VERITAS SOFTWARE CORP /DE/
424B3, 1999-09-30
PREPACKAGED SOFTWARE
Previous: NETWOLVES CORP, 10-12G/A, 1999-09-30
Next: VERITAS SOFTWARE CORP /DE/, 424B3, 1999-09-30



<PAGE>   1

                                                Filed Pursuant to Rule 424(b)(3)
                                                      Registration No. 333-87585

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

                                   PROSPECTUS
                           -------------------------

                                 [VERITAS LOGO]

                                3,358,975 SHARES

                                  COMMON STOCK

     This prospectus covers the offering of shares of common stock of VERITAS
Software Corporation held by the selling stockholders named in the prospectus.
VERITAS will not receive any of the proceeds from the sale of these shares.

     All of the shares of common stock covered by this prospectus are being
offered on a continuous basis pursuant to Rule 415 under the Securities Act. No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of these shares by the selling stockholders. The shares
of common stock covered by this prospectus will be sold from time to time at
then prevailing market prices, at prices relating to market prices or at
negotiated prices.

     Our common stock is quoted on the Nasdaq National Market under the symbol
VRTS. On September 29, 1999, the closing price of the common stock was $76.59
per share.
                           -------------------------

         INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK.
                    SEE "RISK FACTORS" BEGINNING ON PAGE 6.
                           -------------------------

     NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SHARES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

               The date of this prospectus is September 30, 1999.
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Prospectus Summary..........................................     1
VERITAS.....................................................     1
Recent Developments.........................................     1
Summary Financial Data......................................     3
Risk Factors................................................     6
Forward-Looking Statements..................................    14
Use of Proceeds.............................................    15
Common Stock Price Range....................................    15
Dividend Policy.............................................    15
Capitalization..............................................    16
Selected Financial Data.....................................    17
VERITAS Summary Unaudited Pro Forma Combined Condensed
  Financial Data............................................    20
VERITAS Management's Discussion and Analysis of Financial
  Condition and Results of Operations.......................    22
The Network & Storage Management Group Management's
  Discussion and Analysis of Financial Condition and Results
  of Operations.............................................    39
Quantitative and Qualitative Disclosures about Market
  Risk......................................................    61
Business....................................................    62
Management..................................................    76
Related Party Transactions..................................    84
Principal Stockholders......................................    86
Selling Stockholders........................................    88
Plan of Distribution........................................    90
Description of Capital Stock................................    92
Legal Matters...............................................    99
Experts.....................................................    99
Where You Can Find More Information.........................   100
Index to Financial Statements...............................   F-1
</TABLE>

                                        i
<PAGE>   3

                               PROSPECTUS SUMMARY

     This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including "Risk Factors" and the financial statements,
before making an investment decision.

                                    VERITAS

     VERITAS designs, develops and markets software products that help large
organizations rapidly and reliably access, manage, store and restore important
information stored on their networked computer systems.

     We incorporated in Delaware on October 2, 1998 under the name VERITAS
Holding Corporation. Unless expressly stated or the context otherwise requires,
the terms "we," "our," "us," "the company" and "VERITAS" refer to VERITAS
Software Corporation, a Delaware corporation formerly known as VERITAS Holding
Corporation. When these terms are used in discussions of the financial position
of the Registrant at or before March 31, 1999, they refer to VERITAS Software
Corporation, a Delaware corporation now known as VERITAS Operating Corporation
and sometimes referred to in this document as "Old VERITAS." Our address is 1600
Plymouth Street, Mountain View, California 94043, and our telephone number is
(650) 335-8000. Information contained on our Web site is not a part of this
prospectus.

                              RECENT DEVELOPMENTS

     Our reported revenue for the three months ended June 30, 1999, including
one month of operating results for the Network & Storage Management Group (NSMG)
business of Seagate Software, Inc. and TeleBackup Systems (TeleBackup), was
$114.6 million, compared with Old VERITAS' revenue of $48.1 million for the same
period in 1998. This was a 138% increase from revenue reported for the three
months ended June 30, 1998, including a 143% increase in license revenue from
the comparable quarter in 1998. The revenue growth was driven primarily by
increasing market acceptance of VERITAS' products, a larger percentage of total
license revenue generated through the direct sales channel and the acquisition
of NSMG in the three months ended June 30, 1999. Service revenue grew by 118%,
and resulted primarily from increased sales of service and support contracts on
new license sales and, to a lesser extent, from increased renewals of these
contracts by our installed base of licensees. We also experienced an increase in
demand for consulting and training services.

     For the three months ended June 30, 1999, we had a net loss of $162.3
million, or $1.33 per share, compared with Old VERITAS' net income of $8.5
million, or $0.08 per share on a diluted basis, for the three months ended June
30, 1998. Included in the net loss for the three months ended June 30, 1999 were
one-time charges of $103.1 million for the write-off of in-process research and
development and $11.0 million for merger and restructuring costs. Also included
in the results for the three months ended June 30, 1999 was purchase accounting
amortization of $76.6 million.
                                        1
<PAGE>   4

     The following table sets forth selected financial data of Old VERITAS for
the five quarters ended March 31, 1999 and VERITAS for the quarter ended June
30, 1999:

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                      ----------------------------------------------------------------------------
                                      MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,    JUNE 30,
                                        1998        1998         1998            1998         1999         1999
                                      ---------   --------   -------------   ------------   ---------   ----------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>        <C>             <C>            <C>         <C>
AS REPORTED CONSOLIDATED STATEMENT
  OF OPERATIONS DATA:
  Total net revenue.................  $ 39,082    $ 48,113     $ 56,545        $ 67,125     $ 71,904    $  114,648
  Amortization of developed
    technology......................        --          --           --              --           --         5,006
  Amortization of goodwill and other
    intangibles.....................        --          --           --              --           --        71,557
  Acquisition and restructuring
    costs...........................        --          --           --              --           --        11,000
  In-process research and
    development.....................        --       2,250           --          (1,650)          --       103,100
  Income (loss) from operations.....     9,838       9,801       14,774          19,255       19,494      (159,340)
  Net income (loss).................     9,055       8,541       12,593          21,459       13,583      (162,329)
  Net income (loss) per share --
    basic(1)........................  $   0.10    $   0.09     $   0.13        $   0.23     $   0.14    $    (1.33)
  Net income (loss) per share --
    diluted(1)......................  $   0.09    $   0.08     $   0.12        $   0.21     $   0.13    $    (1.33)
  Number of shares used in computing
    per share amounts -- basic(1)...    92,868      93,724       94,458          95,034       95,644       122,430
  Number of shares used in computing
    per share
    amounts -- diluted(1)...........   101,900     102,708      104,652         104,084      106,272       122,430
</TABLE>

<TABLE>
<CAPTION>
                                                                         AS OF
                                      ----------------------------------------------------------------------------
                                      MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,    JUNE 30,
                                        1998        1998         1998            1998         1999         1999
                                      ---------   --------   -------------   ------------   ---------   ----------
                                                                     (IN THOUSANDS)
<S>                                   <C>         <C>        <C>             <C>            <C>         <C>
AS REPORTED CONSOLIDATED BALANCE
  SHEET DATA:
  Working capital...................  $197,979    $204,967     $218,938        $198,842     $196,180    $  161,325
  Total assets......................   258,883     278,382      308,293         349,117      374,876     4,058,408
  Long-term obligations.............   100,872     100,839      100,805         100,773      100,733       100,739
  Accumulated deficit...............   (72,009)    (63,468)     (50,877)        (29,416)     (15,833)     (178,162)
  Stockholders' equity..............   117,482     128,512      145,669         169,854      190,255     3,595,184
</TABLE>

- -------------------------
(1) Share and per share data applicable to prior periods have been restated to
    give retroactive effect to a 2-for-1 stock split in the form of a stock
    dividend effected in July 1999.
                                        2
<PAGE>   5

                               SUMMARY FINANCIAL DATA

     The following historical financial information is derived from the audited
consolidated financial statements of Old VERITAS for 1996 through 1998, audited
financial statements of TeleBackup for 1996 through 1998, audited combined
financial statements of the NSMG business for fiscal years 1996 through 1998,
and the unaudited financial statements of VERITAS, TeleBackup and the NSMG
business for the interim periods presented, all included elsewhere in this
prospectus.

     The following unaudited pro forma financial data is derived from the
VERITAS unaudited pro forma combined statements of operations for the year ended
December 31, 1998 and the six months ended June 30, 1999 included elsewhere in
this prospectus.

SUMMARY HISTORICAL FINANCIAL DATA OF OLD VERITAS AND VERITAS AND PRO FORMA
FINANCIAL DATA OF VERITAS

<TABLE>
<CAPTION>
                                                                                                                   VERITAS
                                                                                                VERITAS           PRO FORMA
                                                    OLD VERITAS              VERITAS           HISTORICAL        -----------
                                                                            PRO FORMA     --------------------
                                                                           ------------                          SIX MONTHS
                                                    HISTORICAL
                                           -----------------------------                       SIX MONTHS
                                              YEAR ENDED DECEMBER 31,       YEAR ENDED       ENDED JUNE 30,         ENDED
                                           -----------------------------   DECEMBER 31,   --------------------    JUNE 30,
                                            1996       1997       1998         1998         1998       1999         1999
                                           -------   --------   --------   ------------   --------   ---------   -----------
                                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                        <C>       <C>        <C>        <C>            <C>        <C>         <C>
CONSOLIDATED STATEMENT OF OPERATIONS
  DATA:
Total net revenue........................  $72,746   $121,125   $210,865    $ 409,998     $ 87,195   $ 186,552   $   290,467
Income (loss) from operations............   11,858     20,076     53,668     (824,950)      19,639    (139,846)     (376,602)
Net income (loss)........................   12,129     22,749     51,648     (798,397)      17,596    (148,746)     (376,144)
Net income (loss) per share -- basic.....  $  0.14   $   0.25   $   0.55    $   (4.80)    $   0.19   $   (1.36)  $     (2.23)
Net income (loss) per share -- diluted...  $  0.13   $   0.23   $   0.50    $   (4.80)    $   0.17   $   (1.36)  $     (2.23)
Number of shares used in computing
  per share amounts -- basic.............   86,052     91,244     94,026      166,216       93,293     109,108       168,383
Number of shares used in computing
  per share amounts -- diluted...........   92,992     98,986    103,342      166,216      102,302     109,108       168,383
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF
                                                              JUNE 30, 1999
                                                              --------------
                                                                  ACTUAL
                                                              --------------
                                                              (IN THOUSANDS)
<S>                                                           <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.............................................    $  161,325
Total assets................................................     4,058,408
Long-term obligations.......................................       100,739
Accumulated deficit.........................................      (178,162)
Stockholders' equity........................................     3,595,184
</TABLE>

SUMMARY HISTORICAL FINANCIAL DATA OF THE NSMG BUSINESS

<TABLE>
<CAPTION>
                                                                                                    NINE MONTHS
                                                                        YEAR ENDED                     ENDED
                                                              -------------------------------   -------------------
                                                              JUNE 28,    JUNE 27,   JULY 3,    APRIL 3,   APRIL 2,
                                                                1996        1997       1998       1998       1999
                                                              ---------   --------   --------   --------   --------
                                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>        <C>        <C>        <C>
COMBINED STATEMENT OF OPERATIONS DATA:
Revenues....................................................  $ 116,742   $141,502   $175,046   $131,539   $170,225
Income (loss) from operations...............................   (102,655)   (41,208)     9,430      9,248     43,076
Net income (loss)...........................................    (94,596)   (33,200)     2,856      2,669     25,280
</TABLE>

<TABLE>
<CAPTION>
                                                                  AS OF
                                                              APRIL 2, 1999
                                                              -------------
<S>                                                           <C>
COMBINED BALANCE SHEET DATA:
Total assets................................................    $115,270
Group equity................................................      63,611
</TABLE>

                                        3
<PAGE>   6

SUMMARY HISTORICAL FINANCIAL DATA OF TELEBACKUP

<TABLE>
<CAPTION>
                                                                                                    THREE MONTHS
                                                                 YEAR ENDED DECEMBER 31,          ENDED MARCH 31,
                                                             --------------------------------    ------------------
                                                               1996        1997        1998       1998       1999
                                                             --------    --------    --------    -------    -------
                                                                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                          <C>         <C>         <C>         <C>        <C>
STATEMENT OF OPERATIONS DATA:
  Canadian GAAP
Revenue....................................................  C $  252    C $  486    C$ 3,423    C $ 708    C$1,237
Net loss...................................................    (1,141)     (1,870)     (1,570)      (200)      (517)
Net loss per share -- basic and fully diluted..............  C$ (0.18)   C$ (0.25)   C$ (0.17)   C$(0.02)   C$(0.05)
Number of shares used in computing per share
  amounts -- basic and fully diluted.......................     6,288       7,385       9,347      8,043     11,362
</TABLE>

<TABLE>
<CAPTION>
                                                                   AS OF MARCH 31, 1999
                                                                   --------------------
                                                                      (IN THOUSANDS)
<S>                                                           <C>  <C>
BALANCE SHEET DATA:
  Canadian GAAP
Working capital.............................................             C$ 3,483
Total assets................................................                7,678
Long-term obligations.......................................                  271
Accumulated deficit.........................................               (5,151)
Shareholders' equity (deficiency)...........................                4,021
</TABLE>

For a summary of the principal differences between U.S. and Canadian generally
accepted accounting principles, see Note 13 in the consolidated financial
statements of TeleBackup included in this prospectus.
                                        4
<PAGE>   7

                            PRO FORMA FINANCIAL DATA

     For the three months ended June 30, 1999, on a pro forma basis including
the operating results of NSMG and TeleBackup for the periods prior to their
respective dates of acquisition, we had pro forma revenue of $155.7 million.
This represents an increase of 70% from the pro forma revenue of $91.6 million
for the three months ended June 30, 1998, and an increase of 16% from the pro
forma revenue of $134.7 million for the three months ended March 31, 1999.
Excluding nonrecurring charges of $114.1 million and purchase accounting
amortization of $76.6 million and related adjustments for income taxes, pro
forma net income was $29.2 million for the three months ended June 30, 1999.
This represents an increase of 102% over the pro forma net income for the three
months ended June 30, 1998, and an 8% increase over the pro forma net income of
$27.0 million for the three months ended March 31, 1999. After giving effect to
the issuance of shares in the NSMG and the TeleBackup combinations to all
periods, pro forma net income per share on a diluted basis for the three months
ended June 30, 1999 was $0.16. This represents a 100% increase from pro forma
net income per share of $0.08 for the same period last year, and a 7% increase
from pro forma net income per share of $0.15 for the three months ended March
31, 1999.

     The following pro forma statement of operations data is intended to present
VERITAS' operating results for each of the six quarters in the period ended June
30, 1999, excluding purchase accounting adjustments but including the results of
NSMG and TeleBackup for the periods prior to their respective dates of
acquisition, and assuming the companies had been combined at the beginning of
the periods presented. These purchase accounting adjustments would have
included, on a pre-tax basis, amortization of developed technology of
approximately $15.0 million per quarter and amortization of goodwill and
intangibles of approximately $215.5 million per quarter. These adjustments would
have also included, on a pre-tax basis, approximately $103.1 million of
in-process research and development charges and approximately $11.0 million of
acquisition and restructuring costs during the three months ended June 30, 1999.

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED
                                      ----------------------------------------------------------------------------
                                      MARCH 31,   JUNE 30,   SEPTEMBER 30,   DECEMBER 31,   MARCH 31,    JUNE 30,
                                        1998        1998         1998            1998         1999         1999
                                      ---------   --------   -------------   ------------   ---------   ----------
                                                         (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>         <C>        <C>             <C>            <C>         <C>
PRO FORMA CONSOLIDATED STATEMENT OF
  OPERATIONS DATA:
  Total net revenue.................  $ 87,308    $ 91,620     $105,078        $125,992     $134,729    $  155,738
  Income from operations............    21,454      21,602       25,618          35,713       40,508        43,912
  Net income........................    14,224      14,498       17,116          23,896       26,969        29,228
  Net income per share -- basic.....  $   0.09    $   0.09     $   0.10        $   0.14     $   0.16    $     0.17
  Net income per share -- diluted...  $   0.08    $   0.08     $   0.09        $   0.13     $   0.15    $     0.16
  Number of shares used in computing
    per share amounts -- basic......   165,057     165,913      166,647         167,224      167,834       168,932
  Number of shares used in computing
    per share amounts -- diluted....   179,080     179,937      181,880         181,312      183,500       184,113
</TABLE>

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

     Unless otherwise noted, all information in this prospectus relating to
outstanding shares of VERITAS common stock or options to purchase VERITAS common
stock is based upon information as of September 16, 1999 and reflects the
two-for-one stock split paid as a stock dividend in July 1999.

     For a presentation of selected financial information regarding VERITAS, the
Network & Storage Management Group business and TeleBackup Systems Inc., see
"Selected Financial Data" beginning on page 17.
                                        5
<PAGE>   8

                                  RISK FACTORS

     You should carefully consider the following risk factors and all other
information contained in this prospectus before investing in VERITAS. Investing
in our common stock involves a high degree of risk. Any of the following factors
could harm our business and could result in a partial or complete loss of your
investment.

WE MAY FAIL TO INTEGRATE OUR BUSINESS WITH THE BUSINESSES OF NSMG AND TELEBACKUP

     Product line integration will be difficult. We recently acquired the
Network & Storage Management Group (NSMG) business of Seagate Software, Inc. and
TeleBackup Systems Inc. (TeleBackup) and must integrate these independent
businesses with our own. If we fail to integrate these businesses, our business
and our quarterly and annual results of operations may be adversely affected.
One key issue will be the integration of our products with those of NSMG and
TeleBackup. This product line integration will involve consolidating products
with duplicative functionality, coordinating research and development
activities, and converging the technologies supporting the various products. For
example, Old VERITAS' NetBackup product and NSMG's Backup Exec product share
many features and functions, and NSMG's Client Exec product is very similar to
TeleBackup's TSInfoPro. Technology convergence will be particularly difficult
because Old VERITAS' products and NSMG's products lack a common technology
architecture. In particular, NSMG's products were not designed for the degree of
scalability that Old VERITAS' products were designed for, nor for use on a
variety of operating systems. Further, we have no experience with product and
technology integration on the scale that resulted from the NSMG and TeleBackup
combinations.

     Other business integration issues, if not satisfactorily resolved, could
have a material negative impact on our business. Other problems inherent in
integrating Old VERITAS' business with the businesses of NSMG and TeleBackup
include:

     - maintaining brand recognition for key products formerly associated with
       NSMG, such as Backup Exec, and TeleBackup, such as TSInfoPro, while
       migrating customer identification of these brands to VERITAS;

     - resolving channel conflicts that may arise between the original equipment
       manufacturer and direct sales distribution channels of Old VERITAS and
       the retail channels acquired in the NSMG combination;

     - coordinating, integrating and streamlining geographically dispersed
       operations, such as engineering facilities in California, Minnesota,
       Florida, North Carolina, Maryland, Colorado, Massachusetts, Washington,
       Canada and India; and

     - coping with customers' uncertainty about continued support for
       duplicative products.

     The integration will be expensive and is likely to interrupt our ordinary
business activities. Any of these risks could harm our revenues and results of
operations.

     Management and employee integration issues, if not satisfactorily resolved,
could have a material negative impact on our business. Potential management and
employee integration problems include:

     - resolving differences between the corporate cultures of Old VERITAS and
       the former NSMG business and TeleBackup; and

     - integrating the management teams of all three companies successfully. For
       example, Terence Cunningham, our President and Chief Operating Officer,
       who joined VERITAS from NSMG recently resigned.

                                        6
<PAGE>   9

WE WILL INCUR SIGNIFICANT ACCOUNTING CHARGES IN CONNECTION WITH THE NSMG AND
TELEBACKUP COMBINATIONS THAT WILL REDUCE OUR EARNINGS IMMEDIATELY AND IN THE
FUTURE

     The significant costs of integration associated with the NSMG and
TeleBackup combinations increase the risk that we will not realize the
anticipated benefits. Because we accounted for the NSMG combination and the
TeleBackup combination as purchases, we recorded non-cash charges of $103.1
million in our statements of operations in the three months ended June 30, 1999,
related to the write-off of in-process research and development. We also
recorded goodwill and net other intangible assets of approximately $3,688.1
million. This amount will be amortized over four years, and will result in
charges to operations of approximately $230.5 million per quarter. We also
recorded a restructuring charge in the three months ended June 30, 1999 of $11.0
million related primarily to costs for duplicative facilities of Old VERITAS
which we plan to vacate. These costs are in addition to the liability for the
estimated costs to vacate duplicative facilities of the NSMG business.

WE HAVE A SIGNIFICANT AMOUNT OF DEBT WHICH WE MAY BE UNABLE TO SERVICE OR REPAY

     In October 1997, we issued $100.0 million in aggregate principal amount of
5.25% convertible subordinated notes due 2004 and in August 1999 we issued
$465.8 million aggregate principal amount at maturity of 1.856% convertible
subordinated notes due 2006 that result in us having a ratio of long-term debt
to total capitalization at June 30, 1999 of approximately 11%. The annual
interest payments on our outstanding notes are $5.3 million and $8.6 million
respectively, which we expect to fund from cash flows from operations.

     We will need to generate substantial amounts of cash from our operations to
fund interest payments and to repay the principal amount of debt when it
matures, while at the same time funding capital expenditures and our other
working capital needs. If we do not have sufficient cash to repay our debts as
they become due, we may be unable to refinance our debt on reasonable terms or
at all. For example, the notes we recently offered could be declared immediately
due and payable if we do not make timely payments. While our cash flow has been
sufficient to fund interest payments to date, if we cannot meet our debt
obligations from the cash generated by our business, we may not be able to
develop and sell new products, respond to changing business or economic
conditions adequately, make acquisitions or otherwise fund our business.

OUR OPERATING RESULTS MAY FLUCTUATE SIGNIFICANTLY AS A RESULT OF FACTORS OUTSIDE
OUR CONTROL, WHICH COULD CAUSE THE MARKET PRICE OF OUR STOCK TO DECLINE

     Fluctuations in our operating results are likely to affect the market price
of our common stock in a manner that may be unrelated to our long-term operating
performance. The more likely it is that market prices of our common stock will
fluctuate, the riskier is your decision to acquire our common stock. In
addition, the number of factors that could affect our results makes an
investment in our common stock riskier than many other investments.

     Our revenues in any quarter will depend substantially on orders we receive
and ship in that quarter. In addition, we typically receive a significant
portion of orders in any quarter during the last two weeks of the quarter, and
we cannot predict whether those orders will be placed, fulfilled and shipped in
that period. If we have lower revenues than we expect, we probably will not be
able to reduce our operating expenses quickly in response. Therefore, any
significant shortfall in revenues or delay of customer orders could have an
immediate adverse effect on our operating results in that quarter.

                                        7
<PAGE>   10

     The operating results of Old VERITAS and VERITAS, as well as the operating
results of NSMG and TeleBackup, have fluctuated in the past, and our operating
results are likely to fluctuate significantly in the future. Factors that could
affect our operating results include:

     - the timing and magnitude of sales through original equipment
       manufacturers;

     - the unpredictability of the timing and level of sales to large
       distributors in the retail channel and our direct sales force, which tend
       to generate sales later in our quarters than original equipment
       manufacturer sales;

     - the timing and magnitude of large orders;

     - the timing and amount of our marketing, sales and product development
       expenses;

     - the cost and time required to develop new software products;

     - the introduction, timing and market acceptance of new products;

     - our ability to deliver products that are Year 2000 compliant;

     - the timing of revenue recognition for sales of software products and
       services;

     - changes in data storage and networking technology or introduction of new
       operating system upgrades by original equipment manufacturers, which
       could require us to modify our products or develop new products;

     - the relative growth rates of the Windows NT and UNIX markets;

     - the rate of adoption of Microsoft's release of the next version of
       Windows NT, or Windows 2000, by users;

     - pricing policies and distribution terms; and

     - the timing and magnitude of acquisitions.

WE DEPEND ON LARGE ORDERS WITH LENGTHY SALES CYCLES FOR A SIGNIFICANT PORTION OF
OUR REVENUES

     Our revenues for a quarter could fluctuate significantly based on whether a
large order is closed near the end of a quarter or delayed. Customer orders can
range in value from a few thousand to a few million dollars. The length of time
between initial contact with a potential customer and sale of a product, or our
sales cycle, outside the retail channel is typically complex and lengthy, so it
can last from three to nine months. These direct sales also represent our
largest orders. Therefore, our revenues for a period are likely to be affected
by the timing of larger orders, which makes those revenues difficult to predict.
Our revenues for a quarter could be reduced if large orders forecasted for a
certain quarter are delayed or are not realized. The cycle factors that could
delay or defer an order, include:

     - time needed for technical evaluations of our software by customers;

     - customer budget restrictions;

     - customer internal review and testing procedures; and

     - engineering work needed to integrate our software with the customers'
       systems.

WE FACE MANY NEW DIFFICULTIES MANAGING A LARGER COMPANY

     The NSMG and TeleBackup combinations have created new challenges for our
management. If we fail to meet those challenges our business and quarterly and
annual results of operations may be harmed and the value of your investment may
decline. Old VERITAS grew rapidly before the NSMG and TeleBackup combinations.
After these combinations, our workforce is approximately twice the size of Old
VERITAS' workforce and we still need to hire additional sales, engineering,
service and administrative personnel. This growth is likely to strain our
management control systems

                                        8
<PAGE>   11

and resources, including decision support, accounting, management information
systems and facilities. We must continue to improve our financial and management
controls and our reporting systems and procedures to manage our employees and to
obtain additional facilities.

WE MAY BE UNABLE TO HIRE AND RETAIN NEEDED SALES AND ENGINEERING PERSONNEL

     Our personnel needs are more acute than those facing most companies. As a
result of the NSMG and TeleBackup combinations, we must hire many additional
sales, engineering, service and administrative personnel. If we are unable to
hire and retain these employees our business and quarterly and annual results of
operations will be adversely affected. Competition for people with the skills we
require is intense. Additions of new personnel and departures of existing
personnel may disrupt our business and may result in the departure of other
employees. We also depend on the continued service of our key personnel. Even
though we have entered into employment agreements with key management personnel,
these agreements cannot prevent their departure. For example, Terence
Cunningham, who was our President and Chief Operating Officer and who joined
VERITAS from NSMG, resigned effective August 30, 1999. We do not have key person
life insurance covering any of our personnel, nor do we currently intend to
obtain any of this insurance.

WE DISTRIBUTE OUR PRODUCTS THROUGH MULTIPLE DISTRIBUTION CHANNELS, EACH OF WHICH
IS SUBJECT TO RISKS

     Historically, Old VERITAS and VERITAS sold products through original
equipment manufacturers and through direct sales. As a result of the NSMG and
TeleBackup combinations, however, we also have a retail distribution channel as
well. If we fail to manage our distribution channels successfully, our business
and quarterly and annual results of operations may be materially and adversely
affected.

     Retail distribution. Certain software products of the former NSMG business
are sold primarily in the retail channel. Our management faces different
challenges than it faces in selling most of our other products. For example:

     - the VERITAS brand does not have the same level of recognition in the
       retail channel;

     - retail distribution typically involves shorter product life cycles; and

     - the retail channel has higher risks of product returns, higher marketing
       expenses and less predictable market demand.

Moreover, our retail distributors have no obligation to continue selling the
products previously sold by NSMG and TeleBackup and may terminate our
relationship at any time.

     Direct sales. We also depend on our direct sales force to sell our
products. This involves a number of risks, including:

     - longer sales cycles for direct sales;

     - our need to hire, train, retain and motivate our sales force; and

     - the length of time it takes our new sales representatives to become
       productive.

     Original equipment manufacturers. A portion of our revenue is expected to
come from original equipment manufacturers that incorporate our storage
management software into systems they sell. We have no control over the shipping
dates or volumes of systems the original equipment manufacturers ship and they
have no obligation to ship systems incorporating our software. They also have no
obligation to recommend or offer our software products exclusively or at all.
They have no minimum sales requirements and can terminate our relationship at
any time. These original equipment manufacturers also could choose to develop
their own storage management products

                                        9
<PAGE>   12

internally and incorporate those products into their systems in lieu of our
products. Finally, the original equipment manufacturers that we do business with
compete with one another. To the extent that one of our of original equipment
manufacturer customers views the products we have developed for another original
equipment manufacturer as competing with its products, it may decide to stop
doing business with us, which could harm our business.

     Development agreements for original equipment manufacturers. We have
important original equipment manufacturer agreements with Hewlett-Packard, Sun
Microsystems, Microsoft, Dell, Seagate Technology and Compaq Computer. Under
these agreements we develop "lite" versions of our products to be included in
these original equipment manufacturers' systems software and products.
Developing products for these original equipment manufacturers causes us to
divert significant resources from other activities which are also important to
our business. If these "lite" versions do not result in substantial revenues,
our revenue could be adversely affected.

OUR DISTRIBUTION CHANNELS COULD CONFLICT WITH ONE ANOTHER

     We have many different distribution channels. If we cannot use these
distribution channels efficiently our business and quarterly and annual results
of operations may be materially and adversely affected. Our original equipment
manufacturers, resellers and direct sales force might target similar sales
opportunities, which could lead to inefficient allocation of sales resources. We
may also try to sell full versions of the products to customers of the original
equipment manufacturers for whom we have developed "lite" versions of our
products. This would result in us marketing similar products to end-users. These
overlapping sales efforts could also adversely affect our relationships with our
original equipment manufacturers and other sales channels and result in them
being less willing to market our products aggressively. If our indirect sales
decline, we would need to accelerate our investments in alternative distribution
channels. We may not be able to do this in a timely manner, or at all.

OUR DEVELOPMENT AGREEMENTS WITH MICROSOFT COULD CAUSE US TO LOSE CUSTOMERS

     We have important agreements with Microsoft under which we develop software
for its Windows operating system. However, if we do not develop these products
in time for the release of Microsoft's Windows NT 5.0, or Windows 2000,
operating system, Microsoft will not include our products in this operating
system. Even if we do develop these products on time, Microsoft is not obligated
under the agreements to include them in this operating system. If for any reason
our software is not included in Windows 2000 we will lose our expected
opportunity to market additional products to the Windows NT installed customer
base, as well as suffer negative publicity. In addition, we would lose the
investment we have made in developing products for inclusion in Windows 2000.

     Risks of delay of release of Windows 2000. Microsoft is not required to
release Windows 2000 on any particular date. If the release of this operating
system is delayed it will be more difficult for us to market and sell our
products to Windows NT users.

     Microsoft could develop competing products. Microsoft can also develop
enhancements to and derivative products from our software products that are
embedded in Windows NT products. If Microsoft develops any enhancements or
derivative products, or enhances its own base products with equivalent
functionality, Microsoft could choose to compete with us.

SALES OF A SMALL NUMBER OF PRODUCT LINES MAKE UP A SUBSTANTIAL PORTION OF OUR
REVENUE

     For the foreseeable future we expect to derive a substantial majority of
our revenue from a limited number of software products. If many customers do not
purchase these products as a result of competition, technological change or
other factors, our revenue would decrease and our business and quarterly and
annual results of operations would be materially and adversely affected. In the
year

                                       10
<PAGE>   13

ended December 31, 1998, Old VERITAS derived approximately 87.6% of its license
revenue from storage management products, and the NSMG business derived 87.9% of
its revenue from its Backup Exec product. In the six months ended June 30, 1999,
VERITAS derived approximately 83.7% of its license revenue from storage
management products and in the three months ended March 31, 1999, the NSMG
business derived 90.2% of its revenue from its Backup Exec product. Also, Old
VERITAS' NetBackup product and NSMG's Backup Exec product perform some
overlapping functions. Customers may select one product over the other,
resulting in reduced revenue for the product not selected. Therefore, we may not
receive the same aggregate level of revenue from these products as we have
received in the past.

OUR PRODUCTS HAVE RELATIVELY SHORT LIFE CYCLES

     Our software products have a limited life cycle and it is difficult to
estimate when they will become obsolete. This makes it difficult for us to
forecast revenue and makes your investment more risky. If we do not develop and
introduce new products before our existing products have completed their life
cycles, we will not be able to sustain our level of sales. In addition, to
succeed, many customers must adopt our new products early in each product's life
cycle. Therefore, if we do not attract sufficient customers early in a product's
life, we may not realize the amount of revenue we anticipated for the product.
We cannot be sure that we will continue to be successful in marketing our key
products.

WE DERIVE SIGNIFICANT REVENUES FROM ONLY A FEW CUSTOMERS

     Sales to a small number of customers generate a disproportionate amount of
our revenue. For example, in the year ended December 31, 1998, Old VERITAS
derived 12% of its revenue from sales to Sun Microsystems and the NSMG business
derived 28% of its revenue from sales to Ingram Micro Inc. In the six months
ended June 30, 1999, VERITAS derived 12% of its revenue from sales to Sun
Microsystems and in the three months ended March 31, 1999, the NSMG business
derived 24% of its revenue from sales to Ingram Micro Inc. If Sun Microsystems
or Ingram Micro, or any other significant customer, were to reduce its purchases
from us, our revenues and therefore our business would be harmed unless we were
to increase sales to other customers substantially. We do not have a contract
with Sun Microsystems, Ingram Micro or any other customer that requires the
customer to purchase any specified number of software licenses from us.
Therefore, we cannot be sure that these customers will continue to purchase our
products at current levels.

WE FACE UNCERTAINTIES PORTING PRODUCTS TO NEW OPERATING SYSTEMS AND DEVELOPING
NEW PRODUCTS

     Some of our products operate primarily on the UNIX computer operating
system. We are currently redesigning, or porting, these products to operate on
the Windows NT operating system. We are also developing new products for UNIX
and for Windows NT. TeleBackup's products operate on the Sun Solaris version of
UNIX, the Windows and Windows NT operating systems. We intend to port the
TeleBackup products to other UNIX operating systems and subsequent releases of
Windows NT. We may not be able to accomplish any of this work quickly or
cost-effectively.

     These activities require substantial capital investment, substantial
employee resources and the cooperation of the owners of the operating systems to
or for which the products are being ported or developed. Our porting and
development work for the Windows NT market has required us to hire additional
personnel with Windows NT expertise and to devote engineering resources to these
projects. We must obtain from operating system owners a source code license to
certain portions of the operating system software to port some of our products
to or develop products for the operating system. Operating system owners have no
obligation to assist in these porting or development efforts. If they do not
grant us a license or if they do not renew our license, we would not be able to
expand our product line easily into other areas. For example, we rely on a
source code license from Microsoft
                                       11
<PAGE>   14

with respect to our Windows NT development projects. Microsoft is under no
obligation to renew the source code license, which is subject to annual renewal.

THE MARKET FOR TSINFOPRO IS UNPROVEN

     TeleBackup's primary product, TSInfoPro, which is designed to back up data
for remote PC users, represents new technology that has no proven market. A
market may not develop for this product or similarly unproven products in the
future. This could harm our business because our investment in TeleBackup, and
any additional development and marketing costs, would be lost, and any expected
revenue opportunities would not materialize.

WE FACE INTENSE COMPETITION ON SEVERAL FRONTS

     We face a variety of tough competitors, principal among which are:

     - internal development groups within original equipment manufacturers that
       provide storage management functions to support their systems;

     - other software vendors and hardware companies that offer products with
       some of our products' features, such as controller and disk subsystem
       manufacturers;

     - hardware and software vendors that offer storage application products;

     - hardware and software vendors that offer high availability and clustering
       products; and

     - software vendors focused on remote backup technologies and electronic
       data vaulting services.

     Many of our competitors have substantially greater financial and technical
resources than we do and may attempt to increase their presence in the storage
management market by acquiring or forming strategic alliances with other
competitors or business partners.

POTENTIAL YEAR 2000 RISKS MAY ADVERSELY AFFECT OUR BUSINESS

     We are in the process of conducting an extensive review of our products and
services and of our internal business systems and infrastructure to identify
potential Year 2000 problems and are implementing remedial action to address
those problems. While we do not expect to encounter any problems that would be
material to our business or to incur significant costs in fixing Year 2000
problems, if we do not identify and remedy these problems in a timely and
efficient manner, we could experience substantial disruptions to our operations.
Failure to achieve Year 2000 readiness of our systems or products could lead to
loss of existing and potential customers and subsequent costly litigation claims
against us. Factors outside our control, such as loss of water and power,
telecommunications systems, banking systems and transportation systems, could
also cause substantial business disruption. Please see "VERITAS Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance" for detailed information on our Year 2000 readiness.

EXPANDING OUR INTERNATIONAL SALES DEPENDS ON ECONOMIC STABILITY IN REGIONS THAT
RECENTLY HAVE BEEN UNSTABLE

     An investment in our common stock is riskier than an investment in many
other companies because we plan to expand in overseas markets such as Asia,
Russia and Latin America that have experienced significant economic turmoil in
recent years. Continued turmoil could adversely affect our plans to increase
sales in these regions. Economic recession could also affect our ability to
maintain

                                       12
<PAGE>   15

or increase sales in these or other regions in the future. Our concern is that
recession in these markets could lead to:

     - restrictions on government spending imposed by the International Monetary
       Fund;

     - customers' reduced access to working capital to fund software purchases;

     - higher interest rates; and

     - reduced bank lending or other sources of financing for customers and
       potential customers.

Any of these factors could cause foreign customers to substantially reduce their
purchase of our products.

OUR FOREIGN-BASED OPERATIONS AND SALES CREATE SPECIAL PROBLEMS THAT COULD HARM
OUR RESULTS

     An investment in our common stock is riskier than an investment in most
businesses because we have significant offshore operations, including
development facilities, sales personnel and customer support operations. For
example, as of September 10, 1999, we had approximately 151 engineers located in
Pune, India, performing product development work. These offshore operations are
subject to certain inherent risks, including:

     - potential loss of developed technology through piracy, misappropriation,
       or more lax laws regarding intellectual property protection;

     - imposition of governmental controls, including trade restrictions;

     - fluctuations in currency exchange rates and economic instability;

     - longer payment cycles for sales in foreign countries;

     - difficulties in staffing and managing the offshore operations;

     - seasonal reductions in business activity in the summer months in Europe
       and other countries; and

     - political unrest, particularly in areas in which we have facilities.

     In addition, our international sales are denominated in local currency,
creating risk of foreign currency translation gains and losses that could harm
our financial results. If we generate profits or losses in foreign countries,
our effective income tax rate could also be harmed. The currency instability in
Asia and other financial markets may make our products more expensive than
products sold by other vendors that are priced in one of the affected
currencies. Therefore, customers in these markets may choose not to purchase our
products.

OUR GROWTH STRATEGY IS RISKIER THAN OTHERS BECAUSE IT IS BASED UPON ACQUISITIONS
OF OTHER BUSINESSES

     An investment in our common stock is riskier than investments in other
companies because we plan to continue to pursue our strategy of growth through
acquisition. We have grown aggressively through acquisitions in the past and
expect to pursue acquisitions in the future. Acquisitions involve a number of
special risks and challenges, including:

     - diversion of management attention, particularly in the case of multiple
       concurrent acquisitions;

     - integration of the acquired company's operations and employees with an
       existing business;

     - incorporation of technology into existing product lines;

     - loss of key employees; and

     - presentation of a unified corporate image.

                                       13
<PAGE>   16

     In the past, we have lost certain employees of acquired companies whom we
desired to retain. In some cases, the integration of the operations of acquired
companies took longer than initially anticipated. In addition, if the employees
of target companies remain geographically dispersed from our existing staff, we
may not realize some or all of the anticipated economies of scale.

THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED SIGNIFICANTLY

     The market price of our common stock has fluctuated in the past and is
likely to continue to fluctuate. In addition, the securities markets,
particularly with respect to technology stocks, have experienced significant
price and volume fluctuations that have often been unrelated to the operating
performance of companies.

                           FORWARD-LOOKING STATEMENTS

     An investment in our common stock involves a high degree of risk. In
addition to the other information contained in this prospectus, you should
carefully consider the foregoing risk factors before investing in our common
stock. All statements, trend analyses and other information contained in this
prospectus regarding markets for our products and services and net revenue,
gross margin and anticipated expense levels, and any statements that contains
the words "anticipate," "believe," "plan," "estimate," "expect," "intend" or
other similar expressions, constitute forward-looking statements. These
forward-looking statements are subject to business and economic risks, and our
actual results of operations may differ materially from those contained in the
forward-looking statements. The cautionary statements made in this prospectus
apply to all forward-looking statements wherever they appear in this prospectus.

                                       14
<PAGE>   17

                                USE OF PROCEEDS

     We will not receive any proceeds from the sale of the common stock to be
sold by the selling stockholders.

                            COMMON STOCK PRICE RANGE

     Our common stock is listed on the Nasdaq National Market under the symbol
"VRTS." The table below shows the range of reported last sale prices on the
Nasdaq National Market for our common stock for the periods indicated. All
amounts have been adjusted to reflect the two-for-one stock split paid in the
form of a stock dividend in July 1999.

<TABLE>
<CAPTION>
                                                              COMMON STOCK PRICE
                                                              -------------------
                                                                HIGH       LOW
                                                              --------   --------
<S>                                                           <C>        <C>
Year ended December 31, 1997
  First Quarter.............................................  $ 12.67    $  5.95
  Second Quarter............................................    12.03       5.06
  Third Quarter.............................................    16.84      10.97
  Fourth Quarter............................................    17.96      11.50
Year ended December 31, 1998
  First Quarter.............................................  $ 20.09    $ 13.04
  Second Quarter............................................    21.84      16.75
  Third Quarter.............................................    30.13      20.19
  Fourth Quarter............................................    32.50      11.88
Year ended December 31, 1999
  First Quarter.............................................  $ 44.75    $ 29.00
  Second Quarter............................................    49.88      30.50
  Third Quarter (through September 29, 1999)................    80.25      46.44
</TABLE>

     On September 29, 1999, the last reported sale price of our common stock on
the Nasdaq National Market was $76.59.

                                DIVIDEND POLICY

     We have never declared or paid any cash dividends on our capital stock and
do not anticipate paying any cash dividends on our capital stock in the
foreseeable future. Old VERITAS also did not pay any cash dividends to its
stockholders. We may incur indebtedness in the future that may prohibit or
effectively restrict the payment of dividends.

                                       15
<PAGE>   18

                                 CAPITALIZATION

     The following table sets forth VERITAS' unaudited capitalization as of June
30, 1999. In addition, the following table sets forth VERITAS' pro forma
capitalization adjusted to assume the completion of our recent offering of
1.856% convertible subordinated notes due 2006 after deducting underwriting
discounts and commissions and other offering expenses.

<TABLE>
<CAPTION>
                                                                 AS OF JUNE 30, 1999
                                                              -------------------------
                                                                ACTUAL       PRO FORMA
                                                              ----------    -----------
<S>                                                           <C>           <C>
Cash and cash equivalents...................................  $  119,985    $  454,872
                                                              ==========    ==========
Long-term obligations:
  5.25% convertible subordinated notes due 2004.............  $  100,000    $  100,000
  1.856% convertible subordinated notes due 2006............          --       345,642
  Other long-term obligations...............................         739           739
                                                              ----------    ----------
     Total long-term obligations............................     100,739       446,381
Stockholders' equity:
  Preferred stock, par value $.001 per share; 10,000 shares
     authorized, none issued and outstanding................          --            --
  Common stock, $.001 par value per share, 500,000 shares
     authorized, 169,647 issued and outstanding -- actual
     and pro forma..........................................   3,774,479     3,774,479
  Accumulated deficit.......................................    (178,162)     (178,162)
  Accumulated other comprehensive income (loss).............      (1,133)       (1,133)
                                                              ----------    ----------
     Total stockholders' equity.............................   3,595,184     3,595,184
                                                              ----------    ----------
       Total capitalization.................................  $3,695,923    $4,041,565
                                                              ==========    ==========
</TABLE>

                                       16
<PAGE>   19

                            SELECTED FINANCIAL DATA

     The following financial information is derived from the audited
consolidated financial statements of Old VERITAS for 1994 through 1998, audited
financial statements of TeleBackup for 1995 through 1998, audited combined
financial statements of the NSMG business for the fiscal years 1996 through
1998, unaudited combined financial statements of the NSMG business for the
fiscal years 1994 and 1995, and the unaudited financial statements of VERITAS,
TeleBackup and the NSMG business for the interim periods presented. The interim
financial data reflects all adjustments, consisting only of normal recurring
adjustments, which are considered necessary to present fairly the financial
information for these periods. The information is only a summary and you should
read it in conjunction with each company's historical financial statements and
related notes included in this prospectus. The results of operations for any
interim period are not necessarily indicative of results for a full fiscal year,
and historical results are not necessarily indicative of future results.

UNITED STATES AND CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES

     Old VERITAS, VERITAS and the NSMG business reported their quarterly and
annual results of operations using methods required by generally accepted
accounting principles in the United States. TeleBackup reported quarterly and
annual results of operations using methods required by generally accepted
accounting principles in Canada. United States and Canadian generally accepted
accounting principles are not materially different with respect to TeleBackup's
financial statements. For a summary of the principal differences between U.S.
and Canadian generally accepted accounting principles see Note 13 in the
consolidated financial statements of TeleBackup included in this prospectus.

     Old VERITAS never declared or paid cash dividends on its common stock. We
currently anticipate that we will retain future earnings to fund development and
growth of our business and do not anticipate paying any cash dividends in the
foreseeable future.

OLD VERITAS AND VERITAS HISTORICAL FINANCIAL STATEMENTS

     The audited consolidated financial statements and notes of Old VERITAS as
of December 31, 1997 and 1998 and for the three years in the period ended
December 31, 1998 and the unaudited consolidated financial statements of VERITAS
as of June 30, 1999 and for the six months ended June 30, 1998 and June 30, 1999
are included in this prospectus.

NETWORK & STORAGE MANAGEMENT GROUP BUSINESS COMBINED FINANCIAL STATEMENTS

     The audited combined financial statements and notes of the NSMG business as
of June 27, 1997 and July 3, 1998, and for the three years in the period ended
July 3, 1998 and the unaudited combined financial statements as of April 2, 1999
and for the nine months ended April 3, 1998 and April 2, 1999, are included in
this prospectus. The NSMG business was an operating division of Seagate
Software, Inc. and had no formal capital structure, so its per share information
is not provided.

TELEBACKUP FINANCIAL STATEMENTS

     The audited financial statements and notes of TeleBackup as of December 31,
1997 and 1998 and for the three years in the period ended December 31, 1998 and
the unaudited financial statements as of March 31, 1999 and for the three months
ended March 31, 1998 and March 31, 1999 are included in this prospectus.

FINANCIAL STATEMENTS NOT INCLUDED IN THIS PROSPECTUS

     The selected historical financial data for Old VERITAS as of December 31,
1994, 1995 and 1996 and for the years ended December 31, 1994 and 1995 were
derived from audited consolidated financial statements not included or
incorporated by reference in this prospectus.

                                       17
<PAGE>   20

     The selected historical financial data for the NSMG business as of and for
the fiscal years ended July 1, 1994 and June 30, 1995 were derived from
unaudited combined financial statements not included in this prospectus.

     The selected historical financial data for TeleBackup as of December 31,
1995 and 1996, and for the period from May 5, 1995 (inception) through December
31, 1995 have been derived from audited financial statements not included in
this prospectus.

SELECTED HISTORICAL FINANCIAL DATA OF OLD VERITAS AND VERITAS

<TABLE>
<CAPTION>
                                                                                                        VERITAS
                                                                OLD VERITAS                       -------------------
                                             --------------------------------------------------       SIX MONTHS
                                                          YEAR ENDED DECEMBER 31,                   ENDED JUNE 30,
                                             --------------------------------------------------   -------------------
                                               1994      1995      1996       1997       1998       1998       1999
                                             --------   -------   -------   --------   --------   --------   --------
                                                              (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                          <C>        <C>       <C>       <C>        <C>        <C>        <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Total net revenue..........................  $ 33,575   $47,826   $72,746   $121,125   $210,865   $ 87,195   $186,552
Amortization of developed technology.......        --        --        --         --         --         --      5,006
Amortization of goodwill and other
  intangibles..............................        --        --        --         --         --         --     71,557
Acquisition and restructuring costs........        --        --        --      8,490         --         --     11,000
In-process research and development........        --        --     2,200         --        600      2,250    103,100
Income (loss) from operations..............   (15,212)    1,193    11,858     20,076     53,668     19,639   (139,846)
Net income (loss)..........................   (15,274)    2,371    12,129     22,749     51,648     17,596   (148,746)
Net income (loss) per share -- basic.......  $  (0.19)  $  0.03   $  0.14   $   0.25   $   0.55   $   0.19   $  (1.36)
Net income (loss) per share -- diluted.....  $  (0.19)  $  0.03   $  0.13   $   0.23   $   0.50   $   0.17   $  (1.36)
Number of shares used in computing
  per share amounts -- basic...............    79,658    80,706    86,052     91,244     94,026     93,293    109,108
Number of shares used in computing
  per share amounts -- diluted.............    79,658    86,124    92,992     98,986    103,342    102,302    109,108
</TABLE>

<TABLE>
<CAPTION>
                                                                      OLD VERITAS                          VERITAS
                                                -------------------------------------------------------   ----------
                                                                  AS OF DECEMBER 31,                        AS OF
                                                -------------------------------------------------------    JUNE 30,
                                                  1994        1995        1996        1997       1998        1999
                                                ---------   ---------   ---------   --------   --------   ----------
                                                                           (IN THOUSANDS)
<S>                                             <C>         <C>         <C>         <C>        <C>        <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital...............................  $  14,690   $  23,451   $  67,413   $188,578   $198,842   $  161,325
Total assets..................................     36,830      48,100      94,524    241,880    349,117    4,058,408
Long-term obligations.........................      6,366       6,205       1,468    100,911    100,773      100,739
Accumulated deficit...........................   (124,064)   (115,942)   (103,813)   (81,064)   (29,416)    (178,162)
Stockholders' equity..........................     14,052      23,602      74,955    104,193    169,854    3,595,184
</TABLE>

                                       18
<PAGE>   21

SELECTED HISTORICAL FINANCIAL DATA OF THE NSMG BUSINESS

<TABLE>
<CAPTION>
                                                                                                                NINE
                                                                      YEAR ENDED                            MONTHS ENDED
                                                 -----------------------------------------------------   -------------------
                                                 JULY 1,    JUNE 30,   JUNE 28,    JUNE 27,   JULY 3,    APRIL 3,   APRIL 2,
                                                   1994       1995       1996        1997       1998       1998       1999
                                                 --------   --------   ---------   --------   --------   --------   --------
                                                                               (IN THOUSANDS)
<S>                                              <C>        <C>        <C>         <C>        <C>        <C>        <C>
COMBINED STATEMENT OF OPERATIONS DATA
Revenues.......................................  $ 24,866   $ 81,325   $ 116,742   $141,502   $175,046   $131,539   $170,225
Gross profit...................................    18,187     59,837      89,397    109,390    151,711    112,373    156,697
In-process research and development............        --     73,177      61,066         --      6,800         --         --
Write-down of goodwill, developed technology
  and intangibles..............................        --         --       2,157     13,091      1,900      1,900         --
Restructuring costs............................        --         --       9,502      2,524         --         --         --
Income (loss) from operations..................   (12,270)   (82,958)   (102,655)   (41,208)     9,430      9,248     43,076
Net income (loss)..............................    (7,356)   (85,132)    (94,596)   (33,200)     2,856      2,669     25,280
</TABLE>

<TABLE>
<CAPTION>
                                                                                          AS OF
                                                              -------------------------------------------------------------
                                                              JULY 1,   JUNE 30,   JUNE 28,   JUNE 27,   JULY 3,   APRIL 2,
                                                               1994       1995       1996       1997      1998       1999
                                                              -------   --------   --------   --------   -------   --------
                                                                                     (IN THOUSANDS)
<S>                                                           <C>       <C>        <C>        <C>        <C>       <C>
COMBINED BALANCE SHEET DATA:
Total assets................................................  $13,089   $96,725    $137,600   $94,087    $74,721   $115,270
Group equity................................................    6,950    44,919      64,315    34,601     38,033     63,611
</TABLE>

SELECTED HISTORICAL FINANCIAL DATA OF TELEBACKUP

<TABLE>
<CAPTION>
                                                        PERIOD FROM
                                                        MAY 5, 1995                                       THREE MONTHS
                                                        (INCEPTION)                                           ENDED
                                                          THROUGH         YEAR ENDED DECEMBER 31,           MARCH 31,
                                                        DECEMBER 31,   ------------------------------   -----------------
                                                            1995         1996       1997       1998      1998      1999
                                                        ------------   --------   --------   --------   -------   -------
                                                            (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                     <C>            <C>        <C>        <C>        <C>       <C>
STATEMENT OF OPERATIONS DATA:
  Canadian GAAP
Revenue...............................................    C $  --      C $  252   C $  486   C$ 3,423   C $ 708   C$1,237
Net loss..............................................        (53)       (1,141)    (1,870)    (1,570)     (200)     (517)
Net loss per share -- basic and fully diluted.........    C$(0.01)     C$ (0.18)  C$ (0.25)  C$ (0.17)  C$(0.02)  C$(0.05)
Number of shares used in computing per share
  amounts -- basic and fully diluted..................      5,475         6,288      7,385      9,347     8,043    11,362
</TABLE>

<TABLE>
<CAPTION>
                                                                        AS OF DECEMBER 31,               AS OF
                                                              --------------------------------------   MARCH 31,
                                                              1995      1996       1997       1998       1999
                                                              -----   --------   --------   --------   ---------
                                                                                    (IN THOUSANDS)
<S>                                                           <C>     <C>        <C>        <C>        <C>
BALANCE SHEET DATA:
  Canadian GAAP
Working capital.............................................  C$ 35   C $  979   C$ 1,568   C$ 3,693   C$ 3,483
Total assets................................................    194      1,311      3,270      7,699      7,678
Long-term obligations.......................................     --        350      3,004        302        271
Accumulated deficit.........................................    (53)    (1,194)    (3,064)    (4,634)    (5,151)
Shareholders' equity (deficiency)...........................    120        835         (2)     4,252      4,021
</TABLE>

                                       19
<PAGE>   22

                      VERITAS SUMMARY UNAUDITED PRO FORMA
                       COMBINED CONDENSED FINANCIAL DATA

     We are providing the following summary unaudited pro forma financial data
to give you a better picture of what the results of operations and financial
position of the combined businesses of Old VERITAS, the NSMG business and
TeleBackup might have looked like had the NSMG combination and the TeleBackup
combination occurred at an earlier date. This information is provided for
illustrative purposes only and does not show what the results of operations or
financial position of VERITAS would have been if the NSMG combination and the
TeleBackup combination actually occurred on the dates assumed. In addition, this
information does not indicate what VERITAS' future consolidated operating
results or consolidated financial position will be. Both the NSMG combination
and the TeleBackup combination closed during the second quarter of 1999.

HOW THE PRO FORMA FINANCIAL DATA WAS PREPARED

     We derived this data from the VERITAS unaudited pro forma combined
condensed statements of operations for the year ended December 31, 1998 and six
months ended June 30, 1999. These statements give effect to the NSMG combination
and the TeleBackup combination accounted for using the purchase method of
accounting. The pro forma combined condensed statements of operations for the
year ended December 31, 1998 and six months ended June 30, 1999 assumes the NSMG
combination and the TeleBackup combination took place on January 1, 1998.

THESE PRO FORMA FINANCIAL STATEMENTS HAVE BEEN BASED ON ASSUMPTIONS

     We prepared these statements on the basis of assumptions described in the
notes, including assumptions relating to the allocation of the amount of
consideration paid for the assets and liabilities of the NSMG business and
TeleBackup based upon preliminary estimates of their fair values. The actual
allocation of the amount of consideration paid may differ from those assumptions
after valuations and other procedures to be performed have taken place.

CHARGES RESULTING FROM THE COMBINATIONS

     VERITAS recorded charges to operations during the three months ended June
30, 1999 related to in-process research and development currently estimated of
$101.2 million as a result of the NSMG combination and $1.9 million as a result
of the TeleBackup combination.

     In addition, VERITAS recorded a restructuring charge in the three months
ended June 30, 1999 of $11.0 million, primarily related to exit costs with
respect to duplicate facilities of Old VERITAS that VERITAS plans to vacate.
These costs are in addition to the liability for the estimated costs to vacate
duplicative facilities of the NSMG business, which liability was assumed by
VERITAS and included as a part of the purchase price. However, the VERITAS
unaudited pro forma combined condensed statements of operations do not reflect
these charges because they are non-recurring.

YOU SHOULD READ THESE SUMMARY PRO FORMA FINANCIAL STATEMENTS WITH THE HISTORICAL
FINANCIAL STATEMENTS

     The VERITAS summary unaudited pro forma combined condensed financial data
should be read in conjunction with the VERITAS unaudited pro forma combined
condensed financial statements and the related notes, which begin at page F-29.
They should also be read in conjunction with the audited financial statements of
Old VERITAS which begin at Page F-3 of this prospectus, and the financial
statements of the NSMG business and TeleBackup which begin at page F-42 and F-75
of this prospectus, respectively. The VERITAS summary unaudited pro forma
combined condensed financial data are not necessarily indicative of what the
actual results of operations and financial position would have been had the NSMG
combination and the TeleBackup combination

                                       20
<PAGE>   23

taken place on January 1, 1998 and do not indicate VERITAS' future results of
operations or financial position.

<TABLE>
<CAPTION>
                                                                                     SIX MONTHS
                                                             YEAR ENDED                 ENDED
                                                            DECEMBER 31,              JUNE 30,
                                                                1998                    1999
                                                           ---------------          -------------
                                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                        <C>                      <C>
VERITAS UNAUDITED PRO FORMA STATEMENT OF OPERATIONS DATA:
Total net revenue........................................     $ 409,998               $ 290,467
Loss from operations.....................................      (824,950)               (376,602)
Net loss.................................................      (798,397)               (376,144)
Net loss per share -- basic..............................     $   (4.80)              $   (2.23)
Net loss per share -- diluted............................     $   (4.80)              $   (2.23)
Number of shares used in computing per share
  amounts -- basic.......................................       166,216                 168,383
Number of shares used in computing per share amounts --
  diluted................................................       166,216                 168,383
</TABLE>

                                       21
<PAGE>   24

                  VERITAS MANAGEMENT'S DISCUSSION AND ANALYSIS
                OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     You should read the following discussion in conjunction with our Financial
Statements and accompanying notes which appear elsewhere in this prospectus. The
following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those
discussed in the forward-looking statements. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
below and elsewhere in this prospectus, particularly in "Risk Factors."

OVERVIEW

     VERITAS is the leading independent supplier of enterprise data storage
management solutions, providing advanced storage management software for open
system environments. Our products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. These products enable protection against data loss and file
corruption, rapid recovery after disk or system failure, the ability to process
large files efficiently and the ability to manage and backup large networks of
systems without interrupting users. In addition, our products provide an
automated failover between computer systems organized in clusters sharing disk
resources. Our highly scalable products can be used independently, and certain
products can be combined to provide interoperable client/server storage
management solutions. Some of our products offer centralized administration with
a high degree of automation, enabling customers to manage complex, distributed
environments cost effectively by increasing system administrator productivity
and system availability. We also provide a comprehensive range of services to
assist customers in planning and implementing storage management solutions. We
market our products and associated services to original equipment manufacturers
and end-user customers through a combination of direct sales and indirect sales
channels. These indirect sales channels include resellers, value added
resellers, hardware distributors, application software vendors and systems
integrators.

     We derive our user license fee revenue from shipments of our software
programs to end-user customers through direct sales channels, indirect sales
channels and original equipment manufacturer customers. Our original equipment
manufacturer customers either bundle our products with the original equipment
manufacturer products they license or offer them as options. Certain original
equipment manufacturers may also resell our products. We receive a user license
fee each time the original equipment manufacturer licenses a copy of the
original equipment manufacturer's products to a customer that incorporates one
or more of our products. Our license agreements with original equipment
manufacturer customers generally contain no minimum sales requirements and we
cannot assure you that any original equipment manufacturer will either commence
or continue shipping operating systems incorporating our products in the future.
Moreover, following the execution of new agreements between us and original
equipment manufacturer customers and resellers, a significant period of time may
elapse before any revenues are generated due to the development work which we
must generally undertake under such agreements and the time needed for the sales
and marketing organizations within such customers and distributors to become
familiar with and gain confidence in our products.

     Our services revenue consists of fees derived from annual maintenance
agreements, from consulting and training services and from porting fees. The
original equipment manufacturer maintenance agreements covering our products
provide for technical and emergency support and minor unspecified product
upgrades for a fixed annual fee. The maintenance agreements covering products
that are licensed through channels other than through original equipment
manufacturer channels provide for technical support and unspecified product
upgrades for an annual service fee based on the number of user licenses
purchased and the level of service subscribed. Porting fees

                                       22
<PAGE>   25

consist of fees derived from porting and other non-recurring engineering efforts
when we port, or adapt, our storage management products to an original equipment
manufacturer's operating system and when we develop new product features or
extensions of existing product features at the request of a customer. In most
cases, we retain the rights to technology derived from porting and non-recurring
engineering work for licensing to other customers and therefore generally do
such work on a relatively low, and sometimes negative, margin. We have made, and
intend to continue to make, a substantial investment in porting our products to
new operating systems, including Windows NT. The success of the Windows NT
product development may be dependent on receipt of development funding from
third parties, including Microsoft, and failure to receive such funding could
hamper our efforts to timely expand our products into the Windows NT market. The
porting and development process requires substantial capital investment and the
devotion of substantial employee resources to such effort and the added focus on
Windows NT development has required, and will continue to require, us to hire
additional personnel. Under an agreement with Microsoft, we have committed to
develop a functional subset of our Volume Manager product that will be ported to
and embedded in Windows NT. The agreement also requires us to develop a disk
management graphical user interface designed specifically for Windows NT.
Microsoft has provided us with significant funding towards such development
effort. We recognize revenue under the development contract with Microsoft on a
percentage-of-completion basis consistent with our policy for revenue
recognition for other similar agreements. The payment terms in the Microsoft
agreement do not directly correlate to the timing of development efforts and
therefore revenue recognition does not directly correlate to contract billings.
The Microsoft relationship requires us to expand our marketing and sales
operations to deal with higher volume markets in which we have limited
experience. See "Risk Factors  -- We Face Uncertainties Porting Products to New
Operating Systems and Developing New Products" and "-- We Distribute Our
Products Through Multiple Distribution Channels, Each of Which Is Subject to
Risks."

     Our international sales are generated primarily through our international
sales subsidiaries. International revenue outside the United States, most of
which is collectible in foreign currencies, accounted for 23% of our total
revenues for the six months ended June 30, 1999 and 26% of total revenues for
the six months ended June 30, 1998. Our international revenue increased 91% from
$22.3 million for the six months ended June 30, 1998 to $42.5 million for the
six months ended June 30, 1999. Since much of our international operating
expenses are also incurred in local currencies, the relative impact of exchange
rates on net income or loss is relatively less than the impact on revenues.
Although our operating and pricing strategies take into account changes in
exchange rates over time, our operating results may be significantly affected in
the short term by fluctuations in foreign currency exchange rates. Our
international subsidiaries purchase licenses from the parent company resulting
in intercompany receivables and payables. These receivables and payables are
carried on each company's books at the local currency that existed at the time
of the transaction. Such receivables and payables are eliminated for financial
statement reporting purposes. Prior to elimination, the amounts carried in
foreign currencies are converted to U.S. Dollars at the then current rate, or
"marked to market." The marked to market process may give rise to currency gains
and losses. Such gains or losses are recognized on our statement of operations
as a component of other income, net. To date, such gains or losses have not been
material.

     We believe that our success depends upon continued expansion of our
international operations. We currently have sales and service offices in the
United States, Canada, Japan, the United Kingdom, Germany, France, Sweden,
Switzerland and the Netherlands, a development center in India, and resellers
located in North America, Europe, Asia Pacific, South America and the Middle
East. International expansion may require us to establish additional foreign
offices, hire additional personnel and recruit additional international
resellers, resulting in the diversion of significant management attention and
the expenditure of financial resources. To the extent that we are unable to

                                       23
<PAGE>   26

effect these additions efficiently, growth in international sales will be
limited, which would have a material adverse effect on our business, operating
results and financial condition. International operations also subject us to a
number of risks inherent in developing and selling products outside the United
States, including potential loss of developed technology, limited protection of
intellectual property rights, imposition of government regulation, imposition of
export duties and restrictions, cultural differences in the conduct of business,
and political and economic instability. Furthermore, certain global markets,
including Asia, Russia and Latin America, are currently undergoing significant
economic turmoil which could result in deferral of purchase of information
technology products and services by potential customers located in such markets,
thereby further limiting our ability to expand international operations. See
"Risk Factors -- Expanding Our International Sales Depends on Economic Stability
in Regions that Recently Have Been Unstable."

     On May 28, 1999, we acquired all of the Seagate Software Network & Storage
Management Group ("NSMG") business (the "NSMG Combination"), pursuant to an
Amended and Restated Agreement and Plan of Reorganization, dated April 15, 1999,
among us, Old VERITAS, Seagate Technology, Inc., a Delaware corporation,
("STI"), Seagate Software, Inc., a Delaware corporation ("SSI"), and Seagate
Software Network & Storage Management Group, Inc., a Delaware corporation (the
"NSMG Combination Agreement"). Under the NSMG Combination Agreement, we acquired
Old VERITAS through the merger of a wholly-owned subsidiary with and into Old
VERITAS, which survived as a wholly-owned subsidiary of ours (the "VERITAS
Merger"); and (ii) SSI, STI and certain of their subsidiaries contributed to us
tangible and intangible assets used in the NSMG business, including all of the
capital stock of certain SSI and STI subsidiaries, and we issued to SSI shares
of our common stock and offered to employees of SSI who were to become our
employees the opportunity to exchange their options to purchase SSI common stock
for options to purchase our common stock (the "Seagate Transaction").

     Pursuant to the VERITAS Merger each outstanding share of Old VERITAS common
stock $.001 par value per share, issued and outstanding prior to the effective
time of the merger was converted into one share of our common stock, $.001 par
value per share. Each outstanding option to purchase Old VERITAS common stock,
and each outstanding convertible note of Old VERITAS was assumed and converted
into an option or convertible note of ours, at an exercise price per share or
conversion price per share equal to the exercise or conversion price per share
of such Old VERITAS security in effect on May 28, 1999, but with Old VERITAS
remaining co-obligor on such convertible notes. Each outstanding right to
purchase shares of Old VERITAS common stock under the Old VERITAS stock purchase
plans was assumed and converted into a right to purchase the same number of
shares of our common stock.

     The NSMG business develops and markets software products and provides
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. Its
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management.

     In connection with the NSMG acquisition in consideration for the
contribution assets and liabilities related to the NSMG business by STI, SSI,
and their respective subsidiaries, and based on the average closing price of our
common stock of $45.57 per share for 5 days before and after June 7, 1999, the
measurement date for the transaction, we issued 69,148,208 shares of our common
stock to SSI and issued options to purchase 6,945,048 shares of our common stock
to our employees who were former NSMG employees. We accounted for the NSMG
acquisition using the purchase method of accounting, and expect to incur charges
of $221.5 million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. The total NSMG purchase price was approximately $3.5 billion and
included

                                       24
<PAGE>   27

$3.2 billion for the issuance of our common stock, $269.7 million for the
issuance of options to purchase our common stock and $43.4 million of
acquisition-related costs. In addition, we recorded a restructuring charge of
$11.0 million in the six months ended June 30, 1999 as a result of the NSMG
Combination. This one-time restructuring charge related primarily to exit costs
with respect to duplicative facilities which we plan to vacate. These costs are
in addition to the liability for the costs to vacate duplicative facilities of
the NSMG business, which liability we assumed and included as a part of the
purchase price. Total acquisition and restructuring costs of $54.4 million
consist primarily of direct transaction costs, operating lease commitments on
duplicative facilities and involuntary termination benefits of which
approximately $13.3 million will be non-cash. At June 30, 1999, $16.7 million in
professional fees and severance costs were paid against the acquisition and
restructuring reserve with the remaining $37.7 million anticipated to be
utilized primarily for servicing operating lease payments or negotiated buyout
of operating lease commitments, the lease terms of which will expire at various
times through the year 2013. The purchase price was allocated, based on an
independent valuation, to goodwill of $3.0 billion, distribution channels of
$233.8 million, original equipment manufacturer agreements of $23.4 million,
developed technology of $233.7 million, assembled workforce of $12.8 million,
trademarks of $22.8 million, in-process research and development of $101.2
million, net deferred tax liabilities of $179.5 million, other intangibles of
$1.5 million and tangible net liabilities assumed of $1.0 million. During the
six months ended June 30, 1999, we recorded $68.7 million for the amortization
of goodwill and other intangibles, and $4.9 million for the amortization of
developed technology related to this acquisition.

     The shares of our common stock issued to SSI under the NSMG Combination
Agreement were issued pursuant to a registration statement on Form S-4 filed
with and declared effective by the SEC. VERITAS and SSI and STI entered into a
Stockholder Agreement limiting the rights of SSI and STI to resell shares of our
common stock. VERITAS and SSI also entered into a Registration Rights Agreement,
pursuant to which we granted SSI certain rights to have the resale of the shares
of our common stock issued to it under the NSMG Combination Agreement registered
under the Securities Act of 1933. Under the terms of the Registration Rights
Agreement, until all of the registrable shares could be resold under Rule 144
under the Securities Act, we will permit SSI to "piggyback" on other
registration statements, and to "demand" registration of resales no more than
once in any nine-month period.

     On June 1, 1999, we acquired TeleBackup Systems, Inc., an Alberta
corporation ("TSI"), pursuant to an Amended and Restated Combination Agreement
among us, Old VERITAS and TSI, dated April 12, 1999 (the "TeleBackup Combination
Agreement").

     Under the TeleBackup Combination Agreement, TSI amalgamated with a
wholly-owned Alberta subsidiary of ours and former shareholders of TSI received
either non-voting shares of TeleBackup Exchangeco Inc., a subsidiary of ours,
that are exchangeable for shares of our common stock (in the case of properly
electing shareholders who were residents of Canada) or shares of our common
stock (for all other former TSI shareholders). In order to afford holders of
these exchangeable shares voting rights analogous to those associated with the
shares of our common stock, we issued to a trustee one share of special voting
stock carrying a number of votes equal to the number of shares of our common
stock into which the exchangeable shares are exchangeable.

     TSI designs, develops and markets software solutions for local and remote
backup and recovery of electronic information stored on networked, remote and
mobile personal computers. Under the TeleBackup Combination Agreement, we issued
or reserved for issuance 3,041,242 shares of our common stock to the former
shareholders of TSI and options to purchase 68,758 shares of our common stock to
our employees who were former employees of TSI. VERITAS, Old VERITAS, Chase
Manhattan Bank and affiliates of TSI entered into an Escrow Agreement pursuant
to which certificates representing ten percent of the total number of
exchangeable shares issuable to the TSI

                                       25
<PAGE>   28

affiliates are deposited as collateral to secure the indemnification obligations
of TSI affiliates under the TeleBackup Combination Agreement. We accounted for
the TeleBackup acquisition using the purchase method of accounting, and expect
to incur charges of $9.0 million per quarter primarily related to the
amortization of developed technology, goodwill and other intangibles over their
estimated useful life of four years. Based on the average closing price of our
common stock of $44.09 per share for 5 days before and after June 1, 1999, the
measurement date for the transaction, the total purchase price for TSI was
approximately $143.1 million. The TSI purchase price included $134.1 million
related to the issuance of our common stock, $2.8 million for the issuance of
options to purchase our common stock and $6.2 million in acquisition-related
costs. The acquisition costs of $6.2 million consist primarily of direct
transaction costs and involuntary termination benefits. At June 30, 1999, of the
total $6.2 million acquisition costs, we paid $0.5 million in direct transaction
costs with the majority of the remaining $5.7 million anticipated to be utilized
by December 1999. The purchase price was allocated, based on an independent
valuation, to goodwill of $133.1 million, distribution channels of $1.0 million,
original equipment manufacturer agreements of $2.1 million, developed technology
of $6.6 million, assembled workforce of $0.3 million, trademarks of $1.3
million, in-process research and development of $1.9 million, net deferred tax
liabilities of $3.0 million and tangible net liabilities assumed of $0.2
million. During the six months ended June 30, 1999, we recorded $2.9 million for
amortization of goodwill and other intangibles, and $0.1 million for
amortization of developed technology related to this acquisition.

                                       26
<PAGE>   29

RESULTS OF OPERATIONS

     The following table sets forth the percentage of total revenue represented
by certain line items from our condensed consolidated statement of operations
for the years 1996, 1997 and 1998 and the six months ended June 30, 1998 and
June 30, 1999 and the percentage changes between the six months ended June 30,
1998 and the six months ended June 30, 1999. The six months ended June 30, 1999
includes one month results of NSMG and TeleBackup since the date of acquisition:

<TABLE>
<CAPTION>
                                                                PERCENTAGE OF
                                                                  TOTAL NET
                                                                   REVENUE       PERIOD-TO-PERIOD
                                                                --------------   PERCENTAGE CHANGE
                                                                  SIX MONTHS     -----------------
                                            YEARS ENDED             ENDED        SIX MONTHS ENDED
                                            DECEMBER 31,           JUNE 30         JUNE 30, 1998
                                        --------------------    --------------   -----------------
                                        1996    1997    1998    1998      1999   COMPARED TO 1999
                                        ----    ----    ----    ----      ----   -----------------
<S>                                     <C>     <C>     <C>     <C>       <C>    <C>
Net revenue:
  User license fees...................   81%     79%     80%     79%       80%          116%
  Services............................   19      21      20      21        20           106%
                                        ---     ---     ---     ---       ---
          Total net revenue...........  100     100     100     100       100           114%
                                        ---     ---     ---     ---       ---
Cost of revenue:
  User license fees...................    4       4       4       6         2           (6)%
  Services............................    6      10      10      11         8            59%
  Amortization of developed
     technology.......................   --      --      --      --         3            n/m
                                        ---     ---     ---     ---       ---
          Total cost of revenue.......   10      14      14      17        13            71%
                                        ---     ---     ---     ---       ---
Gross profit..........................   90      86      86      83        87           122%
Operating expenses:
  Selling and marketing...............   36      35      36      34        38           138%
  Research and development............   25      21      19      19        18           108%
  General and administrative..........    9       7       5       5         6           136%
  Amortization of goodwill and other
     intangibles......................   --      --      --      --        38            n/m
  Acquisition and restructuring
     costs............................   --       7      --      --         6            n/m
  In-process research and
     development......................    3      --      --       2        55         4,482%
                                        ---     ---     ---     ---       ---
          Total operating expenses....   73      70      60      60       161           468%
                                        ---     ---     ---     ---       ---
Income (loss) from operations.........   17      16      26      23       (74)
Interest and other income, net........    4       4       6       6         3
Interest expense......................   --      (1)     (3)     (3)       (2)
                                        ---     ---     ---     ---       ---
Income (loss) before income taxes.....   21      19      29      26       (73)
Provision for income taxes............    3       1       4      (6)       (7)
                                        ---     ---     ---     ---       ---
Net income (loss).....................   18%     18%     25%     20%      (80)%
                                        ===     ===     ===     ===       ===
</TABLE>

- ---------------
n/m = not meaningful

                                       27
<PAGE>   30

SIX MONTHS ENDED JUNE 30, 1998 VERSUS SIX MONTHS ENDED JUNE 30, 1999

     Net Revenue

     Total net revenue increased 114% from $87.2 million for the six months
ended June 30, 1998 to $186.6 million for the six months ended June 30, 1999.
VERITAS believes that the percentage increases in total revenue achieved in this
period is not necessarily indicative of future results. VERITAS' revenue is
comprised of user license fees and service revenue. Growth in user license fees
has been driven primarily by increasing market acceptance of VERITAS' products,
introduction of new products, a larger percentage of total license revenue
generated through the direct sales channel and the acquisition of NSMG in the
second quarter of 1999. Service revenue is derived primarily from contracts for
software maintenance and technical support and, to a lesser extent, consulting
services, training services and porting fees. The growth in service revenue has
been driven primarily by increased sales of service and support contracts on new
license sales and, to a lesser extent, by increasing renewals of these contracts
by VERITAS' installed base of licensees. VERITAS also experienced an increase in
demand for consulting and training services. Porting fees are derived from
VERITAS' funded development efforts that are typically associated with VERITAS'
agreements with original equipment manufacturers. User license fees were 80% of
total net revenue for the six months ended June 30, 1999, and 79% of total net
revenue for the six months ended June 30, 1998.

     User License Fees. User license fees increased 116% from $69.0 million for
the six months ended June 30, 1998 to $149.1 million for the six months ended
June 30, 1999. The increase was primarily the result of continued growth in
market acceptance of VERITAS' software products, a greater volume of large
end-user transactions, increased revenue from original equipment manufacturer
resales of bundled and unbundled VERITAS products, the introduction of new
products and the acquisition of NSMG. In particular, VERITAS' user license fees
from storage products increased by approximately 110% for the six months ended
June 30, 1999 as compared to the six months ended June 30, 1998, and accounted
for 84% of user license fees in the six months ended June 30, 1999 and 86% of
user license fees in the six months ended June 30, 1998.

     Service Revenue. Service revenue increased 106% from $18.2 million for the
six months ended June 30, 1998 to $37.5 million for the six months ended June
30, 1999. The increase was primarily due to increased sales of service and
support contracts on new licenses, renewal of service and support contracts on
existing licenses and, to a lesser extent, an increase in demand for consulting
and training services and the acquisition of NSMG.

     Cost of Revenue

     Cost of user license fees consists primarily of royalties, media, manuals
and distribution costs. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers, and development efforts in porting. Also included in
the cost of revenue is the amortization of developed technology. Gross margin on
user license fees is substantially higher than gross margin on service revenue,
reflecting the low materials, packaging and other costs of software products
compared with the relatively high personnel costs associated with providing
maintenance, technical support, consulting, training services and development
efforts. Cost of service revenue also varies based upon the mix of maintenance,
technical support, consulting and training services.

     Cost of User License Fees (including amortization of developed
technology). Cost of user license fees increased 92% from $5.1 million for the
six months ended June 30, 1998 to $9.8 million for the six months ended June 30,
1999. The increase in cost of user license fees is due to the amortization of
developed technology acquired in the NSMG and TeleBackup acquisitions. Gross
margin remained consistent at 93% for the six months ended June 30, 1998 and for
the six months ended June 30, 1999. The gross margin on user license fees may
vary from period to period based on

                                       28
<PAGE>   31

the license revenue mix and certain products having higher royalty rates than
other products. VERITAS does not expect gross margin on user license fees to
increase.

     Cost of Service Revenue. Cost of service revenue increased 59% from $9.3
million for the six months ended June 30, 1998 to $14.8 million for the six
months ended June 30, 1999. Gross margin on service revenue increased from 49%
for the six months ended June 30, 1998 to 61% for the six months ended June 30,
1999. The increase in absolute dollars was primarily due to personnel additions
in customer support and training and consulting organizations, in anticipation
of increased demand for such services. The improvement in gross margins in the
six months ended June 30, 1999 compared to the six months ended June 30, 1998
was a result of increased productivity and higher service revenue growth due to
a larger installed customer base paying support fees.

     Amortization of Developed Technology. Amortization of developed technology
was $5.0 million for the six months ended June 30, 1999. This amount represents
one month of amortization of the developed technology recorded upon our
acquisitions of NSMG and TeleBackup. The useful life of the developed technology
acquired in the NSMG and TeleBackup acquisitions is four years and amortization
is expected to be approximately $15.0 million per quarter.

     Operating Expenses

     The NSMG and TeleBackup acquisitions have contributed to increases in all
operating expense categories. However, due to the integration that has taken
place to date, it is not possible to reasonably quantify the portion of the
increase which is directly related to these acquisitions.

     Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with VERITAS' sales and marketing efforts. Selling and marketing
expenses increased 138% from $30.0 million for the six months ended June 30,
1998 to $71.4 million for the six months ended June 30, 1999. Selling and
marketing expenses as a percentage of total net revenue increased from 34% for
the six months ended June 30, 1998 to 38% for the six months ended June 30,
1999. The increase was primarily the result of higher personnel and related
costs associated with increased staffing resulting from new hires and the
acquisitions. VERITAS intends to continue to expand its global sales and
marketing infrastructure, and accordingly, expects its selling and marketing
expenses to increase in absolute dollars but not to change significantly as a
percentage of revenue in the future.

     Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 108% from
$16.5 million for the six months ended June 30, 1998 to $34.4 million for the
six months ended June 30, 1999. The increase was due primarily to increased
staffing levels associated with new hires and the NSMG and TeleBackup
acquisitions. As a percentage of total net revenue, research and development
expenses decreased from 19% for the six months ended June 30, 1998 to 18% for
the six months ended June 30, 1999. VERITAS believes that a significant level of
research and development investment is required to remain competitive, and
expects such expenses will continue to increase in absolute dollars in future
periods, although such expenses may decline slightly as a percentage of total
net revenue to the extent revenue increases. Research and development expenses
can be expected to fluctuate from time to time to the extent that VERITAS makes
periodic incremental investments in research and development and VERITAS' level
of revenue fluctuates.

     General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
136% from $4.4 million for the six months ended June 30, 1998 to $10.4 for the
six months ended June 30, 1999. General and administrative expenses as a
percentage

                                       29
<PAGE>   32

of revenue increased from 5% for the six months ended June 30, 1998 to 6% for
the six months ended June 30, 1999. The increase in absolute dollars was
primarily due to additional personnel costs, including additional personnel
related to the acquisitions in the second quarter of 1999, an increase in the
provision for the allowance for doubtful accounts and other expenses associated
with VERITAS enhancing its infrastructure to support expansion of its
operations. General and administrative expenses are expected to increase in
absolute dollars, but not to change significantly as a percentage of revenue in
the future, as VERITAS expands its operations.

     Amortization of Goodwill and Other Intangibles. Amortization of goodwill
and other intangibles was $71.6 million for the six months ended June 30, 1999.
This amount represents one month of amortization of goodwill, acquired
distribution channels, trademarks and other intangible assets recorded upon our
acquisitions of NSMG and TeleBackup. The estimated useful life of the goodwill
and other intangibles is four years and the amortization is expected to be
approximately $215.5 million per quarter.

     In-process Research and Development. Upon the acquisitions of NSMG and
TeleBackup in 1999, we recorded a one-time charge to in-process research and
development of $103.1 million in the second quarter of 1999.

     Acquisition and Restructuring Costs. Upon the acquisition of NSMG, we
recorded a one-time charge to acquisition and restructuring costs of $11.0
million, which included approximately $9.7 million in exit costs with respect to
duplicative facilities which we plan to vacate and approximately $1.3 million in
severance benefits.

     Acquisition and restructuring costs are summarized below:

<TABLE>
<CAPTION>
                                                                               CASH
                                                                             PAYMENTS
                                                              PROVISION        FROM        ACCRUED
                                                             RECORDED AT    ACQUISITION     AS OF
                                                             ACQUISITION    TO JUNE 30,    JUNE 30,
                                                                DATE           1999          1999
                                                             -----------    -----------    --------
<S>                                                          <C>            <C>            <C>
Cancellation of facility leases and other contracts......      $ 8,717         $  --       $ 8,717
Involuntary termination benefits.........................        1,335          (444)          891
Write off of redundant equipment and leasehold
  improvements...........................................          948            --           948
                                                               -------         -----       -------
                                                               $11,000         $(444)      $10,556
                                                               =======         =====       =======
</TABLE>

     Of the remaining balance, $8.7 million relates to servicing operating lease
payments or negotiated buyout of operating lease commitments on duplicative
facilities, the lease terms of which will expire at various times through the
year 2012. The remaining $1.8 million is expected to be utilized by December
1999. Non-cash restructuring charges of approximately $0.9 million relate to
leasehold improvements and excess equipment.

     Interest and Other Income, Net. Interest and other income, net, increased
11% from $5.6 million for the six months ended June 30, 1998 to $6.2 million for
the six months ended June 30, 1999. The increase was due primarily to increased
amounts of interest income attributable to the higher level of funds available
for investment. Foreign exchange transaction gains and losses which are included
in other income, net, have not had a material effect on VERITAS' results of
operations.

     Interest Expense. Interest expense remained consistent at $2.8 million for
the six months ended June 30, 1998 and 1999. Interest expense consists primarily
of interest accrued under the convertible subordinated notes issued by VERITAS
in October 1997.

     Income Taxes. VERITAS had an effective tax rate of (9%) for the six months
ended June 30, 1999, compared to a tax provision of 21% for the six months ended
June 30, 1998. VERITAS' effective tax rate for the six months ended June 30,
1999 was negative and differed from the

                                       30
<PAGE>   33

combined federal and state statutory rates primarily due to acquisition related
charges that were non-deductible for tax purposes. VERITAS' 1998 effective tax
rate is lower than the combined federal and state statutory rates primarily due
to the utilization of federal net operating loss carryforwards and other credit
carryforwards, offset by the impact of state and foreign taxes.

     The realization of VERITAS' net deferred tax assets is dependent on
generating sufficient taxable income in future periods. Although realization is
not assured, management believes it is more likely than not that the net
deferred tax assets will be realized. The amount of the net deferred tax assets
considered realizable, however, could be reduced or increased in the near term
if estimates of future taxable income are changed. Management intends to
evaluate the realizability of the net deferred tax assets on a quarterly basis
to assess the need for the valuation allowance.

     New Accounting Pronouncements. In March 1998, the American Institute of
Certified Public Accountants, or AICPA, issued Statement of Position, or SOP,
98-1, Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP 98-1 requires that entities capitalize certain costs related
to internal-use software once certain criteria have been met. VERITAS has
implemented SOP 98-1 for its fiscal year ending December 31, 1999 and the impact
of SOP 98-1 on VERITAS' financial position, results of operations and cash flows
has not been material.

     In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions. SOP 98-9
amends SOP 97-2 Software Revenue Recognition to require recognition of revenue
using the "residual method" when certain criteria are met. VERITAS will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. SOP 98-9 also amends SOP 98-4, an earlier amendment to SOP
97-2, which extended the deferral of the application of certain passages of SOP
97-2. VERITAS does not believe the impact of SOP 98-9 will be material to
VERITAS' financial position, results of operations and cash flows.

     In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities). SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. VERITAS will be
required to implement SFAS No. 133 for its fiscal year ending December 31, 2001.
VERITAS' foreign currency exchange rate hedging activities have been
insignificant to date and VERITAS does not believe that the impact of SFAS No.
133 will be material to its financial position, results of operations or cash
flows.

FISCAL YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998

     Net Revenue

     Total net revenue increased 74% to $210.9 million in 1998 from $121.1
million in 1997, when it increased 67% from $72.7 million in 1996. VERITAS
believes that the percentage increases in total revenue achieved in these
periods are not necessarily indicative of future results. VERITAS' revenue is
comprised of user license fees and service revenue. Growth in user license fees
has been driven primarily by increasing market acceptance of VERITAS' products,
introduction of new products and a larger percentage of total license revenue
generated through the direct sales channel. Service revenue is derived primarily
from contracts for software maintenance and technical support and, to a lesser
extent, consulting services, training services and porting fees. The growth in
service revenue has been driven primarily by increased sales of service and
support contracts on new license sales and, to a lesser extent, by increasing
renewals of these contracts by VERITAS' installed base of licensees. VERITAS
also experienced an increase in demand for consulting and training services.
Porting fees

                                       31
<PAGE>   34

are derived from VERITAS' funded development efforts that are typically
associated with VERITAS' agreements with original equipment manufacturers.

     User License Fees. User license fees increased 75% to $167.7 million in
1998 from $95.7 million in 1997, when they increased 62% from $59.2 million in
1996. The increases in both 1998 and 1997 were primarily the result of continued
growth in market acceptance of VERITAS' software products, a greater volume of
large end-user transactions, increased revenue from original equipment
manufacturer resales of bundled and unbundled VERITAS products and the
introduction of new products. In particular, VERITAS' user license fees from
storage products increased by approximately 72% in 1998 from 1997, and accounted
for 88%, 89% and 79% of user license fees in 1998, 1997 and 1996, respectively.
User license fee growth in 1998 and 1997 also included increases in direct sales
and sales from distributors other than original equipment manufacturers.

     Service Revenue. Service revenue increased 70% to $43.2 million in 1998,
from $25.4 million in 1997, when it increased 88% from $13.5 million in 1996.
The increases in both 1998 and 1997 were primarily due to increased sales of
service and support contracts on new licenses, renewal of service and support
contracts on existing licenses and, to a lesser extent in 1997, an increase in
demand for consulting and training services.

     Cost of Revenue

     Cost of user license fees consists primarily of royalties, media, manuals
and distribution costs. Cost of service revenue consists primarily of
personnel-related costs in providing maintenance, technical support, consulting
and training to customers, and development efforts in porting. Gross margin on
user license fees is substantially higher than gross margin on service revenue,
reflecting the low materials, packaging and other costs of software products
compared with the relatively high personnel costs associated with providing
maintenance, technical support, consulting, training services and development
efforts. Cost of service revenue also varies based upon the mix of maintenance,
technical support, consulting and training services.

     Cost of User License Fees. Cost of user license fees increased 86% to $8.8
million in 1998 from $4.7 million in 1997, and increased 57% in 1997 from $3.0
million in 1996. The increases are primarily the result of a larger percentage
of license fees being generated from the sale of products with higher royalty
rates. Gross margin on user license fees remained constant at 95% in each of the
three years ended December 31, 1998, 1997 and 1996. The gross margin on user
license fees may vary from period to period based on the license revenue mix and
certain products having higher royalty rates than other products. VERITAS does
not expect improvements in gross margin on user license fees.

     Cost of Service Revenue. Cost of service revenue increased 76% to $20.7
million in 1998 from $11.7 million in 1997, and increased 164% in 1997 from $4.4
million in 1996. Gross margin on service revenue was 52%, 54% and 67% in 1998,
1997 and 1996, respectively. The decreases in gross margin were primarily due to
personnel additions in our customer support and training and consulting
organizations, in anticipation of increased demand for such services. In
addition, VERITAS devoted technical resources to fund porting activities in
excess of the amounts chargeable to customers.

     Operating Expenses

     Selling and Marketing. Selling and marketing expenses consist primarily of
salaries, related benefits, commissions, consultant fees and other costs
associated with VERITAS' sales and marketing efforts. Selling and marketing
expenses increased 78% to $76.4 million in 1998 from $42.9 million in 1997, and
increased 65% in 1997 from $26.0 million in 1996. Selling and marketing expenses
as a percentage of total net revenue remained relatively consistent at 36%, 35%
and 36% in 1998, 1997 and 1996, respectively. The increase in absolute dollars
is primarily attributable to increased sales and
                                       32
<PAGE>   35

marketing staffing and, to a lesser extent, increased costs associated with new
marketing programs. VERITAS intends to continue to expand its global sales and
marketing infrastructure, and accordingly, VERITAS expects its selling and
marketing expenses to increase in absolute dollars but not change significantly
as a percentage of revenue in the future.

     Research and Development. Research and development expenses consist
primarily of salaries, related benefits, third-party consultant fees and other
engineering related costs. Research and development expenses increased 60% to
$40.2 million in 1998 from $25.2 million in 1997, and increased 36% in 1997 from
$18.5 million in 1996. The increase was due primarily to increased staffing
levels. As a percentage of total net revenue, research and development expenses
decreased to 19% in 1998 from 21% in 1997 and 25% in 1996. VERITAS believes that
a significant level of research and development investment is required to remain
competitive, and expects such expenses will continue to increase in absolute
dollars in future periods, although such expenses may continue to decline as a
percentage of total net revenue to the extent revenue increases. Research and
development expenses can be expected to fluctuate from time to time to the
extent that VERITAS makes periodic incremental investments in research and
development and VERITAS' level of revenue fluctuates.

     General and Administrative. General and administrative expenses consist
primarily of salaries, related benefits and fees for professional services, such
as legal and accounting services. General and administrative expenses increased
31% to $10.5 million in 1998 from $8.0 million in 1997, and increased 19% in
1997 from $6.7 million in 1996. General and administrative expenses as a
percentage of revenue were 5%, 7% and 9% in 1998, 1997 and 1996, respectively.
The increases in absolute dollars in 1998 and 1997 were primarily due to
additional personnel costs and other expenses associated with VERITAS enhancing
its infrastructure to support expansion of its operations. General and
administrative expenses are expected to increase in future periods in absolute
dollars to the extent VERITAS expands its operations.

     Acquisition and Restructuring Costs. As a result of the OpenVision merger,
VERITAS incurred charges to operations of $8.5 million in the second quarter of
1997, consisting of approximately $4.2 million for transaction fees and
professional services, $1.9 million for contract terminations and asset
write-offs and $2.4 million for other costs incident to the OpenVision merger.
Of the total charge, $1.2 million resulted from the write-down of redundant
assets and facilities, primarily consisting of intangible assets related to a
prior acquisition which were redundant as a result of OpenVision having a
similar product line, and $7.3 million involved cash outflows for banking, legal
and accounting fees and other direct costs and payments in connection with the
elimination of duplicative facilities. The remaining unpaid amount of $0.2
million at December 31, 1998 related primarily to ongoing lease payments for
vacated facilities through the termination of the lease or the estimated date
which such facilities will be subleased.

     In-Process Research and Development. On April 1, 1996, VERITAS acquired all
of the outstanding capital stock of ACSC for a total cost of approximately $3.5
million. Of the total cost, $2.2 million was allocated to in-process research
and development and expensed in the second quarter of 1996. Approximately $1.3
million was allocated to intangible assets that originally were amortized and
then fully written off in the second quarter of 1997 as part of the OpenVision
merger-related costs, since the ACSC product line became redundant upon the
OpenVision merger. On May 15, 1998, VERITAS acquired all of the outstanding
stock of Windward for a total cost of $2.5 million. The transaction was
accounted for using purchase accounting. Of the total cost, $0.6 million was
allocated to in-process research and development and $1.9 million was allocated
to acquired intangibles which is being amortized over a five year period. Total
cash outflows in 1998 related to this purchase were $1.3 million. VERITAS agreed
to pay the sole shareholder of Windward certain earn-out payments of up to an
aggregate of $1.2 million over the next two years subject to satisfaction

                                       33
<PAGE>   36

of certain conditions (which it was probable would be met) and the amount was
accrued at the acquisition date. VERITAS also agreed to pay that shareholder a
royalty on certain future product revenue derived from the products acquired
over a five year period, up to a maximum of $2.5 million. The Consolidated
Statements of Operations include the results of operations of Windward
subsequent to the acquisition date.

     Interest and Other Income, Net. Interest and other income, net increased to
$11.8 million in 1998 from $4.9 million in 1997, and $2.8 million in 1996. The
increases were due primarily to increased amounts of interest income
attributable to the higher level of funds available for investment. Foreign
exchange transaction gains and losses which are included in other income, net,
have not had a significant effect on VERITAS' results of operations.

     Interest Expense. Interest expense increased to $5.7 million in 1998 from
$1.2 million in 1997, and $0.3 million in 1996. Interest expense in 1998 and
1997 consists primarily of interest accrued under the Convertible Subordinated
Notes issued by VERITAS in October 1997. Interest expense in 1996 was
insignificant.

     Income Taxes. VERITAS had effective tax rates of 14%, 4% and 15% in 1998,
1997 and 1996, respectively. VERITAS' effective tax rate is lower than the
combined federal and state statutory rates primarily due to the utilization of
federal net operating loss carryforwards and other credit carryforwards, offset
by the impact of state and foreign taxes.

     VERITAS accounts for its income taxes under Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes."
Under SFAS No. 109, deferred tax liabilities and assets are recognized for the
expected future tax consequences of temporary differences between the carrying
amount of assets and liabilities for financial reporting and the amounts used
for income taxes. The realization of VERITAS' net deferred tax assets, which
relate primarily to net operating loss carryforwards and temporary differences,
is dependent on generating sufficient taxable income in future periods. Although
realization is not assured, management believes it is more likely than not that
the net deferred tax asset will be realized. The amount of the net deferred tax
assets considered realizable, however, could be reduced or increased in the near
term if estimates of future taxable income are changed. Management intends to
evaluate the realizability of the net deferred tax assets on a quarterly basis
to assess the need for the valuation allowance.

LIQUIDITY AND CAPITAL RESOURCES

     Our cash, cash equivalents and short-term investments totaled $211.1
million and $236.1 million at December 31, 1998 and June 30, 1999, and
represented 60% and 5.8% of total assets, respectively. Cash and cash
equivalents are highly liquid with original maturities of ninety days or less.
Short-term investments consist mainly of investment grade commercial paper,
market auction preferreds and other medium-term notes. At December 31, 1998 and
June 30, 1999, we had $100.8 million and $100.7 million of long-term
obligations, and stockholders' equity was approximately $169.9 million and $3.6
billion, respectively.

     Net cash provided by operating activities was $62.8 million, $26.8 million
and $14.4 million in 1998, 1997 and 1996, respectively, and $51.6 million in the
six months ended June 30, 1999, compared to $23.2 million in the six months
ended June 30, 1998. Increases in 1998 and 1997 cash provided by operating
activities resulted primarily from net income and increases in accounts payable,
accrued liabilities and deferred revenue balances. These sources of cash were
offset somewhat by uses of cash in connection with an increase in balances of
accounts receivable and prepaid expenses, reflecting our overall growth. For the
six months ended June 30, 1999, cash provided by operating activities resulted
primarily from income after adjustments to exclude the non-cash charges
including amortization of intangibles related to acquisition activities and an
increase in deferred revenue. For

                                       34
<PAGE>   37

the six months ended June 30, 1998, cash provided by operating activities
increased primarily as a result of higher net income, increases in accrued
liabilities and deferred revenue though partially offset by reductions in
prepaid expenses and accounts receivable.

     Our investing activities used cash of $86.8 million in the six months ended
June 30, 1999 primarily due to the net increase in short-term and long-term
investments of $64.4 million and capital expenditures of $23.7 million. Our
investing activities used cash of $20.5 million in the six months ended June 30,
1998 due to the net increase in short-term investments of $9.2 million and
capital expenditures of $10.0 million. Our investing activities used cash of
$13.4 million in 1998 primarily due to capital expenditures of $23.4 million. In
addition, we used $1.3 million of cash for the purchase of Windward in May 1998.
Our investing activities used cash of $71.1 million in 1997 primarily for net
purchases of short-term investments of $65.0 million, and capital expenditures
of $6.2 million. Our investing activities used cash of $31.4 million in 1996 and
consisted primarily of $22.7 million of net purchases of short-term investments,
$5.5 million used for capital expenditures and $3.5 million used for the
purchase of ACSC.

     Financing activities provided cash of $16.7 million in the six months ended
June 30, 1999, and $6.9 million in the six months ended June 30, 1998 from the
issuance of common stock under our employee stock plans. Financing activities
provided cash of $14.0 million in 1998, also arising primarily from the issuance
of common stock under our employee stock plans. Financing activities provided
cash of $102.9 million in 1997, primarily from the net proceeds of $97.5 million
from the issuance of the Notes and issuance of common stock of $5.8 million
under our employee stock plans, partially offset by the payment against the note
payable. In 1996, financing activities provided cash of $31.0 million that
reflects the net proceeds of $36.4 million from OpenVision's May 1996 initial
public stock offering and issuance of common stock of $2.7 million under our
employee stock plans, partially offset by the payments made against notes
payable.

     In October 1997, we issued $100.0 million of 5.25% convertible subordinated
notes due 2004 (the "5.25% notes"), for which we received net proceeds of $97.5
million. VERITAS and its a wholly-owned subsidiary VERITAS Operating Corporation
are co-obligors on the 5.25% notes. The 5.25% notes provide for semi-annual
interest payments of $2.6 million each May 1 and November 1. The 5.25% notes are
convertible into shares of our common stock at any time prior to the close of
business on the maturity date, unless previously redeemed or repurchased, at a
conversion price of $21.50 per share, subject to adjustment in certain events.
On or after November 5, 2002, the 5.25% notes will be redeemable over the period
of time until maturity at our option at declining premiums to par. If a
fundamental change, as defined in the Amended and Restated First Supplemental
Indenture dated July 30, 1997, occurs prior to October 1, 2004, each holder has
the right to require us to redeem all or part of the 5.25% notes at their
original issue price plus any accrued interest. The debt issuance costs are
being amortized over the term of the 5.25% notes using the interest method. The
issuance of the 5.25% notes resulted in a ratio of long-term debt to total
capitalization of approximately 3% at June 30, 1999.

     In August 1999, VERITAS and VERITAS Operating Corporation issued $465.8
million aggregate principal amount at maturity of 1.856% convertible
subordinated notes due 2006 (the "1.856% notes") for which we received net
proceeds of approximately $334.9 million. VERITAS and VERITAS Operating
Corporation are co-obligors on the 1.856% notes. The 1.856% notes provide for
semi-annual interest payments of $4.3 million each February 13 and August 13,
commencing February 13, 2000. The 1.856% notes are convertible into shares of
our common stock at any time prior to the close of business on the maturity
date, unless previously redeemed or repurchased, at a conversion price of $59.78
per share, subject to adjustment in certain events, equivalent to an initial
conversion rate of 12.415 shares of common stock per $1,000 principal amount at
maturity. On or after August 16, 2002, the 1.856% notes will be redeemable over
the period of time until maturity at

                                       35
<PAGE>   38

our option at issuance price plus accrued original issue discount and any
accrued interest. If a fundamental change, as defined in the Amended and
Restated First Supplemental Indenture dated August 13, 1999, as amended by the
First Supplemental Indenture dated August 17, 1999, occurs prior to August 13,
2006, each holder has the right to require us to redeem all or part of the
1.856% notes at issuance price plus accrued original issue discount and any
accrued interest. The debt issuance costs are being amortized over the term of
the 1.856% notes using the interest method. We expect to use the net proceeds
from these 1.856% notes issuance for general corporate purposes, including
working capital expenditures and possible acquisitions of companies or
technology, although there are no current agreements or negotiations with
respect to any material acquisitions. Pending these uses, we intend to invest
the net proceeds in short-term interest-bearing, investment grade securities.

     Following the issuance of the 1.856% notes, we will have a ratio of
long-term debt to total capitalization at June 30, 1999 of approximately 11%. As
a result of this additional indebtedness, our principal and interest payment
obligations will increase substantially. The degree to which we will be
leveraged could materially and adversely affect our ability to obtain financing
for working capital, acquisitions or other purposes and could make us more
vulnerable to industry downturns and competitive pressures. We will require
substantial amounts of cash to fund scheduled payments of principal and interest
on our indebtedness, including the notes, future capital expenditures and any
increased working capital requirements. If we are unable to meet our cash
requirements out of cash flow from operations, we cannot assure you that we will
be able to obtain alternative financing.

     During the quarter ended June 30, 1999, we signed a lease for new corporate
campus facilities in Mountain View, California. The lease term for the first
facilities is five years beginning in April 1999, with an option to extend the
lease term for two successive periods of one year each. The Company has an
option to purchase the property (land and facilities) for $72.0 million, or at
the end of the lease arrange for the sale of the property to a third party with
the Company retaining an obligation to the owner for the difference between the
sale price and the $72.0 million if the sales price is less than this amount,
subject to certain provisions of the lease. Lease payments on the first phase
facilities will begin in the second quarter of 2001. The lease requires us to
maintain specified financial covenants such as leverage ratio, quick ratio and
earnings before interest, taxes, depreciation and amortization, all of which we
were in compliance with as of June 30, 1999.

     We believe that our current cash, cash equivalents and short-term
investment balances and cash flow from operations will be sufficient to meet our
expected working capital and capital expenditure requirements for at least the
next twelve months. However, we may require additional funds to support our
working capital requirements for other purposes and may seek to raise such
additional funds through public or private equity financing or from other
sources. We cannot assure you that additional financing will be available at all
or that if available, we will be able to obtain it on terms favorable to us.

YEAR 2000 COMPLIANCE

     Background of Year 2000 Issues

     We are aware of the issues associated with the programming code in existing
computer systems as the millennium approaches. Many currently installed computer
systems and software products are unable to distinguish between twentieth
century dates and twenty-first century dates because such systems were developed
using two digits rather than four to determine the applicable year. For example,
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This error could result in
system failures, generation of erroneous data or miscalculations causing
disruption of operations, including, among other things, a temporary inability
to process transactions, send invoices or engage in similar normal business

                                       36
<PAGE>   39

activities. As a result, many companies' software and computer systems may need
to be upgraded or replaced to comply with such Year 2000 requirements. The Year
2000 problem is pervasive and complex. Significant uncertainty exists in the
software industry concerning the potential impact of Year 2000 problems. We are
assessing the potential overall impact of the impending century change on our
business, financial condition and results of operations.

     State of Readiness

     Based on our assessment to date, we believe the current versions of our
software products and services are "Year 2000 ready" -- that is, they are
capable of adequately distinguishing twenty-first century dates from twentieth
century dates. New products are being designed and tested to be Year 2000 ready.
Although our products have undergone, or will undergo, our normal quality
testing procedures, there can, however, be no assurance that our products will
contain all necessary date code changes. Furthermore, use of our products in
connection with other products which are not Year 2000 ready, including
non-compliant hardware, software and firmware may result in the inaccurate
exchange of dates and result in performance problems or system failure. In
addition, original equipment manufacturer derivative versions of older VERITAS
products may not be Year 2000 ready. Any failure of our products to perform,
including system malfunctions associated with the onset of year 2000, could
result in claims against us. However, success of our Year 2000 compliance
efforts may depend on the success of our customers in dealing with the Year 2000
issue, as we have formally notified all customers of extent of the Year 2000
readiness of our products.

     Although we have not been a party to any litigation or arbitration
proceeding to date that involves Year 2000 compliance issues with our products
or services, there can be no assurance that we will not in the future be
required to defend our products or services in such proceedings, or to negotiate
resolutions of claims based on Year 2000 issues. The costs of defending and
resolving Year 2000 related disputes, regardless of the merits of such disputes,
and any liability we have for Year 2000 related damages, including consequential
damages, could harm on our business.

     In addition, we believe that purchasing patterns of customers and potential
customers may be affected by Year 2000 compliance issues as organizations expend
significant resources to correct their current software systems for Year 2000
compliance. These expenditures may result in reduced funding available to such
entities for other information technology purchases, such as those products and
services offered by us. Furthermore, customers and potential customers may defer
information technology purchases generally until early in the next millennium to
avoid Year 2000 compliance problems. Any such deferral of purchases by our
customers or potential customers could harm our business.

     Our business depends on numerous systems that could potentially be impacted
by Year 2000 related problems. Those systems include, among others: hardware and
software systems used by us to deliver products and services to our customers
(including software supplied by third parties); communications networks such as
the wide area network and local area networks upon which we depend to
communicate product orders to our manufacturing and distribution operations and
to develop products; the internal systems of our customers and suppliers;
software products sold to customers; the hardware and software systems used
internally by us in the management of our business; and non-information
technology systems and services used by us in the management of our business,
such as power, telephone systems and building systems.

     We are currently in the process of evaluating our information technology
infrastructure in order to identify and modify any products, services or
systems, including hardware, software and firmware, that are not Year 2000
ready. Based on our initial analysis of the systems potentially impacted by
conducting business in the twenty-first century, we are applying a phased
approach to making such systems, and accordingly, our operations, ready for the
year 2000. Beyond awareness of the issues and scope of systems involved, the
phases of activities in process include: an assessment of specific

                                       37
<PAGE>   40

underlying computer systems, programs and hardware; renovation or replacement of
Year 2000 non-compliant technology; validation and testing of critical systems
certified by third-party suppliers to be Year 2000 ready; and implementation of
Year 2000 ready systems. The table below describes the status and timing of such
phased activities.

<TABLE>
<CAPTION>
                                                                                   TARGETED
           IMPACTED SYSTEMS                              STATUS                   COMPLETION
           ----------------                              ------                   ----------
<S>                                      <C>                                      <C>
Software products sold to customers      Software products tested and available   Completed
                                         for customers
Communication networks used to carry     Assessment inventory completed           Completed
  products and provide services
Hardware and software systems used to    Assessment inventory completed           Completed
  manage our business
Hardware and software systems used to    Assessment completed                     Completed
  deliver products and services
Hardware and software systems used to    Validation, testing and remediation in    Q3 1999
  deliver products and provide services  process
  (including desktops)
Communication networks used to carry     Validation, testing and remediation in    Early Q4
  products and provide services          process                                     1999
Non-information technology systems and   Systems upgraded or replaced as           Early Q4
  services                               appropriate, testing and implementation     1999
Hardware and software systems used to    Validation, testing and remediation       Q4 1999
  manage our business
</TABLE>

     Extensive Year 2000 testing will be conducted on all systems considered
critical to us. To date, we have not encountered any material problems in this
regard with our computer systems or any other equipment that might be subject to
such problems. In the event that any of our significant suppliers or customers
does not successfully and timely achieve Year 2000 compliance, our business or
operations could be adversely affected. This could result in system failures or
generation of erroneous information and could cause significant disruption to
business activities. We are reviewing what further actions are required to make
all software systems used internally Year 2000 ready as well as actions needed
to mitigate vulnerability to problems with suppliers and other third parties'
systems.

COSTS TO ADDRESS YEAR 2000 ISSUES

     The total cost of our Year 2000 compliance activities has not been, and is
not anticipated to be, material to our business, results of operations and
financial condition. We estimate specific Year 2000 expenses to date to be not
more than $1.0 million and do not expect total costs of the compliance
activities to exceed $2.0 million. These costs and the timing in which we plan
to complete our Year 2000 modification and testing processes are based on our
estimates. However, we cannot assure you there can be no assurance that we will
timely identify and remedy all significant Year 2000 problems, that remediation
efforts will not involve significant time and expense, or that such problems
will not harm our business.

CONTINGENCY PLANS

     We do not presently have a contingency plan for handling Year 2000 problems
that are not detected and corrected prior to their occurrence. If we fail to
address any unforeseen Year 2000 issue our business could be harmed. Full
contingency plans are scheduled for completion by October 31, 1999.

                                       38
<PAGE>   41

                     THE NETWORK & STORAGE MANAGEMENT GROUP
               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                      CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

     The NSMG business, sometimes referred to in this prospectus as the Network
& Storage Management Group, develops and markets software products and provides
related services enabling information technology professionals to manage
distributed network resources and to secure and protect enterprise data. The
Network & Storage Management Group operates in a single industry segment. Its
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management.

     VERITAS acquired the Network & Storage Management Group on May 28, 1999.
Before then, the Network & Storage Management Group was an operating division of
Seagate Software, which is a majority-owned and consolidated subsidiary of
Seagate Technology. Seagate Technology is a data technology company that
provides products for storing, managing and accessing digital information on
computer systems. The Network & Storage Management Group was headquartered in
Scotts Valley, California and had 17 offices and operations in seven countries
worldwide. Neither Seagate Software nor Seagate Technology has updated the
following discussion from April 2, 1999 and has no obligation to do so in this
prospectus. In accordance with the rules of the SEC, VERITAS has not updated
this historical discussion.

     The statements of operations discussed below include all revenues and costs
attributable to the Network & Storage Management Group, including allocations of
certain corporate administration, finance, and management costs. These costs
were proportionately allocated to the Network & Storage Management Group based
on time studies and detailed inquiries performed with Seagate Software's
corporate marketing and general and administrative departmental managers. In
addition, some of Seagate Software's operations were shared locations involving
activities of the Network & Storage Management Group and to other businesses of
Seagate Software. Costs incurred in shared locations are allocated among the
Seagate Software businesses based on identification of the costs as relating to
the specific businesses. Where specific identification is not possible, the
costs are allocated between the Network & Storage Management Group and other
businesses of Seagate Software using methodologies that management believes are
reasonable. Transactions and balances between entities and locations within the
Network & Storage Management Group itself have been eliminated.

     From August 1994 to June 1996, Seagate Technology acquired seven software
companies that were engaged in developing and marketing network and/or storage
management software products. In addition, in February 1996, Seagate Technology
merged with Conner Peripherals, Inc. in a transaction accounted for as a pooling
of interests. In connection with the merger, Seagate Technology purchased the
outstanding minority interests in Conner's storage management software
operations under Arcada Software, Inc. for $85.1 million, which resulted in
allocations to goodwill and other intangibles of $47.4 million, a write-off of
in-process research and development of $43.9 million and a deferred tax
liability of $6.2 million. In June 1998, the Network & Storage Management Group
acquired Eastman Software Storage Management Group, Inc., a subsidiary of
Eastman Kodak Company, for $10.0 million in cash, which resulted in allocations
to goodwill and other intangibles of $3.2 million and a write-off of in-process
research and development of $6.8 million. The accompanying financial statements
present the combined results of operations of the acquired companies from the
dates of acquisition.

     The Network & Storage Management Group operated and reported financial
results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June
30. Accordingly, fiscal 1998 ended on

                                       39
<PAGE>   42

July 3, 1998, fiscal 1997 ended on June 27, 1997 and fiscal 1996 ended on June
28, 1996. Fiscal 1998 was comprised of 53 weeks and fiscal years 1997 and 1996
were comprised of 52 weeks.

     Arcada, which was acquired by the Network & Storage Management Group
pursuant to Seagate Technology's merger with Conner, had a fiscal year that
ended on the Saturday closest to December 31. Accordingly, Arcada's statement of
operations for the year ended December 30, 1995 has been combined with the
Network & Storage Management Group's statement of operations for the year ended
June 30, 1995. In order to conform Arcada's fiscal year end to the Network &
Storage Management Group's fiscal year end, the Network & Storage Management
Group's combined statement of operations for the year ended June 28, 1996
includes six months, July 1, 1995 through December 31, 1995, for Arcada which
are also included in the Network & Storage Management Group's combined statement
of operations for the year ended June 30, 1995. Arcada's duplicated results for
the period from July 1, 1995 to December 30, 1995 includes revenues of $37.7
million, operating expenses of $29.3 million, and a net loss of $80,000.

BUSINESS COMBINATIONS

     Valuation methodology. In accordance with the provisions of Accounting
Principles Board Opinion 16, all identifiable assets, including identifiable
intangible assets, were assigned a portion of the cost of the acquired
enterprise (purchase price) on the basis of their respective fair values. This
included the portion of the purchase price properly attributed to incomplete
research and development projects that should be expensed according to the
requirements of Interpretation 4 of Statement of Financial Accounting Standard
No. 2.

     Intangible assets were identified through:

     - analysis of the acquisition agreement;

     - consideration of the Network & Storage Management Group's intentions for
       future use of the acquired assets; and

     - analysis of data available concerning the business's products,
       technologies, markets, historical financial performance, estimates of
       future performance and the assumptions underlying those estimates.

The economic and competitive environment in which the Network & Storage
Management Group and the company to be acquired operate was also considered in
the valuation analysis.

     Specifically, purchased research and development was identified and valued
through extensive interviews and discussions with the Network & Storage
Management Group and the company to be acquired's management and the analysis of
data provided by the company to be acquired concerning the company to be
acquired's developmental products, their respective stage of development, the
time and resources needed to complete them, their expected income generating
ability, target markets and associated risks. The Income Approach, which
includes an analysis of the markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each
purchased research and development project. A portion of the purchase price was
allocated to the developmental projects based on the appraised fair values of
such projects.

ARCADA SOFTWARE, INC.

     Overview

     As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management,

                                       40
<PAGE>   43

upgraded graphical user interfaces, file and server replication, and server
mirroring in order to continue to meet increasingly complex user needs.

     In accordance with Statement of Financial Accounting Standards No. 86,
paragraph 38, "Accounting for the Costs of Computer Software to be Sold, Leased,
or Otherwise Marketed," "the cost of software purchased to be integrated with
another product or process will be capitalized only if technological feasibility
was established for the software component and if all research and development
activities for the other components of the product or process were completed at
the time of the purchase." Although Seagate Software purchased existing products
from Arcada, since the majority of the original underlying code and base
technology for the NetWare and Windows NT product families was completed in the
1990 time frame, the technologies, as of the date of valuation, were undergoing
significant re-development.

     Assumptions

     Revenue

     Future revenue estimates were generated for the following product families:

     - Desktop;

     - NetWare; and

     - Windows NT.

     Aggregate revenue for Arcada products was estimated to be approximately $94
million for the ten and one-half months ending December 31, 1996. Revenues were
estimated to increase to approximately $161 million and $234 million for
calendar years 1997 and 1998 when most of the in-process projects were expected
to be complete and shipped. Thereafter, revenue was estimated to increase at
rates ranging from 35% to 40% for calendar years 1999 through 2002. Revenue
estimates were based on:

     - aggregate revenue growth rates for the business as a whole;

     - individual product revenues;

     - growth rates for the storage management software market;

     - the aggregate size of the storage management software market;

     - anticipated product development and introduction schedules;

     - product sales cycles; and

     - the estimated life of a product's underlying technology.

     The estimated product development cycle of the new products ranged from 12
to 18 months. Actual revenues for calendar years 1997 and 1998 were less than
those estimated.

     Operating expenses

     Operating expenses used in the valuation analysis of Arcada included:

     - cost of goods sold;

     - general and administrative expense;

     - selling and marketing expense; and

     - research and development expense.

                                       41
<PAGE>   44

     In developing future expense estimates, an evaluation of both Seagate
Software and Arcada's overall business model, specific product results,
including both historical and expected direct expense levels, as appropriate,
and an assessment of general industry metrics was conducted.

     Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% for Desktop, 10% for NetWare and 5% for Windows NT. The Network &
Storage Management Group's cost of goods sold was 23% for fiscal 1996, 23% for
fiscal 1997 and 13% for fiscal 1998.

     General and administrative expense. General and administrative expense,
expressed as a percentage of revenue, for the developed and in-process
technologies ranged from 12% in calendar 1996 to 8% in calendar 1998 and beyond.

     Selling and marketing expense. Selling and marketing expense, expressed as
a percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.

     Research and development expense. Research and development expense consists
of the costs associated with activities undertaken to correct errors or keep
products updated with current information, also referred to as "maintenance"
research and development). Maintenance research and development includes all
activities undertaken after a product is available for general release to
customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance research and development expense was estimated to be 5% of revenue
for the developed technologies and 3% of revenue for the in-process technologies
throughout the estimation period.

     In addition, as of the date of acquisition, the Network & Storage
Management Group management anticipated the costs to complete the Desktop,
NetWare, and Windows NT technologies at approximately $6.8 million, $4.5 million
and $7.5 million, respectively. Since the acquisition date, all projects
originally acquired from Arcada were commercially released prior to the end of
the fourth quarter of fiscal 1997.

     Effective tax rate

     The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.

     Discount rate

     The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5%, respectively. In the selection of the
appropriate discount rates, consideration was given to (1) the weighted average
cost of capital, approximately 13% to 15% at the date of acquisition of its
parent, Seagate Technology, Inc. and (2) the weighted average return on assets,
approximately 18%. The discount rate utilized for the in-process technology was
determined to be higher than Seagate Technology's weighted average cost of
capital due to the fact that the technology had not yet reached technological
feasibility as of the date of valuation. In utilizing a discount rate greater
than Seagate Technology's weighted average cost of capital, management has
reflected the risk premium associated with achieving the forecasted cash flows
associated with these projects.

                                       42
<PAGE>   45

EASTMAN SOFTWARE STORAGE MANAGEMENT GROUP

     Overview

     Eastman Software Storage Management Group's two primary products are
OPEN/stor for Windows NT and AvailHSM for NetWare. By integrating Eastman's
product line, the Network & Storage Management Group will be able to convert
their Storage Migrator product into a stand-alone hierarchical storage
management application for Windows NT environments. As of the date of
acquisition, the Network & Storage Management Group abandoned the AvailHSM
product and technology due to dated features and functionality; the valuation
analysis did not include a fair value for the AvailHSM product.

     As for OPEN/stor at the date of acquisition, the Network & Storage
Management Group planned to phase out the product over the following 12 to 15
months. The Network & Storage Management Group's purpose for the acquisition was
for the next generation technologies that were underway at Eastman, referenced
by project names Sakkara and Phoenix. These projects were complete re-writes of
Eastman's prior generation technology that would allow the product to be sold
stand-alone upon completion.

     In accordance with Statement of Financial Accounting Standards No. 86,
paragraph 38, "the cost of software purchased to be integrated with another
product or process will be capitalized only if technological feasibility was
established for the software component and if all research and development
activities for the other components of the product or process were completed at
the time of the purchase." Although the Network & Storage Management Group
purchased existing products from Eastman, the existing products did not operate
on a stand-alone basis. Therefore, as mentioned above, all of the original
underlying code and base technology for the next generation products were in the
process of being completely re-written as date of valuation.

     Assumptions

     Revenue

     Future revenue estimates were generated for the following technologies:

     - OPEN/stor;

     - Sakkara; and

     - Phoenix.

     Aggregate revenue for existing Eastman products was estimated to be
approximately $167,000 for the one month ending June 30, 1998. Revenues were
estimated to increase to approximately $3.9 million and $7.1 million for fiscal
years 1999 and 2000 when most of the in-process projects were expected to be
complete and shipping. Thereafter, revenue was estimated to increase at rates
ranging from 20% to 30% for fiscal years 2001 through 2006. Revenue estimates
were based on:

     - aggregate revenue growth rates for the business as a whole;

     - individual product revenues;

     - growth rates for the storage management software market;

     - the aggregate size of the storage management software market;

     - anticipated product development and introduction schedules;

     - product sales cycles; and

     - the estimated life of a product's underlying technology.

                                       43
<PAGE>   46

     Operating expenses

     Operating expenses used in the valuation analysis of Eastman included:

     - cost of goods sold;

     - general and administrative expenses;

     - selling and marketing expense; and

     - research and development expense.

     In developing future expense estimates, an evaluation of both the Network &
Storage Management Group and Eastman's overall business model, specific product
results, including both historical and expected direct expense levels as
appropriate, and an assessment of general industry metrics was conducted.

     Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies was estimated to be
approximately 5% throughout the estimation period. The Network & Storage
Management Group's cost of goods sold was 23% for fiscal 1996 and 1997.

     General and administrative expense. General and administrative expense,
expressed as a percentage of revenue, for the developed and in-process
technologies was estimated to be approximately 10% throughout the estimation
period.

     Selling and marketing expense. Selling and marketing expense, expressed as
a percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.

     Research and development expense. Research and development expense consists
of the costs associated with activities undertaken to correct errors or keep
products updated with current information, also referred to as "maintenance"
research and development. Maintenance research and development includes all
activities undertaken after a product is available for general release to
customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance research and development expense was estimated to be 5% of revenue
for the developed and in-process technologies throughout the estimation period.

     In addition, as of the date of acquisition, the Network & Storage
Management Group's management anticipated the costs to complete the in-process
technologies at approximately $1.8 million.

     Effective tax rate

     The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects the Network & Storage Management Group's
combined federal and state statutory income tax rates, exclusive of
non-recurring charges at the time of the acquisition and estimated for future
years.

     Discount rate

     The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (1) the weighted average cost of
capital, approximately 15% at the date of acquisition and (2) the weighted
average return on assets, approximately 18%. The discount rate utilized for the
in-process technology was determined to be higher than the Network & Storage
Management Group's weighted average cost of capital due to the fact that the
technology had not yet reached technological feasibility as of the date of
valuation. In utilizing a discount rate greater than the Network & Storage

                                       44
<PAGE>   47

Management Group's weighted average cost of capital, management has reflected
the risk premium associated with achieving the forecasted cash flows associated
with these projects.

CALYPSO SOFTWARE SYSTEMS, INC.

     Calypso was a software developer in the enterprise network/system
management market. Calypso provided software which was designed to enable
companies to automate the management of their distributed applications. At the
date of acquisition, Calypso had two main products: Maestro Vision and Atrium
Extendible Management System for Spectrum. Both existing products, as of the
acquisition date, were planned to be phased out over the following 24 months.
Calypso, at the acquisition date, was in the process of developing the next
generation Atrium Extendible Management System product that was to be sold
stand-alone. Both Maestro and Atrium Extendible Management System for Spectrum
were originally designed for use only on certain system platforms, Cabletron and
Spectrum, respectively. However, Atrium Extendible Management System, stand-
alone, would allow systems managers on any system platform to distribute
software; monitor central processing units, memory, and operating system
administration; manage applications, file systems, and print services; and
perform UNIX and NT system administration.

     As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C++, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium
Extendible Management System, stand-alone. The estimated cost to complete, at
the date of acquisition, was approximately $750,000. These in-process research
and development projects were successfully completed prior to a restructuring of
operations in the third quarter of fiscal 1997. As a result of this
restructuring and a change in Seagate Software's strategic direction, in the
first quarter of fiscal 1998 Seagate Software disposed of all the developed and
in-process technologies originally acquired from Calypso.

ONDEMAND SOFTWARE, INC.

     OnDemand developed and marketed electronic software distribution products
for network management in the client/server environment. OnDemand's flagship
product was WinINSTALL. As of the date of acquisition, OnDemand was in the
process of developing the next generation of WinINSTALL Version 6.0. A
significant feature of Version 6.0 which is not available by any competitive
product, was a rollback with clone capability, which would allow the user to
selectively return a PC to a previous state upon installation failure or upon
user demand. In order for WinINSTALL Version 6.0 to become a commercially viable
product, OnDemand, as of the valuation date, had undergone or was in the process
of undergoing significant development efforts, including:

     - developing rollback facilities, including clone capability;

     - expanding global editor to be included in the WinINSTALL registry file;

     - improving WinINSTALL Remote to ease package generation and distribution;

     - adding a feature that would allow optional electronic mail notification
       on installation failure and on installation refusals due to license
       limitations; and

     - expanding copy options and interactive install displays, adding
       substitution variables and allowing version control of backup files.

     As of the date of acquisition, Seagate Software management anticipated the
costs to complete WinINSTALL Version 6.0 at approximately $920,000. Since the
acquisition date, the acquired in-process research and development from OnDemand
has been completed and the related products were released during fiscal 1997.

                                       45
<PAGE>   48

RESULTS OF OPERATIONS

     The following table sets forth, for the periods indicated, line items in
the Network & Storage Management Group's statements of operations expressed as a
percentage of total revenue.

<TABLE>
<CAPTION>
                                                  FISCAL YEAR ENDED            NINE MONTHS ENDED
                                           -------------------------------    --------------------
                                           JUNE 28,    JUNE 27,    JULY 3,    APRIL 3,    APRIL 2,
                                             1996        1997       1998        1998        1999
                                           --------    --------    -------    --------    --------
<S>                                        <C>         <C>         <C>        <C>         <C>
Revenues:
  Licensing..............................     88%         93%         91%        91%         92%
  Licensing from Seagate Technology......      8           3           3          3           3
  Maintenance, support and other.........      4           4           6          6           5
                                             ---         ---         ---        ---         ---
       Total revenues....................    100         100         100        100         100
Cost of revenues:
  Licensing..............................     11           8           8          9           5
  Licensing from Seagate Technology......      3           1           *          *           *
  Maintenance, support and other.........      *           1           1          1           2
  Amortization of developed
     technologies........................      9          12           4          5           1
                                             ---         ---         ---        ---         ---
       Total cost of revenues............     23          22          13         15           8
                                             ---         ---         ---        ---         ---
Gross profit.............................     77          78          87         85          92
Operating expenses:
  Sales and marketing....................     48          48          39         39          37
  Research and development...............     28          24          18         18          16
  General and administrative.............     17          18          13         13           9
  In-process research and development....     52           *           4         --          --
  Amortization of goodwill and other
     intangibles.........................     11          14           7          8           5
  Restructuring costs....................      8           2           *         --          --
                                             ---         ---         ---        ---         ---
       Total operating expenses..........    164         106          81         78          67
                                             ---         ---         ---        ---         ---
Income (loss) from operations............    (87)        (28)          6          7          25
  Interest expense.......................     (1)         (2)         (1)        (1)          *
  Other, net.............................      *           *           *          *           1
                                             ---         ---         ---        ---         ---
     Interest and other, net.............     (1)         (2)         (1)        (1)          1
                                             ---         ---         ---        ---         ---
Income (loss) before income taxes........    (88)        (30)          5          6          26
Benefit from (provision for) income
  taxes..................................      8           7          (3)        (4)        (11)
                                             ---         ---         ---        ---         ---
Net income (loss)........................    (80)%       (23)%         2%         2%         15%
                                             ===         ===         ===        ===         ===
</TABLE>

- -------------------------
* Less than 1%

RESTATEMENT OF FINANCIAL STATEMENTS

     The Network & Storage Management Group had previously allocated a portion
of goodwill to developed technology and evaluated the impairment of goodwill
based on the revenues from the related software. Using this method, the Network
& Storage Management Group recorded write-downs and write-offs of goodwill in
fiscal 1997 in the amount of $10.3 million. The Network & Storage Management
Group has re-evaluated its methodology and determined that goodwill should not
be allocated to developed technology under Accounting Principles Board Opinion
17, "Intangible Assets." As a result, the Network & Storage Management Group
subsequently made adjustments to decrease the amounts of goodwill previously
written-down and written-off from $10.3 million to

                                       46
<PAGE>   49

$6.2 million in fiscal 1997. The additional goodwill of $4.1 million is being
amortized over the remaining estimated useful lives of approximately 5 years.

     The effect of this adjustment on previously reported combined financial
statements as of and for the years ended July 3, 1998 and June 27, 1997 is as
follows (in thousands):

<TABLE>
<CAPTION>
                                                    AS REPORTED             AS RESTATED
                                               ---------------------   ---------------------
                                                   AS OF AND FOR           AS OF AND FOR
                                                  THE YEARS ENDED         THE YEARS ENDED
                                               ---------------------   ---------------------
                                               JUNE 27,     JULY 3,    JUNE 27,     JULY 3,
                                                 1997        1998        1997        1998
                                               ---------   ---------   ---------   ---------
<S>                                            <C>         <C>         <C>         <C>
Amortization of goodwill.....................  $  23,987   $  12,456   $  20,250   $  13,236
Income (loss) from operations................    (44,945)     10,210     (41,208)      9,430
Net income (loss)............................    (36,937)      3,636     (33,200)      2,856
Goodwill and other intangible assets, net....     52,480      38,374      56,217      41,331
Accumulated deficit..........................   (227,146)   (223,510)   (223,409)   (220,553)
</TABLE>

     The effect of this adjustment on previously reported combined financial
statements as of and for the nine months ended April 3, 1998 is as follows (in
thousands):

<TABLE>
<CAPTION>
                                                        AS REPORTED          AS RESTATED
                                                     -----------------    -----------------
                                                     AS OF AND FOR THE    AS OF AND FOR THE
                                                     NINE MONTHS ENDED    NINE MONTHS ENDED
                                                     -----------------    -----------------
                                                       APRIL 3, 1998        APRIL 3, 1998
                                                     -----------------    -----------------
                                                        (UNAUDITED)          (UNAUDITED)
                                                     -----------------    -----------------
<S>                                                  <C>                  <C>
Amortization of goodwill...........................      $  10,071            $  10,656
Income from operations.............................          9,833                9,248
Net income.........................................          3,254                2,669
Goodwill and other intangible assets, net..........         36,014               39,168
Accumulated deficit................................       (223,892)            (220,741)
</TABLE>

NINE MONTHS ENDED APRIL 3, 1998 VERSUS NINE MONTHS ENDED APRIL 2, 1999

     Revenues

     The Network & Storage Management Group's revenues are primarily derived
from the sale of product licenses, software maintenance, technical support,
training and consulting. The Network & Storage Management Group recognizes
license revenues in accordance with the American Institute of Certified Public
Accountants Statement of Position 97-2, "Software Revenue Recognition." Revenues
from software license agreements are recognized at the time of product delivery.
Service revenues from customer maintenance fees for ongoing customer support and
product updates are recognized ratably over the maintenance term, which is
typically 12 months. Service revenues from training and consulting are
recognized when such services are performed.

     Total revenues increased 29% from $131.5 million in the nine months ended
April 3, 1998 to $170.2 million in the nine months ended April 2, 1999.

     License revenues, excluding license revenues from Seagate Technology, grew
30% from $120.1 million in the nine months ended April 3, 1998 to $156.1 million
in the nine months ended April 2, 1999 due primarily to increased sales of
Seagate Backup Exec, the Network & Storage Management Group's leading storage
management product featuring backup and restore solutions for Microsoft's
Windows NT Server and Windows NT workstation operating systems.

                                       47
<PAGE>   50

     Indirect revenues, which include distribution and original equipment
manufacturer sales, increased 33% from $117.4 million in the nine months ended
April 3, 1998 to $ 155.8 million in the nine months ended April 3, 1999.

     Direct revenues, which include corporate licensing and other direct sales
to users, increased 2% from $14.1 million in the nine months ended April 3, 1998
to $14.5 million in the nine months ended April 2, 1999.

     Revenues increased 21% within the Americas from $88.2 million in the nine
months ended April 3, 1998 to $106.9 million in the nine months ended April 2,
1999. Revenues grew internationally 46% from $43.4 million in the nine months
ended April 3, 1998 to $63.3 million in the nine months ended April 2, 1999 due
in part to the Network & Storage Management Group's continued expansion of its
European distribution channel.

     Revenues from Seagate Technology increased 23% from $4.2 million in the
nine months ended April 3, 1998 to $5.1 million in the nine months ended April
2, 1999 primarily due to increased sales of Backup Exec for Windows NT to
Seagate Technology's original equipment manufacturer tape drive operations.

     Total maintenance, support and other revenues grew 23% from $7.3 million in
the nine months ended April 3, 1998 to $9.0 million in the nine months ended
April 2, 1999 primarily due to increases in the sales of maintenance agreements
and training and consulting services resulting from a larger installed customer
base.

     Cost of revenues

     The cost of revenues consists of amortization of acquired developed
technology, royalties, product packaging, documentation, duplication, production
and the cost of maintenance, technical support and consulting services. Acquired
developed technology is amortized based on the greater of the straight-line
method over its estimated useful life, 30 to 48 months or the ratio of current
revenues to the total of current and anticipated future revenues.

     The total cost of revenues decreased 29% from $19.2 million in the nine
months ended April 3, 1998 to $13.5 million in the nine months ended April 2,
1999.

     Cost of license revenues decreased from $11.0 million in the nine months
ended April 3, 1998 to $8.2 million in the nine months ended April 2, 1999 and
represented 9% and 5% of related license revenues, respectively.

     The cost of license revenues from Seagate Technology decreased from
$402,000 in the nine months ended April 3, 1998 to $329,000 in the nine months
ended April 2, 1999 and represented 10% and 6% of related license revenues,
respectively. Both declines were due primarily to reductions in product
packaging and documentation costs resulting from a shift in mix to CD-ROMs from
disks and increased sales of higher-margin server products.

     The cost of maintenance, support and other revenues increased from $1.4
million in the nine months ended April 3, 1998 to $2.6 million in the nine
months ended April 2, 1999 and represented 19% and 29% of related service
revenues, respectively. The increase was primarily due to expansion of the
Network & Storage Management Group's professional services workforce necessary
to support the growth in training and consulting revenues.

     The amortization of developed technology decreased from $6.4 million in the
nine months ended April 3, 1998 to $2.4 million in the nine months ended April
2, 1999 representing 5% and 1% of total revenues, respectively. This decrease
was primarily due to decreases in amortization expense based on lower levels of
intangible assets because certain assets have become fully amortized.

                                       48
<PAGE>   51

     Sales and marketing

     Sales and marketing expenses consist primarily of personnel-related
expenses, advertising, sales and marketing promotions and customer technical
support costs. Sales and marketing expenses increased from $51.4 million in the
nine months ended April 3, 1998 to $63.6 million in the nine months ended April
2, 1999 and represented 39% and 37% of total revenues, respectively. The
increase in terms of absolute dollars was primarily due to increases in
advertising, promotion and technical support costs in Europe and other
international regions necessary to support the related revenue growth.

     Research and development

     Research and development expenses consist primarily of personnel-related
expenses, depreciation of development equipment and facilities and occupancy
costs. In accordance with Statement of Financial Accounting Standards No. 86,
software development costs are expensed as incurred until technological
feasibility has been established, at which time such costs are capitalized until
the product is available for general release to customers. The establishment of
technological feasibility of the Network & Storage Management Group's products
and general release of such software has substantially coincided. As a result,
software development costs qualifying for capitalization have been
insignificant.

     Research and development expenses increased from $24.0 million in the nine
months ended April 3, 1998 to $26.7 million in the nine months ended April 2,
1999 and represented 18% and 16% of total revenues, respectively. The increase
was primarily due to increases in personnel and related expenses and the
acquisition of development activities associated with the purchase of Eastman
Software Storage Management Group, Inc.

     General and administrative

     General and administrative expenses consist primarily of personnel-related
expenses for finance, legal, information technology, human resources, general
management, fixed asset write-downs and outside services. General and
administrative expenses decreased from $17.1 million in the nine months ended
April 3, 1998 to $15.6 million in the nine months ended April 2, 1999 and
represented 13% and 9% of total revenues, respectively. The decrease was
primarily due to decreased information technology related expenses, partially
offset by increases in other general and administrative expenses necessary to
support the Network & Storage Management Group's growth.

     Amortization of goodwill and other intangibles

     Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair values of the tangible and intangible net assets
acquired. Goodwill is amortized on a straight-line basis over periods up to
seven years. Other intangible assets consist of acquired trademarks, assembled
workforces, distribution networks, developed technology, customer base, and
covenants not to compete. Amortization of other intangibles, other than acquired
developed technology, is provided based on the straight-line method over the
respective useful lives of the assets ranging from one to five years.

     The amortization of goodwill and other intangibles decreased from $10.7
million in the nine months ended April 3, 1998 to $7.7 million in the nine
months ended April 2, 1999. This amortization represented 8% of total revenues
in the nine months ended April 3, 1998 and 5% of total revenues in the nine
months ended April 2, 1999. The decrease was primarily due to decreases in
amortization expense based on lower levels of intangible assets and write-downs
and write-offs of the carrying value of goodwill and other intangible assets of
approximately $1.9 million during the quarter

                                       49
<PAGE>   52

ended January 2, 1998, based on asset values for the assembled work forces and
associated goodwill that had become impaired.

     Interest and other, net

     Total interest and other, net increased from a net expense of $744,000 in
the nine months ended April 3, 1998 to a net income of $1.4 million in the nine
months ended April 2, 1999. This total interest and other, net represented 1% of
total revenues in the nine months ended April 3, 1998 and 1% of total revenues
in the nine months ended April 2, 1999. The increase in interest income and
other, net was primarily due to lower interest expense on a lower level of
outstanding borrowings from Seagate Technology.

     Income taxes

     The Network & Storage Management Group expects its annual effective tax
rate on anticipated operating income for the 1999 fiscal year to approximate
43%. The projected effective tax rate exceeds the U.S. statutory rate primarily
due to the amortization of goodwill which is not deductible for tax purposes,
and foreign taxes on certain earnings generated in higher tax rate
jurisdictions. This expected annual effective tax rate of 43% has been used to
record the provision for income taxes for the nine month period ended April 2,
1999 compared with a 69% effective tax rate used to record the provision for
income taxes for the comparable year-ago period. The effective tax rate used to
record the provision for the income taxes for the nine month period ended April
3, 1998 was based on the expected annual effective tax rate applicable to
anticipated fiscal 1998 operating income as adjusted for amortization of
nondeductible goodwill.

     Prior to its acquisition by VERITAS, the Network & Storage Management Group
was included in the consolidated federal and certain combined and consolidated
state and foreign income tax returns of Seagate Technology. Seagate Technology
and the Network & Storage Management Group were parties to a tax allocation
agreement. Under the tax allocation agreement, Network & Storage Management
Group's ability to recognize the tax benefits of certain net operating loss
carryforwards and foreign and domestic tax credits was impacted by Seagate
Technology's operating income during the periods that NSMG was included in
Seagate Technology's consolidated federal and other tax returns.

FISCAL YEAR ENDED JUNE 27, 1997 VERSUS FISCAL YEAR ENDED JULY 3, 1998

     Revenues

     Total revenues increased 24% from $141.5 million in fiscal 1997 to $175.0
million in fiscal 1998.

     License revenues, excluding license revenues from Seagate Technology, grew
23% from $130.7 million in fiscal 1997 to $160.2 million in fiscal 1998 due
primarily to increased sales of Seagate Backup Exec, the Network & Storage
Management Group's leading storage management product featuring backup and
restore solutions for Microsoft's Windows NT Server and Windows NT workstation
operating systems.

     The Network & Storage Management Group continued to expand both its
indirect and direct sales channels. Indirect revenues, which include
distribution and original equipment manufacturer sales, increased 25% from
$124.8 million in fiscal 1997 to $156.3 million in fiscal 1998 while direct
revenues, which include corporate licensing and other direct sales to users,
increased 12% from $16.7 million in fiscal 1997 to $18.7 million in fiscal 1998.

     Revenues increased within the Americas 13% from $102.2 million in fiscal
1997 to $115.3 million in fiscal 1998. Revenues grew internationally 52% from
$39.3 million in fiscal 1997 to $59.7 million in fiscal 1998 due in part to the
Network & Storage Management Group's continued expansion of its European
distribution channel.

                                       50
<PAGE>   53

     Revenues from Seagate Technology increased 3% from $4.9 million in fiscal
1997 to $5.0 million in fiscal 1998 primarily due to increased sales of Seagate
Backup Exec for Windows NT to Seagate Technology's original equipment
manufacturer tape drive operations.

     Total maintenance, support and other revenues grew 66% from $5.9 million in
fiscal 1997 to $9.8 million in fiscal 1998 primarily due to increases in the
sales of maintenance agreements and training and consulting services resulting
from a larger installed customer base.

     During fiscal 1998, the Network & Storage Management Group generated export
revenues from the United States of approximately $57.8 million. Expenses from
the Network & Storage Management Group's sales offices outside of the U.S. were
approximately $20.1 million as remeasured to the U.S. dollar from foreign
currencies. The principal currency for the sales offices is the British pound.
The Network & Storage Management Group believes that its exposure to foreign
currency fluctuations is not material and does not engage in foreign currency
hedging programs.

     Cost of revenues

     The total cost of revenues decreased from $32.1 million in fiscal 1997 to
$23.3 million in fiscal 1998.

     The cost of license revenues increased from $11.8 million in fiscal 1997 to
$13.7 million in fiscal 1998 and remained consistent at 9% of related license
revenues during both fiscal years.

     The cost of license revenues from Seagate Technology decreased from $1.8
million in fiscal 1997 to $411,000 in fiscal 1998 and represented 37% and 8% of
related license revenues, respectively. The decrease was due primarily to
reductions in product packaging and documentation costs resulting from a shift
in mix to CD-ROMs from disks and increased sales of higher-margin server
products.

     The cost of maintenance, support and other revenues increased from $789,000
in fiscal 1997 to $2.1 million in fiscal 1998 and represented 13% and 21% of
related service revenues, respectively. This increase was primarily due to
expansion of the Network & Storage Management Group's professional services
workforce necessary to support the growth in training and consulting revenues.
The lower service revenue margins in 1998 were primarily due to increased
spending for additional personnel and new facilities to support higher levels of
customer support services, such as training, consulting and preferred technical
support.

     The amortization of developed technology decreased from $17.7 million in
fiscal 1997 to $7.1 million in fiscal 1998 and represented 12% and 4% of total
revenues, respectively. The decrease was primarily due to higher write-downs in
fiscal 1997 of certain developed technologies amounting to approximately $6.9
million as a result of asset values that had become impaired based on reductions
in estimated future cash flows and decreases in amortization expense based on
lower levels of intangible assets.

     In 1997, the unamortized software costs were reviewed under the guidance of
Statement of Financial Accounting Standards No. 86 for potential impairment. The
Network & Storage Management Group compared the net realizable value on a
product by product basis to the unamortized costs. Impairments were caused by a
number of factors including the Network & Storage Management Group's decision to
stop selling products or technologies such as DOS, new acquisitions, or new
product designs. Additionally in 1997, the Network & Storage Management Group
incurred a write-off to expected net realizable value related to the decision to
close down and sell one of its acquisitions, Calypso Software Systems, Inc. The
Network and Storage Management Group is not currently generating revenue from
any products for which the related developed technology has been impaired.

                                       51
<PAGE>   54

     The write-downs of inventory to net realizable value in fiscal 1998 were
the result of new product introductions and, in the second quarter of fiscal
1998, the consolidation of the Network & Storage Management Group's fulfillment
warehouses to a single outsourcing partner. As a result of the change in
strategy to move to a single outsourcing partner, the Network & Storage
Management Group was required contractually to purchase components from some of
its terminated vendors. This inventory was reviewed in conjunction the new
outsourcing partner and the components that were excess or obsolete were written
down.

     The inventory write-down in fiscal 1997 related to Sytron products for
which the decision was made in 1997 to no longer market these products.

     Sales and marketing

     Sales and marketing expenses increased slightly from $68.2 million in
fiscal 1997 to $68.3 million in fiscal 1998. These expenses represented 48% of
total revenues in fiscal 1997 and 39% of total revenues in fiscal 1998. The
slight increase was primarily due to increases in advertising, promotion and
technical support costs necessary to support revenue growth. These increases
were partially offset by reductions in workforce in fiscal 1997 due to facility
consolidations.

     Research and development

     Research and development expenses decreased from $33.6 million in fiscal
1997 to $31.7 million in fiscal 1998. These expenses represented 24% of total
revenues in fiscal 1997 and 18% of total revenues in fiscal 1998. The decrease
was primarily due to facility consolidations and reductions in workforce in
fiscal 1997.

     General and administrative

     General and administrative expenses decreased from $26.0 million in fiscal
1997 to $22.3 million in fiscal 1998. These expenses represented 18% of total
revenues in fiscal 1997 and 13% of total revenues in fiscal 1998. The decrease
was primarily due to decreases in personnel-related expenses from facility
consolidations and reductions in workforce in fiscal 1997 and decreased legal
costs.

     Write-off of in-process research and development

     During fiscal 1998, $6.8 million of in-process research and development was
written off in connection with the purchase of Eastman Software Storage
Management Group, Inc.

     Amortization of goodwill and other intangibles

     The amortization of goodwill and other intangibles decreased from $20.3
million in fiscal 1997 to $13.2 million in fiscal 1998. This amortization
represented 14% of total revenues in fiscal 1997 and 8% of total revenues in
fiscal 1998. The decrease was primarily due to decreases in amortization expense
based on lower levels of intangible assets and write-downs and write-offs of the
carrying value of goodwill and other intangible assets of approximately $6.2
million in fiscal 1997 versus $1.9 million in fiscal 1998 as a result of asset
values that had become impaired.

     Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 (SFAS 121), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not under the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principles Board No. 17, and any write-offs or
write-downs are also included in amortization of goodwill and other intangibles.
Developed technology is assessed for impairment under the guidance of Statement
of Financial Accounting Standards Board No. 86, and any related

                                       52
<PAGE>   55

write-offs or write-downs are included in costs of revenues. During fiscal 1997
and 1998, the Network & Storage Management Group recorded impairment charges for
write-offs and write-downs of acquired intangible assets and goodwill, exclusive
of amounts relating to developed technology as follows:

     In 1997, the Network & Storage Management Group determined that it would
abandon and discontinue selling substantially all of the current and future
products and technologies obtained in the 1994 acquisition of Palindrome
Corporation in favor of selling and supporting the current and future products
and technologies obtained in the 1996 acquisition of Arcada Holdings, Inc.
Additionally, in 1997, the Network & Storage Management Group decided to close
down and sell Calypso Software Systems, Inc. and to abandon and discontinue
sales of the developed and future DOS products and technologies acquired from
Frye Computer Systems, Inc. In connection with these determinations, the Network
& Storage Management Group recorded impairment charges to write-off and
write-down goodwill amounting to approximately $6.2 million.

     In 1998, the Network & Storage Management Group assessed the recoverability
of long-lived assets and as a result wrote-off assembled workforce and related
goodwill amounting to $1.9 million for Network Computing, Inc., Netlabs, Inc.
and Creative Interaction Technologies, Inc.

     Restructuring

     Restructuring charges were $2.5 million in fiscal 1997 and none in fiscal
1998. See management's discussion and analysis of restructuring costs for the
fiscal year ended June 28, 1996 versus fiscal year ended June 27, 1997.

     Interest and other, net

     Total interest and other, net decreased from a net expense of $2.6 million
in fiscal 1997 to a net expense of $713,000 in fiscal 1998, representing 2% and
1% of total revenues, respectively. The decrease in interest and other, net was
primarily due to lower interest expense on a lower level of average outstanding
borrowings from Seagate Technology.

     Income taxes

     The Network & Storage Management Group recorded a $10.6 million benefit
from income taxes at an effective rate of 24% for fiscal 1997 compared with a
$5.9 million provision for income taxes at an effective rate of 67% in fiscal
1998. The effective rate used to record the provision for income taxes in fiscal
1998 was greater than the statutory rate primarily due to foreign taxes in
excess of the U.S. statutory tax rate, state income taxes, and goodwill
amortization for certain acquisitions that was not deductible for tax purposes.
The effective rate used to record the benefit from income taxes in fiscal 1997
was less than the statutory rate primarily due to increases in the valuation
allowance for deferred tax assets and goodwill amortization for certain
acquisitions that were not deductible for tax purposes.

FISCAL YEAR ENDED JUNE 28, 1996 VERSUS FISCAL YEAR ENDED JUNE 27, 1997

     Revenues

     Total revenues increased 21% from $116.7 million in fiscal 1996 to $141.5
million in fiscal 1997.

     License revenues, excluding license revenues from Seagate Technology,
increased 28% from $102.3 million in fiscal 1996 to $130.7 million in fiscal
1997. The increase in licensing revenues was due in part to growth in the market
for storage management software products and related services, expansion of the
Network & Storage Management Group's European distribution channels and
increased sales of Seagate Backup Exec for Windows NT.

                                       53
<PAGE>   56

     Total maintenance, support and other revenues increased from $4.5 million
in fiscal 1996 to $5.9 million in fiscal 1997. The increase in maintenance,
support and other revenues was due in part to higher training and consulting
revenues resulting from a larger customer base.

     Additionally, the fiscal 1997 results included a full year of operations
for the fiscal 1996 acquisition of OnDemand Software, Inc., which resulted in
increases in licensing revenues of approximately $6.8 million in fiscal 1997 as
compared with fiscal 1996.

     During fiscal 1997, the Network & Storage Management Group generated export
revenues from the United States of approximately $40.7 million. Expenses from
the Network & Storage Management Group's sales offices outside of the U.S. were
approximately $15.7 million as remeasured in the U.S. Dollar from foreign
currencies, principally the British Pound. The principal currency for such
operations is the British Pound. The Network & Storage Management Group believes
that its exposure to foreign currency fluctuations is not material and does not
engage in foreign currency hedging programs.

     Cost of revenues

     The total cost of revenues increased from $27.3 million in fiscal 1996 to
$32.1 million in fiscal 1997 and represented 23% of total revenues in fiscal
1996 and 22% of total revenues in fiscal 1997. The majority of the increase in
absolute dollars was due to an increase in the amortization of acquired
developed technology due to a higher level of intangible assets. Additionally,
in fiscal 1997 the Network & Storage Management Group wrote-off and wrote-down
certain developed technologies amounting to approximately $6.9 million as a
result of asset values that had become impaired based on the Network & Storage
Management Group's phasing out of certain products.

     In 1997, the unamortized software costs were reviewed under the guidance of
Statement of Financial Accounting Standards No. 86 for potential impairment. The
Network & Storage Management Group business compared the net realizable value on
a product by product basis to the unamortized costs including goodwill.
Impairments were caused by a number of factors including the Network & Storage
Management Group's decision to stop selling products or technologies such as
DOS, new acquisitions, or new product designs. Additionally in 1997, the Network
& Storage Management Group incurred a write-off related to the decision to close
down and sell one of its acquisitions, Calypso Software Systems, Inc. The
write-off was to the expected net realizable value. The Network and Storage
Management Group is not currently generating revenue from any products for which
the related developed technology has been impaired.

     The inventory write-down in fiscal 1997 related to Sytron products for
which the decision was made in 1997 to no longer market these products.

     Sales and marketing

     Sales and marketing costs increased from $55.9 million in fiscal 1996 to
$68.2 million in fiscal 1997 and represented 48% of total revenues in both
periods. The increase in absolute dollars was due to increased personnel,
advertising and promotion costs necessary to support revenue growth and the
expansion of the Network & Storage Management Group's European distribution
channel. Additionally, the fiscal 1997 results included a full year of
operations for the Network & Storage Management Group's fiscal 1996 acquisitions
compared with a partial year of operations in fiscal 1996.

     Research and development

     Research and development expenses increased from $32.5 million in fiscal
1996 to $33.6 million in fiscal 1997. These expenses represented 28% of total
revenues in fiscal 1996 and 24% total revenues in fiscal 1997. The increase in
absolute dollars was primarily due to increases in new product

                                       54
<PAGE>   57

development and localization costs, partially offset by facility consolidations
and reductions in workforce. Additionally, the fiscal 1997 results included a
full year of operations for the Network & Storage Management Group's fiscal 1996
acquisitions compared with a partial year of operations in fiscal 1996.

     General and administrative

     General and administrative expenses increased from $20.0 million in fiscal
1996 to $26.0 million in fiscal 1997. These expenses represented 17% of total
revenues in fiscal 1996 and 18% of total revenues in fiscal 1997. The increase
in absolute dollars was primarily due to increases in corporate administrative
expenses, information systems and legal costs necessary to support the Network &
Storage Management Group's growth. Additionally, the fiscal 1997 results
included a full year of operations for the Network & Storage Management Group's
fiscal 1996 acquisitions compared with a partial year of operations in fiscal
1996.

     Write-off of in-process research and development

     During fiscal 1996, total write-offs of in-process research and development
were $61.1 million as a result of the Network & Storage Management Group's
fiscal 1996 acquisitions.

     Amortization of goodwill and other intangibles

     Amortization of goodwill and other intangibles increased from $13.0 million
in fiscal 1996 to $20.3 million in fiscal 1997. This amortization represented
11% of total revenues in fiscal 1996 and 14% of total revenues in fiscal 1997.
The increase in absolute dollars was primarily due to increased amortization
expense on a higher level of intangible assets and write-downs and write-offs of
the carrying value of goodwill and other intangible assets of approximately $6.2
million as a result of asset values that had become impaired.

     Long-lived assets other than developed technology, including associated
goodwill, are assessed for impairment under the guidance of Statement of
Financial Accounting Standards Board No. 121 (SFAS 121), and any write-offs or
write-downs are included in amortization of goodwill and other intangibles.
Goodwill not within the scope of SFAS 121 is assessed for impairment under the
guidance of Accounting Principals Board No. 17, and any write-downs or
write-offs are also included in amortization of goodwill and other intangibles.
Developed technology is assessed for impairment under the guidance of Statement
of Financial Accounting Standards Board No. 86, and any related write-offs or
write-downs are included in costs of revenues. During 1997 and 1996, the Network
& Storage Management Group recorded impairment charges for write-offs and
write-downs of acquired intangible assets and goodwill, exclusive of amounts
relating to developed technology as follows:

     In 1996, Mr. Frye, the former owner of Frye Computer Systems, Inc., a 1995
acquisition, left the Network & Storage Management Group. With his departure,
the Network & Storage Management Group decided to release Mr. Frye from his
remaining non-compete period and to not use the Frye name trademark in future
periods. As a result, the remaining carrying value of the intangible assets
relating to the covenant not to compete and the trademark, and associated
goodwill, totaling $2.2 million were written-off in their entirety.

     In 1997, the Network & Storage Management Group determined that it would
abandon and discontinue selling substantially all of the current and future
products and technologies obtained from the 1994 acquisition of Palindrome
Corporation in favor of selling and supporting the current and future products
and technologies obtained from the 1996 acquisition of Arcada Holdings, Inc.
Additionally, in 1997, the Network & Storage Management Group decided to close
down and sell Calypso Software Systems, Inc. and to abandon and discontinue
sales of the developed and future products and technologies acquired from Frye
Computer Systems, Inc. In connection with these

                                       55
<PAGE>   58

determinations, the Network & Storage Management Group recorded write-offs and
write-downs of goodwill amounting to approximately $6.2 million.

     Restructuring

     Fiscal 1996 charges. Restructuring charges were $9.5 million in fiscal 1996
and $2.5 million in fiscal 1997. The 1996 restructuring charges pertain to the
acquisition of Arcada Holdings, Inc. in February 1996. As a result of the
acquisition, the Network & Storage Management Group business had obtained
duplicate technologies and product lines in data protection and storage
management software as those assets acquired in the Palindrome Corporation
acquisition in fiscal 1995. The Network & Storage Management Group determined
that it would be beneficial to consolidate the world-wide sales, marketing,
research and development, technical support and other operations and
administrative functions of its network and storage management business. A
restructuring plan was approved by the Seagate Software board of directors in
March 1996 and the plan resulted in facility closures and staff reductions of 43
at the Arcada facilities in Westboro, Massachusetts, the United Kingdom and
France, as well as staff reductions of 69 at the former Palindrome facility in
Naperville, Illinois. In addition, because Arcada had a better industry
reputation and superior products to those of Palindrome, the Network & Storage
Management Group's plan and strategy going forward was to focus on the
technologies and products acquired from Arcada. The revenue relating to products
acquired from Palindrome for fiscal 1996 was $15.9 million and the net operating
loss relating to products acquired from Palindrome for fiscal 1996 was $2.1
million. For fiscal 1997, the revenue relating to products acquired from
Palindrome was $3.3 million and the net operating loss relating to products
acquired from Palindrome for fiscal 1997 was $3.7 million.

     The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority pooling of
interests by Seagate Technology.

     Fiscal 1997 charges. The fiscal 1997 restructuring charges netted to $2.5
million, comprised of a $3.4 million restructuring charge that included the
closure of the Network & Storage Management Group's facility located in
Cupertino, California. This facility closure resulted in cash charges for
severance and benefits for 69 employee terminations and non-cash charges for
excess facilities and the write down of equipment. In addition, the $3.4 million
included amounts related to the decision, after concluding a sale was no longer
viable, to no longer pursue the technologies acquired in the fiscal 1996
acquisition of Calypso Software Systems, Inc. and to shut down its operations.
This decision resulted in cash charges for severance and benefits for 35
employee terminations and non-cash charges for the write off of certain
remaining intangible assets of Calypso. The revenue and net operating loss
relating to products acquired from Calypso for fiscal 1996 was $444,000 and
$53,000 respectively. For fiscal 1997, the revenue and net operating loss
relating to products acquired from Calypso was $640,000 and $47,000
respectively.

     The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.

                                       56
<PAGE>   59

     A summary of Network & Storage Management Group business restructuring
activities for the past three years is provided below in thousands:
<TABLE>
<CAPTION>
                               SEVERANCE                                                          CONTRACT     LEGAL AND
                              AND EMPLOYEE                                                      CANCELLATION   ACCOUNTING
                                BENEFITS     FACILITIES   EQUIPMENT   INVENTORY   INTANGIBLES       FEES          FEES
                              ------------   ----------   ---------   ---------   -----------   ------------   ----------
<S>                           <C>            <C>          <C>         <C>         <C>           <C>            <C>
1996 restructuring
 charges....................     $1,554        $1,571      $ 1,018      $ 300       $ 4,312         $ 67         $ 525
Cash charges................       (518)           --           --         --            --           --          (568)
Non-cash charges............         --          (121)        (116)        --        (4,052)          --            --
                                 ------        ------      -------      -----       -------         ----         -----
Reserve balances, June 28,
 1996.......................      1,036         1,450          902        300           260           67           (43)
1997 restructuring
 charges....................        770           505          728         --         1,378           --            --
Cash charges................       (975)         (915)          --         --            --           --            --
Non-cash charges............         --           (72)         (44)        --        (1,378)          --            --
Adjustments and
 reclassifications..........       (351)          267         (172)      (300)         (260)         (67)           43
                                 ------        ------      -------      -----       -------         ----         -----
Reserve balances, June 27,
 1997.......................        480         1,235        1,414         --            --           --            --
Cash charges................       (373)         (519)          (9)        --            --           --            --
Non-cash charges............         --            --       (1,045)        --            --           --            --
Adjustments and
 reclassifications..........       (107)          467         (360)        --            --           --            --
                                 ------        ------      -------      -----       -------         ----         -----
Reserve balances, July 3,
 1998.......................         --         1,183           --         --            --           --            --
Cash charges (unaudited)....         --          (375)          --         --            --           --            --
                                 ------        ------      -------      -----       -------         ----         -----
Reserve balances, April 2,
 1999
 (unaudited)................     $   --        $  808      $    --      $  --       $    --         $ --         $  --
                                 ======        ======      =======      =====       =======         ====         =====

<CAPTION>

                               OTHER
                              EXPENSES    TOTAL
                              --------   -------
<S>                           <C>        <C>
1996 restructuring
 charges....................   $ 155     $ 9,502
Cash charges................      --      (1,086)
Non-cash charges............    (138)     (4,427)
                               -----     -------
Reserve balances, June 28,
 1996.......................      17       3,989
1997 restructuring
 charges....................     100       3,481
Cash charges................      --      (1,890)
Non-cash charges............      --      (1,494)
Adjustments and
 reclassifications..........    (117)       (957)
                               -----     -------
Reserve balances, June 27,
 1997.......................      --       3,129
Cash charges................      --        (901)
Non-cash charges............      --      (1,045)
Adjustments and
 reclassifications..........      --          --
                               -----     -------
Reserve balances, July 3,
 1998.......................      --       1,183
Cash charges (unaudited)....      --        (375)
                               -----     -------
Reserve balances, April 2,
 1999
 (unaudited)................   $  --     $   808
                               =====     =======
</TABLE>

     The Network & Storage Management Group's remaining restructuring reserves
at April 2, 1999 pertain to continuing lease payments on facilities that were
closed and abandoned as a result of the Palindrome restructuring. The Network &
Storage Management Group has been unable to sublease these facilities and
anticipates that the remaining restructuring reserves will be utilized over the
period through lease termination in fiscal 2002.

     The fiscal 1996 restructuring reserve of $9,502,000 was for the following
specific items:

     Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the Arcada facilities in Westboro, Massachusetts, the United
Kingdom and France, as well as at the former Palindrome facility in Naperville,
Illinois.

     Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.

     Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kingdom and France facilities. It consists of
computer equipment, furniture and fixtures and software at these facilities that
will not be used after the locations are closed. All of the equipment provided
for in this reserve has been abandoned.

     Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and original equipment manufacturer inventory of $80,000
that will no longer be sold.

     Intangibles ($4,312,000) -- This writedown consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. The Network & Storage Management Group decided to pursue the Arcada
brand name and trademark

                                       57
<PAGE>   60

and abandon the Palindrome trademark. As a result, Network & Storage Management
Group business determined that it would lay off substantially all of the 121
employees of Palindrome located at the Naperville facility. At the time of
original purchase, Network & Storage Management Group business proportionally
allocated goodwill to long-lived intangible assets based upon the original
purchase price. The amounts of goodwill included in the restructuring reserve
relate to the remaining unamortized goodwill associated with the intangible
assets written off.

     Contract cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.

     Legal/Accounting fees ($525,000) -- This $525,000 represents an estimate of
the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.

     Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 for obsolete marketing materials.

     The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio.

     In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3.5 million that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate the Network & Storage Management Group
operations which resulted in the shutdown of NSMG's facility in Cupertino,
California which are as follows.

     Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.

     Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.

     Equipment ($728,000) -- This reserve is for equipment in the Manchester and
Cupertino facilities that would not be used after the shutdowns. It consisted of
largely of computer equipment but also included amounts for furniture and
fixtures and software. All of the equipment provided for in this reserve has
been abandoned.

     Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included net developed technology of $1,086,000 and
assembled workforce of $292,000. These assets were written off based on
management's plan to sell Calypso and its products and technologies.

     Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester Calypso shutdown.

     The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close the
Manchester Calypso facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.

                                       58
<PAGE>   61

     Interest and other, net

     Total interest and other, net increased from a net expense of $705,000 in
fiscal 1996 to a net expense of $2.6 million in fiscal 1997 and represented 1%
and 2% of total revenues, respectively. The increase in interest and other, net
was primarily due to higher interest expense on a higher level of outstanding
borrowings from Seagate Technology.

     Income taxes

     The Network & Storage Management Group recorded a $8.8 million benefit from
income taxes at an effective rate of 8% for fiscal 1996 compared with a $10.6
million benefit from income taxes at an effective rate of 24% in fiscal 1997.
The effective rate used to record the benefit from income taxes in each fiscal
year was less than the statutory rate primarily from increases in the valuation
allowance for deferred tax assets, goodwill amortization, and charges in fiscal
1996 for in-process research and development for certain acquisitions that were
not deductible for tax purposes.

BALANCE SHEET DISCUSSION

     The Network & Storage Management Group's total cash was $4.9 million as of
July 3, 1998 and $2.0 million as of April 2, 1999. The decrease in cash was
primarily due to the Network & Storage Management Group's participation in the
consolidated cash management program of Seagate Technology and the differences
reflect the timing of the transfer of cash to the parent company. The accounts
receivable balance was $16.0 million on July 3, 1998 and $23.1 million as of
April 2, 1999. The increase in accounts receivable was primarily due to
increased sales and an increase in days sales outstanding. The loan receivable
from Seagate Technology and affiliates was $0 as of July 3, 1998 and $42.1
million as of April 2, 1999. The increase in the loan receivable is due to the
Network & Storage Management Group's participation in the consolidated cash
management program of Seagate Technology and the difference in the loan balance
reflects the timing of the transfer of cash to the parent company. The other
current assets balance was $480,000 as of July 3, 1998 and $3.3 million as of
April 2, 1999. This increase was primarily due to prepaid costs associated with
the NSMG combination with VERITAS. The goodwill and other intangibles balance
for the Network & Storage Management Group was $41.3 million as of July 3, 1998
and $31.6 million as of April 2, 1999. The decrease was due to ongoing goodwill
and intangible amortization.

     The Network & Storage Management Group's loan payable to Seagate Technology
and affiliates was $10.6 million as of July 3, 1998 and $0 as of April 2, 1999.
The decrease in the loan payable was due primarily to the Network & Storage
Management Group's participation in the consolidated cash management program of
Seagate Technology and the differences in the loan payable reflects the timing
of the transfer of cash to the parent company. Accrued employee compensation was
$8.0 million as of July 3, 1998 and $10.1 million as of April 2, 1999. The
increase is primarily due to increases in payroll costs associated with
increased headcount. Headcount increased from 959 employees as of July 3, 1998
to 1,060 employees as of April 2, 1999. Accrued expenses were $7.1 million as of
July 3, 1998 and $9.5 million as of April 2, 1999. The increase is primarily due
to accruals for expenses incurred as a result of the NSMG combination with
VERITAS. Accrued income taxes were $1.3 million as of July 3, 1998 and $18.8
million as of April 2, 1999, respectively. The increase was primarily due to
accrued income taxes on increased domestic and foreign earnings and the timing
of the settlement of the intercompany tax liability with Seagate Technology, the
parent company.

LIQUIDITY AND CAPITAL RESOURCES

     The Network & Storage Management Group's total cash was $4.9 million and
$2.0 million as of July 3, 1998 and April 2, 1999, respectively. The decrease in
cash was primarily due to loan

                                       59
<PAGE>   62

repayments to Seagate Technology of $161.5 million offset by additional
borrowings from Seagate Technology of $108.8 million and purchases of equipment,
leasehold improvements and intangible assets, partially offset by cash provided
by operating activities. The Network & Storage Management Group's cash is
maintained in highly liquid operating accounts and primarily consists of bank
deposits.

     The Network & Storage Management Group's operations were financed by cash
flows from operating activities and borrowings from Seagate Technology. Prior to
the NSMG combination, such borrowings were available to Seagate Software under a
revolving loan agreement between Seagate Software and Seagate Technology. Under
the loan agreement, the Network & Storage Management Group was in a net
receivable position of $42.1 million as of April 2, 1999.

     During the nine months ended April 2, 1999, the Network & Storage
Management Group made investments totaling approximately $7.7 million for new
office facilities, leasehold improvements, computers, furniture and office
equipment.

                                       60
<PAGE>   63

           QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

FOREIGN EXCHANGE RATE SENSITIVITY

     We do not use derivative financial instruments for speculative purposes. We
engage in exchange rate hedging from time to time but such activity has been
insignificant to date and we do not hold or issue foreign exchange contracts for
trading purposes. Our international sales are generated primarily through our
international sales subsidiaries. Most international revenue outside the United
States and Canada is collectible in foreign currencies. Since much of our
international operating expenses are also incurred in local currencies, the
impact of exchange rates on net income or loss is relatively less than the
impact on revenues. Although our operating and pricing strategies take into
account changes in exchange rates over time, our operating results may be
significantly affected in the short term by fluctuations in foreign currency
exchange rates. Our international subsidiaries purchase licenses from the parent
company resulting in intercompany receivables and payables. These receivables
and payables are carried on each company's books at the historical local
currency that existed at the time of the transaction. Such receivables and
payables are eliminated for financial statement reporting purposes. Prior to
elimination, the amounts carried in foreign currencies are converted to U.S.
Dollars at the then current rate or "marked to market." The marked to market
process may give rise to currency gains and losses. Such gains or losses are
recognized on our statement of operations as a component of other income, net.
To date, any such gains or losses have not been material. We do not believe that
our total exposure is significant.

INTEREST RATE SENSITIVITY

     Our exposure to market risk for changes in interest rates relates primarily
to our investment portfolio and long-term debt obligations. The primary
objective of our investment activities is to preserve principal while at the
same time maximizing yields without significantly increasing risk. Our portfolio
includes money markets funds, commercial paper, market auction preferreds,
government agency notes and medium-term notes. The diversity of our portfolio
helps us achieve our investment objective. As of June 30, 1999, approximately
96% of our entire portfolio will mature in one year or less and approximately
34% of our investment portfolio matures less than 90 days from the date of
purchase.

     Long-term debt of $100.0 million consists of 5.25% Convertible Subordinated
Notes due 2004. The interest rate on these notes is fixed and the notes provide
for semi-annual interest payments of approximately $2.6 million each May 1 and
November 1. The notes are convertible into our common stock at any time prior to
the close of business on the maturity date, unless previously redeemed or
repurchased, subject to adjustment in certain events.

     The following table presents the amounts of our cash equivalents,
investments and debt that may be subject to interest rate risk and the average
and fixed interest rates as of June 30, 1999 by year of maturity:

<TABLE>
<CAPTION>
                                                          2000 AND                 FAIR VALUE
                                               1999      THEREAFTER     TOTAL        TOTAL
                                             --------    ----------    --------    ----------
                                                 (DOLLAR AMOUNTS EXPRESSED IN THOUSANDS)
<S>                                          <C>         <C>           <C>         <C>
Cash equivalents and short-term
  investments..............................  $200,482           --     $200,482     $200,482
Average interest rate......................      5.04%          --         5.04%        5.04%
Long-term investments......................        --     $ 52,234     $ 52,234     $ 52,234
Average interest rate......................        --         5.20%        5.20%        5.20%
Long-term debt.............................        --     $100,000     $100,000     $220,785
Fixed interest rate........................        --         5.25%        5.25%        5.25%
</TABLE>

                                       61
<PAGE>   64

                                    BUSINESS

     This section contains forward-looking statements, including but not limited
to statements with respect to future events and our plans and objectives.

OVERVIEW

     VERITAS is the leading independent supplier of enterprise data storage
management solutions, providing advanced storage management software for open
system environments. Our products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. These products enable protection against data loss and file
corruption, rapid recovery after disk or system failure, the ability to process
large files efficiently and the ability to manage and backup data distributed on
large networks of systems without interrupting users. In addition, our products
provide an automated fail over between computer systems organized in clusters
sharing disk resources. Our highly scalable products can be used independently,
and certain products can be combined to provide interoperable client/server
storage management solutions. Some of our products offer centralized
administration with a high degree of automation, enabling customers to manage
complex, distributed environments cost-effectively by increasing system
administrator productivity and system availability. We also provide a
comprehensive range of services to assist customers in planning and implementing
storage management solutions.

     We market our products and associated services to original equipment
manufacturers and end-user customers through a combination of direct sales and
indirect sales channels such as resellers, value-added resellers, hardware
distributors, application software vendors and systems integrators. Our original
equipment manufacturer customers include Compaq, Dell, Hewlett-Packard, Sun
Microsystems, Microsoft, Sequent Computer Systems and EMC Corporation. Our
end-user customers include AT&T, Bank of America, BMW, Boeing, British
Telecommunications, Daimler-Chrysler Corporation, Lucent Technologies, Oracle
Corporation and Motorola.

     The widespread deployment of mission-critical client-server applications,
coupled with the explosion of corporate data, is quickly exceeding the ability
of current computing architectures to efficiently handle availability,
scalability and manageability issues. A new storage-centric architecture, called
storage area networking, or SAN, is emerging to address these issues. A variety
of other key industry vendors in the platform, storage, communications, switch
and applications areas have recognized this emerging trend. In a storage area
network computing environment, large centralized data stores, accessible by all
attached host computers across a high speed, "storage area" network, extend the
"any to any" connectivity of local area network architectures to storage
sources. Any data on the network, in any location, is accessible, through
multiple paths, to any nodes, applications and users on the network.

     The ubiquitous data access provided by the storage area network "any to
any" connectivity can offer significant improvements in availability,
scalability and manageability over traditional "point to point" storage
architectures. The benefits of storage area networking are as follows:

     - Lower cost of availability. In storage area networking architecture, all
       nodes share physical access to all storage. This allows a single node to
       function as a high availability "failover" server to a much larger number
       of servers than is possible in traditional networks. When the switch
       fabric is redundant, which it is in many cases, a storage area network
       provides a significantly improved environment for clustering that can
       extend to tens of nodes. Clustering significantly lowers the hardware
       costs associated with high availability, allowing customers to use high
       availability for many applications not cost-justifiable in current two to
       four node cluster configurations. This will lead to significant
       improvement in the availability of an enterprise's data and applications.

                                       62
<PAGE>   65

     - Easy, modular scalability of server and storage resources. The fibre
       channel architecture of a storage area network supports ubiquitous access
       between all servers and all storage resources in the network, even while
       new servers, disk arrays and tape subsystems are added. Customers can add
       server and storage resources on-line without disrupting data access.

     - Improved administrative productivity through centralized storage
       management. A centralized pool of storage can be managed much more
       efficiently from a single management interface. Common administrative
       tasks such as volume and file system management, backup and restore,
       hierarchical storage management, replication and off-site data vaulting
       all can be centrally managed. This lowers the costs of storage management
       on a per unit basis, and significantly increases the span of control of
       existing administrators. The ability to leverage the channel speeds
       offered by a storage area network can dramatically shorten backup and
       restore windows compared with local area network-based backup and
       restore.

     - High performance data access. There is a much wider access to data at
       channel speeds rather than SCSI speeds. This allows more nodes to gain at
       least an order of magnitude faster access to more storage resources.
       Superior high performance is of particular interest in application
       environments that depend on bulk data transfer, such as imaging and
       decision support.

OLD VERITAS PRODUCTS

     Old VERITAS developed and we are integrating a family of innovative
solutions for end-to-end management of on-line, near-line and off-line resources
for the storage and management of enterprise-wide data. Our product line
encompasses products for:

     - on-line file and disk management;

     - off-line backup and hierarchical storage management;

     - centralized and automated data management in heterogeneous computing
       environments; and

     - components that include availability enhancing features such as
       multiserver failover to achieve fault tolerance and remote site
       replication to accomplish rapid recovery in the event of a site disaster.

     We have also developed application-specific customized packages that
provide storage management for major application environments such as the Sun
Microsystems NFS, Oracle and SAP, as well as for web servers.

     Storage Foundation Products

     VERITAS File System. This product enables fast system recovery, generally
within seconds, from operating system failure or disruption. It also allows
on-line performance tuning, file system defragmentation, file system
reconfiguration and file system back-up to be conducted without interrupting
users' access to files. Through the application of advanced journaling
technology, the VERITAS File System is designed to ensure that metadata, or
information describing the location, size and attributes of files, is maintained
in a consistent and correct state in the event of system failure or disruption.
In addition, the VERITAS File System incorporates advanced extent-based file
space allocation algorithms that can accelerate file access rates, thereby
providing enhanced system performance. Extent-based algorithms are particularly
critical in applications that require access to large, clustered or sequentially
accessed files.

     VERITAS Volume Manager. This product provides protection against data loss
due to disk failure, permits the acceleration of system performance by allowing
files to be spread across multiple disks and allows the system administrator to
reconfigure data locations without interrupting users. The technology
incorporated into the VERITAS Volume Manager provides a virtual software layer
on top

                                       63
<PAGE>   66

of the underlying physical disks connected to the system. Among the features
that the VERITAS Volume Manager provides are:

     - spanning, which allows segments of user data to span multiple physical
       disks and thereby overcome physical disk size limitations;

     - mirroring, which allows for duplication of data on separate disks for
       uninterrupted operations after disk failure;

     - striping or interleaving data storage across multiple disks to increase
       performance by providing multiple input/output data access points; and

     - Raid-5, or striping with the addition of redundant data for uninterrupted
       operations after disk failure.

     VERITAS Accelerator for NFS. This product is an extension to the VERITAS
File System and enhances performance of the Sun Microsystems NFS. The
Accelerator takes information that would have been logged in the VERITAS File
System intent logs and uses a single log on a separate device. Multiple file
system logs can be consolidated and accessed sequentially on one or many of
these accelerator volumes, removing the head movement latency costs associated
with writing file system intent logs.

     VERITAS SmartSync. This product was jointly developed with Oracle and is
licensed as a product option of the VERITAS Volume Manager. This product allows
Oracle redo logs to drive resynchronization of VERITAS Volume Manager mirrors to
cut down mirror resynchronization time to less than a minute as opposed to
hours. Resynchronization takes as long as the redo log replay. This
functionality works with Oracle 7.3.2 and later versions.

     VERITAS Quick I/O Database Accelerator. This product allows databases to
run on a VERITAS file system at the same speed as on a raw device. The database
views the file system as a raw device and the system administrator sees it as a
file system. Therefore, an administrator can get the speed of a raw device with
the manageability of a file system.

     VERITAS Clustered Volume Manager. Added as an extension to VERITAS Volume
Manager for parallel applications such as the Oracle Parallel Server, the
VERITAS Clustered Volume Manager offers the same functionality as the VERITAS
Volume Manager in a cluster of systems that can all read and update the same
data concurrently. The VERITAS Clustered Volume Manager ensures atomic, or all
or none, configuration updates and error event notification to all participating
servers. This provides consistent data and configuration updates, even in the
event of a system failure. For example, in the event of an Oracle Parallel
Server mirrored disk failure, all participating servers must automatically "see"
the failure. Without the VERITAS Clustered Volume Manager, there is a chance
that the error would only be seen by one server, resulting in the Oracle
Parallel Server delivering incorrect data.

     VERITAS Clustered File System. This product extends VERITAS base File
System, and increases disk performance by allowing shared access to file systems
residing on a pool of shared disk arrays.

     VERITAS Editions. VERITAS Editions, formerly referred to as VERITAS
ServerSuite, are integrated suites of products, providing customers with
complete data storage management and solutions optimized for specific server
environments including the Sun Microsystems NFS, Web servers and database
servers. VERITAS Editions include VERITAS Database Edition for Oracle, VERITAS
Edition for SAP, VERITAS Edition for NFS and VERITAS Edition for Web. VERITAS
Editions provides increased performance and availability on commodity servers.

                                       64
<PAGE>   67

     Storage Application Products

     VERITAS NetBackup. This product reduces the workload for systems
administrators of heterogeneous platforms by providing easily configured
centralized backup scheduling, user-directed backups and restores, automated
distribution and installation of client software over the network, and easy
configuration of clients. NetBackup has a database extension that provides
comprehensive on-line and hot database backup for Oracle, Sybase and Informix
databases that can be acquired and deployed by customers on an as-needed basis.

     VERITAS Global Data Manager. This product provides centralized management
of multiple and/or distributed NetBackup and Backup Exec storage domains. This
facilitates consistent policy management and monitoring of those domains.

     VERITAS HSM. This product automatically moves data between file systems and
storage devices supporting most disk, tape, optical and robotics devices.
VERITAS HSM is a server-based, policy-driven migration tool that works in
conjunction with VERITAS NetBackup. VERITAS HSM has an enterprise extension that
provides a simple, cost-effective means to transparently migrate, purge and
cache files between file systems on various platforms.

     VERITAS Media Librarian. This product operates and manages all types of
removable media volumes, devices and repositories. It provides a secure way to
share robotic libraries and media among multiple simultaneous applications.
VERITAS Media Librarian provides a simple interface to access and monitor
removable media in a heterogeneous network of servers and clients that
eliminates the need to deal with media types, device drivers and location
information. VERITAS Media Librarian provides protection against data loss,
enhances data accessibility and availability and reduces storage management
costs, in a scalable and cost-effective manner.

     VERITAS Volume Optimizer. This product, an add-on product for VERITAS
Storage Manager, provides proactive, system-wide configuration analysis and
recommends changes to storage layouts for optimizing system performance and
reliability. This product can detect performance issues and make recommendations
enabling reconfiguration to alleviate such problems.

     VERITAS Storage LookOut. This product, a storage application product,
identifies and notifies administrators of potential hardware failures before
they can cause outages or disrupt operations. Using proven statistical
algorithms, Storage LookOut has been designed and tested to deliver highly
accurate fault detection and failure prediction. With VERITAS Storage LookOut,
administrators proactively manage data availability. In addition, VERITAS
Storage LookOut is a much more cost-effective solution than the traditional
fault tolerant hardware options.

     High Availability and Clustering Products

     VERITAS Storage Replicator for Volume Manager. This product allows
synchronous or asynchronous protocols, which support replicated volumes across
multiple servers, with all changes reflected and available for use at all
participating sites. It allows administrators to tailor replication
configurations to meet the requirements of specific sites and data types.
VERITAS Storage Replicator for Volume Manager can replicate any data type,
providing the flexibility to mirror entire servers or specific application data.
Through replication, application data can be sent from one primary site to
multiple secondary sites. Or, for more demanding disaster recovery environments,
data can be replicated from many primary sites to a single secondary location
where data could then be warehoused. Although VERITAS Storage Replicator for
Volume Manager is targeted primarily for use in disaster recovery
configurations, it can also be used to address a wide range of data distribution
needs. Those include off-site backups, data vaulting, and data migration.

     VERITAS Storage Replicator for File Systems. This product is a robust,
flexible, general purpose, data replication tool designed for use in enterprise
environments. Through a transport layer
                                       65
<PAGE>   68

independent replication mechanism, designated file systems can be replicated to
multiple locations, local or remote. Storage Replicator manages file systems in
parallel, either locally across several file systems, remotely using standard
NFS-mounted file systems, or both. Based on a read-one-write-all replication
protocol, Storage Replicator ensures that writes to a replicated file system
from any participating server are reliably replicated to all servers. Local
concurrency control is managed by the underlying file system. Storage Replicator
also tracks the status of participating servers for fault management purposes.
Replication is continuous and all updates are immediately reflected and
available for use in active file systems across all servers.

     VERITAS FirstWatch. This product adds high availability capabilities to
open system servers, making it possible to provide highly reliable network
services to users of client/server applications, including Sun Microsystems'
NFSfile service and databases. VERITAS FirstWatch automates the failover of
services to designated backup systems when systems and subsystems fail or become
unavailable.

     VERITAS Cluster Server. This product, a high availability and clustering
product, is a comprehensive storage area networking-ready application
availability management solution, designed to minimize planned and unplanned
downtime. It is equally applicable in simple shared disk or storage area
networking configurations of up to 32 nodes, and compatible with single node,
parallel and distributed applications. VERITAS Cluster Server supports cascading
and multi-directional application failover. Also, application services can be
manually migrated to alternate nodes for maintenance purposes. VERITAS Cluster
Server provides continuous availability for the critical application
environments required to maintain smooth business operations.

     VERITAS ClusterX. We acquired this product from NuView, Inc. in August
1999. VERITAS ClusterX is designed to provide central installation, monitoring,
reporting and management of multiple Windows NT clustered systems and
applications and Internet servers. The combination of ClusterX and VERITAS
Cluster Server offers a high availability solution for distributed and
heterogeneous enterprise environments.

NSMG PRODUCTS

     As a result of the NSMG combination, we now also offer a breadth of network
and storage management products, featuring:

     VERITAS Backup Exec Desktop Editions. This product provides complete
plug-and-play backup and restore functions for desktop users running Microsoft
Windows NT Workstation, Windows 98, Windows 95, Windows 3.x and DOS.

     VERITAS Backup Exec Server and Enterprise Editions. This product provides a
backup and restore solution for server and network users running Novell NetWare,
Microsoft Windows NT LANs and workstations.

     VERITAS Backup Exec Storage Migrator. This product facilitates the
proactive management of inactive data by migrating it from on-line storage such
as disk drives, to near-line devices such as optical drives, or to archival
storage resources such as tape devices, over user-defined periods of time
through a multi-tier hierarchical storage management application delivering
enterprise functionality to client/server environments.

     VERITAS Client Exec. This product protects critical client data on
workstations and laptops. Users receive automatic, regular and transparent
protection of their critical data, and administrators have the flexibility to
control which users are protected, what type of data is protected and when the
protection should occur.

                                       66
<PAGE>   69

     VERITAS Desktop Management Suite. This product provides a fully integrated
suite of software solutions including network inventory, software distribution,
remote control, network backup and software metering.

     VERITAS ExecView. This product provides an integrated cross-platform
storage management console for enterprise networks using Microsoft Windows NT
and Novell NetWare. Users can manage both Backup Exec for NetWare and Backup
Exec for Windows NT servers from a single console.

     VERITAS Manage Exec. This product centralizes enterprise administration by
providing information technology professionals with a unique view of servers
worldwide and real-time problem analysis through a proactive server health
monitoring, alerting and reporting solution.

     VERITAS NerveCenter. This product provides an enterprise-event automation
solution for Windows NT and UNIX environments.

     VERITAS WinINSTALL. This product provides a script-free, automated software
distribution tool for 16- and 32-bit applications.

     VERITAS provides its NSMG software products to customers under
non-exclusive license agreements, including shrink-wrap licenses for certain
products. As is customary in the software industry, in order to protect its
intellectual property rights, VERITAS does not sell or transfer title to its
software products to customers. VERITAS enters into both object-code only and
source-code licenses of its products.

     VERITAS also has relationships with Microsoft that include a license that
allows Microsoft to bundle NSMG products with selected Microsoft products.
Additionally, NSMG developed the backup utility for Microsoft Windows 98 and is
developing the system disaster recovery and backup utilities for Windows NT 5.0.
NSMG has also licensed to Microsoft the hierarchical storage management
technology to be included in Windows NT Server 5.0.

TELEBACKUP PRODUCTS

     As a result of the TeleBackup combination, we now also market software
technology that enables the automated backup and recovery of electronic
information created and stored on networked, remote and mobile personal
computer-based computer systems. The TSInfoPRO technology that we acquired was
designed to provide automated online backup, storage and disaster recovery of
information on mobile personal computers such as laptops or notebooks, and
remote units, such as remote offices and telecommuting work sites, via wide area
network, local area network or dial-up communications infrastructure. We market
these products through distribution partners, who re-brand the product under
their own trade names, as well as through value-added resellers.

     TSInfoPRO EDV. This product is licensed to electronic data vaulting service
providers such as telephone and cable companies and Internet service providers,
who, on an out-sourced service basis, provide remote backup and recovery
services to personal computer users. The service provider establishes a safe,
offsite storage vault location at which the backup server farm and archived data
are stored and managed. Remote and mobile personal computer users subscribe to a
service offering and can back up their computer systems to that service provider
over their transmission medium of choice, such as telephone lines or the
Internet, through the TSInfoPro EDV technology.

     TSInfoPRO Corporate. This product was introduced in early 1998 and is
targeted for implementation on a wide range of server repository engines,
including SunSolaris, Windows NT and SCO Unix, within the data center of
enterprise customers. The Corporate product can be used to back up and recover
personal computer units on the organization's local area network or wide area

                                       67
<PAGE>   70

network, as well as remote and mobile users connecting by dial-up communications
infrastructure. These remote and mobile units can be supported over the Internet
or the organization's own intranet.

     TSInfoPRO also includes security features such as authentication codes for
session validation, user personal identification numbers for file or system
restoration, a data scrambling process that acts in a similar capacity to a DES
or RSA encryption technique, and the storage of files in a compressed,
unreadable format.

SERVICES

     Our customer service and support organization provides customers with
maintenance, technical support, consulting and training services. We believe
that providing a high level of customer service and technical support is
critical to customer satisfaction and our success. Most of our customers
currently have support agreements with us which typically provide for fixed fee,
renewable annual maintenance consisting of technical and emergency support as
well as minor product upgrades free of charge. Our service group provides the
following services:

     Maintenance and technical support

     We offer seven day-a-week, 24-hour telephone support as well as electronic
mail and fax customer support. Additional customer support is provided by some
of our value-added resellers, system integrators and original equipment
manufacturers. Initial product license fees do not cover maintenance.

     Consulting

     We believe that most customers need assistance before product selection and
not just for the implementation of purchased products. Therefore, we offer
strategy and analysis consulting services for planning the management and
control of client/server computing in their specific environment. In addition,
we offer services to assist customers with product implementation. As part of
our broad range of services, we believe we offer particular expertise in
analyzing network security threats and security policy integrity.

     Training

     We have a worldwide customer education and training organization which
offers training that enables the customer to better utilize our products,
reduces the need for technical support and provides the customer with a means to
optimize their personnel investment by allowing their technical staff access to
high quality, comprehensive instruction. The focus of this organization is
aligned with our strategy to offer end-to-end storage management solutions by
providing instruction from highly-experienced training professionals either at
the customer's location or at one of our multi-platform classrooms.

     Porting

     We port, or adapt, new and existing storage management products to customer
operating systems at the request of a customer. This may involve the development
of certain new product versions or features or extensions of existing products
to be ported to and embedded in the customer's operating system.

VERITAS MARKETING, SALES AND DISTRIBUTION

     We market our products and associated services through original equipment
manufacturers and a combination of other distribution channels such as direct
sales, resellers, value-added resellers, hardware distributors, application
software vendors and systems integrators. Original equipment

                                       68
<PAGE>   71

manufacturers incorporate the products into their operating systems on a bundled
basis or license them to third parties as an optional product. In most cases, we
receive a user license fee for each copy sublicensed by the original equipment
manufacturer to third parties. VERITAS provides its software products to
customers under non-exclusive license agreements, including shrink-wrap licenses
for certain products. As is customary in the software industry, in order to
protect its intellectual property rights, VERITAS does not sell or transfer
title to its software products to customers. VERITAS enters into both
object-code only and source-code licenses of its products.

     Agreement with Microsoft

     In August 1996, Old VERITAS entered into a development and license
agreement with Microsoft under which Old VERITAS agreed to develop a version of
our Volume Manager product, which Microsoft has called Logical Disk Manager, to
be ported to and embedded in version 5.0 of Microsoft's Windows NT operating
system. We believe that this will establish an installed customer base on the
Windows NT platform to which we can offer our products. We will not receive
royalties with respect to sales by Microsoft of the embedded product. Our
products may not become available for use in, and Microsoft is not required to
use our products in future versions of Windows NT. Therefore it is possible that
we will not realize any expected benefits from the inclusion of this embedded
product in future versions of Windows NT.

     Agreement with Sun Microsystems

     In January 1997, Old VERITAS entered into a development, license and
distribution agreement with Sun Microsystems which provided a new distribution
channel for our products. Old VERITAS developed a specialized, integrated
version of VERITAS Volume Manager that is bundled with the Solaris operating
system. The agreement also provides for the license of full versions of certain
VERITAS products and add-on modules to Sun Microsystems for bundling with
certain Sun Microsystems products. In connection with the merger with
OpenVision, Old VERITAS assumed an OpenVision development, license and
distribution agreement with Sun Microsystems, under which Sun Microsystems was
granted a limited exclusive license with respect to VERITAS NetBackup and
VERITAS HSM and to certain enhancements to and extensions of those products. In
August 1998, this development, license and distribution agreement was canceled
and replaced with an amendment to our development, license and distribution
agreement that granted a non-exclusive, except for several named resellers for
which Sun Microsystems retained exclusive distribution rights, license to
distribute and sub-license NetBackup, VERITAS HSM and all of the VERITAS
Editions. We may not be able to deliver our products to Sun Microsystems in a
timely manner despite the dedication of significant resources to the development
of the products. Also, simultaneous sales efforts by us and Sun Microsystems
with respect to our products could create certain channel conflicts.

     Agreement with Hewlett-Packard

     In November 1997, Old VERITAS entered into a marketing, engineering and
distribution agreement with Hewlett-Packard under which Hewlett-Packard will
offer certain components of the lite versions, or a functional subset of the
VERITAS Volume Manager, VERITAS Clustered Volume Manager, VERITAS NetBackup and
VERITAS File System with the HP-UX operating system. We will not receive
royalties with respect to the lite version of the VERITAS File System embedded
in the HP-UX operating system. Hewlett-Packard will become our reseller with
respect to certain of our products, including full feature versions of the above
named products, and we will offer full feature products and value-added products
to the HP-UX installed customer base. We may not be able to deliver our products
to Hewlett-Packard in a timely manner. Also, it is possible that our
deliverables and Hewlett-Packard deliverables under the agreement may not be
synchronized in a timely and successful manner and that Hewlett-Packard may not
be an effective reseller of our products. The

                                       69
<PAGE>   72

simultaneous sales efforts by us and Hewlett-Packard with respect to our
products could create certain channel conflicts.

     Sales, Marketing and Support Organization

     During 1998, Old VERITAS continued to build our sales, marketing and
customer support organization with a focus on delivery of our products to
resellers, integrators and end users. As of December 31, 1998, Old VERITAS' U.S.
sales, marketing and consulting force consisted of 360 employees, including 71
pre-sales engineers that provide technical sales assistance. We have sales
subsidiaries in Canada, Japan, the United Kingdom, Germany, France, Sweden, the
Netherlands and Australia. As of December 31, 1998, our international sales
force consisted of 112 persons located in Europe and North America and 13
persons located in Asia and the Pacific Rim. Old VERITAS also had approximately
140 resellers as of December 31, 1998 located in North America, Europe, Asia
Pacific, South America and the Middle East.

     We expect to increase the number of our sales, marketing and customer
support employees in the future to expand our direct sales efforts to resellers
and end users. We may not have the necessary resources to accomplish this. It is
also possible that we will not be able to establish and expand these new
distribution channels successfully or complete the integration of our sales and
marketing efforts successfully. We expect to hire additional sales employees in
all regions in 1999. Competition for qualified sales, technical and other
personnel is intense, and we may not be able to attract, assimilate or retain
additional highly qualified employees in the future. We also may not be able to
manage our growth effectively.

NSMG SALES AND MARKETING

     Prior to the NSMG combination, the NSMG business utilized direct sales
forces and indirect sales channels, such as distributors and original equipment
manufacturers, for sales of its products to end users.

     Revenue from Ingram Micro Inc. accounted for 17% of the NSMG business total
revenues in fiscal 1996, 22% in fiscal 1997, 27% in fiscal 1998 and 28% in the
nine months ended April 2, 1999. Revenue from Tech Data, Inc. accounted for 12%
of total revenues in fiscal 1998. Indirect revenues, which include sales to
distributors and original equipment manufacturers, were 79% of total revenues
during fiscal 1996, 88% during fiscal 1997, 89% during fiscal 1998 and 92%
during the nine months ended April 2, 1999. Revenues outside of the Americas
were 10% during fiscal 1996, 28% during fiscal 1997, 34% during fiscal 1998, and
37% during the nine months ended April 2, 1999.

     The NSMG business generated export revenues from the United States of
approximately $32.5 million during fiscal 1996, $40.7 million during fiscal
1997, $57.8 million during fiscal 1998, and $50.6 million during the nine months
ended April 2, 1999.

COMPETITION

     The markets in which we compete are intensely competitive and rapidly
changing. Our principal competition in the storage foundation products area
consists of internal development groups of current and prospective original
equipment manufacturer customers, which have the resources and capability to
develop their own storage management solutions. Among the original equipment
manufacturers which have competing storage management products are:

     - Sun Microsystems for its Solaris system;

     - Compaq Computer for its UNIX system;

     - IBM for its AIX system; and

     - Microsoft for Windows NT.

                                       70
<PAGE>   73

     We also encounter competition from other third party software vendors and
hardware companies offering products that incorporate certain of the features
provided by our products, and from disk controller and disk subsystem
manufacturers which have included or may include similar features.

     Our primary competitors in the storage application products area include:

     - the Cheyenne division of Computer Associates, for its ARCserve product;

     - EMC, for its Enterprise Data Manager product;

     - IBM, for its ADSTAR Distributed Storage Manager product;

     - Sterling Software, for its Alexandria Network Librarian product;

     - StorageTek, for its REELbackup product;

     - Hewlett-Packard, for its Omniback product; and

     - Legato Systems, for its BudTool, NetWorker and GEMS products.

     Our main competitors in the high availability and clustering product area
include Legato Systems, for its FullTime HA Plus and FullTime Clusters, Sun
Microsystems, for its Sun Cluster product and Hewlett-Packard, for its
HP-ServiceGuard product.

     Our competitors in the areas of remote backup technologies and electronic
data vaulting services include Connected Corp. in Framingham, Massachusetts,
Atrieva in Seattle, Washington, STAC Inc. in San Diego, California, and Core
Data in Phoenix, Arizona. These competitors are Windows NT-centric and differ in
the degree of system backup and recovery provided to users, with certain
companies offering data file set backup and recovery capability only.

     Many of our competitors have substantially greater financial, technical,
sales, marketing and other resources than we do, as well as greater name
recognition and a larger installed customer base. We expect that the market for
storage management software, which historically has been large and fragmented,
will become more consolidated with larger companies being better positioned to
compete in such an environment in the long term. As the storage management
software market develops, a number of companies with greater resources than us
could attempt to increase their presence in this market by acquiring or forming
strategic alliances with our competitors or business partners.

     Our success will depend significantly on our ability to adapt to these
competing forces, to develop more advanced products more rapidly and less
expensively than our competitors, and to educate potential customers as to the
benefits of licensing our products rather than developing their own products.
Our future and existing competitors could introduce products with superior
features, scalability and functionality at lower prices than our products and
could also bundle existing or new products with other more established products
in order to compete with us. In addition, because there are relatively low
barriers to entry for the software market, we expect additional competition from
other established and emerging companies. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which could materially and adversely affect our business. We may not be able
to compete successfully against current and future competitors, and the failure
to do so would harm our business.

RESEARCH AND DEVELOPMENT

     Our core storage management and high availability products primarily
operate with certain versions of the UNIX operating system as well as Windows
NT, offering many features that are critical for commercial applications. Our
development efforts have been directed towards developing new products for the
UNIX operating system, developing new features and functionality for existing
products, integrating products in the existing product line and porting new and
existing products to new operating systems such as Windows NT.

                                       71
<PAGE>   74

     Currently, our major research and development initiatives include:

     - Additional integration of the full family of storage management products,
       including further integration of VERITAS Volume Manager, VERITAS File
       System and NetBackup;

     - Development of new intelligent-level storage products;

     - Porting of UNIX products to Windows NT; and

     - Development of storage area network products.

     Each of these initiatives involves technical and competitive challenges and
we may not be able to successfully overcome these challenges.

     Development Work under Microsoft and Sun Microsystems Agreements

     Our agreement with Microsoft provides for the development by us of a
version of our Volume Manager product, which Microsoft has called Logical Disk
Manager, to be ported to and embedded in version 5.0 of Windows NT. The
agreement also requires us to develop a disk management graphical user interface
designed specifically for Windows NT. Microsoft is providing funding for a
significant portion of the development expenses for this product payable in
quarterly increments. In order to perform under the agreement, we have hired
additional personnel with expertise in the Windows NT operating system
environment and are devoting substantial capital investment and resources to
successfully complete this project.

     Our agreements with Sun Microsystems and Hewlett-Packard also impose
development obligations on us. We are required to commit significant staffing to
our projects with these original equipment manufacturers. We may not have the
resources necessary to perform our obligations under these agreements and our
development efforts may not be as successful as planned.

     Size and Location of Research and Development Group

     As of September 10, 1999, our research and development staff consisted of
704 employees located at our Mountain View, California headquarters and at our
facilities in North America. In addition, our subsidiary in Pune, India employed
a research and development staff of approximately 151 people.

     Research and Development Expenditures

     VERITAS and Old VERITAS had research and development expenses of $34.4
million for the six months ended June 30, 1999, $40.2 million in 1998, $25.2
million in 1997 and $18.5 million in 1996. These amounts exclude $103.1 million
for the six months ended June 30, 1999, $0.6 million in 1998 and $2.2 million in
1996 for in-process research and development charges in connection with
acquisitions. We believe that technical leadership is essential to our success
and expect to continue to commit substantial resources to research and
development. Our future success will depend in large part on our ability to
enhance existing products, respond to changing customer requirements and develop
and introduce in a timely manner new products that keep pace with technological
developments and emerging industry standards. We continue to make substantial
investments in undisclosed new products, which may or may not be successful.
These research and development efforts may not be successfully completed and
therefore, future products may not be available on a timely basis or achieve
market acceptance.

     Need to Hire Research and Development Personnel

     We must hire additional research and development personnel for timely
completion of new products, including the adaptation of our products to Windows
NT and performance of obligations to key original equipment manufacturer
partners. The market for these personnel is very competitive and we cannot

                                       72
<PAGE>   75

assure you that we can hire them on a timely basis. We often consider acquiring
and purchasing technology to achieve certain of our objectives. We may not be
able to accomplish this successfully.

     Effect of Technological Advances

     From time to time, we or our competitors may announce new products,
capabilities or technologies that have the potential to replace or shorten the
life cycles of our existing products. Announcements of currently planned or
other new products could cause customers to defer purchasing our existing
products. Old VERITAS had from time to time in the past experienced delays of up
to several months due to the complex nature of software developed by us and
other software developers for whose systems or applications we offer products.
We could experience delays in connection with our current or future product
development activities. Any such delays could have a material adverse effect on
our business.

PROPRIETARY RIGHTS

     Measures We Take to Protect Our Intellectual Property

     We regard certain features of our internal operations, software and
documentation as proprietary and rely on contract, copyright, patent, trademark
and trade secret laws, confidentiality procedures and other measures to protect
our proprietary information. Other than the patents acquired in the NSMG and
TeleBackup combinations as described below, we currently hold no patents
applicable to our current business, although we have filed several applications
for patents, and existing copyright and trade secret laws afford only limited
protection.

     As part of our confidentiality procedures, we generally enter into
non-disclosure agreements with our employees, distributors and corporate
partners, and license agreements with respect to our software, documentation and
other proprietary information. These licenses are generally non-transferable and
have a perpetual term.

     Infringement Risks

     We occasionally make source code available for certain of our products. The
provision of source code may increase the likelihood of misappropriation or
other misuse of our intellectual property. We also license some of our products
pursuant to shrink wrap license agreements that are not signed by licensees and
therefore may be unenforceable under the laws of certain jurisdictions. In
addition, the laws of some foreign countries do not protect our proprietary
rights to the same extent as do the laws of the United States. Thus, protection
of our proprietary rights may not be adequate. Our competitors also could
develop technology similar to our technology independently.

     Litigation Risks

     We are not aware that our products, trademarks or other proprietary rights
infringe the proprietary rights of third parties. However, from time to time, we
receive notices from third parties asserting that we have infringed their
patents or other intellectual property rights. We may find it necessary or
desirable in the future to obtain licenses from third parties relating to one or
more of our products or relating to current or future technologies. Third
parties could assert infringement claims against us in the future with respect
to current or future products. Any assertion could require us to enter into
royalty arrangements or result in costly litigation. As the number of software
products in the industry increases and the functionality of these products
further overlap, we believe that software developers may become increasingly
subject to infringement claims. Any claims, with or without merit, can be time
consuming and expensive to defend.

                                       73
<PAGE>   76

     Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use our products or technology without authorization, or to
develop similar technology independently. Policing unauthorized use of our
products is difficult and, although we are unable to determine the extent to
which piracy of our software products exists, software piracy can be expected to
be a persistent problem.

     Trademarks

     VERITAS, the VERITAS logo and FirstWatch are registered trademarks of
VERITAS. VERITAS Volume Manager, VERITAS File System, VERITAS NetBackup, VERITAS
HSM, VERITAS Clustered File System, VERITAS Clustered Volume Manager, VERITAS
Cluster Server, VERITAS Media Librarian, VERITAS Storage Replicator for Volume
Manager, VERITAS Storage Replicator for File Systems, VERITAS Volume Optimizer,
VERITAS Storage Planner and VERITAS Storage LookOut are trademarks of VERITAS.

     Nerve Center, Ashwin and Backup Exec are registered trademarks of VERITAS.
Client Exec, Exec View, Manage Exec and WinINSTALL are trademarks of VERITAS.

     TSInfoPRO is a registered trademark of the VERITAS. TeleBackup, TSInfoPRO
EDV, TSInfoPRO Corporate and TSInfoPRO NT Enterprise are trademarks of the
Company.

NSMG PATENTS AND INTELLECTUAL PROPERTY RIGHTS

     In connection with the NSMG combination, VERITAS acquired three United
States patents and other patent applications. Any patents obtained may not
provide substantial protection or be of commercial benefit to VERITAS. It is
also possible that their validity will be challenged.

     In connection with its acquisition of TeleBackup, VERITAS acquired rights
in one patent application related to TSInfoPRO technology.

EMPLOYEES

     As of September 10, 1999, we had 2,562 full-time employees, including 855
in research and development, 1,444 in sales, marketing, consulting and customer
support and 263 in finance and administrative services. We have not entered into
any collective bargaining agreement with our employees, and believe that our
relations with our employees are good. We believe that our future success will
depend in part upon the continued service of our key employees and on our
continued ability to hire and retain qualified personnel. We may not be able to
retain our key employees and may not be successful in attracting and retaining
sufficient numbers of qualified personnel to conduct our business in the future.

FACILITIES

     Our executive offices are located in Mountain View, California. Our
principal facilities are located in California and Florida. Major portions of
our facilities are occupied under leases that expire at various times through
2012. The table below summarizes the square footage of premises leased by us as
of September 10, 1999, excluding approximately 36 executive suites.

                                       74
<PAGE>   77

<TABLE>
<CAPTION>
                                                               APPROXIMATE
                          LOCATION                            SQUARE FOOTAGE
                          --------                            --------------
<S>                                                           <C>
North America
  California................................................     260,401
  Colorado..................................................      14,770
  Florida...................................................     112,397
  Georgia...................................................       8,863
  Illinois..................................................      10,027
  Maryland..................................................       4,685
  Massachusetts.............................................      39,020
  Minnesota.................................................      62,420
  New Jersey................................................       8,397
  New York..................................................       4,560
  North Carolina............................................       8,836
  Virginia..................................................      12,441
  Washington................................................      20,502
  Canada....................................................       5,870
                                                                 -------
     Total North America....................................     573,189
Europe
  England...................................................      65,000
  France....................................................       8,264
  Germany...................................................      31,619
                                                                 -------
     Total Europe...........................................     104,883
Asia
  India.....................................................      33,229
  Japan.....................................................       9,462
  Australia.................................................       4,500
  Malaysia..................................................       1,760
                                                                 -------
     Total Asia.............................................      48,951
                                                                 -------
     Total..................................................     727,023
                                                                 =======
</TABLE>

     California facilities exclude approximately 44,361 square feet of space
subleased to others. Illinois and Florida facilities exclude approximately
17,135 and 5,000 square feet, respectively, of unoccupied space. Facilities in
England exclude approximately 8,365 square feet of space subleased to others.

     We recently entered into a synthetic lease arrangement for the development
of a 425,000 square foot campus facility in Mountain View.

LEGAL PROCEEDINGS

     We are not currently subject to any material legal proceedings. We may from
time to time become a party to various legal proceedings arising in the ordinary
course of our business.

                                       75
<PAGE>   78

                                   MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table shows the name, age and position of each of our
executive officers and directors as of September 10, 1999.

<TABLE>
<CAPTION>
                  NAME                     AGE                   POSITION
                  ----                     ---                   --------
<S>                                        <C>   <C>
Mark Leslie..............................  53    Chief Executive Officer and Chairman of
                                                 the Board
Geoffrey W. Squire.......................  52    Executive Vice-President and
                                                 Vice-Chairman of the Board
Fred van den Bosch.......................  52    Executive Vice President of Engineering,
                                                   Director
Peter J. Levine..........................  38    Senior Vice President, Strategic
                                                 Operations
Kenneth Lonchar..........................  41    Senior Vice President, Finance and Chief
                                                   Financial Officer
Paul A. Sallaberry.......................  43    Senior Vice President, Worldwide Sales
Jay A. Jones.............................  45    Senior Vice President, Chief
                                                 Administrative Officer and Secretary
Michael Colemere.........................  35    Vice President, Product Marketing
Michael Wentz............................  46    Vice President, Technical Services
David Hallmen............................  37    Vice President, Merger Integration
Steven Brooks............................  48    Director
William H. Janeway.......................  56    Director
Gregory B. Kerfoot.......................  39    Director
Stephen J. Luczo.........................  42    Director
Joseph D. Rizzi..........................  57    Director
</TABLE>

     Directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified or until their earlier
resignation or removal. Executive officers will be chosen by and will serve at
the discretion of the Board of Directors.

     Mr. Leslie is currently our Chief Executive Officer and Chairman of the
Board. Mr. Leslie has served as President and Chief Executive Officer of VERITAS
or its predecessors since 1990, and as a director since 1988. Prior to 1990, he
was the principal and owner of Leslie Consulting, a management consulting firm
and President and Chief Executive Officer of Rugged Digital Systems, Inc., a
computer manufacturer. Mr. Leslie is also Chairman of the Board of Versant
Object Technology Corporation, an object-oriented database software company and
serves on the board of directors of Brocade Communications Systems, Inc.

     Mr. Squire has served as Executive Vice-President and Vice-Chairman of the
Board of VERITAS or its predecessors since April 1997, when VERITAS merged with
OpenVision Technologies, Inc. Mr. Squire became a director of OpenVision in
January 1994 and was appointed Chief Executive Officer of OpenVision in July
1995. From January 1994 to November 1994, Mr. Squire was Executive Vice
President and Chief Executive Officer of International Operations and from
November 1994 to June 1995, he was President and Chief Operating Officer of
OpenVision. Prior to that time, Mr. Squire worked at Oracle Corporation, most
recently as a member of Oracle's Executive Committee as Chief Executive,
International Operations. Mr. Squire has sat on the Council of the U.K.
Computing Services and Software Association since 1990. In 1995, Mr. Squire was
elected as the founding President of the European Information Services
Association. Mr. Squire also serves as a director of Industri-Matematik
International Corp.

                                       76
<PAGE>   79

     Mr. van den Bosch has served as Executive Vice President, Engineering of
VERITAS or its predecessors since July 1997 and was appointed as a director in
February 1996. Mr. van den Bosch served as our Senior Vice President,
Engineering from 1991 to July 1997. From 1970 until 1990, he served in various
positions with Philips Information Systems, including Director of Technology.

     Mr. Levine has served as Senior Vice President of Strategic Operations of
VERITAS or its predecessors since January 1999, after serving as Senior Vice
President, OEM Sales from December 1997 to December 1998. Mr. Levine served as
our Vice President, OEM Sales from December 1995 to December 1997. From January
1995 to November 1995, Mr. Levine was our Director of Marketing. From July 1992
to December 1994, Mr. Levine was an original equipment manufacturer sales
representative at VERITAS. Prior to 1992, Mr. Levine held several software
engineering and consulting positions at MIT's Project Athena, the Open Software
Foundation and Apollo Computer.

     Mr. Lonchar has served as Chief Financial Officer of VERITAS or its
predecessors since April 1997 and as our Senior Vice President, Finance since
February 1999. Mr. Lonchar served as our Vice President, Finance from April 1997
until February 1999. Mr. Lonchar was Chief Financial Officer and Senior Vice
President of OpenVision Technologies, Inc. from December 1995 until the merger
in April 1997. Prior to joining OpenVision, Mr. Lonchar was Vice President,
Finance and Administration and Chief Financial Officer of Microtec Research,
Inc., a publicly-traded software company. Mr. Lonchar is a certified public
accountant.

     Mr. Sallaberry has served as Senior Vice President, Worldwide Sales of
VERITAS or its predecessors since July 1997. Mr. Sallaberry served as our Vice
President, North American Sales from April 1997 to July 1997. Mr. Sallaberry was
OpenVision's Senior Vice President of Sales from October 1992 until June 1994.
Mr. Sallaberry rejoined OpenVision in February 1995 as Senior Vice President of
North American Operations. From 1989 through 1992, he served in various
positions at Oracle Corporation, most recently as Vice President, Vertical Sales
Division.

     Mr. Jones has served as Senior Vice President, Chief Administrative Officer
of VERITAS or its predecessors since January 1999. Mr. Jones served as our Vice
President, General Counsel and Secretary since April 1997. Mr. Jones joined
OpenVision Technologies, Inc. as General Counsel in March 1993 and was appointed
Vice President, General Counsel and Secretary in July 1994 and served in those
capacities until the merger in April 1997. Prior to March 1993, Mr. Jones served
in various management positions at Oracle Corporation and WordStar International
Incorporated, a word-processing software company. Mr. Jones is a member of the
California Bar Association.

     Mr. Colemere has served as Vice President, Product Marketing of VERITAS or
its predecessors since May 28, 1999. From December 1996 until May 28, 1999, Mr.
Colemere served as Vice President of Product Management at Seagate Software.
Before joining Seagate Software, Mr. Colemere was the Director of Strategic
Business Development at Cheyenne from April 1994 to December 1996. Prior to his
position with Cheyenne, Mr. Colemere also held a range of product management and
development management positions with Novell, including Director of Engineering
Program Management for Novell's NetWare Products Division.

     Mr. Wentz has served as Vice President, Technical Services of VERITAS or
its predecessors since May 28, 1999. From February 1996 until May 28, 1999, Mr.
Wentz served as Vice President of Technical Services for the NSMG business of
Seagate Software. He joined Seagate Software in February 1996 as part of its
acquisition of Arcada Software, Inc. Mr. Wentz joined Arcada in May of 1994
where he served in a similar capacity as Vice President of Technical Support
Services. Prior to joining Arcada, Mr. Wentz served as Director of Technical
Support Operations at Samna Corporation and then at Lotus Development
Corporation after its acquisition of Samna.

     Mr. Hallmen has served as Vice President, Merger Integration of VERITAS or
its predecessors since May 28, 1999. From February 1996 until May 28, 1999, Mr.
Hallmen served as Vice President

                                       77
<PAGE>   80

of business development at Seagate Software. He joined Seagate Software as part
of its acquisition of Arcada Software, Inc. Before the acquisition of Arcada
Software, Mr. Hallmen was Vice President of marketing for Arcada. Prior to
joining Arcada, Mr. Hallmen was Vice President of sales and marketing for
Artisoft, Inc., a developer and manufacturer of personal computer network
hardware and software.

     Mr. Brooks has been a director of VERITAS or its predecessors since April
1996. Since February 1999, Mr. Brooks has been General Partner of Broadview
Capital Partners, a private equity firm. From September 1997 to February 1999,
Mr. Brooks was a managing director of Donaldson, Lufkin & Jenrette Securities
Corporation, an investment banking firm. From 1996 to 1997, Mr. Brooks was a
private investor and a consultant to technology companies. From 1994 to 1996,
Mr. Brooks served as Managing Director and Head of Global Technology Investment
Banking at the Union Bank of Switzerland Securities, LLC. Prior to 1994, Mr.
Brooks was a private investor and consultant to high-technology firms, and
served as Managing Partner of investment banking at Robertson, Stephens & Co., a
San Francisco-based investment bank. Mr. Brooks is a director of Paychex, Inc. a
national payroll processing and business services company, and QRS, an
electronic commerce company.

     Mr. Janeway has been a director of VERITAS or its predecessors since April
1997. Mr. Janeway has been a Managing Director of E.M. Warburg Pincus & Co., LLC
since 1988. Prior to 1988, he served in a management capacity at F. Eberstadt &
Co., Inc. Mr. Janeway is a director of ECsoft Group, PLC, BEA Systems, Inc.,
Indus International, Inc., Inacom Corp. and Industri-Matematik International
Corp.

     Mr. Kerfoot has been a director of VERITAS since May 28, 1999. In May 1999,
Mr. Kerfoot became President and a director of Seagate Software. From May 1996
until May 1999, Mr. Kerfoot served as Seagate Software's Chief Strategic Officer
and as President of the Information Management Group. In May 1994, he joined
Seagate Technology in connection with its acquisition of Crystal Computer
Services, where he had previously served as Director of Research and Development
and Chief Architect of Crystal Reports, and continued as Crystal's Director of
Research and Development until May 1996, when he was named President of the
Information Management Group.

     Mr. Luczo has been a director of VERITAS since May 28, 1999. From July 1997
until May 28, 1999, Mr. Luczo serves as Chairman of the Board of Directors of
Seagate Software and as Chief Executive Officer, President and Director of
Seagate Technology. From March 1995 to July 1997, Mr. Luczo served as Seagate
Software's Chief Operating Officer. Mr. Luczo joined Seagate Technology in
October 1993 as Senior Vice President, Corporate Development and was promoted to
Executive Vice President, Corporate Development in March 1995, where he served
until September 1997. He was promoted to President and Chief Operating Officer
of Seagate Technology in September 1997, and served in the latter capacity until
August 1998. In July 1998, Mr. Luczo was promoted to Chief Executive Officer and
appointed to the Board of Directors. Before joining Seagate Technology in 1993,
Mr. Luczo was Senior Managing Director and co-head of the Bear Stearns and Co.
Global Technology Group. Mr. Luczo also serves on the boards of directors of
Gadzoox Microsystems, Inc. and Dragon Systems, Inc.

     Mr. Rizzi has been a director of VERITAS or its predecessors since 1987.
Prior to that date, he served as a general partner of Matrix Partners, a venture
capital firm and as Chief Executive Officer of Elxsi, a computer company.

                                       78
<PAGE>   81

COMMITTEES OF THE BOARD OF DIRECTORS

     Our board of directors has the following committees:

     Audit Committee

     The audit committee reviews with our independent public accountants and
with our internal accounting staff the scope and results of the independent
accountants' audit work, our annual financial statements, and our internal
accounting and control systems. The audit committee also recommends to the Board
the firm of independent public accountants to be selected to audit our accounts
and makes further inquiries as it deems necessary or desirable to inform itself
as to the conduct of our affairs.

     Mr. Brooks and Mr. Rizzi are the members of the audit committee.

     Compensation Committee

     The compensation committee reviews and makes recommendations to the board
regarding the compensation for officers and compensation guidelines for our
employees and administers our stock purchase and stock option plans.

     Mr. Rizzi and Mr. Brooks are the members of the compensation committee.

COMPENSATION OF DIRECTORS

     How Board Members Are Compensated

     Non-employee directors of VERITAS receive a specified number of stock
options under our directors' plan. None of the members of our board of directors
has received or will receive any fees for attending board or board committee
meetings, other than reimbursement of actual expenses they incur to attend
meetings.

     Grant of Options to Directors

     The VERITAS 1993 Directors' Stock Option Plan provides that each
non-employee director who is first elected or reelected to the board, is granted
an option to purchase 54,000 shares of our common stock on the later to occur of
(1) the date he or she is first elected or reelected to the board or (2) the
date his or her most recent prior option becomes fully vested as to all shares.

     Each non-employee director will receive a succeeding grant of an option to
purchase 13,500 shares of our common stock each year on the anniversary date of
the most recent prior option granted to him or her provided the individual is
still a member of the board. A non-employee director shall not receive a
succeeding grant earlier than the first anniversary of his or her initial grant.

     Exercisability of Options

     Options granted under the directors' plan are immediately exercisable. Once
exercised, we will have a right to repurchase unvested shares. This repurchase
right lapses as the shares vest. Initial grants vest as to 3,375, and succeeding
grants vest as to 844, of the shares on the last day of each calendar quarter,
provided that the non-employee director attends at least one board meeting
during the quarter. If the non-employee director attends a meeting that occurs
prior to the date the option was granted, he or she will not receive vesting
credit with respect to that particular option as a result of attending the
meeting.

                                       79
<PAGE>   82

     Terms of Options

     Options have a ten year term and will fully vest as to any shares that
remain unvested on the day immediately preceding the tenth anniversary of the
date the option is granted. Options cease vesting but remain exercisable if the
non-employee director ceases to be a member of the board, so long as he or she
continues to provide services to VERITAS as a consultant.

     Effect of Mergers, Consolidations, Dissolutions or Liquidations

     In the event of a merger, consolidation, dissolution or liquidation of
VERITAS, the sale of substantially all of the assets of VERITAS or any other
similar corporate transaction, the vesting of all options granted pursuant to
the directors' plan will accelerate and the options will become exercisable in
full and will terminate in accordance with termination provisions of the
directors' plan.

     Number of Shares Reserved for Issuance under the Plan

     An aggregate of 1,125,000 shares of our common stock is reserved for
issuance under the directors' plan. In the event that any outstanding option
under the directors' plan expires or terminates for any reason, the shares of
common stock allocable to the unexercised portion of the option shall be
available again for the grant. As of September 16, 1999, options to purchase
513,876 shares were outstanding, 193,692 had been exercised and 417,432 shares
were eligible for future grant.

     Amendment to the Plan

     On April 15, 1999, the VERITAS board of directors approved an amendment to
the directors' plan to provide that, if the number of outstanding shares of
common stock is changed as a result of a stock dividend, stock split, reverse
stock split, combination or other similar capital change, the board of directors
will have discretion to determine whether the number of shares available under
the directors' plan, the maximum number of shares that can be granted to a
director, the number of shares subject to outstanding options or the other terms
of such outstanding options, will be adjusted to reflect the capital change.

COMPENSATION OF EXECUTIVE OFFICERS

     The following table sets forth all compensation awarded to, earned by or
paid for services rendered to VERITAS in all capacities during 1996, 1997 and
1998 by our chief executive officer and four other most highly compensated
executive officers. This information includes the dollar value of base salaries,
commissions and bonus awards, the number of shares subject to stock options
granted

                                       80
<PAGE>   83

and certain other compensation, whether paid or deferred. We do not grant stock
appreciation rights and provide no long-term compensation benefits other than
stock options.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                     LONG TERM
                                                                                    COMPENSATION
                                                                                    ------------
                                                                                       AWARDS
                                                            ANNUAL COMPENSATION     ------------
                                                          -----------------------    SECURITIES
                                                                     OTHER ANNUAL    UNDERLYING
     NAME AND PRINCIPAL POSITION        YEAR    SALARY     BONUS     COMPENSATION     OPTIONS
     ---------------------------        ----   --------   --------   ------------   ------------
<S>                                     <C>    <C>        <C>        <C>            <C>
Mark Leslie...........................  1998   $300,000   $398,765     $ 1,200        247,500
  President, Chief                      1997    250,000    326,400       1,200        382,496
  Executive Officer                     1996    230,000    170,800           0        337,500
Geoffrey W. Squire....................  1998    240,213    236,867           0         82,500
  Executive Vice President              1997    169,689    208,875      18,444              0
                                        1996          0          0           0              0
Fred van den Bosch....................  1998    220,000    219,321       1,200        165,000
  Executive Vice President              1997    160,000    140,598       1,200        224,996
  of Engineering                        1996    145,000     78,082           0        101,250
Paul A. Sallaberry....................  1998    300,350     99,691       1,200         75,000
  Senior Vice President,                1997    284,170     58,485       1,200        157,496
  Worldwide Sales                       1996          0          0           0              0
Kenneth Lonchar.......................  1998    191,200    179,444           0         45,000
  Chief Financial Officer               1997    114,667    133,680           0         44,996
  Sr. Vice President, Finance           1996          0          0           0              0
</TABLE>

     Portions of bonuses for services rendered in fiscal year 1996, 1997 and
1998 were each paid in the following year. Share data has been restated to give
retroactive effect to a 2-for-1 stock split in the form of a stock dividend to
be effected on July 8, 1999. Mr. Lonchar, Mr. Sallaberry and Mr. Squire joined
VERITAS in April 1997 when we merged with OpenVision Technologies, Inc. The
compensation amounts include sales commissions paid to Mr. Sallaberry by us in
the amount of $118,965 in 1997 and $170,837 in 1998.

OPTION GRANTS IN 1998

     The following table sets forth further information regarding the individual
grants of stock options pursuant to our stock option plans during fiscal 1998 to
each of our named officers. The table illustrates the hypothetical gains or
"option spreads" that would exist for the options at the end of the ten-year
term of the option based on assumed annualized rates of compound stock price
appreciation of 5% and 10% from the dates the options were granted to the end of
the term. The 5% and 10% assumed rates of annual compound stock price
appreciation are mandated by rules of the Securities and Exchange Commission and
do not represent our estimate or projection of future common stock prices.
Actual gains, if any, on option exercises will depend on the future performance

                                       81
<PAGE>   84

of our common stock and overall market conditions. The potential realizable
values shown in this table may never be achieved.

<TABLE>
<CAPTION>
                                                                                   POTENTIAL REALIZABLE
                                                                                     VALUE AT ASSUMED
                                       PERCENT OF                                     ANNUAL RATES OF
                         NUMBER OF       TOTAL                                          STOCK PRICE
                         SECURITIES     OPTIONS                                        APPRECIATION
                         UNDERLYING    GRANTED TO                                     FOR OPTION TERM
                          OPTIONS     EMPLOYEES IN   EXERCISE PRICE   EXPIRATION   ---------------------
         NAME             GRANTED     FISCAL YEAR       ($/SHR)          DATE         5%          10%
         ----            ----------   ------------   --------------   ----------   ---------   ---------
<S>                      <C>          <C>            <C>              <C>          <C>         <C>
Mark Leslie............   247,500         5.4            19.59         4/14/08     3,048,176   7,724,677
Geoffrey W. Squire.....    82,500         1.8            19.59         4/14/08     1,016,059   2,574,892
Fred van den Bosch.....   165,000         3.6            19.59         4/14/08     2,032,117   5,149,785
Kenneth Lonchar........    45,000         1.0            19.59         4/14/08       554,214   1,404,487
Paul A. Sallaberry.....    75,000         1.6            19.59         4/14/08       923,690   2,340,811
</TABLE>

     The exercise price of all stock options was equal to the fair market value
of our common stock on the date of grant. Stock options vest over four years at
the rate of 1/48 per month, such vesting to accelerate in the event of an
acquisition or merger. The options were granted for a term of ten years, subject
to earlier termination upon termination of employment. Share and per share data
has been restated to give retroactive effect to a 2-for-1 stock split in the
form of a stock dividend to be effected in July 1999.

AGGREGATE OPTION EXERCISES IN 1998 AND FISCAL YEAR-END OPTION VALUES

     The following table sets forth certain information concerning the exercise
of stock options during 1998 by each of the named officers, including the
aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both vested and unvested stock options
held on December 31, 1998 by each of the named officers. Also reported are
values for "in the money" stock options that represent the positive spread
between the respective exercise prices of outstanding stock options and the fair
market value of the our common stock as of December 31, 1998. The fair market
value is determined by the closing price of our common stock on December 31,
1998, which was $29.97 per share.

<TABLE>
<CAPTION>
                                                  NUMBER OF SECURITIES
                                                       UNDERLYING
                                                      UNEXERCISED         VALUE OF UNEXERCISED
                                                   OPTIONS AT FISCAL     IN-THE-MONEY OPTIONS AT
                          SHARES        VALUE           YEAR-END           FISCAL YEAR-END($)
                        ACQUIRED ON   REALIZED    --------------------   -----------------------
         NAME            EXERCISE        ($)       VESTED    UNVESTED      VESTED      UNVESTED
         ----           -----------   ---------   --------   ---------   ----------   ----------
<S>                     <C>           <C>         <C>        <C>         <C>          <C>
Mark Leslie...........     59,998       940,623   757,502     674,998    19,043,997   12,459,417
Geoffrey W. Squire....    172,800     1,948,165   213,790     318,710     5,094,057    6,791,675
Fred van den Bosch....          0             0   581,602     362,624    15,290,591    6,194,667
Kenneth Lonchar.......     27,412       667,551    23,790      83,074       413,934    1,330,341
Paul A. Sallaberry....     89,998     1,710,374   167,234     277,322     3,634,233    5,306,142
</TABLE>

     Share data has been restated to give retroactive effect to a 2-for-1 stock
split in the form of a stock dividend effected in July 1999. The value realized
for option exercises is the aggregate fair market value of our common stock on
the date of exercise less the exercise price. The valuations shown above for
unexercised in-the-money options are based on the difference between the option
exercise price and the fair market value of the stock on December 31, 1998.
These values have not been, and may never be, realized.

                                       82
<PAGE>   85

EMPLOYMENT AGREEMENTS

     All of the executive officers of VERITAS entered into employment agreements
with VERITAS effective May 28, 1999.

     Terms of the Agreements

     Under the employment agreements, these officers will be paid a base salary
and will be entitled to receive a performance bonus as determined by the board
of directors or the compensation committee. All these employment agreements
provide for a term of one year, except for Mark Leslie, which provides for a
term of two years. In addition, each employment agreement provides that at the
end of its term, the employee shall continue on a month-to-month basis on the
terms and conditions in the employment agreement.

     Severance Provisions

     Generally, if we terminate one of these employment agreements as a result
of an involuntary termination described below, then the affected employee shall
be entitled to six months of the employee's base compensation, plus any unpaid
quarterly bonuses, and 50% of the employee's target bonus for the fiscal year.
In addition, the employee will be entitled to the continued vesting of all stock
options and restricted stock held by the employee through the consulting period
described below, and the continued exercisability of all stock options for three
months following the end of the consulting period. The employee shall also be
entitled to continue to receive health, dental and life insurance coverage and
shall be retained as a consultant as set forth in the applicable agreement.

     The employee shall not be entitled to receive severance benefits if the
employee's employment terminates by reason of the employee's voluntary
resignation, if we terminate the employee's employment after the last day of the
employment term or if the termination is for cause as described below, except
those under our severance and benefits plans.

     "Involuntary termination" means:

     - without employee's consent, the reduction of employee's duties, authority
       or responsibilities, or the assignment to employee of reduced duties,
       authority or responsibilities;

     - a reduction in the employee's base salary;

     - a reduction in the employee's target bonus opportunity with the result
       that employee's overall cash compensation package is significantly
       reduced;

     - the relocation of employee to a facility or a location more than 30 miles
       away, without employee's consent;

     - any termination of employee not for cause; and

     - any act or set of acts that would, under California case law or statute,
       constitute a constructive termination of employee.

     The "consulting period" is a period of twelve months after the date of
involuntary termination if the involuntary termination occurs within six months
after the effective date of the NSMG combination or nine months after the date
of involuntary termination if the involuntary termination is more than six
months after the effective date of the NSMG combination.

     Noncompetition Provisions

     The employment agreements provide that until the end of the consulting
period, the employee will not be owner, consultant, director, or employee of any
business which has products which

                                       83
<PAGE>   86

compete directly with our products, or without our authorization. In addition,
until one year after the employee's termination for any reason, the employee
shall not take away any of our employees or cause an employee to leave.

                           RELATED PARTY TRANSACTIONS

     From January 1, 1998 to the present, there have not been any and there are
currently no proposed transactions in which the amount involved exceeded $60,000
to which we or any of our subsidiaries were or are to be a party and in which
any executive officer, director, 5% beneficial owner of our common stock or
member of the immediate family of them had or will have a direct or indirect
material interest and there are no business relationships between us and any
entity, of which a director of VERITAS is an executive officer or of which a
director of VERITAS owns equity interest in excess of 10%, involving payments
for property or services in excess of five percent of our consolidated gross
revenues for 1998, except as already reported, as described above under
"Management" and as described below.

     On May 28, 1999, VERITAS acquired the Network & Storage Management Group
business of Seagate Software, Inc. As a result of this transaction, Seagate
Software owns approximately 40% of the outstanding common stock of VERITAS and
Stephen J. Luczo, who is a director of VERITAS, is Chairman of the board of
directors of Seagate Software, and President, Chief Executive Officer and member
of the board of directors of Seagate Technology, Inc., and Gregory B. Kerfoot,
President and a director of Seagate Software, joined our board of directors. To
implement the transaction, VERITAS entered into the agreements described below
with Seagate Software and its parent, Seagate Technology.

     VERITAS, VERITAS Operating Corporation and Seagate Software entered into a
Stockholder Agreement on May 28, 1999 that gives Seagate Software the right to
(1) nominate up to two members of the VERITAS board, (2) sell up to 4,000,000
shares of VERITAS common stock in each of the first three full quarters after
May 28, 1999 and up to 6,000,000 shares of VERITAS common stock in the fourth
full quarter after May 28, 1999 and the right to require VERITAS to register up
to 12,000,000 shares of VERITAS common stock during the first four full quarters
after May 28, 1999, and (3) for five years maintain its ownership percentage if
VERITAS issues stock to third parties in certain transactions. Pursuant to the
board nomination rights of Seagate Software, Gregory B. Kerfoot and Stephen J.
Luczo are members of the VERITAS board of directors.

     VERITAS and Seagate Software entered into a registration rights agreement
on May 28, 1999 that gives Seagate Software the right to require, once in any
nine-month period, VERITAS to register for public resale the shares of the
VERITAS stock owned by Seagate Software. In August 1999, Seagate Software, Inc.
sold a total of 8,232,667 shares of our common stock pursuant to a registration
statement on Form S-1 (Registration No. 333-83777) at a price of $49.8125 per
share. In that same offering, Warburg, Pincus Investors, L.P. sold 1,087,333
shares of our common stock at a price of $49.8125. The general partner of
Warburg, Pincus Investors, L.P. is Warburg, Pincus & Co. William H. Janeway, one
of our directors, is a general partner of Warburg, Pincus & Co.

     VERITAS, VERITAS Operating Corporation and Seagate Software Information
Management Group, Inc., a subsidiary of Seagate Software, entered into a
three-year Cross-License and OEM Agreement on October 5, 1998 and, on April 16,
1999, amended the agreement. VERITAS, VERITAS Operating Corporation and Seagate
Technology entered into a ten-year Development and License Agreement on October
5, 1998. These agreements provide for the development and/or licensing of
certain products among the parties and restrictions on the parties' ability to
compete with each other or to enter into relationships with competitors of the
other party. The royalty fees under these agreements, if any, are to be
determined at a later date.

     VERITAS, VERITAS Operating Corporation, Seagate Technology and Seagate
Software entered into a Transition Services and Facilities Use Agreement on May
28, 1999. This agreement

                                       84
<PAGE>   87

sets forth the terms by which VERITAS, Seagate Technology and Seagate Software
will continue to share certain facilities and services. The term and payment for
the services which VERITAS is receiving are as follows: (1) $56,500 per month
for the cost of transitional warehousing, distribution, billing and collection
services from Seagate Technology Netherlands, the Netherlands division of
Seagate Technology International, a Cayman Islands corporation and wholly owned
subsidiary of Seagate Technology, which VERITAS expects to cease using within
twelve months; (2) $6,300 per month for the cost of information technology
services from Seagate Software, which VERITAS expects to cease using by February
2000; and (3) for various shared facilities, between $775 to $1,375 per employee
per month for shared facilities in Singapore, Australia and Hong Kong, which
facilities VERITAS expects to vacate no later than September 1999, 2,439,423 yen
per month for a shared facility in Japan, which VERITAS expects to vacate no
later than February 2000, and $15,500 per month for a shared facility in France,
which VERITAS expects to vacate no later than September 2003. The term and
payment for the services which VERITAS is providing are as follows: $32,100 per
month for shared facilities in Florida, California and South Africa, which
facilities VERITAS expects to be vacated by Seagate Software no later than March
2000.

     Terence Cunningham resigned as President, Chief Operating Officer and as a
director of VERITAS, effective as of August 30, 1999. In connection with his
resignation we agreed, in addition to the terms and conditions of the employment
agreement by and between us and Mr. Cunningham effective as of May 1999, to
transfer to Mr. Cunningham rights and title to an automobile and specified items
of his office equipment. As a result of his resignation, Mr. Cunningham will
receive an aggregate severance payment of approximately $250,000 and will be
entitled to the continued vesting of options to purchase 263,377 shares of our
common stock until May 2001.

                                       85
<PAGE>   88

                             PRINCIPAL STOCKHOLDERS

     The table below reflects beneficial ownership as of September 16, 1999,
determined in accordance with the rules of the Securities and Exchange
Commission. To our knowledge, the persons named in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them subject to community property laws where applicable, unless we indicate
otherwise below. We have included in each person's beneficial ownership that
person's options to purchase common stock that he or she can exercise within 60
days after September 16, 1999. However, we have not included any other person's
options for the purpose of computing percentage ownership.

<TABLE>
<CAPTION>
                                                       AMOUNT AND NATURE OF
                                                       BENEFICIAL OWNERSHIP
                                                -----------------------------------   PERCENT OF
               BENEFICIAL OWNER                   SHARES      OPTIONS      TOTAL        CLASS
               ----------------                 ----------   ---------   ----------   ----------
<S>                                             <C>          <C>         <C>          <C>
Seagate Technology, Inc.......................  60,915,541          --   60,915,541      35.5%
Seagate Software, Inc.........................  60,915,541          --   60,915,541      35.5%
Gregory Kerfoot...............................  60,915,541       5,208   60,920,749      35.5%
Stephen Luczo.................................  60,915,541       5,208   60,920,749      35.5%
William H. Janeway............................   3,465,975       5,208    3,471,183       2.0%
Mark Leslie...................................   1,097,916     934,667    2,032,583       1.2%
Geoffrey Squire...............................     560,000     369,059      929,059         *
Fred van den Bosch............................       6,349     687,471      693,820         *
Peter Levine..................................     146,394      53,047      199,441         *
Joseph Rizzi..................................     110,166     132,644      242,810         *
Paul Sallaberry...............................      58,720     193,311      252,031         *
Kenneth Lonchar...............................      77,606      49,302      126,908         *
Michael Colemere..............................          --      86,846       86,846         *
Steven Brooks.................................       9,000      59,379       68,379         *
Jay Jones.....................................      30,788      35,003       65,791         *
Michael Wentz.................................          65      50,575       50,640         *
David Hallmen.................................          98      48,012       48,110         *
All proposed executive officers and directors
  as a group (15 persons).....................  66,478,618   2,714,940   69,193,558      39.7%
</TABLE>

- -------------------------
* Less than one percent.

     Unless otherwise noted, each holder has an address of c/o VERITAS Software
Corporation, 1600 Plymouth Street, Mountain View, CA, 94043.

     Seagate Software is a majority-owned subsidiary of Seagate Technology. Mr.
Luczo, a director of VERITAS, is President, Chief Executive Officer and a member
of the Board of Directors of Seagate Technology and Chairman of the Board of
Directors of Seagate Software. Mr. Kerfoot, a director of VERITAS, is the
President and a director of Seagate Software. As such, Mr. Luczo and Mr. Kerfoot
may be deemed to have an indirect pecuniary interest within the meaning of Rule
16a-1 under the Exchange Act in an indeterminate portion of the shares
beneficially owned by Seagate Software. Mr. Luczo and Mr. Kerfoot each disclaim
beneficial ownership of these shares for the purposes of Section 16 of the
Securities Exchange Act of 1934 or otherwise. Seagate Technology may be deemed
to beneficially own the shares held by Seagate Software.

     The business address of Mr. Kerfoot and Seagate Software is 915 Disc Drive,
Scotts Valley, CA 95066. The business address of Mr. Luczo and Seagate
Technology is 920 Disc Drive, Scotts Valley, CA 95067.

                                       86
<PAGE>   89

     Mr. Janeway, a director of VERITAS, is a general partner of Warburg, Pincus
& Co., or WP. WP is the general partner of Warburg, Pincus Investors, L.P., a
Delaware limited partnership, which beneficially owns 3,358,975 shares of our
common stock. As such, Mr. Janeway may be deemed to have an indirect pecuniary
interest within the meaning of Rule 16a-1 under the Securities Exchange Act of
1934 in an indeterminate portion of these shares. Mr. Janeway disclaims
beneficial ownership of these shares for the purposes of Section 16 of the
Securities Exchange Act or otherwise.

     The business address of Mr. Janeway and of each Warburg, Pincus entity is
466 Lexington Avenue, New York, NY 10017.

                                       87
<PAGE>   90

                              SELLING STOCKHOLDERS

     The shares of common stock covered by this prospectus were originally
issued by VERITAS to Warburg, Pincus Investors, L.P., one of the selling
stockholders, in a merger pursuant to a registration statement on Form S-4
(Registration No. 333-23859). The selling stockholders, including their
transferees, pledgees, donees or successors, may from time to time offer and
sell any or all of their shares covered by this prospectus.

     The following table sets forth information, as of September 16, 1999, with
respect to the selling stockholders and the shares of common stock that may be
offered under this prospectus. The information is based on information provided
by or on behalf of the selling stockholders. The selling stockholders may offer
all, some or none of the shares set forth opposite their names below.
Accordingly, no estimate can be given as to the number of shares that will be
held by the selling stockholders upon termination of any sales. In addition,
from time to time each of the selling stockholders may buy or sell other shares
of our common stock, other than the shares covered by this prospectus, in
transactions exempt from registration under the Securities Act.

     Except as set forth below, none of the selling stockholders nor any of
their affiliates, officers, directors or principal equity holders has held any
position or office or has had any other material relationship with VERITAS or
Old VERITAS within the past three years.

     In connection with the merger referred to above, Warburg, Pincus Investors,
L.P. entered into a registration rights agreement and a nomination agreement
with VERITAS. The terms of the registration rights agreement grant Warburg
certain rights to register the shares of our common stock that it received in
the merger. The terms of the nomination agreement obligate us, in connection
with each stockholder solicitation for the election of our board of directors,
to nominate two candidates for our board of directors (one of which must not be
a partner or employee of Warburg) while Warburg holds more that 15% of our
outstanding common stock, and to nominate one candidate for our board of
directors while Warburg holds more than 5%, but not more than 15%, of our
outstanding common stock. William H. Janeway is a director of VERITAS and a
general partner of Warburg, Pincus & Co., the general partner of Warburg, Pincus
Investors, L.P.

<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY
                                                                OWNED PRIOR TO
                                                                   OFFERING
                                                              -------------------
                            NAME                               NUMBER     PERCENT
                            ----                              ---------   -------
<S>                                                           <C>         <C>
Warburg, Pincus Investors, L.P..............................  3,358,975     2.0%
Warburg, Pincus & Co........................................    671,393       *
The Chase Manhattan Bank, N.A., as Directed Trustee for the
  IBM Retirement Plan Trust.................................    302,600       *
Kingsway PT Limited Partnership.............................    302,600       *
New York State Common Retirement Fund.......................    302,600       *
Warburg, Pincus Partners, LLC...............................    240,000       *
The Northern Trust Company, not individually but solely in
  its capacity as Trustee of the Lucent Technologies Inc.
  Master Pension Trust......................................    185,450       *
California Public Employees' Retirement System..............    151,300       *
Mellon Bank N.A. as Trustee for Bell Atlantic Master
  Trust.....................................................    151,300       *
California State Teachers' Retirement System................    151,300       *
Leeway & Co.................................................    117,149       *
General Reinsurance Corporation.............................     90,780       *
Ameritech Pension Trust by State Street Bank and Trust
  Company as Trustee........................................     75,650       *
Bankers Trust Company as Trustee for the GTE Service Corp.
  Plan for Employee Pension Fund............................     75,650       *
</TABLE>

                                       88
<PAGE>   91

<TABLE>
<CAPTION>
                                                              SHARES BENEFICIALLY
                                                                OWNED PRIOR TO
                                                                   OFFERING
                                                              -------------------
                            NAME                               NUMBER     PERCENT
                            ----                              ---------   -------
<S>                                                           <C>         <C>
Coller International Partners, II, LLC......................     75,650       *
The Sumitomo Trust and Banking Company, Limited.............     75,650       *
Virginia Retirement System..................................     60,520       *
US Venture Pte. Ltd.........................................     45,390       *
PNC Venture Corp............................................     40,397       *
Phemus Corporation..........................................     37,825       *
Chase Manhattan Trust Company of California N.A. -- Trustee
  of Ronald Family Trust....................................     37,825       *
The Andrew W. Mellon Foundation.............................     30,260       *
Trust u/w/o Theresa Pincus..................................     30,260       *
Assur Investments LLC.......................................     22,695       *
The Trustees of the Cheyne Walk Trust.......................     22,695       *
The Johns Hopkins University................................     22,695       *
Howard Hughes Medical Institute.............................     22,695       *
Suprapart AG................................................     18,912       *
Chemical Investments, Inc...................................     15,130       *
Grumman Corporation Pension Trust...........................     15,130       *
Lexington Capital Partners III, L.P.........................     15,130       *
United States Steel & Carnegie Pension Fund.................     15,130       *
WFC Holdings Corporation....................................     15,130       *
Sandpiper Investment Co.....................................     11,347       *
C.F. Kettering, Inc.........................................     10,591       *
Other selling stockholders (34 persons or entities, each
  holding less than 10,000 shares, or 0.006% of our common
  stock)....................................................    115,437       *
          Total.............................................  3,358,975     2.0%
</TABLE>

- -------------------------
* Less than 1%

     Warburg, Pincus Investors, L.P. currently owns all of the 3,358,975 shares
of common stock that may be offered under this prospectus. From time to time,
Warburg, Pincus Investors, L.P. may decide to distribute a portion or all of its
shares to the other selling stockholders in connection with a partnership
distribution. In the event of a distribution of all of its shares, each selling
stockholder shown in the table above will beneficially own that number of shares
of common stock shown opposite their name.

     The address of each selling stockholder listed in the table is: c/o
Warburg, Pincus Investors, L.P., 466 Lexington Avenue, New York, New York 10017.
The percentage of shares beneficially owned is based on 171,591,521 shares
outstanding as of September 16, 1999. Other than Warburg, Pincus Investors,
L.P., each selling stockholder's beneficial ownership in the shares is based on
that stockholder's ownership interest in Warburg, Pincus Investors, L.P.

                                       89
<PAGE>   92

                              PLAN OF DISTRIBUTION

     The selling stockholders and their successors, including their transferees,
pledgees or donees or their successors, may sell their shares directly to
purchasers or through underwriters, broker-dealers or agents, who may receive
compensation in the form of discounts, concessions or commissions from the
selling holders or the purchasers. These discounts, concessions or commissions
as to any particular underwriter, broker-dealer or agent may be in excess of
those customary in the types of transactions involved.

     The shares may be sold in one or more transactions at fixed prices, at
prevailing market prices at the time of sale, at prices related to the
prevailing market prices, at varying prices determined at the time of sale, or
at negotiated prices. These sales may be effected in transactions, which may
involve crosses or block transactions:

     - on any national securities exchange or U.S. inter-dealer system of a
       registered national securities association on which the common stock may
       be listed or quoted at the time of sale;

     - in the over-the-counter market;

     - in transactions otherwise than on these exchanges or systems or in the
       over-the-counter market;

     - through the writing of options, whether the options are listed on an
       options exchange or otherwise; or

     - through the settlement of short sales.

     The selling stockholders may enter into hedging transactions with
broker-dealers or other financial institutions in connection with the sale of
the notes and the common stock issuable upon conversion of the notes, which may
in turn engage in short sales of the notes or common stock in the course of
hedging the positions they assume. The selling stockholders may also sell the
shares and deliver these shares to close out their short positions, or loan or
pledge the shares to broker-dealers that in turn may sell the shares.

     The aggregate proceeds to the selling stockholders from the sale of the
shares offered by them will be the purchase price of the shares less discounts
and commissions, if any. Each of the selling stockholders reserves the right to
accept and, together with their agents from time to time, to reject, in whole or
in part, any proposed purchase of shares to be made directly or through agents.
We will not receive any of the proceeds from this offering.

     In order to comply with the securities laws of some states, if applicable,
the shares may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the shares may not be
sold unless they have been registered or qualified for sale or an exemption from
registration or qualification requirements is available and is complied with.

     The selling stockholders and any underwriters, broker-dealers or agents
that participate in the sale of the shares may be "underwriters" within the
meaning of Section 2(11) of the Securities Act. Any discounts, commissions,
concessions or profit they earn on any resale of the shares may be underwriting
discounts and commissions under the Securities Act. Selling stockholders who are
"underwriters" within the meaning of Section 2(11) of the Securities Act will be
subject to the prospectus delivery requirements of the Securities Act. The
selling stockholders have acknowledged that they understand their obligations to
comply with the provisions of the Securities Exchange Act and the rules
thereunder relating to stock manipulation, particularly Regulation M.

     In addition, any shares covered by this prospectus which qualify for sale
pursuant to Rule 144 or Rule 145 of the Securities Act may be sold under Rule
144 or Rule 145 rather than pursuant to this

                                       90
<PAGE>   93

prospectus. A selling stockholder may not sell any shares described in this
prospectus and may not transfer, devise or gift these securities by other means
not described in this prospectus.

     To the extent required, the specific shares to be sold, the names of the
selling stockholders, the respective purchase prices and public offering prices,
the names of any agent, dealer or underwriter, and any applicable commissions or
discounts with respect to a particular offer will be set forth in an
accompanying prospectus supplement or, if appropriate, a post-effective
amendment to the registration statement of which this prospectus is a part.

     Under the registration rights agreement entered into between VERITAS and
Warburg, Pincus Investors, L.P., each of VERITAS and the selling stockholders
will be indemnified by the other against liabilities, including certain
liabilities under the Securities Act, or will be entitled to contribution from
the other.

     We have agreed to pay substantially all of the expenses in connection with
the registration, offering and sale of the shares covered by this prospectus to
the public, other than commissions, fees and discounts of underwriters, brokers,
dealers and agents.

     We have agreed to keep the registration statement, of which this prospectus
is a part, effective until May 28, 2000.

                                       91
<PAGE>   94

                          DESCRIPTION OF CAPITAL STOCK

     Our authorized capital stock consists of 500,000,000 shares of common
stock, 10,000,000 shares of preferred stock and one share of special voting
stock. As of September 16, 1999 there were outstanding 171,591,521 shares of
common stock held of record by approximately 409 stockholders, options to
purchase 25,226,641 shares of common stock and no warrants to purchase shares of
common stock.

COMMON STOCK

     The holders of outstanding shares of common stock are entitled to receive
dividends out of assets legally available at the times and amounts that the
board of directors determines, subject to preferences that apply to any
outstanding preferred stock at the time. Each stockholder is entitled to one
vote for each share of common stock held on all matters submitted to a vote of
stockholders. Stockholders do not have cumulative voting rights. This means that
the holders of a majority of the shares voted can elect all of the directors in
an election. Our common stock is not entitled to preemptive rights and is not
subject to conversion or redemption. Upon liquidation, dissolution or winding up
of VERITAS, the assets legally available for distribution to stockholders are
distributable ratably among the holders of common stock and any participating
preferred stock after payment of liquidation preferences, if any, on any
outstanding preferred stock and payment of other claims of creditors. Each
outstanding share of common stock is, and all shares of common stock to be
issued upon conversion of the notes and upon exchange of the Exchangeco
exchangeable shares will be upon payment for those shares, duly and validly
issued, fully paid and nonassessable.

SPECIAL VOTING STOCK

     A single share of special voting stock is authorized for issuance and
outstanding. The holder of the voting share is not entitled to receive
dividends. The voting share possesses a number of votes equal to the number of
outstanding Exchangeco exchangeable shares not owned by us or any entity
controlled by us for the election of directors and on all other matters
submitted to a vote of our stockholders, except as otherwise required by law or
our amended and restated certificate of incorporation. The holders of common
stock and the holder of the voting share will vote together as a single class on
all matters, except as required by law. The voting share is not entitled to
preemptive rights and is not convertible into other securities. Upon
liquidation, dissolution or winding-up of VERITAS, the holder of the voting
share will not be entitled to receive any assets available for distribution to
its stockholders. The voting share will be canceled when the voting share has no
votes attached to it because there are no Exchangeco exchangeable shares
outstanding not owned by us or an entity controlled by us, and there are no
shares of stock, debt, options or other agreements of TeleBackup that could give
rise to the issuance of any exchangeable shares to any person. Other than the
cancellation described above, the voting share is not subject to any right of
redemption.

ANTI-TAKEOVER PROVISIONS

     Charter and bylaw provisions

     Staggered board. Our board of directors will be divided into three classes
as nearly equal in size as possible with staggered three-year terms. The
classification of the board of directors could have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
acquiring, control of VERITAS because a majority of the board of directors
cannot be elected in any one year.

     Stockholder Actions. Stockholder actions must be taken at meetings. Any
action required or permitted to be taken by the stockholders of VERITAS at an
annual meeting or a special meeting of

                                       92
<PAGE>   95

the stockholders may be taken only if it is properly brought before the meeting
and may not be taken by written action in lieu of a meeting.

     Limits on ability to call special meetings. The bylaws also provide that
special meetings of the stockholders may be called only by the chairman of the
board, the chief executive officer or by a majority of the members of the board
of directors.

     Indemnification. Our amended and restated certificate of incorporation and
its bylaws will provide that we will indemnify officers and directors against
losses that they may incur in investigations and legal proceedings resulting
from their services to us. These may include services in connection with
takeover defense measures. These provisions may have the effect of preventing
changes in our management.

     Delaware anti-takeover law

     We are subject to the provisions of Delaware's anti-takeover law regulating
corporate takeovers. The anti-takeover law prevents certain Delaware
corporations, including those whose securities are listed on the Nasdaq National
Market, from engaging, under certain circumstances, in a "business combination,"
which includes a merger or sale of more than 10% of the corporation's assets
with any "interested stockholder" for three years following the date that such
stockholder became an "interested stockholder." An interested stockholder is a
stockholder who owns 15% or more of the corporation's outstanding voting stock.
A Delaware corporation may "opt out" of the anti-takeover law with an express
provision in its original certificate of incorporation or an express provision
in its certificate of incorporation or bylaws resulting from a stockholders'
amendment approved by at least a majority of the outstanding voting shares. We
have not "opted out" of the provisions of the anti-takeover law.

     Stockholder rights plan

     Our board of directors has declared a dividend of one preferred share
purchase right for each outstanding share of common stock. The dividend was paid
to stockholders of record on June 25, 1999. We will issue one right with each
share of common stock that we issue between the record date and the earliest of
the distribution date described below, the date the rights are redeemed and the
date the rights expire. After the distribution date, we will issue our right
with each common share we issue upon the exercise of stock options or under any
employee plan or arrangement or upon the exercise, conversion or exchange of
other securities (including the TeleBackup exchangeable shares) that were
outstanding before the distribution date, until the date the rights are either
redeemed or expire. Each right entitles the registered holder to purchase one
one-hundredth of a share of Series A junior participating preferred stock at a
price of $550.00 per one one-hundredth of a preferred share. The description and
terms of the rights are set forth in a rights agreement between us and
ChaseMellon Shareholder Services, L.L.C., as rights agent.

     Exercisability and duration of rights

     The rights are not exercisable until the distribution date described below.
The rights will expire on June 16, 2009, unless the expiration date is extended
or unless the rights are earlier redeemed or exchanged, in each case, as
described below.

     Evidence and transfer of rights

     The rights will be evidenced, with respect to any of the common stock share
certificates outstanding as of the record date, by the common stock share
certificates with a copy of the summary of rights distributed to stockholders of
record on June 25, 1999 attached. Common stock share certificates issued after
the record date will contain a notation incorporating the rights agreement by

                                       93
<PAGE>   96

reference, until the distribution date or earlier redemption or expiration of
the rights. Until the distribution date, the rights can be transferred only with
VERITAS common stock and the transfer of any VERITAS common stock certificates
will constitute the transfer of the rights associated with the common stock
(even without notation or a copy of the summary of rights). After the
distribution date, separate certificates representing the rights will be mailed
to record holders of VERITAS common stock on the distribution date and the
separate certificates alone will evidence the rights.

     Triggering of rights

     The rights became exercisable after the lapse of either:

     - 10 days following a public announcement or disclosure that a person or
       group of affiliated or associated persons, or an acquiring person, has
       acquired beneficial ownership of 15% or more of the outstanding shares of
       our common stock; or

     - 10 business days, or later date as may be determined by the board prior
       to the time a person or group becomes an acquiring person, following the
       announcement of an intention to make a tender offer or exchange offer the
       consummation of which would result in a person or group becoming an
       acquiring person.

The earlier of those dates is called the distribution date. Seagate Technology,
Inc., Seagate Software, Inc. and their subsidiaries are not "acquiring persons"
as a result of the NSMG combination, unless Seagate Technology or Seagate
Software acquires shares in addition to the 69,148,208 shares of VERITAS common
stock issued to Seagate Software in the NSMG combination unless all other
stockholders of VERITAS also acquire additional shares through the event, such
as the July 1999 stock dividend. No person or group will be an acquiring person
if the board determines in good faith that the person or group who would
otherwise be an acquiring person has become one inadvertently, and that person
or group promptly takes the actions necessary so that it would no longer be
considered an acquiring person.

     Adjustments for stock splits or other transactions

     The purchase price payable and the number of preferred shares or other
securities or property issuable upon exercise of the rights will be adjusted
from time to time to prevent dilution:

     - in the event of a stock dividend on, or a subdivision, combination or
       reclassification of, the preferred shares;

     - upon the grant to holders of the preferred shares of certain rights or
       warrants to subscribe for or purchase preferred shares at a price, or
       securities convertible into preferred shares with a conversion price,
       less than the then current market price of the preferred shares;

     - upon the distribution to holders of the preferred shares of evidences of
       indebtedness or assets excluding regular periodic cash dividends, if any,
       or dividends payable in preferred shares or of subscription rights or
       warrants other than those referred to above;

     - in the event of a stock dividend on our common stock payable in shares of
       common stock prior to the distribution date; or

     - subdivisions, consolidations or combinations of the shares of common
       stock occurring, prior to the distribution date.

     Terms of preferred shares

     The preferred shares will have the terms described under "-- Preferred
stock."

                                       94
<PAGE>   97

     Because of the nature of the preferred shares' dividend, liquidation and
voting rights, the value of the one one-hundredth interest in a preferred share
purchasable upon exercise of each right should approximate the value of one
share of common stock.

     Rights could purchase shares of common stock at a discount

     If any person or group becomes an acquiring person, each holder of a right,
other than the acquiring person, will have the right to receive upon exercise
that number of shares of common stock having a market value of two times the
exercise price of the right unless the event causing the person or group to
become an acquiring person is a merger, acquisition or other business
combination described in the next paragraph. If we do not have a sufficient
amount of authorized common stock to satisfy the obligation to issue shares of
common stock, we must deliver upon payment of the exercise price of a right an
amount of cash or other securities equivalent in value to the shares of common
stock issuable upon exercise of a right.

     In the event that any person or group becomes an acquiring person and (1)
we merge into or engage in certain other business combination transactions with
an acquiring person, or (2) 50% or more of our consolidated assets or earning
power are sold to an acquiring person, each holder of a right, other than the
acquiring person will have the right to receive that number of shares of common
stock of the acquiring company which will have a market value of two times the
exercise price of the right.

     At any time after any person becomes an acquiring person and prior to that
person or group acquiring 50% or more of the outstanding shares of common stock,
the board may exchange the rights, other than rights owned by the acquiring
person, at an exchange ratio of one share of common stock, or one one-hundredth
of a preferred share per right.

     Adjustments to the purchase price

     With certain exceptions, no adjustment in the purchase price will be
required until cumulative adjustments require an adjustment of at least 1% in
the purchase price. No fractional preferred shares will be issued. However,
fractions which are integral multiples of one one-hundredth of a preferred share
may, at our election, be evidenced by depositary receipts. In lieu of fractional
shares, an adjustment in cash will be made based on the market price of the
preferred shares on the last trading day prior to the date of exercise.

     The board may redeem the rights

     At any time prior to such time as a person or group becomes an acquiring
person, the board of directors may redeem all, but not some, of the rights at a
price of $0.001 per right. The redemption of the rights may be made effective at
the time, on the basis and with any conditions as the board of directors in its
sole discretion may establish. After the period for redemption of the rights has
expired, the board may not amend the rights agreement to extend the period for
redemption of the rights. The right to exercise the rights terminates
immediately when they are redeemed and the only right of the holders of rights
after that time will be to receive the redemption price.

     The board may amend the rights

     The terms of the rights may be amended by a resolution of the board of
directors without the consent of the holders of the rights. However, from and
after such time as any person or group becomes an acquiring person, no amendment
may adversely affect the interests of the holders of the rights other than an
acquiring person.

                                       95
<PAGE>   98

     Holders of unexercised rights do not have privileges of a stockholder

     Until a right is exercised, the holder will have no rights as a stockholder
of VERITAS, including, without limitation, the right to vote or to receive
dividends.

     Reasons for stockholder rights plan

     The rights in the stockholder rights plan are designed to protect and
maximize the value of the outstanding equity interests in VERITAS in the event
of an unsolicited attempt by an acquirer to take over VERITAS, in a manner or on
terms not approved by the board of directors. Takeover attempts frequently
include coercive tactics to deprive a company's board of directors and its
stockholders of any real opportunity to determine the destiny of the company.
The rights will be declared in order to deter these types of coercive tactics,
which, include a gradual accumulation of shares in the open market of a 15% or
greater position to be followed by a merger or a partial or two-tier tender
offer that does not treat all stockholders equally. These tactics unfairly
pressure stockholders, squeeze them out of their investment without giving them
any real choice and deprive them of the full value of their shares. The rights
are not intended to prevent a takeover of VERITAS and will not do so. Rather,
they are intended to provide the protections of the VERITAS stockholders rights
plan. Because the rights may be redeemed by VERITAS, they should not interfere
with any merger or business combination approved by the board of directors.

     Issuance of the rights does not in any way weaken our financial strength or
interfere with our business plans. The issuance of the rights themselves has no
dilutive effect, will not affect reported earnings per share, should not be
taxable to us or to our stockholders and will not change the way in which our
shares are presently traded. Our board of directors believes that the rights
will represent a sound and reasonable means of addressing the complex issues of
corporate policy created by the current takeover environment. However, the
rights may have the effect of rendering more difficult or discouraging an
acquisition of VERITAS deemed undesirable by the board of directors. The rights
may cause substantial dilution to a person or group that attempts to acquire
VERITAS on terms or in a manner not approved by our board of directors.

PREFERRED STOCK

     The board is authorized, subject to any limitations prescribed by Delaware
law, to issue up to 10,000,000 additional shares of preferred stock. This
preferred stock may be issued in one or more series and the board may determine
the number of shares to be included in each series. The board may fix the
powers, preferences and rights of the shares of each series and any
qualifications, limitations or restrictions on any series of preferred stock.
The board may also increase or decrease the number of shares of any series but
not below the number of shares of such series then outstanding. All of these
actions may be taken without vote or action by the stockholders. Of these
shares, 2,000,000 shares are designated as the Series A junior participating
preferred shares that are reserved for issuance under the rights plan. The
rights of the Series A junior participating preferred shares are described
below.

     Terms of preferred shares subject to the stockholder rights plan

     Dividends. Each preferred share will be entitled to a quarterly dividend
payment of 100 times the dividend declared per share of common stock.

     Voting. Each preferred share will have 100 votes, voting together with the
shares of common stock. In the event of any merger, consolidation or other
transaction in which shares of common stock are exchanged, each preferred share
will be entitled to receive 100 times the amount received per share of common
stock.

                                       96
<PAGE>   99

     Liquidation or dissolution. In the event of liquidation, each preferred
share will be entitled to a $1.00 preference, and after the holders of the
preferred shares will be entitled to an aggregate payment of 100 times the
aggregate payment made per share of common stock.

     Redemption. The preferred shares purchasable upon exercise of the rights,
described above, will not be redeemable.

     Anti-takeover effect of undesignated preferred stock

     With respect to the remaining authorized but undesignated shares of
preferred stock, the board of directors may authorize and issue preferred stock
with voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. This is because the terms of the
preferred stock could conceivably prohibit consummation of any merger,
reorganization, sale of substantially all of our assets or other extraordinary
corporate transaction without approval of the outstanding shares of preferred
stock. Thus, the issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of VERITAS.

THE BOARD OF DIRECTORS

     Number of directors. The number of directors on the board of directors
shall be fixed exclusively by the board of directors, subject to the rights of
the holders of preferred stock. We currently have ten directors.

     Adding directors. Newly created directorships or any vacancies in the board
of directors may be filled only by a majority vote of the directors then in
office or by a sole remaining director, subject to the rights of the holders of
any outstanding preferred stock.

     Removal of directors. Any director may be removed from office at any time,
but only for cause and only by the affirmative vote of the holders of at least
two-thirds of the voting power of all outstanding shares entitled to vote
generally in the election of directors.

AMENDMENT OF THE AMENDED AND RESTATED CERTIFICATE OF INCORPORATION AND THE
BYLAWS OF VERITAS

     Our amended and restated certificate of incorporation provides that either
the board of directors or the stockholders may adopt, amend or repeal the
bylaws. Any adoption, amendment or repeal of the bylaws by the board of
directors requires the approval of a majority of the total number of authorized
directors regardless of vacancies, or by the whole board. Any adoption,
amendment or repeal of the bylaws by the stockholders requires the affirmative
vote of at least two-thirds of the affirmative voting power of all outstanding
shares entitled to vote generally, voting as a single class.

     Provisions of the amended and restated certificate of incorporation may be
amended or repealed by the stockholders in the manner prescribed by Delaware
law. However, the amendment, adoption, or repeal of any provision inconsistent
with the provisions relating to the following require the approval of at least
two-thirds of the affirmative voting power of all outstanding shares entitled to
vote generally, voting as a single class:

     - the composition of the board of directors;

     - the amendment of bylaws;

     - the prohibition of actions of the stockholders written consent; or

     - the amendment of the amended and restated certificate of incorporation.

                                       97
<PAGE>   100

REGISTRATION RIGHTS

     Warburg Pincus' registration rights

     Warburg has the right to require us to register for public resale the
securities held by it. The securities to be sold must have an aggregate offering
price of at least $5.0 million. We have the right to delay any registration for
up to 60 days under various circumstances.

     In addition, Warburg has certain "piggyback" registration rights. If we
propose to register any of our securities under the Securities Act, Warburg may
require us to include all or a portion of its shares in the registration. This
right does not apply to registrations in connection with the issuance of debt
securities, its employee benefit plans or a merger or reorganization
transaction. This piggyback right is subject to the right of the managing
underwriter, if any, to limit the number of shares to be included by Warburg in
the registration.

     We have agreed to keep the registration statement, of which this prospectus
is a part, effective until May 28, 2000. Following this registration, Warburg
has agreed that, other than its piggyback right, it will have no more right to
require us to register for public resale the securities held by it.

     Expiration

     These registration rights will expire at the time that all shares of
VERITAS received by Warburg Pincus in the NSMG combination may be resold in a
three month period under Rule 144 of the Securities Act.

     Expenses

     We will pay all expenses incurred in connection with the above
registration, other than the underwriters' and brokers' discounts and
commissions and the fees of counsel for Warburg.

     Seagate Software registration rights

     In connection with the NSMG combination, VERITAS and Seagate Software and
Seagate Technology entered into a stockholder agreement limiting the rights of
Seagate Software and Seagate Technology to resell and acquire additional shares
of VERITAS common stock. VERITAS and Seagate Software also entered into a
registration rights agreement pursuant to which VERITAS granted SSI rights to
have the resale of the shares of VERITAS common stock it holds registered under
the Securities Act. Under the Registration Rights Agreement, until all of the
registrable shares could be resold under Rule 144 under the Securities Act,
VERITAS will permit Seagate Software to "piggyback" on other registration
statements, and to request registration of resales once in any nine-month
period.

     So long as Seagate Software and Seagate Technology collectively own at
least 5.0% of VERITAS' outstanding common stock, Seagate Software and Seagate
Technology may only sell shares of VERITAS common stock as follows:

     - no shares in the quarter ending in June, 1999;

     - 4,000,000 shares in the quarter ending in September, 1999;

     - 4,000,000 shares in the quarter ending in December, 1999;

     - 4,000,000 shares in the quarter ending in March, 2000; and

     - 6,000,000 shares in the quarter ending in June, 2000.

They also had the right to sell up to 12,000,000 shares in an underwritten
public offering once in the first year after completion of the NSMG combination.
In August 1999, they exercised that right, and

                                       98
<PAGE>   101

Seagate Software, Inc. sold a total of 8,232,667 shares of our common stock
pursuant to a registration statement on Form S-1 (Registration No. 333-83777) at
a price of $49.8125 per share. By exercising that right, they are prohibited
from selling other shares in the quarter ending September 30, 1999. They may not
transfer, assign, pledge or otherwise dispose of any VERITAS securities for one
year after the closing of the NSMG combination except in the manner noted above.

     After that date, they may not sell their VERITAS stock except:

     - to VERITAS or to a person or persons that VERITAS has previously approved
       in writing;

     - in a bona fide underwritten public offering;

     - under rule 144 under the Securities Act;

     - in other private transactions so long as such private transactions do not
       result in any single person or group owning 5% or more of the total
       outstanding voting stock of VERITAS;

     - in response to a tender offer not opposed by the VERITAS board;

     - in a merger or consolidation approved by the VERITAS board in which
       VERITAS is acquired; or

     - in a plan of liquidation that is authorized by the VERITAS board.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for our common stock is ChaseMellon
Shareholder Services LLC.

LISTING

     Our common stock is quoted on the Nasdaq National Market under the trading
symbol VRTS.

                                 LEGAL MATTERS

     Fenwick & West LLP, Palo Alto, California, has provided VERITAS with an
opinion as to legal matters in connection with the common stock offered by this
prospectus.

                                    EXPERTS

     Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at December 31, 1998 and 1997, and for each of
the three years in the period ended December 31, 1998, as set forth in their
report. We have included our financial statements and schedule in the prospectus
and elsewhere in the registration statement in reliance on Ernst & Young LLP's
report, given on their authority as experts in accounting and auditing.

     Ernst & Young LLP, independent auditors, have audited the combined
financial statements of the Network & Storage Management Group at July 3, 1998
and June 27, 1997, and for each of the three years in the period ended July 3,
1998, as set forth in their report. We have included the Network & Storage
Management Group's financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.

     The financial statements of TeleBackup at December 31, 1997 and 1998 and
for the years in the three year period ended December 31, 1998 have been
included in this document in reliance upon the report of KPMG LLP, independent
chartered accountants, appearing elsewhere in this document, and upon the
authority of that firm as experts in accounting and auditing.

                                       99
<PAGE>   102

                      WHERE YOU CAN FIND MORE INFORMATION

     We have filed with the SEC a registration statement on Form S-1 with
respect to the common stock offered in this prospectus. This prospectus, which
constitutes a part of the registration statement, does not contain all of the
information in the registration statement or the exhibits and schedules that are
part of the registration statement. For further information with respect to
VERITAS and the common stock, please see the registration statement and the
exhibits and schedules that are part of the registration statement. You may read
and copy any document we file at the SEC's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms. Our SEC
filings are also available to the public from the SEC's Web site at
http://www.sec.gov.

     We are subject to the information and periodic reporting requirements of
the Securities Exchange Act and, as required by the Securities Exchange Act, we
will file periodic reports, proxy statements and other information with the SEC.
These periodic reports, proxy statements and other information will be available
for inspection and copying at the SEC's public reference rooms and the Web site
of the SEC referred to above.

                                       100
<PAGE>   103

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S>                                                           <C>
VERITAS SOFTWARE CORPORATION -- CONSOLIDATED FINANCIAL
  STATEMENTS
     Report of Ernst & Young LLP, Independent Auditors......   F-2
     Consolidated Balance Sheets
       As of December 31, 1997 and 1998 and June 30, 1999
        (unaudited).........................................   F-3
     Consolidated Statements of Operations
       Years Ended December 31, 1996, 1997 and 1998 and Six
      Months Ended June 30, 1998 and 1999 (unaudited).......   F-4
     Consolidated Statements of Stockholders' Equity
       Years Ended December 31, 1996, 1997 and 1998 and Six
        Months Ended June 30, 1999 (unaudited)..............   F-5
     Consolidated Statements of Cash Flows
       Years Ended December 31, 1996, 1997 and 1998 and Six
      Months Ended June 30, 1998 and 1999 (unaudited).......   F-6
     Notes to Consolidated Financial Statements.............   F-7
VERITAS SOFTWARE CORPORATION -- UNAUDITED PRO FORMA COMBINED
  CONDENSED FINANCIAL STATEMENTS
     Overview...............................................  F-29
     Pro Forma Combined Condensed Statements of
      Operations............................................  F-31
       Year Ended December 31, 1998 and Six Months Ended
        June 30, 1999
     Notes to Pro Forma Combined Condensed Financial
      Statements............................................  F-33
NETWORK & STORAGE MANAGEMENT GROUP COMBINED FINANCIAL STATEMENTS
     Report of Ernst & Young LLP, Independent Auditors......  F-41
     Combined Balance Sheets................................  F-42
       As of June 27, 1997, July 3, 1998 and April 2, 1999
        (unaudited)
     Combined Statements of Operations......................  F-43
       Years Ended June 28, 1996, June 27, 1997, July 3,
        1998, and Nine Months Ended April 3, 1998, and April
        2, 1999 (unaudited)
     Combined Statements of Cash Flows......................  F-44
       Years Ended June 28, 1996, June 27, 1997, July 3,
        1998, and Nine Months Ended April 3, 1998, and April
        2, 1999 (unaudited)
     Combined Statements of Group Equity....................  F-45
       Years Ended June 28, 1996, June 27, 1997, July 3,
        1998 and Nine Months Ended April 2, 1999 (unaudited)
     Notes to Combined Financial Statements.................  F-46
TELEBACKUP SYSTEMS INC.
     Auditors' Report to the Directors......................  F-74
     Balance Sheets as of December 31, 1997 and 1998 and
      March 31, 1999 (unaudited)............................  F-75
     Statements of Operations and Deficit
       Years Ended December 31, 1996, 1997 and 1998 and
        Three Months Ended March 31, 1998 and 1999
        (unaudited).........................................  F-76
     Statements of Changes in Financial Position
       Years Ended December 31, 1996, 1997 and 1998 and
        Three Months Ended March 31, 1998 and 1999
        (unaudited).........................................  F-77
     Notes to Financial Statements..........................  F-78
</TABLE>

                                       F-1
<PAGE>   104

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Stockholders and Board of Directors
VERITAS Software Corporation

     We have audited the accompanying consolidated balance sheets of VERITAS
Software Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1998. Our audits also
included the financial statement schedule listed in the index at Item 16(b).
These financial statements and schedule are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
VERITAS Software Corporation at December 31, 1998 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.

                                          /s/ ERNST & YOUNG LLP

San Jose, California
January 27, 1999

                                       F-2
<PAGE>   105

                          VERITAS SOFTWARE CORPORATION

                          CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                         -------------------    JUNE 30,
                                                           1997       1998        1999
                                                         --------   --------   -----------
                                                                               (UNAUDITED)
<S>                                                      <C>        <C>        <C>
Current assets:
  Cash and cash equivalents............................  $ 75,629   $139,086   $  119,985
  Short-term investments...............................   115,131     72,040      116,102
  Accounts receivable, net of allowance for doubtful
     accounts of $1,597, $2,572 and $5,250 at December
     31, 1997, 1998 and June 30, 1999, respectively....    30,296     52,697       59,487
  Receivable from Seagate Software.....................        --         --       20,975
  Deferred income taxes................................     1,176      4,272       10,435
  Other current assets.................................     3,122      9,237       15,546
                                                         --------   --------   ----------
       Total current assets............................   225,354    277,332      342,530
Long-term investments..................................        --     31,925       52,234
Property and equipment, net............................    10,109     26,518       57,750
Goodwill and other intangibles, net....................        --         --    3,601,709
Other assets...........................................     6,417     13,342        4,185
                                                         --------   --------   ----------
                                                         $241,880   $349,117   $4,058,408
                                                         ========   ========   ==========

                           LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable.....................................  $  1,552   $  4,958   $   10,211
  Accrued compensation and benefits....................     6,595     11,267       20,377
  Accrued acquisition and restructuring costs..........        --         --       32,039
  Other accrued liabilities............................     8,407     11,196       23,705
  Income taxes payable.................................     2,773     13,424       21,207
  Customer advances....................................        --         --       10,917
  Deferred revenue.....................................    17,449     37,645       62,749
                                                         --------   --------   ----------
       Total current liabilities.......................    36,776     78,490      181,205
Other non-current liabilities..........................       911        773          739
Deferred income taxes..................................        --         --      181,280
Convertible subordinated notes.........................   100,000    100,000      100,000
Commitments and contingencies
Stockholders' equity:
  Preferred stock, $.001 par value:
     10,000 shares authorized: none issued and
     outstanding.......................................        --         --           --
  Common stock, $.001 par value:
     500,000 shares authorized; 92,254, 95,258 and
     169,647 shares issued and outstanding at December
     31, 1997 and 1998 and June 30, 1999
     respectively......................................        92         95          170
  Additional paid-in capital...........................   185,795    199,763    3,774,309
  Accumulated deficit..................................   (81,064)   (29,416)    (178,162)
  Deferred compensation................................       (64)       (32)         (16)
  Accumulated other comprehensive loss.................      (566)      (556)      (1,117)
                                                         --------   --------   ----------
       Total stockholders' equity......................   104,193    169,854    3,595,184
                                                         --------   --------   ----------
                                                         $241,880   $349,117   $4,058,408
                                                         ========   ========   ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-3
<PAGE>   106

                          VERITAS SOFTWARE CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                        SIX MONTHS ENDED
                                         YEARS ENDED DECEMBER 31,           JUNE 30,
                                       -----------------------------   -------------------
                                        1996       1997       1998      1998       1999
                                       -------   --------   --------   -------   ---------
                                                                           (UNAUDITED)
<S>                                    <C>       <C>        <C>        <C>       <C>
Net revenue:
  User license fees..................  $59,223   $ 95,714   $167,703   $69,026   $ 149,082
  Services...........................   13,523     25,411     43,162    18,169      37,470
                                       -------   --------   --------   -------   ---------
       Total net revenue.............   72,746    121,125    210,865    87,195     186,552
Cost of revenue:
  User license fees..................    3,020      4,731      8,798     5,096       4,782
  Services...........................    4,442     11,714     20,663     9,292      14,781
  Amortization of developed
     technology......................       --         --         --        --       5,006
                                       -------   --------   --------   -------   ---------
       Total cost of revenue.........    7,462     16,445     29,461    14,388      24,569
                                       -------   --------   --------   -------   ---------
Gross profit.........................   65,284    104,680    181,404    72,807     161,983
Operating expenses:
  Selling and marketing..............   25,998     42,868     76,392    30,009      71,395
  Research and development...........   18,480     25,219     40,239    16,497      34,366
  General and administrative.........    6,748      8,027     10,505     4,412      10,411
  Amortization of goodwill and other
     intangibles.....................       --         --         --        --      71,557
  Acquisition and restructuring
     costs...........................       --      8,490         --        --      11,000
  In-process research and
     development.....................    2,200         --        600     2,250     103,100
                                       -------   --------   --------   -------   ---------
       Total operating expenses......   53,426     84,604    127,736    53,168     301,829
                                       -------   --------   --------   -------   ---------
Income (loss) from operations........   11,858     20,076     53,668    19,639    (139,846)
Interest and other income, net.......    2,785      4,889     11,821     5,552       6,179
Interest expense.....................     (343)    (1,206)    (5,700)   (2,849)     (2,842)
                                       -------   --------   --------   -------   ---------
Income (loss) before income taxes....   14,300     23,759     59,789    22,342    (136,509)
Provision for income taxes...........    2,171      1,010      8,141     4,746      12,237
                                       -------   --------   --------   -------   ---------
Net income (loss)....................  $12,129   $ 22,749   $ 51,648   $17,596   $(148,746)
                                       =======   ========   ========   =======   =========
Net income (loss) per
  share -- basic.....................  $  0.14   $   0.25   $   0.55   $  0.19   $   (1.36)
                                       =======   ========   ========   =======   =========
Net income (loss) per
  share -- diluted...................  $  0.13   $   0.23   $   0.50   $  0.17   $   (1.36)
                                       =======   ========   ========   =======   =========
Number of shares used in computing
  per share amounts -- basic.........   86,052     91,244     94,026    93,293     109,108
                                       =======   ========   ========   =======   =========
Number of shares used in computing
  per share amounts -- diluted.......   92,992     98,986    103,342   102,302     109,108
                                       =======   ========   ========   =======   =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-4
<PAGE>   107

                          VERITAS SOFTWARE CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>

                                           CONVERTIBLE                                                       NOTES
                                         PREFERRED STOCK     COMMON STOCK      ADDITIONAL                  RECEIVABLE
                                         ---------------   -----------------    PAID-IN     ACCUMULATED       FROM
                                         SHARES   AMOUNT    SHARES    AMOUNT    CAPITAL       DEFICIT     STOCKHOLDERS
                                         ------   ------   --------   ------   ----------   -----------   ------------
<S>                                      <C>      <C>      <C>        <C>      <C>          <C>           <C>
BALANCE AT DECEMBER 31, 1995...........   9,384   $ 120      64,608    $ 64    $  140,121    $(115,942)      $(527)
 Comprehensive income
   Net income..........................      --      --          --      --            --       12,129          --
   Foreign currency translation
     adjustment........................      --      --          --      --            --           --          --
   Comprehensive income................      --      --          --      --            --           --          --
 Conversion of preferred stock to
   common stock........................  (9,384)   (120)     18,768      18           108           --          --
 Issuance of common stock..............      --      --       4,534       4        36,435           --          --
 Exercise of stock options and
   warrants............................      --      --       1,326       2         1,090           --          --
 Issuance of common stock under
   employee stock purchase plan........      --      --         842       2         1,566           --          --
 Payments on notes receivable from
   stockholders........................      --      --          --      --            --           --         245
 Amortization of deferred
   compensation........................      --      --          --      --            --           --          --
                                         ------   -----    --------    ----    ----------    ---------       -----
BALANCE AT DECEMBER 31, 1996...........      --      --      90,078      90       179,320     (103,813)       (282)
 Comprehensive income
   Net income..........................      --      --          --      --            --       22,749          --
   Foreign currency translation
     adjustment........................      --      --          --      --            --           --          --
   Comprehensive income................      --      --          --      --            --           --          --
 Exercise of stock options.............      --      --       1,666       2         3,268           --          --
 Issuance of common stock under
   employee stock purchase plan........      --      --         510      --         2,507           --          --
 Payments on notes receivable from
   stockholders........................      --      --          --      --            --           --         282
 Amortization of deferred
   compensation........................      --      --          --      --            --           --          --
 Tax benefit related to stock
   options.............................      --      --          --      --           700           --          --
                                         ------   -----    --------    ----    ----------    ---------       -----
BALANCE AT DECEMBER 31, 1997...........      --      --      92,254      92       185,795      (81,064)         --
 Comprehensive income
   Net income..........................      --      --          --      --            --       51,648          --
   Foreign currency translation
     adjustment........................      --      --          --      --            --           --          --
   Comprehensive income................      --      --          --      --            --           --          --
 Exercise of stock options.............      --      --       2,466       2        10,401           --          --
 Issuance of common stock under
   employee stock purchase plan........      --      --         538       1         3,567           --          --
 Amortization of deferred
   compensation........................      --      --          --      --            --           --          --
                                         ------   -----    --------    ----    ----------    ---------       -----
BALANCE AT DECEMBER 31, 1998...........      --      --      95,258      95       199,763      (29,416)         --
 Comprehensive income (loss)
   Net income (loss) (unaudited).......      --      --          --      --            --     (148,746)         --
   Foreign currency translation
     adjustment (unaudited)............      --      --          --      --            --           --          --
   Comprehensive income (loss)
     (unaudited).......................      --      --          --      --            --           --          --
 Exercise of stock options
   (unaudited).........................      --      --       2,034       3        14,130           --          --
 Issuance of common stock under
   employee stock purchase plan
   (unaudited).........................      --      --         166      --         2,538           --          --
 Issuance of common stock related to
   the NSMG acquisition (unaudited)....      --      --      69,148      69     3,151,282           --          --
 Issuance of options to purchase
   6,945,048 shares of common stock
   related to the NSMG acquisition
   (unaudited).........................      --      --          --      --       269,735           --          --
 Issuance of common stock and options
   to purchase shares of common stock
   related to the TeleBackup
   acquisition (unaudited).............      --      --       3,041       3       136,861           --          --
 Amortization of deferred compensation
   (unaudited).........................      --      --          --      --            --           --          --
                                         ------   -----    --------    ----    ----------    ---------       -----
BALANCE AT JUNE 30, 1999 (UNAUDITED)...      --   $  --     169,647    $170    $3,774,309    $(178,162)      $  --
                                         ======   =====    ========    ====    ==========    =========       =====

<CAPTION>
                                                         ACCUMULATED
                                                            OTHER
                                                        COMPREHENSIVE       TOTAL
                                           DEFERRED        INCOME       STOCKHOLDERS'
                                         COMPENSATION      (LOSS)          EQUITY
                                         ------------   -------------   -------------
<S>                                      <C>            <C>             <C>
BALANCE AT DECEMBER 31, 1995...........     $(129)         $  (105)      $   23,602
 Comprehensive income
   Net income..........................        --               --           12,129
   Foreign currency translation
     adjustment........................        --             (158)            (158)
                                                                         ----------
   Comprehensive income................        --               --           11,971
 Conversion of preferred stock to
   common stock........................        --               --                6
 Issuance of common stock..............        --               --           36,439
 Exercise of stock options and
   warrants............................        --               --            1,092
 Issuance of common stock under
   employee stock purchase plan........        --               --            1,568
 Payments on notes receivable from
   stockholders........................        --               --              245
 Amortization of deferred
   compensation........................        32               --               32
                                            -----          -------       ----------
BALANCE AT DECEMBER 31, 1996...........       (97)            (263)          74,955
 Comprehensive income
   Net income..........................        --               --           22,749
   Foreign currency translation
     adjustment........................        --             (303)            (303)
                                                                         ----------
   Comprehensive income................        --               --           22,446
 Exercise of stock options.............        --               --            3,270
 Issuance of common stock under
   employee stock purchase plan........        --               --            2,507
 Payments on notes receivable from
   stockholders........................        --               --              282
 Amortization of deferred
   compensation........................        33               --               33
 Tax benefit related to stock
   options.............................        --               --              700
                                            -----          -------       ----------
BALANCE AT DECEMBER 31, 1997...........       (64)            (566)         104,193
 Comprehensive income
   Net income..........................        --               --           51,648
   Foreign currency translation
     adjustment........................        --               10               10
                                                                         ----------
   Comprehensive income................        --               --           51,658
 Exercise of stock options.............        --               --           10,403
 Issuance of common stock under
   employee stock purchase plan........        --               --            3,568
 Amortization of deferred
   compensation........................        32               --               32
                                            -----          -------       ----------
BALANCE AT DECEMBER 31, 1998...........       (32)            (556)         169,854
 Comprehensive income (loss)
   Net income (loss) (unaudited).......        --               --         (148,746)
   Foreign currency translation
     adjustment (unaudited)............        --             (561)            (561)
                                                                         ----------
   Comprehensive income (loss)
     (unaudited).......................        --               --         (149,307)
 Exercise of stock options
   (unaudited).........................        --               --           14,133
 Issuance of common stock under
   employee stock purchase plan
   (unaudited).........................        --               --            2,538
 Issuance of common stock related to
   the NSMG acquisition (unaudited)....        --               --        3,151,351
 Issuance of options to purchase
   6,945,048 shares of common stock
   related to the NSMG acquisition
   (unaudited).........................        --               --          269,735
 Issuance of common stock and options
   to purchase shares of common stock
   related to the TeleBackup
   acquisition (unaudited).............        --               --          136,864
 Amortization of deferred compensation
   (unaudited).........................        16               --               16
                                            -----          -------       ----------
BALANCE AT JUNE 30, 1999 (UNAUDITED)...     $ (16)         $(1,117)      $3,595,184
                                            =====          =======       ==========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-5
<PAGE>   108

                          VERITAS SOFTWARE CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                    SIX MONTHS ENDED
                                                  YEARS ENDED DECEMBER 31,              JUNE 30,
                                              --------------------------------   -----------------------
                                                1996       1997        1998        1998         1999
                                              --------   ---------   ---------   ---------   -----------
                                                                                       (UNAUDITED)
<S>                                           <C>        <C>         <C>         <C>         <C>
Cash flows from operating activities:
  Net income (loss).........................  $ 12,129   $  22,749   $  51,648   $  17,596   $  (148,746)
  Adjustments to reconcile net income (loss)
    to net cash provided by operating
    activities:
    Depreciation and amortization...........     3,672       3,116       7,056       2,571         7,674
    Amortization of bond issuance costs.....        --          91         428         214           214
    Amortization of goodwill and other
       intangibles..........................        --          --          --          --        71,557
    Amortization of developed technology....        --          --          --          --         5,006
    Deferred rent...........................       411         (94)       (138)        (72)          (34)
    In-process research and development.....     2,200          --         600       2,250       103,100
    Benefit from deferred income taxes......        --      (4,200)     (8,000)         --            --
    Non-cash acquisition and restructuring
       costs................................        --       1,218          --          --           948
    Changes in operating assets and
       liabilities:
       Accounts receivable and other
         receivable.........................    (5,966)    (14,601)    (22,127)     (7,459)       (2,521)
       Other assets.........................    (1,001)       (267)     (8,136)     (3,155)       (4,672)
       Accounts payable and accrued
         liabilities........................     1,840       9,438      21,299       8,402         7,698
       Accrued acquisition and restructuring
         costs..............................        --          --          --          --        (7,287)
       Deferred revenue.....................     1,084       9,370      20,167       2,870        18,682
                                              --------   ---------   ---------   ---------   -----------
Net cash provided by operating activities...    14,369      26,820      62,797      23,217        51,619
Cash flows from investing activities:
  Purchases of investments..................   (69,761)   (144,907)   (284,819)   (161,704)     (164,926)
  Investment maturities.....................    47,025      79,921     296,048     152,458       100,557
  Payment received on note..................       282         108          --          --            --
  Purchase of property and equipment........    (5,469)     (6,181)    (23,424)    (10,005)      (23,670)
  Cash acquired from Seagate Software.......        --          --          --          --         1,044
  Cash acquired from TeleBackup.............        --          --          --          --         1,493
  Purchase of Frontier Software Development
    Pvt. Ltd................................        --          --          --          --        (1,325)
  Purchase of Windward Technologies, Inc....        --          --      (1,250)     (1,250)           --
  Purchase of ACSC..........................    (3,450)         --          --          --            --
                                              --------   ---------   ---------   ---------   -----------
Net cash used for investing activities......   (31,373)    (71,059)    (13,445)    (20,501)      (86,827)
Financing activities:
  Repayment of short-term borrowings........    (2,061)         --          --          --            --
  Proceeds from issuance of common stock....    39,105       5,777      13,971       6,859        16,668
  Net proceeds from issuance of convertible
    debt....................................        --      97,500          --          --            --
  Principal payments under capital lease
    obligations.............................      (116)         --          --          --            --
  Payments of notes payable.................    (6,153)       (612)         --          --            --
  Payments on notes receivable from
    stockholders............................       245         282          --          --            --
                                              --------   ---------   ---------   ---------   -----------
Net cash provided by financing activities...    31,020     102,947      13,971       6,859        16,668
Effect of exchange rate changes.............      (132)       (490)        134          62          (561)
                                              --------   ---------   ---------   ---------   -----------
Net increase (decrease) in cash and cash
  equivalents...............................    13,884      58,218      63,457       9,637       (19,101)
Cash and cash equivalents at beginning of
  period....................................     3,527      17,411      75,629      75,629       139,086
                                              --------   ---------   ---------   ---------   -----------
Cash and cash equivalents at end of
  period....................................  $ 17,411   $  75,629   $ 139,086   $  85,266   $   119,985
                                              ========   =========   =========   =========   ===========
Supplemental disclosures:
  Cash paid for interest....................  $  1,289   $      --   $   5,521   $   2,889   $     2,625
                                              ========   =========   =========   =========   ===========
  Cash paid for income taxes................  $  1,341   $   1,703   $   6,245   $     829   $     6,133
                                              ========   =========   =========   =========   ===========
Supplemental schedule of noncash investing
  and financing transactions:
  Conversion of preferred stock to common
    stock...................................  $ 71,806   $      --   $      --   $      --   $        --
                                              ========   =========   =========   =========   ===========
  Issuance of common stock for business
    acquisitions............................  $     --   $      --   $      --   $      --   $ 3,557,953
                                              ========   =========   =========   =========   ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       F-6
<PAGE>   109

                          VERITAS SOFTWARE CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     VERITAS Software Corporation, a Delaware corporation (the Company)
develops, markets and supports enterprise data storage management solutions,
providing advanced storage management software for open system environments. The
Company's products provide performance improvement and reliability enhancement
features that are critical for many commercial applications. These products
provide protection against data loss and file corruption, rapid recovery after
disk or system failure, the ability to process large files efficiently and the
ability to manage and backup large networks of systems without interrupting
users. In addition, the Company's products provide an automated failover between
computer systems organized in clusters sharing disk resources. The Company's
highly scalable products can be used independently, and certain products can be
combined to provide interoperable client/server storage management solutions.
The Company's products offer centralized administration with a high degree of
automation, enabling customers to manage complex, distributed environments cost
effectively by increasing system administrator productivity and system
availability. The Company also provides a comprehensive range of services to
assist customers in planning and implementing storage management solutions. The
Company markets its products and associated services to OEM and end-user
customers through a combination of direct sales and indirect sales channels.
These indirect sales channels include resellers, VARs, hardware distributors,
application software vendors and systems integrators.

     Basis of Presentation

     The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. As more fully described in Note
2, the Company merged with OpenVision Technologies, Inc. (OpenVision) in April
1997 in a pooling of interests transaction.

     Share and per share amounts applicable to prior periods in the consolidated
financial statements have been restated to reflect a 2-for-1 stock split that
was effected in the form of a stock dividend to be distributed on July 8, 1999
to stockholders of record as of June 18, 1999 and a 3-for-2 split in the form of
a stock dividend executed by the Company in May 1998.

     Share amounts reflected in this document have also been adjusted to reflect
the following proposals that were approved at the May 27, 1999 special meeting
of the Company's stockholders:

     - To increase the authorized number of shares of common stock from
       75,000,000 to 500,000,000.

     - To amend the 1993 Employee Stock Purchase plan to increase the number of
       shares reserved for issuance from 2,250,000 to 4,000,000.

     - To amend the 1993 Equity Incentive Plan to increase the number of shares
       reserved for issuance from 9,225,000 to 32,000,000.

            Interim Financial Information

     The interim financial information at June 30, 1999 and for the six months
ended June 30, 1998 and 1999 is unaudited but, in the opinion of management,
includes all adjustments, consisting only of normal recurring adjustments, which
the Company considers necessary for a fair presentation of the

                                       F-7
<PAGE>   110
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
financial position and results of operations for the interim periods. The
results for the six months ended June 30, 1999 are not necessarily indicative of
results for the full 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 amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

     Cash, Cash Equivalents and Short-Term Investments

     Cash and cash equivalents include cash and highly liquid investments with
maturities of less than ninety days when purchased. The Company invests its
excess cash in diversified instruments maintained primarily in U.S. financial
institutions in an effort to preserve principal and to maintain safety and
liquidity.

     The Company has determined its short-term investments are held to maturity
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities", (SFAS No.
115) and accordingly such amounts are recorded at amortized cost. At December
31, 1998, amortized cost approximated fair value for all cash equivalents and
short-term investments. To date, there have been no significant realized or
unrealized gains or losses on the short-term investments. The cost of securities
sold is based on the specific identification method.

     Long-Term Investments

     Investments with original maturities greater than one year from date of
purchase are classified as long-term. The Company accounts for its long-term
investments in accordance with SFAS No. 115 and these investments are classified
as held to maturity as of the balance sheet date. At December 31, 1998,
amortized cost approximated fair value for all long-term investments and, to
date, there have been no significant realized or unrealized gains or losses on
the Company's long-term investments.

     Property and Equipment

     Property and equipment are recorded at cost. Depreciation and amortization
are calculated using the straight-line method over the estimated useful lives
or, in the case of leasehold improvements, the term of the related lease, if
shorter. The estimated useful lives of furniture and equipment and computer
equipment is generally three to five years. The Company also depreciates a
building located in India over fifteen years. Depreciation and amortization of
property and equipment charged to costs and expenses was approximately $3.3
million, $3.1 million and $6.9 million for the years ended December 31, 1996,
1997 and 1998, respectively.

                                       F-8
<PAGE>   111
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     Revenue Recognition

     In October of 1997 the Accounting Standards Executive Committee issued
Statement of Position (SOP) 97-2, as amended by SOP 98-4 and SOP 98-9, "Software
Revenue Recognition". These statements provide guidance on applying generally
accepted accounting principles in recognizing revenue on software transactions.
SOP 97-2, as amended by SOP 98-4 was effective for revenue recognized under
software license and service arrangements beginning January 1, 1998.

     The Company derives revenue from software licenses and customer support and
other services. Service revenue includes contracts for software maintenance and
technical support, consulting, training, and porting fees. In software
arrangements that include rights to multiple software products and/or services,
the Company allocates the total arrangement fee among each of the deliverables
based on the relative fair value of each of the deliverables, determined based
on vendor-specific objective evidence of fair value.

     The Company recognizes revenue from licensing of software products to an
end user upon delivery of the software product to the customer, unless the fee
is not fixed or determinable, or collectibility is not considered probable. For
licensing of the Company's software to OEMs or distributors, revenue is not
recognized until the software is sold by the OEM or distributors to an end-user
customer. The Company considers all arrangements with payment terms extending
beyond twelve months and other arrangements with payment terms longer than
normal not to be fixed or determinable. If collectibility is not considered
probable, revenue is recognized when the fee is collected.

     Customer support revenue is recognized on a straight-line basis over the
period that the support is provided. Other software service arrangements are
evaluated to determine whether those services are essential to the functionality
of the other elements of the arrangement. When software services are considered
essential, revenue under the arrangement is recognized using contract
accounting. When software services are not considered essential, the revenue
allocable to the software services is recognized as the services are performed.
The Company generally considers software services essential unless the software
is paid for before the services commence and the services are limited to
training or nominal installation.

     Revenue is recognized using contract accounting for arrangements involving
customization or modification of the software or where software services are
considered essential to the functionality of the software. Revenue from these
software arrangements is recognized using the percentage-of-completion method
with progress-to-completion measured using labor cost inputs.

     Software Development Costs

     Under Statement of Financial Accounting Standards No. 86 "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
certain software development costs incurred subsequent to the establishment of
technological feasibility are capitalized and amortized over the estimated lives
of the related products. Technological feasibility is established upon
completion of a working model, which is typically demonstrated by initial beta
shipment. The period between the achievement of technological feasibility and
the general release of the Company's products has been of short duration. As of
December 31, 1998 such capitalizable software

                                       F-9
<PAGE>   112
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
development costs were insignificant and all software development costs have
been charged to research and development expense in the accompanying
consolidated financial statements of operations.

     Concentrations of Credit Risk

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of investments in debt
securities and trade receivables. The Company primarily invests its excess cash
in commercial paper rated A-1/P-1, market auction preferreds, government agency
notes, medium-term notes, certificates of deposit with approved financial
institutions, and other specific money market instruments of similar liquidity
and credit quality. The Company is exposed to credit risks in the event of
default by the financial institutions or issuers of investments to the extent
recorded on the balance sheet. The Company generally does not require
collateral. The Company maintains allowances for credit losses, and such losses
have been within management's expectations. For the year ended December 31,
1998, one customer accounted for approximately 12% or $25.8 million of the
Company's revenue. For the years ended December 31, 1996 and 1997 no customer
accounted for greater than 10% of revenues.

     Net Income Per Share

     The Company calculates net income per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (SFAS No. 128).
Basic earnings per share is computed using the weighted average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted average number of common shares and dilutive potential common
shares outstanding during the period. Dilutive common shares consist of employee
stock options using the treasury stock method.

     Accounting for Stock-Based Compensation

     The Company accounts for employee stock based compensation in accordance
with APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations. Pro forma net income and net income per share disclosures
required by Statement of Financial Accounting Standards No. 123, Accounting for
Stock Based Compensation", are included in Note 8.

     Translation of Foreign Currencies

     Assets and liabilities of certain foreign subsidiaries, whose functional
currency is the local currency, are translated at year-end exchange rates.
Income and expense items are translated at the average rates of exchange
prevailing during the year. The adjustment resulting from translating the
financial statements of such foreign subsidiaries is reflected as a separate
component of stockholder's equity. Certain other transaction gains or losses,
which have not been material, are reported in results of operations.

                                      F-10
<PAGE>   113
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     Impairment of Long-Lived Assets

     When an event or change in circumstance indicates that the carrying amount
of property and equipment or other long-lived assets may not be recoverable, the
Company reviews the asset for impairment. The Company determines recoverability
by comparing the carrying amount of the asset to net future discounted cash
flows that the asset is expected to generate. The impairment recognized is the
amount by which the carrying amount exceeds the fair market value of the asset.

     Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No.
133). SFAS No. 133 establishes methods of accounting for derivative financial
instruments and hedging activities related to those instruments as well as other
hedging activities. The Company will be required to implement SFAS No. 133 for
its fiscal year ending December 31, 2001. The Company's exchange rate hedging
activities have been insignificant to date and the Company does not believe the
impact of SFAS No. 133 will be material to its financial position, results of
operations or cash flows.

     In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use". SOP 98-1 requires
that entities capitalize certain costs related to internal-use software once
certain criteria have been met. The Company implemented SOP 98-1 effective
January 1, 1999. The adoption of SOP 98-1 did not have a material impact on the
Company's financial statements, and the Company does not believe that the impact
of SOP 98-1 will have material effect to the Company's financial position,
results of operations and cash flows.

     In December 1998, the AICPA issued SOP 98-9, "Modification of SOP 97-2,
Software Revenue Recognition, with Respect to Certain Transactions". SOP 98-9
amends SOP 97-2 "Software Revenue Recognition" to require recognition of revenue
using the "residual method" when certain criteria are met. The Company will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. SOP 98-9 also amends SOP 98-4 (an earlier amendment to SOP
97-2) which extended the deferral of the application of certain passages of SOP
97-2. The Company does not believe the impact of SOP 98-9 will be material to
the Company's financial position, results of operations and cash flows.

NOTE 2. BUSINESS COMBINATIONS

     On May 28, 1999, VERITAS acquired the Network & Storage Management Group
business of Seagate Software, Inc., which the Company refers to as "NSMG." On
June 1, 1999 VERITAS acquired TeleBackup Systems, Inc., which the Company refers
to as "TeleBackup."

     The NSMG business develops and markets software products and provides
related services that enable information technology professionals to manage
distributed network resources and to secure and protect enterprise data. NSMG
products offer features such as system backup, disaster recovery, migration,
replication, automated client protection, storage resource management,
scheduling, event correlation and desktop management. In connection with the
NSMG acquisition, in consideration for the contribution or assets and
liabilities related to the NSMG business by Seagate Technology, Inc.,

                                      F-11
<PAGE>   114
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
Seagate Software, Inc., and their respective subsidiaries, and based on the
average closing price of VERITAS common stock of $45.57 per share for 5 days
before and after June 7, 1999, the measurement date for the transaction, VERITAS
issued 69,148,208 shares of its common stock to Seagate Software, Inc. and
issued options to purchase 6,945,048 shares of its common stock to VERITAS
employees who were former NSMG employees. VERITAS accounted for the NSMG
acquisition using the purchase method of accounting, and expects to incur
charges of $221.5 million per quarter primarily related to the amortization of
developed technology, goodwill and other intangibles over their estimated useful
life of four years. The total NSMG purchase price was approximately $3.5 million
and included $3.2 billion for the issuance of VERITAS common stock, $269.7
million for the issuance of options to purchase VERITAS common stock, and $43.4
million of acquisition-related costs. In addition, the Company recorded a
restructuring charge of $11.0 million in the six months ended June 30, 1999 as a
result of the NSMG combination. This one-time restructuring charge related
primarily to exit costs with respect to duplicative facilities which VERITAS
plans to vacate. These costs are in addition to the liability for the costs to
vacate duplicative facilities of the NSMG business, which liability VERITAS
assumed and included as a part of the purchase price. Total acquisition and
restructuring costs of $54.4 million, of which approximately $13.3 million will
be non-cash, consist primarily of direct transaction costs, operating lease
commitments on duplicative facilities and involuntary termination benefits. At
June 30, 1999, $16.7 million in professional fees and severance costs were paid
against the acquisition and restructuring reserve; the Company expects the
remaining $37.7 million to be utilized primarily for servicing operating lease
payments or negotiated buyout of operating lease commitments on duplicative
facilities, the lease terms of which will expire at various times through the
year 2013. The purchase price was allocated, based on an independent valuation,
to goodwill of $3.0 billion, distribution channels of $233.8 million, original
equipment manufacturer agreements of $23.4 million, developed technology of
$233.7 million, assembled workforce of $12.8 million, trademarks of $22.8
million, in-process research and development of $101.2 million, net deferred tax
liabilities of $179.5 million, other intangibles of $1.5 million and tangible
net liabilities assumed of $1.0 million. During the six months ended June 30,
1999, the Company recorded $68.7 million for amortization of goodwill and other
intangibles, and $4.9 million for amortization of developed technology related
to this acquisition.

     TeleBackup designs, develops and markets software solutions for local and
remote backup and recovery of electronic information stored on networked, remote
and mobile personal computers. Under a combination agreement, TeleBackup became
a wholly-owned subsidiary of VERITAS in exchange for the issuance of 3,041,242
shares of VERITAS common stock or shares exchangeable for VERITAS common stock
to the holders of TeleBackup common shares, and the grant of options to purchase
68,758 shares of VERITAS common stock to VERITAS employees who were former
employees of TeleBackup. The Company accounted for the TeleBackup acquisition
using the purchase method of accounting, and expects to incur charges of $9.0
million per quarter primarily related to the amortization of developed
technology, goodwill and other intangibles over their estimated useful life of
four years. Based on the average closing price of VERITAS common stock of $44.09
per share for 5 days before and after June 1, 1999, the measurement date for the
transaction, the total purchase price for TeleBackup was approximately $143.1
million. The TeleBackup purchase price included $134.1 million related to the
issuance of VERITAS common stock, $2.8 million for

                                      F-12
<PAGE>   115
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
the issuance of options to purchase VERITAS common stock and $6.2 million in
acquisition-related costs. The acquisition costs of $6.2 million consist
primarily of direct transaction costs and involuntary termination benefits. At
June 30, 1999, of the total $6.2 million acquisition costs, the Company paid
$0.5 million in direct transaction costs with the majority of the remaining $5.7
million anticipated to be utilized by December 1999. The purchase price was
allocated, based on an independent valuation, to goodwill of $133.1 million,
distribution channels of $1.0 million, original equipment manufacturer
agreements of $2.1 million, developed technology of $6.6 million, assembled
workforce of $0.3 million, trademarks of $1.3 million, in-process research and
development of $1.9 million, net deferred tax liabilities of $3.0 million and
tangible net liabilities assumed of $0.2 million. During the six months ended
June 30, 1999, the Company recorded $2.9 million for amortization of goodwill
and other intangibles, and $0.1 million for the amortization of developed
technology related to this acquisition.

     The following unaudited pro forma summary results of operations data have
been prepared assuming that the NSMG and TeleBackup acquisitions had occurred at
the beginning of the periods presented. The consolidated results are not
necessarily indicative of results of future operations nor of results that would
have occurred had the acquisition been consummated as of the beginning of the
periods presented. The pro forma information excludes the impact of the one-time
charge related to in-process research and development costs of $103.1 million
and the restructuring charges of $11.0 million recorded in the six months ended
June 30, 1999 (in thousands, except per share amounts).

<TABLE>
<CAPTION>
                                                          SIX MONTHS ENDED
                                                              JUNE 30,
                                                       ----------------------
                                                         1999         1998
                                                       ---------    ---------
<S>                                                    <C>          <C>
Net revenue..........................................  $ 290,467    $ 178,928
                                                       =========    =========
Net loss.............................................  $(376,216)   $(403,690)
                                                       =========    =========
Basic and diluted net loss per share.................  $   (2.23)   $   (2.44)
                                                       =========    =========
</TABLE>

     On February 8, 1999, VERITAS completed the acquisition of the Pune, India
operations of Frontier Software Development (India) Private Limited, a company
principally engaged in the development of customized software, for a total cost
of approximately $2.4 million. Of this amount, VERITAS paid $1.3 million in cash
and agreed to pay Frontier certain earn-out payments totaling $1.1 million over
the next two years. The business combination has been accounted for as a
purchase and the purchase price, including the $1.1 million of earn-out
payments, allocated to the fair value of specific tangible and intangible assets
acquired.

     On February 3, 1999, VERITAS completed the acquisition of OpenVision
Australia Pty. Ltd., a company principally engaged in reselling VERITAS software
products and services throughout Australia and New Zealand, for a total cost of
approximately $300,000 in cash. The business combination has been accounted for
as a purchase and the purchase price allocated to the fair value of specific
tangible and intangible assets acquired.

     On May 15, 1998, the Company acquired all of the outstanding stock of
Windward for a total cost of $2.5 million. The transaction was accounted for
using purchase accounting. Of the total cost, $0.6 million was allocated to
in-process research and development and $1.9 million was allocated to

                                      F-13
<PAGE>   116
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
acquired intangibles, which will be amortized over a five year period. Total
cash outflows related to this purchase through December 31, 1998, were $1.3
million. The Company has agreed to pay the sole shareholder of Windward certain
earn-out payments of up to an aggregate of $1.2 million over a two year period,
subject to satisfaction of certain conditions (which it was probable would be
met) and the amount was accrued at the acquisition date. VERITAS also agreed to
pay that shareholder a royalty on certain future product revenue derived from
the products acquired over a five year period, up to a maximum of $2.5 million.
The Consolidated Statements of Operations include the results of operations of
Windward subsequent to the acquisition date. The results of operations of
Windward were not material to the Company's results of operations for 1998 or
1997. Accordingly, pro forma information has not been presented.

     Effective April 25, 1997, the Company merged with OpenVision, a
publicly-held company that provided storage management applications and services
for client/server computing environments. This transaction was accounted for as
a pooling of interests. Approximately 29.2 million shares of the Company's
common stock were issued in the OpenVision merger and the Company reserved
approximately 4.4 million shares of its common stock for issuance pursuant to
the assumption of outstanding options, warrants and other rights to purchase
OpenVision common stock.

     The following information shows revenue and net income of the separate
companies during the periods preceding the merger (in thousands):

<TABLE>
<CAPTION>
                                                      1996        1997
                                                     -------    --------
<S>                                                  <C>        <C>
Net revenue:
  VERITAS..........................................  $36,090    $ 12,454
  OpenVision.......................................   36,656      13,156
  Combined company.................................       --      95,515
                                                     -------    --------
                                                     $72,746    $121,125
                                                     =======    ========
Net income:
  VERITAS..........................................  $ 9,768    $  3,752
  OpenVision.......................................    2,361       1,665
  Combined company.................................       --      17,332
                                                     -------    --------
                                                     $12,129    $ 22,749
                                                     =======    ========
</TABLE>

     Note: April 1, 1997 was used as an approximation of the effective date of
the Merger.

     As a result of the OpenVision merger, the Company incurred charges to
operations of $8.5 million during the second quarter of 1997, consisting of
approximately $4.2 million for transaction fees and professional services, $1.9
million for contract terminations and asset write-offs and $2.4 million for
other costs incident to the merger. Of the total charge, $1.2 million resulted
from the write-down of redundant assets and facilities, primarily consisting of
intangible assets related to a prior acquisition which became redundant as a
result of OpenVision having a similar product line, and $7.3 million involved
cash outflows for banking, legal and accounting fees and other direct costs and
payments in connection with the elimination of duplicative facilities. The
remaining unpaid amount of $0.2 million at December 31, 1998 related primarily
to ongoing lease payments for vacated

                                      F-14
<PAGE>   117
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
facilities through the termination of the lease or the estimated date when such
facilities will be subleased.

     On April 1, 1996, the Company acquired all of the outstanding stock of ACSC
for a total cost of approximately $3.5 million. Of the total charge, $2.2
million was allocated to in-process research and development which was expensed
in the second quarter of 1996 and approximately $1.3 million was allocated to
acquired intangibles that were originally amortized and then fully written off
in the second quarter of 1997. The write-off was part of the OpenVision
merger-related costs, as the ACSC product line became redundant upon
consummation of the OpenVision merger.

NOTE 3. CASH, CASH EQUIVALENTS AND INVESTMENTS

     Cash, cash equivalents and short-term investments consist of the following
(in thousands):

<TABLE>
<CAPTION>
                                                        YEARS ENDED
                                                        DECEMBER 31,
                                                    --------------------
                                                      1997        1998
                                                    --------    --------
<S>                                                 <C>         <C>
Cash and cash equivalents:
  Cash............................................  $  7,817    $  6,893
  Money market funds..............................     2,717         172
  Commercial paper................................    65,095     132,021
                                                    --------    --------
Cash and cash equivalents.........................    75,629     139,086
                                                    --------    --------
Short-term investments:
  Commercial paper................................    50,640       1,357
  Market auction preferreds.......................    19,061      20,659
  Government agency notes.........................    19,748          --
  Short-term corporate notes......................    25,682      50,024
                                                    --------    --------
Short-term investments............................   115,131      72,040
                                                    --------    --------
Cash, cash equivalents and short-term
  investments.....................................  $190,760    $211,126
                                                    ========    ========
</TABLE>

     Long-term investments consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                         YEARS ENDED
                                                        DECEMBER 31,
                                                     -------------------
                                                      1997        1998
                                                     -------    --------
<S>                                                  <C>        <C>
Long-term investments:
  Government agency notes.........................   $    --    $  9,497
  Medium-term corporate notes.....................        --      22,428
                                                     -------    --------
Long-term investments.............................   $    --    $ 31,925
                                                     =======    ========
</TABLE>

                                      F-15
<PAGE>   118
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 4. PROPERTY AND EQUIPMENT

     Property and equipment is stated at cost and consisted of the following (in
thousands):

<TABLE>
<CAPTION>
                                                        YEARS ENDED
                                                        DECEMBER 31,
                                                    --------------------
                                                      1997        1998
                                                    --------    --------
<S>                                                 <C>         <C>
Furniture and equipment...........................  $  2,758    $  6,962
Computer equipment................................    18,624      34,251
Building..........................................        --       1,008
Leasehold improvements............................     1,384       3,765
                                                    --------    --------
                                                      22,766      45,986
Less -- accumulated depreciation and
  amortization....................................   (12,657)    (19,468)
                                                    --------    --------
Property and equipment, net.......................  $ 10,109    $ 26,518
                                                    ========    ========
</TABLE>

NOTE 5. CONVERTIBLE SUBORDINATED NOTES

     In October 1997, the Company issued $100.0 million aggregate principal
amount of 5.25% Convertible Subordinated Notes due 2004 (the Notes), for which
the Company received net proceeds of $97.5 million. The Notes provide for
semi-annual interest payments of approximately $2.6 million each May 1 and
November 1, commencing on May 1, 1998. The Notes are convertible into the
Company's Common Stock at any time prior to the close of business on the
maturity date, unless previously redeemed or repurchased, at a conversion price
of $21.50 per share, subject to adjustment in certain events. On or after
November 5, 2002, the Notes will be redeemable over the period of time until
maturity at the option of the Company at declining premiums to par. The debt
issuance costs are being amortized as interest expense ratably over the term of
the Notes. The fair value of the notes as of December 31, 1998 was $139.1
million, and is calculated using the conversion price of $21.50 per share on the
principal amount of the notes and the closing price of the Company's stock.

     In August 1999, VERITAS and its wholly-owned subsidiary VERITAS Operating
Corporation issued $465.8 million aggregate principal amount at maturity of
1.856% convertible subordinated notes due 2006 (the "1.856% notes") for which
VERITAS received net proceeds of approximately $334.9 million. VERITAS and
VERITAS Operating Corporation are co-obligors on the 1.856% notes. The 1.856%
notes provide for semi-annual interest payments each February 13 and August 13,
commencing February 13, 2000. The 1.856% notes are convertible into shares of
VERITAS common stock at any time prior to the close of business on the maturity
date, unless previously redeemed or repurchased, at a conversion price of $59.78
per share, subject to adjustment in certain events, equivalent to an initial
conversion rate of 12.415 shares of common stock per $1,000 principal amount at
maturity. On or after August 16, 2002, the 1.856% notes will be redeemable over
the period of time until maturity at the option of VERITAS at issuance price
plus accrued original issue discount and any accrued interest. If a fundamental
change, as defined in the Amended and Restated First Supplemental Indenture
dated July 30, 1999, occurs prior to August 13, 2006, each holder has the right
to require VERITAS to redeem all or part of the 1.856% notes at issuance price
plus accrued original discount and any accrued interest. The debt issuance costs
are being amortized over the term of the 1.856% notes using the interest method.

                                      F-16
<PAGE>   119
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 6. COMMITMENTS AND CONTINGENCIES

     The Company currently has operating leases for its facilities through
October 31, 2012. Rental expense under operating leases was approximately $3.0
million, $4.3 million and $6.1 million for the years ended December 31, 1996,
1997, and 1998, respectively. In addition to the basic rent, the Company is
responsible for all taxes, insurance and utilities related to the facilities.
The approximate minimum lease payments as of December 31, 1998 are as follows
(in thousands):

<TABLE>
<S>                                                      <C>
1999...................................................  $10,019
2000...................................................    9,644
2001...................................................    8,324
2002...................................................    5,785
2003...................................................    5,136
Thereafter.............................................   17,318
                                                         -------
Minimum lease payments.................................  $56,226
                                                         =======
</TABLE>

     During the quarter ended June 30, 1999, the Company signed a lease for new
corporate campus facilities in Mountain View, California. This facility will
replace the facilities the Company currently leases in Mountain View. The campus
facilities will be developed in two phases. The first phase is for 175,000
square feet. The second phase will add 250,000 square feet subject to certain
entitlements required from the City of Mountain View. The campus facilities will
provide space for sales, marketing, administration and research and development
functions. The lease term for the first phase facilities is five years beginning
in April 1999, with an option to extend the lease term for two successive
periods of one year each. The Company has an option to purchase the property
(land and facilities) for $72.0 million, or at the end of the lease to arrange
for the sale of the property, with VERITAS retaining an obligation to the owner
for the difference between the sales price and the $72.0 million if the sales
price is less than this amount, subject to certain provisions of the lease. The
Company anticipates that construction of the first phase facilities will begin
in the first quarter of 2000, and that the Company will occupy the facilities in
the second quarter of 2001. Lease payments on the first phase facilities will
begin in the second quarter of 2001. The lease requires VERITAS to maintain
specified financial covenants such as leverage ratio, quick ratio and earnings
before interest, taxes, depreciation and amortization, all of which the Company
was in compliance with as of June 30, 1999.

     In the ordinary course of business, various lawsuits and claims have been
filed against the Company. While the outcome of these matters is currently not
determinable, management believes that the ultimate resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position, results of operations or cash flows.

NOTE 7. BENEFIT PLANS

     The Company has adopted a retirement savings plan (the VERITAS Software
401(k) Plan), qualified under Section 401(k) of the Internal Revenue Code, which
is a pretax savings plan covering substantially all United States employees.
Under the plan employees may contribute up to 20% of their pretax salary,
subject to certain limitations. Employees are eligible to participate beginning
the first day of the calendar quarter following their date of hire. The Company
matches approximately 25% of the employee contributions up to $1,200 per year
and contributed approximately $0.1 million

                                      F-17
<PAGE>   120
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 7. BENEFIT PLANS (CONTINUED)
in 1996, $0.3 million in 1997 and $0.6 million in 1998. The Company also has a
retirement savings plan that was assumed under the merger with OpenVision (the
OpenVision Employee Investment Plan), which will terminate in 1999. Employees no
longer contribute to the OpenVision plan and the remaining balances will be
transferred to the Company's plan upon termination.

NOTE 8. STOCK COMPENSATION PLANS

     At December 31, 1998, the Company had three stock-based compensation plans,
which are described below. The Company applies APB Opinion No. 25 and related
interpretations in accounting for its plans. Since the exercise price of options
granted under such plans is generally equal to the market value on the date of
grant, no compensation cost has been recognized for grants under its stock
option plans and stock purchase plans. If compensation cost for the Company's
stock-based compensation plans had been determined consistent with SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                             1996       1997       1998
                                            -------    -------    -------
<S>                                         <C>        <C>        <C>
Net income
  As reported.............................  $12,129    $22,749    $51,648
  Pro forma...............................  $ 7,669    $12,358    $32,102
Basic earnings per share
  As reported.............................  $  0.14    $  0.25    $  0.55
  Pro forma...............................  $  0.09    $  0.14    $  0.34
Diluted earnings per share
  As reported.............................  $  0.13    $  0.23    $  0.50
  Pro forma...............................  $  0.09    $  0.13    $  0.32
</TABLE>

     Because the method of accounting prescribed by SFAS No. 123 has not been
applied to options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.

     Stock Option Plans

     The Company has two stock option plans. The Company's 1993 Equity Incentive
Plan (the 1993 Plan) provides for the issuance of either incentive or
nonstatutory stock options to employees and consultants of the Company. The
options generally are granted at the fair market value of the Company's common
stock at the date of grant, expire ten years from the date of grant, vest over a
four-year period and are exercisable immediately upon vesting. The Company has
reserved 32,000,000 shares of common stock for issuance under the 1993 Plan. The
Company has also reserved 1,125,000 shares for issuance under the Company's 1993
Director's Stock Option Plan (the Director's Plan). Generally options expire ten
years from date of grant, vest over the term of each directors board membership
and are exercisable immediately upon vesting. As of December 31, 1998,
20,956,938 shares were available for future grant under the plans.

     The Company's 1991 Executive Stock Option Plan and 1985 Employee Stock
Option Plan were terminated, and no further options may be granted under these
plans. Options previously granted

                                      F-18
<PAGE>   121
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 8. STOCK COMPENSATION PLANS (CONTINUED)
under the 1991 and 1985 plans will continue to be administered under such plans,
and any options that expire or become unexercisable for any reason without
having been exercised in full shall be available for issuance under the 1993
Plan.

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996, 1997 and 1998: risk-free interest rates
averaging 5.99% in 1996, 6.19% in 1997 and 5.15% in 1998; a dividend yield of
0.0% for all years; a weighted-average expected life of 5 years for all years;
and a volatility factor of the expected market price of the Company's common
stock of 0.65 for 1996, 0.60 for 1997 and 0.65 for 1998.

     A summary of the status of the Company's stock option plans (including the
options assumed in the Merger) as of December 31, 1996, 1997 and 1998 and
changes during the years ended on those dates is presented below (number of
shares in thousands):

<TABLE>
<CAPTION>
                                 1996                    1997                    1998
                         ---------------------   ---------------------   ---------------------
                                     WEIGHTED-               WEIGHTED-               WEIGHTED-
                                      AVERAGE                 AVERAGE                 AVERAGE
                          NUMBER     EXERCISE     NUMBER     EXERCISE     NUMBER     EXERCISE
                         OF SHARES     PRICE     OF SHARES     PRICE     OF SHARES     PRICE
                         ---------   ---------   ---------   ---------   ---------   ---------
<S>                      <C>         <C>         <C>         <C>         <C>         <C>
Outstanding at
  beginning of year....     7,172     $ 1.49      11,474      $ 3.57      15,378      $ 6.43
Granted................     6,038     $ 5.63       6,386      $10.53       4,654      $21.95
Exercised..............      (888)    $ 1.15      (1,544)     $ 2.08      (2,466)     $ 4.23
Forfeited..............      (848)    $ 3.21        (938)     $ 6.61      (1,144)     $ 9.07
                          -------     ------      ------      ------      ------      ------
Outstanding at end of
  year.................    11,474     $ 3.57      15,378      $ 6.43      16,422      $10.97
                          =======     ======      ======      ======      ======      ======
Options exercisable at
  year end.............     3,414                  5,118                   6,756
Weighted-average fair
  value of options
  granted during the
  year.................   $  3.53                 $ 6.06                  $12.94
</TABLE>

                                      F-19
<PAGE>   122
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 8. STOCK COMPENSATION PLANS (CONTINUED)
     The following table summarizes information about stock options outstanding
at December 31, 1998 (number of shares in thousands):

<TABLE>
<CAPTION>
                            OPTIONS OUTSTANDING
                  ----------------------------------------      OPTIONS EXERCISABLE
                                    WEIGHTED-                --------------------------
                      NUMBER         AVERAGE     WEIGHTED-       NUMBER       WEIGHTED-
                  OUTSTANDING AT    REMAINING     AVERAGE    EXERCISABLE AT    AVERAGE
   RANGE OF        DECEMBER 31,    CONTRACTUAL   EXERCISE     DECEMBER 31,    EXERCISE
EXERCISE PRICES        1998           LIFE         PRICE          1998          PRICE
- ---------------   --------------   -----------   ---------   --------------   ---------
<S>               <C>              <C>           <C>         <C>              <C>
$ 0.03 - $ 0.67        1,520          5.17        $ 0.47         1,438         $ 0.48
$ 0.71 - $ 3.74        1,358          6.28        $ 3.00         1,104         $ 2.90
$ 3.78 - $ 6.82        4,618          7.41        $ 5.42         2,296         $ 5.37
$ 6.89 - $14.84        4,234          8.46        $11.37         1,428         $11.19
$14.92 - $24.85        2,860          9.28        $18.98           408         $18.35
$25.06 - $31.19        1,832          9.67        $26.19            82         $25.51
                      ------          ----        ------         -----         ------
$ 0.03 - $31.19       16,422          7.96        $10.97         6,756         $ 6.19
                      ======          ====        ======         =====         ======
</TABLE>

     Employee Stock Purchase Plans

     Under the terms of the Merger with OpenVision, the Company assumed the
OpenVision Employee Stock Purchase Plan (the 1996 Purchase Plan). Upon
consummation of the Merger, each 1996 Purchase Plan option was converted into a
right to purchase shares of the Company's common stock. No new offering periods
will be commenced under the 1996 Purchase Plan, and the 1996 Purchase Plan was
terminated on October 31, 1998. Under the Company's 1993 Employee Stock Purchase
Plan (the 1993 Purchase Plan), the Company is authorized to issue up to
4,000,000 shares of common stock to its full-time employees, nearly all of whom
are eligible to participate. Under the terms of the 1993 Purchase Plan,
employees can choose to have up to 10% of their wages withheld to purchase the
Company's common stock. The purchase price of the stock is 85% of the lower of
the subscription date fair market value and the purchase date fair market value.
Substantially all of the eligible employees have participated in the either the
1993 Purchase Plan or the 1996 Purchase Plan in 1996, 1997 and 1998. Under the
1993 Purchase Plan, the Company issued 458,890, 199,228, and 339,810 shares to
employees in 1996, 1997 and 1998, respectively. Under the 1996 Purchase Plan,
the Company issued 102,446, 140,978 and 197,834 shares to employees in 1996,
1997 and 1998, respectively.

     In accordance with APB 25, the Company does not recognize compensation cost
related to employee purchase rights under the Plan. To comply with the pro forma
reporting requirements of SFAS No. 123, compensation cost is estimated for the
fair value of the employees' purchase rights using the Black-Scholes
option-pricing model with the following assumptions for these rights granted in
1996, 1997 and 1998: a dividend yield of 0.0% for all years; an expected life
ranging up to 2 years for all years; an expected volatility factor of 0.65 in
1996, 0.60 in 1997 and 0.65 in 1998; and risk-free interest rates ranging from
4.81% to 6.01% in 1996, from 5.27% to 5.84% in 1997 and from 5.14% to 5.39% in
1998. The weighted average fair value of the purchase rights granted in 1996,
1997 and 1998 was $6.88, $13.90 and $14.16, respectively.

                                      F-20
<PAGE>   123
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 9. STOCKHOLDERS' EQUITY

     On October 4, 1998, the Board of Directors of the Company adopted a
Stockholder Rights Plan, declaring a dividend of one preferred share purchase
right (a Right) for each outstanding share of common stock, par value $0.001 per
share, of VERITAS. The rights are initially attached to the Company's common
stock and will not trade separately. If a person or group acquires 20 percent or
more of the Company's common stock, or announces an intention to make a tender
offer for the Company's common stock the consummation of which would result in
acquiring 20 percent or more of the Company's common stock, then the rights will
be distributed and will then trade separately from the common stock. Each Right
entitles the registered holder to purchase from the Company one one-hundredth of
a share of Series A Junior Participating Preferred Stock, par value $0.001 per
share, of the Company. The rights expire October 5, 2008, unless the expiration
date is extended or unless the rights are earlier redeemed or exchanged by the
Company.

     The Company is authorized to issue up to 10,000,000 shares of undesignated
preferred stock. No such preferred shares have been issued to date.

     Total common shares reserved for issuance at December 31, 1998 under all
stock compensation plans are 37,125,000 shares (see Note 8).

NOTE 10. INCOME TAXES

     The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                             ----------------------------
                                              1996      1997       1998
                                             ------    -------    -------
<S>                                          <C>       <C>        <C>
Federal
  -- current...............................  $  366    $   539    $11,858
  -- deferred..............................      --     (3,500)    (8,075)
State
  -- current...............................   1,119      1,939      2,514
  -- deferred..............................      --       (700)        75
Foreign....................................     686      2,732      1,769
                                             ------    -------    -------
     Total.................................  $2,171    $ 1,010    $ 8,141
                                             ======    =======    =======
</TABLE>

                                      F-21
<PAGE>   124
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 10. INCOME TAXES (CONTINUED)
     The provision for income taxes differs from the amount computed by applying
the federal statutory rate as follows:

<TABLE>
<CAPTION>
                                                   YEARS ENDED DECEMBER 31,
                                                  --------------------------
                                                   1996      1997      1998
                                                  ------    ------    ------
<S>                                               <C>       <C>       <C>
Federal tax at statutory rate...................   35.0%     35.0%     35.0%
Benefit of loss carryforwards...................  (35.0)    (35.9)     (9.3)
State taxes.....................................    5.3       5.4       4.2
Foreign taxes...................................    3.0       9.4       3.0
Change in valuation allowance...................     --     (17.7)    (13.4)
Merger-related costs............................     --       6.5        --
In-process research and development charge......    5.2        --        --
Alternative minimum tax, net....................    2.7       2.3        --
Tax credits.....................................     --        --      (7.1)
Other...........................................   (1.0)     (0.7)      1.2
                                                  -----     -----     -----
  Total.........................................   15.2%      4.3%     13.6%
                                                  =====     =====     =====
</TABLE>

     Significant components of the Company's deferred tax assets are as follows
(in thousands):

<TABLE>
<CAPTION>
                                             YEARS ENDED DECEMBER 31,
                                         --------------------------------
                                           1996        1997        1998
                                         --------    --------    --------
<S>                                      <C>         <C>         <C>
Net operating loss carryforwards         $28,566..   $ 22,499    $ 23,276
Reserves and accruals not currently
  deductible                             2,984...       2,205       6,146
Acquired intangibles                     5,400...       2,114       1,895
Tax credit carryforwards                 1,385...       2,246          --
Other                                    994.....         887       1,655
                                         --------    --------    --------
  Total                                  39,329..      29,951      32,972
Valuation allowance....................   (39,329)    (25,751)    (20,772)
                                         --------    --------    --------
Net deferred tax assets................  $     --    $  4,200    $ 12,200
                                         ========    ========    ========
</TABLE>

     The valuation allowance decreased by approximately $3.9, $13.6 and $5.0
million in 1996, 1997 and 1998, respectively. As of December 31, 1998
approximately $11.6 million of the valuation allowance reflected above relates
to the tax benefits of stock option deductions which will be credited to equity
when realized.

     As of December 31, 1998, the Company had federal tax loss carryforwards of
approximately $63.0 million which will expire in 2007 through 2011, if not
utilized. Because of the change in ownership provisions of the Internal Revenue
Code, a substantial portion of the Company's net operating loss carryforwards
may be subject to annual limitations. The annual limitation may result in the
expiration of net operating loss carryforwards before utilization.

     Management has determined based on the Company's history of prior earnings,
its expectations for the future and the extended period over which the benefits
of certain deferred tax assets will be

                                      F-22
<PAGE>   125
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 10. INCOME TAXES (CONTINUED)
realized, as well as the limitations on its ability to utilize certain net
operating loss carryforwards, that a substantial valuation allowance continues
to be necessary.

     The realization of the Company's net deferred tax assets, which relate
primarily to net operating loss carryforwards and temporary differences is
dependent on generating sufficient taxable income in future periods. Although
realization is not assured, management believes it is more likely than not that
the net deferred tax assets will be realized.

NOTE 11. EARNINGS PER SHARE

     The following table sets forth the computation of basic and diluted
earnings per share (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                                         SIX MONTHS ENDED
                                          YEARS ENDED DECEMBER 31,           JUNE 30,
                                        ----------------------------   --------------------
                                         1996      1997       1998       1998       1999
                                        -------   -------   --------   --------   ---------
<S>                                     <C>       <C>       <C>        <C>        <C>
Numerator:
  Net income (loss)...................  $12,129   $22,749   $ 51,648   $ 17,596   $(148,746)
                                        =======   =======   ========   ========   =========
Denominator:
  Weighted average shares.............   81,360    91,244     94,026     93,293     109,108
  Shares related to Staff Accounting
    Bulletin No. 98 Convertible
    preferred stock...................    4,692        --         --         --          --
                                        -------   -------   --------   --------   ---------
  Denominator for basic earnings per
    share.............................   86,052    91,244     94,026     93,293     109,108
  Common stock equivalents............    6,940     7,742      9,316      9,009          --
                                        -------   -------   --------   --------   ---------
  Denominator for diluted earnings per
    share.............................   92,992    98,986    103,342    102,302     109,108
                                        =======   =======   ========   ========   =========
Basic earnings (loss) per share.......  $  0.14   $  0.25   $   0.55   $   0.19   $   (1.36)
                                        =======   =======   ========   ========   =========
Diluted earnings (loss) per share.....  $  0.13   $  0.23   $   0.50   $   0.17   $   (1.36)
                                        =======   =======   ========   ========   =========
</TABLE>

     Common stock equivalents used in the determination of the denominator of
diluted earnings per share does not include 4,651,163 shares issuable upon
conversion of the 5.25% Convertible Subordinated Notes, as their effect would be
anti-dilutive for all periods presented (see Note 5).

NOTE 12. COMPREHENSIVE INCOME (LOSS)

     As of January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" (SFAS No. 130).
SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this Statement
had no significant impact on the Company's net income or stockholders' equity.
SFAS No. 130 requires foreign currency translation adjustments, which prior to
adoption were reported separately in stockholders' equity, to be included in
other comprehensive income.

                                      F-23
<PAGE>   126
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 12. COMPREHENSIVE INCOME (LOSS) (CONTINUED)
     The following are the components of comprehensive income (loss):

<TABLE>
<CAPTION>
                                                                    SIX MONTHS ENDED
                                      YEARS ENDED DECEMBER 31,          JUNE 30,
                                     ---------------------------   -------------------
                                      1996      1997      1998      1998       1999
                                     -------   -------   -------   -------   ---------
<S>                                  <C>       <C>       <C>       <C>       <C>
Net income (loss)..................  $12,129   $22,749   $51,648   $17,596   $(148,746)
Foreign currency translation
  adjustments......................     (158)     (303)       10      (149)       (561)
                                     -------   -------   -------   -------   ---------
Comprehensive income (loss)........  $11,971   $22,446   $51,658   $17,442   $(149,307)
                                     =======   =======   =======   =======   =========
</TABLE>

NOTE 13. SIGNIFICANT DEVELOPMENT AND LICENSE AGREEMENTS

     In August of 1996 the Company entered into a development and license
agreement with Microsoft pursuant to which Microsoft would pay the Company up to
$5.0 million to develop a version of its Volume Manager product to be ported and
embedded in Windows NT 5.0. The Company's development efforts under this
agreement are on a "best efforts" basis, and there is no obligation for the
Company to repay amounts received under the agreement if the development effort
is not successful. Accordingly, Microsoft bears the risk of the development
effort and will own the resulting technology and/or products developed under the
agreement. Under the terms of the agreement, the Company is allowed to market
any developed add-on products to the Windows NT installed customer base in
exchange for paying Microsoft a royalty fee, the aggregate of which is not to
exceed $5.0 million. Such royalties become payable if the Company is successful
in its development effort. The Company is accounting for this arrangement in
accordance with Statement of Financial Accounting Standards No. 68, "Research
and Development Arrangements" (SFAS No. 68) using the percentage of completion
method. Amounts earned by the Company under the agreement are recorded as
service revenue while costs incurred to complete the development efforts are
recorded as cost of service revenue in the accompanying Statements of
Operations. The Company recognized revenue under this agreement of approximately
$0.5 million in 1996, $3.7 million in 1997 and $0.8 million in 1998, and
incurred costs of $0.2 million in 1996, $2.4 million in 1997, and $0.7 million
in 1998. Payments received from Microsoft during 1996, 1997 and 1998 were $0.2
million, $2.8 million and $2.0 million, respectively.

     In January 1997 the Company entered into a cross-license and development
arrangement with Sun Microsystems whereby each party granted the other a
royalty-based license to bundle or resell substantially all then-available
products of both companies. Under this arrangement, 5% of each royalty dollar
received by the Company is to be set aside to fund future "best efforts",
non-recurring engineering services to be performed by the Company at the
direction of Sun. Under these NRE projects, the scope of which is mutually
agreed to by both parties, Sun bears the risk of the development effort. In
accordance with SFAS No. 68 the Company has recognized a liability equal to 5%
of each royalty dollar received from Sun under this arrangement. The liability
to Sun as of December 31, 1997 was $174,000. As of December 31, 1998 there was
no liability to Sun.

NOTE 14. SEGMENT INFORMATION

     The Company adopted Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS No.
131), in fiscal 1998. SFAS

                                      F-24
<PAGE>   127
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 14. SEGMENT INFORMATION (CONTINUED)
No. 131 supersedes Statement of Financial Accounting Standards No. 14,
"Financial Reporting for Segments of a Business Enterprise" and establishes
standards for reporting information about operating segments. Operating segments
are defined as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker, or group, in deciding how to allocate resources and in assessing
performance.

     The Company operates in one segment, storage management solutions. The
Company's products and services are sold throughout the world, through direct,
OEM, reseller and distributor channels. The Company's chief operating decision
maker, the chief executive officer, evaluates the performance of the Company
based upon stand-alone revenue of product channels and the geographic regions of
the segment and does not receive discrete financial information about asset
allocation, expense allocation or profitability from the Company's storage
products or services.

     Geographic information (in thousands):

<TABLE>
<CAPTION>
                                                                     SIX MONTHS ENDED
                                      YEARS ENDED DECEMBER 31,           JUNE 30,
                                    -----------------------------   ------------------
                                     1996       1997       1998      1998       1999
                                    -------   --------   --------   -------   --------
                                                                       (UNAUDITED)
<S>                                 <C>       <C>        <C>        <C>       <C>
User license fees(1):
  United States...................  $44,286   $ 67,888   $121,910   $50,439   $114,756
  Europe(2).......................   10,696     12,971     33,172    12,553     24,667
  Other(3)........................    4,241     14,855     12,621     6,034      9,659
                                    -------   --------   --------   -------   --------
     Total........................  $59,223   $ 95,714   $167,703   $69,026   $149,082
                                    =======   ========   ========   =======   ========
Services(1):
  United States...................  $10,195   $ 20,463   $ 34,759   $14,447   $ 29,304
  Europe(2).......................    3,186      4,865      7,869     3,500      6,206
  Other(3)........................      142         83        534       222      1,960
                                    -------   --------   --------   -------   --------
     Total........................  $13,523   $ 25,411   $ 43,162   $18,169   $ 37,470
                                    =======   ========   ========   =======   ========
Total net revenue.................  $72,746   $121,125   $210,865   $87,195   $186,552
                                    =======   ========   ========   =======   ========
</TABLE>

<TABLE>
<CAPTION>
                                                  DECEMBER 31,
                                           ---------------------------     JUNE 30,
                                            1996      1997      1998         1999
                                           -------   -------   -------   ------------
                                                                         (UNAUDITED)
<S>                                        <C>       <C>       <C>       <C>
Long-lived assets(4):
  United States..........................  $ 6,268   $ 9,412   $25,202    $3,648,336
  Europe(2)..............................      633     1,114     3,644         9,937
  Other(3)...............................       96        67       380         3,649
                                           -------   -------   -------    ----------
     Total...............................  $ 6,997   $10,593   $29,226    $3,661,922
                                           =======   =======   =======    ==========
</TABLE>

- -------------------------
(1) License and Service revenues are attributed to geographic regions based on
    location of customers.

                                      F-25
<PAGE>   128
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 14. SEGMENT INFORMATION (CONTINUED)
(2) Europe includes the Middle East and Africa.

(3) Other includes Canada, Latin America, Japan and the Asia Pacific region.

(4) Long-lived assets include all long-term assets except those specifically
    excluded under SFAS No. 131, such as deferred income taxes and financial
    instruments. Reconciliation to total assets reported:

<TABLE>
<CAPTION>
                                                   DECEMBER 31,
                                           -----------------------------    JUNE 30,
                                            1996       1997       1998        1999
                                           -------   --------   --------   -----------
                                                                           (UNAUDITED)
<S>                                        <C>       <C>        <C>        <C>
Total long-lived assets..................  $ 6,997   $ 10,593   $ 29,226   $3,661,922
Other assets, including current..........   87,527    231,287    319,891      396,486
                                           -------   --------   --------   ----------
  Total consolidated assets..............  $94,524   $241,880   $349,117   $4,058,408
                                           =======   ========   ========   ==========
</TABLE>

     One customer represents approximately 12% or $25.8 million of the Company's
net revenues in 1998 and 12% or $21.5 million in the six months ended June 30,
1999.

NOTE 15. RELATED PARTY TRANSACTIONS

     In fiscal 1998 the Company paid $0.8 million in service fees relating to
the potential acquisition of NSMG to Donaldson, Lufkin & Jenrette (DLJ), a
company affiliated with a director of the Company during 1998. The Company had
no outstanding receivable or payable balance with DLJ at December 31, 1998.

                                      F-26
<PAGE>   129
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 16. QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
                                                    FIRST      SECOND     THIRD      FOURTH
                                                   QUARTER    QUARTER    QUARTER    QUARTER
                                                   --------   --------   --------   --------
                                                   (in thousands, except per share amounts)
<S>                                                <C>        <C>        <C>        <C>
FISCAL 1998
Total net revenue................................  $ 39,082   $ 48,113   $ 56,545   $ 67,125
Gross profit.....................................    32,616     40,191     48,702     59,895
Income before income taxes.......................    11,103     11,239     16,355     21,092
Net income.......................................     9,055      8,541     12,593     21,459
Net income per share -- basic....................  $   0.10   $   0.09   $   0.13   $   0.23
Net income per share -- diluted..................  $   0.09   $   0.08   $   0.12   $   0.21
Number of shares used in computing per share
  amounts basic..................................    92,868     93,724     94,458     95,034
Number of shares used in computing per share
  amounts diluted................................   101,900    102,708    104,652    104,084
FISCAL 1997
Total net revenue................................  $ 25,610   $ 28,934   $ 30,821   $ 35,760
Gross profit.....................................    22,840     25,590     26,442     29,808
Income (loss) before income taxes................     6,484     (1,013)     8,315      9,973
Net income (loss)................................     5,417     (1,682)     6,736     12,278
Net income (loss) per share -- basic.............  $   0.06   $  (0.02)  $   0.08   $   0.13
Net income (loss) per share -- diluted...........  $   0.05   $  (0.02)  $   0.07   $   0.12
Number of shares used in computing per share
  amounts -- basic...............................    90,440     90,984     91,490     91,948
Number of shares used in computing per share
  amounts -- diluted.............................    97,218     90,984    100,304    101,002
</TABLE>

NOTE 17. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY (UNAUDITED)

     VERITAS Software Corporation and its wholly-owned subsidiary VERITAS
Operating Corporation are co-obligors on VERITAS' 5.25% convertible subordinated
notes due 2004. In accordance with Staff Accounting Bulletin No. 53, Financial
Statement Requirements in Filings Involving the Guarantee of Securities by the
Parent, VERITAS provides the following unaudited summary financial information
with respect to VERITAS Operating Corporation. The following presents the
operations of, and the assets held by, the legal entity VERITAS Operating
Corporation

                                      F-27
<PAGE>   130
                          VERITAS SOFTWARE CORPORATION

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
            (INFORMATION AS OF JUNE 30, 1999 AND FOR THE SIX MONTHS
                   ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)

NOTE 17. SUMMARY FINANCIAL INFORMATION OF SUBSIDIARY (UNAUDITED) (CONTINUED)
and does not necessarily, nor is intended to, represent the operations of
VERITAS Operating Corporation had it continued as a separate entity absent the
NSMG acquisition.

<TABLE>
<CAPTION>
                                                                 SIX MONTHS ENDED
                                                                     JUNE 30,
                                                                -------------------
                                                                  1999       1998
                                                                --------    -------
<S>                                                             <C>         <C>
STATEMENT OF OPERATIONS DATA:
Total net revenue...........................................    $161,587    $87,195
Amortization of goodwill and other intangibles..............       2,979         --
In-process research and development.........................       1,900      2,250
Acquisition and restructuring costs.........................      11,000         --
Income from operations......................................      25,345     19,639
Net income..................................................      18,215     17,596
</TABLE>

<TABLE>
<CAPTION>
                                                              JUNE 30,    DECEMBER 31,
                                                                1999          1998
                                                              --------    ------------
<S>                                                           <C>         <C>
BALANCE SHEET DATA:
Working capital.............................................  $200,054      $198,842
Goodwill and other intangibles..............................   143,232            --
Total assets................................................   540,840       349,117
Long-term obligations.......................................   100,685       100,773
Accumulated deficit.........................................   (15,267)      (29,416)
Stockholders' equity........................................   342,869       169,854
</TABLE>

                                      F-28
<PAGE>   131

OVERVIEW OF VERITAS SOFTWARE CORPORATION UNAUDITED PRO FORMA COMBINED CONDENSED
                              FINANCIAL STATEMENTS

     The following unaudited pro forma combined condensed financial statements
consist of the VERITAS unaudited pro forma combined condensed statement of
operations for the year ended December 31, 1998 and six months ended June 30,
1999.

     The VERITAS unaudited pro forma combined condensed financial statements
give effect to the NSMG combination and the TeleBackup combination accounted for
using the purchase method of accounting. The VERITAS unaudited pro forma
combined condensed statements of operations for the year ended December 31, 1998
and six months ended June 30, 1999 assumes the NSMG combination and the
TeleBackup combination took place on January 1, 1998.

     The VERITAS unaudited pro forma combined condensed statement of operations
for the year ended December 31, 1998 combine VERITAS' and TeleBackup's
historical results of operations for the year ended December 31, 1998 with the
Network & Storage Management Group's twelve months ended January 1, 1999. The
VERITAS unaudited pro forma combined condensed statement of operations for the
six months ended June 30, 1999 combine VERITAS' and TeleBackup's historical
results of operations for the three months ended March 31, 1999 with the Network
& Storage Management Group's three months ended April 2, 1999 and the unaudited
pro forma combined statement of operations of VERITAS for the three months ended
June 30, 1999. VERITAS completed the acquisition of the Network & Storage
Management Group on May 28, 1999 and the acquisition of TeleBackup on June 1,
1999. VERITAS prepares final statements for external reporting purposes only at
the end of each fiscal quarter. The VERITAS unaudited pro forma combined
statement of operations for the three months ended June 30, 1999 combines the
Network & Storage Management Group's two months ended May 28, 1999 and
TeleBackup's two months ended June 1, 1999 and VERITAS' three months ended June
30, 1999 which includes the operations of the Network & Storage Management Group
and TeleBackup subsequent to the NSMG combination and TeleBackup combination.

     Basis of presentation

     The VERITAS unaudited pro forma combined condensed financial statements
reflect the NSMG combination and the TeleBackup combination accounted for using
the purchase method of accounting and have been prepared on the basis of
assumptions described in the notes including assumptions relating to the
allocation of the amount of consideration paid, to the assets and liabilities of
the Network & Storage Management Group and TeleBackup based upon preliminary
estimates of their fair value. The actual allocation of the consideration paid
may differ from those assumptions reflected in the VERITAS unaudited pro forma
combined condensed financial statements after valuations and other procedures to
be performed after the closing of the NSMG combination and the TeleBackup
combination are completed.

     Charges for in-process research and development

     VERITAS recorded charges to income in the second quarter of 1999 related to
in-process research and development of $101.2 million as a result of the NSMG
combination and $1.9 million as a result of the TeleBackup combination.

     Restructuring charges

     In addition, as a result of the NSMG combination, VERITAS recorded a
restructuring charge of $11.0 million during the second quarter of 1999,
primarily related to exit costs with respect to duplicate facilities of VERITAS
which VERITAS plans to vacate. These costs are in addition to the liability for
the estimated costs to vacate facilities of the Network & Storage Management
Group

                                      F-29
<PAGE>   132

business which will become duplicative upon the closing of the NSMG combination,
which liability will be assumed by VERITAS and included as a part of the
purchase price. The VERITAS unaudited pro forma combined condensed statements of
operations do not reflect these charges since they are non-recurring. These
charges were reflected in VERITAS' consolidated financial statements during the
second quarter of 1999, the period in which the NSMG combination and TeleBackup
combination were consummated.

     The VERITAS unaudited pro forma combined condensed financial statements
should be read in conjunction with the related notes included in this document
and the audited financial statements of VERITAS, the Network & Storage
Management Group and TeleBackup, including the notes to each, that are included
elsewhere in this document. The VERITAS unaudited pro forma combined condensed
financial statements do not necessarily indicate what the actual operating
results or financial position would have been had the NSMG combination and the
TeleBackup combination taken place on January 1, 1998. They also do not purport
to indicate VERITAS' future results of operations or financial position.

                                      F-30
<PAGE>   133

                      VERITAS UNAUDITED PRO FORMA COMBINED
                       CONDENSED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                  VERITAS      NETWORK & STORAGE                                     VERITAS
                                                  SOFTWARE        MANAGEMENT        TELEBACKUP                      PRO FORMA
                                                CORPORATION          GROUP         SYSTEMS INC.                      COMBINED
                                                    YEAR         TWELVE MONTHS         YEAR                            YEAR
                                                   ENDED             ENDED            ENDED                           ENDED
                                                DECEMBER 31,      JANUARY 1,       DECEMBER 31,    PRO FORMA       DECEMBER 31,
                                                    1998             1999              1998       ADJUSTMENTS          1998
                                                ------------   -----------------   ------------   -----------      ------------
<S>                                             <C>            <C>                 <C>            <C>              <C>
Net revenue:
  User license fees...........................    $167,703         $188,072          $   934       $    (934)(1)    $  355,775
  Services....................................      43,162           11,061            1,376          (1,376)(1)        54,223
                                                  --------         --------          -------       ---------        ----------
    Total net revenue.........................     210,865          199,133            2,310          (2,310)          409,998
Cost of revenue:
  User license fees...........................       8,798           11,981              211                            20,990
  Services....................................      20,663            2,917              345                            23,925
  Amortization of developed technology........          --            3,985               --          58,425(2)         60,075
                                                                                                       1,650(3)
                                                                                                      (3,985)(4)
                                                  --------         --------          -------       ---------        ----------
    Total cost of revenue.....................      29,461           18,883              556          56,090           104,990
                                                  --------         --------          -------       ---------        ----------
Gross profit..................................     181,404          180,250            1,754         (58,400)          305,008
Operating expenses:
  Selling and marketing.......................      76,392           75,905              994                           153,291
  Research and development....................      40,239           33,677              824                            74,740
  General and administrative..................      10,505           21,121              930                            32,556
  In-process research and development.........         600            6,800               --                             7,400
  Amortization of goodwill and other
    intangibles...............................          --           10,380               --         827,511(2)        861,971
                                                                                                      34,460(3)
                                                                                                     (10,380)(4)
                                                  --------         --------          -------       ---------        ----------
    Total operating expenses..................     127,736          147,883            2,748         851,591         1,129,958
                                                  --------         --------          -------       ---------        ----------
Income (loss) from operations.................      53,668           32,367             (994)       (909,991)         (824,950)
Interest and other income, net................      11,821              423               --                            12,244
Interest expense..............................      (5,700)            (240)             (65)                           (6,005)
                                                  --------         --------          -------       ---------        ----------
Income (loss) before income taxes.............      59,789           32,550           (1,059)       (909,991)         (818,711)
Provision for (benefit from) income taxes.....       8,141           15,121               --         (43,576)(5)       (20,314)
                                                  --------         --------          -------       ---------        ----------
Net income (loss).............................    $ 51,648         $ 17,429          $(1,059)      $(866,415)       $ (798,397)
                                                  ========         ========          =======       =========        ==========
Net income (loss) per share -- basic..........    $   0.55                                                          $    (4.80)
                                                  ========                                                          ==========
Net income (loss) per share -- diluted........    $   0.50                                                          $    (4.80)
                                                  ========                                                          ==========
Number of shares used in computing per share
  amounts -- basic............................      94,026                                            72,190           166,216
                                                  ========                                         =========        ==========
Number of shares used in computing per share
  amounts -- diluted..........................     103,342                                            62,874           166,216
                                                  ========                                         =========        ==========
</TABLE>

See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.

                                      F-31
<PAGE>   134

                      VERITAS UNAUDITED PRO FORMA COMBINED
                       CONDENSED STATEMENT OF OPERATIONS
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                    VERITAS      NETWORK & STORAGE                    VERITAS                         VERITAS
                                    SOFTWARE        MANAGEMENT        TELEBACKUP     PRO FORMA                       PRO FORMA
                                  CORPORATION          GROUP         SYSTEMS INC.     COMBINED                        COMBINED
                                  THREE MONTHS     THREE MONTHS      THREE MONTHS   THREE MONTHS                     SIX MONTHS
                                     ENDED             ENDED            ENDED          ENDED                           ENDED
                                   MARCH 31,         APRIL 2,         MARCH 31,       JUNE 30,      PRO FORMA         JUNE 30,
                                      1999             1999              1999           1999       ADJUSTMENTS          1999
                                  ------------   -----------------   ------------   ------------   -----------      ------------
<S>                               <C>            <C>                 <C>            <C>            <C>              <C>
Net revenue:
  User license fees.............    $55,786           $59,780           $ 382         $132,510      $    (382)(1)    $ 248,076
  Services......................     16,118             3,045             436           23,228           (436)(1)       42,391
                                    -------           -------           -----         --------      ---------        ---------
    Total net revenue...........     71,904            62,825             818          155,738           (818)         290,467
Cost of revenue:
  User license fees.............      1,955             3,273             149            5,043                          10,420
  Services......................      6,527               865              97            8,737                          16,226
  Amortization of developed
    technology..................         --               780              --            5,006         24,344(2)        30,038
                                                                                                          688(3)
                                                                                                         (780)(4)
                                    -------           -------           -----         --------      ---------        ---------
    Total cost of revenue.......      8,482             4,918             246           18,786         24,252           56,684
                                    -------           -------           -----         --------      ---------        ---------
Gross profit....................     63,422            57,907             572          136,952        (25,070)         233,783
Operating expenses:
  Selling and marketing.........     26,823            22,674             304           60,694                         110,495
  Research and development......     13,816             8,815             253           26,544                          49,428
  General and administrative....      3,289             5,111             267           10,809                          19,476
  Amortization of goodwill and
    other intangibles...........         --             2,545              --           71,557        345,071(2)       430,986
                                                                                                       14,358(3)
                                                                                                       (2,545)(4)
                                    -------           -------           -----         --------      ---------        ---------
    Total operating expenses....     43,928            39,145             824          169,604        356,884          610,385
                                    -------           -------           -----         --------      ---------        ---------
Income (loss) from operations...     19,494            18,762            (252)         (32,652)      (381,954)        (376,602)
Interest and other income,
  net...........................      3,031             1,173              38            3,332                           7,574
Interest expense................     (1,433)               --              (5)          (1,409)                         (2,847)
                                    -------           -------           -----         --------      ---------        ---------
Income (loss) before income
  taxes.........................     21,092            19,935            (219)         (30,729)      (381,954)        (371,875)
Provision for (benefit from)
  income taxes..................      7,509             7,974              --            5,101        (16,315)(5)        4,269
                                    -------           -------           -----         --------      ---------        ---------
Net income (loss)...............    $13,583           $11,961           $(219)        $(35,830)     $(365,639)       $(376,144)
                                    =======           =======           =====         ========      =========        =========
Net income (loss) per share --
  basic.........................                                                                                     $   (2.23)
                                                                                                                     =========
Net income (loss) per share --
  diluted.......................                                                                                     $   (2.23)
                                                                                                                     =========
Number of shares used in
  computing per share amounts --
  basic.........................                                                                                       168,383
                                                                                                                     =========
Number of shares used in
  computing per share amounts --
  diluted.......................                                                                                       168,383
                                                                                                                     =========
</TABLE>

See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.

                                      F-32
<PAGE>   135

                      NOTES TO VERITAS UNAUDITED PRO FORMA
                    COMBINED CONDENSED FINANCIAL STATEMENTS

 1. BASIS OF PRO FORMA PRESENTATION

     NSMG combination

     The VERITAS unaudited pro forma combined condensed financial statements
reflect the contribution of assets and liabilities of the Network & Storage
Management Group and the issuance of 69,148,208 shares of VERITAS common stock
which was based on the average closing price of VERITAS common stock of $45.57
per share for 5 days before and after June 7, 1999, the measurement date for the
transaction. In addition, VERITAS issued options to purchase VERITAS shares, of
which 2,942,640 options were vested and 4,002,408 options were unvested. The
value of the options to be issued by VERITAS in exchange for the Seagate
Software options was determined by estimating their fair value as of May 28,
1999 using the Black-Scholes option pricing model with the following weighted
average assumptions:

     - risk free interest rate of 5.15%;

     - dividend yield of 0.0%;

     - expected option life of 0.5 years for vested options;

     - expected option life of 3.0 years for unvested options; and

     - volatility factor of the expected market price of VERITAS common stock of
       0.65.

     The NSMG combination is being accounted for under the purchase method of
accounting.

     TeleBackup combination

     The VERITAS unaudited pro forma combined condensed financial statements
also reflect the issuance of 3,041,242 shares for the outstanding equity
interest of TeleBackup based on the capitalization of VERITAS and TeleBackup as
of June 1, 1999 and the average closing price of VERITAS common stock of $44.09
per share for 5 days before and after June 1, 1999, the closing date of the
transaction. In addition, TeleBackup's outstanding options at the closing date
were exchanged for options to purchase VERITAS shares. As of June 1, 1999,
outstanding options to purchase 259,800 shares of TeleBackup common stock were
exchanged for options to purchase 68,758 shares of VERITAS common stock, of
which all the options are vested. The value of the options issued by VERITAS in
the exchange for the TeleBackup options, was determined by estimating their fair
value as of June 1, 1999 using the Black-Scholes option pricing model with the
following weighted average assumptions:

     - risk-free interest rate of 5.15%;

     - dividend yield of 0.0%;

     - expected option life of 0.5 years; and

     - volatility factor of the expected market price of VERITAS common stock of
       0.65.

     The TeleBackup combination is being accounted for under the purchase method
of accounting.

     The VERITAS unaudited pro forma combined condensed financial statements
have been prepared on the basis of assumptions relating to the allocation of the
amount of consideration paid, to the assets and liabilities of the Network &
Storage Management Group business and TeleBackup based on preliminary estimates
of their fair value. The actual allocation of the amount such consideration may
differ from that reflected in the VERITAS unaudited pro forma combined condensed
financial statements after valuations and other procedures to be performed after
the closing of the NSMG combination and the TeleBackup combination have been
completed. Below is a table

                                      F-33
<PAGE>   136
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
of the estimated acquisition cost, purchase price allocation and annual
amortization of the intangible assets acquired, in thousands:

                  NETWORK & STORAGE MANAGEMENT GROUP BUSINESS

<TABLE>
<CAPTION>
                                                                               ANNUAL
                                                            AMORTIZATION    AMORTIZATION
                                                                LIFE       OF INTANGIBLES
                                                            ------------   --------------
<S>                                            <C>          <C>            <C>
Estimated acquisition cost
  Estimated value of securities to be issued
     Common stock............................   3,151,350
     Stock options...........................     269,741
  Acquisition costs..........................      43,381
                                               ----------
       Total estimated acquisition cost......  $3,464,472
                                               ==========
Purchase price allocation
  Tangible net liabilities assumed...........  $     (952)
  Intangible assets acquired:
     Distribution channel/OEM agreements.....     257,200        4            $ 64,300
     Developed technology....................     233,700        4              58,425
     Trademark/assembled workforce/other
       intangibles...........................      37,110        4               9,278
     In-process research and development.....     101,200
     Goodwill................................   3,015,733        4             753,933
     Deferred tax liabilities................    (179,519)
                                               ----------                     --------
       Total.................................  $3,464,472                     $885,936
                                               ==========                     ========
</TABLE>

                                      F-34
<PAGE>   137
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
                                   TELEBACKUP

<TABLE>
<CAPTION>
                                                                            ANNUAL
                                                        AMORTIZATION     AMORTIZATION
                                                            LIFE        OF INTANGIBLES
                                                        ------------    --------------
<S>                                         <C>         <C>             <C>
Estimated acquisition cost
  Estimated value of securities to be
     issued
     Common stock.........................  $134,100
     Stock options........................     2,762
  Acquisition costs.......................     6,200
                                            --------
       Total estimated acquisition cost...  $143,062
                                            ========
Purchase price allocation
  Tangible net liabilities assumed........  $   (243)
  Intangible assets acquired
     Distribution channel/OEM
       agreements.........................     3,100         4             $   775
     Developed technology.................     6,600         4               1,650
     Trademark/assembled workforce........     1,630         4                 407
     In-process research and
       development........................     1,900
     Goodwill.............................   133,107         4              33,277
     Deferred tax liabilities.............    (3,032)
                                            --------                       -------
       Total..............................  $143,062                       $36,109
                                            ========                       =======
</TABLE>

     Tangible net liabilities of the Network & Storage Management Group business
assumed principally include accounts payable, accrued compensation and other
current liabilities. Assets acquired principally include cash, accounts
receivable, fixed assets and other current assets.

     Tangible net liabilities of TeleBackup assumed principally include accounts
payable and other current liabilities. Assets acquired principally include cash
and fixed assets.

     To determine the value of the developed technology, the expected future
cash flows attributable to all existing technology was discounted, taking into
account risks related to the characteristics and applications of the technology,
existing and future markets, and assessments of the life cycle stage of the
technology. The analysis resulted in a valuation for developed technology which
had reached technological feasibility and therefore was capitalizable. The
developed technology is being amortized on the straight-line basis over its
estimated useful life of four years which is expected to exceed the ratio of
current revenues to the total of current and anticipated revenues.

     The value of the distribution channels and original equipment manufacturer
agreements was determined by considering, among other factors, the size of the
current and potential future customer bases, the quality of existing
relationships with customers, the historical costs to develop customer
relationships, the expected income and associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning the
business relationships from the acquired entity to VERITAS and risks related to
the viability of and potential changes to future target markets.

     The value of trademarks was determined by considering, among other factors,
the assumption that in lieu of ownership of a trademark, a company would be
willing to pay a royalty in order to exploit the related benefits of such
trademark.

                                      F-35
<PAGE>   138
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
     The value of the assembled workforce was derived by estimating the costs to
replace the existing employees, including recruiting, hiring, and training costs
for each category of employee.

     The value allocated to projects identified as in-process research and
development of the Network & Storage Management Group business and TeleBackup
will be charged to expense during the second quarter of 1999 but has not been
reflected in the VERITAS unaudited pro forma combined condensed statements of
operations as it is non-recurring in nature. However, this charge has been
reflected in the VERITAS unaudited pro forma combined condensed balance sheet.

     The write-offs were necessary because the acquired in-process research and
development had not yet reached technological feasibility and had no future
alternative uses. VERITAS expects that the acquired in-process research and
development will be successfully developed, but these products may not achieve
commercial viability.

     The nature of the efforts required to develop the purchased in-process
research and development into commercially viable products principally relate to
the completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish that the product can be produced to
meet its design specifications, including functions, features and technical
performance requirements.

     The value of the purchased in-process research and development was
determined by estimating the projected net cash flows related to the products,
including costs to complete the development of the technology and the future
revenues to be earned upon commercialization of the products. These cash flows
were then discounted back to their net present value. The projected net cash
flows from the projects were based on management's estimates of revenues and
operating profits related to the projects.

     Management's overview of the in-process projects and the estimates for the
remaining development efforts are described below:

     Network & Storage Management Group business products

     - Seagate Backup Exec for NT -- Backup Exec(TM) for Windows NT offers a
       compatible backup solution for Windows NT environments. Integrated
       wizards provide steps through routine operations and a new graphical user
       interface simplifies management tasks. Intelligent Disaster Recovery(TM)
       automates data recovery with the only point-in-time rapid recovery
       system. With its Microsoft common object model-based scaleable
       architecture, virus detection and cleaning, and agent accelerator
       technology, total cost of ownership is minimized, performance is
       maximized and data is secured. Management estimates the completion and
       release of version 8.0 of this product in November 1999.

     - Backup Exec for Netware -- Backup Exec for NetWare is the first NetWare 5
       compatible data protection solution that offers reliability, high
       performance and full Netware directory services integration for
       enterprise-wide data sharing. To minimize total cost of ownership and
       administration overhead, ExecView provides centralized monitoring and
       management. Intelligent disaster recovery combined with "working set"
       backup delivers fast and reliable disaster recovery for every server
       protected by Backup Exec. Advanced barcode reader and media portal
       support provides ease-of-use and complete automation to further simplify
       network administration. Management estimates the completion and release
       of version 8.1 of this product in September 1999.

                                      F-36
<PAGE>   139
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
     - Storage Migrator(TM) -- Storage Migrator is a multi-tier hierarchical
       storage management application for Windows NT that delivers enterprise
       functionality to client/server environments. The product reduces the
       total cost of ownership by proactively managing inactive data, migrating
       it from on-line storage, such as disc drives, to near-line devices, such
       as optical drives, then finally to archival storage resources, such as
       tape devices over user defined periods of time. This product was released
       in June 1999.

     - Desktop Management Suite(TM) -- Desktop Management Suite is a fully
       integrated suite of software solutions including network inventory,
       WinLand, software installation, or WinInstall, and software metering, or
       WinSmart or Desktop Management Suite centralizes the management of
       distributed network desktops by automating tasks such as inventory,
       software distribution, application metering, backup and remote control.
       Desktop Management Suite reduces the total cost of managing network
       desktops and standardizes the administration of desktops across the
       enterprise. Seagate has begun development to create a more complete
       personal computer client management solution with WinInstall and WinLand.
       Management estimates the completion and release of Desktop Management
       Suite version 4.0 and WinInstall version 7.0 in December 1999.

     - Manage Exec(TM) -- Manage Exec is a proactive server health monitoring,
       alerting and reporting solution that centralizes enterprise
       administration by providing information technology professionals with a
       unique view of servers worldwide and real-time problem analysis. Manage
       Exec is a powerful, simple, scaleable solution for managing the behavior
       of heterogeneous networks worldwide from one central location. Manage
       Exec automatically monitors, analyzes and reports on Windows NT and
       Novell NetWare systems health, establishes profiles of normal server and
       application behavior and proactively sends alerts when these policies are
       broken. As a result, problems that once may have resulted in catastrophic
       failure are now effectively resolved before network users are impacted.
       To make this product suitable for enterprise sales, Seagate began
       "enterprization." Management estimates the completion and release of
       version 6.0 of this product in September 1999.

     - NerveCenter(TM) -- NerveCenter is a market leading, rules-based event
       management application designed to ensure high levels of network and
       application availability. NerveCenter uses graphical network behavior
       models to filter through voluminous network messages, identify critical
       problems and automatically launch appropriate corrective actions.
       NerveCenter is the first end-to-end event management solution across
       network devices, applications and UNIX, Windows NT systems. Version 4.0
       was under development at the Network & Storage Management Group which
       would provide a basis for a storage area network management solution.
       Management estimates the completion and release of version 4.0 in
       September 1999.

     - Policy Exec(TM) version 1.0 -- Policy Exec is a policy management system
       that creates policies according to goals, completely automates storage
       management tasks, and provides fault isolation and automated corrective
       action. Management estimates the completion and release of this product
       in October 1999.

     - Replication Exec(TM) -- Replication Exec provides real time data
       protection for NT servers, back-up staging, rapid recovery, disaster
       protection bandwidth throttling, and intelligent data distribution.
       Replication Exec delivers the most flexible and intelligent data
       replication for Windows NT environments. It can efficiently and
       automatically duplicate files or file systems

                                      F-37
<PAGE>   140
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
       at any number of locations for complete data protection or information
       distribution. Replication Exec offers centralized management, high
       replication performance, minimal system overhead, both real-time and
       schedule-based replication, and selectable bandwidth usage. Replicate
       remote data to a central site for centralized backup, offload backup from
       production servers for 24x7 operations, or distribute information to any
       number of servers on the local area network or wide area network from a
       central site. In August 1998, the Network & Storage Management Group
       business released the first version of this product. However, this
       version does not have sufficient features to serve the enterprise
       customer. A next release version 2.0 was under development at the Network
       & Storage Management Group business to add these required features.
       Management estimates the completion and release of version 2.0 of this
       product in December 1999.

     TeleBackup was founded in 1995 to further the development of remote backup
technology. TeleBackup is an information technology company that is developing
dynamic software that allows corporations and end-users to backup their data
remotely. TeleBackup's software initiates all backups automatically with no
required intervention by the user. It also safeguards against disaster by
storing the data at an offsite location. TeleBackup's unique features make the
process of backing up large amounts of data significantly faster than any other
known technology using standard modems.

     TeleBackup products

     - TSInfoPro 2.05 -- TSInfoPro is a new system for eliminating data loss
       designed to support Microsoft Windows 98. Features include enhanced
       compact disc disaster recovery, improved querying, open file manger, and
       encryption. Management estimates the completion and release of this
       product in August 1999.

     - TSInfoPro 3.00 -- An improved system for eliminating data loss with a
       graphical user interface. Features include increased bandwidth,
       redesigned client and server interfaces, file processing, and
       administrative applications. Significant development efforts were begun
       and TeleBackup including, creating a larger bandwith, a major redesign of
       the graphical user interface and changing 90% of the server to be
       available for NT. Management estimates the completion and release of this
       product in April 2000.

     Some of the potential risks involved in completing the development for the
TeleBackup releases include, but are not limited to the following. The user
interface development could be expensive due to the options and technologies
needed in identifying the target customer. In addition, the hierarchical storage
management and NetBackup will likely need some more modification to run or work
well together.

     The server product is not quite available for NT, but is expected to be
soon, and the admin. station for NT is in the beginning phase of several phases.

     Research and development effort

     The Network & Storage Management Group business estimates approximately
$6.0 million to complete the development of the identified in-process projects
that are being acquired by VERITAS. TeleBackup estimates approximately $630,000
to complete the development of the identified

                                      F-38
<PAGE>   141
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
in-process projects that are being acquired. The Network & Storage Management
Group's and TeleBackup's research and development expenditure forecasts include,
but are not limited to:

     - technology coding;

     - feasibility tests;

     - platform integration; and

     - alpha and beta testing.

     Due to the fact that the transactions have only recently been consummated,
the calculations are preliminary. Therefore, more information will be
forthcoming as the analysis is completed of the in-process research and
development acquired at the Network & Storage Management Group and TeleBackup.

     Factors that could affect analysis.

     The following factors have the potential to affect analysis:

     - the effect of the uncertainty surrounding the successful development of
       the in-process research and development products is one of the many
       factors that comprise the selected discount rate;

     - there is risk associated with the revenue of all of the identified
       in-process research and development projects. The expected benefit from
       the in-process research and development projects is expected to occur at
       the release dates for each of the projects discussed previously; and

     - if any of the estimates for release dates, product life cycle, or product
       revenue are different, then there may be an impact on the future results
       of the company.

     Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets.

 2. PRO FORMA NET LOSS PER SHARE

     The VERITAS unaudited pro forma combined condensed statements of operations
have been prepared as if the NSMG combination and the TeleBackup combination had
occurred at the beginning of the periods presented. The pro forma basic and
diluted net loss per share are based on the weighted average number of shares of
VERITAS common stock outstanding during each period and the number of shares of
VERITAS common stock to be issued in connection with the NSMG combination and
the TeleBackup combination. The following options and other potential common
securities, based upon the options outstanding as of the periods presented and
closing price of

                                      F-39
<PAGE>   142
                      NOTES TO VERITAS UNAUDITED PRO FORMA
              COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

 2. PRO FORMA NET LOSS PER SHARE (CONTINUED)
VERITAS common stock as of the effective time, have not been included in the
computation of pro forma diluted net loss per share because their effect would
be antidilutive.

<TABLE>
<CAPTION>
                                                                  AS OF         AS OF
                                                               DECEMBER 31,   JUNE 30,
                POTENTIAL COMMON SECURITIES                        1998         1999
                ---------------------------                    ------------   ---------
                                                                    (IN THOUSANDS)
<S>                                                            <C>            <C>
VERITAS options outstanding.................................      16,422       24,174
Options to be issued in connection with the NSMG
  combination...............................................       6,864           --
Options to be issued in connection with the TeleBackup
  combination...............................................         156           --
Common stock issuable upon conversion of VERITAS' 5.25%
  convertible notes.........................................       4,651        4,651
                                                                  ------       ------
                                                                  28,093       28,825
                                                                  ======       ======
</TABLE>

     The VERITAS options outstanding as of June 30, 1999 include the options
issued in the NSMG and TeleBackup combinations, both of which were completed
prior to June 30, 1999.

 3. CONVERSION OF TELEBACKUP TO U.S. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
AND US$

     The financial statements for TeleBackup which were prepared in accordance
with Canadian generally accepted accounting principles have been conformed to
U.S. generally accepted accounting principles for purposes of including them in
the VERITAS unaudited pro forma combined condensed financial statements. None of
the adjustments necessary to conform the TeleBackup financial statements to U.S.
generally accepted accounting principles were material to either the historical
financial statements of TeleBackup or the VERITAS unaudited pro forma combined
condensed financial statements. The balance sheet and statements of operations
for TeleBackup were translated to U.S. dollars using average exchange rates for
the VERITAS unaudited pro forma combined condensed statements of operations and
period-end and historical exchange rates for the VERITAS unaudited pro forma
combined condensed balance sheet, as applicable.

 4. PRO FORMA ADJUSTMENTS

     (1) To eliminate the effect of the intercompany transactions between
VERITAS and TeleBackup.

     (2) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology and trademark/assembled
workforce/other intangibles related to the NSMG combination for the period from
January 1, 1998 to May 28, 1999, the closing date of the transaction.

     (3) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology, and trademark/assembled
workforce related to the TeleBackup combination for the period from January 1,
1998 to June 1, 1999, the closing date of the transaction.

     (4) To reflect the elimination of the Network & Storage Management's
Group's amortization of developed technology, goodwill and other intangibles.

     (5) To adjust to the tax benefit for VERITAS based upon pro forma losses
incurred.

                                      F-40
<PAGE>   143

               REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

The Board of Directors and Stockholders
Seagate Software, Inc.

     We have audited the accompanying combined balance sheets of the Network &
Storage Management Group, a division of Seagate Software, Inc., as of July 3,
1998 and June 27, 1997, and the related combined statements of operations, group
equity and cash flows for each of the three years in the period ended July 3,
1998. These combined 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 statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined financial position of the Network
& Storage Management Group at July 3, 1998 and June 27, 1997, and the combined
results of its operations and its cash flows for each of the three years in the
period ended July 3, 1998, in conformity with generally accepted accounting
principles.

     As discussed more fully in the Summary of Significant Accounting Policies
footnote, the Network & Storage Management Group has modified the methods used
to assess impairment of goodwill and, accordingly, has restated the consolidated
financial statements for the fiscal years ended July 3, 1998 and June 27, 1997
to reflect this change.

                                                 /s/ ERNST & YOUNG LLP

San Jose, California
September 21, 1998,
except for the second paragraph of the Summary
of Significant Accounting Policies footnote, as to
which the date is
April 8, 1999

                                      F-41
<PAGE>   144

                       NETWORK & STORAGE MANAGEMENT GROUP

                            COMBINED BALANCE SHEETS
                                 (IN THOUSANDS)
                                     ASSETS

<TABLE>
<CAPTION>
                                                      JUNE 27,      JULY 3,      APRIL 2,
                                                        1997         1998          1999
                                                      ---------    ---------    -----------
                                                                                (UNAUDITED)
<S>                                                   <C>          <C>          <C>
Cash................................................  $     921    $   4,879    $     2,024
Accounts receivable, net............................     14,387       15,982         23,090
Inventories.........................................      2,907          711            399
Loan receivable from Seagate Technology and
  affiliates........................................         --           --         42,111
Other current assets................................      2,589          480          3,349
                                                      ---------    ---------    -----------
  Total current assets..............................     20,804       22,052         70,973
Equipment and leasehold improvements, net...........     17,066       11,338         12,733
Goodwill and other intangibles, net.................     56,217       41,331         31,564
                                                      ---------    ---------    -----------
  Total assets......................................  $  94,087    $  74,721    $   115,270
                                                      =========    =========    ===========

                                        LIABILITIES
Loan payable to Seagate Technology and affiliates...  $  25,616    $  10,636    $        --
Accounts payable....................................      5,674        3,782          4,754
Accrued employee compensation.......................      8,304        8,011         10,107
Accrued expenses....................................      9,785        7,143          9,533
Accrued income taxes................................         --        1,290         18,828
Deferred revenue....................................      3,573        3,880          7,740
                                                      ---------    ---------    -----------
  Total current liabilities.........................     52,952       34,742         50,962
Deferred income taxes...............................      6,233        1,691            697
Other liabilities...................................        301          255             --
                                                      ---------    ---------    -----------
  Total liabilities.................................     59,486       36,688         51,659
Commitments and contingencies

                                       GROUP EQUITY
Contributed capital.................................    258,010      258,586        258,884
Accumulated deficit.................................   (223,409)    (220,553)      (195,273)
                                                      ---------    ---------    -----------
  Total group equity................................     34,601       38,033         63,611
                                                      ---------    ---------    -----------
  Total liabilities and group equity................  $  94,087    $  74,721    $   115,270
                                                      =========    =========    ===========
</TABLE>

See notes to combined financial statements.

                                      F-42
<PAGE>   145

                       NETWORK & STORAGE MANAGEMENT GROUP

                       COMBINED STATEMENTS OF OPERATIONS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                               FOR THE YEARS ENDED          NINE MONTHS ENDED
                                         -------------------------------   -------------------
                                         JUNE 28,    JUNE 27,   JULY 3,    APRIL 3,   APRIL 2,
                                           1996        1997       1998       1998       1999
                                         ---------   --------   --------   --------   --------
                                                                               (UNAUDITED)
<S>                                      <C>         <C>        <C>        <C>        <C>
Revenues:
Licensing..............................  $ 102,869   $130,661   $160,192   $120,102   $156,118
Licensing from Seagate Technology......      9,374      4,920      5,048      4,167      5,135
Maintenance, support and other.........      4,499      5,921      9,806      7,270      8,972
                                         ---------   --------   --------   --------   --------
  Total revenues.......................    116,742    141,502    175,046    131,539    170,225
Cost of revenues:
Licensing..............................     13,211     11,834     13,714     10,991      8,241
Licensing from Seagate Technology......      3,999      1,834        411        402        329
Maintenance, support and other.........        194        789      2,067      1,379      2,598
Amortization of developed
  technologies.........................      9,941     17,655      7,143      6,394      2,360
                                         ---------   --------   --------   --------   --------
  Total cost of revenues...............     27,345     32,112     23,335     19,166     13,528
                                         ---------   --------   --------   --------   --------
Gross profit...........................     89,397    109,390    151,711    112,373    156,697
Operating expenses:
Sales and marketing....................     55,875     68,238     68,314     51,365     63,649
Research and development...............     32,543     33,565     31,677     24,015     26,718
General and administrative.............     20,031     26,021     22,254     17,089     15,557
In-process research and development....     61,066         --      6,800         --         --
Amortization of goodwill and other
  intangibles..........................     13,035     20,250     13,236     10,656      7,697
Restructuring costs....................      9,502      2,524         --         --         --
                                         ---------   --------   --------   --------   --------
  Total operating expenses.............    192,052    150,598    142,281    103,125    113,621
                                         ---------   --------   --------   --------   --------
Income (loss) from operations..........   (102,655)   (41,208)     9,430      9,248     43,076
Interest expense.......................     (1,013)    (2,733)      (768)      (768)       (74)
Other, net.............................        308        155         55         24      1,472
                                         ---------   --------   --------   --------   --------
Interest and other, net................       (705)    (2,578)      (713)      (744)     1,398
                                         ---------   --------   --------   --------   --------
Income (loss) before income taxes......   (103,360)   (43,786)     8,717      8,504     44,474
Benefit from (provision for) income
  taxes................................      8,764     10,586     (5,861)    (5,835)   (19,194)
                                         ---------   --------   --------   --------   --------
Net income (loss)......................  $ (94,596)  $(33,200)  $  2,856   $  2,669   $ 25,280
                                         =========   ========   ========   ========   ========
</TABLE>

See notes to combined financial statements.

                                      F-43
<PAGE>   146

                       NETWORK & STORAGE MANAGEMENT GROUP

                       COMBINED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                            FOR THE YEARS ENDED            NINE MONTHS ENDED
                                                     ---------------------------------   ---------------------
                                                     JUNE 28,    JUNE 27,     JULY 3,    APRIL 3,    APRIL 2,
                                                       1996        1997        1998        1998        1999
                                                     ---------   ---------   ---------   ---------   ---------
                                                                                              (UNAUDITED)
<S>                                                  <C>         <C>         <C>         <C>         <C>
OPERATING ACTIVITIES
Net income (loss)..................................  $ (94,596)  $ (33,200)  $   2,856   $   2,669   $  25,280
Adjustments to reconcile net income (loss) to net
  cash from operating activities:
    Depreciation and amortization..................     24,274      32,642      28,018      23,783      16,314
    Deferred income taxes..........................     (1,700)     (7,505)     (4,542)     (3,508)       (994)
    Write-off of in-process research and
       development.................................     61,066          --       6,800          --          --
    Write-off or write-down of goodwill and
       intangibles.................................      2,157      13,106       1,900       1,900          --
    Write-offs due to restructure..................      4,427       1,494          --          --          --
    Other..........................................        400          --          --          --          --
    Changes in operating assets and liabilities:
       Accounts receivable.........................     (8,420)      7,432      (1,360)     (3,050)     (7,108)
       Inventories.................................        117      (1,588)      2,206       2,358         312
       Other current assets........................        848        (419)      2,118         768      (2,869)
       Accounts payable............................      2,636      (1,581)     (2,218)     (1,757)        972
       Accrued employee compensation...............      1,211       1,738        (371)      1,146       2,096
       Accrued expenses............................      5,899          --      (2,671)     (1,342)      2,390
       Accrued income taxes........................       (950)      3,486       1,866       7,598      17,836
       Deferred revenue............................         88         (81)        232        (101)      3,860
       Other liabilities...........................     (3,130)       (399)        (46)        (40)       (255)
                                                     ---------   ---------   ---------   ---------   ---------
    Net cash provided by (used in) operating
       activities..................................     (5,673)     15,125      34,788      30,424      57,834
INVESTING ACTIVITIES
Acquisitions of businesses, net of cash acquired...    (31,102)         --     (10,000)         --          --
Acquisition of equipment and leasehold
  improvements, net................................     (9,380)    (12,625)     (3,530)     (4,034)     (7,652)
Acquisition of intangibles.........................         --          --      (2,320)         --        (290)
Other, net.........................................          4          --          --          --          --
                                                     ---------   ---------   ---------   ---------   ---------
    Net cash used in investing activities..........    (40,478)    (12,625)    (15,850)     (4,034)     (7,942)
FINANCING ACTIVITIES
Funding by Seagate Technology for acquisitions of
  businesses.......................................     27,143          --          --          --          --
Borrowings from Seagate Technology.................    131,287     144,427     160,347     104,202     108,784
Repayments to Seagate Technology...................   (113,665)   (150,398)   (175,327)   (129,938)   (161,531)
                                                     ---------   ---------   ---------   ---------   ---------
    Net cash provided by (used in) financing
       activities..................................     44,765      (5,971)    (14,980)    (25,736)    (52,747)
Effect of exchange rate changes on cash............         (2)         --          --          --          --
                                                     ---------   ---------   ---------   ---------   ---------
    Increase (decrease) in cash....................     (1,388)     (3,471)      3,958         654      (2,855)
    Elimination of Arcada's net cash activity for
       the duplicated six months ended December 30,
       1995........................................      1,768          --          --          --          --
Cash at the beginning of the period................      4,012       4,392         921         921       4,879
                                                     ---------   ---------   ---------   ---------   ---------
Cash at the end of the period......................  $   4,392   $     921   $   4,879   $   1,575   $   2,024
                                                     =========   =========   =========   =========   =========
SUPPLEMENTAL CASH FLOW INFORMATION
  Cash paid for interest...........................  $      32   $     156   $      --   $      --   $      --
  Cash paid for income taxes.......................      1,694         304       1,814   $     451   $   1,055
</TABLE>

See notes to combined financial statements.

                                      F-44
<PAGE>   147

                       NETWORK & STORAGE MANAGEMENT GROUP

                      COMBINED STATEMENTS OF GROUP EQUITY
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                               ACCUMULATED
   FOR THE NINE MONTHS ENDED APRIL 2, 1999,                       OTHER
AND FOR THE YEARS ENDED JULY 3, 1998, JUNE 27,  CONTRIBUTED   COMPREHENSIVE   ACCUMULATED
           1997 AND JUNE 28, 1996,                CAPITAL        INCOME         DEFICIT      TOTAL
- ----------------------------------------------  -----------   -------------   -----------   --------
<S>                                             <C>           <C>             <C>           <C>
BALANCE AT JUNE 30, 1995....................     $140,610        $    2        $ (95,693)   $ 44,919
Acquisition by Seagate Technology of OnDemand
  Software, Inc. and minority interest of
  Arcada Holdings, Inc......................       98,249            --               --      98,249
Acquisition by Seagate Technology of Calypso
  Software Systems, Inc.....................       13,799            --               --      13,799
Income tax benefit from Seagate Technology
  stock option exercises....................        1,866            --               --       1,866
Foreign currency translation adjustment.....           --            (2)              --          (2)
Net loss....................................           --            --          (94,596)    (94,596)
Elimination of Arcada Holdings, Inc. activity
  for the duplicated six months ended December
  30, 1995..................................           --            --               80          80
                                                 --------        ------        ---------    --------
BALANCE AT JUNE 28, 1996....................      254,524            --         (190,209)     64,315
Income tax benefit from Seagate Technology
  stock option exercises....................        3,486            --               --       3,486
Net loss....................................           --            --          (33,200)    (33,200)
                                                 --------        ------        ---------    --------
BALANCE AT JUNE 27, 1997....................      258,010            --         (223,409)     34,601
Income tax benefit from Seagate Technology
  stock option exercises....................          576            --               --         576
Net income..................................           --            --            2,856       2,856
                                                 --------        ------        ---------    --------
BALANCE AT JULY 3, 1998.....................      258,586            --         (220,553)     38,033
Income tax benefit from Seagate Technology
  stock option exercises (unaudited)........          298            --               --         298
Net income (unaudited)......................           --            --           25,280      25,280
                                                 --------        ------        ---------    --------
BALANCE AT APRIL 2, 1999
(unaudited).................................     $258,884            --        $(195,273)   $ 63,611
                                                 ========        ======        =========    ========
</TABLE>

See notes to combined financial statements.

                                      F-45
<PAGE>   148

                       NETWORK & STORAGE MANAGEMENT GROUP

                     NOTES TO COMBINED FINANCIAL STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Description of business. The Network & Storage Management Group ("NSMG" or
the "Network & Storage Management Group") develops and markets software products
and provides related services enabling information technology ("IT")
professionals to manage distributed network resources and to secure and protect
enterprise data. The Network & Storage Management Group operates in a single
industry segment, and its products offer features such as system backup,
disaster recovery, migration, replication, automated client protection, storage
resource management, scheduling, event correlation and desktop management.

     The Network & Storage Management Group is an operating division of Seagate
Software, Inc. ("Seagate Software"), which is a majority-owned and consolidated
subsidiary of Seagate Technology, Inc. ("Seagate Technology"), a data technology
company that provides products for storing, managing and accessing digital
information on computer systems. Seagate Software is headquartered in Scotts
Valley, California and has 49 offices and operations in 18 countries worldwide.

     Restatement of Financial Statements. The Network & Storage Management Group
had previously allocated a portion of goodwill to developed technology and
evaluated the impairment of goodwill based on the revenues from the related
software. Using this method, the Network & Storage Management Group recorded
write-downs and write-offs of goodwill in fiscal 1997 in the amount of
$10,259,000. The Network & Storage Management Group has re-evaluated its
methodology and determined that goodwill should not be allocated to developed
technology under Accounting Principles Board Opinion 17, "Intangible Assets." As
a result, the Network & Storage Management Group has made adjustments to
decrease the amounts of goodwill previously written-down and written-off from
$10,259,000 to $6,173,000 in fiscal 1997. The additional goodwill of $4,086,000
is being amortized over the remaining estimated useful lives of approximately 5
years.

     The effect of this adjustment on previously reported combined financial
statements as of and for the years ended July 3, 1998 and June 27, 1997 is as
follows (in thousands, except per share amounts):

<TABLE>
<CAPTION>
                                              AS REPORTED               AS RESTATED
                                             AS OF AND FOR             AS OF AND FOR
                                            THE YEARS ENDED           THE YEARS ENDED
                                         ----------------------    ----------------------
                                         JUNE 27,      JULY 3,     JUNE 27,      JULY 3,
                                           1997         1998         1997         1998
                                         ---------    ---------    ---------    ---------
<S>                                      <C>          <C>          <C>          <C>
Amortization of goodwill...............  $  23,987    $  12,456    $  20,250    $  13,236
Income (loss) from operations..........    (44,945)      10,210      (41,208)       9,430
Net income (loss)......................    (36,937)       3,636      (33,200)       2,856
Goodwill and other intangible assets,
  net..................................     52,480       38,374       56,217       41,331
Accumulated deficit....................   (227,146)    (223,510)    (223,409)    (220,553)
</TABLE>

                                      F-46
<PAGE>   149
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     The effect of this adjustment on previously reported combined financial
statements as of and for the nine months ended April 3, 1998 is as follows (in
thousands, except per share amounts):

<TABLE>
<CAPTION>
                                                        AS REPORTED          AS RESTATED
                                                     -----------------    -----------------
                                                     AS OF AND FOR THE    AS OF AND FOR THE
                                                     NINE MONTHS ENDED    NINE MONTHS ENDED
                                                       APRIL 3, 1998        APRIL 3, 1998
                                                     -----------------    -----------------
                                                        (UNAUDITED)          (UNAUDITED)
                                                     -----------------    -----------------
<S>                                                  <C>                  <C>
Amortization of goodwill...........................      $  10,071            $  10,656
Income from operations.............................          9,833                9,248
Net income.........................................          3,254                2,669
Goodwill and other intangible assets, net..........         36,014               39,168
Accumulated deficit................................       (223,892)            (220,741)
</TABLE>

     Basis of presentation. These financial statements have been prepared using
the historical basis of accounting and are presented as if the Network & Storage
Management Group had existed as an entity separate from Seagate Software and
Seagate Technology during the periods presented. These financial statements
include the historical assets, liabilities, revenues and expenses that are
directly related to the Network & Storage Management Group's operations. For
certain assets and liabilities of Seagate Software that are not specifically
identifiable with the Network & Storage Management Group, estimates have been
used to allocate such assets and liabilities to the Network & Storage Management
Group by applying methodologies management believes are appropriate.

     The unaudited quarterly consolidated financial statements presented have
been prepared on a basis consistent with the audited consolidated financial
statements, pursuant to the rules and regulations of the Securities and Exchange
Commission.

     The statements of operations include all revenues and costs attributable to
the Network & Storage Management Group, including allocations of certain
corporate administration, finance, and management costs. Such costs were
proportionately allocated to the Network & Storage Management Group based on
detailed inquiries and estimates of time incurred by Seagate Software's
corporate marketing and general and administrative departmental managers. In
addition, certain of Seagate Software's operations are shared locations
involving activities that pertain to the Network & Storage Management Group as
well as to other businesses of Seagate Software. Costs incurred in shared
locations are allocated based on specific identification, or where specific
identification is not possible, such costs are allocated between the Network &
Storage Management Group and other businesses of Seagate Software using
methodologies that management believes are reasonable. Transactions and balances
between entities and locations within the Network & Storage Management Group
have been eliminated.

     From August 1994 to June 1996, Seagate Technology acquired seven software
companies that were engaged in developing and marketing network and/or storage
management software products. In addition, in February 1996, Seagate Technology
merged with Conner Peripherals, Inc. ("Conner") in a transaction accounted for
as a pooling-of-interests. In connection with the merger, Seagate Technology
purchased the outstanding minority interests in Conner's storage management
software operations under Arcada Holdings, Inc. ("Arcada"). Also, in June 1998,
the Network & Storage Management Group acquired Eastman Software for $10,000,000
in cash. The amount of capital contributed by Seagate Technology for
acquisitions is determined by the amounts paid for such acquisitions by Seagate
Technology on behalf of the Network & Storage Management Group. The

                                      F-47
<PAGE>   150
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

accompanying financial statements present the combined results of operations of
the acquired companies from the dates of acquisition.

     The Network & Storage Management Group operates and reports financial
results on a fiscal year of 52 or 53 weeks ending on the Friday closest to June
30. Accordingly, fiscal 1996 ended on June 28, 1996, fiscal 1997 ended on June
27, 1997, and fiscal 1998 ended on July 3, 1998. Fiscal years 1996 and 1997 were
comprised of 52 weeks, and fiscal 1998 was comprised of 53 weeks. Fiscal 1999
will be a 52-week year and will end on July 2, 1999. All references to years in
the notes to combined financial statements represent fiscal years unless
otherwise noted.

     Arcada, which was acquired by the Network & Storage Management Group
pursuant to Seagate Technology's merger with Conner, had a fiscal year that
ended on the Saturday closest to December 31. Accordingly, Arcada's statement of
operations for the year ended December 30, 1995 has been combined with the
Network & Storage Management Group's statement of operations for the year ended
June 30, 1995. In order to conform Arcada's fiscal year end to the Network &
Storage Management Group's fiscal year end, the Network & Storage Management
Group's combined statement of operations for the year ended June 28, 1996
includes six months (July 1, 1995 through December 30, 1995) for Arcada which
are also included in the Network & Storage Management Group's combined statement
of operations for the year ended June 30, 1995.

     Economic dependence on Seagate Technology. The Network & Storage Management
Group incurred net losses of $94,596,000 and $33,200,000 during 1996 and 1997,
respectively, and had a working capital deficit of $12,690,000 at July 3, 1998.
On July 4, 1998, Seagate Software and Seagate Technology renewed the Revolving
Loan Agreement on substantially the same terms and conditions as the prior
agreement that was dated June 28, 1996. Under the Revolving Loan Agreement,
Seagate Technology finances certain of Seagate Software's working capital needs.
The Revolving Loan Agreement provides for maximum outstanding borrowings of up
to $60,000,000 and is renewable every two years. Outstanding borrowings by the
Network & Storage Management Group from Seagate Technology and affiliates were
$25,616,000 and $10,636,000 at June 27, 1997 and July 3, 1998, respectively and
a net receivable of $42,111,000 (unaudited) at April 2, 1999. Borrowings from
Seagate Technology consist primarily of amounts used to fund the Network &
Storage Management Group's operating activities. A net receivable position
existed as of April 2, 1999 primarily due to an increase in loan repayments to
Seagate Technology resulting from an increase in cash generated from operations.
The loan balance is offset and presented on the balance sheet as a net
receivable or net payable in accordance with the terms of the loan agreement.
Beginning in fiscal 1999, the Network & Storage Management Group will pay
interest at the LIBOR rate plus 2% per annum on such borrowings; the Network &
Storage Management Group previously paid interest at 6%. Interest expense as
presented in the statement of operations primarily relates to interest incurred
under the Revolving Loan Agreement.

     The Network & Storage Management Group and Seagate Software are
economically dependent on Seagate Technology and believe that to the extent
future cash flows from operations and borrowings under the existing loan
agreement with Seagate Technology are not sufficient to fund the Network &
Storage Management Group's working capital deficit and planned activities during
the next 12 months, that additional funding will be available at a reasonable
cost from Seagate Technology.

     Accounting estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect

                                      F-48
<PAGE>   151
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

the amounts reported in the financial statements and accompanying notes. Actual
results could differ materially from those estimates.

     Concentration of credit risk. Financial instruments that potentially
subject the Network & Storage Management Group to significant concentrations of
credit risk consist primarily of cash and accounts receivable. The Network &
Storage Management Group places its cash and cash equivalents in high credit
quality financial institutions. Accounts receivable are derived from revenues
earned from customers primarily located in North America. The Network & Storage
Management Group performs ongoing credit evaluations of its customers and
generally does not require collateral. The Network & Storage Management Group
maintains reserves for potential credit losses and historically such losses have
been immaterial. Revenue from one third-party customer, Ingram Micro, accounted
for 17%, 22% and 27% of the Network & Storage Management Group's total revenues
in 1996, 1997 and 1998, and 28% (unaudited) in the nine months ended April 3,
1998 and 28% (unaudited) in the nine months ended April 2, 1999. Revenue from
another third-party customer, Tech Data, accounted for 12% of the Network &
Storage Management Group's total revenues in 1998.

     Foreign currency translation. The U.S. dollar is the functional currency
for all of the Network & Storage Management Group's foreign operations. Gains
and losses on the remeasurement into U.S. dollars of amounts denominated in
foreign currencies are included in net income.

     Earnings per share. The Network & Storage Management Group is a division of
Seagate Software and has no formal capital structure. Accordingly, earnings per
share information is not presented.

     Cash management. Seagate Technology uses a centralized cash management
function for all of its domestic operations, including domestic operations of
the Network & Storage Management Group.

     Cash and cash equivalents. The Network & Storage Management Group considers
all highly liquid investments with an original maturity of 90 days or less at
the time of purchase to be cash equivalents. The Network & Storage Management
Group typically uses available cash in excess of amounts required for operating
activities to pay amounts due under the Revolving Loan Agreement. Accordingly,
the Network & Storage Management Group has not had significant cash equivalents
to date.

     Inventories. Inventories are stated at the lower of cost (first in, first
out method) or market, and consist primarily of materials used in software
products, related supplies and packaging materials.

     Equipment and leasehold improvements. Equipment and leasehold improvements
are stated at cost. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets, which range from two to five years.
Assets under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter of the estimated useful lives of the
assets or the remaining lease term.

     Goodwill and other intangible assets. Goodwill represents the excess of the
purchase price of acquired companies over the estimated fair values of tangible
and intangible net assets acquired. Goodwill is amortized on a straight-line
basis over five to seven years. The carrying values of long-term assets and
intangibles other than developed technology ("other intangibles") are reviewed
if facts and circumstances suggest that they may be impaired. If this review
indicates that carrying values of long-term assets and other intangibles and
associated goodwill will not be recoverable based on projected undiscounted
future cash flows, carrying values are reduced to estimated fair values by first
reducing goodwill and second by reducing long-term assets and other intangibles.

                                      F-49
<PAGE>   152
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     Other intangible assets consist of trademarks, assembled workforces,
distribution networks, developed technology, customer bases, and covenants not
to compete related to acquisitions accounted for by the purchase method. See
Note on Business Combinations and Acquisitions. Amortization of purchased
intangibles, other than acquired developed technology, is provided on the
straight-line basis over the respective useful lives of the assets ranging from
36 to 60 months for trademarks, 24 to 48 months for assembled workforces and
distribution networks, 12 to 36 months for customer bases and 18 to 24 months
for covenants not to compete. In-process research and development without
alternative future use is expensed when acquired.

     Developed technology and capitalized software development costs. The
Network & Storage Management Group applies Statement of Financial Accounting
Standards No. 86 ("SFAS 86"), "Accounting for the Costs of Computer Software to
Be Sold, Leased, or Otherwise Marketed", to software technologies developed
internally, acquired in business acquisitions, and purchased.

     Internal development costs are included in research and development and are
expensed as incurred. SFAS 86 requires the capitalization of certain internal
development costs once technological feasibility is established, which based on
the Network & Storage Management Group's development process generally occurs
upon the completion of a working model. As the time period between the
completion of a working model and the general availability of software has been
short, capitalization of internal development costs has not been material to
date. Capitalized costs are amortized based on the greater of the straight-line
basis over the estimated product life (generally 30 to 48 months) or the ratio
of current revenues to the total of current and anticipated future revenues.

     Purchased developed technology, including developed technology acquired in
business acquisitions, is amortized based on the greater of the straight-line
basis over the estimated useful life (30 to 48 months) or the ratio of current
revenues to the total of current and anticipated future revenues. The
recoverability of the carrying value of purchased developed technology and
associated goodwill is reviewed periodically. The carrying value of developed
technology is compared to the estimated future gross revenues from that product
reduced by the estimated future costs of completing and disposing of that
product, including the costs of performing maintenance and customer support (net
undiscounted cash flows) and to the extent that the carrying value exceeds the
undiscounted cash flows the difference is written off. If the developed
technology was acquired in a business combination the carrying value of any
related goodwill is also compared to the estimated net discounted cash flows
less the carrying value of the developed technology and if the carrying value of
the goodwill exceeds the net undiscounted cash flows the difference is written
off.

     Fair value disclosures. The Network & Storage Management Group maintains
its cash principally with major banks in interest- and non-interest-bearing bank
accounts. There are no realized or unrealized gains or losses and fair value
approximates carrying value for all cash balances.

     Pushdown and carveout accounting. Seagate Technology has provided
substantial services to Seagate Software, including general management,
treasury, tax, financial reporting, benefits administration, insurance,
information technology, legal, accounts payable and receivable and credit
functions. Seagate Technology has charged Seagate Software for these services
through corporate expense allocations, and such expenses in turn have been
reallocated by Seagate Software to the Network & Storage Management Group and to
the other businesses of Seagate Software. The amount of corporate expense
allocations is dependent upon the total amount of allocable costs incurred by
Seagate Technology on behalf of Seagate Software and the Network & Storage
Management Group less amounts charged as a specific cost or expense rather than
by allocation.

                                      F-50
<PAGE>   153
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Included in the Network & Storage Management Group's general and administrative
expenses are Seagate Technology allocation charges of $1,771,000, $1,462,000 and
$730,000 for 1996, 1997 and 1998, respectively and $525,000 (unaudited) and
$387,000 (unaudited) for the nine months ended April 3, 1998 and April 2, 1999,
respectively. Included in sales and marketing expenses are Seagate Technology
allocation charges of $14,000, $12,000 and $462,000 for 1996, 1997 and 1998,
respectively and $459,000 (unaudited) and $216,000 (unaudited) for the nine
months ended April 3, 1998 and April 2, 1999, respectively. The increase in
sales and marketing expenses in 1998 was due to proportional cost allocations
from Seagate Technology's corporate branding program, which consisted of
television and newspaper advertisements.

     The Network & Storage Management Group's employees participated in Seagate
Technology's profit sharing plan through the first quarter of fiscal 1998 and in
Seagate Technology's management bonus plan during 1997. The Network & Storage
Management Group has since adopted its own bonus plan. Compensation expenses
recorded by the Network & Storage Management Group under Seagate Technology's
plans totaled $700,000, $2,664,000 and $0 for 1996, 1997 and 1998, respectively.

     The employees of the Network & Storage Management Group also participate in
Seagate Technology Employee Stock Purchase Plan (the "Purchase Plan"). The
Purchase Plan permits eligible employees who have completed thirty days of
employment prior to the inception of the offering period to purchase common
stock of Seagate Technology through payroll deductions at the lower of 85% of
the fair market value of the common stock at the beginning or at the end of each
six-month offering period. Under the plan, approximately 34,500, 71,200 and
75,700 shares of common stock of Seagate Technology were issued to the Network &
Storage Management Group's employees in 1996, 1997 and 1998, respectively.

     The U.S. employees of the Network & Storage Management Group also
participate in the Seagate Technology tax-deferred savings plan, the Seagate
Technology, Inc. Savings and Investment Plan (the "401(k) plan"). The 401(k)
plan is designed to provide qualified employees with an accumulation of funds at
retirement. Qualified employees may elect to make contributions to the 401(k)
plan on a monthly basis. The Network & Storage Management Group may make annual
contributions to the 401(k) plan at the discretion of the Board of Directors.
Network & Storage Management Group contributions were immaterial in fiscal years
1996 and 1997 and were $560,000 in fiscal year 1998.

     Revenue recognition. During fiscal 1998 and prior, the Network & Storage
Management Group recognized revenue in accordance with the American Institute of
Certified Public Accountants Statement of Position 91-1, "Software Revenue
Recognition". The Network & Storage Management Group's total revenues are
derived from license revenues for its various software products as well as
maintenance, support, training and consulting. Revenues for maintenance, support
services, training and consulting are recognized separately from software
licenses. License revenues are recognized upon delivery of the product if no
significant vendor obligations remain and collection of the resulting receivable
is probable. Allowances for estimated future returns are provided upon shipment.
Maintenance and support revenues consist of ongoing support and product updates
and are recognized ratably over the term of the contract, which is typically
twelve months. Revenues from training and consulting are recognized when the
services are performed.

     Revenues from resellers, including VARs, OEMs, distributors and Seagate
Technology, are primarily recognized at the time of product delivery to the
reseller. The Company's policy is to defer

                                      F-51
<PAGE>   154
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

such revenues if resale contingencies exist. Factors considered in the
determination of whether such contingencies exist include, but are not limited
to, payment terms, collectibility and past history with the customer.

     Product returns are reserved for in accordance with SFAS 48. Such returns
are estimated based on historical return rates. The Company considers other
factors such as fixed and determinable fees, resale contingencies, arms length
contract terms and the ability to reasonably estimate returns to ensure
compliance with SFAS 48. Additionally, the Network and Storage Management Group
continually reviews its estimated product return provisions to ensure that they
are reasonable in relation to actual product returns, which are quantified based
on approved return authorization forms received prior to fiscal cutoff dates.
Historically, the Network and Storage Management Group's estimated product
return rates have not varied materially from actual product return rates.

     In October 1997 and March 1998, the American Institute of Certified Public
Accountants issued Statements of Position 97-2, "Software Revenue Recognition"
("SOP 97-2") and 98-4, "Deferral of the Effective Date of a Provision of SOP
97-2, Software Revenue Recognition" ("SOP 98-4"). SOP 97-2 and SOP 98-4 provide
guidance on recognizing revenue on software transactions and supersede SOP 91-1.
The Network & Storage Management Group has assessed the impact of the
requirements of SOP 97-2 and SOP 98-4 and has changed certain of its policies
and procedures. The Network & Storage Management Group's adoption of SOP 97-2
and SOP 98-4 for transactions entered into after July 3, 1998 did not have a
significant impact on revenues or results of operations for the first nine
months of fiscal 1999.

     Advertising expense. The cost of advertising is expensed as incurred. The
Network & Storage Management Group does not incur any direct response
advertising costs. Advertising costs totaled $13,914,000, $18,571,000 and
$12,358,000 in 1996, 1997 and 1998, respectively.

     Accounts receivable. Accounts receivable are summarized below, in
thousands:

<TABLE>
<CAPTION>
                                                         JUNE 27,    JULY 3,     APRIL 2,
                                                           1997       1998         1999
                                                         --------    -------    -----------
                                                                                (UNAUDITED)
<S>                                                      <C>         <C>        <C>
Accounts receivable....................................  $15,340     $16,780     $ 33,165
Less allowance for non-collection......................     (953)       (798)     (10,075)
                                                         -------     -------     --------
                                                         $14,387     $15,982     $ 23,090
                                                         =======     =======     ========
</TABLE>

     Inventory. The write-downs of inventory to the lower of cost or market were
$800,000, $531,000 and $3,674,000 in 1996, 1997 and 1998, respectively. The
write-down in fiscal 1998 was a result of consolidating Seagate Software's
fulfillment warehouses and changing their strategy to have fulfillment
activities handled by an outsourcing partner. As a result of this consolidation
excess and obsolete components and finished goods were written down. The
write-down in fiscal 1997 and 1996 related to excess and obsolete components and
finished goods inventory.

                                      F-52
<PAGE>   155
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     Equipment and leasehold improvements. Equipment and leasehold improvements
consisted of the following, in thousands:

<TABLE>
<CAPTION>
                                                       JUNE 27,    JULY 3,      APRIL 2,
                                                         1997        1998         1999
                                                       --------    --------    -----------
                                                                               (UNAUDITED)
<S>                                                    <C>         <C>         <C>
Equipment............................................  $ 24,063    $ 21,366     $ 24,616
Leasehold improvements...............................     5,274       5,783        8,276
                                                       --------    --------     --------
                                                         29,337      27,149       32,892
Less accumulated depreciation and amortization.......   (12,271)    (15,811)     (20,159)
                                                       --------    --------     --------
                                                       $ 17,066    $ 11,338     $ 12,733
                                                       ========    ========     ========
</TABLE>

     Depreciation is recognized on the straight-line basis over the respective
useful lives of the assets, ranging from two to five years for equipment and the
life of the lease for building and leasehold improvements. Depreciation expense
was $3,455,000, $7,393,000 and $9,111,000 in 1996, 1997 and 1998, respectively.

     Goodwill and other intangibles. Goodwill and other intangibles consisted of
the following, in thousands:

<TABLE>
<CAPTION>
                                                           JUNE 27,   JULY 3,     APRIL 2,
                                                             1997       1998        1999
                                                           --------   --------   -----------
                                                                                 (UNAUDITED)
<S>                                                        <C>        <C>        <C>
Goodwill.................................................  $ 50,286   $ 49,039    $ 49,139
Developed technology.....................................    28,486     28,449      28,638
Trademarks...............................................     3,653      3,653       3,653
Assembled workforce......................................     4,638      2,568       2,568
Distribution network.....................................     2,925      2,925       2,925
Other intangibles........................................     8,604      9,743       9,743
                                                           --------   --------    --------
                                                             98,592     96,377      96,666
Accumulated amortization.................................   (42,375)   (55,046)    (65,102)
                                                           --------   --------    --------
Goodwill and other intangibles...........................  $ 56,217   $ 41,331    $ 31,564
                                                           ========   ========    ========
</TABLE>

     Amortization of developed technologies is included in costs of revenues. In
1996, 1997 and 1998 amortization expense for goodwill and other intangibles
includes write-offs and write-downs to the estimated fair value of $2,157,000,
$6,173,000 and $1,900,000, respectively. In 1997 the amortization of acquired
developed technologies included in cost of revenues includes write-downs and
write-offs to net realizable value of $6,918,000.

     Periodically, the Network & Storage Management Group reviews the carrying
value of its intangibles other than developed technology to ascertain if there
has been any impairment. In 1996, the former owner of Frye Computer Systems,
Inc. (a 1995 acquisition) and its original founder, Mr. Frye, left the Network &
Storage Management Group. With his departure, the Network & Storage Management
Group decided to release Mr. Frye from the remaining period of his covenant not
to compete and to not use the Frye name trademark in future products. As a
result, the remaining carrying value of the covenant not to compete and
trademark and associated goodwill totalling $2,157,000 were written off.

                                      F-53
<PAGE>   156
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     The Network & Storage Management Group also periodically reviews the net
realizable value of developed technology under the guidance of SFAS No. 86. The
Network & Storage Management Group compares the estimated undiscounted future
cash flows on a product by product basis to the unamortized cost of developed
technology. Unamortized costs in excess of the estimated undiscounted cash flows
are written off. The impairment write-offs for developed technology recorded in
1997 were caused by a number of factors including the Network & Storage
Management Group's decision to stop selling products or technologies such as
DOS, new acquisitions, or new product designs. The Network & Storage Management
Group is not currently generating revenue from any products for which the
related developed technology has been impaired.

     In addition, the Network & Storage Management Group assesses the impairment
of goodwill not within the scope of SFAS 121 under Accounting Principles Board
Opinion No. 17, "Intangible Assets" (APB 17). During 1997, the Network & Storage
Management Group wrote-off and wrote-down goodwill amounting to $6,173,000. The
write-offs and write-downs related to the decision to abandon and stop selling
all current and future products acquired from Frye Computer Systems, Inc., the
decision to abandon and stop selling virtually all current and future products
acquired in the acquisition of Palindrome Corporation, and the decision to close
down and sell Calypso Software Systems, Inc.

     The Network & Storage Management Group has capitalized the assembled
workforce in most of its acquisitions. When the Network & Storage Management
Group reviews the carrying value of its intangibles, if there remains less than
5% of the original workforce the related intangible is deemed impaired. In 1998,
the Network & Storage Management Group wrote off the workforces and associated
goodwill for three previous acquisitions, Network Computing, Inc., Netlabs,
Inc., and Creative Interaction Technologies, Inc. because less than 5% of the
original workforce remained.

     The following table provides quantitative information about the write-offs
and write-downs of goodwill and other intangibles, in thousands:

<TABLE>
<CAPTION>
                                           1996                    1997                    1998
                                   ---------------------   ---------------------   ---------------------
                                                           DEVELOPED
                                   INTANGIBLE   GOODWILL   TECHNOLOGY   GOODWILL   INTANGIBLE   GOODWILL
                                   ----------   --------   ----------   --------   ----------   --------
<S>                                <C>          <C>        <C>          <C>        <C>          <C>
COVENANT NOT TO COMPETE
  Frye Computer Systems, Inc.....    $1,188       $744
TRADEMARK
  Frye Computer Systems, Inc.....       225
DEVELOPED TECHNOLOGY
  Netlabs, Inc...................                            $  780
  Palindrome Corporation.........                             2,740      $2,930
  Calypso Software Systems,
     Inc.........................                             1,627       2,573
  Creative Interaction
     Technologies, Inc...........                             1,176
  Frye Computer Systems, Inc.....                               463         670
  Network Computing, Inc.........                               132
</TABLE>

                                      F-54
<PAGE>   157
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                           1996                    1997                    1998
                                   ---------------------   ---------------------   ---------------------
                                                           DEVELOPED
                                   INTANGIBLE   GOODWILL   TECHNOLOGY   GOODWILL   INTANGIBLE   GOODWILL
                                   ----------   --------   ----------   --------   ----------   --------
<S>                                <C>          <C>        <C>          <C>        <C>          <C>
ASSEMBLED WORKFORCE
  Network Computing, Inc.........                                                     $120       $  155
  Netlabs, Inc...................                                                      431        1,045
  Creative Interaction
     Technologies, Inc...........                                                       82           67
                                     ------       ----       ------      ------       ----       ------
     Total.......................    $1,413       $744       $6,918      $6,173       $633       $1,267
                                     ======       ====       ======      ======       ====       ======
</TABLE>

NEW ACCOUNTING PRONOUNCEMENTS

     The Network & Storage Management Group intends to adopt Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS
130"), and No. 131, "Disclosures about Segments of an Enterprise and Related
Information" ("SFAS 131") during fiscal 1999. Both standards will require
additional disclosure, but will not have a material effect on the Network &
Storage Management Group's financial position or results of operations. SFAS 130
establishes standards for the reporting and display of comprehensive income,
including net income and items that are currently reported directly as a
component of stockholders' equity such as changes in foreign currency
translation adjustments and changes in the fair value of available-for-sale
financial instruments. SFAS 131 changes the way companies report segment
information and requires segments to be determined based on how management
measures performance and makes decisions about allocating resources. The Network
& Storage Management Group has not provided the disclosures related to SFAS 130
for the nine month periods ended April 3, 1998 and April 2, 1999, as these
amounts are immaterial.

     In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance on capitalization of the costs incurred for computer software developed
or obtained for internal use. It also provides guidance for determining whether
computer software is internal-use software and on accounting for the proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. The Network & Storage Management Group has not
yet determined the impact, if any, of adopting this statement. The disclosures
prescribed by SOP 98-1 will be effective for the Network & Storage Management
Group's combined financial statements for the fiscal year ending June 30, 2000.

     In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This statement establishes accounting and reporting standards for
derivative instruments and for hedging activities. It requires that derivatives
be recognized in the balance sheet at fair value and specifies the accounting
for changes in fair value. In June 1999, the FASB issued SFAS 137, "Accounting
for Derivative Instruments and Hedging Activities -- Deferral of the Effective
Date of FASB Statement No. 133" to defer the effective date of SFAS 133 until
fiscal years beginning after June 15, 2000. The Network & Storage Management
Group generally does not use derivative financial instruments and the impact of
SFAS 133 is not anticipated to be material when adopted.

                                      F-55
<PAGE>   158
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

BUSINESS COMBINATIONS AND ACQUISITIONS

     The Network & Storage Management Group has a history of acquisitions and
during the three most recent fiscal years acquired Arcada Holdings, Inc.,
Calypso Software Systems, Inc., OnDemand Software, Inc. and Sytron Corporation
in 1996, made no acquisitions in 1997, and acquired Eastman Software Storage
Management Group, Inc. in 1998.

     In accordance with the provisions of APB Opinion 16, all identifiable
assets, including identifiable intangible assets, were assigned a portion of the
cost of the acquired enterprise (purchase price) on the basis of their
respective fair values. This included the portion of the purchase price properly
attributed to incomplete research and development projects that should be
expensed according to the requirements of Interpretation 4 of SFAS No. 2.

     Valuation of acquired intangible assets. To determine the value of
developed technologies, the expected future cash flows of existing product and
core technologies were evaluated, taking into account risks related to the
characteristics and applications of each product, existing and future markets
and assessments of the life cycle stage of each product. Based on this analysis,
the existing technologies that had reached technological feasibility were
capitalized.

     To determine the value of in-process research and development, the Network
& Storage Management Group considered, among other factors, the state of
development of each project, the time and cost needed to complete each project,
expected income, associated risks which included the inherent difficulties and
uncertainties in completing each project and thereby achieving technological
feasibility and risks related to the viability of and potential changes to
future target markets. This analysis resulted in amounts assigned to in-process
research and development for projects that had not yet reached technological
feasibility and which did not have alternative future uses. The Income Approach,
which includes analysis of markets, cash flows, and risks associated with
achieving such cash flows, was the primary technique utilized in valuing each
in-process research and development project. The underlying in-process projects
acquired were the most significant and uncertain assumptions utilized in the
valuation analysis of in-process research & development projects.

     To determine the value of developed technologies, the expected future cash
flows of existing product technologies were evaluated, taking into account risks
related to the characteristics and applications of each product, existing and
future markets and assessments of the life cycle stage of each product. Based on
this analysis, the existing technologies that had reached technological
feasibility were capitalized.

     To determine the value of the distribution networks and customer bases, the
Network & Storage Management Group considered, among other factors, the size of
the current and potential future customer bases, the quality of existing
relationships with customers, the historical costs to develop customer
relationships, the expected income and associated risks. Associated risks
included the inherent difficulties and uncertainties in transitioning the
business relationships from the acquired entity to the Network & Storage
Management Group and risks related to the viability of and potential changes to
future target markets.

     To determine the value of trademarks, the Network & Storage Management
Group considered, among other factors, the assumption that in lieu of ownership
of a trademark, the Network & Storage Management Group would be willing to pay a
royalty in order to exploit the related benefits of such trademark.

                                      F-56
<PAGE>   159
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     To determine the value of assembled workforces, the Network & Storage
Management Group considered, among other factors, the costs to replace existing
employees including search costs, interview costs and training costs.

     Goodwill is determined based on the residual difference between the amount
paid and the values assigned to identified tangible and intangible assets. If
the values assigned to identified tangible and intangible assets exceed the
amounts paid, including the effect of deferred taxes, the values assigned to
long-term assets were reduced proportionally.

     Acquisition of Sytron Corporation. In July 1995, Arcada Software, Inc., a
majority-owned subsidiary of Arcada, acquired the assets and liabilities of
Sytron Corporation, a company that developed, produced and marketed software
products for data storage management. The purchase price of approximately
$5,017,000 was paid in cash. Arcada accounted for the acquisition using the
purchase method, and the results of operations of Sytron are only included in
the Network & Storage Management Group's operations since the acquisition was
completed. The following is a summary of the purchase price allocation, in
thousands:

<TABLE>
<S>                                                           <C>
Current assets and other tangible assets....................  $  848
Liabilities assumed.........................................    (508)
Developed technology........................................   1,487
In-process research and development.........................   2,817
Goodwill....................................................     373
                                                              ------
                                                              $5,017
                                                              ======
</TABLE>

     Acquisition of minority interest of Arcada Holdings, Inc. The combination
of Seagate Software with Arcada Holdings, Inc. ("Arcada"), a company which
developed, marketed and supported data protection and storage management
software products that operated across multiple desktop and client/server
environments, was accounted for as a pooling-of-interests and, accordingly, all
prior periods presented in the accompanying combined financial statements
include the accounts and operations of Arcada. Arcada's results of operations
for the duplicated six months ended December 30, 1995 were as follows, in
thousands:

<TABLE>
<CAPTION>
                                                              SIX MONTHS ENDED
                                                              DECEMBER 30, 1995
                                                              -----------------
<S>                                                           <C>
Net revenues................................................       $37,700
Operating expenses..........................................        29,320
Other income................................................           588
Net loss....................................................           (80)
</TABLE>

     In connection with the pooling-of-interests, the Network & Storage
Management Group acquired the then outstanding minority interest of Arcada. The
minority interest was approximately 31% on a fully diluted basis. The
acquisition of the minority interest was accounted for as a purchase and in
connection with the acquisition, Seagate Technology issued 2,553,000 shares of
common stock with a fair market value of approximately $52,009,000 and 1,817,000
options to purchase common stock with a fair market value of approximately
$33,065,000 (aggregate fair value of $85,074,000). The value of the shares of
Seagate Technology common stock issued to shareholders of Arcada was determined
based on the average market price of Seagate Technology's common stock five days
before and five days after October 3, 1995, the date that the terms of the
acquisition were agreed to. The options were issued to employees of Arcada and
Conner, Arcada's parent, in exchange for options of Arcada.

                                      F-57
<PAGE>   160
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

The options have a term of 10 years and vest 1/16 per quarter over 4 years. The
value of the options were based on the intrinsic value of the options, which
approximates the fair value. The following is a summary of the purchase price
allocation for the acquisition of the minority interest, in thousands:

<TABLE>
<S>                                                           <C>
Assembled workforce.........................................  $ 1,355
Distribution network........................................       94
Corporate accounts..........................................      375
Strategic alliances.........................................    1,437
OEM agreements..............................................    3,217
Value added resellers.......................................    2,030
Trademarks..................................................    2,811
Developed technology........................................    4,623
In-process research and development.........................   43,949
Deferred tax liability......................................   (6,254)
Goodwill....................................................   31,437
                                                              -------
                                                              $85,074
                                                              =======
</TABLE>

     Intangible assets were identified through (i) analysis of the acquisition
agreement, (ii) consideration of the Network & Storage Management Group's
intentions for future use of the acquired assets, and (iii) analysis of data
available concerning Arcada's products, technologies, markets, historical
financial performance, estimates of future performance and the assumptions
underlying those estimates. The economic and competitive environment in which
the Network & Storage Management Group and Arcada operate was also considered in
the valuation analysis.

     Specifically, purchased research and development ("purchased R&D") was
identified and valued through extensive interviews and discussions with the
Network & Storage Management Group and Arcada management and the analysis of
data provided by Arcada concerning Arcada's developmental products their
respective stage of development, the time and resources needed to complete them,
their expected income generating ability, target markets and associated risks.
The Income Approach, which includes an analysis of the markets, cash flows, and
risks associated with achieving such cash flows, was the primary technique
utilized in valuing each purchased R&D project. A portion of the purchase price
was allocated to the developmental projects based on the appraised fair values
of such projects.

DISCUSSION OF IN-PROCESS RESEARCH & DEVELOPMENT ONE TIME WRITE-OFF

OVERVIEW

     As of the acquisition date, Arcada had spent a significant amount of money
on research and development related to the re-development efforts to add
features and utilities to the Desktop, NetWare and Windows NT products such as
disk grooming, hierarchical storage management, upgraded graphical user
interfaces, file and server replication, and server mirroring in order to
continue to meet increasingly complex user needs.

     In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although Seagate purchased existing products from Arcada, since the
majority of the original underlying code and base technology for the

                                      F-58
<PAGE>   161
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

NetWare and Windows NT product families was completed in the 1990 time frame,
the technologies, as of the date of valuation, were undergoing significant
re-development.

ASSUMPTIONS

     Revenue

     Future revenue estimates were generated for the following product families:
(i) Desktop, (ii) NetWare, and (iii) Windows NT. Aggregate revenue for Arcada
products was estimated to be approximately $94 million for the ten and one-half
months ending December 31, 1996. Revenues were estimated to increase to
approximately $161 million and $234 million for calendar years 1997 and 1998
when most of the in-process projects were expected to be complete and shipping.
Thereafter, revenue was estimated to increase at rates ranging from 35% to 40%
for calendar years 1999 through 2002. Revenue estimates were based on (i)
aggregate revenue growth rates for the business as a whole, (ii) individual
product revenues, (iii) growth rates for the storage management software market,
(iv) the aggregate size of the storage management software market, (v)
anticipated product development and introduction schedules, (vi) product sales
cycles, and (vii) the estimated life of a product's underlying technology. The
estimated product development cycle for the new products ranged from 12 to 18
months.

     Operating expenses

     Operating expenses used in the valuation analysis of Arcada included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both Seagate Software and Arcada's
overall business model, specific product results, including both historical and
expected direct expense levels (as appropriate), and an assessment of general
industry metrics was conducted.

     Cost of goods sold. Cost of goods sold, expressed as a percentage of
revenue, for the developed and in-process technologies ranged from approximately
5% to 30% (30% for Desktop, 10% for NetWare, and 5% for Windows NT). The Network
& Storage Management Group's cost of goods sold was 23% for fiscal 1996, 23% for
fiscal 1997, and 13% for fiscal 1998.

     General and administrative ("G&A") expense. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies ranged from
12% in calendar 1996 to 8% in calendar 1998 and beyond.

     Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 30% throughout the estimation period.

     Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed
technologies and 3% of revenue for the in-process technologies throughout the
estimation period.

     In addition, as of the date of acquisition, the Network & Storage
Management Group management anticipated the costs to complete the Desktop,
NetWare, and Windows NT technologies

                                      F-59
<PAGE>   162
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

at approximately $6.8 million, $4.5 million, and $7.5 million, respectively.
Since the acquisition date, all projects originally acquired from Arcada were
commercially released prior to the end of the fourth quarter of fiscal 1997.

     Effective tax rate

     The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate's combined federal and state
statutory income tax rates, exclusive of non-recurring charges at the time of
the acquisition and estimated for future years.

     Discount rate

     The discount rates selected for Arcada's developed and in-process
technologies were 15% and 17.5% respectively. In the selection of the
appropriate discount rates, consideration was given to (i) the Weighted Average
Cost of Capital (approximately 13% to 15% at the date of acquisition) of its
parent, Seagate Technology, Inc. and (ii) the Weighted Average Return on Assets
(approximately 18%). The discount rate utilized for the in-process technology
was determined to be higher than Seagate's WACC due to the fact that the
technology had not yet reached technological feasibility as of the date of
valuation. In utilizing a discount rate greater than Seagate's WACC, management
has reflected the risk premium associated with achieving the forecasted cash
flows associated with these projects.

     Acquisition of OnDemand Software, Inc. In March 1996, the Network & Storage
Management Group acquired all of the outstanding shares and stock options of
OnDemand Software, Inc. ("OnDemand"), a company engaged in developing, producing
and marketing WinINSTALL, a product which automates installation, upgrades and
uninstalls of network applications throughout the enterprise. The purchase price
of approximately $13,425,000 was paid in cash. The Network & Storage Management
Group accounted for the acquisition using the purchase method, and the results
of operations of OnDemand are only included in the Network & Storage Management
Group's operations since the date the acquisition was completed. The following
is a summary of the purchase price allocation, in thousands:

<TABLE>
<S>                                                           <C>
Current assets and other tangible assets....................  $   832
Liabilities assumed.........................................     (227)
Assembled workforce.........................................      270
Developed technology........................................    2,000
Covenant not to compete.....................................       50
In-process research and development.........................    8,900
Goodwill....................................................    1,600
                                                              -------
                                                              $13,425
                                                              =======
</TABLE>

     OnDemand develops and markets electronic software distribution products
involved in network management in the client/server environment. OnDemand's
flagship product is WinINSTALL. As of the date of acquisition, OnDemand was in
the process of developing the next generation of WinINSTALL Version 6.0. A
significant feature of Version 6.0 (not available by any competitive product)
was a rollback with clone capability, which would allow the user to selectively
return a PC to a previous state upon installation failure or upon user demand.
In order for WinINSTALL Version 6.0 to become a commercially viable product,
OnDemand, as of the valuation date, had undergone or was in the process of
undergoing significant development efforts, including

                                      F-60
<PAGE>   163
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

(i) developing rollback facilities, including clone capability, (ii) expanding
global editor to be included in the WinINSTALL registry file, (iii) improving
WinINSTALL Remote to ease package generation and distribution, (iv) adding a
feature that would allow optional electronic mail notification on installation
failure and on installation refusals due to reaching license limitations, and
(v) expanding copy options and interactive install displays, adding substitution
variables, and allowing version control of backup files.

     As of the date of acquisition, Company management anticipated the costs to
complete WinINSTALL Version 6.0 at approximately $920,000. Since the acquisition
date, the acquired in-process research and development from OnDemand has been
completed and the related products have been released prior to the end of fiscal
1997.

     Acquisition of Calypso Software Systems, Inc. In May 1996, the Network &
Storage Management Group acquired all of the outstanding shares of Calypso
Software Systems, Inc. ("Calypso"), a company engaged in developing, producing
and marketing software for managing systems and applications in complex,
distributed client/server computer networks. The purchase price of approximately
$13,865,000 was paid in cash. The Network & Storage Management Group accounted
for the acquisition using the purchase method, and the results of operations of
Calypso are only included in the Network & Storage Management Group's operations
since the date the acquisition was completed. The following is a summary of the
purchase price allocation, in thousands:

<TABLE>
<S>                                                           <C>
Current assets and other tangible assets....................  $ 1,209
Liabilities assumed.........................................     (245)
Assembled workforce.........................................      400
Developed technology........................................    3,600
Customer base...............................................      540
In-process research and development.........................    5,400
Goodwill....................................................    2,961
                                                              -------
                                                              $13,865
                                                              =======
</TABLE>

     Calypso is a software developer in the enterprise network/system management
market. Calypso provides software which is designed to enable companies to
automate the management of their distributed applications. At the date of
acquisition, Calypso had two main products: Maestro Vision ("Maestro") and
Atrium Extendible Management System ("EMS") for Spectrum. Both existing
products, as of the acquisition date, were planned to be phased out over the
following 24 months. Calypso, at the acquisition date, was in the process of
developing the next generation Atrium EMS product that can be sold stand-alone.
Both Maestro and Atrium EMS for Spectrum were originally designed for use only
on certain system platforms, Cabletron and Spectrum, respectively. However,
Atrium EMS (stand-alone) would allow systems managers on any system platform to
distribute software; monitor CPU, memory, and operating system administration;
manage applications, file systems, and print services; and perform UNIX and NT
system administration.

     As of the date of acquisition, Calypso had undergone or was in the process
of undergoing the re-write of code in C+, adding navigator capabilities,
developing web server and browser interoperability, developing CORBA
interoperability, and developing Network OLE/COM interoperability for Atrium EMS
(stand-alone). The estimated cost to complete, at the date of acquisition, was
approximately $750,000. These in process research and development projects were
successfully completed prior to a restructuring of operations in the third
quarter of fiscal 1997. As a result of this restructuring and a

                                      F-61
<PAGE>   164
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

change in the Company's strategic direction, in the first quarter of fiscal 1998
the Company disposed of all the developed and in process technologies originally
acquired from Calypso.

     Acquisition of Eastman Software Storage Management Group, Inc. In June
1998, the Network & Storage Management Group acquired all of the outstanding
capital stock of Eastman Software Storage Management Group, Inc. ("Eastman"), a
company engaged in developing, producing and marketing hierarchical storage
management products for the Windows NT platform. The purchase price of
approximately $10,000,000 was paid in cash. Approximately $6,800,000 of the
total purchase price represented the value of in-process technology that had not
yet reached technological feasibility, had no alternative future uses and was
charged to the Network & Storage Management Group's operations in the quarter
ended July 3, 1998. The Network & Storage Management Group accounted for the
acquisition using the purchase method, and the results of operations of Eastman
are only included in the Network & Storage Management Group's operations since
the date the acquisition was completed. Pro forma financial information is not
presented as such amounts are not material. The following is a summary of the
purchase price allocation, in thousands:

<TABLE>
<S>                                                           <C>
Current assets and other tangible assets....................  $   535
Liabilities assumed.........................................     (508)
Assembled workforce.........................................      340
Developed technology........................................      500
In-process research and development.........................    6,800
Microsoft agreement.........................................    1,500
Goodwill....................................................      833
                                                              -------
                                                              $10,000
                                                              =======
</TABLE>

OVERVIEW

     Eastman Software Storage Management Group's two primary products are
OPEN/stor for Windows NT and AvailHSM for NetWare. By integrating Eastman's
product line, the Network & Storage Management Group will be able to convert
their Storage Migrator product into a stand-alone HSM application for Windows NT
environments. As of the date of acquisition the Network & Storage Management
Group abandoned the AvailHSM product and technology due to dated features and
functionality; the valuation analysis did not include a fair value for the
AvailHSM product.

     As for OPEN/stor at the date of acquisition the Network & Storage
Management Group planned to phase out the product over the following 12 to 15
months. NSMG's purpose for the acquisition was for the next generation
technologies that were underway at Eastman referenced by project names Sakkara
and Phoenix. These projects were complete re-writes of Eastman's prior
generation technology that would allow the product to be sold stand-alone upon
completion.

     In accordance with SFAS 86, paragraph 38 ("Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise Marketed"), "the cost of
software purchased to be integrated with another product or process will be
capitalized only if technological feasibility was established for the software
component and if all research and development activities for the other
components of the product or process were completed at the time of the
purchase." Although the Network & Storage Management Group purchased existing
products from Eastman, the existing products did not operate on a stand-alone
basis. Therefore, as mentioned above, all of the original underlying code and
base technology for the next generation products were in the process of being
completely re-written as date of valuation.

                                      F-62
<PAGE>   165
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

ASSUMPTIONS

     Revenue

     Future revenue estimates were generated for the following technologies: (i)
OPEN/stor, (ii) Sakkara, and (iii) Phoenix. Aggregate revenue for existing
Eastman products was estimated to be approximately $167,000 for the one month
ending June 30, 1998. Revenues were estimated to increase to approximately $3.9
million and $7.1 million for fiscal years 1999 and 2000 when most of the
in-process projects were expected to be complete and shipping. Thereafter,
revenue was estimated to increase at rates ranging from 20% to 30% for fiscal
years 2001 through 2006. Revenue estimates were based on (i) aggregate revenue
growth rates for the business as a whole, (ii) individual product revenues,
(iii) growth rates for the storage management software market, (iv) the
aggregate size of the storage management software market, (v) anticipated
product development and introduction schedules, (vi) product sales, cycles, and
(vii) the estimated life of a product's underlying technology.

     Operating expenses

     Operating expenses used in the valuation analysis of Eastman included (i)
cost of goods sold, (ii) general and administrative expense, (iii) selling and
marketing expense, and (iv) research and development expense. In developing
future expense estimates, an evaluation of both the Network & Storage Management
Group's and Eastman's overall business model, specific product results,
including both historical and expected direct expense levels (as appropriate),
and an assessment of general industry metrics was conducted.

     Cost of goods sold. Cost of goods sold expressed as a percentage of revenue
for the developed and in-process technologies was estimated to be approximately
5% throughout the estimation period. The Network & Storage Management Group's
cost of goods sold was 23% for fiscal 1996 and 23% for fiscal 1997.

     General and administrative ("G&A") expenses. G&A expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be approximately 10% throughout the estimation period.

     Selling and marketing ("S&M") expense. S&M expense, expressed as a
percentage of revenue, for the developed and in-process technologies was
estimated to be 27% throughout the estimation period.

     Research and development ("R&D") expense. R&D expense consists of the costs
associated with activities undertaken to correct errors or keep products updated
with current information (also referred to as "maintenance" R&D). Maintenance
R&D includes all activities undertaken after a product is available for general
release to customers to correct errors or keep the product updated with current
information. These activities include routine changes and additions. The
maintenance R&D expense was estimated to be 5% of revenue for the developed and
in-process technologies throughout the estimation period.

     In addition, as of the date of acquisition, the Network & Storage
Management Group's management anticipated the costs to complete the in-process
technologies at approximately $1.8 million.

                                      F-63
<PAGE>   166
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

EFFECTIVE TAX RATE

     The effective tax rate utilized in the analysis of developed and in-process
technologies was 38%, which reflects Seagate Software's combined federal and
state statutory income tax rates, exclusive of non-recurring charges at the time
of the acquisition and estimated for future years.

DISCOUNT RATE

     The discount rates selected for Eastman's developed and in-process
technologies were 15% and 20%, respectively. In the selection of the appropriate
discount rates, consideration was given to (i) the Weighted Average Cost of
Capital (approximately 15% at the date of acquisition) and (ii) the Weighted
Average Return on Assets (approximately 18%). The discount rate utilized for the
in-process technology was determined to be higher than Seagate Software's WACC
due to the fact that the technology had not yet reached technological
feasibility as of the date of valuation. In utilizing a discount rate greater
than Seagate Software's WACC, management has reflected the risk premium
associated with achieving the forecasted cash flows associated with these
projects.

STOCK OPTION PLANS

     The Seagate Software option plan provides for the issuance of either
incentive or nonstatutory stock options to employees and consultants of Seagate
Software and Seagate Technology. Seagate Software has reserved a total of
12,600,000 shares under the Plan. Options granted under Seagate Software's Plan
are granted at fair market value, expire ten years from the date of the grant
and vest over four years; 20% at the end of years one and two and 30% at the end
of years three and four.

     The following table summarizes information about Seagate Software options
outstanding as of July 3, 1998 for employees of the Network & Storage Management
Group. Certain of Seagate Software's operations are shared locations involving
activities that pertain to the Network & Storage Management Group as well as to
other businesses of Seagate Software. Options outstanding for employees in
shared locations have been allocated based on specific identification for each
employee.

<TABLE>
<CAPTION>
                           OPTIONS OUTSTANDING             EXERCISABLE OPTIONS
                  --------------------------------------   --------------------
                                 WEIGHTED
                                  AVERAGE       WEIGHTED               WEIGHTED
                                 REMAINING      AVERAGE                AVERAGE
   EXERCISE       NUMBER OF     CONTRACTUAL     EXERCISE    NUMBER     EXERCISE
    PRICES         SHARES     LIFE (IN YEARS)    PRICE     OF SHARES    PRICE
- ---------------   ---------   ---------------   --------   ---------   --------
<S>               <C>         <C>               <C>        <C>         <C>
$          4.00   1,293,677         7.9          $ 4.00     495,911     $4.00
$          6.00   1,875,278         9.0            6.00     132,420      6.00
$ 7.50 -- 11.00     879,597         9.6            8.86       4,780      8.08
$         12.75   1,467,378        10.0           12.75          --        --
                  ---------                                 -------
          Total   5,515,930         9.1            7.78     633,111      4.45
                  =========                                 =======
</TABLE>

     Pro forma information. In October 1995, the Financial Accounting Standards
Board released Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). SFAS 123 provides an alternative to
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" ("APBO 25") and requires additional disclosures. Seagate Software and
the Network & Storage Management Group have elected to follow APBO 25 in
accounting for stock options granted. Under APBO 25, Seagate Software and the
Network &

                                      F-64
<PAGE>   167
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

Storage Management Group generally have not recognized compensation expense with
respect to such options.

     Pro forma information regarding net income and earnings per share is
required by SFAS 123 for stock options granted after June 30, 1995, as if the
Network & Storage Management Group had accounted for Seagate Software stock
options under the fair value method of SFAS 123. The fair value of Seagate
Software options granted to Network & Storage Management Group employees was
estimated using a Black-Scholes option valuation model. The Black-Scholes option
valuation model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. In
addition, the Black-Scholes model requires the input of highly subjective
assumptions, including the expected stock price volatility. Because the Seagate
Software stock options granted to the Network & Storage Management Group's
employees have characteristics significantly different from those of
exchange-traded options (and are not fully transferable) and because changes in
the subjective input assumptions can materially affect the fair value estimate,
in management's opinion, the Black-Scholes model does not necessarily provide a
reliable single measure of the fair value of its stock options granted to
employees.

     The fair value of Seagate Software stock options granted to the Network &
Storage Management Group's employees was estimated assuming no expected
dividends and the following weighted average assumptions:

<TABLE>
<CAPTION>
                                                 SEAGATE SOFTWARE       SEAGATE TECHNOLOGY
                                                    INCENTIVE             EMPLOYEE STOCK
                                                   STOCK OPTION              PURCHASE
                                                   PLAN SHARES             PLAN SHARES
                                               --------------------    --------------------
                                               1996    1997    1998    1996    1997    1998
                                               ----    ----    ----    ----    ----    ----
<S>                                            <C>     <C>     <C>     <C>     <C>     <C>
Expected life (in years).....................  3.65    3.65    3.67    .50     .50     .56
Risk-free interest rate......................   5.6%    6.2%    5.7%   5.4%    5.4%    5.5%
Volatility...................................   .55     .55     .55    .46     .46     .63
</TABLE>

     The weighted average exercise price and weighted average fair value of
Seagate Software stock options granted to Network & Storage Management Group
employees in 1998 under Seagate Software's Plan were $9.04 and $4.20 per share,
respectively. The weighted average purchase price and weighted average fair
value of shares granted to Networ & Storage Management Group employees in 1998
under Seagate Technology Employee Stock Purchase Plan (the "Purchase Plan") were
$26.99 and $12.03, respectively.

     For purposes of pro forma disclosures, the estimated fair value of options
granted to the Network & Storage Management Group's employees is amortized over
the options' vesting period for Seagate Software stock options and over the
six-month purchase period for stock purchases under the Purchase Plan. For
purposes of the determination of pro forma net loss, pro forma expense relating
to stock options under FAS 123 was allocated based on Network & Storage
Management Group headcount as a percentage of total Seagate Software headcount.
The pro forma net loss was $94,846,000, $35,406,000 and $844,000 in 1996, 1997
and 1998, respectively. Because the Network & Storage Management Group does not
have a formal capital structure, pro forma net loss per share is not presented.

     The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to June 30,
1995, and Seagate Software did not commence granting stock options

                                      F-65
<PAGE>   168
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

for the purchase of Seagate Software common stock until June 1996, the pro forma
effect will not be fully reflected until 2000.

INCOME TAXES

     The Network & Storage Management Group is included in the consolidated
federal and certain combined and consolidated foreign and state income tax
returns of Seagate Technology. Seagate Technology and Seagate Software have
entered into a tax sharing agreement (the "Tax Allocation Agreement") pursuant
to which the Network & Storage Management Group computes hypothetical tax
returns (with certain modifications) as if the Network & Storage Management
Group was not joined in consolidated or combined returns with Seagate
Technology. The Network & Storage Management Group must pay Seagate Technology
the positive amount of any such hypothetical taxes. If the hypothetical tax
returns show entitlement to refunds, including any refunds attributable to a
carryback, then Seagate Technology will pay the Network & Storage Management
Group the amount of such refunds. At the end of fiscal 1996 and 1997, there were
no intercompany tax-related balances outstanding between the Network & Storage
Management Group and Seagate Technology. At the end of fiscal 1998, a $6,958,000
intercompany tax-related balance was due from the Network & Storage Management
Group to Seagate Technology.

     The (benefit from) provision for income taxes consisted of the following,
in thousands:

<TABLE>
<CAPTION>
                                                           JUNE 28,    JUNE 27,    JULY 3,
                                                             1996        1997       1998
                                                           --------    --------    -------
<S>                                                        <C>         <C>         <C>
Current tax expense
  Federal................................................  $(6,035)    $ (2,991)   $ 8,282
  State..................................................   (1,171)        (563)       908
  Foreign................................................      228          473      1,213
                                                           -------     --------    -------
          Total current tax expense......................   (6,978)      (3,081)    10,403
Deferred tax expense
  Federal................................................   (1,506)      (6,330)    (3,831)
  State..................................................     (280)      (1,175)      (711)
                                                           -------     --------    -------
          Total deferred tax expense.....................   (1,786)      (7,505)    (4,542)
                                                           -------     --------    -------
(Benefit from) provision for income taxes................  $(8,764)    $(10,586)   $ 5,861
                                                           =======     ========    =======
</TABLE>

     The (benefit from) provision for income taxes has been computed on a
separate return basis subject to the following modifications as required by the
Tax Allocation Agreement: (i) profitable members of the consolidated return
group are prohibited from applying tax net operating loss carryforwards and tax
credit carryforwards to reduce their separately computed tax liabilities to the
extent that current year tax losses or tax credits of other members are
available to reduce a profitable member's separate tax liability; and (ii)
members must reimburse other members to the extent they use another member's tax
attributes to reduce their separately computed tax liabilities. Pursuant to the
terms of the Tax Allocation Agreement, the tax benefits of certain of the
Network & Storage Management Group's fiscal 1996 and 1997 tax losses and credits
are recognized in the year such losses and credits are utilized by Seagate
Technology in its tax returns.

                                      F-66
<PAGE>   169
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     The pro forma information assuming a tax provision based on a separate
filing basis is as follows, in thousands:

<TABLE>
<CAPTION>
                                                               YEAR ENDED
                                                              JULY 3, 1998
                                                              ------------
<S>                                                           <C>
Income before provision for income taxes....................     $8,717
Provision for income taxes..................................      3,064
                                                                 ------
Net income..................................................     $5,653
                                                                 ======
</TABLE>

     The income tax benefits related to the exercise of employee stock options
reduced amounts due to or increased amounts due from Seagate Technology pursuant
to the Tax Allocation Agreement and were credited to additional paid-in capital.
Such amounts approximated $1,866,000, $3,486,000 and $576,000 in 1996, 1997 and
1998, respectively.

     Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The significant
components of the Network & Storage Management Group's deferred tax assets and
liabilities were as follows, in thousands:

<TABLE>
<CAPTION>
                                                              JUNE 27,    JULY 3,
                                                                1997        1998
                                                              --------    --------
<S>                                                           <C>         <C>
DEFERRED TAX ASSETS
Reserves and accruals not currently deductible..............  $  5,001    $  5,526
Depreciation................................................       819        (980)
Acquisition-related items...................................     8,445       8,534
Domestic and foreign net operating loss carryforwards.......    12,779      12,788
Tax credit carryforwards....................................     1,155       1,155
Other.......................................................     1,170       1,535
                                                              --------    --------
          Total deferred tax assets.........................    29,369      28,558
Valuation allowance.........................................   (29,369)    (28,558)
                                                              --------    --------
          Net deferred tax assets...........................        --          --
                                                              ========    ========
DEFERRED TAX LIABILITIES
Acquisition-related items...................................    (6,233)     (1,691)
                                                              --------    --------
          Total deferred tax liabilities....................    (6,233)     (1,691)
                                                              --------    --------
          Net deferred tax liabilities......................  $ (6,233)   $ (1,691)
                                                              ========    ========
</TABLE>

     A valuation allowance has been provided for the deferred tax assets as of
the end of fiscal 1997 and 1998. Realization of the deferred tax assets is
dependent on future earnings, the timing and amount of which are uncertain. In
addition, the net operating loss and tax credit carryforwards of acquired
subsidiaries are subject to further limitations on utilization due to the
"change in ownership" provisions of Internal Revenue Code Section 382 and the
"separate return limitation year" rules of the federal consolidated return
regulations. Approximately $5,416,000 of the valuation allowance as of July 3,
1998, is attributable to deferred tax assets that when realized will reduce
unamortized goodwill or other intangible assets of the acquired subsidiaries.
The valuation allowance increased by $12,197,000 and $2,942,000 in 1996 and
1997, respectively and decreased by $811,000 in 1998.

                                      F-67
<PAGE>   170
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     As of July 3, 1998, the Network & Storage Management Group has domestic and
foreign net operating loss carryforwards of approximately $36,538,000 expiring
in 2003 through 2010, if not used to offset future taxable income. In addition,
the Network & Storage Management Group, as of July 3, 1998, has research and
development tax credit carryforwards of approximately $1,155,000 expiring in
2005 through 2011, if not used to offset future tax liabilities.

     The reconciliation between the (benefit from) provision for income taxes at
the U.S. statutory rate and the effective rate is summarized as follows, in
thousands:

<TABLE>
<CAPTION>
                                                           JUNE 28,    JUNE 27,    JULY 3,
                                                             1996        1997       1998
                                                           --------    --------    -------
<S>                                                        <C>         <C>         <C>
(Benefit) provision at U.S. statutory rate...............  $(36,176)   $(15,325)   $3,051
State income taxes (benefit), net........................      (761)       (563)      909
Foreign taxes in excess of the U.S. statutory rate.......        18          75       153
In-process research and development......................    15,382          --        --
Goodwill and other acquisition-related items.............     2,833       4,307     2,894
Valuation allowance......................................     9,936       1,395      (811)
Other....................................................         4        (475)     (335)
                                                           --------    --------    ------
                                                           $ (8,764)   $(10,586)   $5,861
                                                           ========    ========    ======
</TABLE>

     Cumulative undistributed earnings of certain foreign operations of the
Network & Storage Management Group, of $2,276,000 are considered to be
permanently invested in non-U.S. operations. No income tax has been provided on
these amounts. Additional state and federal taxes that would have to be provided
if these earnings were repatriated to the U.S. cannot be determined at this
time.

COMMITMENTS

     Leases. The Network & Storage Management Group leases certain property,
facilities and equipment under non-cancelable lease agreements. Facility leases
expire at various dates through 2008 and contain various provisions for rental
adjustments. The leases require the Network & Storage Management Group to pay
property taxes, insurance and normal maintenance costs. The Network & Storage
Management Group also occupies certain facilities owned by Seagate Technology.
Future minimum payments for operating leases were as follows at July 3, 1998, in
thousands:

<TABLE>
<CAPTION>
                                                              OPERATING
                                                               LEASES
                                                              ---------
<S>                                                           <C>
1999........................................................   $ 5,137
2000........................................................     4,605
2001........................................................     2,995
2002........................................................     2,603
2003........................................................     2,471
After 2003..................................................    34,287
                                                               -------
                                                               $52,098
                                                               =======
</TABLE>

     Total rent expense for all facility and equipment operating leases was
approximately $2,743,000, $4,094,000 and $4,781,000 for 1996, 1997 and 1998,
respectively.

                                      F-68
<PAGE>   171
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

LEGAL PROCEEDINGS

     On December 22, 1998, a former employee commenced an action in the Superior
Court of Santa Cruz County against Seagate Software, Inc. claiming promissory
fraud and fraudulent inducement to enter a contract, breach of a contract,
constructive wrongful discharge and related claims, seeking monetary and
injunctive relief. Specifically, the former employee alleges that a Seagate
Software officer agreed to sell him a division of the Network & Storage
Management Group business. On May 10, 1999 the plaintiff filed a dismissal with
prejudice of all claims with the Superior Court.

     The Network & Storage Management Group business is engaged in various legal
actions arising in the ordinary course of business and believes that the
ultimate outcome of these actions will not have a material adverse effect on the
Network & Storage Management Group business' financial position, liquidity or
results of operations.

RESTRUCTURING COSTS

     Restructuring charges were $9.5 million in fiscal 1996 and $2.5 million in
fiscal 1997. The 1996 restructuring charges pertain to the acquisition of Arcada
Holdings, Inc. in February 1996. As a result of the acquisition, the Network &
Storage Management Group business had obtained duplicate technologies and
product lines in data protection and storage management software as those assets
acquired in the Palindrome Corporation ("Palindrome") acquisition in fiscal
1995. The Network & Storage Management Group determined that it would be
beneficial to consolidate the world-wide sales, marketing, research and
development, technical support and other operations and administrative functions
of its network and storage management business. A restructuring plan was
approved by the Seagate Software Board of Directors in March 1996 and the plan
resulted in facility closures and staff reductions of 43 at the Arcada
facilities in Westboro, Massachusetts, the United Kingdom and France, as well as
staff reductions of 69 at the former Palindrome facility in Naperville,
Illinois. In addition, because Arcada had a better industry reputation and
superior products to those of Palindrome, the Network & Storage Management
Group's plan and strategy going forward was to focus on the technologies and
products acquired from Arcada. The revenue and net operating loss relating to
products acquired from Palindrome for fiscal 1996 was $15.9 million and $2.1
million, respectively. For fiscal 1997, the revenue and net operating loss
relating to products acquired from Palindrome was $3.3 million and $3.7 million,
respectively.

     The non-cash restructuring charges included amounts for abandonment of the
Palindrome trademarks, impairment of the capitalized workforce intangible assets
pertaining to the acquisition of Palindrome because of the planned layoff of
personnel, write-off of a duplicate trade show booth, and write-off of obsolete
Palindrome marketing materials. Cash restructuring charges included amounts for
severance and benefits to terminated Palindrome employees, costs for facilities
lease termination, other contract cancellation fees, and merger related costs
incurred by Arcada in the acquisition of the Arcada minority pooling of
interests by Seagate Technology.

     The fiscal 1997 restructuring charges netted to $2.5 million, comprised of
a $3.4 million restructuring charge that included the closure of the Network &
Storage Management Group's facility located in Cupertino, California. This
facility closure resulted in cash charges for severance and benefits for 69
employee terminations and non-cash charges for excess facilities and the write
down of equipment. In addition, the $3.4 million included amounts related to the
decision, after concluding a sale was no longer viable, to no longer pursue the
technologies acquired in the fiscal 1996 acquisition of Calypso Software
Systems, Inc. and to shut down its operations. This decision resulted in cash
charges for severance and benefits for 35 employee terminations and non-cash
                                      F-69
<PAGE>   172
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

charges for the write off of certain remaining intangible assets of Calypso. The
revenue and net operating loss relating to products acquired from Calypso for
fiscal 1996 was $444,000 and $53,000, respectively. For fiscal 1997, the revenue
and net operating loss relating to products acquired from Calypso was $640,000
and $47,000, respectively.

     The restructuring charges recorded in fiscal 1997 were reduced by $957,000
for the reversal of amounts pertaining to the fiscal 1996 restructuring charges
as a result of a higher than planned number of voluntary employee terminations
without severance benefits prior to the facility shutdown and completion of
other aspects of the restructuring plan at less than the originally estimated
cost, net of an increase in the accrual for facilities lease payments due to
changes in estimates of the costs to terminate leases after facilities closure.

     A summary of Network & Storage Management Group business restructuring
activities is provided below (in thousands):
<TABLE>
<CAPTION>
                                      SEVERANCE                                                          CONTRACT     LEGAL AND
                                     AND EMPLOYEE                                                      CANCELLATION   ACCOUNTING
                                       BENEFITS     FACILITIES   EQUIPMENT   INVENTORY   INTANGIBLES       FEES          FEES
                                     ------------   ----------   ---------   ---------   -----------   ------------   ----------
<S>                                  <C>            <C>          <C>         <C>         <C>           <C>            <C>
1996 restructuring charges.........     $1,554        $1,571      $1,018       $300        $4,312          $67           $525
Cash charges.......................       (518)           --          --         --            --           --           (568)
Non-cash charges...................         --          (121)       (116)        --        (4,052)          --             --
                                        ------        ------      ------       ----        ------          ---           ----
Reserve balances, June 28, 1996....      1,036         1,450         902        300           260           67            (43)
1997 restructuring charges.........        770           505         728         --         1,378           --             --
Cash charges.......................       (975)         (915)         --         --            --           --             --
Non-cash charges...................         --           (72)        (44)        --        (1,378)          --             --
Adjustments and
  reclassifications................       (351)          267        (172)      (300)         (260)         (67)            43
                                        ------        ------      ------       ----        ------          ---           ----
Reserve balances, June 27, 1997....        480         1,235       1,414         --            --           --             --
Cash charges.......................       (373)         (519)         (9)        --            --           --             --
Non-cash charges...................         --            --      (1,045)        --            --           --             --
Adjustments and
  reclassifications................       (107)          467        (360)        --            --           --             --
                                        ------        ------      ------       ----        ------          ---           ----
Reserve balances, July 3, 1998.....         --         1,183          --         --            --           --             --
Cash charges (unaudited)...........         --          (375)         --         --            --           --             --
                                        ------        ------      ------       ----        ------          ---           ----
Reserve balances, April 2, 1999
  (unaudited)......................     $   --        $  808      $   --       $ --        $   --           --           $ --
                                        ======        ======      ======       ====        ======          ===           ====

<CAPTION>

                                      OTHER
                                     EXPENSES   TOTAL
                                     --------   ------
<S>                                  <C>        <C>
1996 restructuring charges.........    $155     $9,502
Cash charges.......................      --     (1,086)
Non-cash charges...................    (138)    (4,427)
                                       ----     ------
Reserve balances, June 28, 1996....      17      3,989
1997 restructuring charges.........     100      3,481
Cash charges.......................      --     (1,890)
Non-cash charges...................      --     (1,494)
Adjustments and
  reclassifications................    (117)      (957)
                                       ----     ------
Reserve balances, June 27, 1997....      --      3,129
Cash charges.......................      --       (901)
Non-cash charges...................      --     (1,045)
Adjustments and
  reclassifications................      --         --
                                       ----     ------
Reserve balances, July 3, 1998.....      --      1,183
Cash charges (unaudited)...........      --       (375)
                                       ----     ------
Reserve balances, April 2, 1999
  (unaudited)......................    $ --     $  808
                                       ====     ======
</TABLE>

     The Network & Storage Management Group's remaining restructuring reserves
at April 2, 1999 pertain to continuing lease payments on facilities that were
closed and abandoned as a result of the Palindrome restructuring. The Network &
Storage Management Group has been unable to sublease these facilities and
anticipates that the remaining restructuring reserves will be utilized over the
period through lease termination in fiscal 2002.

     The fiscal 1996 restructuring reserve of $9,502,000 was for the following
specific items:

     Severance and employee benefits ($1,554,000) -- Severance and employee
benefits included amounts for consolidation of operations and termination of
employees at the Arcada facilities in Westboro, Massachusetts, the United
Kingdom and France, as well as at the former Palindrome facility in Naperville,
Illinois.

     Excess facilities ($1,571,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities located in Naperville,
Westboro, the United Kingdom and France that are to be closed as a result of the
restructuring actions.

     Equipment ($1,018,000) -- This amount is a reserve for equipment at the
Naperville, Westboro, the United Kingdom and France facilities. It consists of
computer equipment, furniture and fixtures

                                      F-70
<PAGE>   173
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

and software at these facilities that will not be used after the locations are
closed. All the equipment provided for in this reserve has been abandoned.

     Inventory ($300,000) -- This consists of obsolete packaging material that
will no longer be used and OEM inventory of $80,000 that will no longer be sold.

     Intangibles ($4,312,000) -- This write-off consists of Palindrome
intangible assets of $3,534,000, $390,000 of developed technology related to
Atlas and $388,000 of goodwill related to the Sytron acquisition. The Palindrome
intangible assets were further broken down into trademark of $1,000,000,
workforce of $1,188,000, distribution network of $69,000 and goodwill of
$1,277,000. The Company decided to pursue the Arcada brand name and trade mark
and abandon the Palindrome trademark. As a result, Network & Storage Management
Group business determined that it would lay off substantially all employees (121
employees) of Palindrome located at the Naperville facility. At the time of
original purchase, Network & Storage Management Group business proportionally
allocated goodwill to long-lived intangible assets based upon the original
purchase price. The amounts of goodwill included in the restructuring reserve
relate to the remaining unamortized goodwill associated with the intangible
assets written off.

     Contract cancellation ($67,000) -- This $67,000 item is a canceled contract
for outsourced Technical Support with a vendor used by Palindrome.

     Legal/Accounting fees ($525,000) -- This $525,000 represents an estimate of
the legal and accounting fees that were to be incurred by Arcada from the
acquisition of Arcada stock by Seagate Technology.

     Other ($155,000) -- This represents a trade show booth valued at $100,000
that is redundant and $55,000 for obsolete marketing materials.

     The above assets were not impaired in a prior period because their
impairment arose specifically from the restructuring actions taken as a result
of the acquisition of the minority interest in Arcada in the third quarter of
fiscal 1996. Prior to the acquisition, Palindrome products were marketed and
sold as part of the Seagate Software portfolio.

     In fiscal 1997, Seagate Software recorded an additional restructuring
reserve of $3,481,000 that resulted primarily from the plan to shutdown
Manchester operations and the decision to try to sell the Calypso technology and
a separate decision to consolidate NSMG operations which resulted in the
shutdown of the Company's facility in Cupertino, California.

     Severance and employee benefits ($770,000) -- Severance and employee
benefits included amounts for the shutdown and termination of employees at the
Cupertino, California facility due to a consolidation of operations and the
shutdown and termination of employees at the Calypso facility in Manchester, New
Hampshire due to a decision to no longer pursue the Calypso products and
technologies.

     Excess facilities ($505,000) -- This accrual was designed to provide for
rent termination costs and rent expense for facilities closures in Manchester,
New Hampshire and Cupertino, California.

     Equipment ($728,000) -- This reserve is for equipment in the Manchester and
Cupertino facilities that would not be used after the shutdowns. It consisted of
largely of computer equipment but also included amounts for furniture and
fixtures and software. All the equipment provided for in this reserve has been
abandoned.

                                      F-71
<PAGE>   174
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     Intangibles ($1,378,000) -- This asset consisted of Calypso related
intangibles first capitalized upon the acquisition of Calypso in fiscal 1996.
The amounts written down included Net Developed Technology of $1,086,000 and
Assembled Workforce of $292,000. These assets were written off based on
management's plan to sell Calypso and its products and technologies.

     Other ($100,000) -- This represents miscellaneous additional costs related
to the Manchester (Calypso) shutdown.

     The above assets were not impaired in a period prior to recording the
restructuring reserves because their impairment arose specifically from the
business decision and plan in the fourth quarter of fiscal 1997 to close the
Manchester (Calypso) facility and abandon that technology and the additional
decision to consolidate operations of the company and close the Cupertino
facility.

EXPORT SALES

     Export sales were $32,468,000, $40,748,000 and $57,752,000 in 1996, 1997
and 1998, respectively.

LEGAL PROCEEDINGS (UNAUDITED)

     On December 22, 1998, a former employee commenced an action in the Superior
Court of Santa Cruz County against Seagate Software, Inc., claiming promissory
fraud and fraudulent inducement to enter a contract, breach of a contract,
constructive wrongful discharge and related claims, seeking monetary and
injunctive relief. Specifically, the former employee alleges that a Seagate
Software officer agreed to sell him a division of the Network & Storage
Management Group business. On May 10, 1999 the plaintiff filed a dismissal with
prejudice of all claims with the Superior Court.

     In addition to the above, the Network & Storage Management Group business
is engaged in legal actions arising in the ordinary course of business and
believes that the ultimate outcome of these actions will not have a material
adverse effect on the Network & Storage Management Group business' financial
position, liquidity or results of operations.

SUBSEQUENT EVENT (UNAUDITED)

     The Network & Storage Management Group, its parent company, Seagate
Software, Inc. and Seagate Software's parent company, Seagate Technology, Inc.
("STI") announced on October 5, 1998 that they had entered into an Agreement and
Plan of Reorganization (the "Plan") as of such date with VERITAS Holding
Corporation ("New VERITAS") and VERITAS Software Corporation ("VERITAS"). The
Plan was amended and restated on April 15, 1999. VERITAS provides end-to-end
storage management software solutions.

     The Plan provided for the contribution by Seagate Software, STI and certain
of their respective subsidiaries to New VERITAS of (a) the outstanding stock of
the Network & Storage Management Group and certain other subsidiaries of Seagate
Software and (b) those assets used primarily in the network storage management
business of Seagate Software (the "NSMG Business"), in consideration for the
issuance of shares of common stock of New VERITAS to Seagate Software and the
offer by New VERITAS to grant options to purchase common stock of New VERITAS to
certain of Seagate Software's employees who become employees of New VERITAS or
its subsidiaries. As part of the Plan, New VERITAS also assumed certain
liabilities of the NSMG Business.

                                      F-72
<PAGE>   175
                       NETWORK & STORAGE MANAGEMENT GROUP

               NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

     As a result of the closing in May 1999, New VERITAS issued approximate 69.1
million shares (on a post split basis) of its common stock to Seagate Software
and 6.9 million options to purchase the common stock of New VERITAS were granted
to NSMG business employees. The aggregate number of shares and options of New
VERITAS received by Seagate Software and NSMG business employees equals
approximately 40% of the fully diluted capitalization of New VERITAS (assuming
conversion of all convertible securities, including the VERITAS convertible
debentures, and exercise of assumed options and warrants) at the effective time
of the closing.

     In connection with the contribution of the NSMG Business to New VERITAS,
VERITAS became a wholly-owned subsidiary of New VERITAS through a merger with a
subsidiary of New VERITAS of which VERITAS is the surviving entity. Upon
consummation of the merger, the former security holders of VERITAS were issued
New VERITAS securities representing approximately 60% of the fully diluted
capitalization of New VERITAS as of the closing.

                                      F-73
<PAGE>   176

                       AUDITORS' REPORT TO THE DIRECTORS

     We have audited the balance sheets of Telebackup Systems Inc. as at
December 31, 1997 and 1998 and the statements of operations and deficit and
changes in financial position for each of the years in the three year period
ended December 31, 1998. 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 an audit to obtain
reasonable assurance 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 statement presentation.

     In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at December 31, 1997 and 1998
and the results of its operations and the changes in its financial position for
each of the years in the three year period ended December 31, 1998 in accordance
with generally accepted accounting principles in Canada.

     Generally accepted accounting principles in Canada differ in some respects
from those applicable in the United States (note 13).

Chartered Accountants

Calgary, Canada
February 5, 1999

                                      F-74
<PAGE>   177

                            TELEBACKUP SYSTEMS INC.

                                 BALANCE SHEETS
                         (AMOUNTS IN CANADIAN DOLLARS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                   --------------------------    MARCH 31,
                                                      1997           1998          1999
                                                   -----------    -----------   -----------
                                                                                (UNAUDITED)
<S>                                                <C>            <C>           <C>
Current assets:
  Cash and temporary investments.................  $ 1,236,453    $ 6,151,624   $ 5,347,597
  Restricted cash (note 2).......................      124,123             --            --
  Accounts receivable............................      332,597        656,197     1,465,829
  Investment tax credit receivable...............       50,000             --            --
  Inventory......................................       83,994             --            --
  Prepaid expenses...............................        8,278         30,515        55,531
                                                   -----------    -----------   -----------
                                                     1,835,445      6,838,336     6,868,957
Capital assets (note 3)..........................    1,003,132        860,925       808,848
Debt issuance costs (net of amortization
  $17,641).......................................      431,590             --            --
                                                   -----------    -----------   -----------
                                                   $ 3,270,167    $ 7,699,261   $ 7,677,805
                                                   ===========    ===========   ===========

              LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
  Accounts payable...............................  $   111,574    $   262,815   $   345,714
  Accrued liabilities............................       31,174         46,936        90,665
  Deferred revenue...............................           --      2,710,805     2,824,579
  Current portion of long-term debt (note 4).....      124,800        124,800       124,800
                                                   -----------    -----------   -----------
                                                       267,548      3,145,356     3,385,758
Long-term debt (note 4)..........................    3,004,260        302,260       271,020
Shareholders' equity (deficiency):
  Share capital (note 5).........................    2,982,155      8,885,247     9,171,872
  Warrants.......................................       80,000             --
  Deficit........................................   (3,063,796)    (4,633,602)   (5,150,845)
                                                   -----------    -----------   -----------
                                                        (1,641)     4,251,645     4,021,027
Combination agreement (note 12)..................
Commitments (note 7).............................
Canadian and United States accounting policy
  differences (note 13)..........................
                                                   -----------    -----------   -----------
                                                   $ 3,270,167    $ 7,699,261   $ 7,677,805
                                                   ===========    ===========   ===========
</TABLE>

See accompanying notes to financial statements.

                                      F-75
<PAGE>   178

                            TELEBACKUP SYSTEMS INC.

                      STATEMENTS OF OPERATIONS AND DEFICIT
                         (AMOUNTS IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                     YEARS ENDED DECEMBER 31,                   MARCH 31,
                              ---------------------------------------   -------------------------
                                 1996          1997          1998          1998          1999
                              -----------   -----------   -----------   -----------   -----------
                                                                               (UNAUDITED)
<S>                           <C>           <C>           <C>           <C>           <C>
Revenue:
  Product sales.............  $   233,353   $   347,235   $ 1,384,411   $   657,697   $   577,798
  Maintenance and support...       18,531        23,112       200,000        50,000            --
  Custom software
     development............           --       115,700     1,838,565            --       659,385
                              -----------   -----------   -----------   -----------   -----------
                                  251,884       486,047     3,422,976       707,697     1,237,183
Cost of sales:
  Product sales.............      106,058       123,930       311,369       154,171       162,421
  Maintenance, support and
     custom software
     development............       43,359        61,444       512,347            --       146,989
                              -----------   -----------   -----------   -----------   -----------
                                  149,417       185,374       823,716       154,171       309,410
Gross profit................      102,467       300,673     2,599,260       553,526       927,773
Expenses:
  General and
     administrative.........      496,753       808,256     1,180,981       143,392       620,958
  Selling and marketing.....      306,870       495,538     1,090,763       234,568       361,737
  Marketing and royalty
     agreement..............      100,000       100,000       200,000        25,000        50,000
  Research and
     development............      302,650       576,475     1,045,717       197,526       336,638
  Interest and bank charges,
     net....................       13,514        81,937        97,754         9,278       (64,074)
  Depreciation and
     amortization...........       24,117       108,073       553,851       143,963       139,757
                              -----------   -----------   -----------   -----------   -----------
                                1,243,904     2,170,279     4,169,066       753,727     1,445,016
                              -----------   -----------   -----------   -----------   -----------
Net loss....................   (1,141,437)   (1,869,606)   (1,569,806)     (200,201)     (517,243)
Deficit, beginning of
  period....................      (52,753)   (1,194,190)   (3,063,796)   (3,063,796)   (4,633,602)
                              -----------   -----------   -----------   -----------   -----------
Deficit, end of period......  $(1,194,190)  $(3,063,796)  $(4,633,602)  $(3,263,997)  $(5,150,845)
                              ===========   ===========   ===========   ===========   ===========
Net loss per share..........  $     (0.18)  $     (0.25)  $     (0.17)  $     (0.02)  $     (0.05)
                              ===========   ===========   ===========   ===========   ===========
</TABLE>

See accompanying notes to financial statements.

                                      F-76
<PAGE>   179

                            TELEBACKUP SYSTEMS INC.

                  STATEMENTS OF CHANGES IN FINANCIAL POSITION
                         (AMOUNTS IN CANADIAN DOLLARS)

<TABLE>
<CAPTION>
                                                                                        THREE MONTHS
                                                YEARS ENDED DECEMBER 31,               ENDED MARCH 31,
                                         ---------------------------------------   -----------------------
                                            1996          1997          1998          1998         1999
                                         -----------   -----------   -----------   ----------   ----------
                                                                                         (UNAUDITED)
<S>                                      <C>           <C>           <C>           <C>          <C>
Cash provided by (used in):
Operations:
  Net loss.............................  $(1,141,437)  $(1,869,606)  $(1,569,806)  $ (200,201)  $ (517,243)
  Items not involving cash:
    Depreciation and amortization......       24,117       108,073       553,851      143,963      139,757
    Software development costs.........       37,673            --            --           --           --
  Changes in non-cash working capital:
    Accounts receivable................          918      (328,141)     (323,600)    (605,713)    (809,632)
    Investment tax credit receivable...      (30,000)           --        50,000       50,000           --
    Inventory..........................     (121,623)       37,629        83,994           --           --
    Prepaid expenses...................       12,218        (4,436)      (22,237)       4,016      (25,016)
    Accounts payable...................       19,420        21,418       151,241      (52,457)      82,899
    Accrued liabilities................       32,349        (5,175)       15,762        1,440       43,729
    Deferred revenue...................           --            --     2,710,805           --      113,774
    Due from shareholder...............       31,600            --            --           --           --
                                         -----------   -----------   -----------   ----------   ----------
                                          (1,134,765)   (2,040,238)    1,650,010     (658,952)    (971,732)
Investing:
  Net additions to capital assets......     (183,636)     (887,589)     (350,580)     (12,979)     (87,680)

Financing:
  Issue of share capital, net..........    1,856,401       953,446     6,273,618      275,140      286,625
  Warrants.............................           --        80,000            --           --           --
  Increase (decrease) in long-term
    debt, net..........................      350,000     2,824,360       150,360      (12,201)     (31,240)
  Debt issuance costs..................           --      (449,231)           --           --           --
  Conversion of debentures.............           --       (45,300)   (2,932,360)    (163,265)          --
  Issue of promissory notes............           --       150,000            --           --           --
  Repayment of promissory notes........           --      (150,000)           --           --           --
                                         -----------   -----------   -----------   ----------   ----------
                                           2,206,401     3,363,275     3,491,618       99,674      255,385
                                         -----------   -----------   -----------   ----------   ----------
Increase (decrease) in cash and
  temporary investments................      888,000       435,448     4,791,048     (572,257)    (804,027)
Cash and temporary investments,
  beginning of year....................       37,128       925,128     1,360,576    1,360,576    6,151,624
                                         -----------   -----------   -----------   ----------   ----------
Cash and temporary investments, end of
  year.................................  $   925,128   $ 1,360,576   $ 6,151,624   $  788,319   $5,347,597
                                         ===========   ===========   ===========   ==========   ==========
</TABLE>

Cash and temporary investments are defined to include restricted cash.

See accompanying notes to financial statements.

                                      F-77
<PAGE>   180

                            TELEBACKUP SYSTEMS INC.

                         NOTES TO FINANCIAL STATEMENTS
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

CORPORATE PROFILE

     The Company develops and markets computer software designed to allow data
backup via a modem or network.

     These financial statements are prepared in accordance with accounting
principles generally accepted in Canada.

 1. SIGNIFICANT ACCOUNTING POLICIES

(a) Revenue recognition:

     In the third quarter of 1998, the Company adopted the American Institute of
Certified Public Accountants Statement of Position (SOP) 97-2 with respect to
software revenue recognition. Pursuant to SOP 97-2, four specific criteria must
be met prior to recognizing revenue for a single-element arrangement or for
amounts allocated to individual elements in a multiple-element arrangement.
These four criteria are (a) persuasive evidence of an arrangement exists; (b)
delivery has occurred; (c) the vendor's fee is fixed or determinable; and (d)
collectibility is probable. This change in revenue recognition has been applied
on a retroactive basis which did not affect revenue for the years ended December
31, 1997 and 1996.

     The Company sells its software and any related hardware by way of a direct
sale or on a revenue sharing basis.

     The Company previously recognized direct sales revenues from software
licenses and hardware upon delivery and installation of the software and
hardware products. Sales made on a revenue sharing basis may have required the
purchaser to make an initial payment, as well as additional payments based upon
a percentage of the future revenues generated by the purchaser. The initial
payment was recorded as revenue at the time of delivery and installation of the
software and hardware products. Future revenue sharing payments were recorded as
revenue if and when earned.

(b) Capital assets:

     Capital assets are recorded at cost. Depreciation is provided using the
following methods and rates:

<TABLE>
<CAPTION>
                        ASSETS                                METHOD          RATE
                        ------                                ------          ----
<S>                                                      <C>                  <C>
Computer equipment.....................................  Declining balance     30%
Furniture and fixtures.................................  Declining balance     30%
World rights...........................................  Straight-line         20%
Software technology....................................  Straight-line         50%
Royalty reduction......................................  Straight-line         50%
</TABLE>

(c) Debt issuance costs:

     Debt issuance costs are amortized to income over the term of the related
debt financing.

                                      F-78
<PAGE>   181
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(d) Software research and development costs:

     Research costs are expensed as incurred. Costs related to internal
development of software are expensed as incurred unless criteria for deferral
and subsequent amortization are met. Specifically, internal software development
costs are deferred once technological feasibility for a product is established.
As at December 31, 1997, December 31, 1998, and March 31, 1999, the Company has
not deferred internal software development costs, as completed development has
coincided with technological feasibility.

(e) Investment tax credits:

     Scientific Research and Experimental Development ("SRED") investment tax
credits are accrued when qualifying expenditures are made and there is
reasonable assurance that the credits will be realized. The Company accounts for
investment tax credits using the cost reduction method.

(f) Inventory:

     Inventory, consisting primarily of turnkey computer systems assembled for
demonstration purposes and ultimate sale, is recorded at the lesser of cost
determined on a first-in first-out basis and market value.

(g) Per share data:

     Basic earnings per share is calculated using the weighted average number of
common shares outstanding during the year. Fully diluted per share data has not
been disclosed as the effect of the exercise of share options is not dilutive.

 2. RESTRICTED CASH

     Restricted cash consists of cash held in trust in connection with the
payment of interest on certain debt.

 3. CAPITAL ASSETS

<TABLE>
<CAPTION>
                                                          ACCUMULATED      NET BOOK
            DECEMBER 31, 1997                  COST       DEPRECIATION       VALUE
            -----------------               ----------    ------------    -----------
<S>                                         <C>           <C>             <C>
Computer equipment........................  $  312,560      $ 73,630      $  238,930
Furniture and fixtures....................      16,101         4,399          11,702
World rights..............................      50,000        12,500          37,500
Software technology.......................     300,000        25,000         275,000
Royalty reduction.........................     440,000            --         440,000
                                            ----------      --------      ----------
                                            $1,118,661      $115,529      $1,003,132
                                            ==========      ========      ==========
</TABLE>

                                      F-79
<PAGE>   182
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 3. CAPITAL ASSETS (CONTINUED)

<TABLE>
<CAPTION>
                                                          ACCUMULATED      NET BOOK
            DECEMBER 31, 1998                  COST       DEPRECIATION       VALUE
            -----------------               ----------    ------------    -----------
<S>                                         <C>           <C>             <C>
Computer equipment........................  $  629,185      $174,305      $  454,880
Furniture and fixtures....................      50,056        11,736          38,320
World rights..............................      50,000        22,500          27,500
Software technology.......................     300,000       179,775         120,225
Royalty reduction.........................     440,000       220,000         220,000
                                            ----------      --------      ----------
                                            $1,469,241      $608,316      $  860,925
                                            ==========      ========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                          ACCUMULATED      NET BOOK
              MARCH 31, 1999                   COST       DEPRECIATION       VALUE
              --------------                ----------    ------------    -----------
<S>                                         <C>           <C>             <C>
Computer equipment........................  $  716,865      $216,259      $  500,606
Furniture and fixtures....................      50,056        14,539          35,517
World rights..............................      50,000        25,000          25,000
Software technology.......................     300,000       217,275          82,725
Royalty reduction.........................     440,000       275,000         165,000
                                            ----------      --------      ----------
                                            $1,556,921      $748,073      $  808,848
                                            ==========      ========      ==========
</TABLE>

     In October 1997, the Company entered into an agreement to license, on a
permanent, unlimited and fully paid basis, a third party's patented data
reduction process technology. In exchange for the license, the Company had
agreed to issue 200,000 Common Shares at $1.50 per share, the market value of
the shares.

     In November 1997, the Company renegotiated its royalty commitment whereby
the royalty was converted from a 10% royalty to a $200,000 fixed annual royalty
with a $2 million buyout option. The Company had agreed to issue 200,000 Common
Shares at $2.20 per share, the market value of the shares, in exchange for the
new royalty agreement.

 4. LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                   DECEMBER 31          MARCH 31
                                             -----------------------    ---------
                                                1997         1998         1999
                                             ----------    ---------    ---------
<S>                                          <C>           <C>          <C>
Debentures.................................  $2,705,060    $      --    $      --
Operating line of credit...................     500,000      427,060      395,820
                                             ----------    ---------    ---------
                                              3,205,060      427,060      395,820
Less:
  Current portion of operating line........    (124,800)    (124,800)    (124,800)
  Unamortized allocation to warrants of
     debenture proceeds....................     (76,000)          --           --
                                             ----------    ---------    ---------
                                             $3,004,260    $ 302,260    $ 271,020
                                             ==========    =========    =========
</TABLE>

                                      F-80
<PAGE>   183
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 4. LONG-TERM DEBT (CONTINUED)
(a) Debentures:

     On September 30, 1997, the Company sold 27,500 Units, each consisting of a
$100 principal amount debenture and warrants to purchase 33 Common shares of the
Company. The debentures are unsecured, redeemable, convertible and due September
30, 2002 with interest at 6% payable semi-annually. The debentures are
convertible at $1.50 per share. In conjunction with the debenture offering, the
Company granted to the Agent, an option to purchase up to 2,751 Units at $100
per unit. During 1998, the Agent purchased all 2,751 Units and was issued
debentures and warrants in accordance with the terms of the Units.

     The Debentures were redeemable by the Company:

          (i) anytime after September 30, 1999 following a period of twenty
     consecutive trading days during which the weighted average market price of
     the Common Shares equals or exceeds $3.00; or

          (ii) anytime following any period of twenty consecutive trading days
     during the weighted average market price of the Common Shares equals or
     exceeds $6.00.

     During 1997 $45,300 of debentures were converted into 30,198 common shares.
In 1998, an additional $275,100 of debentures were issued to the Agent, and
$2,932,360 of debentures were converted into 1,979,054 common shares and $11,800
of debentures where redeemed for cash. Unamortized debt issuance costs related
to the convertible debentures were charged to share capital upon conversion of
the related debentures.

(b) Credit facilities:

     At March 31, 1999 the Company has drawn $395,820 (December 31,
1998 -- $427,060, December 31, 1997 -- $500,000) on its operating line of credit
due on demand. Borrowings bear interest at the bank's prime rate plus 3%.
Notwithstanding the demand feature of the facility, it is classified as
long-term as monthly payments of $10,420 plus interest are required to maturity
on June 30, 2002. The operating line is renewable annually, however no principal
payments were required prior to January 31, 1998 providing that certain
conditions were satisfied. Annual principal repayments are approximately
$124,800 (December 31, 1998 -- $124,800, December 31, 1997 -- $124,800) plus
accrued interest.

     In addition, the Company has a revolving line of credit authorized to a
limit of $150,000 which bears interest at the bank's prime rate plus 2%.

     Both credit facilities are secured by a general security agreement and an
assignment of life insurance on an officer of the Company.

(c) Interest expense:

     Interest on long-term debt amounted to $20,566 and $7,242 for the three
months ended March 31, 1998 and 1999, respectively. Interest on long-term debt
amounted to $13,126, $73,912 and $168,410 for the years ended December 31, 1996,
1997 and 1998, respectively.

                                      F-81
<PAGE>   184
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 5. SHARE CAPITAL

(a) Authorized:

     Unlimited number of Common shares.

(b) Issued and to be issued:

<TABLE>
<CAPTION>
                                                           NUMBER        AMOUNT
                                                         ----------    ----------
<S>                                                      <C>           <C>
December 31, 1995......................................   2,737,500    $  172,308
Share split 2:1 basis..................................   2,737,500            --
Issued for cash, net of issue costs of $338,599........   1,600,000     1,661,401
Issued pursuant to private placement for cash..........     195,000       195,000
                                                         ----------    ----------
December 31, 1996......................................   7,270,000     2,028,709
Issued on exercise of stock options....................     173,000       216,250
Issued on conversion of debenture......................      30,198        45,300
To be issued, net of issue costs of $48,104 (note 3)...     400,000       691,896
                                                         ----------    ----------
December 31, 1997......................................   7,873,198     2,982,155
Issued on exercise of stock options....................     312,000       417,990
Issued on conversion of debentures, net of costs of
  $406,526.............................................   1,979,054     2,561,834
Issued on exercise of warrants, net of costs of
  $140,211.............................................     994,493     2,843,268
Allocation to warrants of debenture proceeds...........          --        80,000
                                                         ----------    ----------
December 31, 1998......................................  11,158,745    $8,885,247
Issued on exercise of stock options....................     204,700       286,625
                                                         ----------    ----------
March 31, 1999.........................................  11,363,445    $9,171,872
                                                         ==========    ==========
</TABLE>

     The 400,000 common shares which were to be issued at December 31, 1997,
were subject to relevant regulatory approval, which was received during 1998.

     On January 31, 1996, the shareholders of the Company approved a two for one
Common share split which became effective February 16, 1996.

(c) Stock options and warrants:

     At December 31, the Company had issued options to employees and directors
which will allow for the purchase of 755,000, 839,500 and 592,000 common shares
for the years 1996, 1997 and 1998, respectively, at prices $1.25, $1.25 to $2.20
and $1.25 to $2.85 per share for the years 1996, 1997 and 1998, respectively.
These options expire on various dates during 2001 and 2003.

     At March 31, 1999, the Company had issued 387,300 options to employees and
directors exercisable at prices of $1.25 and $2.85 per share and expiring on
various dates during 2001 and 2003.

     The Company issued 907,698 warrants in conjunction with the convertible
debentures. Each warrant entitled the holder to purchase one additional Common
Share at a price of $3.00 on or before September 30, 1999. The Company had the
right upon 30 days written notice to redeem the warrants for $0.001 at any time
following a period of 20 consecutive trading days during which the

                                      F-82
<PAGE>   185
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 5. SHARE CAPITAL (CONTINUED)
weighted average market price of the Company's common shares equaled or exceeded
$4.00 per share. At December 31, 1998, 903,710 warrants had been exercised, and
3,988 warrants had been redeemed for aggregate consideration of $3.99.

 6. INCOME TAXES

     Income tax expense differs from the amount which would be computed by
applying the federal and provincial combined statutory income tax rate to income
before income taxes. The reasons for the difference are as follows:

<TABLE>
<CAPTION>
                                  DECEMBER 31,                      MARCH 31,
                       -----------------------------------    ----------------------
                         1996         1997         1998         1998         1999
                       ---------    ---------    ---------    ---------    ---------
<S>                    <C>          <C>          <C>          <C>          <C>
Income tax rate......       44.6%        44.6%        44.6%        44.6%        44.6%
Computed expected tax
  recovery...........  $(509,081)   $(833,844)   $(700,133)     (89,290)    (230,690)
Unrecognized benefit
  of tax losses......    509,081      833,844      700,133       89,290      230,690
                       ---------    ---------    ---------    ---------    ---------
                       $      --    $      --    $      --    $      --    $      --
                       =========    =========    =========    =========    =========
</TABLE>

     The Company has available deductions for income tax purposes of
approximately $4,400,000 at March 31, 1999 (December 31, 1998 -- $4,000,000,
December 31, 1997 -- $2,400,000) consisting of SRED expenditures and operating
losses. The operating losses begin expiring in 2002. The Company also estimates
that it has available SRED investment tax credits to reduce future income tax
payable of approximately $200,000 at March 31, 1999 (December 31,
1998 -- $175,000, (December 31, 1997 -- $100,000).

     The Company earned refundable SRED investment tax credits prior to becoming
a public company. These credits are shown as current assets, and along with the
credits above, are subject to technical and financial audit by Revenue Canada.
At December 31, 1998, the refundable credits had been received.

 7. COMMITMENTS

     (a) On December 29, 1994, the Company entered into an agreement which
allowed the Company utilization of certain technology rights in exchange for a
royalty commitment. On November 19, 1997, the royalty commitment was
renegotiated, whereby the royalty was converted from a percentage-based royalty
to a flat-fee royalty with a buy-out option, which provides the Company the
right to call the buy-out option at any time (note 3)

     (b) The Company is committed to minimum rentals under premises leases of
approximately $341,600 per year to 2002 and $231,600 per year to 2004.

                                      F-83
<PAGE>   186
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

 8. RELATED PARTIES

     (a) During the periods ended March 31, 1998 and 1999 and during the years
ended December 31, 1996, 1997 and 1998, the Company purchased computer equipment
totalling nil, nil, $278,975, $42,820 and nil, respectively, from a shareholder.

     (b) During the year ended December 31, 1997, interest of $15,000 was paid
to two directors of the Company on account of $150,000 in promissory notes which
were issued and repaid.

     (c) The Company leases office space from a shareholder for $3,600 per
month.

 9. FINANCIAL INSTRUMENTS AND MAJOR CUSTOMERS

     The carrying value of cash and temporary investments, accounts receivable
and accounts payable approximate their fair values due to the short maturity of
these instruments. The fair value of the debentures was approximately $2,141,000
at December 31, 1997. The fair value of the Company's operating line
approximates its carrying value due to its variable interest rate.

     During 1998, two customers of the Company individually represented 49% and
48% respectively, of the Company's revenues. In 1997, five customers of the
Company individually represented 24%, 21%, 20%, 17% and 10%, respectively, of
the Company's revenues. During 1996, three customers of the Company individually
represented 42%, 35%, and 20%, respectively, of the Company's revenues.

10. SEGMENT INFORMATION

     The Company's method for determining what information to report about
operating segments is based on the way that management organizes the operating
segments within the Company for making operating decisions and assessing
financial performance.

     The Company's chief operating decision maker is considered to be the
Company's President and CEO. The President and CEO reviews financial information
presented on a consolidated basis for purposes of making operating decisions and
assessing financial performance. The financial information reviewed by the
President and CEO is identical to the information presented in the accompanying
Statements of Operations. Therefore, the Company operates in a single operating
segment: developing and marketing computer software designed to allow data
backup via a modem or network. The Company does not have significant
international operations.

11. UNCERTAINTY DUE TO THE YEAR 2000 ISSUE

     The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
entity, including those related to the efforts of customers, suppliers, or other
third parties, will be fully resolved.

                                      F-84
<PAGE>   187
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

12. COMBINATION AGREEMENT

     On September 1, 1998 the Company signed a Combination Agreement (the
"Agreement") with VERITAS Software Corporation (VERITAS). Consummation of the
Agreement is subject to a number of conditions, including regulatory clearances
in Canada and the United States, judicial clearance in Canada and formal
approval by the shareholders of both companies.

     Under the terms of the Agreement, at the effective time the Company will
issue to its shareholders, exchangeable shares which are exchangeable into
common shares of VERITAS. The number of exchangeable shares to be issued to the
Company's shareholders will be based on a sliding scale which is tied to an
average of the VERITAS common share price for the 10 days prior to the closing
of the transaction. In general terms, the total number of exchangeable shares to
be issued shall equal (a) in the event that the average price is between
U.S.$33.81 per share and U.S.$41.32 per share, 1,710,000 common shares of
VERITAS (b) in the event that the average price is less than $33.81 per share,
the number of common shares of VERITAS determined by dividing $57,808,000 (U.S.)
by such average price, provided however, that, in such case, in no event shall
the total exceed 1,900,000 common shares of VERITAS, (c) in the event that the
average price is more than $41.32 per common share, the number of common shares
of VERITAS determined by dividing $70,654,000 (U.S.) by such average price,
provided however, that, in such case, in no event shall the total be less than
1,555,000 common shares of VERITAS.

     In the event that the Company's shareholders do not approve the terms of
the Agreement, the Company shall pay to VERITAS a fee of U.S. $3 million and
grant a worldwide, perpetual, royalty-free and fully-paid license to certain
Company software. Also, should the Company be acquired within 12 months after
the termination of the Agreement as described above a further U.S. $10 million
amount becomes payable to VERITAS.

     In the event that the VERITAS shareholders do not approve the terms of the
Agreement, VERITAS shall pay the Company a fee of U.S. $2 million and upon such
payment, shall have a worldwide, perpetual, royalty-free and fully-paid license
to use, modify, create derivative works of, copy and distribute certain Company
software.

     On May 26, 1999 the shareholders of the Company voted to approve the
combination agreement with VERITAS.

                                      F-85
<PAGE>   188
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

13. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
STATES

     The Company's financial statements have been prepared in accordance with
accounting principles generally accepted ("GAAP") in Canada which, in the case
of the Company, conform in all material respects with those in the United
States, except as outlined below:

(a) Statement of Operations:

     The application of U.S. GAAP would have the effect of including in
compensation expense the value of common share purchase options granted to
certain officers and employees by the Company's founding shareholders, as
follows:

<TABLE>
<CAPTION>
                                YEAR ENDED DECEMBER 31,                     MARCH 31,
                       -----------------------------------------    --------------------------
                          1996           1997           1998           1998           1999
                       -----------    -----------    -----------    -----------    -----------
<S>                    <C>            <C>            <C>            <C>            <C>
Net loss as
  reported...........  $(1,141,437)   $(1,869,606)   $(1,569,806)      (200,201)      (517,243)
Increase in
  compensation
  expense............           --             --        132,000         79,000         18,000
                       -----------    -----------    -----------    -----------    -----------
Net loss, U.S.
  GAAP...............  $(1,141,437)   $(1,869,606)   $(1,701,806)      (279,201)      (535,243)
                       ===========    ===========    ===========    ===========    ===========
Net loss per share
  U.S. GAAP..........  $     (0.18)   $     (0.25)   $     (0.18)         (0.03)         (0.05)
                       ===========    ===========    ===========    ===========    ===========
</TABLE>

     The Company retroactively adopted SOP 97-2 (see note 1(a)) for Canadian
GAAP purposes in the third quarter of 1998. For US GAAP purposes SOP 97-2
requires prospective adoption beginning in the Company's first quarter of 1998.
In the case of the Company's 1996 and 1997 revenue as recorded in accordance
with Canadian GAAP, the application of SOP 97-2 would not have had any effect.
As a result the Company's revenues as recorded in the Statement of Operations
are the same under both Canadian and US GAAP.

                                      F-86
<PAGE>   189
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

13. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
    STATES (CONTINUED)
(b) Balance Sheet:

     The application of U.S. GAAP would have the following effect on the Balance
Sheet as at December 31, 1997 from reclassifying shares issued which required
regulatory approval from shareholders' deficit to liabilities. At December 31,
1998 the application of U.S. GAAP would not have an effect on assets or on the
Balance Sheet captions presented below.

<TABLE>
<CAPTION>
                                                        DECEMBER 31, 1997
                                             ---------------------------------------
                                                             INCREASE
                                             AS REPORTED    (DECREASE)    U.S. GAAP
                                             -----------    ----------    ----------
<S>                                          <C>            <C>           <C>
Liabilities................................  $3,271,808     $ 740,000     $4,011,808
Shareholders' deficiency...................      (1,641)     (740,000)      (741,641)
</TABLE>

     In addition, under Canadian GAAP, at March 31, 1999 the Company classified
$271,020 (December 31, 1998 -- $302,260, December 31, 1997 -- $375,200) of a
demand loan as a long-term liability because that portion of the scheduled
installment payments are due beyond one year. Under U.S. GAAP, the entire note
would be considered a current liability.

     (c) Statement of Changes in Financial Position:

     The application of U.S. GAAP would have the effect of eliminating non-cash
items and excluding restricted cash from the definition of cash as follows:

<TABLE>
<CAPTION>
                                                DECEMBER 31,               MARCH 31,
                                       ------------------------------   ---------------
                                       1996     1997         1998         1998     1999
                                       ----   ---------   -----------   --------   ----
<S>                                    <C>    <C>         <C>           <C>        <C>
Investing:
  Net additions of capital assets
     acquired with shares............   $--   $ 740,000   $        --   $     --    $--
  Restricted cash....................   --     (124,123)      124,123         --    --
Financing:
  Issue of shares for non-cash
     consideration and non-cash
     charges.........................   --     (785,300)   (2,561,834)  (163,265)   --
  Conversion of debentures...........   --       45,300     2,932,360    163,265
  Debt issue costs...................   --           --      (370,526)        --    --
                                        ==    =========   ===========   ========    ==
</TABLE>

                                      F-87
<PAGE>   190
                            TELEBACKUP SYSTEMS INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
           (INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
                  ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)
                         (AMOUNTS IN CANADIAN DOLLARS)

13. RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE UNITED
    STATES (CONTINUED)
     The Statement of Changes in Financial Position major categories would be
presented under U.S. GAAP as follows:

<TABLE>
<CAPTION>
                                     DECEMBER 31,                       MARCH 31,
                        --------------------------------------   -----------------------
                           1996          1997          1998         1998         1999
                        -----------   -----------   ----------   ----------   ----------
<S>                     <C>           <C>           <C>          <C>          <C>
Operating
  activities..........  $(1,134,765)  $(2,040,238)  $1,650,010   $ (658,952)  $ (971,732)
Investing
  activities..........     (183,636)     (271,712)    (226,457)     (12,979)     (87,680)
Financing
  activities..........    2,206,401     2,623,275    3,491,618       99,674      255,385
                        ===========   ===========   ==========   ==========   ==========
                            888,000       311,325    4,915,171     (572,257)    (804,027)
Cash position at
  beginning of year...       37,128       925,128    1,236,453    1,360,576    6,151,624
                        -----------   -----------   ----------   ----------   ----------
Cash position at end
  of year.............  $   925,128   $ 1,236,453   $6,151,624   $  788,319   $5,347,597
                        ===========   ===========   ==========   ==========   ==========
</TABLE>

     (d) Comprehensive income (loss):

     In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which establishes standards for reporting and disclosure of comprehensive income
and its components (revenues, expenses, gains and losses) in a full set of
general purpose financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997 and requires reclassification of financial
statements for earlier periods to be provided for comparative purposes. The
Company adopted SFAS No. 130 on January 1, 1998, however, no incremental
disclosures are required as the Company does not have any elements of
comprehensive income (loss) except for the net loss reported in the Statements
of Operations.

                                      F-88
<PAGE>   191

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

WE HAVE NOT AUTHORIZED ANY PERSON TO GIVE YOU ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS. YOU SHOULD NOT
RELY ON ANY INFORMATION OR REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OTHER THAN THE COMMON STOCK COVERED BY THIS
PROSPECTUS. IT IS NOT AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY
SECURITIES IF THE OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE AFFAIRS OF
VERITAS MAY HAVE CHANGED SINCE THE DATE OF THIS PROSPECTUS. YOU SHOULD NOT
ASSUME THAT THE INFORMATION IN THIS PROSPECTUS IS CORRECT AT ANY TIME SUBSEQUENT
TO ITS DATE.

                                 [VERITAS LOGO]

                                3,358,975 SHARES

                                  COMMON STOCK

                              --------------------
                                   PROSPECTUS
                              --------------------

                               September 30, 1999

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


© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission