") with those of the Company.
  
  <TABLE>
           Certain amounts have been reclassified with regard to presentation of
  the financial information of the two companies. Revenues and net income (loss)
  for each of the previously separate companies for the periods prior to the 
  Airsoft Acquisition are as follows:
  
  <CAPTION>
  
                                       Year Ended                      Three Months Ended
                      --------------------------------------------   -----------------------
                       December 30,    December 31,   January 1,     March 30,      April 1,
                           1995            1994          1994          1996           1995 
                           ----            ----          ----          ----           ---- 
                                                    (In thousands)
                      (Fiscal 1995)   (Fiscal 1994)  (Fiscal 1993)         (unaudited)
  <S>                    <C>              <C>            <C>           <C>           <C>      
  Revenues:                                          
    Shiva                $117,721         $80,971        $61,259       $42,513       $25,703
    Airsoft                   860              87              3           796            34
                         --------         -------        -------       -------       -------
                         $118,581         $81,058        $61,262       $43,309       $25,737
                         ========         =======        =======       =======       =======
                                                     
  Net income (loss):                                 
    Shiva                $ (2,879)        $ 3,881        $   909       $ 4,366       $ 2,157
    Airsoft                (1,973)         (1,841)          (493)          (27)         (775)
                         --------         -------        -------       -------       -------
                         $ (4,852)        $ 2,040        $   416       $ 4,339       $ 1,382
                         ========         =======        =======       =======       =======
  </TABLE>
  
         In connection with the Airsoft Acquisition, the Company incurred charges
  to operations of $1,987,000 in the quarter ended June 29, 1996, the quarter in
  which the acquisition was consummated. Such charges include: (a) transaction
  costs to effect the acquisition, consisting of financial advisor fees of
  $1,350,000 plus $325,000 for legal, regulatory and accounting expenses and (b)
  employee severance payments and other miscellaneous expenses of $312,000.
  
                                        F-25
  <PAGE>   58
  
  
  ================================================================================
  
          No dealer, salesperson or any other person has been authorized to give 
  any information or to make any representations not contained in this Prospectus,
  and, if given or made, such information or representations must not be relied
  upon as having been authorized by the Company or the Selling Stockholders. This
  Prospectus does not constitute an offer to sell, or a solicitation of an offer
  to sell, any securities other than the registered securities to which it
  relates, or an offer to or solicitation of any person in any jurisdiction where
  such an offer or solicitation would be unlawful. Neither the delivery of this
  Prospectus nor any sale made hereunder shall, under any circumstances, create
  any implication that the information contained herein is correct as of any time
  subsequent to the date hereof. 
  
                                   ---------------
  
                                  TABLE OF CONTENTS
  
                                                                         PAGE
                                                                         ----
  
  Available Information .............................................      2 
  Incorporation of Certain Information by Reference .................      2
  Trademarks ........................................................      3 
  The Company .......................................................      4 
  Selected Consolidated Financial Data...............................      5
  Risk Factors ......................................................      7 
  Use of Proceeds ...................................................     11 
  Management's Discussion and Analysis of Financial Condition and 
   Results of Operations.............................................     12
  Selling Stockholders ..............................................     20 
  Plan of Distribution ..............................................     22 
  Legal Matters .....................................................     23
  Experts ...........................................................     23
  Index to Financial Statements .....................................    F-1
  
  ================================================================================
  
  ================================================================================
  
                                   2,059 shares
  
  
  
  
  
                                        
                                Shiva Corporation
  
  
  
  
                                        
                                   Common Stock
                                        
                                        
                               -------------------
                                        
                                    PROSPECTUS
                                        
                               -------------------
                                        
  
  
  
  
  
                                September 27, 1996
  
  
  
  ================================================================================
  
  
  <PAGE>   59
  - -------------------------------------------------------------------------------
                                                                  Schedule II
                             SHIVA CORPORATION
  <TABLE>
                     VALUATION AND QUALIFYING ACCOUNTS
  
  <CAPTION>
                              (In thousands)
  - ----------------------------------------------------------------------------------------------------------------------------
                                       COLUMN A                       COLUMN B     COLUMN C     COLUMN D   COLUMN E   COLUMN F
  - ----------------------------------------------------------------------------------------------------------------------------
                                                                      BALANCE      CHARGED TO   CHARGED                BALANCE
    FOR THE PERIOD                                                   BEGINNING     COSTS AND    TO OTHER                AT END
         ENDED                      CLASSIFICATION                   OF PERIOD      EXPENSES    ACCOUNTS  DEDUCTIONS OF PERIOD
  - ----------------------------------------------------------------------------------------------------------------------------
  <S>                <C>                                              <C>            <C>         <C>        <C>         <C>
  January 1, 1994    Allowance for doubtful accounts and returns      $1,169         $5,249      $  -       $(4,042)    $2,376
  
  
  December 31, 1994  Allowance for doubtful accounts and returns      $2,376         $7,656      $ 17       $(6,086)    $3,963
                                                                                   
  December 30, 1995  Allowance for doubtful accounts and returns      $3,963         $7,731      $(22)      $(6,421)    $5,252
                                                                                   
  June 29, 1996      
   (unaudited)       Allowance for doubtful accounts and returns      $5,252         $4,318      $ (1)      $(3,628)    $5,941
  - ----------------------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  
                                  SHIVA CORPORATION
  <TABLE>
                       DEFERRED TAX ASSET VALUATION ALLOWANCE
  
  <CAPTION>
  - -------------------------------------------------------------------------------------------------------------------
                                       Column A              Column B   Column C    Column D    Column E    Column F
  - -------------------------------------------------------------------------------------------------------------------
                                                             Balance   Charged to   Charged                 Balance
    For the Period                                          Beginning  Costs and    to Other                 at End
         Ended                      Classification          of Period   Expenses    Accounts   Deductions   of Period
  - -------------------------------------------------------------------------------------------------------------------
  <S>                <C>                                      <C>         <C>        <C>        <C>          <C>
  January 1, 1994    Deferred tax asset valuation allowance   $3,375      $170       $    -     $  (270)     $3,275
  
  December 31, 1994  Deferred tax asset valuation allowance   $3,275      $797       $1,031     $  (978)     $4,125
                                                                                 
  December 30, 1995  Deferred tax asset valuation allowance   $4,125      $730       $3,076     $(1,400)     $6,531
  
  June 29, 1996      
   (unaudited)       Deferred tax asset valuation allowance   $6,531      $  -       $    -     $(5,673)     $  858
  - -------------------------------------------------------------------------------------------------------------------
  </TABLE>
  
  
  
  
                                          S-1
metadata_documents: [{"type": "S-8", "sequence": "1", "description": "SHIVA CORPORATION", "secsgml_size_bytes": 210129}]
metadata_filer: {"company-data": {"conformed-name": "SHIVA CORP", "cik": "0000879136", "assigned-sic": "3576", "irs-number": "042889151", "state-of-incorporation": "MA", "fiscal-year-end": "0101"}, "filing-values": {"form-type": "S-8", "act": "33", "file-number": "333-12895", "film-number": "96636103"}, "business-address": {"street1": "28 CROSBY DR", "city": "BEDFORD", "state": "MA", "zip": "01730", "phone": "6172708300"}, "mail-address": {"street1": "28 CROSBY DR", "city": "BEDFORD", "state": "MA", "zip": "01730"}}
text: 1
        As filed with the Securities and Exchange Commission on September 27,
                                        1996
  
                                                          Registration No. 333-
  
                         SECURITIES AND EXCHANGE COMMISSION
                               Washington, D.C. 20549
  
                                      Form S-8
  
                               REGISTRATION STATEMENT
                                        under
                             THE SECURITIES ACT OF 1933
  
                                  SHIVA CORPORATION
               (Exact name of registrant as specified in its charter)
  
           MASSACHUSETTS                                         04-2889151
  (State or other jurisdiction of                (IRS Employer Identification No.)
   incorporation or organization)
  
  28 Crosby Drive, Bedford, Massachusetts                                 01730
  (Address of Principal Executive Offices)                              (Zip Code)
  
                            AIRSOFT, INC. 1993 STOCK PLAN
                              (Full title of the plan)
  
                                  FRANK A. INGARI,
                                  SHIVA CORPORATION
                        PRESIDENT AND CHIEF EXECUTIVE OFFICER
                                   28 CROSBY DRIVE
                            BEDFORD, MASSACHUSETTS 01730
                                   (617) 270-8300
             (Name and address including zip code and telephone number,
                     including area code, of agent for service)
  
                           CALCULATION OF REGISTRATION FEE
  
                                                     Proposed
                                      Maximum        Maximum        Proposed
  Title of              Amount        Offering       Aggregate      Amount of
  Securities to         to be         Price Per      Offering       Registration
  be Registered         Registered    Share (1)      Price (1)      Fee
  - --------------------------------------------------------------------------------
  Common Stock          2,059         $60.75         $125,084.25    $43.14
  par value $.01
  per share
  (1) Estimated solely for the purposes of calculating the registration fee, and
  based upon the average of the high and low prices of the Common Stock on the
  Nasdaq National Market on September 23, 1996 in accordance with Rules 457(c) and
  457(h) of the Securities Act of 1933, as amended.
  Page 1
  2
  
       PART I. INFORMATION REQUIRED IN THE SECTION 10(A) PROSPECTUS
  
  Item 1. Plan Information
          ----------------
    
       The information required by Part I of Form S-8 relating to the 2,059
  restricted securities registered hereunder for resale pursuant to General
  Instruction C of Form S-8 is included in the Reoffer Prospectus filed together
  with this Registration Statement.
  
       PART II. INFORMATION REQUIRED IN THE REGISTRATION STATEMENT.
  
  Item 3. Incorporation of Documents by Reference
          ---------------------------------------
    
       Shiva Corporation, a Massachusetts corporation (the "Registrant"), is
  subject to the informational and reporting requirements of Sections 13(a), 14
  and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
  Act"), and in accordance therewith files reports, proxy statements and other
  information with the Securities and Exchange Commission. The following
  documents, which are on file with the Securities and Exchange Commission, are
  incorporated in this Registration Statement by reference:
  
       (a) The Registrant's latest annual report filed pursuant to Section 13(a)
  or 15(d) of the Exchange Act or either (1) the latest prospectus filed pursuant
  to Rule 424(b) under the Securities Act of 1933, as amended (the "Securities
  Act"), that contains audited financial statements for the Registrant's latest
  fiscal year for which such financial statements have been filed or (2) the
  Registrant's effective registration statement on Form 10 or 20-F filed under the
  Exchange Act containing audited financial statements for the Registrant's latest
  fiscal year.
  
       (b) All other reports filed pursuant to Section 13(a) or 15(d) of the
  Exchange Act since the end of the fiscal year covered by the Registrant document
  referred to in (a) above.
  
       (c) The description of the common stock of the Registrant, par value $.01
  per share (the "Common Stock"), which is contained in a registration statement
  filed under the Exchange Act, including any amendment or report filed for the
  purpose of updating such description.
  
       All documents subsequently filed by the Registrant pursuant to Sections
  13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the filing of a
  post-effective amendment which indicates that all shares offered hereby have
  been sold or which deregisters all shares then remaining unsold, shall be deemed
  to be incorporated in this Registration Statement by reference and to be a part
  hereof from the date of filing of such documents.
  
  Item 4. Description of Securities
          -------------------------
   
       Not applicable.
  
  Item 5. Interests of Named Experts and Counsel
          --------------------------------------
  
       Not  applicable.
  
  Item 6. Indemnification
          ---------------
  
                                       Page 2
  3
  
       Article 6 of the Registrant's Restated Articles of Organization provides
  that no director of the Registrant shall be liable for any breach of fiduciary
  duty, except to the extent that (1) the Massachusetts Corporation Law prohibits
  the elimination or limitation of liability of directors for breach of fiduciary
  duty, or (2) the act or omission occurred prior to the effective date of the
  provision.
  
       Section 2 of Article V of the Registrant's Restated By-Laws provides that
  directors, officers, employees and other agents of the Registrant and any person
  who, at the request of the corporation, serves as a director, officer, employee
  or other agent of another organization in which the Registrant directly or
  indirectly owns shares or of which it is a creditor shall be indemnified by the
  Registrant against all cost, expense (including attorneys' fees), judgment,
  liability and/or amount paid in settlement reasonably incurred by or imposed
  upon him in connection with any action, suit or proceeding (including any
  proceeding before any administrative or legislative body or agency) to which he
  may be made a party or otherwise involved or with which he shall be threatened,
  by reason of his being, or related to his status as a director, officer,
  employee or other agent of the Registrant or of any other organization in which
  the Registrant directly or indirectly owns shares or of which the Registrant is
  a creditor, which other organization he serves or has served as director,
  officer, employee or other agent at the request of the Registrant (whether or
  not he continues to be an officer, director, employee or other agent of the
  corporation or such other organization at the time such action, suit or
  proceeding is brought or threatened), unless such indemnification is prohibited
  by the Business Corporation Law of the Commonwealth of Massachusetts.
  
       Chapter 156B of the General Laws of Massachusetts (the "Massachusets
  Business Corporation Law") prohibits the elimination or limitation of directors'
  liability for any of the following:
  
            (a) Breaches of the director's duty of loyalty to the Registrant or
            its stockholders;
  
            (b) Acts or omissions not in good faith or which involve intentional
            misconduct or a knowing violation of law;
  
            (c) Acts covered by Sections 61 or 62 of the Massachusetts Business
            Corporation Law (which relate generally to the liability of directors
            for authorizing distributions to stockholders at a time when the
            Registrant is insolvent or bankrupt and the liability of directors for
            approving loans to officers or directors of the Registrant which are
            not repaid and which were not approved or ratified by a majority of
            disinterested directors or stockholders); and
  
            (d) Transactions from which the director derived an im proper personal
            benefit.
  
       The Massachusetts Business Corporation Law authorizes Massachusetts
  corporations to indemnify directors and officers for actions taken in good faith
  and in a manner such person reasonably believed to be in the best interests of
  the corporation.
  
       The right of indemnification is in addition to any rights to which any such
  person may otherwise be entitled and inures to the benefit of the executors or
  administrators of each such person. The Registrant may pay the expenses incurred
  by any such person in defending a civil or criminal action, suit or proceeding
  in advance of the final disposition
  
                                       Page 3
  4
  
  of such action, suit, or proceeding, upon receipt of an undertaking by such
  person to repay such payment if it is determined that such person is not
  entitled to indemnification hereunder. This section is subject to amendment or
  repeal only by action of the stockholders.
  
       Insofar as indemnification for liabilities arising under the Securities Act
  may be permitted to directors, officers and controlling persons of the
  Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
  has been advised that in the opinion of the Securities and Exchange Commission
  such indemnification is against public policy as expressed in the Act and is,
  therefore, unenforceable. In the event that a claim for indemnification against
  such liabilities (other than the payment by the Registrant of expenses incurred
  or paid by a director, officer or controlling person of the Registrant in the
  successful defense of any action, suit or proceeding) is asserted by such
  director, officer or controlling person in connection with the securities being
  registered, the Registrant will, unless in the opinion of its counsel the matter
  has been settled by controlling precedent, submit to a court of appropriate
  jurisdiction the question whether such indemnification by it is against public
  policy as expressed in the Securities Act and will be governed by the final
  adjudication of such issue.
  
       The "Recommended Offers by Dundas and Wilson CS on behalf of Shiva
  Corporation" dated June 16, 1995 (the "Offer Document") provides that the
  Majority Stockholders (as defined therein) of Spider Systems Limited ("Spider")
  will indemnify the Registrant and its officers and directors with respect to the
  statements of the business and affairs of Spider as set forth in the Offer
  Document. Any indemnification pursuant to this section shall be limited to the
  shares of Common Stock held in escrow following the closing date of the
  Registrant's acquisition of Spider. In addition, each Majority Stockholder,
  severally and not jointly, has agreed to indemnify the Registrant and its
  officers and directors against and has agreed to hold the Registrant and its
  officers and directors harmless from any and all damage, loss, liability and
  expense (including, without limitation, reasonable expenses of investigation and
  reasonable attorneys' fees and expenses in connection with any action, suit or
  proceeding) ("Loss") incurred or suffered by the Registrant and its officers and
  directors arising out of any misrepresentation or breach of a warranty made by
  such Majority Stockholder pursuant to the Agreement and Undertaking dated as of
  June 13, 1995, provided that (i) a Majority Stockholder shall only be liable for
  any misrepresentations or breaches of warranties made by himself or itself and
  (ii) a Majority Stockholder's maximum liability shall not extend beyond the
  number of shares of the Registrant's Common Stock received by such Majority
  Stockholder in connection with the Spider acquisition (including shares of the
  Registrant's Common Stock held in escrow on his or its behalf.) The Registration
  Rights Agreement executed in connection with the Spider acquisition provides for
  indemnification by the Selling Stockholders of directors, officers and
  controlling persons of the Registrant against certain liabilities, including
  liabilities under the Act, under certain circumstances.
  
       The registration rights provisions of the Agreement and Plan of Merger
  dated as of June 16, 1996 between the Registrant, a wholly-owned subsidiary of
  the Registrant and AirSoft, Inc. (the "Merger Agreement") provides that the
  former stockholders of AirSoft, Inc. will indemnify the Stockholders of the
  Registrant and its directors and officers against certain liabilities, including
  liabilities under the Act, under certain circumstances.
  
                                       Page 4
  5
  
       The Registrant maintains on behalf of its directors and officers insurance
  protection against certain liabilities arising out of the discharge of their
  duties. The Registrant also maintains insurance covering the Registrant against
  indemnification payments to its directors and officers for certain liabilities.
  However, to the extent such coverage is inadequate to cover claims against
  directors or officers, the Registrant may be required pursuant to the By-Laws to
  reimburse the directors or officers for the uninsured portion of such claims. In
  such an event, the Registrant's indemnification obligations to its directors and
  officers could have a material negative impact on the Registrant's financial
  condition and on stockholder equity.
  
  Item 7. Exemption from Registration Claimed
          -----------------------------------
  
       All of the shares of Common Stock of the Registrant covered by this
  Registration Statement are being offered for resale by stockholders of the
  Registrant. These shares were issued to said stockholders by the Registrant in
  reliance on [Section] 4(2) of the Securities Act relating to sales by an issuer
  not involving a public offering upon the exercise of stock options originally
  granted to the stockholders by AirSoft, Inc., which options were assumed by the
  Registrant in connection with the Registrant's acquisition of AirSoft, Inc. 
  
  Item 8. Exhibits
          --------
  
       The Exhibit Index immediately preceding the exhibits is attached hereto and
  incorporated herein by reference.
  
  Item 9. Undertakings
          ------------
    
       1.   The Registrant hereby undertakes:
  
            (a) To file, during any period in which offers or sales are being
  made, a post-effective amendment to this Registration Statement:
  
            (i) To include any prospectus required by Section 10(a)(3) of the
  Securities Act;
  
            (ii) To reflect in the prospectus any facts or events arising after
  the effective date of the Registration Statement (or the most recent
  post-effective amendment thereof) which, individually or in the aggregate,
  represent a fundamental change in the information set forth in the Registration
  Statement. Notwithstanding the foregoing, any increase or decrease in volume of
  securities offered (if the total dollar value of securities offered would not
  exceed that which was registered) and any deviation from the low or high end of
  the estimated maximum offering range may be reflected in the form of prospectus
  filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
  changes in volume and price represent no more than a 20% change in the maximum
  aggregate offering price set forth in the "Calculation of Registration Fee"
  table in the effective registration statement; and
  
            (iii) To include any material information with respect to the plan of
  distribution not previously disclosed in the Registration statement or any
  material change to such information in the Registration Statement;
  
            PROVIDED, HOWEVER, that paragraphs (i) and (ii) do not apply if the
  Registration Statement is on Form S-3 or Form S-8, and the
  
                                       Page 5
  6
  
  information required to be included in a post-effective amendment by those
  paragraphs is contained in periodic reports filed by the Registrant pursuant to
  Section 13 or Section 15(d) of the Exchange Act that are incorporated by
  reference in the Registration Statement.
  
            (b) That, for the purpose of determining any liability under the
  Securities Act, each such post-effective amendment shall be deemed to be a new
  registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial bona
  fide offering thereof.
  
            (c) To remove from registration by means of a post-effective
  amendment, any of the securities being registered which remain unsold at the
  termination of the offering.
  
       2. The undersigned Registrant hereby undertakes that, for purposes of
  determining any liability under the Securities Act, each filing of the
  Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
  Exchange Act (and, where applicable, each filing of an employee benefit plan's
  annual report pursuant to Section 15(d) of the Exchange Act) that is
  incorporated by reference in the registration statement shall be deemed to be a
  new registration statement relating to the securities offered therein, and the
  offering of such securities at that time shall be deemed to be the initial bona
  fide offering thereof.
  
       3. Insofar as indemnification for liabilities arising under the Securities
  Act may be permitted to directors, officers, and controlling persons of the
  Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
  been advised that in the opinion of the Securities and Exchange Commission such
  indemnification is against public policy as expressed in the Securities Act and
  is, therefore, unenforceable. In the event that a claim for indemnification
  against such liabilities (other than the payment by the Registrant of expenses
  incurred or paid by a director, officer or controlling person of the Registrant
  in the successful defense of any action, suit or proceeding) is asserted by such
  director, officer or controlling person in connection with the securities being
  registered, the Registrant will, unless in the opinion of its counsel the matter
  has been settled by controlling precedent, submit to a court of appropriate
  jurisdiction on the question whether such indemnification by it is against
  public policy as expressed in the Act and will be governed by final adjudication
  of such issue.
  
                                       Page 6
  7
  
                                     SIGNATURES
  
       Pursuant to the requirements of the Securities Act, the Registrant
  certifies that it has reasonable grounds to believe that it meets all of the
  requirements for filing on Form S-8 and has duly caused this Registration
  Statement to be signed on its behalf by the undersigned, thereunto duly
  authorized, in the Town of Bedford, Commonwealth of Massachusetts, on the 27th
  day of September, 1996.
  
                                                    SHIVA CORPORATION
  
                                                    By: /s/ Frank A. Ingari
                                                        -------------------   
                                                        Frank A. Ingari
                                                        President and Chief
                                                        Executive Officer
  
                                  POWER OF ATTORNEY
  
       We, the undersigned officers and directors of Shiva Corporation hereby
  severally constitute Frank A. Ingari, Cynthia Deysher and M. Elizabeth Potthoff,
  and each of them singly, our true and lawful attorneys with full power to them,
  and each of them singly, to sign for us and in our names in the capacities
  indicated below, the Registration Statement on Form S-8 filed herewith and any
  and all subsequent amendments to said Registration Statement, and generally to
  do all such things in our names and behalf in our capacities as officers and
  directors to enable Shiva Corporation to comply with all requirements of the
  Securities and Exchange Commission, hereby ratifying and confirming our
  signatures as they may be signed by said attorneys, or any of them, to said
  Registration Statement and any and all amendments thereto.
  
                                       Page 7
  8
  
       Pursuant to the requirements of the Securities Act, this Registration
  Statement has been signed below by the following persons in the capacities and
  on the dates indicated.
  
  Signature                    Title                            Date
  - ---------                    -----                            ----
  
  /s/ Frank A. Ingari          President, Chief Executive       September 27, 1996
  - ------------------------     Officer and Chairman of the
  Frank A. Ingari              Board (Principal Executive
                               Officer)
  
  /s/ Cynthia Deysher          Senior Vice President,           September 27, 1996
  - ------------------------     Finance and Administration
  Cynthia Deysher              and Chief Financial Officer
                               (Principal Financial and
                               Accounting Officer)
  
  /s/ David C. Cole            Director                         September 27, 1996
  - ------------------------
  David C. Cole
  
  /s/ Henry F. McCance         Director                         September 27, 1996
  - ------------------------
  Henry F. McCance
  
                               Director                         
  - ------------------------
  L. John Doerr
  
  /s/ Paul C. O'Brien          Director                         September 27, 1996
  - ------------------------
  Paul C. O'Brien
  
  /s/ Mitchell E. Kertzman     Director                         September 27, 1996
  - ------------------------
  Mitchell E. Kertzman
  
                                       Page 8
  9
  
                                    EXHIBIT INDEX
  
  Exhibit
  Number            Description
  - ------            -----------
  
  4.1  (1)          Restated Articles of Organization of the
                    Registrant, as amended.
  
  4.2  (2)          Restated By-Laws of the Registrant, as amended.
  
  5.1               Opinion of Hale and Dorr.
  
  10.1 (3)          Agreement and Plan of Merger dated as of
                    June 16, 1996 by and among Shiva Corporation,
                    a Massachusetts corporation, SV Acquisition
                    Corp., a Delaware corporation, and AirSoft,
                    Inc., a Delaware corporation.
  
  23.1              Consent of Price Waterhouse LLP.
  
  23.2              Consent of Deloitte & Touche LLP.
  
  23.3.             Consent of Coopers & Lybrand.
  
  23.4              Consent of Hale and Dorr (included in Exhibit 5.1)
  
  24.1              Power of Attorney (included on the signature page
                    of this Registration Statement)
  
  27.1              Financial Data Schedule for fiscal year 1994.
  
  27.2              Financial Data Schedule for fiscal year 1995.
  
  - -------------------------------
  (1)  Incorporated herein by reference from the Registrant's Registration
  Statement on Form S-1, filed October 24, 1994 (Registration No. 33-
  84884), as amended by Amendment No. 1, filed November 4, 1994; Amendment
  No. 2, filed November 8, 1994; and Amendment No. 3, filed November 16,
  1994.
  
  (2) Incorporated by reference from the Registrant's Form 10-K, filed October 24,
  1994.
  
  (3) Incorporated by reference from the Registrant's Form 8-K, filed June 27,
  1996, as amended by Amendment No. 1 on Form 8-K/A filed July 9, 1996.
  
                                       Page 9
  10
  REOFFER PROSPECTUS
  - ------------------
  
                                SHIVA CORPORATION
                                        
                            -------------------------
                                        
                                   2,059 SHARES
                                        
                                   COMMON STOCK
                                        
                             $.01 PAR VALUE PER SHARE
                                        
                            -------------------------
  
          This Prospectus relates to the resale of 2,059 shares of Common Stock,
  $.01 par value per share (the "Shares"), of Shiva Corporation (the "Company" or
  "Shiva") by certain selling stockholders (the "Selling Stockholders") who
  acquired the Shares in a private placement made in connection with the exercise
  of stock options granted under the AirSoft, Inc. 1993 Stock Plan which
  options were assumed by the Company in connection with the acquisition by Shiva
  of AirSoft, Inc. The Shares may be sold from time to time by the Selling
  Stockholders in brokers' transactions, to market makers or in block placements,
  at market prices prevailing at the time of sale or at prices otherwise
  negotiated. See "Selling Stockholders" and "Plan of Distribution."
  
           The Company will not receive any of the proceeds from the sale of the
  Shares. The Company has agreed to bear certain expenses in connection with the
  registration of the Shares being offered and sold by the Selling Stockholders.
  
           The Company's Common Stock is quoted on the Nasdaq National Market
  under the symbol "SHVA". On September 24, 1996, the last reported sale price
  for the Common Stock was $59.25.
  
                               -----------------------
  
           THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
  "RISK FACTORS" BEGINNING ON PAGE 5.
  
                               -----------------------
  
      THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
         AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
           THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
               COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
                   PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
                               IS A CRIMINAL OFFENSE.
  
                               -----------------------
  
           The Selling Stockholders have advised the Company that they propose to
  offer, from time to time, all or part of the shares of Common Stock on the
  Nasdaq National Market in ordinary brokerage transactions, in negotiated
  transactions, or otherwise, at such prices and on such terms as may be
  obtainable and satisfactory to the Selling Stockholders. No underwriting
  discounts or commissions will be paid other than normal brokerage commissions
  and fees which will be payable by the Selling Stockholders. No sales or
  distributions other than as described herein will be effected until this
  Prospectus shall have been appropriately amended or supplemented. See
  "Plan of Distribution."
  
                 The date of this Prospectus is September 27, 1996.
  11
  
                                AVAILABLE INFORMATION
  
           The Company is subject to the informational requirements of the
  Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
  accordance therewith, files reports, proxy statements and other information with
  the Securities and Exchange Commission (the "Commission"). Such reports, proxy
  statements and other information are available for inspection and copying at the
  public reference facilities maintained by the Commission at 450 Fifth Street,
  Room 1024, N.W., Washington, D.C. 20549, and at the following regional offices
  of the Commission: Seven World Trade Center, 13th Floor, New York, New York
  10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
  Illinois 60661. Copies of such material can also be obtained from the Public
  Reference Section of the Commission at 450 Fifth Street, Room 1024, N.W.,
  Washington, D.C. 20549 at prescribed rates. In addition, the Company is
  required to file electronic versions of these documents with the Commission
  through the Commission's Electronic Data Gathering, Analysis and Retrieval
  (EDGAR) system. The Commission maintains a World Wide Web site at
  http://www.sec.gov that contains reports, proxy and information statements and
  other information regarding registrants that file electronically with the
  Commission. The Common Stock of the Company is quoted on the Nasdaq National
  Market. Reports and other information filed by the Company can also be
  inspected at the offices of the National Association of Securities Dealers,
  Inc., Reports Section, 1735 K   Street, N.W., Washington, D.C. 20006.
  
           The Company has filed with the Commission a Registration Statement on
  Form S-8 (including all amendments thereto, the "Registration Statement") under
  the Securities Act of 1933, as amended (the "Securities Act"), with respect to
  the Common Stock offered hereby. This Prospectus does not contain all
  information set forth in the Registration Statement, certain parts of which are
  omitted in accordance with the rules and regulations of the Commission. For
  further information regarding the Company and the Common Stock offered hereby,
  reference is hereby made to the Registration Statement and to the exhibits and
  schedules filed therewith. Statements contained in this Prospectus regarding the
  contents of any agreement or other document filed as an exhibit to the
  Registration Statement are not necessarily complete, and in each instance
  reference is made to the copy of such agreement filed as an exhibit to the
  Registration Statement, each such statement being qualified in all respects by
  such reference. The Registration Statement, including the exhibits and schedules
  thereto, may be inspected at the public reference facilities maintained by the
  Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all
  or any part thereof may be obtained from such office upon payment of the
  prescribed fees.
  
           The Company will provide without charge to each person to whom a
  Prospectus is delivered, on the written or oral request of any such person, a
  copy of any or all of the documents incorporated by reference herein (other than
  exhibits to such documents unless such exhibits are specifically incorporated by
  reference into such documents). Written requests for such copies should be
  directed to Shiva Corporation, Attention: M. Elizabeth Potthoff, 28 Crosby
  Drive, Bedford, Massachusetts 01730. Telephone requests may be directed to M.
  Elizabeth Potthoff at (617) 270-8300.
  
                  INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
  
           The following documents filed by the Company with the Commission
  pursuant to the Exchange Act are incorporated in this Prospectus by reference
  (File No. 0-24918):
  
            1.   The Company's Annual Report on Form 10-K for the fiscal year
                 ended December 30, 1995.
  
            2.   The Company's Quarterly Report on Form 10-Q for the fiscal
                 quarter ended March 30, 1996.
  
            3.   The Company's Quarterly Report on Form 10-Q for the fiscal
                 quarter ended June 29, 1996.
  
            4.   The Company's Current Report on Form 8-K dated as of June 28,
                 1996.
  
            5.   The Company's Current Report on Form 8-K/A (Amendment No. 1 to
                 Form 8-K dated as of June 28, 1996) dated as of July 8, 1996.
  
                                         -2-
  12
  
            6.   The Company's Current Report on Form 8-K/A (Amendment No. 2 to
                 Form 8-K dated as of June 28, 1996) dated as of August 13, 1996.
  
            7.   The description of the Company's Common Stock, $.01 par value per
                 share, contained in the Registration Statement on Form 8-A filed
                 under the Exchange Act and declared effective on November 17,
                 1994, including any amendment or report filed for the purpose of
                 updating such description.
  
           All documents subsequently filed by the Company pursuant to Section
  13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the termination of the
  offering of the Shares, shall be deemed to be incorporated by reference in this
  Prospectus and made a part hereof from the date of filing of such documents.
  
           Any statement contained in a document incorporated or deemed to be
  incorporated by reference in this Prospectus shall be deemed to be modified or
  superseded for purposes of this Prospectus to the extent that a statement
  contained herein or in any other subsequently filed document which also is or is
  deemed to be incorporated by reference herein or in any Prospectus Supplement
  modifies or supersedes such statement. Any such statement so modified or
  superseded shall not be deemed, except as so modified or superseded, to
  constitute a part of this Prospectus.
  
                                     TRADEMARKS
  
           SHIVA[Registered Trademark], SHIVA WITH DESIGN[Registered Trademark]
  (Shiva's logo), NETMODEM/E[Registered Trademark], NETMODEM[Registered   
  Trademark], NETBRIDGE[Registered Trademark], NETSERIAL[Registered Trademark],
  TELEBRIDGE[Registered Trademark], HUBLET[Registered Trademark],
  LANROVER[Registered Trademark], SPIDER[Registered Trademark],
  AIRSOFT[Registered Trademark] and ETHERGATE[Registered Trademark] are
  registered trademarks of Shiva and Shiva PPP[Trademark], ShivOS[Trademark],
  Tariff Management[Trademark], isdn[Trademark], ShivaPort[Trademark],
  ShivaIntegrator[Trademark], WebRover[Trademark], ShivaRemote[Trademark], Shiva
  Dial-In SDK[Trademark] LanRover Access Switch[Trademark], Shiva
  AccessPort[Trademark], ISSAK[Trademark], PowerBurst[Trademark],
  PowerSurf[Trademark], PowerNet[Trademark] and AirAccess[Trademark] are
  trademarks of Shiva. This Prospectus also includes other trade names and marks
  of companies other than Shiva.
  
                                         -3-
  13
  
                                     THE COMPANY
  
           Shiva is a leader in the design, development, manufacture and sale of
  hardware and software products that enable transparent remote connectivity to
  enterprise networks from any location having access to switched analog or
  digital telephone service. Founded in 1985, Shiva has applied its expertise in
  internetworking, personal computer ("PC") software and telephony to pioneer the
  "remote node" approach to remote network access. Shiva's remote node solution
  enables a remote PC to access an existing network as a fully functional network
  node, thereby allowing users to access network resources from their remote PCs
  as if they were directly connected to the enterprise network. Shiva servers
  enable users to connect to computing resources from home, while traveling, or as
  part of a branch office or multi-user worksite.
  
           The Company has three remote access product lines: (i) the LanRover 
  family, introduced in 1992 (including the LanRover Access Switch, introduced 
  in 1996), which provides enterprise-wide remote access, (ii) the Integrator, 
  introduced in 1994, which provides ISDN (Integrated Services Digital Network) 
  LAN-to-LAN (local area network) remote access for enterprises, workgroups and 
  the small office, home office (SOHO) market and (iii) the NetModem/E, 
  introduced in 1991, which provides remote access for workgroups and the SOHO 
  market. These products include server hardware and software, client software 
  and network management software. Shiva remote access products enable single-
  user dial-in to LANs over analog or digital lines, individual dial-out from 
  LANs to other locations and routed LAN-to-LAN dial-up connections. The 
  Company's remote access products support all major desktop computing platforms,
  including IBM-compatible PCs, Apple Macintoshes and UNIX workstations. The 
  Company also has a family of communications server products, including 
  ShivaPort, which provides remote access for TCP/IP devices, as well as 
  multiprotocol terminal server functionality to connect terminals and printers 
  to a LAN.
  
           Shiva has developed strategic partnerships with computer operating
  systems vendors, such as Microsoft, major information systems providers, such as
  IBM, Motorola and Hewlett-Packard, and a major communications equipment company,
  Northern Telecom Limited. Shiva markets its products in domestic and
  international markets through both direct and indirect distribution channels to
  reach a wide range of customers.
  
           On August 22, 1995, the Company acquired Spider Systems Limited
  ("Spider"), a leading digital internetworking company based in Edinburgh, United
  Kingdom, in exchange for approximately 3,923,606 shares of Common Stock (the
  "Spider Acquisition"). The acquisition of Spider provides Shiva with a range of
  advanced network access products incorporating Wide Area Network (WAN)
  technologies such as ISDN, X.25 and Frame Relay, as well as network consulting
  services.
  
           On June 17, 1996, the Company acquired AirSoft, Inc. ("AirSoft"), a
  developer of performance enhancement software products and technologies for
  remote network computing based in California, in exchange for approximately
  691,587 shares of Common Stock (the "AirSoft Acquisition"). The AirSoft
  Acquisition enables Shiva to add AirSoft's technologies to its portfolio of
  remote access solutions and to complement the market strength of Shiva PPP,
  Shiva's OEM client software package that is included in both the Netscape
  Navigator Personal Edition and the Microsoft Internet Explorer. Spider and
  AirSoft are collectively referred to herein as the "Acquired Companies," and the
  Spider Acquisition and the AirSoft Acquisition are collectively referred to as
  the "Recent Acquisitions."
  
           The Company's principal offices are located at 28 Crosby Drive,
  Bedford, Massachusetts 01730, and the Company's telephone number is (617)
  270-8300.
  
                                         -4-
  14
  
                       SELECTED CONSOLIDATED FINANCIAL DATA
  
          The following data as of December 30, 1995 and December 31, 1994 and
  for each of the three years in the period ended December 30, 1995 have been
  derived from, and are qualified by reference to, the Company's financial
  statements audited by Price Waterhouse LLP, independent accountants.  The
  consolidated balance sheet at December 30, 1995 and December 31, 1994 and the
  related consolidated statements of operations and of cash flows for the three
  years ended December 30, 1995 and notes thereto appear elsewhere herein.  The
  Price Waterhouse LLP report on the financial statements is based in part on the
  report of other independent accountants. These accountants' reports also
  appear elsewhere in this Prospectus. The following data as of January 2, 1993
  have been derived from, and are qualified by reference to, the Company's
  unaudited financial statements, not included in this Prospectus. The following 
  data as of December 31, 1991 and for the year then ended have been derived from,
  and are qualified by reference to, the Company's unaudited financial statements,
  not included in this Prospectus, and include all adjustments, consisting only 
  of normal recurring adjustments, which management considers necessary for a fair
  presentation of the results of such periods.  The following data as of June
  29, 1996 and for each of the six-month periods ended June 29, 1996 and July 1,
  1995 have been derived from, and are qualified by reference to, the Company's
  unaudited financial statements also appearing herein and which, in the opinion
  of management, include all adjustments, consisting only of normal recurring
  adjustments, necessary for a fair statement of the results for the unaudited 
  interim periods.  The selected consolidated financial data presented below 
  should be read in conjunction with and are qualified by reference to, 
  "Management's Discussion and Analysis of Financial Condition and Results of 
  Operations" and the Company's Consolidated Financial Statements and Notes 
  thereto, appearing elsewhere herein.
  
          The Spider Acquisition has been accounted for as a pooling of interest
  and therefore the financial data of the Company below are presented as if the
  Companies had been combined for all periods presented. Spider's results of
  operations for the years ended March 31, 1992 through 1994 have been combined
  with Shiva's results of operations for fiscal 1991 through 1994, respectively.
  Spider's financial position as of March 31, 1992 through 1995 has been combined
  with Shiva's financial position as of fiscal 1991 through 1994, respectively.
   
          The Airsoft Acquisition has been accounted for as a pooling of interests
  and therefore the financial data of the Company below are presented as if the
  companies had been combined for all periods presented.  Airsoft was
  incorporated and commenced operations on January 5, 1993.  Airsoft's results
  of operations for the years ended December 31, 1993 through 1995 have been
  combined with Shiva's results of operations for fiscal years 1993 through 1995,
  respectively.  Airsoft's financial position as of December 31, 1993 through
  1995 has been combined with the Company's financial position as of fiscal 1993
  through 1995, respectively.  The interim periods presented are for the six-month
  periods ended June 29, 1996 and July 1, 1995 for both Shiva and Airsoft.
  Six Months Ended
                                                                    FISCAL YEARS                                   -------------------
                                  ----------------------------------------------------------------------------     June 29,    July 1,
                                     1995              1994            1993            1992           1991           1996      1995
                                                      (In thousands, except per share data)                        -------------------
  STATEMENT OF OPERATIONS DATA
  Revenues                        $118,581           $81,058          $61,262        $52,815         $54,199       $94,794     $52,113
  Merger expenses                   13,986                 -               -             -               -           1,987         -
  Operating income (loss) before 
    merger expenses                  9,946             3,859            1,764         (2,790)         (2,888)       13,850       3,468
  Net income (loss)                 (4,852)*           2,040              416         (4,063)         (3,216)        9,314       2,355
  Net income (loss) per share        (0.18)             0.09             0.02          (0.32)          (0.26)          .30         .09
  Weighted average common and     
    common equivalent shares      
    outstanding                     27,337            22,945           16,832        12,828          12,586        31,296      27,045
  December 30,      December 31,      January 1,     January 2,     December 31,    June 29,
                                    1995              1994             1994           1993            1991           1996
                                    ----              ----             ----           ----            ----           ----
  BALANCE SHEET DATA              
  Working capital                 109,376            38,307            1,252            738           4,668        $117,882
  Total assets                    150,123            72,559           29,514         23,275          32,228         176,238
  Long-term obligations             1,088             5,085            3,418          4,267           5,865             863
  Stockholders' equity            122,904            44,113            6,072          4,195           8,142         141,182
  * In the absence of merger expenses incurred in FY95, net income and net income per share would have been $8.5 million 
    and $0.31, respectively. In the absence of merger expenses incurred in the six months ended June 29, 1996, net income and net 
    income per share would have been $11.3 million and $0.36, respectively.
  Spider's unaudited results of operations for the three-month period
  ended March 31, 1995, which are included in both the results of operations in
  fiscal 1994 and the nine-month period ended September 30, 1995, were as follows
  (in thousands):
  
          Revenues .........................................  $12,592
          Income from operations ...........................    1,350
          Net Income .......................................  $   899
  
                                        -5-
  15
  
  QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
  - -------------------------------------------
  First         Second          Third       Fourth
  (In thousands, except per share data)     Quarter        Quarter        Quarter      Quarter
                                            -------        -------        -------      -------
  FISCAL 1995
  
  Revenues                                  $25,737        $26,377       $ 30,033      $36,434
  Gross profit                               14,659         15,197         17,663       21,875
  Merger expenses                                 -              -         13,986            -
  Net income                                  1,382            973        (11,552)       4,346
  Net income (loss) per share               $  0.05        $  0.04       $  (0.42)     $  0.15
  
  Common Stock Prices -----  High           $ 21.00        $ 22.25       $  31.63      $ 38.75
                             Low            $ 13.50        $ 14.13       $  19.38      $ 21.13
  First         Second          Third       Fourth
                                            Quarter        Quarter        Quarter      Quarter
                                            -------        -------        -------      -------
  FISCAL 1994 (1)
  
  Revenues                                  $19,677        $17,956        $19,875      $21,412
  Gross profit                               10,693         10,349         11,606       12,566
  Net income                                    682            (31)           365          867
  Net income per share                      $  0.03        $  0.00        $  0.02      $  0.03
  
  Common Stock Prices -----  High              -              -              -         $ 21.50
                             Low               -              -              -         $ 13.25
  (1) Fiscal 1994 quarterly results include comparable periods for the Company and
  Spider and therefore differ from the audited consolidated statement of
  operations in that the audited consolidated statement of operations combine
  Spider's results of operations for the year ended March 31, 1995 with the
  Company's results of operations for the year ended December 31, 1994.
  -6-
  16
  
                                    RISK FACTORS
  
           An investment in the shares of Common Stock offered hereby involves a
  high degree of risk. Prospective investors should carefully consider the
  following risk factors, in addition to the other information contained in this
  Prospectus and the documents incorporated by reference herein, before
  purchasing the shares of Common Stock being offered hereby. This Prospectus and
  the documents incorporated by reference herein contain forward-looking
  statements that involve risks and uncertainties. For this purpose, any
  statements that are not statements of historical fact may be deemed to be
  forward-looking statements. Without limiting the foregoing, the words
  "believes," "anticipates," "plans," "expects" and similar expressions are
  intended to identify forward-looking statements. The Company's actual results
  may differ materially from the results discussed in the forward-looking
  statements as a result of certain factors, including those set forth in the
  following risk factors and elsewhere in this Prospectus.
  
  UNCERTAINTIES RELATING TO THE RECENT ACQUISITIONS
  
  RISKS ASSOCIATED WITH THE INTEGRATION OF THE ACQUIRED COMPANIES
  
           The successful and timely integration of Shiva and the Acquired
  Companies is critical to the future financial performance of the combined
  company. The combination of these companies will require, among other things,
  continuing integration of the companies' respective product offerings and
  coordination of their sales and marketing and research and development efforts.
  The diversion of the attention of management created by the integration process,
  and any difficulties encountered in the transition process, could have an
  adverse impact on the revenues and operating results of the combined company. In
  addition, the process of combining these organizations could cause the
  interruption of, or a loss of momentum in, the activities of any or all of the
  companies' businesses, which could have an adverse effect on their combined
  operations. The difficulty of combining the three companies may be increased by
  the need to integrate personnel and the geographic distance between the three
  companies. Changes brought about by the Recent Acquisitions may cause key
  employees to leave. There can be no assurance that the combined company will
  retain the employees it wants to retain or that the combined company will
  realize any of the other anticipated benefits of the Recent Acquisitions.
  
  RESELLERS, DISTRIBUTORS AND CUSTOMERS
  
           There can be no assurance that resellers, distributors and present and
  potential customers of Shiva will continue their recent buying patterns without
  regard to the Recent Acquisitions, and any significant delay or reduction in
  orders could have an adverse effect on the Company's near-term business and
  results of operations.
  
  TRANSACTION CHARGES
  
           In connection with the Spider Acquisition, Shiva recorded charges to
  operations of approximately $14.0 million in the quarter ended September 30,
  1995, the quarter in which the acquisition was consummated. These charges
  reflect costs associated with combining the operations of the two companies and
  transaction fees and costs incident to the Spider Acquisition. There can be no
  assurance that Shiva will not incur additional material charges in subsequent
  quarters to reflect costs associated with the Spider Acquisition.
  
           In connection with the AirSoft Acquisition, Shiva recorded charges to
  earnings of approximately $2.0 million in the quarter ended June 29, 1996, the
  quarter in which the acquisition was consummated. These charges reflect costs
  associated with combining the operations of the two companies and transaction
  fees and costs incident to the AirSoft Acquisition. There can be no assurance
  that Shiva will not incur additional material charges in subsequent quarters to
  reflect costs associated with the AirSoft Acquisition.
  
  ADVERSE EFFECT OF POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS;
  SEASONALITY OF RESULTS OF OPERATIONS
  
           Shiva's quarterly operating results may vary significantly depending on
  factors such as the timing of significant orders, the timing of new product
  introductions by Shiva and its competitors and the mix of distribution channels
  through which Shiva's products are sold. Spider's quarterly operating results
  have historically been highly seasonal, with sales and earnings generally
  stronger in the six-month period ended March 31 of each year and generally
  weaker in the six-month period ended September 30 of each year. There can be no
  assurance that Shiva will be able to continue its growth in revenues or sustain
  its profitability on a quarterly or annual basis. Revenues can be difficult to
  forecast due to the early stage of development of the remote access market and
  the fact that the Company's sales cycle, from initial inquiry to trial to
  multiple product purchases, varies substantially from customer to customer.
  Shiva's expense levels are based, in part, on its expectations as to future
  revenues. If revenue levels are below expectations, operating results may be
  adversely affected. Moreover,
  
                                         -7-
  17
  
  Shiva's resellers typically stock significant levels of inventory, and the
  Company's revenues may fluctuate based on the level of the resellers'
  inventories in any particular quarter.
  
  NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
  
           The market for Shiva's products is characterized by rapidly changing
  technology, evolving industry standards and frequent new product introductions.
  Shiva's future success will depend on its ability to enhance its existing
  products and to introduce new products and features to meet and adapt to
  changing customer requirements and emerging technologies. The Company recently
  introduced the LanRover Access Switch, a new high-end remote access switch, and
  AccessPort, a new ISDN client router, each in 1996, and any delay by the 
  Company in completing the development of these products, or the failure of 
  these products to achieve market acceptance, could have a material adverse 
  effect on the Company's financial condition or results of operations. In 
  addition, there can be no assurance that Shiva will be successful in 
  identifying, developing, manufacturing or marketing other new products or 
  enhancing its existing products. Also, there can be no assurance that services,
  products or technologies developed by others will not render Shiva's products 
  or technologies uncompetitive or obsolete.
  
  HIGHLY COMPETITIVE ENVIRONMENT
  
           The market for remote access products is highly competitive. Shiva
  competes with traditional vendors of modems, remote control software, terminal
  emulation software and application specific remote access solutions. Shiva also
  competes with suppliers of terminal servers, routers, hubs and other data
  communications products, and companies offering remote access solutions based on
  emerging technologies such as switched digital telephone services. In addition,
  Shiva may encounter increased competition from operating system and network
  operating system vendors to the extent such vendors include full remote access
  capabilities in their products. The Company currently licenses a version of its
  client software that can also operate with non-Shiva servers, and there can be
  no assurance that the licensing of such software will not enable other vendors
  to develop competitive remote access solutions. The Company may also encounter
  competition from telephone service providers (such as AT&T or the regional Bell
  operating companies) that may offer remote access services through their
  telephone networks.
  
           The typical method of corporate remote access using Shiva's products
  involves a remote user establishing a connection directly to a remote access
  server located on the corporation's network. This method of remote access could
  migrate to one in which the remote user establishes a connection to a public
  network, such as the Internet, to which the corporate network is also connected.
  Increased competition from remote access service offerings through public
  networks could have a material adverse effect on the Company's business.
  
           The Spider Acquisition has added products to Shiva's portfolio that
  compete more directly with those offered by large internetworking and
  communications server companies than did Shiva's products prior to the Spider
  Acquisition. As a result, the Company is in more direct competition across a
  broader product line with these companies, many of whom have substantially
  greater resources than Shiva.
  
           Increased competition could result in price reductions and loss of
  market share which would adversely affect Shiva's revenues and profitability.
  Many of Shiva's current and potential competitors have greater financial,
  marketing, technical and other resources than Shiva. There can be no assurance
  that Shiva will be able to continue to compete successfully with its existing
  competitors or will be able to compete successfully with new competitors.
  
  RISKS ASSOCIATED WITH INTERNATIONAL REVENUES, REGULATORY STANDARDS AND
  FOREIGN CURRENCY EXCHANGE RATE FLUCTUATIONS
  
           The Company's international revenues accounted for approximately 39%,
  47%, 52%, 55% and 57% of total revenues in the first six months of fiscal 1996
  and in fiscal 1995, 1994, 1993 and 1992, respectively. In addition to direct
  international sales, Shiva also sells products to U.S. original equipment
  manufacturers, such as IBM, that sell such products internationally. While many
  of Shiva's current products are designed to meet the regulatory standards of
  foreign markets, any inability to obtain foreign regulatory approvals with
  respect to future
  
                                         -8-
  18
  
  products on a timely basis could have an adverse effect on operating results. In
  addition, Shiva is subject to the usual risks of doing business abroad,
  including fluctuations in currency exchange rates, increases in duty rates,
  difficulties in obtaining export licenses, difficulties in enforcement of
  intellectual property rights and political uncertainties. To the extent that the
  Company makes sales denominated in currencies other than U.S. dollars, gains and
  losses on the conversion of such sales to U.S. dollars may in the future
  contribute to fluctuations in the Company's business and operating results. In
  addition, fluctuations in exchange rates could affect demand for the Company's
  products.
  
  POTENTIAL VOLATILITY OF STOCK PRICE
  
           The Company's shares of Common Stock have been listed on the Nasdaq
  National Market since November 1994. The market price of the Common Stock has
  experienced significant variations during this period, ranging from a high of
  $87.25 to a low of $13.25, and there can be no assurance that the market price
  of the Common Stock will not experience similar fluctuations in the future or
  will not fall below such levels. The market price of the Company's Common Stock
  could be subject to wide fluctuations in response to quarter-to-quarter
  variations in operating results, changes in earnings estimates by analysts and
  market conditions in the industry, as well as general economic conditions. In
  addition, the stock market has experienced volatility that has particularly
  affected the market prices for many companies' stock and that often has been
  unrelated to the operating performance of such companies. These market
  fluctuations may adversely affect the market price of the Company's Common
  Stock.
  
  RELIANCE ON REMOTE ACCESS MARKET; EARLY STAGE OF MARKET; CLIENT SOFTWARE 
  LICENSING STRATEGY
  
           Shiva currently devotes a significant portion of its research and
  development, manufacturing, marketing and sales resources to service the private
  and public remote access market and expects to continue to do so. Although Shiva
  believes that its concentrated focus provides it with competitive advantages in
  the remote access market, this focus also may leave the Company more vulnerable
  to a decline in the remote access market than companies with more diverse
  product offerings. Moreover, the Company's future financial performance will
  depend in large part on continued growth in the remote access market, which in
  turn will depend in part on the growth in the number of organizations utilizing
  remote access products and the number of applications developed for use with
  those products. There can be no assurance that these markets will continue to
  grow or that the Company will be able to respond effectively to the evolving
  requirements of these markets. Moreover, many of the Company's customers have
  not yet standardized upon any particular remote access solution, and there can
  be no assurance that Shiva's products will be the standard adopted by its
  customers.
  
           The Company grants unlimited use licenses of its client software, which
  operates solely with Shiva servers, as part of each sale of a remote access
  server. The Company has implemented a strategy of licensing a version of its
  client software that can also operate with non-Shiva servers to third-party
  vendors who desire to provide remote access functionality in their own product
  offerings. There can be no assurance that the Company will achieve significant
  revenues from the licensing of its client software.
  
  POTENTIAL ADVERSE IMPACT OF PRODUCT RETURNS AND PRICE REDUCTIONS
  
           Shiva provides most of its distributors and resellers with product
  return rights for stock balancing or product evaluation. Shiva also provides
  most of its distributors and resellers with price protection rights. Stock
  balancing rights permit distributors to return products to Shiva for credit
  against future product purchases, within specified limits. Product evaluation
  rights permit end-users to return products to Shiva, through the distributor or
  reseller from whom such products were purchased, within 30 days of purchase if
  such end-user is not fully satisfied. Price protection rights require that Shiva
  grant retroactive price adjustments for inventories of Shiva products held by
  distributors or resellers if Shiva lowers its prices for such products. Revenues
  were reduced by provisions for product returns of $3,978,000, $7,410,000,
  $7,092,000 and $4,938,000 in the first six months of fiscal 1996 and in
  fiscal 1995, 1994 and 1993, respectively. Reserves for product returns were
  $4,983,000, $4,581,000, $3,309,000 and $2,054,000 at June 29, 1996,
  December 30, 1995, December 31, 1994 and January 1, 1994, respectively.
  Although Shiva believes that it has adequate reserves to cover product returns 
  and price reductions, there can be
  
                                         -9-
  19
  
  no assurance that the Company will not experience significant returns or price
  protection adjustments in the future or that such reserves will be adequate to
  cover such returns and price reductions.
  
  DEPENDENCE ON SUBCONTRACTORS AND SUPPLIERS
  
           Shiva is dependent on two subcontractors for the manufacture of
  significant portions of its remote access products. If these subcontractors were
  to become unable or unwilling to continue to manufacture Shiva's key products in
  required volumes, the Company would have to identify and qualify acceptable
  additional subcontractors. This qualification process could be lengthy and no
  assurances can be given that any additional sources will become available to the
  Company on a timely basis. In addition, the chipsets used in certain of Shiva's
  Token Ring connectivity products and modem products are currently available only
  from IBM and Rockwell, respectively. To date, Shiva has not experienced
  significant delays in the receipt of key components. Certain of the components
  of the Integrator product line are currently available only from Intel, Motorola
  and Matra Harris. The inability to obtain sufficient key components as required,
  or to develop alternative sources if and as required in the future, could result
  in delays or reductions in product shipments which, in turn, could have a
  material adverse effect on Shiva's results of operations.
  
  POTENTIAL ADVERSE EFFECT OF ANY INABILITY TO MANAGE GROWTH
  
           Shiva is currently experiencing a period of rapid growth which has
  placed, and could continue to place, a significant strain on its resources. This
  strain has been increased by the Recent Acquisitions. If Shiva's management is
  unable to manage any future growth effectively, Shiva's results of operations
  could be adversely affected.
  
  DEPENDENCE ON HIGHLY-SKILLED PERSONNEL
  
           Shiva believes that its future success will also depend in large part
  upon its ability to attract and retain highly skilled technical, managerial and
  marketing personnel including, in particular, additional management personnel in
  the areas of research and development and technical support. Competition for
  such personnel is intense. There can be no assurance that Shiva will be
  successful in attracting and retaining the personnel it requires to continue to
  grow.
  
  DEPENDENCE ON PROPRIETARY TECHNOLOGY
  
           Although Shiva believes that its continued success will depend
  primarily on continuing innovation, sales, marketing and technical expertise,
  the quality of product support and customer relations, Shiva must also protect
  the proprietary technology contained in its products. Shiva does not currently
  hold any patents, relying instead on a combination of copyright, trademark,
  trade secret laws and contractual provisions to establish and protect
  proprietary rights in its products. There can be no assurance that the steps
  taken by Shiva in this regard will be adequate to deter misappropriation or
  independent third-party development of its technology. Although Shiva believes
  that its products and technology do not infringe proprietary rights of others,
  there can be no assurance that third parties will not assert infringement claims
  or that Shiva will not be required to obtain licenses of third-party
  technologies.
  
  ADVERSE EFFECT OF FLUCTUATIONS IN ECONOMIC AND MARKET CONDITIONS
  
           The demand for Shiva's products depends in large part upon the general
  demand for computer networks. General demand for computing related equipment
  fluctuates from time to time based on numerous factors, including capital
  spending levels and general economic conditions. The market for remote access
  products is relatively new, and therefore Shiva believes that current economic
  conditions have not had an adverse effect on its business. However, there can be
  no assurance that future declines of computer and related equipment sales, as a
  result of general economic conditions, or any other reason, would not have an
  adverse effect on the Company's results of operations.
  
                                       -10-
  20
  SHARES ELIGIBLE FOR FUTURE SALE
  
           Sales of substantial numbers of shares of the Company's Common Stock in
  the public market could adversely affect the market price of the Common Stock.
  
  POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS; RIGHTS PLAN; POSSIBLE 
  ISSUANCE OF PREFERRED STOCK
  
           The Company's Restated Articles of Organization and Restated By-laws
  contain provisions that may make it more difficult for a third party to acquire,
  or discourage acquisition bids for, the Company. Moreover, the Company is
  subject to an anti-takeover provision of the Massachusetts General Laws which
  prohibits, subject to certain exceptions, a holder of 5% or more of the
  outstanding voting stock of the Company from engaging in certain activities with
  the Company, including a merger, stock or asset sale. These provisions could
  limit the price that certain investors might be willing to pay in the future for
  shares of the Company's Common Stock. In addition, the Company has adopted a
  Rights Plan pursuant to which the Company has distributed to its stockholders
  rights to purchase shares of junior participating preferred stock. Upon certain
  triggering events, such rights become exercisable to purchase the Company's
  Common Stock at a price substantially discounted from the then applicable market
  price of the Company's Common Stock. The Rights Plan could have the effect of
  discouraging a merger or tender offer involving the securities of the Company
  that is not approved by the Company's Board of Directors by increasing the cost
  of effecting any such transaction and, accordingly, could have an adverse impact
  on stockholders who might want to vote in favor of such merger or participate in
  such tender offer. Also, shares of the Company's Preferred Stock may be issued
  in the future without further stockholder approval and upon such terms and
  conditions, and having such rights, privileges and preferences, as the Board of
  Directors may determine. The rights of the holders of Common Stock will be
  subject to, and may be adversely affected by, the rights of any holders of
  Preferred Stock that may be issued in the future. The issuance of Preferred
  Stock, while providing desirable flexibility in connection with possible
  acquisitions and other corporate purposes, could have the effect of making it
  more difficult for a third party to acquire, or discouraging a third party from
  acquiring, a majority of the outstanding voting stock of the Company. The
  Company has no present plans to issue any shares of Preferred Stock, although
  shares of Preferred Stock are reserved for issuance under the Rights Plan.
  
                                   USE OF PROCEEDS
  
           The Company will not receive any of the proceeds from the sale of the
  Shares of Common Stock by the Selling Stockholders.
  
                                         -11-
  21
  
                       MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  
       The following discussion of the financial condition and results of
  operations of the Company should be read in conjunction with the Company's
  Consolidated Financial Statements and Notes thereto.
  
  OVERVIEW
  
       The Company was incorporated in 1985 and initially specialized in the
  development of networking products for AppleTalk LANs (local area networks). In
  late fiscal 1991, the Company began a transition toward the sale of remote
  access products with the introduction of NetModem/E, its first multiplatform,
  multiprotocol remote access product for workgroups. In fiscal 1992, the Company
  continued its strategic shift towards remote access products and introduced its
  LanRover product line, a multiport, enterprise-wide remote access solution. In
  fiscal 1993, the Company established an OEM relationship with IBM, resulting in
  the release of IBM's 8235 product, a LanRover server customized for IBM
  environments. In fiscal 1994, the Company introduced the LanRover/PLUS server
  and released LanRover 3.0 server, which provides multiprotocol capability. In
  fiscal 1995, the Company continued to focus on its core remote access products
  including a new software release for its LanRover and NetModem product lines,
  Release 3.5, and broadened its base of strategic partners by establishing
  relationships with Hewlett-Packard ("HP"), Motorola and Northern Telecom Limited
  ("Nortel").
  
       In August 1995, the Company acquired Spider Systems Limited ("Spider"), a
  leading digital internetworking company based in Edinburgh, U.K., through the
  issuance of approximately 3,923,606 shares of its common stock (the "Spider
  Acquisition"). The Spider Acquisition has been accounted for as a pooling of
  interests. Therefore, the consolidated financial statements for all periods
  presented have been restated to include the financial results of Spider.
  Spider's results of operations in the years ended March 31, 1995 and 1994 have
  been combined with Shiva's results of operations in fiscal 1994 and 1993,
  respectively. Spider's results of operations in the twelve-month period ended
  December 30, 1995 have been combined with Shiva's results of operations in
  fiscal 1995. Spider's unaudited results of operations in the three-month period
  ended March 31, 1995 have therefore been included in the Company's results of
  operations in fiscal 1994 and fiscal 1995. See Note 1 of Notes to Consolidated
  Financial Statements.
  
       As a result of the Spider Acquisition, Shiva acquired technologically
  advanced network access hardware and software products. These products connect
  remote LANs and individual users to a corporate network, facilitating network
  access using advanced switched digital communication protocols such as ISDN,
  X.25 and Frame Relay. These products include the ShivaIntegrator product line,
  communications servers and communications software. The ShivaIntegrator product
  line provides switched digital LAN-to-LAN remote access for enterprises and
  workgroups. Communications servers provide remote access for TCP/IP devices and
  multiprotocol terminal server functionality to connect terminals and printers to
  a LAN. In addition to these product offerings, Shiva now provides network
  integration services and also sells, installs and supports products manufactured
  by the Company and third parties.
  
       In June 1996, the Company issued approximately 691,587 shares of its common
  stock in exchange for all the outstanding shares of AirSoft, Inc. (the "AirSoft
  Acquisition"). AirSoft, Inc. ("AirSoft") designs, manufactures and sells
  performance enhancement software products. The AirSoft Acquisition has been
  accounted for as a pooling of interests, and therefore the consolidated
  financial
  
                                        -12-
  22
  statements for all periods prior to the AirSoft Acquisition have been restated
  to include the accounts and operations of AirSoft with those of the Company.
  
       The Company derives its revenues from remote access products, other
  communications products and services. Remote access products include the
  LanRover, ShivaIntegrator and NetModem product lines. Other communications
  products include communications servers, third-party products (including those
  of 3Com), AppleTalk product, and communications software. The Company also 
  provides a wide range of service offerings which include network integration 
  and training and maintenance services.
  
                                        -13-
  23
  
  RESULTS OF OPERATIONS
  
  The following table sets forth consolidated statement of operations data of the
  Company expressed as a percentage of revenues for the periods indicated:
  Fiscal Years                Six Months Ended
                                               --------------------------       --------------------
                                                                                June 29,     July 1,
                                               1995       1994       1993        1996         1995
                                              ------     ------     ------      ------       ------
                                                                                     (unaudited)
  Revenues                                     100        100        100         100          100
  Cost of revenues                              41         43         46          41           43
                                               ---        ---        ---         ---          ---
  Gross profit                                  59         57         54          59           57
                                               ---        ---        ---         ---          ---
  
  Operating expenses:
  
    Research and development                    12         12         13          11           12
    Selling, general and administrative         38         40         38          33           38
    Merger expenses                             12          -          -           2            -
                                               ---        ---        ---         ---          ---
             Total operating expenses           62         52         51          46           50
                                               ---        ---        ---         ---          ---
  Income (loss) from operations                 (3)         5          3          13            7
  Interest expense (income)                     (1)         1          2          (2)          (1)
                                               ---        ---        ---         ---          ---
  Income (loss) before income taxes             (2)         4          1          15            8
  Income tax provision                           2          1          1           5            3
                                               ---        ---        ---         ---          ---
  Net income (loss)                             (4)%        3%         0%         10%           5%
                                               ===        ===        ===         ===          ===
  -14-
  24
  SIX-MONTH PERIOD ENDED JUNE 29, 1996 COMPARED WITH THE SIX-MONTH PERIOD ENDED
  JULY 1, 1995.
  
  RESULTS OF OPERATIONS
  
       REVENUES. Revenues increased by 82%, to $94,794,000, for the six-month
  period ended June 29, 1996, from $52,113,000 in the comparable period in fiscal
  1995. This increase was principally due to higher revenues from the Company's
  remote access products. Remote access product revenues increased by 136%, to
  $79,016,000, in the six-month period ended June 29, 1996, from $33,497,000
  during the comparable period in fiscal 1995, principally due to higher revenues
  from the Company's LanRover product family, including the LanRover AccessSwitch.
  Sales to OEM customers accounted for 20% of revenues in the six months ended
  June 29, 1996 and were not significant in the comparable period in fiscal 1995.
  These increases were partially offset by a 24% decline in revenues from the
  Company's other communications products. The Company anticipates that revenues
  from other communications products will continue to decline and will account for
  a decreasing percentage of revenue in future periods. The Company provides its
  distributors and resellers with product return rights for stock balancing and
  product evaluation. Revenues were reduced by provisions for product returns of
  $3,978,000 and $4,077,000 in the six month periods ended June 29, 1996 and July
  1, 1995, respectively, representing 4% and 7% of gross revenues, respectively.
  International revenues increased to $37,247,000, or 39% of revenues, in the
  six-month period ended June 29, 1996, from $27,259,000, or 52% of revenues, in
  the comparable period in fiscal 1995.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in
  the six-month period ended June 29, 1996, compared to 57% for the comparable
  period in fiscal 1995. This increase was primarily attributable to increased
  revenues from the Company's LanRover product family, which carry higher gross
  margins than the Company's other products, partially offset by increased
  revenues from lower gross margin OEM remote access products.
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $10,656,000, or 11% of revenues, in the six-month period ended June 29, 1996,
  from $6,356,000, or 12% of revenues, during the comparable period in fiscal
  1995. The absolute increase in these expenses was primarily due to the hiring of
  additional research and development staff. Research and development expenses
  during the six-month period ended June 29, 1996 related primarily to continued
  enhancement and development of the Company's remote access products, including
  the LanRover Access Switch and the Shiva AccessPort, a new ISDN client router.
  Customer-funded development fees reimbursed to the Company, which are reflected
  as an offset to research and development expenses, were $851,000 in the
  six-month period ended June 29, 1996, compared to $515,000 for the comparable
  period in fiscal 1995. Capitalized software development costs were $593,000 in
  the six-month period ended June 29, 1996, compared to $264,000 in the comparable
  period in fiscal 1995.
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $31,506,000 for the six-month period ended June 29, 1996,
  from $20,032,000 for the comparable period in fiscal 1995. These expenses
  represented 33% and 38% of revenues in the six-month periods ended June 29, 1996
  and July 1, 1995, respectively. The absolute increase in expenses was primarily
  due to worldwide expansion of the Company's sales, marketing and administrative
  operations necessary to support the Company's growth. The Company plans to
  further invest in its distribution channels in order to continue its global
  market penetration.
  
       MERGER EXPENSES. In connection with the AirSoft Acquisition, the Company
  incurred charges to operations of $1,987,000 in the quarter ended June 29, 1996,
  the quarter in which the acquisition was consummated. Such charges include: (a)
  transaction costs to effect the acquisition, consisting of financial advisor
  fees of $1,350,000 plus $325,000 for legal, regulatory and accounting expenses
  and (b) employee severance payments and other miscellaneous expenses of
  $312,000. Approximately $778,000 of such expenses were paid in the quarter ended
  June 29, 1996, and the remaining $1,209,000 of these charges are expected to be
  cash outflows in the third quarter of fiscal 1996.
  
                                        -15-
  25
  
       INTEREST INCOME AND EXPENSE. The Company had higher interest income during
  the six-month period ended June 29, 1996, due to higher investment balances
  related to funds generated by the Company's secondary public offering in
  November 1995. Interest expense decreased due to the Company's repayment of the
  outstanding debt of Spider Systems, Ltd. assumed as part of the Spider
  Acquisition, with the exception of the European Coal and Steel Community Fund
  loans, in the third quarter of fiscal 1995.
  
       INCOME TAX PROVISION. The Company's effective tax rate was 33% for the
  six-month period ended June 29, 1996, compared to 41% for the comparable period
  in fiscal 1995. The decrease in the effective tax rate for the six-month period
  ended June 29, 1996 was due to a reduction in the net deferred tax asset
  valuation allowance as a result of certain net operating losses that could now
  be realized, partially offset by non-deductible merger expenses.
  
  FISCAL 1995 COMPARED TO FISCAL 1994
  
       REVENUES. Revenues increased by 46%, to $118,581,000, in fiscal 1995 from
  $81,058,000 in fiscal 1994. This increase was principally due to higher revenues
  from the Company's remote access products. Remote access product revenues
  increased by 87%, to $83,924,000, in fiscal 1995 from $44,825,000 in fiscal
  1994, principally due to higher revenues from the Company's LanRover and
  ShivaIntegrator products. Sales of OEM products to IBM were 10% and 9% of
  revenues in fiscal 1995 and 1994, respectively. These increases were partially
  offset by a 13% decline in revenues from the Company's other communications
  products. The Company anticipates that revenues from other communications
  products will account for a decreasing percentage of revenues in future periods.
  The Company provides its distributors and resellers with product return rights
  for stock balancing and product evaluation. Revenues were reduced by provisions
  for product returns of $7,410,000 in fiscal 1995 and $7,092,000 in fiscal 1994,
  representing 6% and 8% of gross revenues in fiscal 1995 and 1994, respectively.
  International revenues increased to $55,197,000, or 47% of revenues, in fiscal
  1995 from $41,942,000, or 52% of revenues, in fiscal 1994.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 59% in
  fiscal 1995, compared to 57% in fiscal 1994. This increase was primarily
  attributable to increased revenues from the Company's LanRover products, which
  carry higher gross margins than other communications products, partially offset
  by increased European sales of lower priced products through large volume
  distributors.
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $14,787,000, or 12% of revenues, in fiscal 1995 from $9,972,000, or 12% of
  revenues, in fiscal 1994. The absolute increase in these expenses was primarily
  due to the hiring of additional research and development staff. Research and
  development expenses during fiscal 1995 related primarily to continued
  enhancements of the Company's remote access products, including the
  ShivaIntegrator product line and a new software release for its LanRover and
  NetModem product lines. Customer-funded development fees reimbursed to the
  Company and government funded research and development grants, which are
  reflected as an offset to research and development expenses, were $955,000 in
  fiscal 1995, compared to $901,000 in fiscal 1994. Capitalized software
  development costs were $827,000 in fiscal 1995, compared with $293,000 in fiscal
  1994. The Company anticipates continued significant investment in research and
  development.
  
                                        -16-
  26
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $44,662,000, or 38% of revenues, in fiscal 1995 from
  $32,427,000, or 40% of revenues, in fiscal 1994. The absolute increase in
  expenses was primarily due to expansion of the Company's worldwide sales and
  support operations, as the Company continued to build its distribution channels.
  The Company plans to further invest in its distribution channels in order to
  continue its global market penetration.
  
       MERGER EXPENSES. In connection with the Spider Acquisition, the Company
  incurred charges to operations of approximately $13,986,000 in the quarter ended
  September 30, 1995, the quarter in which the Spider Acquisition was consummated.
  Such charges include: (a) transaction costs to effect the acquisition,
  consisting of $2,619,000 for financial advisor fees plus $3,656,000 for legal,
  regulatory and accounting fees, printing expenses and other miscellaneous
  expenses; (b) employee severance payments of $1,482,000 and phantom stock
  compensation of $2,644,000 and (c) $3,585,000 for the integration of operational
  activities of the companies, including elimination of duplicative assets,
  employee relocation and travel, and the marketing costs related to the
  introduction of the combined entity. In fiscal 1995, approximately $10,220,000
  million of these expenses were funded from existing cash and short-term
  investment balances. Phantom stock compensation and the elimination of
  duplicative assets, totaling $3,766,000, were non-cash transactions in this
  period.
  
       INTEREST INCOME AND EXPENSE. The Company had higher interest income in
  fiscal 1995, due to investment balances related to funds generated by the
  Company's public stock offerings in November 1995 and November 1994. Interest
  expense consists primarily of interest incurred on the Company's mortgage on its
  European headquarters and capitalized lease obligations.
  
       INCOME TAX PROVISION. The Company had an income tax provision of $2,386,000
  in fiscal 1995, despite a pre-tax loss, primarily due to non-tax deductible
  merger costs incurred in connection with the Spider Acquisition. The Company's
  effective tax rate was 31% in fiscal 1994.
  
  FISCAL 1994 COMPARED TO FISCAL 1993
  
       REVENUES. Revenues increased by 32%, to $81,058,000, in fiscal 1994, from
  $61,262,000 in fiscal 1993. This increase was principally due to higher revenues
  from the Company's remote access products. Remote access product revenues
  increased by 119%, to $44,825,000, in fiscal 1994 from $20,510,000 in fiscal
  1993, principally due to higher unit sales and average selling prices of the
  Company's LanRover and ShivaIntegrator products. Sales of OEM products to IBM,
  which began in the second half of fiscal 1993, also contributed significantly to
  this increase. These increases in remote access product revenues were partially
  offset by a 21% decline in revenues from the Company's other communications
  products. The Company provides its distributors and resellers with product
  return rights for stock balancing and product evaluation. Revenues were reduced
  by provisions for product returns of $7,092,000, or 8% of gross revenues, in
  fiscal 1994 and $4,938,000, or 7% of gross revenues, in fiscal 1993.
  International revenues increased to $41,942,000, or 52% of revenues, in fiscal
  1994 from $33,974,000, or 55% of revenues, in fiscal 1993.
  
       GROSS PROFIT. Gross profit increased as a percentage of revenues to 57% in
  fiscal 1994, compared to 54% in fiscal 1993. This improvement was primarily
  attributable to increased revenues from LanRover products, which carry higher
  gross margins than the Company's other communications products, increased prices
  on certain products and cost reductions. This improvement was partially offset
  by increased revenues from lower gross margin OEM remote access products.
  
                                        -17-
  27
  
       RESEARCH AND DEVELOPMENT. Research and development expenses increased to
  $9,972,000, or 12% of revenues, in fiscal 1994 from $8,162,000, or 13% of
  revenues, in fiscal 1993. Research and development expenses in fiscal 1994
  related primarily to continued enhancements of the Company's remote access
  products, including LanRover 3.0, released in June 1994, and LanRover/PLUS,
  released in March 1994 and continued enhancements of ShivaIntegrator products.
  Customer funded development fees reimbursed to the Company and government funded
  research and development grants, which are reflected as an offset to research
  and development expenses, were $901,000 in fiscal 1994, compared to $1,438,000
  in fiscal 1993.
  
       SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
  expenses increased to $32,427,000, or 40% of revenues, in fiscal 1994 from
  $23,367,000, or 38% of revenues, in fiscal 1993. The absolute increase in
  expenses was due primarily to expansion of the Company's worldwide sales
  operation, as the Company continued to build its distribution channels.
  
       INTEREST INCOME AND EXPENSE. The Company had interest income in fiscal 1994
  due to investment balances related to funds generated by the Company's initial
  public offering in November 1994. Interest expense consists primarily of
  interest incurred on the Company's mortgage on its European headquarters, its
  line of credit and capitalized lease obligations.
  
       INCOME TAX PROVISION (BENEFIT). The Company's effective tax rate was 31% in
  fiscal 1994 compared to 42% in fiscal 1993. The decrease in the effective tax
  rate was primarily due to a reduction in the net deferred tax asset valuation
  allowance and increased research and development credits.
  
  FOREIGN CURRENCY FLUCTUATIONS
  
  A substantial portion of the Company's international revenues is denominated in
  currencies other than the U.S. dollar and is consequently subject to foreign
  exchange fluctuations. The net income impact of such fluctuations, however, is
  offset to the extent expenses of the Company in international operations are
  incurred in the same currencies as its revenues. Foreign currency fluctuations
  did not have a significant impact on the comparison of the results of operations
  for the periods presented.
  
  LIQUIDITY AND CAPITAL RESOURCES
  
       As of June 29, 1996, the Company had $95,233,000 of cash and cash
  equivalents and $4,992,000 of short-term investments. Working capital increased
  to $117,882,000 at June 29, 1996 from $109,376,000 at December 30, 1995.
  
       Net cash provided by operations totaled $5,616,000 for the six-month period
  ended June 29, 1996, compared with net cash provided by operations of $4,418,000
  during the comparable period in fiscal 1995. Net cash provided by operations
  during the six-month period ended June 29, 1996 consisted primarily of net
  income adjusted for non-cash expenses including depreciation and amortization,
  and increased current liabilities, partially offset by increased accounts
  receivable and inventories. The increase in accounts receivable was due to
  increased revenue levels. The increase in inventories is necessary to support
  the Company's revenue growth and the introduction of the LanRover Access Switch
  product.
  
                                        -18-
  28
  
       Net cash used by investing activities totaled $4,435,000 for the six-month
  period ended June 29, 1996, compared to $12,875,000 during the comparable period
  in fiscal 1995. Investment activity in the six months ended June 29, 1996
  consisted primarily of purchases of property and equipment to support the
  Company's growth, partially offset by proceeds from short-term investments upon
  maturity. Investment activity for the comparable period in fiscal 1995 consisted
  primarily of purchases of short-term investments and property, plant and
  equipment.
  
       Net cash provided by financing activities, which consisted of proceeds from
  stock option exercises, partially offset by payments on long-term debt and
  capital lease obligations, totaled $899,000 for the six-month period ended June
  29, 1996. Net cash used by financing activities was $1,084,000 during the
  comparable period in fiscal 1995, and consisted primarily of payments on the
  Company's outstanding debt and capital lease obligations.
  
       The Company has a $5,000,000 unsecured revolving credit facility with a
  bank which expires in June 1997. Borrowings under the revolving credit facility
  bear interest at the bank's prime rate. The terms of the Credit Agreement
  require the Company to maintain a minimum level of profitability and specified
  financial ratios. The Company had no borrowings outstanding under this line at
  June 29, 1996. The Company also has a foreign credit facility of approximately
  $1,552,000, of which approximately $587,000 was available at June 29, 1996.
  Available borrowings under this facility are decreased by the value of the
  outstanding debt payable to the European Coal and Steel Community Fund and
  guarantees on certain foreign currency transactions. The terms of the foreign
  credit facility require the Company to maintain a minimum level of profitability
  and specified financial ratios. There were no borrowings outstanding under this
  foreign credit facility at June 29, 1996.
  
       The Company enters into forward exchange contracts to hedge against certain
  foreign currency transactions for periods consistent with the terms of the
  underlying transactions. The forward exchange contracts have maturities that do
  not exceed one year. At June 29, 1996, the total amount of forward exchange
  transactions covered by hedging contracts was $17,020,000.
  
       The Company believes that its existing cash and short-term investment
  balances, together with borrowings available under the Company's bank credit 
  facilities, are sufficient to meet the Company's cash requirements for the 
  foreseeable future.
  
  RECENTLY ENACTED ACCOUNTING PRONOUNCEMENTS
  
       In October 1995, the Financial Accounting Standards Board issued Statement
  No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
  establishes a fair-value-based method of accounting for employee stock-based
  compensation plans. However, it allows companies to continue to apply the
  intrinsic value method based on APB No. 25, provided certain pro forma
  disclosures are made (including net income and earnings per share) as if the
  fair-value-based method had been applied. The Company will be required to
  implement SFAS 123 in fiscal 1996 and will adopt this standard through the pro
  forma disclosure method.
  
  FACTORS THAT MAY AFFECT FUTURE RESULTS
  
       From time to time, information provided by the Company or statements made
  by its employees may contain `forward-looking' information which involve risks
  and uncertainties. In particular, statements contained in the Management's
  Discussion and Analysis of Financial Condition and Results of Operations which
  are not historical facts (including, but not limited to, statements concerning
  anticipated operating expense levels and the availability of funds to meet cash
  requirements) may be `forward-looking' statements. The Company's actual future
  results may differ significantly from those stated in any forward-looking
  statements. Factors that may cause such differences are discussed more fully
  above under the caption "Risk Factors" and in the Company's Annual Report to
  Stockholders, Form 10-K and the Company's other Securities and Exchange
  Commission filings.
  
                                        -19-
  29
  
                                SELLING STOCKHOLDERS
  
           The following table provides certain information with respect to the
  Shares held of record by each Selling Stockholder, certain of whom may be
  deemed to have been affiliates of AirSoft. The Shares may be offered from time
  to time by any of the Selling Stockholders. Because the Selling Stockholders
  may sell all or any part of their Shares pursuant to this Prospectus, no
  estimate can be given as to the number of Shares that will be held by each
  Selling Stockholder upon termination of this offering. See "Plan of
  Distribution."
  Number of Shares of      Number of Shares of
                                     Common Stock            Common Stock   
                                     Owned Prior           which may be Sold 
  Name                            to this Offering (1)     in this Offering (1)
  - ----                            --------------------     --------------------
  Sunil Bopardikr                           772                     772
  Richard Maddox and Celia Maddox         1,287                   1,287
                                          -----                   -----
  TOTAL                                   2,059                   2,059
                                          =====                   =====
  - ----------                                      
  
  (1)     The number of shares reflected in each of these columns does not take 
          account of any sales of shares by the individuals listed since 
          September 27, 1996.
  -20-
  30
  
          On June 16, 1996, the Company entered into an Agreement and Plan of
  Merger by and among the Company, a wholly-owned subsidiary of the Company and
  AirSoft (the "Merger Agreement"), pursuant to which the Company acquired 
  AirSoft, a developer of performance enhancement software products and
  technologies for remote network computing based in California, through the
  issuance of approximately 691,587 shares of its Common Stock plus the assumption
  of stock options exercisable for approximately 119,076 shares of Common Stock.
  The AirSoft Acquisition was completed on June 17, 1996, and has been accounted
  for as a pooling of interests. Approximately 69,155 of the 691,587 shares of
  Common Stock issued in the AirSoft Acquisition were placed in escrow to satisfy
  any indemnification claims brought by Shiva based on a breach of any of the
  representations and warranties relating to the business of AirSoft.
  
          The AirSoft Acquisition is more fully described in the Company's Current
  Report on Form 8-K dated as of June 28, 1996, as amended by the Company's
  Current Reports on Form 8-K/A dated as of July 8, 1996 and August 13, 1996.
  
                                        -21-
  31
                                PLAN OF DISTRIBUTION
  
          The Shares offered hereby are being sold by the Selling Stockholders for
  their own accounts. The Company will receive none of the proceeds from this
  offering.
  
          The Shares covered by this Prospectus may be sold by the Selling
  Stockholders or by pledgees, donees, transferees or other successors in
  interest. Such sales may be made at fixed prices that may be changed, at market
  prices prevailing at the time of sale, at prices related to such prevailing
  market prices, or at negotiated prices. The Shares may be sold by one or more of
  the following: (a) one or more block trades in which a broker or dealer so
  engaged will attempt to sell all or a portion of the Shares held by a Selling
  Stockholder as agent but may position and resell a portion of the block as
  principal to facilitate the transaction; (b) purchases by a broker or dealer as
  principal and resale by such broker or dealer for its account pursuant to this
  Prospectus; and (c) ordinary brokerage transactions and transactions in which
  the broker solicits purchasers. The Selling Stockholders may effect such
  transactions by selling shares to or through broker-dealers, and such
  broker-dealers will receive compensation in negotiated amounts in the form of
  discounts, concessions, commissions or fees from the Selling Stockholders and/or
  the purchasers of the shares for whom such broker-dealers may act as agent or to
  whom they sell as principal, or both (which compensation to a particular
  broker-dealer might be in excess of customary commissions). Such brokers or
  dealers or other participating brokers or dealers and the Selling Stockholders
  may be deemed to be "underwriters" within the meaning of the Securities Act, in
  connection with such sales, and any profits realized by the Selling Stockholders
  and compensation of such brokers or dealers may be deemed to be underwriting
  discounts and commissions.
  
          Any securities covered by this Prospectus that qualify for sale pursuant
  to Rule 144 under the Securities Act may be sold under Rule 144 rather than
  pursuant to this Prospectus.
  
          The Company will inform the Selling Stockholders that the
  antimanipulative rules under the Exchange Act (Rules 10b-6 and 10b-7) may
  apply to sales in the market and will furnish upon request the Selling 
  Stockholders with a copy of these Rules. The Company will also inform the 
  Selling Stockholders of the need for delivery of copies of this Prospectus.
  
                                        -22-
  32
                                    LEGAL MATTERS
  
          The validity of the issuance of the securities offered hereby will be 
  passed upon for the Company by Hale and Dorr, 60 State Street, Boston,
  Massachusetts 02109. 
  
                                       EXPERTS
  
          The financial statements included in this Prospectus, except as they
  relate to Spider Systems Limited as of March 31, 1994 and for the year then
  ended, and the financial statements of Airsoft, Inc. as of December 31, 1995 and
  1994 and for each of the three years in the period ended December 31, 1995, have
  been audited by Price Waterhouse LLP, independent accountants, and, insofar as
  they relate to Spider System Limited as of March 31, 1994 and the year then
  ended, have been audited by Coopers & Lybrand, independent accountants, and,
  insofar as they relate to Airsoft, Inc. as of December 31, 1995 and 1994 and for
  each of the three years in the period ended December 31, 1995, have been audited
  by Deloitte & Touche, LLP, independent accountants, whose reports thereon appear
  herein. Such financial statements have been so included in reliance on the
  reports of such independent accountants given on the authority of said firms as
  experts in auditing and accounting.
  
          The financial statements of AirSoft, Inc. as of December 31, 1995 and
  1994, and the related statements of operations, stockholders' equity and cash
  flows for each of the three years in the period ended December 31, 1995
  incorporated in this Prospectus by reference from Amendment No. 2 to the
  Company's Current Report on Form 8-K/A dated August 13, 1996 have been audited
  by Deloitte & Touche LLP, independent auditors, as stated in their reports,
  which are included and incorporated herein by reference, and have been so 
  included and incorporated in reliance upon the reports of such firm given upon
  their authority as experts in accounting and auditing.
  
                                       -23-
  33
                          INDEX TO FINANCIAL STATEMENTS
  
                                                                   Page
                                                                   ----
  
  Report of Price Waterhouse LLP .................................  F-2
                                                                 
  Report of Deloitte & Touche LLP ................................  F-3
                                                                 
  Report of Coopers & Lybrand ....................................  F-4
                                                                 
  Consolidated Balance Sheet .....................................  F-5
                                                                 
  Consolidated Statement of Operations ...........................  F-6
                                                                 
  Consolidated Statement of Changes in Stockholders' Equity ......  F-7
                                                             
  Consolidated Statement of Cash Flows ...........................  F-9
  
  Notes to Consolidated Financial Statements .....................  F-10
  
                                       F-1
  34
                         REPORT OF INDEPENDENT ACCOUNTANTS
  
  To the Board of Directors and
  Stockholders of Shiva Corporation
  
  In our opinion, based upon our audits and the reports of other auditors, the
  accompanying consolidated balance sheet and related consolidated statements of  
  operations, of changes in stockholders' equity and of cash flows present
  fairly, in all material respects, the financial position of Shiva Corporation
  and its subsidiaries at December 30, 1995 and December 31, 1994, and the
  results of their operations and their cash flows for each of the three years in
  the period ended December 30, 1995, in conformity with generally accepted
  accounting principles. These financial statements are the responsibility of the
  Company's management; our responsibility is to express an opinion on these
  financial statements based on our audits. We did not audit the financial
  statements of Spider Systems Limited, a wholly-owned subsidiary, for fiscal 
  1994, which statements reflect total revenues of $31,735,000 for the year ended
  March 31, 1994 or the financial statements of Airsoft, Inc., a wholly-owned 
  subsidiary, which statements reflect total assets of $3,285,000 and $2,795,000
  at December 31, 1995 and 1994, respectively, and total revenues of $860,000, 
  $87,000 and $3,000 for the years ended December 31, 1995, 1994, and 1993, 
  respectively. Those statements were audited by other auditors whose reports 
  thereon have been furnished to us, and our opinion expressed herein, insofar 
  as it relates to the amounts included for Spider Systems Limited and Airsoft, 
  Inc. as of and for the periods described above, is based solely on the reports
  of the other auditors. We conducted our audits of these statements in accordance
  with generally accepted auditing standards which require that we plan and 
  perform the audit to obtain reasonable assurance about whether the financial 
  statements are free of material misstatement. An audit includes examining, on 
  a test basis, evidence supporting the amounts and disclosures in the financial 
  statements, assessing the accounting principles used and significant estimates
  made by management, and evaluating the overall financial statement presentation.
  We believe that our audits and the reports of other auditors provide a 
  reasonable basis for the opinion expressed above.
  
  Price Waterhouse LLP
  
  Boston, Massachusetts
  January 23, 1996,
  except as to Note 12 which is
  as of June 17, 1996
  
                                        F-2
  35
                           INDEPENDENT AUDITORS' REPORT
  
  To the Board of Directors
  AirSoft, Inc.:
  
  We have audited the balance sheets of AirSoft, Inc. as of December 31, 1995 and
  1994, and the related statements of operations, stockholders' equity and cash
  flows for each of the three years in the period ended December 31, 1995.  These
  financial statements are the responsibility of the Company's management.  Our
  responsibility is to express an opinion on these financial statements based
  on our audits.
  
  We conducted our audits in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free of
  material misstatement.  An audit includes examining, on a test basis, evidence
  supporting the amounts and disclosures in the financial statements.  An audit
  also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statements presentation.  We believe that our audits provide a reasonable basis
  for our opinion.
  
  In our opinion, such financial statements present fairly, in all material
  respects, the financial position of AirSoft, Inc. as of December 31, 1995 and
  1994, and the results of its operations and its cash flows for each of the
  three years in the period ended December 31, 1995 in conformity with generally
  accepted accounting principles.
  
  DELOITTE & TOUCHE LLP
  
  March 28, 1996
  (June 16, 1996 as to Note 8)
  
                                       F-3
  36
  
                         REPORT OF INDEPENDENT ACCOUNTANTS
  
  To the Stockholders of Spider Systems Limited:
  
  We have audited the consolidated statements of income, stockholders' equity and
  cash flows for the year ended March 31, 1994 (not presented separately herein).
  These financial statements are the responsibility of the Company's management.
  Our responsiblity is to express an opinion on these financial statements based
  on our audit.
  
  We conducted our audit in accordance with generally accepted auditing
  standards.  Those standards require that we plan and perform the audit to
  obtain reasonable assurance about whether the financial statements are free
  from material misstatement.  An audit includes examining, on a test basis,
  evidence supporting the amounts and disclosures in the financial statements. 
  An audit also includes assessing the accounting principles used and significant
  estimates made by management, as well as evaluating the overall financial
  statement presentation.  We believe that our audit provides a reasonable basis
  for our opinion.
  
  In our opinion, the consolidated financial statments referred to above present
  fairly, in all material respects, the consolidated results of operations and
  cash flows of Spider Systems Limited for the year ended March 31, 1994 in
  conformity with generally accepted accounting principles.
  
  COOPERS & LYBRAND
  
  Edinburgh, United Kingdom
  Chartered Accountants and Registered Auditors
  June 12, 1995
  
                                       F-4
  37
                                 SHIVA CORPORATION
  
                             CONSOLIDATED BALANCE SHEET
                      (IN THOUSANDS, EXCEPT SHARE RELATED DATA)
  DECEMBER 30,     DECEMBER 31,       JUNE 29,
                                                                              1995              1994             1996
                                                                           ------------     ------------      ------------
                                                                                                               (unaudited)
  Assets                                                                                                       
  Current assets:                                                                                              
    Cash and cash equivalents                                                $ 93,203          $36,068          $ 95,233
    Short-term investments                                                      9,125                -             4,992
    Accounts receivable, net of allowances of $5,252 at                                                        
       December 30, 1995, $3,963 at December 31, 1994, and 
       $5,941 at June 29, 1996 (unaudited)                                     22,982           16,343            36,260
    Inventories                                                                 7,846            6,974            11,852
    Prepaid expenses and other current assets                                   2,351            2,283             3,738
                                                                             --------          -------          --------
       Total current assets                                                   135,507           61,668           152,075
  
  Property, plant and equipment, net                                           12,965           10,371            18,371
  Deferred income taxes                                                           548                -             4,219
  Other assets                                                                  1,103              520             1,573
                                                                             --------          -------          --------
       Total assets                                                          $150,123          $72,559          $176,238
                                                                             ========          =======          ========
                                                                                                               
  Liabilities and stockholders' equity 
  Current liabilities:                                                    
    Short-term debt                                                          $      -          $   683                 -
    Current portion of long-term debt and capital lease obligations               700            1,301               478
    Accounts payable                                                            9,032           10,384            13,453
    Accrued compensation and benefits                                           5,367            2,958             6,018
    Accrued expenses                                                            7,509            5,818            11,478
    Deferred revenue                                                            3,523            2,217             2,766
                                                                             --------          -------          --------
       Total current liabilities                                               26,131           23,361            34,193
  
  Long-term debt and capital lease obligations                                    452            4,037               235
  Other long-term liabilities                                                     401              440               393
  Deferred income taxes                                                           235              608               235
                                                                             --------          -------          --------
       Total liabilities                                                       27,219           28,446            35,056
                                                                             --------          -------          --------
                                                                                                               
  Commitments (Note 11)                                                                                        
                                                                                                               
  Stockholders' equity:                                                                                        
    Preferred stock, $.01 par value; 1,000,000 shares authorized                                                       
     at December 30, 1995, December 31, 1994 and June 29, 1996, none
     issued                                                                         -                 -                -         
    Common stock, $.01 par value; 50,000,000 and 25,000,000 shares                                                     
      authorized, 27,960,580 and 24,478,087 shares issued and outstanding                                      
      at December 30, 1995 and December 31, 1994, respectively; 
      100,000,000 shares authorized and 28,493,368 issued and outstanding
      at June 29, 1996 (unaudited)                                                280              245               285
    Additional paid-in capital                                                133,457           49,275           142,383
    Unrealized gain on investments                                                137                -               112
    Cumulative translation adjustment                                            (586)            (468)             (528)
    Unearned ESOP compensation                                                      -             (305)                -
    Accumulated deficit                                                       (10,384)          (4,634)           (1,070)
                                                                             --------          -------          --------
       Total stockholders' equity                                             122,904           44,113           141,182
                                                                             --------          -------          --------
       Total liabilities and stockholders' equity                            $150,123          $72,559          $176,238
                                                                             ========          =======          ========
  The accompanying notes are an integral part
                     of the consolidated financial statements.
  
                                        F-5
  38
  
                                  SHIVA CORPORATION
  
                        CONSOLIDATED STATEMENT OF OPERATIONS
                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
  YEAR ENDED                        SIX MONTHS ENDED
                                           ------------- -------------  ------------- ----------------------------
                                           DECEMBER 30,  DECEMBER 31,    JANUARY 1,     JUNE 29,         JULY 1,
                                                1995         1994          1994           1996            1995
                                           ------------- -------------  ------------- ------------- --------------
                                           (FISCAL 1995) (FISCAL 1994)  (FISCAL 1993)         (UNAUDITED)
  Revenues                                    $118,581       $81,058       $61,262       $94,794       $52,113
  Cost of revenues                              49,186        34,800        27,969        38,782        22,257
                                              --------       -------       -------       -------       -------
  Gross profit                                  69,395        46,258        33,293        56,012        29,856
                                              --------       -------       -------       -------       -------
  Operating expenses:                                                                               
     Research and development                   14,787         9,972         8,162        10,656         6,356
     Selling, general and administrative        44,662        32,427        23,367        31,506        20,032
     Merger expenses                            13,986             -             -         1,987             -
                                              --------       -------       -------       -------       -------
     Total operating expenses                   73,435        42,399        31,529        44,149        26,388
                                              --------       -------       -------       -------       -------
  Income (loss) from operations                 (4,040)        3,859         1,764        11,863         3,468
  
  Interest income                                2,279           224           -           2,331           980
  Interest expense                                (705)       (1,122)       (1,048)         (298)         (462)
                                              --------       -------       -------       -------       -------
  Income (loss) before income taxes             (2,466)        2,961           716        13,896         3,986
  Income tax provision                           2,386           921           300         4,582         1,631
                                              ========       =======       =======       =======       =======
  Net income (loss)                           $ (4,852)      $ 2,040       $   416       $ 9,314       $ 2,355
                                              ========       =======       =======       =======       =======
  Net income (loss) per share                 $  (0.18)      $  0.09       $  0.02       $  0.30       $  0.09
                                              ========       =======       =======       =======       =======
  Shares used in computing net income                                                               
     (loss) per share                           27,337        22,945        16,832        31,296        27,045
                                              ========       =======       =======       =======       =======
  The accompanying notes are an integral part
                     of the consolidated financial statements.
  
                                        F-6
  39
  
                                  SHIVA CORPORATION
  
                                       CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
                                                            (IN THOUSANDS)
  CONVERTIBLE
                                                      PREFERRED STOCK          COMMON STOCK           
                                                   --------------------     ------------------  ADDITIONAL   UNREALIZED   CUMULATIVE
                                                      NUMBER                   NUMBER     PAR    PAID-IN      GAIN ON    TRANSLATION 
                                                    OF SHARES    AMOUNT      OF SHARES   VALUE   CAPITAL    INVESTMENTS  ADJUSTMENT  
                                                   ----------   -------     ----------   -----  ----------  -----------  -----------
  BALANCE AT JANUARY 2, 1993                        3,621,294   $ 5,185     10,695,762    $107   $  6,114       $  -        $(840)  
  Issuance of Class D convertible                                                                                        
     preferred stock, net of stock                                                                                       
     issuance costs of $11                          1,000,000       989              -       -          -          -            -   
  Common stock options granted                                                                                           
     in lieu of cash payment                                                                                             
     for services                                           -         -              -       -         25          -            -   
  Issuance of Common Stock                                  -         -        294,241       3        414          -            -   
  Exercise of stock options                                 -         -        278,262       3        251          -            -   
  Currency translation adjustments                          -         -              -       -          -          -          (57)  
  Net income                                                -         -              -       -          -          -            -   
  Dividends paid                                            -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT JANUARY 1, 1994                        4,621,294     6,174     11,268,265     113      6,804          -         (897)  
  Exercise of Class C convertible                                                                                        
     preferred stock warrants                         409,836     2,000              -       -          -          -            -   
  Issuance of common stock to officer                       -         -        177,778       2        998          -            -   
  Issuance of common stock                                  -         -        396,608       4      4,547          -            -   
  Initial public offering, net of stock                                                                                  
     issuance costs of $1,032                               -         -      4,130,266      41     27,737          -            -   
  Conversion of preferred stock                    (5,031,130)   (8,174)     7,719,536      77      8,097          -            -   
  Exercise of stock options                                 -         -        756,468       8        579          -            -   
  Exercise of common stock purchase  warrants               -         -         29,166       -         65          -            -   
  ESOP transactions, net                                    -         -              -       -          -          -            -   
  Tax benefit related to stock options                      -         -              -       -        448          -            -   
  Currency translation adjustments                          -         -              -       -          -          -          429   
  Net income                                                -         -              -       -          -          -            -   
  Dividends paid                                            -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT DECEMBER 31, 1994                              -         -     24,478,087     245     49,275          -         (468)  
  Exercise of stock options                                 -         -      1,100,059      11      1,697          -            -   
  Exercise of common stock purchase warrants                -         -         17,498       -         39          -            -   
  Issuance of common stock in settlement                                                                                 
     of dividend payable                                    -         -         20,014       -        406          -            -   
  Issuance of common stock in settlement of                                                                              
     phantom stock plan                                     -         -         31,462       1      2,283          -            -   
  Issuance of common stock under employee stock                                                                          
     purchase plan                                          -         -         21,582       -        314          -            -   
  Secondary public offering, net of stock                                                                                
     issuance costs of $583                                 -         -      2,291,878      23     76,115          -            -   
  Tax benefit related to stock options                      -         -              -       -      3,328          -            -   
  Unrealized gain on investments                            -         -              -       -          -        137            -   
  Currency translation adjustments                          -         -              -       -          -          -         (118)  
  Net loss                                                  -         -              -       -          -          -            -   
  Elimination of Spider net income for the                                                                               
     three-month period ended March 31, 1995                -         -              -       -          -          -            -   
                                                   ----------   -------     ----------    ----   --------       ----        -----   
  BALANCE AT DECEMBER 30, 1995                              -         -     27,960,580    $280   $133,457       $137        $(586)  
  Exercise of stock options                                 -         -        515,646       5        998          -            -   
  Issuance of common stock under employee                                                                                
     stock purchase plan                                    -         -         17,142       -        335          -            -   
  Tax benefit related to stock options                      -         -              -       -      7,593          -            -   
  Unrealized loss on investments                            -         -              -       -          -        (25)           -   
  Currency translation adjustment                           -         -              -       -          -          -           58   
  Net income                                                -         -              -       -          -          -            -   
                                                                                                                         
  BALANCE AT JUNE 29, 1996 (unaudited)                      -         -     28,493,368    $285   $142,383       $112        $(528)   
                                                   ==========   =======     ==========    ====   ========       ====        =====
  F-7
  40
  UNEARNED                      TOTAL
                                                    ESOP        ACCUMULATED  STOCKHOLDERS'   
                                                COMPENSATION      DEFICIT      EQUITY      
                                                ------------    -----------   -------
  BALANCE AT JANUARY 2, 1993                        $   -        $ (6,371)   $  4,195        
  Issuance of Class D convertible                                                                
     preferred stock, net of stock                                                               
     issuance costs of $11                              -               -         989      
  Common stock options granted                                                                   
     in lieu of cash payment                                                                     
     for services                                       -               -          25      
  Issuance of Common Stock                              -               -         417      
  Exercise of stock options                             -               -         254      
  Currency translation adjustments                      -               -         (57)       
  Net income                                            -             416         416      
  Dividends paid                                        -            (167)       (167)     
                                                    -----        --------    --------        
  BALANCE AT JANUARY 1, 1994                            -          (6,122)      6,072        
  Exercise of Class C convertible                                                                
     preferred stock warrants                           -               -       2,000      
  Issuance of common stock to officer                   -               -       1,000      
  Issuance of common stock                              -               -       4,551      
  Initial public offering, net of stock                                                          
     issuance costs of $1,032                           -               -      27,778      
  Conversion of preferred stock                         -               -           -        
  Exercise of stock options                             -               -         587      
  Exercise of common stock purchase  warrants           -               -          65      
  ESOP transactions, net                             (305)              -        (305)     
  Tax benefit related to stock options                  -               -         448      
  Currency translation adjustments                      -               -         429        
  Net income                                            -           2,040       2,040      
  Dividends paid                                        -            (552)       (552)     
                                                    -----        --------    --------        
  BALANCE AT DECEMBER 31, 1994                       (305)         (4,634)     44,113        
  Exercise of stock options                             -               -       1,708      
  Exercise of common stock purchase warrants            -               -          39      
  Issuance of common stock in settlement                                                         
     of dividend payable                                -               -         406      
  Issuance of common stock in settlement of                                                      
     phantom stock plan                               305               -       2,589      
  Issuance of common stock under employee stock                                 
     purchase plan                                      -               -         314      
  Secondary public offering, net of stock                                                        
     issuance costs of $583                             -               -      76,138      
  Tax benefit related to stock options                  -               -       3,328      
  Unrealized gain on investments                        -               -         137      
  Currency translation adjustments                      -               -        (118)       
  Net loss                                              -          (4,852)     (4,852)     
  Elimination of Spider net income for the                                                       
     three-month period ended March 31, 1995            -            (899)       (899)
                                                    -----        --------    --------          
  BALANCE AT DECEMBER 30, 1995                          -         (10,384)    122,904        
  Exercise of stock options                             -               -       1,003
  Issuance of common stock under                        -               -
     employee stock purchase plan                       -               -         335   
  Tax benefits related to stock options                 -               -       7,593   
  Unrealized loss on investments                        -               -         (25)    
  Currency translation adjustments                      -               -          58
  Net income                                            -           9,314       9,314
                                                    -----        --------    --------          
  BALANCE AT JUNE 29, 1996 (unaudited)              $   -        $ (1,070)   $141,182
                                                    =====        ========    ========
  The accompanying notes are an integral part
                     of the consolidated financial statements.
  
                                        F-8
  41
  
                                  SHIVA CORPORATION
  
                        CONSOLIDATED STATEMENT OF CASH FLOWS
                  INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
                                   (IN THOUSANDS)
  FISCAL YEAR ENDED                  SIX MONTHS ENDED
                                                                -------------------------------------------   -----------------------
                                                                 DECEMBER 30,  DECEMBER 31,    JANUARY 1,     JUNE 29,      JULY 1,
                                                                     1995         1994           1994           1996         1995
                                                                -------------  -------------  -------------   --------    -----------
                                                                (FISCAL 1995)  (FISCAL 1994)  (FISCAL 1993)        (UNAUDITED)
  CASH FLOWS FROM OPERATING ACTIVITIES
    Net income (loss)                                              $(4,852)      $ 2,040      $   416        $  9,314    $  2,355
    Adjustments to reconcile net income to net cash
       provided by operating activities:
       Merger expenses                                               3,766             -            -               -           -
       Depreciation and amortization                                 3,821         2,886        2,109           2,726       1,686
       Gain on sale of property, plant and equipment                   (65)         (170)        (108)            (42)        (22)
       Common stock options granted in lieu of cash
          payment for services                                           -             -           25               -           -
       Deferred income taxes                                          (811)         (336)          (7)         (1,511)         95
       Changes in assets and liabilities:
          Accounts receivable                                       (7,906)       (3,496)      (5,146)        (13,199)       (896)
          Inventories                                               (2,023)         (865)      (1,188)         (4,028)     (1,717)
          Prepaid expenses and other current assets                    (67)         (330)         323             444        (463)
          Accounts payable                                             122         1,750        1,822           4,416        (483)
          Accrued compensation and benefits                          2,444           601          989             644         452
          Accrued expenses                                           6,548         2,011          941           7,595       1,802
          Deferred revenue                                           1,846           804         (235)           (734)      1,621
          Other long-term liabilities                                  (24)          (23)         (23)             (9)        (12)
                                                                   -------       -------      -------        --------    --------
       Net cash provided by operating activities                     2,799         4,872          (82)          5,616       4,418
                                                                   -------       -------      -------        --------    --------
  
  CASH FLOWS FROM INVESTING ACTIVITIES
    Purchases of property, plant and equipment                      (7,031)       (3,300)      (2,277)         (7,739)     (2,686)
    Capitalized software development costs                            (827)         (293)        (341)           (593)       (264)
    Purchases of short-term investments                            (11,188)            -            -               -     (10,334)
    Proceeds from sales of short-term investments                    2,200             -            -           4,108         550
    Change in other assets                                            (147)         (173)          22            (211)       (141)
                                                                  --------       -------      -------        --------    --------
      Net cash used by investing activities                        (16,993)       (3,766)      (2,596)         (4,435)    (12,875)
                                                                  --------       -------      -------        --------    --------
  CASH FLOWS FROM FINANCING ACTIVITIES
    Net borrowings (repayment) under short-term debt                (1,885)       (1,213)         481               -        (677)
    Proceeds from sale and leaseback of fixed assets                     -             -          999               -           -
    Proceeds from long-term debt                                         -           615            -               -           -
    Principal payments on long-term debt and capital
       lease obligations                                            (4,075)       (1,080)        (903)           (439)       (880)
    Proceeds from issuance of convertible preferred stock, net         -           2,000          989               -           -
    Proceeds from issuance of common stock, net                     76,143        33,328          388               -           -
    Proceeds from exercise of stock options and warrants             2,049           652          255           1,338         473
    Dividends paid                                                     (58)         (235)           -               -           -
                                                                   -------       -------      -------        --------    --------
       Net cash provided by financing activities                    72,174        34,067        2,209             899      (1,084)
                                                                   -------       -------      -------        --------    --------
  Effects of exchange rate changes on cash and cash equivalents        153            72           (8)            (50)         22
                                                                   -------       -------      -------        --------    --------
  Net increase (decrease) in cash and cash equivalents              58,133        35,245         (477)          2,030      (9,519)
  Cash and cash equivalents, beginning of period                    36,068           823        1,300          93,203      36,068
  Elimination of Spider net cash activity for the three
     months ended March 31, 1995                                      (998)            -            -               -        (998)
                                                                   =======       =======      =======        ========    ========
  Cash and cash equivalents, end of period                         $93,203       $36,068      $   823        $ 95,233    $ 25,551
                                                                   =======       =======      =======        ========    ========
  SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
  Interest paid                                                    $   748       $ 1,127      $ 1,038        $     96    $    391
  Income taxes paid                                                $   143       $   366      $    38        $    220    $    103
  
  SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES
  Additions to capital lease obligations for purchases of
    fixed assets                                                   $     -       $     -      $   215        $      -    $      -
  Additions to capital lease obligations for leaseback of
    fixed assets                                                   $     -       $     -      $   999        $      -    $      -
  Issuance of common stock in settlement of dividend payable       $   406       $     -      $     -        $      -    $      -
  Issuance of common stock for notes receivable                    $     -       $     -      $    70        $      -    $      -
  The accompanying notes are an integral
                    part of the consolidated financial statements
  
                                        F-9
  42
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  1.  NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  
         Shiva Corporation (the "Company") designs, develops, manufactures and
  sells hardware and software products and services that enable transparent remote
  connectivity to enterprise networks from any location having access to switched
  analog or digital telephone service. The Company markets its products worldwide
  primarily through distributors, resellers and original equipment manufacturers.
  
  A summary of the Company's significant accounting policies follows:
  
  FISCAL YEAR
  
  The Company's fiscal year ends on the Saturday closest to December 31.
  
  PRINCIPLES OF CONSOLIDATION
  
         The consolidated financial statements include the accounts of the Company
  and its wholly-owned subsidiaries. All significant intercompany accounts and
  transactions have been eliminated. In August 1995, the Company issued
  approximately 3,923,606 shares of its common stock in exchange for all the
  outstanding shares of Spider Systems Limited ("the Spider Acquisition"). Spider
  Systems Limited ("Spider") now operates as a wholly-owned subsidiary of Shiva
  under the name of Shiva Europe Limited. The Spider Acquisition has been
  accounted for as a pooling of interests, and therefore the consolidated
  financial statements for all periods prior to the Spider Acquisition have been
  restated to include the accounts and operations of Spider with those of the
  Company. Spider's results of operations for the years ended March 31, 1995 and
  1994 have been combined with the Company's results of operations for the years
  ended December 31, 1994 and January 1, 1994, respectively. The results of
  operations for fiscal 1995 are for the twelve months ended December 30, 1995 for
  both Shiva and Spider. Spider's financial position as of March 31, 1995 has been
  combined with the Company's financial position as of December 31, 1994. Spider's
  unaudited results of operations for the three months ended March 31, 1995
  included in both the results of operations in fiscal 1994 and fiscal 1995, were
  as follows:
  (in thousands)
  Revenues                   $12,592
                      Expenses                    11,242
                      Income taxes                   451
                                                 -------
                      Net income                 $   899
                                                 =======
  No adjustments to conform accounting methods were required. Certain
  amounts have been reclassified with regard to presentation of the financial
  information of the two companies. Revenues and net income for each of the
  previously separate companies for the periods prior to the Spider Acquisition
  are as follows:
  
                                       F-10
  43
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  (In thousands)
                          Year Ended                        Six Months Ended
              --------------------------------         --------------------------
              December 31,         January 1,          July 1,            July 2,
                  1994                1994              1995               1994
                  ----                ----              ----               ----
              (Fiscal 1994)      (Fiscal 1993)                 (unaudited)
  Revenues:
    Shiva        $41,559            $29,524            $28,833            $19,049
    Spider        39,412             31,735             23,232             18,559
                 -------            -------            -------            -------
                 $80,971            $61,259            $52,065            $37,608
                 =======            =======            =======            =======
  Net income:                                                             
    Shiva        $ 2,668            $   213            $ 2,883            $   609
    Spider         1,213                696                843                724
                 -------            -------            -------            -------
                 $ 3,881            $   909            $ 3,726            $ 1,333         
                 =======            =======            =======            =======
  In connection with the Spider Acquisition, the Company incurred charges
  to operations of $13,986,000 in the quarter ended September 30, 1995, the
  quarter in which the Spider Acquisition was consummated. Such charges include
  (a) transaction costs to effect the acquisition, consisting of $2,619,000 for
  financial advisor fees plus $3,656,000 for legal, regulatory and accounting
  fees, printing expenses and other miscellaneous expenses and (b) employee
  severance payments of $1,482,000 and phantom stock compensation of $2,644,000
  and (c) $3,585,000 for the integration of operational activities of the
  companies, including elimination of duplicative assets, employee relocation and
  travel, and the marketing costs related to the introduction of the combined
  entity.
  
                                       F-11
  44
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  INTERIM FINANCIAL DATA (UNAUDITED)
  
  The interim financial data included in the accompanying consolidated financial
  statements and notes thereto is unaudited; however in the opinion of the
  Company, the interim financial data include all adjustments, consisting only of
  normal recurring adjustments, necessary for a fair statement of the results for
  the interim periods. The interim financial data are not necessarily indicative
  of the results of operations for a full fiscal year.
  
  USE OF ESTIMATES
  
         The preparation of financial statements in conformity with generally
  accepted accounting principles requires management to make estimates and
  assumptions that affect the reported amounts of assets and liabilities and
  disclosure of contingent assets and liabilities at the date of the financial
  statements and the reported amounts of revenue and expenses during the reporting
  period. Actual results could differ from those estimates.
  
  REVENUE RECOGNITION
  
         Revenue from product sales is recognized upon shipment provided that no
  significant Company obligations remain and collection of the related receivable
  is probable. The Company provides most of its distributors and resellers with
  return rights for stock rotation or product evaluation. The Company also
  provides its distributors and resellers with price protection rights. An
  allowance for estimated future returns is recorded at the time revenue is
  recognized based on the Company's return policies and historical experience.
  Although the Company believes it has adequate reserves to cover product returns
  and price protection rights, there can be no assurance that the Company will not
  experience significant returns or price protection adjustments in the future or
  that such reserves will be adequate to cover such returns and price protection
  rights. The Company provides a one-year warranty on hardware products and a
  ninety-day warranty on software media. A provision is made at the time of sale
  for product warranty costs. Accrued warranty costs are included in accrued
  expenses in the accompanying financial statements. Revenue from technical
  support and product maintenance contracts is deferred and recognized ratably
  over the period the services are performed. Revenue from integration contracts
  is recognized over the duration of such contracts as work is performed and
  defined milestones are attained.
  
                                       F-12
  45
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
         The Company has historically provided customers with a variety of
  technical support services, including free services which it is not
  contractually obligated to provide. A provision is made at the time of sale for
  the cost of such free services. Accrued product support expenses are included in
  accrued expenses in the accompanying financial statements.
  
  CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  
         The Company considers all highly liquid investments purchased with an
  original maturity of three months or less to be cash equivalents. The Company
  invests its excess cash in U.S. Treasury securities, money market funds of major
  financial institutions, high-grade commercial paper and time deposits that are
  subject to minimal credit and market risk.
  
         All of the Company's cash equivalents and short-term investments are
  classified as available-for-sale in accordance with Statement of Financial
  Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
  Equity Securities." The Company's short-term investments at December 30, 1995
  include an unrealized gain of $137,000 recorded as a separate component of
  stockholders' equity and have various maturity dates through September 1996.
  Realized gains or losses on the sale of securities are calculated using the
  specific identification method. There were no such realized gains or losses in
  fiscal 1995 or 1994.
  
  CONCENTRATION OF CREDIT RISK
  
         Financial instruments which potentially expose the Company to
  concentrations of credit risk include accounts receivable. The Company performs
  ongoing evaluations of customers' financial condition and, generally, does not
  require collateral. In addition, the Company maintains reserves for potential
  credit losses, and such losses, in the aggregate, have not exceeded management
  expectations. At December 30, 1995, one customer accounted for 10% of the
  accounts receivable balance.
  
  FINANCIAL INSTRUMENTS
  
         The carrying amounts of the Company's financial instruments, which
  include cash and cash equivalents, accounts receivable, short-term debt,
  accounts payable, long-term debt and capital lease obligations approximate their
  fair value at December 30, 1995 and December 31, 1994.
  
  FORWARD FOREIGN EXCHANGE CONTRACTS
  
         The Company enters into transactions denominated in foreign currencies
  and includes the gain or loss arising from such transactions in results of
  operations. The Company enters into foreign exchange contracts to hedge specific
  foreign currency denominated receivables, which require the Company at maturity
  of the contract to exchange foreign currencies for U.K. Pounds at rates agreed
  to at inception of the contracts. The forward exchange contracts have maturities
  which do not exceed one year. The Company had approximately $11,253,000 and
  $2,163,000 of forward exchange contracts outstanding at December 30, 1995 and
  December 31, 1994, respectively. Cash flows from the forward exchange contracts
  are classified with the related receivable.
  
  INVENTORIES
  
         Inventories are stated at the lower of cost or market, cost being
  determined using the first-in, first-out method.
  
                                        F-13
  46
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
         The market for the Company's products is characterized by rapidly
  changing technology, evolving industry standards and frequent new product
  introductions. There can be no assurance that products or technologies developed
  by others will not make the Company's inventories obsolete.
  
         The Company is currently dependent on two subcontractors for the
  manufacture of significant portions of its products. Although the Company
  believes that there are a limited number of other qualified subcontract
  manufacturers for its products, a change in subcontractors could result in
  delays or reductions in product shipments. In addition, certain components of
  the Company's products are only available from a limited number of suppliers.
  The inability to obtain sufficient key components as required could also result
  in delays or reductions in product shipments. Such delays or reductions could
  have a material adverse effect on the Company's results of operations.
  
  PROPERTY, PLANT AND EQUIPMENT
  
         Property, plant and equipment are stated at cost and depreciated using
  the straight-line method over the estimated useful lives of the related assets.
  Equipment held under capital leases is stated at the lower of the fair market
  value of the equipment or the present value of the minimum lease payments at the
  inception of the leases and is amortized on a straight-line basis over the
  shorter of the lives of the related assets or the term of the leases.
  Maintenance and repair costs are expensed as incurred. Gains on sale and
  leaseback transactions are amortized to income over the term of the underlying
  lease agreements.
  
  RESEARCH AND DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
  
         Research and development costs, other than certain software development
  costs, are charged to expense as incurred. Software development costs incurred
  subsequent to the establishment of technological feasibility, and prior to
  general release of the product to the public, are capitalized and amortized to
  cost of sales on a straight-line basis over the estimated useful lives of the
  related products, generally eighteen to thirty-six months. It is reasonably
  possible that the remaining estimated useful lives of the related products could
  be reduced in the future due to competitive pressures. Unamortized software
  development costs of $703,000 and $246,000 are included in other assets at
  December 30, 1995 and December 31, 1994, respectively. Amortization expense was
  $370,000, $310,000 and $118,000 in fiscal 1995, 1994 and 1993, respectively.
  
         The Company receives fees under product development contracts with
  certain customers. Product development fees are recorded as a reduction of
  research and development costs as work is performed pursuant to the related
  contracts and defined milestones are attained. Losses, if any, are provided for
  at the time that management determines that development costs will exceed
  related fees. Payments received under product development contracts prior to the
  completion of the related work and attainment of milestones are recorded as
  deferred liabilities. In fiscal 1995, 1994 and 1993, the Company recorded
  product development fees of $955,000, $766,000 and $987,000, respectively, and
  incurred development costs of $1,135,000, $820,000 and $741,000, respectively,
  under such contracts.
  
         The Company has also received foreign government sponsored grants to fund
  qualified research and development activities. Grant income is recorded as a
  reduction of research and development costs and was $135,000 and $451,000 in
  fiscal 1994 and 1993, respectively. There was no grant income recorded in fiscal
  1995.
  
                                        F-14
  47
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  ADVERTISING COSTS
  
         Advertising costs, other than certain direct-response advertising costs,
  are charged to expense as incurred. The Company has not incurred significant
  costs associated with direct-response advertising in fiscal 1995, 1994 and 1993,
  and there were no capitalized advertising costs at December 30, 1995 or December
  31, 1994. Advertising costs were $3,042,000, $2,589,000 and $1,446,000 in fiscal
  1995, 1994 and 1993, respectively.
  
  INCOME TAXES
  
         The Company accounts for income taxes in accordance with Statement of
  Financial Accounting Standards No.109, "Accounting for Income Taxes", which is
  an asset and liability method of accounting for income taxes. Under this method,
  deferred tax assets and liabilities are recognized for the expected future tax
  consequences, utilizing current tax rates, of temporary differences between the
  carrying amounts and the tax bases of assets and liabilities. Deferred tax
  assets are recognized, net of any valuation allowance, for the estimated future
  tax effects of deductible temporary differences and tax operating loss and
  credit carryforwards. Deferred income tax expense represents the change in the
  net deferred tax asset and liability balances.
  
  FOREIGN CURRENCY TRANSLATION
  
         Financial statements of international subsidiaries, where the local
  currency is the functional currency, are translated using period-end exchange
  rates for assets and liabilities and at average rates during the period for
  results of operations. The resulting foreign currency translation adjustments
  are included as a separate component of stockholders' equity. For international
  subsidiaries where the functional currency is other than the local currency,
  monetary assets and liabilities are translated using period-end exchange rates,
  nonmonetary assets and liabilities are translated at historical rates and
  results of operations are translated at average rates for the period. The
  resulting foreign currency translation adjustments are included in results of
  operations. Gains or losses resulting from foreign currency transactions are
  included in results of operations and were insignificant in fiscal 1995, 1994
  and 1993.
  
  NET INCOME (LOSS) PER SHARE
  
         Net income per share is calculated based on the weighted average number
  of common shares and common equivalent shares assumed outstanding during the
  period. Net loss per share excludes common equivalent shares because the effect
  is antidilutive. Pursuant to Securities and Exchange Commission Staff Accounting
  Bulletin No. 83, certain common and common equivalent shares issued by the
  Company during the twelve months immediately preceding the initial filing of the
  registration statement relating to the Company's initial public offering have
  been included in the calculation of weighted average shares, using the treasury
  stock method and the initial public offering price, as if these shares were
  outstanding for all periods prior to the initial public offering.
  
  2.  CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
  
  Cash, cash equivalents and short-term investments consist of the following:
  
                                        F-15
  48
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  (In thousands)
                                                                   December 30,    December 31,
                                                                       1995            1994
                                                                       ----            ----
  CASH AND CASH EQUIVALENTS:
   Money market funds                                                $ 75,382        $ 22,603
   Cash held in banks                                                  16,825           4,421
   Commercial paper                                                       996           9,044
                                                                     --------        --------
     Total cash and cash equivalents                                   93,203          36,068
                                                                     --------        --------
  SHORT-TERM INVESTMENTS:
   U.S. Treasury securities                                             9,125               -
                                                                     --------        --------
      Total cash, cash equivalents and short-term investments        $102,328        $ 36,068
                                                                     ========        ========
  3.  INVENTORIES
  
  Inventories consist of the following:
  (In thousands)
                                               December 30,         December 31,         June 29,
                                                  1995                  1994               1996
                                                  ----                  ----             --------
                                                                                        (Unaudited)
  Raw materials                                  $3,137                $1,596             $ 5,871
  Work-in-process                                 1,037                   972               1,043
  Finished goods                                  3,672                 4,406               4,938
                                                 ------                ------             -------
                                                 $7,846                $6,974             $11,852
                                                 ======                ======             =======
  4.  PROPERTY, PLANT AND EQUIPMENT
  
  Property, plant and equipment consist of the following:
  (In thousands)
                                       Useful life    December 30,    December 31,
                                       (in years)        1995            1994
                                       -----------       ----            ----
  Land                                                  $   310        $   326
  Buildings                                 50            3,801          3,979
  Furniture and fixtures                    5             2,395          2,251
  Machinery and equipment                 3 - 5          17,009         11,239
  Leasehold improvements                Lease term          494            218
                                                        -------        -------
                                                         24,009         18,013
  Less - Accumulated depreciation                    
      and amortization                                   11,044          7,642
                                                        -------        -------
                                                        $12,965        $10,371
                                                        =======        =======
  Furniture and fixtures include equipment under capital leases of $170,000
  at December 30, 1995 and $222,000 at December 31, 1994. Machinery and equipment
  include equipment under capital leases of $2,004,000 at December 30, 1995 and 
  $2,784,000 at December 31, 1994. Accumulated amortization related to equipment
  under capital leases totals $1,889,000 and $2,255,000 at December 30, 1995 and
  December 31, 1994, respectively. Amortization of equipment under capital leases
  is included in depreciation expense.
  
                                        F-16
  49
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  5.  DEBT
  
  SHORT-TERM DEBT
  
         Under the terms of a credit agreement (the "Credit Agreement") with a
  U.S. bank, the Company has a $5,000,000 unsecured revolving credit facility (the
  "Revolver") which bears interest at the bank's prime rate. At December 30, 1995,
  available borrowings were reduced by outstanding letters of credit of $881,000
  related to certain office leases. These letters of credit expire at various
  dates through September 1996. While the Company may repay all or a portion of
  the Revolver borrowings at any time, any outstanding principal must be repaid in
  full on June 30, 1996. There were no borrowings outstanding under the Revolver
  at December 30, 1995 or December 31, 1994. The terms of the Credit Agreement
  require the Company to maintain a minimum level of profitability and specified
  financial ratios and restrict the payment of cash dividends to stockholders.
  
         The Company also has a foreign credit facility of approximately
  $1,548,000 which is secured by all assets of Shiva Europe Limited. Available
  borrowings under this facility are decreased by the value of the outstanding
  debt payable to the European Coal and Steel Community Fund. Borrowings under the
  foreign credit facility bear interest at the bank's prime rate plus 2.5%. There
  were no borrowings outstanding under the foreign credit facility at December 30,
  1995. The terms of the foreign credit facility require the Company to maintain
  a minimum level of profitability and specified financial ratios.
  
  LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
  
  Long-term debt and capital lease obligations consist of the following:
  (in thousands)
  (In Thousands)
                                                                     December 30,       December 31,
                                                                         1995              1994
                                                                        -----              ----
  Capital lease obligations at rates of 11.4% to 14.3%,
       secured by certain equipment; expiring at various
       dates through July 1998                                         $  378             $   936
  Term loan payable to bank in monthly installments of $17
       plus interest at the bank's prime rate plus 1% (9.5% at
       December 31, 1994), due May 1997                                     -                 513
  Bank of  Scotland loan at interest rate of the bank's prime
       rate plus 3.0% (9.75% at December 31, 1994)                          -                 672
  Mortgage loans:
   Scottish Enterprise
     Loan A payable in monthly installments of $12 including
       interest at 11.0%, due February 2004                                 -                 810
     Loan B payable in monthly installments of $18 including
       interest at 11.0%, due  May 2005                                     -               1,288
   European Coal and Steel Community Fund ("ECSC")
     Loan A payable in semi-annual installments of $97 plus
       interest at 8.5%, due March 1997                                   290                 508
    Loan C payable in a semi-annual installments of $97 plus
       interest at 10.0%, due January 1998                                484                 611
                                                                       ------             -------
                                                                        1,152               5,338
  Less - Current portion                                                  700               1,301    
                                                                       ------             -------      
       
                                                                       $  452             $ 4,037
                                                                       ======             =======
  F-17
  50
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
         The ECSC mortgage loans are secured by the Company's European
  headquarters property in Edinburgh, U.K.
  
  6.  INCOME TAXES
  
  The components of income (loss) before income taxes are as follows:
  (In thousands) Year Ended
                                ----------------------------------------------------
                                December 30,         December 31,       January 1,
                                    1995                1994               1994 
                                    ----                ----               ----
                                (Fiscal 1995)       (Fiscal 1994)      (Fiscal 1993)
  Domestic                         $ 2,387              $1,113             $ (429)
  Foreign                           (4,853)              1,848              1,145
                                   -------              ------             ------
                                   $(2,466)             $2,961             $  716
                                   =======              ======             ======
  The components of the income tax provision (benefit) are as follows:
  (In thousands) Year Ended
                                 --------------------------------------------------
                                  December 30,      December 31,        January 1,
                                      1995              1994              1994 
                                      ----              ----              ----
                                 (Fiscal 1995)     (Fiscal 1994)      (Fiscal 1993)
  Current:
    Federal                          $3,401             $  725            $ 57
    State                               186                (39)             17
    Foreign                            (390)               571             233
                                     ------             ------            -----
                                      3,197              1,257             307
                                     ------             ------            -----
  Deferred:
    Federal                            (333)               (34)            (58)
    State                               (75)              (192)              -
    Foreign                            (403)              (110)             51
                                     ------             ------            ----
                                       (811)              (336)             (7)
                                     ------             ------            ----
                                     $2,386             $  921            $300
                                     ======             ======            ====
  F-18
  51
                                  SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  The significant components of the net deferred tax asset (liability) are as 
  follows:
  (In thousands)
                                                December 30,    December 31,
                                                   1995            1994
                                                   ----            ----
  Deferred tax assets:
    Reserves not currently deductible             $ 2,675         $ 2,072
    Net operating loss carryforwards                4,635           2,287
    Tax credit carryforwards                          891             659
    Other                                             424             424
                                                  -------         -------
      Gross deferred tax assets                     8,625           5,442
                                                  -------         -------
  
  Deferred tax liabilities:
    Capitalized software development costs           (245)            (99)
    Depreciation                                     (832)         (1,039)
    Other                                            (244)           (187)
                                                  -------         -------
      Gross deferred tax liabilities               (1,321)         (1,325)
  Deferred tax asset valuation allowance           (6,531)         (4,125)
                                                  -------         -------
                                                  $   773         $    (8)
                                                  =======         =======
  The differences between the income tax provision and income taxes computed using
  the applicable U.S. statutory federal tax rate are as follows:
  (In thousands) Year Ended
                                                     ---------------------------------------------
                                                     December 30,    December 31,     January 1,
                                                         1995            1994            1994 
                                                         ----            ----            ----
                                                     (Fiscal 1995)   (Fiscal 1994)   (Fiscal 1993)
  Taxes computed at federal statutory rate              $ (863)         $1,037           $ 250
  State income taxes, net of federal tax benefit           406             (17)             20
  Foreign income taxed at different rates                   51              (8)             69
  Alternative minimum tax                                    -               -              28
  Research and development tax credits                     (85)           (257)              -
  Change in valuation allowance                           (670)           (181)           (100)
  Non-deductible merger expenses                         3,139               -               -
  Other                                                    408             347              33
                                                        ------          ------           -----
                                                        $2,386          $  921           $ 300
                                                        ======          ======           =====
  At December 30, 1995, the Company has federal net operating loss
  carryforwards of $9,341,000, which expire at various dates through 2010, and
  state net operating loss carryforwards of $9,515,000, which expire at various
  dates through 2000. The Company also has federal and state research and
  development tax credit carryforwards of $1,014,000, which expire at various
  dates through 2010. Additionally, the Company has federal alternative minimum
  tax credit carryforwards of $77,000, which may be used indefinitely to reduce
  regular federal income taxes.
         Ownership changes, as defined in the Internal Revenue Code, may limit the
  amount of net operating loss and tax credit carryforwards that can be utilized
  to offset future taxable income or tax liability. The amount of the annual
  limitation is determined based upon the Company's value immediately prior to the
  ownership change. Subsequent significant ownership changes could further affect
  the limitation in future years.
  
                                        F-19
  52
  
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
           The Company has recorded a deferred tax asset and realized a portion of
  the benefits. Realization is dependent on generating sufficient taxable income
  prior to expiration of the loss carryforwards. Although realization is not
  assured, management believes it is more likely than not that the deferred tax
  asset which has been recognized to date will be realized.
  
           The deferred tax asset valuation allowance increased by $3,806,000 (of
  which $3,076,000 related to the tax effect of the exercise of employee stock
  options) and decreased by $1,400,000 to recognize the benefit of deferred tax
  assets not related to employee stock options which has reduced income taxes
  currently payable. Of the total deferred tax asset valuation allowance at
  December 30, 1995, $3,976,000 relates to the tax benefit resulting from the
  exercise of employee stock options in fiscal 1995 and 1994. The tax benefit,
  when realized, will be accounted for as a credit to stockholders' equity rather
  than as a reduction in the income tax provision.
  
  7.  STOCKHOLDERS' EQUITY
  
  PREFERRED STOCK
  
           In connection with the completion of the Company's initial public
  offering in November 1994, all shares of convertible preferred stock then
  outstanding automatically converted into 7,719,536 shares of common stock.
  
  COMMON STOCK
  
           On October 21, 1994, the stockholders approved a 1-for-1.5 reverse
  split (effective upon the closing of the Company's initial public offering) of
  the Company's common stock. All shares and per share amounts included in the
  accompanying consolidated financial statements have been adjusted to give
  retroactive effect to the reverse stock split for all periods presented. On
  November 30, 1995, the stockholders approved an increase in the authorized
  shares of common stock from 25,000,000 shares to 50,000,000 shares.
  
           Each share of common stock entitles the holder to one vote on all
  matters submitted to a vote of the Company's stockholders. Common stockholders
  are entitled to receive dividends, if any, as may be declared by the Board of
  Directors, subject to any preferential dividend rights of any preferred
  stockholders.
  
           In connection with the execution of an equipment sale and leaseback
  agreement (See Note 4) in fiscal 1993, the Company issued a warrant for the
  purchase of 46,664 shares of the Company's common stock at an exercise price of
  $2.25 per share, which expires on July 28, 1998. The common stock purchase
  warrant was determined to have an insignificant value on the date of issuance.
  In November 1994, the Company issued 29,166 shares of common stock upon partial
  exercise of this common stock purchase warrant. In fiscal 1995, the Company
  issued the remaining 17,498 shares of common stock related to this common stock
  purchase warrant.
  
                                        F-20
  53
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  8.  STOCK PLANS
  
  1988 STOCK PLAN
  
           The 1988 Stock Plan (the "1988 Plan") provides for the grant of
  incentive stock options and nonqualified stock options, stock awards and stock
  purchase rights for the purchase of up to an aggregate of 8,200,000 shares of
  the Company's common stock by officers, employees, consultants and directors of
  the Company. In fiscal 1995, the Company's stockholders approved increases in
  the number of shares issuable under the Plan from 5,333,332 shares to 8,200,000
  shares. The Compensation Committee of the Board of Directors is responsible for
  administration of the Plan. The Compensation Committee determines the term of
  each option, the option exercise price, the number of shares for which each
  option is granted and the rate at which each option is exercisable. The Company
  may not grant an employee incentive stock options with a fair value in excess of
  $100,000 that are first exercisable during any one calendar year.
  
           Incentive stock options may be granted to any officer or employee at an
  exercise price per share of not less than the fair value per common share on the
  date of the grant (not less than 110% of the fair value in the case of holders
  of more than 10% of the Company's voting stock). Nonqualified stock options may
  be granted to any officer, employee, consultant or director at an exercise price
  per share of not less than either the book value per common share or 50% of the
  fair value per common share on the date of the grant.
  
           Options granted under the Plan generally expire ten years from the date
  of the grant (five years for incentive stock options granted to holders of more
  than 10% of the Company's voting stock). The Compensation Committee, at the
  request of any optionee, may convert incentive stock options that have not been
  exercised at the date of conversion into nonqualified stock options.
  
                                        F-21
  54
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  The following table summarizes all stock option activity under the 1988 Plan:
  Number             Exercise
                                                                       of Shares             Price
                                                                       ---------           --------
  Outstanding at January 2, 1993                                       2,556,266        $ .29 - $ 2.38
  Granted                                                              2,074,944          .75 -   5.10
  Cancelled                                                             (823,930)         .34 -   2.38
  Exercised                                                             (278,262)         .29 -   2.38
                                                                      ----------
  Outstanding at January 1, 1994                                       3,529,018          .29 -   5.10
  Granted                                                              1,131,149         1.88 -   6.80
  Cancelled                                                             (194,345)         .34 -   6.80
  Exercised                                                             (756,468)         .29 -   3.00
                                                                      ----------
  Outstanding at December 31, 1994                                     3,709,354          .75 -   6.80
  Granted                                                              1,482,848         4.21 -  35.38
  Cancelled                                                             (134,984)         .75 -  31.25
  Exercised                                                           (1,100,059)         .29 -   6.80
                                                                      ----------
  Outstanding at December 30, 1995                                     3,957,159          .75 -  35.38
                                                                      ==========
  Exercisable at December 30, 1995                                       683,814         $.75 - $ 6.80  
                                                                      ==========
  Available  for grant at December 30, 1995                            2,132,793
                                                                      ==========
  In fiscal 1993, the Company granted options, in lieu of cash payment,
  to a consultant of the Company to purchase up to 66,666 shares of common stock
  for $.75 per share. The fair value of the services of $25,000 has been included
  in selling, general and administrative expenses in fiscal 1993 and additional
  paid-in capital has been increased accordingly. All such options were exercised
  in fiscal 1994.
  
           The Company has reserved a total of 5,991,084 shares of common stock
  for issuance under the 1988 Stock Plan.
  
  1994 DIRECTOR STOCK OPTION PLAN
  
           On October 21, 1994, the stockholders approved the 1994 Director Stock
  Option Plan (the "Director Plan") under which options to purchase up to an
  aggregate of 550,000 shares of the Company's common stock may be granted to
  nonemployee directors at an exercise price per share equal to the fair value per
  common share on the date of the grant. Under the Director Plan, each nonemployee
  director was granted an option to purchase 33,000 common shares (the "initial
  shares") on July 17, 1995 and an option to purchase an additional 7,000 common
  shares on the third Monday in July of each year thereafter, through December 31,
  1999. Eligible directors who have been previously granted stock options under
  the 1988 Plan will not be granted an option to purchase the initial shares.
  
           Twenty-five percent of the options granted under the Director Plan are
  exercisable one year from the date of grant and every year thereafter, provided
  that the optionee remains a director. Options granted under the Director Plan
  generally expire ten years from the date of grant. In fiscal 1995, options to
  purchase 99,000 shares of common stock were granted at an exercise price of
  $25.63 per share. The Company has reserved 550,000 shares of common stock for
  issuance under the Director Plan.
  
                                        F-22
  55
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  1994 EMPLOYEE STOCK PURCHASE PLAN
  
           On October 21, 1994 the stockholders approved the 1994 Employee Stock
  Purchase Plan (the "1994 Plan") which enables eligible employees to purchase
  shares of the Company's common stock. Under the 1994 Plan, eligible employees
  may purchase up to an aggregate of 700,000 shares during six-month payment
  periods commencing on February 1 and August 1 of each year at a price per share
  of 85% of the lower of the market price per share on the first or last business
  day of the six-month period. Participating employees may elect to have up to 10%
  of regular pay withheld and applied toward the purchase of such shares up to a
  maximum of 20,000 shares in any six-month payment period. An employee's rights
  under the 1994 Plan terminate upon voluntary withdrawal from the plan at any
  time or upon termination of employment. The Company has reserved 678,418 shares
  of common stock for issuance under the 1994 Plan.
  
  STOCKHOLDER RIGHTS PLAN
  
           On September 20, 1995 the Company's Board of Directors adopted a
  Stockholders Rights Plan and pursuant thereto declared a dividend of one
  preferred stock purchase right for each outstanding share of common stock to
  stockholders of record at the close of business on October 13, 1995. Each right
  entitles holders of the Company's common stock to purchase one one-hundredth of
  a share (a "Unit") of a new series of junior participating preferred stock, $.01
  par value per share, at an exercise price of $300.00 per unit, subject to
  adjustment. The rights are exercisable and become exercisable for common stock
  only under certain circumstances and in the event of particular events relating
  to a change in control of the Company. The rights may be redeemed by the Company
  under certain circumstances pursuant to the plan. The rights expire on October
  13, 2005 unless earlier redeemed or exchanged. The rights have certain
  anti-takeover effects, in that they would cause substantial dilution to a person
  or group that attempts to acquire a significant interest in the Company on terms
  not approved by the Board of Directors.
  
  9.       RETIREMENT PLANS
  
           The Company sponsors a 401(k) retirement savings plan covering all
  domestic employees of the Company who meet minimum age and service requirements.
  The plan allows participants to defer a portion of their annual compensation on
  a pre-tax basis. The Company matches 50% of the first 3% of each participating
  employee's contributions, subject to certain limitations and may, at its
  discretion, make additional contributions to the plan. The Company made matching
  contributions of $150,000, $119,000 and $76,000, to the plan in fiscal 1995,
  1994 and 1993, respectively.
  
           The Company also sponsors a defined contribution plan for all eligible
  European employees of the Company. Participation in the plan is available to
  substantially all salaried employees and to certain groups of hourly paid
  employees. Company contributions are based on a percentage of the employees'
  base salaries. The Company made contributions of $318,000, $267,000 and $226,000
  to the plan in fiscal 1995, 1994 and 1993, respectively.
  
                                        F-23
  56
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  10.      INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION
  
           The Company operates in a single industry segment: the development,
  manufacture, sale and support of network communications products and services.
  
           In fiscal 1995, one OEM customer accounted for $11,259,000 (10%) of
  revenues. In fiscal 1993, one domestic distributor accounted for $5,905,000
  (10%) of revenues.
  
           Intercompany sales and transfers between geographic areas are accounted
  for at prices which are designed to be representative of unaffiliated party
  transactions.
  (In thousands)
                                             NORTH
                                            AMERICA           EUROPE   ELIMINATIONS     TOTAL
  - ---------------------------------------------------------------------------------------------
  1995                                                        
  Revenues to unaffiliated customers       $ 70,083           $48,498  $      -        $118,581
  Intercompany revenues                           -               607      (607)              -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             70,083            49,105      (607)        118,581
  - ---------------------------------------------------------------------------------------------
  Income (loss) from operations                (797)           (3,243)        -          (4,040)
  Identifiable assets                       140,006            24,581   (14,464)        150,123
  
  1994
  Revenues to unaffiliated customers       $ 41,646           $39,412  $      -        $ 81,058
  Intercompany revenues                           -                 -         -               -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             41,646            39,412         -          81,058
  - ---------------------------------------------------------------------------------------------
  Income from operations                      1,285             2,574         -           3,859
  Identifiable assets                        51,048            23,611    (2,099)         72,560
  
  1993
  Revenues to unaffiliated customers       $ 29,527           $31,735  $      -        $ 61,262
  Intercompany revenues                           -                 -         -               -
  - ---------------------------------------------------------------------------------------------
  Total revenues                             29,527            31,735         -          61,262
  - ---------------------------------------------------------------------------------------------
  Income from operations                       (111)            1,875         -           1,764
  Identifiable assets                        11,259            18,255         -          29,514
  F-24
  57
                                 SHIVA CORPORATION
                     Notes to Consolidated Financial Statements
  
  11.      COMMITMENTS
  
  LEASE COMMITMENTS
  
           The Company leases office and operating facilities and certain
  equipment under operating and capital leases (See Notes 4 and 5) that expire
  through March 2014. Future minimum lease payments under operating and capital
  leases with initial or remaining noncancelable terms of one or more years are as
  follows as of December 31, 1995:
  
  CAPTION>
                                                                              (In thousands)
                                                                         Operating        Capital
  Fiscal                                                                   leases          leases
  - ------                                                                 ---------        -------
  1996                                                                      $ 2,354          $335
  1997                                                                        2,561            54
  1998                                                                        2,257            16
  1999                                                                        2,169             -
  2000                                                                        2,281             -       
  Thereafter                                                                 11,410             -
                                                                            -------          ----
  Total minimum lease payments                                              $23,032           405         
                                                                            =======
  Less - Amount representing interest                                                          27
                                                                                             ----
  Net present value of minimum lease payments                                                $378
                                                                                             ====
  Rental expense under operating leases was $1,934,000, $1,877,000 and $1,434,000
  in fiscal 1995, 1994 and 1993, respectively.
  
  The Company no longer occupies a property which is leased through March 2014.
  The loss on this lease is included in other long-term liabilities.
  
  12.      SUBSEQUENT EVENTS
  
           On April 2, 1996, the Company's Board of Directors declared a
  two-for-one stock split, payable in the form of a stock dividend on all shares
  of its Common Stock, which was paid on April 22, 1996 to stockholders of Record
  on April 12, 1996. These financial statements and related notes have been
  retroactively adjusted, where appropriate, to reflect this two-for-one stock 
  split.
  
           In May 1996, the stockholders of the Company approved (i) an increase
  in the number of authorized shares of common stock of the Company from
  50,000,000 to 100,000,000 shares and (ii) an increase in the number of shares
  available for issuance under the Company's Amended and Restated 1988 Stock Plan
  from 8,200,000 to 9,700,000 shares.
  
           In June 1996, the Company issued approximately 691,587 shares of its
  common stock in exchange for all the outstanding shares of Airsoft, Inc. (the
  "Airsoft Acquisition"). The Airsoft Acquisition has been accounted for as a
  pooling of interests, and therefore the consolidated financial statements for
  all periods prior to the Airsoft Acquisition have been restated to include the
  accounts and operations of Airsoft, Inc. ("Airsoft") with those of the Company.
  
           Certain amounts have been reclassified with regard to presentation of
  the financial information of the two companies. Revenues and net income (loss)
  for each of the previously separate companies for the periods prior to the 
  Airsoft Acquisition are as follows:
  Year Ended                      Three Months Ended
                      --------------------------------------------   -----------------------
                       December 30,    December 31,   January 1,     March 30,      April 1,
                           1995            1994          1994          1996           1995 
                           ----            ----          ----          ----           ---- 
                                                    (In thousands)
                      (Fiscal 1995)   (Fiscal 1994)  (Fiscal 1993)         (unaudited)
  Revenues:                                          
    Shiva                $117,721         $80,971        $61,259       $42,513       $25,703
    Airsoft                   860              87              3           796            34
                         --------         -------        -------       -------       -------
                         $118,581         $81,058        $61,262       $43,309       $25,737
                         ========         =======        =======       =======       =======
                                                     
  Net income (loss):                                 
    Shiva                $ (2,879)        $ 3,881        $   909       $ 4,366       $ 2,157
    Airsoft                (1,973)         (1,841)          (493)          (27)         (775)
                         --------         -------        -------       -------       -------
                         $ (4,852)        $ 2,040        $   416       $ 4,339       $ 1,382
                         ========         =======        =======       =======       =======
  In connection with the Airsoft Acquisition, the Company incurred charges
  to operations of $1,987,000 in the quarter ended June 29, 1996, the quarter in
  which the acquisition was consummated. Such charges include: (a) transaction
  costs to effect the acquisition, consisting of financial advisor fees of
  $1,350,000 plus $325,000 for legal, regulatory and accounting expenses and (b)
  employee severance payments and other miscellaneous expenses of $312,000.
  
                                        F-25
  58
  
  ================================================================================
  
          No dealer, salesperson or any other person has been authorized to give 
  any information or to make any representations not contained in this Prospectus,
  and, if given or made, such information or representations must not be relied
  upon as having been authorized by the Company or the Selling Stockholders. This
  Prospectus does not constitute an offer to sell, or a solicitation of an offer
  to sell, any securities other than the registered securities to which it
  relates, or an offer to or solicitation of any person in any jurisdiction where
  such an offer or solicitation would be unlawful. Neither the delivery of this
  Prospectus nor any sale made hereunder shall, under any circumstances, create
  any implication that the information contained herein is correct as of any time
  subsequent to the date hereof. 
  
                                   ---------------
  
                                  TABLE OF CONTENTS
  
                                                                         PAGE
                                                                         ----
  
  Available Information .............................................      2 
  Incorporation of Certain Information by Reference .................      2
  Trademarks ........................................................      3 
  The Company .......................................................      4 
  Selected Consolidated Financial Data...............................      5
  Risk Factors ......................................................      7 
  Use of Proceeds ...................................................     11 
  Management's Discussion and Analysis of Financial Condition and 
   Results of Operations.............................................     12
  Selling Stockholders ..............................................     20 
  Plan of Distribution ..............................................     22 
  Legal Matters .....................................................     23
  Experts ...........................................................     23
  Index to Financial Statements .....................................    F-1
  
  ================================================================================
  
  ================================================================================
  
                                   2,059 shares
  
                                        
                                Shiva Corporation
  
                                        
                                   Common Stock
                                        
                                        
                               -------------------
                                        
                                    PROSPECTUS
                                        
                               -------------------
                                        
  
                                September 27, 1996
  
  ================================================================================
  59
  - -------------------------------------------------------------------------------
                                                                  Schedule II
                             SHIVA CORPORATION
  
                     VALUATION AND QUALIFYING ACCOUNTS
  (In thousands)
  - ----------------------------------------------------------------------------------------------------------------------------
                                       COLUMN A                       COLUMN B     COLUMN C     COLUMN D   COLUMN E   COLUMN F
  - ----------------------------------------------------------------------------------------------------------------------------
                                                                      BALANCE      CHARGED TO   CHARGED                BALANCE
    FOR THE PERIOD                                                   BEGINNING     COSTS AND    TO OTHER                AT END
         ENDED                      CLASSIFICATION                   OF PERIOD      EXPENSES    ACCOUNTS  DEDUCTIONS OF PERIOD
  - ----------------------------------------------------------------------------------------------------------------------------
  January 1, 1994    Allowance for doubtful accounts and returns      $1,169         $5,249      $  -       $(4,042)    $2,376
  
  December 31, 1994  Allowance for doubtful accounts and returns      $2,376         $7,656      $ 17       $(6,086)    $3,963
                                                                                   
  December 30, 1995  Allowance for doubtful accounts and returns      $3,963         $7,731      $(22)      $(6,421)    $5,252
                                                                                   
  June 29, 1996      
   (unaudited)       Allowance for doubtful accounts and returns      $5,252         $4,318      $ (1)      $(3,628)    $5,941
  - ----------------------------------------------------------------------------------------------------------------------------
  SHIVA CORPORATION
  
                       DEFERRED TAX ASSET VALUATION ALLOWANCE
  - -------------------------------------------------------------------------------------------------------------------
                                       Column A              Column B   Column C    Column D    Column E    Column F
  - -------------------------------------------------------------------------------------------------------------------
                                                             Balance   Charged to   Charged                 Balance
    For the Period                                          Beginning  Costs and    to Other                 at End
         Ended                      Classification          of Period   Expenses    Accounts   Deductions   of Period
  - -------------------------------------------------------------------------------------------------------------------
  January 1, 1994    Deferred tax asset valuation allowance   $3,375      $170       $    -     $  (270)     $3,275
  
  December 31, 1994  Deferred tax asset valuation allowance   $3,275      $797       $1,031     $  (978)     $4,125
                                                                                 
  December 30, 1995  Deferred tax asset valuation allowance   $4,125      $730       $3,076     $(1,400)     $6,531
  
  June 29, 1996      
   (unaudited)       Deferred tax asset valuation allowance   $6,531      $  -       $    -     $(5,673)     $  858
  - -------------------------------------------------------------------------------------------------------------------
  S-1