VERITAS SOFTWARE CORP /DE/, S-1, 1999-07-27

VERITAS SOFTWARE CORP /DE/
S-1, 1999-07-27
PREPACKAGED SOFTWARE

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 27, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

VERITAS SOFTWARE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 7372 77-0507675
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>

1600 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 335-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

MARK LESLIE
CHIEF EXECUTIVE OFFICER AND CHAIRMAN OF THE BOARD
1600 PLYMOUTH STREET
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 335-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO

<TABLE>
<S> <C> <C>
GORDON K. DAVIDSON, ESQ. DANIEL G. KELLY, JR., ESQ. LARRY W. SONSINI, ESQ.
HORACE L. NASH, ESQ. DAVIS POLK & WARDWELL JULIA REIGEL, ESQ.
DAVID MICHAELS, ESQ. 450 LEXINGTON AVENUE WILSON SONSINI GOODRICH & ROSATI
FENWICK & WEST LLP NEW YORK, NEW YORK 10017 650 PAGE MILL ROAD
TWO PALO ALTO SQUARE (212) 450-4000 PALO ALTO, CA 94306
PALO ALTO, CALIFORNIA 94306 (650) 493-9300
(650) 494-0600
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
- ---------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARES AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED SHARE PRICE(3) REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------
Common stock, $0.001 par value per
share(1)............................. 13,800,000(2) $57.50(3) $793,500,000 $220,593
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Each share of common stock includes associated preferred share purchase
rights.
(2) Includes an over-allotment option of 1,800,000.
(3) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee. The proposed maximum offering price per
share is based on the average of the high and low prices for a share
reported on the Nasdaq National Market on July 21, 1999.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

PROSPECTUS (Subject to Completion)

Issued July 27, 1999

12,000,000 Shares
[VERITAS LOGO]

COMMON STOCK
-------------------------

THE SELLING STOCKHOLDERS ARE OFFERING 12,000,000 SHARES OF COMMON STOCK OF
VERITAS SOFTWARE CORPORATION. WE WILL NOT RECEIVE ANY OF THE PROCEEDS FROM THE
SALE OF SHARES OF OUR COMMON STOCK IN THIS OFFERING.

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

OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"VRTS." ON JULY 26, 1999, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS $57.25 PER SHARE.

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

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9 OF THIS PROSPECTUS.
-------------------------

PRICE $ A SHARE

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

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS PROCEEDS TO
PRICE TO AND SELLING
PUBLIC COMMISSIONS STOCKHOLDERS
-------- ------------ ------------
<S> <C> <C> <C>
Per Share................................................... $ $ $
Total....................................................... $ $ $
</TABLE>

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

The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.

Selling stockholders have granted the underwriters the right to purchase up to
an additional 1,800,000 shares of our common stock to cover over-allotments.
Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 1999.

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

MORGAN STANLEY DEAN WITTER
CREDIT SUISSE FIRST BOSTON
SG COWEN
DONALDSON, LUFKIN & JENRETTE

, 1999
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 9
Forward-Looking Statements.................................. 17
Use of Proceeds............................................. 17
Common Stock Price Range.................................... 17
Dividend Policy............................................. 17
Capitalization.............................................. 18
Selected Financial Data..................................... 19
VERITAS Summary Unaudited Pro Forma Combined Condensed
Financial Data............................................ 22
VERITAS Unaudited Comparative Per Share Data................ 24
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 26
Old VERITAS Quantitative and Qualitative Disclosures about
Market Risk............................................... 63
Business.................................................... 64
Management.................................................. 78
Related Party Transactions.................................. 86
Principal Stockholders...................................... 88
Selling Stockholders........................................ 90
Description of Capital Stock................................ 93
Underwriters................................................ 101
Shares Eligible for Future Sale............................. 103
Legal Matters............................................... 103
Experts..................................................... 103
Where You Can Find More Information......................... 104
Index to Financial Statements............................... F-1
</TABLE>

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

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in the prospectus. We are offering to sell the common stock and
seeking offers to buy the common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of the common stock.

Until , 1999, all dealers that buy, sell or trade the common stock,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.

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 July 15, 1999 and reflects the two-for-one
stock split paid as a stock dividend in July 1999.

2
<PAGE> 4

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. 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 back up
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.

VERITAS is the successor to the business previously operated by VERITAS
Software Corporation which we refer to as "Old VERITAS," now known as VERITAS
Operating Corporation. On May 28, 1999 VERITAS acquired the Network & Storage
Management Group business of Seagate Software, Inc., which we refer to as
"NSMG." On June 1, 1999, VERITAS acquired TeleBackup Systems, Inc., which we
refer to as "TeleBackup." Pursuant to the rules of the SEC, we have included in
this prospectus the historical financial statements of Old VERITAS, NSMG and
TeleBackup for periods ending on and prior to March 31, 1999. Unless expressly
stated or the context otherwise requires, the terms "we," "our," "us," "the
Company" and "VERITAS" refer to VERITAS as the successor to the businesses of
Old VERITAS, NSMG and TeleBackup.

We incorporated in Delaware on October 2, 1998 under the name VERITAS
Holding Corporation. Our address is 1600 Plymouth Street, Mountain View,
California 94043, and our telephone number is (650) 335-8000.
3
<PAGE> 5

RECENT DEVELOPMENTS

Our reported revenue for the three months ended June 30, 1999, including
one month of operating results for NSMG and 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 on a diluted basis, 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.

<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 revenues................ $ 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
Merger-related 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 EXCEPT PER SHARE DATA)
<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.
4
<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
COMMON STOCK OFFERED...................... 12,000,000
COMMON STOCK OUTSTANDING AFTER THIS
OFFERING................................ shares
NASDAQ SYMBOL............................. VRTS
CONCURRENT OFFERING....................... We are offering for sale through another prospectus
convertible subordinated notes in the aggregate
principal amount at maturity of $ (which
excludes the over-allotment option).
</TABLE>

5
<PAGE> 7

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 Old 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 three months ended March 31, 1999 included elsewhere
in this prospectus.

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

<TABLE>
<CAPTION>
VERITAS
OLD VERITAS PRO FORMA
OLD VERITAS VERITAS HISTORICAL ------------
PRO FORMA -------------------
------------ THREE MONTHS
HISTORICAL
----------------------------- THREE MONTHS
YEAR ENDED DECEMBER 31, YEAR ENDED ENDED MARCH 31, ENDED
----------------------------- DECEMBER 31, ------------------- MARCH 31,
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 $ 39,082 $ 71,904 $ 134,729
Income (loss) from operations............ 11,858 20,076 53,668 (826,950) 9,838 19,494 (190,234)
Net income (loss)........................ 12,129 22,749 51,648 (800,397) 9,055 13,583 (194,653)
Net income (loss) per share -- basic..... $ 0.14 $ 0.25 $ 0.55 $ (4.82) $ 0.10 $ 0.14 $ (1.16)
Net income (loss) per share -- diluted... $ 0.13 $ 0.23 $ 0.50 $ (4.82) $ 0.09 $ 0.13 $ (1.16)
Number of shares used in computing
per share amounts -- basic............. 86,052 91,244 94,026 166,216 92,868 95,644 167,834
Number of shares used in computing
per share amounts -- diluted........... 92,992 98,986 103,342 166,216 101,900 106,272 167,834
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
----------------------
ACTUAL PRO FORMA
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital............................................. $196,180 $ 172,651
Total assets................................................ 374,876 4,099,870
Long-term obligations....................................... 100,733 100,913
Accumulated deficit......................................... (15,833) (130,533)
Stockholders' equity........................................ 190,255 3,633,508
</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>

6
<PAGE> 8

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.
7
<PAGE> 9

PRO FORMA FINANCIAL DATA -- EXCLUDING PURCHASE ACCOUNTING ADJUSTMENTS

On a pro forma basis, which includes the operating results of NSMG and
TeleBackup for the three months ended June 30, 1999, we had 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 increased to $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 a two-for-one stock split 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 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 and amortization of goodwill and intangibles of
approximately $214.7 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 merger 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 revenues.................. $ 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 14,198 17,116 23,896 26,969 29,228
Net income per share -- basic(1).... $ 0.09 $ 0.09 $ 0.10 $ 0.14 $ 0.16 $ 0.17
Net income per
share -- diluted(1)............... $ 0.08 $ 0.08 $ 0.09 $ 0.13 $ 0.15 $ 0.16
Number of shares used in computing
per share amounts -- basic(1)..... 165,057 165,913 166,647 167,224 167,834 168,932
Number of shares used in computing
per share amounts -- diluted(1)... 179,080 179,937 181,880 181,312 183,500 184,113
</TABLE>

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 securities 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 NSMG
business of Seagate Software, Inc. and 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 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 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.

9
<PAGE> 11

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 other intangible assets of approximately $3,678.5 million.
This amount will be amortized over four years, and will result in charges to
operations of approximately $229.7 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 connection with the sale of the notes in our concurrent offering, we
will incur $ million indebtedness ($ million if the over-allotment
option is exercised in full) which will result in our having as of March 31,
1999, a ratio of long-term debt to total capitalization of approximately %
( % if the over-allotment option we granted the underwriters in our concurrent
note offering is exercised in full). We sold $100.0 million in aggregate
principal amount of 5.25% convertible subordinated notes due 2004 in October
1997. The annual interest payments on our outstanding notes are $5.3 million.
The annual interest payments on the notes offered in the concurrent offering is
expected to be $ million, which we expect to fund from cash flow 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 are offering concurrently 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 operating 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.

10
<PAGE> 12

The operating results of Old 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.
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 and resources, including decision support,
accounting, management information systems and facilities. We must

11
<PAGE> 13

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, our President and Chief Operating Officer, 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 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 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 manufac-

12
<PAGE> 14

turer 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 ended December 31, 1998, Old VERITAS derived approximately 87.4% 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 three months ended
March 31, 1999, Old VERITAS derived approximately 75.5% of its license revenue
from storage management products and the NSMG business derived 90.2% from its

13
<PAGE> 15

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 three months
ended March 31, 1999 Old VERITAS derived 12% of its revenue from sales to Sun
Microsystems and 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 revenue 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 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.

14
<PAGE> 16

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 "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Old
VERITAS -- Year 2000 Compliance" and "-- NSMG -- Year 2000 Readiness" 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 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.

15
<PAGE> 17

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 HURT
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 July 15, 1999, we had approximately 141 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.

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.

16
<PAGE> 18

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 contain 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.

USE OF PROCEEDS

We will not receive any proceeds from the sale of shares of our common
stock 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 July 26, 1999)..................... 63.44 46.44
</TABLE>

On July 26, 1999, the last reported sale price of our common stock on the
Nasdaq National Market was $57.25.

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 their
stockholders. We may incur indebtedness in the future that may prohibit or
effectively restrict the payment of dividends.

17
<PAGE> 19

CAPITALIZATION

The following table sets forth as of March 31, 1999 Old VERITAS' unaudited
capitalization on an actual basis and VERITAS' on a pro forma combined basis to
give effect to the completion of the NSMG and TeleBackup acquisitions. In
addition, the following table sets forth our unaudited capitalization as further
adjusted to assume the completion of the concurrent note offering after
deducting underwriting discounts and commissions and other offering expenses.

<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------
PRO FORMA PRO FORMA
ACTUAL COMBINED AS ADJUSTED
-------- ---------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash and cash equivalents........................... $111,324 $ 158,993 $
======== ==========
Long-term obligations............................... $ 733 $ 913
5 1/4% convertible subordinated notes due 2004.... 100,000 100,000
% convertible subordinated notes due 2006....... -- --
Stockholders' equity:
Preferred stock, par value $0.001 per share;
10,000 shares authorized, none issued and
outstanding.................................... -- --
Common stock, $0.001 par value per share, 500,000
shares authorized, 96,185 issued and
outstanding -- actual; 168,363 issued and
outstanding -- pro forma combined and as
adjusted....................................... 206,911 3,764,864
Accumulated deficit............................... (15,833) (130,533)
-------- ---------- ----------
Accumulated other comprehensive income (loss)..... (823) (823)
-------- ---------- ----------
Total stockholders' equity..................... 190,255 3,633,508
-------- ---------- ----------
Total capitalization......................... $290,988 $3,734,421 $
======== ========== ==========
</TABLE>

18
<PAGE> 20

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 Old
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 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 had 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 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 as of
March 31, 1999 and for the three months ended March 31, 1998 and March 31, 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.

19
<PAGE> 21

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.

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

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------------------- -------------------
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 $ 39,082 $ 71,904
Merger-related costs....................... -- -- -- 8,490 -- -- --
In-process research and development........ -- -- 2,200 -- 600 -- --
Income (loss) from operations.............. (15,212) 1,193 11,858 20,076 53,668 9,838 19,494
Net income (loss).......................... (15,274) 2,371 12,129 22,749 51,648 9,055 13,583
Net income (loss) per share -- basic....... $ (0.19) $ 0.03 $ 0.14 $ 0.25 $ 0.55 $ 0.10 $ 0.14
Net income (loss) per share -- diluted..... $ (0.19) $ 0.03 $ 0.13 $ 0.23 $ 0.50 $ 0.09 $ 0.13
Number of shares used in computing
per share amounts -- basic............... 79,658 80,706 86,052 91,244 94,026 92,868 95,644
Number of shares used in computing
per share amounts -- diluted............. 79,658 86,124 92,992 98,986 103,342 101,900 106,272
</TABLE>

<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------------------- MARCH 31,
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 $196,180
Total assets.................................... 36,830 48,100 94,524 241,880 349,117 374,876
Long-term obligations........................... 6,366 6,205 1,468 100,911 100,773 100,733
Accumulated deficit............................. (124,064) (115,942) (103,813) (81,064) (29,416) (15,833)
Stockholders' equity............................ 14,052 23,602 74,955 104,193 169,854 190,255
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
------------------------------------ ENDED MARCH 31,
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---------------
<S> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL DATA:
Ratio of earnings to fixed charges....................... -- 2.3x 13.1x 13.0x 9.9x 13.4x
</TABLE>

Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges, amortization of bond
issuance costs related to indebtedness, and that portion of rental expense
representative of interest. During the year ended December 31, 1994, there was a
deficiency of earnings to cover fixed charges of approximately $15.1 million.

20
<PAGE> 22

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>

21
<PAGE> 23

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
three months ended March 31, 1999 and the VERITAS unaudited pro forma combined
condensed balance sheet as of March 31, 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 March 31, 1999 assumes the
NSMG combination and the TeleBackup combination took place on January 1, 1998.
The pro forma combined condensed balance sheet assumes the NSMG combination and
the TeleBackup combination took place on March 31, 1999.

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 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. The VERITAS unaudited pro
forma combined condensed balance sheet includes the effect of these charges.
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-26.
They should also be read in conjunction with the audited financial statements of
Old VERITAS which begin at Page F-3 of this prospectus, the financial statements
of the NSMG business, which begin at page F-42 of this prospectus, and the
financial

22
<PAGE> 24

statements of TeleBackup which begin at page F-73 of this prospectus. 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
taken place on January 1, 1998 or March 31, 1999, and do not indicate VERITAS'
future results of operations or financial position.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------ ---------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
VERITAS UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
DATA:
Total net revenue....................................... $ 409,998 $ 134,729
Loss from operations.................................... (826,950) (190,234)
Net loss................................................ (800,397) (194,653)
Net loss per share -- basic............................. $ (4.82) $ (1.16)
Net loss per share -- diluted........................... (4.82) (1.16)
Number of shares used in computing per share
amounts -- basic...................................... 166,216 167,834
Number of shares used in computing per share amounts --
diluted............................................... 166,216 167,834
</TABLE>

<TABLE>
<CAPTION>
AS OF
MARCH 31, 1999
--------------
(IN THOUSANDS)
<S> <C>
VERITAS UNAUDITED PRO FORMA BALANCE SHEET DATA:
Working capital............................................. $ 172,651
Total assets................................................ 4,099,870
Long-term obligations....................................... 100,913
Accumulated deficit......................................... (130,533)
Stockholders' equity........................................ 3,633,508
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1998 MARCH 31, 1999
------------------ --------------
(IN THOUSANDS)
<S> <C> <C>
VERITAS UNAUDITED OTHER PRO FORMA DATA:
Deficiency of earnings to fixed charges................ $ (820,711) $ (187,430)
</TABLE>

The pro forma deficiency of earnings to fixed charges was computed based on
amounts reflected in the VERITAS Unaudited Pro Forma Combined Condensed
Statement of Operations for the periods indicated.

23
<PAGE> 25

VERITAS UNAUDITED COMPARATIVE PER SHARE DATA

The following tables present certain unaudited historical and unaudited pro
forma per share data that reflect the completion of the NSMG combination and the
TeleBackup combination. This data should be read in conjunction with the VERITAS
unaudited pro forma combined condensed financial statements, and the historical
financial statements of Old VERITAS, the NSMG business and TeleBackup included
elsewhere in this document. VERITAS unaudited pro forma combined condensed per
share data does not necessarily indicate the operating results that would have
been achieved had the NSMG combination and the TeleBackup combination occurred
at the beginning of the periods presented, and do not indicate future results of
operations or financial position.

The NSMG business was an operating division of Seagate Software and had no
formal capital structure. Therefore, historical per share information for the
NSMG business is not presented.

The following options and other potential common securities, based upon the
options outstanding as of the periods presented and closing price of Old 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, MARCH 31,
1998 1999
------------ ---------
POTENTIAL COMMON SECURITIES: (IN THOUSANDS)
<S> <C> <C>
Old VERITAS options outstanding............................. 16,422 16,254
Options issued in connection with the NSMG combination...... 6,864 6,856
Options issued in connection with the TeleBackup
combination............................................... 156 103
Common stock issuable upon conversion of VERITAS' 5.25%
convertible notes......................................... 4,651 4,651
------ ------
28,093 27,864
====== ======
</TABLE>

CALCULATION OF BOOK VALUE PER SHARE AMOUNTS

The pro forma book value per share is computed by dividing pro forma
stockholders' equity by the pro forma number of shares outstanding at the end of
each period for which the computation is made. For purposes of computing the
book value per share of Old VERITAS as of December 31, 1998, book value of
$169.9 million was divided by actual shares outstanding of 95,257,484. For
purposes of computing the book value of Old VERITAS as of March 31, 1999, book
value of $190.3 million was divided by actual shares outstanding of 96,184,862.
For purposes of computing the book value per share of TeleBackup as of December
31, 1998, book value of C$4.3 million was divided by the actual shares
outstanding of 11,158,745. For purposes of computing the book value of
TeleBackup as of March 31, 1999, book value of C$4.0 million was divided by
actual shares outstanding of 11,363,445. For purposes of computing the pro forma
book value per share of VERITAS as of December 31, 1998, pro forma net book
value of $3,613.4 million was divided by pro forma actual shares outstanding of
167,447,484. For purposes of computing the pro forma book value of VERITAS as of
March 31, 1999, pro forma book value of $3,633.5 million was divided by pro
forma actual shares outstanding of 168,374,862.

24
<PAGE> 26

CALCULATION OF TELEBACKUP EQUIVALENT PRO FORMA PER SHARE AMOUNTS

The TeleBackup equivalent pro forma per share amounts are computed by
multiplying the VERITAS pro forma combined per share amounts by the exchange
ratio of 0.26466 shares of VERITAS common stock for each TeleBackup common
share.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AS OF AS OF
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
OLD VERITAS HISTORICAL:
Basic net income per share............................ $0.55 $0.14
Diluted net income per share.......................... $0.50 $0.13
Book value per share.................................. $1.78 $1.98
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AS OF AS OF
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
TELEBACKUP HISTORICAL:
Basic and fully diluted net loss per share............ C$(0.17) C$(0.05)
Book value per share.................................. C$ 0.38 C$ 0.35
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
AS OF AS OF
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
VERITAS PRO FORMA COMBINED:
Basic net loss per share.............................. $(4.82) $(1.16)
Diluted net loss per share............................ $(4.82) $(1.16)
Book value per share.................................. $21.58 $21.58
Equivalent pro forma basic and fully diluted net loss
per TeleBackup share................................ $(1.27) $(0.31)
Equivalent pro forma book value per TeleBackup
share............................................... $ 5.71 $ 5.71
</TABLE>

25
<PAGE> 27

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

You should read the following discussion in conjunction with the Financial
Statements of Old VERITAS, the NSMG business and TeleBackup and accompanying
notes, each which appear elsewhere in this prospectus. The following discussion
contains forward-looking statements that reflect the plans, estimates and
beliefs of each of Old VERITAS, the NSMG business and TeleBackup. 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."

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 back up 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. These indirect sales channels include
resellers, value added resellers, hardware distributors, application software
vendors and systems integrators.

In connection with the NSMG combination, in consideration for the
contribution and transfer of contributed stock and assets by Seagate Technology,
Inc., which we refer to as "STI" and Seagate Software, Inc., which we refer to
as "SSI," and their respective subsidiaries, we issued to SSI 69,148,208 shares
of our common stock and issued options to purchase 6,945,048 shares of our
common stock to our employees who are former NSMG employees.

We accounted for the NSMG and TeleBackup acquisitions using the purchase
method of accounting. We expect to incur charges of $229.7 million per quarter
primarily related to the amortization of acquired goodwill and other intangibles
over a four-year period. We recorded charges to operations of $103.1 million in
the three months ended June 30, 1999, for a one-time write-off related to
acquired in-process research and development costs. In addition, we recorded a
restructuring charge of $11.0 million in the three months ended June 30, 1999 as
a result of the NSMG combination. This one-time restructuring charge relates
primarily to exit costs with respect to duplicative facilities of Old VERITAS,
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.

Pursuant to the rules of the SEC, the following discussion has been
separated into two parts to discuss Old VERITAS and the NSMG business without
giving effect to the NSMG combination. The TeleBackup combination is not
reflected in either of the following analyses.

OLD VERITAS

The terms "we," "our," "us," and "VERITAS," when used in the section
captioned "-- OLD VERITAS" refer to VERITAS Software Corporation, a Delaware
corporation now known as VERITAS

26
<PAGE> 28

Operating Corporation, and which is now a wholly-owned subsidiary of VERITAS
Software Corporation, formerly known as VERITAS Holding Corporation.

OVERVIEW

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 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."

27
<PAGE> 29

Our international sales are generated primarily through our international
sales subsidiaries. International revenue outside the United States and Canada,
most of which is collectible in foreign currencies, accounted for 18% of our
total revenues for the three months ended March 31, 1999 and 22% of total
revenues for the three months ended March 31, 1998. Our international revenue
increased 56% from $8.4 million for the three months ended March 31, 1998 to
$13.1 million for the three months ended March 31, 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
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 February 3, 1999, we completed the acquisition of OpenVision Australia
Pty. Ltd., a company principally engaged in reselling our 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 net tangible and
intangible assets acquired.

On February 8, 1999, we 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, we 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 net tangible and intangible assets
acquired.

28
<PAGE> 30

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, the three months ended March 31, 1998 and
March 31, 1999 and the percentage changes between the three months ended March
31, 1999 and the three months ended March 31, 1998:

<TABLE>
<CAPTION>
PERIOD-TO-PERIOD
CHANGE
THREE MONTHS THREE MONTHS
YEARS ENDED ENDED ENDED
DECEMBER 31, MARCH 31, MARCH 31, 1999
------------------ ------------- COMPARED TO
1996 1997 1998 1998 1999 1998
---- ---- ---- ----- ----- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
User license fees...................... 81% 79% 80% 79% 78% 82%
Services............................... 19 21 20 21 22 92%
--- --- --- --- ---
Total net revenue.............. 100 100 100 100 100 84%
--- --- --- --- ---
Cost of revenue:
User license fees...................... 4 4 4 5 3 (1)%
Services............................... 6 10 10 12 9 45%
--- --- --- --- ---
Total cost of revenue.......... 10 14 14 17 12 31%
--- --- --- --- ---
Gross profit............................. 90 86 86 83 88 94%
Operating expenses:
Selling and marketing.................. 36 35 36 33 37 105%
Research and development............... 25 21 19 19 19 83%
General and administrative............. 9 7 5 6 5 52%
Merger-related costs................... -- 7 -- -- -- --
In-process research and development.... 3 -- -- -- -- --
--- --- --- --- ---
Total operating expenses....... 73 70 60 58 61 93%
--- --- --- --- ---
Income from operations................... 17 16 26 25 27
Interest and other income, net........... 4 4 6 7 4
Interest expense......................... -- (1) (3) (4) (2)
--- --- --- --- ---
Income before income taxes............... 21 19 29 28 29
Provision for income taxes............... 3 1 4 5 10
--- --- --- --- ---
Net income............................... 18% 18% 25% 23% 19%
=== === === === ===
</TABLE>

THREE MONTHS ENDED MARCH 31, 1999 VERSUS THREE MONTHS ENDED MARCH 31, 1998

Net Revenue

Total net revenue increased 84% from $39.1 million for the three months
ended March 31, 1998 to $71.9 million for the three months ended March 31, 1999.
VERITAS believes that the percentage increase 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 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

29
<PAGE> 31

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 78% of total net revenue for the three months ended March 31,
1999, and 79% of total net revenue for the three months ended March 31, 1998.

User License Fees. User license fees increased 82% from $30.7 million for
the three months ended March 31, 1998 to $55.8 million for the three months
ended March 31, 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 and the introduction of new
products. In particular, VERITAS' user license fees from storage products
increased by approximately 57% for the three months ended March 31, 1999 as
compared to the three months ended March 31, 1998, and accounted for 75% of user
license fees in the three months ended March 31, 1999 and 87% of user license
fees in the three months ended March 31, 1998.

Service Revenue. Service revenue increased 92% from $8.4 million for the
three months ended March 31, 1998 to $16.1 million for the three months ended
March 31, 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.

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 remained relatively
constant at $2.0 million for each of the three month periods ended March 31,
1999 and March 31, 1998. Gross margin on user license fees increased from 94%
for the three months ended March 31, 1998 to 96% for the three months ended
March 31, 1999. 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 significant
improvements in gross margin on user license fees.

Cost of Service Revenue. Cost of service revenue increased 45% from $4.5
million for the three months ended March 31, 1998 to $6.5 million for the three
months ended March 31, 1999. Gross margin on service revenue increased from 46%
for the three months ended March 31, 1998 to 60% for the three months ended
March 31, 1999. The increase in absolute dollars was primarily due to personnel
additions in our customer support and training and consulting organizations, in
anticipation of increased demand for such services. The improvement in gross
margin in the three months ended March 31, 1999 compared to the three months
ended March 31, 1998 was a result of increased productivity and higher service
revenue growth due to a larger installed customer base paying support revenue.

Operating Expenses

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<PAGE> 32

expenses as a percentage of total net revenue increased from 33% for the three
months ended March 31, 1998 to 37% for the three months ended March 31, 1999.
The increase was primarily the result of higher personnel and related costs
associated with increased staffing. 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 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 83% from
$7.5 million for the three months ended March 31, 1998 to $13.8 million for the
three months ended March 31, 1999. The increase was due primarily to increased
staffing levels. As a percentage of total net revenue, research and development
expenses remained consistent at 19% for the three months ended March 31, 1999
and 1998. 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
52% from $2.2 million for the three months ended March 31, 1998 to $3.3 million
for the three months ended March 31, 1999. General and administrative expenses
as a percentage of revenue declined from 6% to 5%. The increase in absolute
dollars was 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
absolute dollars, but not to change significantly as a percentage of revenue in
the future, as VERITAS expands its operations.

Interest and Other Income, Net. Interest and other income, net increased
13% from $2.7 million for the three months ended March 31, 1998 to $3.0 million
for the three months ended March 31, 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 $1.4 million for
the three months ended March 31, 1999 and 1998. Interest expense consists
primarily of interest accrued under the 5.25% convertible subordinated notes
issued by VERITAS in October 1997.

Income Taxes. VERITAS had effective tax rates of 36% for the three months
ended March 31, 1999 and 18% for the three months ended March 31, 1998. VERITAS'
1998 effective tax rate was 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' effective tax rate for the three months ended March 31,
1999 was higher than the effective tax rate for the three months ended March 31,
1998 primarily due to a lower benefit being derived from net operating loss
carryforwards in 1999 relative to a higher level of pre-tax income.

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

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<PAGE> 33

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 June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards 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. 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.

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. VERITAS has adopted SOP 98-1 as of January 1,
1999. The impact of adopting SOP 98-1 was not material, nor is SOP 98-1 expected
to have a material impact on VERITAS' 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. VERITAS will be
required to implement these provisions of SOP 98-9 for its fiscal year ending
December 31, 2000. Effective in December 1998, SOP 98-9 also amends SOP 98-4 (an
earlier amendment to SOP 97-2) to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4. VERITAS does not believe the
impact of SOP 98-9 will be material to VERITAS' financial position, results of
operations and 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 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

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<PAGE> 34

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. 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 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

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<PAGE> 35

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.

Merger-Related 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 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

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<PAGE> 36

5.25% 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 $208.5 million at December 31, 1998 and March 31, 1999, and
represented 60% and 56% 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 March 31, 1999,
we had $100.8 million and $100.7 million of long-term obligations, and
stockholders' equity was approximately $169.9 million and $190.3 million,
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 $15.2 million in the
three months ended March 31, 1999, compared to $15.3 million in the three months
ended March 31, 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
three months ended March 31, 1999, cash provided by operating activities
resulted primarily from net income, an increase in deferred revenue, and a
reduction in accounts receivable offset somewhat by an increase in prepaid
expenses. For the three months ended March 31, 1998, cash provided by operating
activities increased primarily as a result of higher net income, increases in
accrued liabilities and deferred revenue balances and reductions in prepaid
expenses and accounts receivable.

Our investing activities used cash of $49.8 million in the three months
ended March 31, 1999 primarily due to the net increase in short-term and
long-term investments of $41.1 million and capital expenditures of $8.6 million.
Our investing activities used cash of $28.0 million in the three months ended
March 31, 1998 due to the net increase in short-term investments of $23.3
million and capital expenditures of $4.7 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.

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<PAGE> 37

Financing activities provided cash of $7.1 million in the three months
ended March 31, 1999, and $4.3 million in the three months ended March 31, 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 5.25% convertible
subordinated notes due 2004 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% notes, for which we
received net proceeds of $97.5 million. The 5.25% notes provide for semi-annual
interest payments each May 1 and November 1, commencing on May 1, 1998. 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. The debt issuance costs are being amortized over the term of the 5.25%
notes using the interest method.

Following the consummation of the offering of the notes, we will have a
ratio of long-term debt to total capitalization at July , 1999 of
approximately %. 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 first quarter of 1999, we signed a letter of intent to enter
into an agreement to lease real estate to be built by the lessor. In a separate
agreement, we were retained by the lessor as its agent for the construction of
the facility. The leases for land and improvements will be classified as
operating leases. The various agreements provide for minimum lease payments
which begin, generally, upon completion of construction, which is expected to be
June 2001, as well as certain residual value guarantees. Predevelopment costs
incurred by us were approximately $1.4 million through March 31, 1999, and were
subsequently reimbursed by the lessor.

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

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<PAGE> 38

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 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 the 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 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

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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 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 process
services (including desktops)
Communication networks used to carry Validation, testing and remediation in Q3 1999
products and provide services process
Non-information technology systems and Systems upgraded or replaced as Q3 1999
services appropriate, testing and
implementation
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 $0.5 million and do not expect total costs of the compliance
activities to exceed $1.0 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 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 September 1, 1999.

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<PAGE> 40

NSMG

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 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.

39
<PAGE> 41

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

40
<PAGE> 42

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.

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.

41
<PAGE> 43

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.

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.

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<PAGE> 44

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.

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.

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<PAGE> 45

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
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.

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<PAGE> 46

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> 47

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 $6.2 million in fiscal 1997.
The

46
<PAGE> 48

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.

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<PAGE> 49

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.

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<PAGE> 50

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

49
<PAGE> 51

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.

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<PAGE> 52

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 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.

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

51
<PAGE> 53

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 write-offs or
write-downs are included in costs of revenues. During fiscal 1997 and 1998, the
Network & Storage Management

52
<PAGE> 54

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> 55

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 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 development and
localization costs, partially offset by facility consolidations and reductions
in workforce. Additionally,

54
<PAGE> 56

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

55
<PAGE> 57

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.

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<PAGE> 58

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 $ -- $ -- $ -- $ -- $ --
====== ====== ======= ===== ======= ==== =====

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 and abandon the

57
<PAGE> 59

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 the 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.

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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 repayments to Seagate Technology of $161.5
million offset by additional borrowings from Seagate Technology of

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$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.

YEAR 2000 READINESS

This section on the Year 2000 issue is as of April 2, 1999. It has not been
updated by Seagate Software, Seagate Technology or VERITAS.

The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculation causing disruptions of operations, including, among other things,
a temporary inability to process transactions, send invoices, or engage in
normal business activities.

The Network & Storage Management Group considers a product to be Year 2000
ready if the product's performance and functionality are unaffected by
processing of dates prior to, during and after the year 2000, but only if all
products, for example hardware, firmware, and software used with the products
properly exchange accurate date data with it.

The Network & Storage Management Group's products

The Network & Storage Management Group's products are used in numerous
operating environments. The Network & Storage Management Group has assessed its
products to determine whether or not they are Year 2000 ready. Although the
Network & Storage Management Group believes certain of its software products are
Year 2000 ready, it has determined that certain of its software products are not
and will not be Year 2000 ready. Products that are not Year 2000 ready are not
material to the Network & Storage Management Group's business, financial
condition or results of operations. The inability of one or more of its products
to properly manage and manipulate dates related to the year 2000 could result in
a material adverse effect on its business, financial condition or results of
operations, including increased warranty costs, customer satisfaction issues and
potential lawsuits. The Network & Storage Management Group is taking measures to
inform customers that those products are not and will not be Year 2000 ready. To
assist customers in evaluating their Year 2000 issues, the Network & Storage
Management Group has developed a list of those products that are Year 2000 ready
as stand-alone products.

The Network & Storage Management Group anticipates that substantial
litigation may be brought against vendors, including the Network & Storage
Management Group, of all software components of systems in which another
vendor's component products are unable to properly manage data related to the
Year 2000. The Network & Storage Management Group's customer agreements
typically contain provisions designed to limit the Network & Storage Management
Group's liability for such claims. As a result of existing or future federal,
state or local laws or ordinances or unfavorable judicial decisions, it is
possible that these measures will not provide the Network & Storage Management
Group with protection from liability claims. If any such claims are brought
against the Network & Storage Management Group,

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regardless of their merit, the Network & Storage Management Group's business,
financial condition and results of operations could be materially adversely
affected from factors that include increased warranty costs, customer
satisfaction issues and the costs of potential lawsuits.

The Network & Storage Management Group's systems

The Network & Storage Management Group has also initiated a comprehensive
program to address Year 2000 readiness in its internal systems and in those of
its customers and suppliers. The Network & Storage Management Group's program
has been designed to address its most critical internal systems first and to
gather information regarding the Year 2000 compliance of products supplied to
the Network & Storage Management Group and into which its products are
integrated. The scope of the Network & Storage Management Group's internal Year
2000 readiness project includes information technology, non-information
technology and embedded technology for all critical systems, and includes all
offices worldwide, critical vendors, suppliers, customers and partners. The
Network & Storage Management Group currently expects to be Year 2000 ready
before December 31, 1999.

The Network & Storage Management Group is approaching Year 2000 readiness
in five stages: inventory, assessment, testing, remediation and contingency
planning. Anticipated dates of completion are as follows:

<TABLE>
<CAPTION>
ANTICIPATED DATE
OF COMPLETION
AS OF APRIL 2, 1999
-------------------
<S> <C>
1. Inventory Complete
2. Assessment Complete
3. Testing Complete
4. Remediation September 30, 1999
5. Contingency Planning September 30, 1999
</TABLE>

These activities are intended to encompass all major categories of systems
in use by the Network & Storage Management Group, including operations,
technical support, engineering, sales, finance and human resources. To date, the
Network & Storage Management Group has not incurred material costs related to
assessment and remediation of Year 2000 readiness. The Network & Storage
Management Group is still in the process of conducting its Year 2000 audit. The
Network & Storage Management Group currently estimates the costs of internal
Year 2000 issues will be less than $3.0 million. However, if the costs of the
future remediation exceed such amount, then the costs required to address the
Year 2000 issue could have a material adverse effect on the Network & Storage
Management Group's business, financial condition or results of operations.

The Network & Storage Management Group's material third party relationships
include relationships with fulfillment houses, banks, payroll services vendors,
utilities, distribution partners and key customers. These relationships have
been examined, and the Network & Storage Management Group is now assessing the
risks relating to these relationships. The Network & Storage Management Group
believes that certain of these relationships are of significant importance to
its future operations. The Network & Storage Management Group has contacted its
significant suppliers and has received assurances of Year 2000 compliance from a
number of those contacted. However, most of the Network & Storage Management
Group's suppliers are under no contractual obligation to provide such
information to the Network & Storage Management Group. The Network & Storage
Management Group does not currently have reason to believe that any such third
parties have significant internal Year 2000 problems that will not remediated.
However, in the event any such third parties were to have an unremediated Year
2000 problem, it could have a material adverse effect on The Network & Storage
Management Group's business, financial condition or results of operations.

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Customer Purchasing Patterns

The Network & Storage Management Group believes that the purchasing
patterns of customers and potential customers may be affected by Year 2000
issues as companies expend significant resources to correct or patch their
current software systems for Year 2000 readiness or defer purchases of new
systems to avoid encountering additional unforeseen Year 2000 problems.
Additional short-term expenditures for remediation of existing Year 2000
problems may result in reduced funds being available to purchase products such
as those offered by the Network & Storage Management Group, which could have a
material adverse effect on the Network & Storage Management Group's business,
operating results or financial condition.

The Network & Storage Management Group believes that a most likely worst
case Year 2000 scenario would result in significant disruptions of its business,
including the possible loss of power and disruption of transportation system.
The Network & Storage Management Group believes that no effective contingency
planning for such disruption is possible. The Network & Storage Management Group
also believes that additional elements of the most likely worst case Year 2000
scenario include the loss of fulfillment services, banking services, and/or
distribution services. Although discussions of contingency planning for these
problems has begun, no contingency plan is yet in place. The Network & Storage
Management Group currently expects to complete contingency planning by September
30, 1999. The Network & Storage Management Group could experience material
adverse effects on its business if it fails to successfully implement a
contingency plan. Those material adverse effects could include delays in the
delivery or sale of products.

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OLD VERITAS 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 March 31, 1999, approximately
91% of our entire portfolio will mature in one year or less and approximately
41% 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 March 31, 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.............................. $194,330 -- $194,330 $194,330
Average interest rate...................... 5.04% -- 5.04% 5.04%
Long-term investments...................... $ 499 $ 47,360 $ 47,859 $ 47,859
Average interest rate...................... 5.86% 5.20% 5.21% 5.21%
Long-term debt............................. -- $100,000 $100,000 $187,791
Fixed interest rate........................ -- 5.25% 5.25% 5.25%
</TABLE>

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BUSINESS

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

OVERVIEW

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.

- 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

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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 of the

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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.

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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. 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 independent

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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.

New Products

We announced a new product that is expected to become available in mid
1999. Together with VERITAS Storage LookOut and VERITAS Cluster Server, this
product is part of an integrated suite which utilizes a centralized and
automated management interface to bring automated event, performance,
configuration and capacity management solutions to enterprise storage
configurations:

VERITAS Storage Planner. This product, a storage application product,
another add-on product for VERITAS Storage Manager, is a predictive storage
resource analysis tool, which assists system administrators with capacity
planning for future storage needs. The product analyzes data gathered by VERITAS
Storage Manager to determine how quickly storage objects are reaching capacity,
and makes recommendations when additional storage objects are needed.

Our new products may not be released on the anticipated schedule. It is
possible that they may not achieve market acceptance or adequately address the
changing needs of the marketplace on a timely basis, despite the dedication of
significant engineering resources to the development of the products. Any such
failure could cause us to receive little or no return on our investment of
significant resources which could adversely affect our business.

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.

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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.

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 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,

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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 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 manufacturers

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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 has 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 simultaneous

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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, Old VERITAS' 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.

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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.

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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 July 15, 1999, our research and development staff consisted of 664
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 141 people.

Research and Development Expenditures

Old VERITAS had research and development expenses of $13.8 million for the
three months ended March 31, 1999, $40.2 million in 1998, $25.2 million in 1997
and $18.5 million in 1996. These amounts exclude $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
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.

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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 combination 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 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.

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.

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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 VERITAS. TeleBackup, TSInfoPRO EDV,
TSInfoPRO Corporate and TSInfoPRO NT Enterprise are trademarks of VERITAS.

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 July 15, 1999, we had 2,379 full-time employees, including 805 in
research and development, 1,334 in sales, marketing, consulting and customer
support and 240 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

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times through 2012. The table below summarizes the square footage of premises
leased by us as of July 15, 1999, excluding approximately 34 executive suites.

<TABLE>
<CAPTION>
APPROXIMATE
LOCATION SQUARE FOOTAGE
-------- --------------
<S> <C>
North America
California................................................ 260,401
Colorado.................................................. 13,437
Florida................................................... 112,397
Georgia................................................... 11,364
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.................................... 574,357
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.................................................. 728,191
</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.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table shows the name, age and position of each of our
executive officers and directors as of June 30, 1999.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mark Leslie.............................. 53 Chief Executive Officer and Chairman of
the Board
Terence R. Cunningham.................... 39 President and Chief Operating Officer,
Director (until August 30, 1999)
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............................ 35 Vice President, Merger Integration
Steven Brooks............................ 47 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. Cunningham has served as our President and Chief Operating Officer and
as a director since May 28, 1999. Prior to that date, Mr. Cunningham served as
Seagate Software's President and Chief Operating Officer and as President of the
Seagate Software Network & Storage Management Group. In May 1994, Mr. Cunningham
joined Seagate Technology in connection with its acquisition of Crystal Computer
Services, a computer services company founded by Mr. Cunningham in 1984. Mr.
Cunningham served as Crystal's President until May 1996, when he was named
President of the Storage Management Group. Later in 1996, he was named Executive
Vice President and General Manager of the NSMG business. From July 1997 to May
1999, Mr. Cunningham served as President and Chief Operating Officer for Seagate
Software as well as Executive Vice President and General

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Manager of the NSMG business. In July 1999, we announced that Mr. Cunningham
would be leaving us, and that his resignation would become effective on August
30, 1999.

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.

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 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
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

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<PAGE> 81

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 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
since May 28, 1999. From February 1996 until May 28, 1999, Mr. Hallmen served as
Vice President 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. 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

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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.

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

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<PAGE> 83

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.

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 July 15, 1999 options to purchase 347,872
shares were outstanding, 183,692 had been exercised and 593,436 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 and certain other

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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
ANNUAL COMPENSATION AWARDS
----------------------- 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,

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<PAGE> 85

if any, on option exercises will depend on the future performance 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 (US$/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($US)
ACQUIRED ON REALIZED -------------------- -----------------------
NAME EXERCISE (US$) 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 to be 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.

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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 and Terence Cunningham,
which provide 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 compete

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<PAGE> 87

directly with our products, or without our authorization. In addition, until one
year after employee's termination for any reason, 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 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.

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 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

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<PAGE> 88

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.

On July 13, 1999, Terence Cunningham announced his resignation as
President, Chief Operating Officer and as a director of VERITAS, effective as of
August 30, 1999. Under a resignation letter agreement between VERITAS and Mr.
Cunningham, VERITAS has 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.

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PRINCIPAL STOCKHOLDERS

The table below reflects beneficial ownership as of July 15, 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 July 15, 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....................... 69,148,208 -- 69,148,008 41.23%
Seagate Software, Inc......................... 69,148,208 -- 69,148,208 41.23%
Gregory Kerfoot............................... 69,148,208 -- 69,148,208 41.23%
Stephen Luczo................................. 69,148,208 -- 69,148,208 41.23%
Janus Capital Corporation..................... 10,816,800 -- 10,816,800 6.45%
William H. Janeway............................ 4,923,590 -- 4,923,590 2.94%
Mark Leslie................................... 1,218,416 902,082 2,120,498 1.26%
Geoffrey Squire............................... 560,000 333,505 895,505 *
Fred van den Bosch............................ 6,348 694,168 700,516 *
Peter Levine.................................. 234,950 54,754 289,704 *
Joseph Rizzi.................................. 110,166 129,936 240,102 *
Paul Sallaberry............................... 58,052 197,630 255,682 *
Terence Cunningham............................ -- 254,476 254,476 *
Kenneth Lonchar............................... 87,044 36,333 123,377 *
Michael Colemere.............................. -- 78,958 78,958 *
Steven Brooks................................. 9,000 67,754 76,754 *
Jay Jones..................................... 30,788 32,241 63,029 *
Michael Wentz................................. -- 59,425 59,425 *
David Hallmen................................. -- 29,992 29,992 *
All executive officers and directors as a
group (16 persons).......................... 76,386,562 2,873,254 79,259,816 46.46%
</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.

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Janus Capital Corporation, an institutional investment manager, holds
shares on behalf of various client accounts, and shares voting power and holds
sole dispositive power. This information is current as of June 10, 1999.

Mr. Janeway, a director of VERITAS, is a managing director and member of
E.M. Warburg, Pincus & Co., LLC, or EMW LLC, and a general partner of Warburg,
Pincus & Co., or WP. 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 the 4,817,590 shares
beneficially owned by WP and EMW LLC. Mr. Janeway disclaims beneficial ownership
of those shares for the purposes of Section 16 of the Exchange Act or otherwise.

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

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SELLING STOCKHOLDERS

The shares the selling stockholders are offering hereby were issued by
VERITAS to the selling stockholders pursuant to a registration statement on Form
S-4.

The following table sets forth information regarding the selling
stockholders with respect to the shares that are being offered pursuant to this
prospectus. We have obtained this information from the selling stockholders.
Except as provided below, none of the selling stockholders has, or within the
past three years has had, any position, office or other material relationship
with VERITAS or any of its predecessors or affiliates.

<TABLE>
<CAPTION>
MAXIMUM NUMBER
SHARES BENEFICIALLY OWNED OF SHARES TO BE SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING OFFERED BY EACH AFTER THE OFFERING
------------------------- SELLING -------------------------
NAME NUMBER PERCENT STOCKHOLDER NUMBER PERCENT
---- ----------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Seagate Software, Inc.............. 69,148,208 41.23% 10,600,000 58,548,208 34.90%
Warburg, Pincus Investors, L.P. ... 4,446,308 2.65 1,400,000 3,046,308 1.81
</TABLE>

The percentages of outstanding common stock were calculated based on
167,725,406 shares of common stock outstanding as of July 15, 1999. The table
assumes that the underwriters have not exercised their over-allotment option to
purchase 1,800,000 shares from the selling stockholders. If the over-allotment
option is exercised in full, the number of our shares held by each selling
stockholder after the offering will be reduced and the percentages of
outstanding common stock owned by each selling stockholder will decline.

Unless a selling stockholder's address is provided elsewhere in this
section, the business address of each selling stockholder is VERITAS Software
Corporation, 1600 Plymouth Street, Mountain View, California 94043.

Seagate Software, Inc. Seagate Software's products permit analysis and
interpretation of data in order to make business decisions. Seagate Software
currently has one operating group, the Information Management Group. Prior to
May 28, 1999, Seagate Software also operated its Network & Storage Management
Group business, which was contributed to VERITAS on that date in exchange for
69.1 million shares of VERITAS common stock. Former employees of Seagate
Software who became employees of VERITAS in connection with contribution of the
NSMG business received options to purchase 6.9 million shares of VERITAS common
stock in exchange for Seagate Software options terminated as a result of the
transaction.

Two members of the board of directors of VERITAS, Stephen J. Luczo and
Gregory B. Kerfoot, are representatives of Seagate Software. Mr. Luczo is the
Chairman of the board of directors of Seagate Software and the President and
Chief Executive Officer of Seagate Technology, Inc., Seagate Software's majority
stockholder. Mr. Kerfoot is a director of Seagate Software and serves as its
President. As such, Mr. Luczo and Mr. Kerfoot may be deemed to have an indirect
pecuniary interest within the meaning of

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<PAGE> 92

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. For additional
information regarding the relationship between Seagate Software and VERITAS, see
"Related Transactions."

Headquartered in Scotts Valley, California, Seagate Software has 32 offices
and operations in 17 countries worldwide. Seagate Software is a majority-owned
and consolidated subsidiary of Seagate Technology. As of July 2, 1999, Seagate
Technology held approximately 99% of all outstanding shares of Seagate Software.
Current and former employees, directors and consultants of Seagate Software,
Seagate Technology and their subsidiaries hold the remaining shares of Seagate
Software. Seagate Software's principal executive offices are located at 915 Disc
Drive, Scotts Valley, California 95066, and its telephone number is (831)
438-6550.

Seagate Technology, Inc. Seagate Technology designs, manufactures and
markets products for storage, retrieval and management of data on computer
systems and other systems that receive, store and transmit data. These products
include disc drives and disc drive components, tape drives and software. Seagate
Technology designs, manufactures and markets a broad line of rigid disc drives.
These products are used in computer systems ranging from desktop personal
computers to large, sophisticated enterprise computers. Seagate Technology also
designs and markets tape drives ranging in capacity from 8 gigabytes to 200
gigabytes for low cost storage and protection of large volumes of data
electronically. Seagate Technology's common stock trades on the New York Stock
Exchange under the symbol "SEG." Seagate Technology's principal executive
offices are located at 920 Disc Drive, Scotts Valley, California 95066, and its
telephone number at that location is (831) 438-6550.

Warburg, Pincus Investors, L.P., or WPI, is a Delaware limited partnership.
The general partner of WPI is Warburg, Pincus & Co., a New York general
partnership, or WP, and the manager of WPI is E.M. Warburg, Pincus & Co., LLC, a
New York limited liability company or EMW LLC. Lionel I. Pincus is the managing
partner of WP and the managing member of EMW LLC and may be deemed to control
both WP and EMW LLC. The members of EMW LLC are substantially the same as the
partners of WP.

William Janeway, a director of VERITAS, is a managing director and member
of EMW LLC and a general partner of WP. 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 the shares
beneficially owned by Warburg, Pincus. Mr. Janeway disclaims beneficial
ownership of those shares for the purposes of Section 16 of the Exchange Act or
otherwise.

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

In connection with its acquisition of shares of Old VERITAS in connection
with VERITAS' merger with OpenVision Technologies, Inc., Warburg entered into a
registration rights agreement and a nomination agreement with Old VERITAS that
we assumed. The terms of the registration rights agreement grant Warburg certain
rights to register specified shares of our common stock. 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 than 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.

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<PAGE> 93

The remaining selling stockholders are directors and/or officers of
VERITAS. Biographies regarding these persons are located in "Management" and
additional information regarding their stock and option information is located
in "Principal Stockholders."

VERITAS expects to incur expenses of $ in connection with this
offering. The selling stockholders will incur any expenses of their own counsel
in connection with this offering, but the remaining expenses (other than
underwriting discounts and commissions) will be paid by VERITAS.

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<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 July 15, 1999 there were outstanding 167,725,406 shares of common
stock held of record by approximately 398 stockholders, options to purchase
24,469,866 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 is 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 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.

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<PAGE> 95

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 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 or the
date the rights expire. After the distribution date, we will issue one 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
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

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<PAGE> 96

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 and 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."

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.

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<PAGE> 97

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.

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.

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<PAGE> 98

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.

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.

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<PAGE> 99

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.

REGISTRATION RIGHTS

WARBURG PINCUS' REGISTRATION RIGHTS

Warburg Pincus has the right, on up to two occasions, 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 Pincus has certain "piggyback" registration rights. If
we propose to register any of our securities under the Securities Act, Warburg
Pincus 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

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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
Pincus in the registration.

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 Pincus.

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 will also have 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,
but if they exercise this right, they will be prohibited from selling other
shares in the quarter that the offering is completed. 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;

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- 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 Nasdaq under the trading symbol VRTS.

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UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated , 1999, the underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Credit Suisse First Boston Corporation, SG
Cowen Securities Corporation and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as representatives, have severally agreed to purchase,
and the selling stockholders have agreed to sell to them, severally, the
respective number of shares of common stock set forth opposite the names of such
underwriters below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ----------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Credit Suisse First Boston Corporation......................
SG Cowen Securities Corporation.............................
Donaldson, Lufkin & Jenrette Securities Corporation.........

----------
Total............................................. 12,000,000
==========
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to pay for and accept delivery of the shares of common stock are
subject to the approval of certain legal matters by their counsel and to certain
other conditions. The underwriters are obligated to take and pay for all of the
shares of common stock offered hereby (other than those covered by the
underwriters' over-allotment option described below) if any such shares are
taken.

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the cover
page of this prospectus and part to certain dealers at a price that represents a
concession not in excess of $ a share under the public offering price.
Any underwriter may allow, and such dealers may reallow, a concession not in
excess of $ a share to other underwriters or to certain dealers. After
the initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.

The selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of the underwriting agreement, to purchase
up to an aggregate of 1,800,000 additional shares of common stock at the public
offering price set forth on the cover page hereof, less underwriting discounts
and commissions. The underwriters may exercise such option solely for the
purpose of covering over-allotments, if any, made in connection with the
offering of the shares of common stock. To the extent such option is exercised,
each underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of common
stock as the number set forth next to such underwriter's name in the preceding
table bears to the total number of shares of common stock set forth next to the
names of all underwriters in the preceding table.

The underwriting agreement provides that VERITAS and the selling
stockholders will indemnify the underwriters against certain liabilities under
the Securities Act.

VERITAS, certain of its directors, executive officers (except as to 600,000
shares of common stock in the aggregate) and other selling stockholders (who, as
of , 1999, owned an aggregate of shares of
common stock) have agreed that they will not (a) offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, lend, or
otherwise transfer or dispose of, directly or indirectly, any shares of common
stock or any securities convertible into or exercisable or exchangeable for
common stock, or (b) enter into any swap or other arrangement that transfers to
another person, in whole or in part, any of the economic consequences of
ownership of the common stock, whether any such transaction described

101
<PAGE> 103

in clause (a) or (b) above is to be settled by delivery of common stock or such
other securities, in cash or otherwise, for a 90-day period after the date of
the final prospectus related to this offering, without the prior written consent
of Morgan Stanley & Co. Incorporated, except that VERITAS may, without such
consent, (1) issue the common stock offered hereby and (2) grant options or
issue stock upon the exercise of outstanding stock options pursuant to VERITAS'
stock option plans.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares of
common stock in the open market. Finally, the underwriters may reclaim selling
concessions allowed to an underwriter or a dealer for distributing the common
stock in the offering, if the underwriters repurchase previously distributed
common stock in transactions to cover underwriters short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the common stock above independent market
levels. The underwriters are not required to engage in these activities, and may
end any of these activities at any time.

Some of the underwriters have engaged in transactions with and performed
various investment banking and other services for VERITAS in the past, and may
do so from time to time in the future.

102
<PAGE> 104

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of common stock in the public market
could adversely affect prevailing market prices from time to time.

Upon completion of this offering, VERITAS will have outstanding an
aggregate of shares of common stock, assuming no exercise of
outstanding options. Of these shares, shares, including all of the
shares sold in the offering, are freely tradeable without restriction or further
registration under the Securities Act, unless such shares are purchased by
"affiliates" of VERITAS as that term is defined in Rule 144 under the Securities
Act (the "Affiliates"). As a result of certain contractual restrictions
described below, additional shares will be eligible for sale 90
days after the date of the final prospectus related to this offering, with all
of such shares subject to the volume limitations and other conditions of Rule
144 described below; and the remaining of the shares will become
eligible for sale in July 1999, subject to the volume limitations and other
conditions of Rule 144.

The selling stockholders have agreed not to offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly (or enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of), any shares of common stock or any securities
convertible into or exercisable or exchangeable for shares of common stock, for
a period of 90 days after the date of the underwriting agreement, without the
prior written consent of Morgan Stanley & Co. Incorporated. Morgan Stanley & Co.
Incorporated may in its sole discretion choose to release a certain number of
these shares from such restrictions prior to the expiration of such 90 day
period.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned restricted shares for at
least one year including the holding period of any prior owner except an
Affiliate would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
common stock then outstanding (which will equal approximately
shares immediately after this offering); or (ii) the average weekly trading
volume of the common stock on the Nasdaq National Market during the four
calendar weeks preceding the filing of a notice on Form 144 with respect to such
sale. Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about VERITAS.

REGISTRATION RIGHTS

Warburg Pincus and Seagate Software have agreed that they will not exercise
their rights to require us to register shares of our common stock held by them
for resale for a period of 90 days after the date of the underwriting agreement.

LEGAL MATTERS

Fenwick & West LLP, Palo Alto, California, will provide VERITAS with an
opinion as to legal matters in connection with the notes and common stock
offered by this prospectus. Certain legal matters will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New York.

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

103
<PAGE> 105

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.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 with
respect to the notes and common stock offered by us. 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. 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.

104
<PAGE> 106

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 March 31, 1999
(unaudited)......................................... F-3
Consolidated Statements of Operations
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999
(unaudited)........................................... F-4
Consolidated Statements of Stockholders' Equity
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1999 (unaudited)....... F-5
Consolidated Statements of Cash Flows
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 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-26
Pro Forma Combined Condensed Statements of Operations
Year Ended December 31, 1998 and Three Months Ended
March 31, 1999...................................... F-27
Pro Forma Combined Condensed Balance Sheet
As of March 31, 1999................................. F-30
Notes to Pro Forma Combined Condensed Financial
Statements............................................ F-31
NETWORK & STORAGE MANAGEMENT GROUP COMBINED FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors...... F-41
Combined Balance Sheets
As of June 27, 1997, July 3, 1998 and April 2, 1999
(unaudited)......................................... F-42
Combined Statements of Operations
Years Ended June 28, 1996, June 27, 1997, July 3,
1998, and Nine Months Ended April 3, 1998, and April
2, 1999 (unaudited)................................. F-43
Combined Statements of Cash Flows
Years Ended June 28, 1996, June 27, 1997, July 3,
1998, and Nine Months Ended April 3, 1998, and April
2, 1999 (unaudited)................................. F-44
Combined Statements of Group Equity
Years Ended June 28, 1996, June 27, 1997, July 3,
1998 and Nine Months Ended April 2, 1999
(unaudited)......................................... F-45
Notes to Combined Financial Statements................. F-46
TELEBACKUP SYSTEMS INC.
Auditors' Report to the Directors...................... F-73
Balance Sheets as of December 31, 1997 and 1998 and
March 31, 1999 (unaudited)............................ F-74
Statements of Operations and Deficit
Years Ended December 31, 1996, 1997 and 1998 and
Three Months Ended March 31, 1998 and 1999
(unaudited)......................................... F-75
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-76
Notes to Financial Statements.......................... F-77
</TABLE>

F-1
<PAGE> 107

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> 108

VERITAS SOFTWARE CORPORATION

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

ASSETS

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1997 1998 1999
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 75,629 $139,086 $111,324
Short-term investments................................. 115,131 72,040 97,225
Accounts receivable, net of allowance for doubtful
accounts of $1,597, $2,572 and $2,800 at December
31, 1997, 1998 and March 31, 1999, respectively..... 30,296 52,697 50,210
Prepaid expenses....................................... 4,298 13,509 21,309
-------- -------- --------
Total current assets.............................. 225,354 277,332 280,068
Long-term investments.................................... -- 31,925 47,859
Property and equipment, net.............................. 10,109 26,518 32,528
Other assets............................................. 6,417 13,342 14,421
-------- -------- --------
$241,880 $349,117 $374,876
======== ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 1,552 $ 4,958 $ 4,390
Accrued compensation and benefits...................... 6,595 11,267 7,473
Other accrued liabilities.............................. 8,407 11,196 11,488
Income taxes payable................................... 2,773 13,424 17,388
Deferred revenue....................................... 17,449 37,645 43,149
-------- -------- --------
Total current liabilities......................... 36,776 78,490 83,888
Deferred rent............................................ 911 773 733
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; 92,255, 95,257 and 96,185
shares issued and outstanding at December 31, 1997
and 1998 and March 31, 1999 respectively............ 46 48 48
Additional paid-in capital............................. 185,841 199,810 206,863
Accumulated deficit.................................... (81,064) (29,416) (15,833)
Deferred compensation.................................. (64) (32) (24)
Accumulated other comprehensive loss................... (566) (556) (799)
-------- -------- --------
Total stockholders' equity........................ 104,193 169,854 190,255
-------- -------- --------
$241,880 $349,117 $374,876
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-3
<PAGE> 109

VERITAS SOFTWARE CORPORATION

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -------------------
1996 1997 1998 1998 1999
------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net revenue:
User license fees.................... $59,223 $ 95,714 $167,703 $30,689 $55,786
Services............................. 13,523 25,411 43,162 8,393 16,118
------- -------- -------- ------- -------
Total net revenue............... 72,746 121,125 210,865 39,082 71,904
Cost of revenue:
User license fees.................... 3,020 4,731 8,798 1,966 1,955
Services............................. 4,442 11,714 20,663 4,500 6,527
------- -------- -------- ------- -------
Total cost of revenue........... 7,462 16,445 29,461 6,466 8,482
------- -------- -------- ------- -------
Gross profit........................... 65,284 104,680 181,404 32,616 63,422
Operating expenses:
Selling and marketing................ 25,998 42,868 76,392 13,059 26,823
Research and development............. 18,480 25,219 40,239 7,549 13,816
General and administrative........... 6,748 8,027 10,505 2,170 3,289
Merger-related costs................. -- 8,490 -- -- --
In-process research and
development....................... 2,200 -- 600 -- --
------- -------- -------- ------- -------
Total operating expenses........ 53,426 84,604 127,736 22,778 43,928
------- -------- -------- ------- -------
Income from operations................. 11,858 20,076 53,668 9,838 19,494
Interest and other income, net......... 2,785 4,889 11,821 2,685 3,031
Interest expense....................... (343) (1,206) (5,700) (1,420) (1,433)
------- -------- -------- ------- -------
Income before income taxes............. 14,300 23,759 59,789 11,103 21,092
Provision for income taxes............. 2,171 1,010 8,141 2,048 7,509
------- -------- -------- ------- -------
Net income............................. $12,129 $ 22,749 $ 51,648 $ 9,055 $13,583
======= ======== ======== ======= =======
Net income per share -- basic.......... $ 0.14 $ 0.25 $ 0.55 $ 0.10 $ 0.14
======= ======== ======== ======= =======
Net income per share -- diluted........ $ 0.13 $ 0.23 $ 0.50 $ 0.09 $ 0.13
======= ======== ======== ======= =======
Number of shares used in computing per
share amounts -- basic............... 86,052 91,244 94,026 92,868 95,644
======= ======== ======== ======= =======
Number of shares used in computing per
share amounts -- diluted............. 92,992 98,986 103,342 101,900 106,272
======= ======== ======== ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

F-4
<PAGE> 110

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 $32 $140,153 $(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 9 117 -- --
Issuance of common stock............... -- -- 4,534 2 36,437 -- --
Exercise of stock options and
warrants............................. -- -- 1,326 1 1,091 -- --
Issuance of common stock under employee
stock purchase plan.................. -- -- 842 1 1,567 -- --
Payments on notes receivable from
stockholders......................... -- -- -- -- -- -- 245
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
------ ----- ------- --- -------- --------- -----
BALANCE AT DECEMBER 31, 1996............ -- -- 90,078 45 179,365 (103,813) (282)
Comprehensive income
Net income........................... -- -- -- -- -- 22,749 --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- --
Comprehensive income................. -- -- -- -- -- -- --
Exercise of stock options.............. -- -- 1,666 1 3,269 -- --
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 46 185,841 (81,064) --
Comprehensive income
Net income........................... -- -- -- -- -- 51,648 --
Foreign currency translation
adjustment......................... -- -- -- -- -- -- --
Comprehensive income................. -- -- -- -- -- -- --
Exercise of stock options.............. -- -- 2,466 1 10,402 -- --
Issuance of common stock under employee
stock purchase plan.................. -- -- 538 1 3,567 -- --
Amortization of deferred
compensation......................... -- -- -- -- -- -- --
------ ----- ------- --- -------- --------- -----
BALANCE AT DECEMBER 31, 1998............ -- -- 95,258 48 199,810 (29,416) --
Comprehensive income
Net income (unaudited)............... -- -- -- -- -- 13,583 --
Foreign currency translation
adjustment (unaudited)............. -- -- -- -- -- -- --
Comprehensive income (unaudited)..... -- -- -- -- -- -- --
Exercise of stock options
(unaudited).......................... -- -- 760 -- 4,515 -- --
Issuance of common stock under employee
stock purchase plan (unaudited)...... -- -- 166 -- 2,538 -- --
Amortization of deferred compensation
(unaudited).......................... -- -- -- -- -- -- --
------ ----- ------- --- -------- --------- -----
BALANCE AT MARCH 31, 1999 (UNAUDITED)... -- $ -- 96,184 $48 $206,863 $ (15,833) $ --
====== ===== ======= === ======== ========= =====

<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
Net income (unaudited)............... -- -- 13,583
Foreign currency translation
adjustment (unaudited)............. -- (243) (243)
--------
Comprehensive income (unaudited)..... -- -- 13,340
Exercise of stock options
(unaudited).......................... -- -- 4,515
Issuance of common stock under employee
stock purchase plan (unaudited)...... -- -- 2,538
Amortization of deferred compensation
(unaudited).......................... 8 -- 8
----- ----- --------
BALANCE AT MARCH 31, 1999 (UNAUDITED)... $ (24) $(799) $190,255
===== ===== ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-5
<PAGE> 111

VERITAS SOFTWARE CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
-------- --------- --------- --------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.................................. $ 12,129 $ 22,749 $ 51,648 $ 9,055 $ 13,583
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............. 3,672 3,116 7,056 1,171 2,718
Amortization of bond issuance costs....... -- 91 428 107 107
Deferred rent............................. 411 (94) (138) (39) (40)
In-process research and development....... 2,200 -- 600 -- --
Benefit from deferred income taxes........ -- (4,200) (8,000) -- --
Non-cash merger-related costs............. -- 1,218 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable.................... (5,966) (14,601) (22,127) 463 2,487
Prepaid expenses and other assets...... (1,001) (267) (8,136) 781 (9,071)
Accounts payable and accrued
liabilities.......................... 1,840 9,438 21,299 2,717 (106)
Deferred revenue....................... 1,084 9,370 20,167 1,072 5,504
-------- --------- --------- --------- --------
Net cash provided by operating activities..... 14,369 26,820 62,797 15,327 15,182
Cash flows from investing activities:
Purchases of investments.................... (69,761) (144,907) (284,819) (105,748) (83,409)
Investment maturities....................... 47,025 79,921 296,048 82,474 42,290
Payment received on note.................... 282 108 -- -- --
Purchase of property and equipment.......... (5,469) (6,181) (23,424) (4,691) (8,635)
Purchase of Windward Technologies, Inc...... -- -- (1,250) -- --
Purchase of ACSC............................ (3,450) -- -- -- --
-------- --------- --------- --------- --------
Net cash used for investing activities........ (31,373) (71,059) (13,445) (27,965) (49,754)
Financing activities:
Repayment of short-term borrowings.......... (2,061) -- -- -- --
Proceeds from issuance of common stock...... 39,105 5,777 13,971 4,309 7,053
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 4,309 7,053
Effect of exchange rate changes............... (132) (490) 134 3 (243)
-------- --------- --------- --------- --------
Net increase (decrease) in cash and cash
equivalents................................. 13,884 58,218 63,457 (8,326) (27,762)
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 $ 67,303 $111,324
======== ========= ========= ========= ========
Supplemental disclosures:
Cash paid for interest...................... $ 1,289 $ -- $ 5,521 $ -- $ --
======== ========= ========= ========= ========
Cash paid for income taxes.................. $ 1,341 $ 1,703 $ 6,245 $ 513 $ 3,217
======== ========= ========= ========= ========
Conversion of preferred stock to common
stock..................................... $ 71,806 $ -- $ -- $ -- $ --
======== ========= ========= ========= ========
</TABLE>

See accompanying notes to consolidated financial statements.

F-6
<PAGE> 112

VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 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.

Interim Financial Information

The interim financial information at March 31, 1999 and for the three
months ended March 31, 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 financial position and results of operations for the interim periods. The
results for the three months ended March 31, 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.

F-7
<PAGE> 113
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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

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, revenue is not recognized until the
software is sold by the OEM 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

F-8
<PAGE> 114
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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

F-9
<PAGE> 115
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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

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.

F-10
<PAGE> 116
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. Effective in December 1998, SOP 98-9 also amended SOP 98-4
(an earlier amendment to SOP 97-2) to extend the deferral of the application of
certain passages of SOP 97-2 provided by SOP 98-4. 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 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 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

F-11
<PAGE> 117
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 2. BUSINESS COMBINATIONS (CONTINUED)
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 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.

F-12
<PAGE> 118
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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>

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>

F-13
<PAGE> 119
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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.

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>

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 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.

F-14
<PAGE> 120
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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 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

F-15
<PAGE> 121
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 8. STOCK COMPENSATION PLANS (CONTINUED)
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>

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

F-16
<PAGE> 122
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 8. STOCK COMPENSATION PLANS (CONTINUED)
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.

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.

Share and per share amounts applicable to prior periods in the consolidated
financial statements have been restated to reflect a 3-for-2 stock split in the
form of a stock dividend executed by the Company in May 1998.

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).

F-17
<PAGE> 123
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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>

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>

F-18
<PAGE> 124
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 10. INCOME TAXES (CONTINUED)
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 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.

F-19
<PAGE> 125
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

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>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
---------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Numerator:
Net income........................... $12,129 $22,749 $ 51,648 $ 9,055 $ 13,583
======= ======= ======== ======== ========
Denominator:
Weighted average shares.............. 81,360 91,244 94,026 92,868 95,644
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 92,868 95,644
Common stock equivalents............. 6,940 7,742 9,316 9,032 10,628
------- ------- -------- -------- --------
Denominator for diluted earnings per
share.............................. 92,992 98,986 103,342 101,900 106,272
======= ======= ======== ======== ========
Basic earnings per share............... $ 0.14 $ 0.25 $ 0.55 $ 0.10 $ 0.14
======= ======= ======== ======== ========
Diluted earnings per share............. $ 0.13 $ 0.23 $ 0.50 $ 0.09 $ 0.13
======= ======= ======== ======== ========
</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

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.

The following are the components of comprehensive income:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------- -------------------
1996 1997 1998 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income........................... $12,129 $22,749 $51,648 $ 9,055 $13,583
Foreign currency translation
adjustments........................ (158) (303) 10 (83) (243)
------- ------- ------- ------- -------
Comprehensive income................. $11,971 $22,446 $51,658 $ 8,972 $13,340
======= ======= ======= ======= =======
</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

F-20
<PAGE> 126
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 13. SIGNIFICANT DEVELOPMENT AND LICENSE AGREEMENTS (CONTINUED)
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 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.

F-21
<PAGE> 127
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 14. SEGMENT INFORMATION (CONTINUED)
Geographic information (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------- -----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
User license fees(1):
United States.................... $44,286 $ 67,888 $121,910 $22,447 $43,228
Europe(2)........................ 10,696 12,971 33,172 5,416 8,917
Other(3)......................... 4,241 14,855 12,621 2,826 3,641
------- -------- -------- ------- -------
Total......................... $59,223 $ 95,714 $167,703 $30,689 $55,786
======= ======== ======== ======= =======
Services(1):
United States.................... $10,195 $ 20,463 $ 34,759 $ 6,606 $12,578
Europe(2)........................ 3,186 4,865 7,869 1,663 2,679
Other(3)......................... 142 83 534 124 861
------- -------- -------- ------- -------
Total......................... $13,523 $ 25,411 $ 43,162 $ 8,393 $16,118
======= ======== ======== ======= =======
Total net revenue.................. $72,746 $121,125 $210,865 $39,082 $71,904
======= ======== ======== ======= =======
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1996 1997 1998 1999
------- ------- ------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Long-lived assets(4):
United States.......................... $ 6,268 $ 9,412 $25,202 $31,625
Europe(2).............................. 633 1,114 3,644 4,184
Other(3)............................... 96 67 380 578
------- ------- ------- -------
Total............................... $ 6,997 $10,593 $29,226 $36,387
======= ======= ======= =======
</TABLE>

- -------------------------
(1) License and Service revenues are attributed to geographic regions based on
location of customers.

(2) Europe includes the Middle East and Africa.

(3) Other includes Canada 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:

F-22
<PAGE> 128
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 14. SEGMENT INFORMATION (CONTINUED)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------- MARCH 31,
1996 1997 1998 1999
------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total long-lived assets.................. $ 6,997 $ 10,593 $ 29,226 $ 36,387
Other assets, including current.......... 87,527 231,287 319,891 338,489
------- -------- -------- --------
Total consolidated assets.............. $94,524 $241,880 $349,117 $374,876
======= ======== ======== ========
</TABLE>

One customer represents approximately 12% or $25.8 million of the Company's
net revenues in 1998.

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.

NOTE 16. POTENTIAL ACQUISITIONS

On October 5, 1998, the Company entered into an Agreement and Plan of
Reorganization pursuant to which the Company will acquire the Network and
Storage Management Group business (NSMG) of Seagate Software, Inc. (SSI), a
subsidiary of Seagate Technology, Inc. As part of the Agreement, SSI and certain
holders of options to purchase common stock of SSI will receive common stock and
rights to acquire common stock representing approximately 40% of the combined
company's fully-diluted equity securities.

On September 1, 1998, the Company entered into a Combination Agreement to
acquire TeleBackup Systems Inc., a Canadian corporation. Upon completion,
TeleBackup will become a wholly-owned subsidiary of VERITAS in exchange for the
issuance, to the holders of TeleBackup common shares and TeleBackup options, of
3,110,000 shares of our common stock. The acquisition will be structured to
qualify as a tax-free stock transaction in Canada.

The NSMG and TeleBackup acquisitions will be accounted for by the Company
using the purchase method of accounting. Following consummation of the NSMG and
TeleBackup transactions, the Company currently expects to incur a charge of
approximately $227.5 million per fiscal quarter primarily related to the
amortization of goodwill and other intangible assets over a four-year period.
The Company also expects to incur charges to operations for a one-time write-off
related to in-process research and development costs in the fiscal quarter in
which these transactions are consummated. These charges are currently estimated
to be approximately $103.1 million. Such amounts are preliminary and are subject
to change upon the final determination of the purchase price of both NSMG and
TeleBackup at the time of closing of each transaction. In addition, as a result
of the NSMG acquisition, the Company expects to incur a restructuring charge in
the same fiscal quarter that these transactions are consummated. This one-time
restructuring charge relates primarily to exit costs with respect to duplicate
facilities of the Company, which the Company plans to vacate. The Company
estimates this restructuring charge to be in the range of $8.0 to $11.0 million.
Such costs are in addition to the liability for the estimated costs to

F-23
<PAGE> 129
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 16. POTENTIAL ACQUISITIONS (CONTINUED)
vacate facilities of NSMG, which will become duplicative upon the closing of the
NSMG transaction, which liability will be assumed by the Company and included as
a part of the purchase price.

NOTE 17. 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................................ 101,900 102,709 104,652 104,084
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 $ 0.14
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 18. SUBSEQUENT EVENTS (UNAUDITED)

The acquisition of NSMG was completed on May 28, 1999. Based on the
capitalization of VERITAS and Seagate Software as of May 28, 1999 and the
average closing price of VERITAS common stock of $45.57 per share for the 5 days
before and after June 7, 1999, the measurement date for the transaction, the
total purchase price for NSMG was approximately $3.5 billion. The actual
purchase price will depend on the capitalization of Seagate Software as of June
7, 1999.

F-24
<PAGE> 130
VERITAS SOFTWARE CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF MARCH 31, 1999 AND FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND 1999 IS UNAUDITED)

NOTE 18. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
The acquisition of TeleBackup was completed on June 1, 1999. Based upon the
average of the closing price of VERITAS common stock for a few days before and
after June 1, 1999 of $44.09, the total purchase price for TeleBackup was
approximately $143.1 million.

During the first quarter of 1999, VERITAS signed a letter of intent to
enter into an agreement to lease real estate to be built by the lessor. In a
separate agreement, VERITAS was retained by the lessor as its agent for the
construction of the facility. The leases for land and improvements are
anticipated to be classified as operating leases. The various agreements provide
for minimum lease payments which begin, generally, upon completion of
construction, which is expected to be June 2001, as well as certain residual
value guarantees. Pre development costs incurred by VERITAS were approximately
$1.4 million through March 31, 1999, and were subsequently reimbursed by the
lessor.

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 to be
effected in the form of a stock dividend to be distributed on July 8, 1999 to
shareholders of record as of June 18, 1999.

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 16,000,000.

F-25
<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 three months ended March 31,
1999 and the VERITAS unaudited pro forma combined condensed balance sheet as of
March 31, 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 three months ended March 31, 1999 assumes the NSMG combination and the
TeleBackup combination took place on January 1, 1998. The VERITAS unaudited pro
forma combined condensed balance sheet assumes the NSMG combination and the
TeleBackup combination took place on March 31, 1999.

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
three months ended March 31, 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.

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. Both the NSMG combination and the TeleBackup
combination closed during the second quarter of 1999.

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 Old
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 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
balance sheet includes the effect of these charges; however, the VERITAS
unaudited pro forma combined condensed statements of operations do not reflect
these charges since they are non-recurring. These charges will be reflected in
VERITAS' consolidated financial statements during the

F-26
<PAGE> 132

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 or March 31, 1999. They
also do not purport to indicate VERITAS' future results of operations or
financial position.

F-27
<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)(15) $ 355,775
Services.................................... 43,162 11,061 1,376 (1,376)(15) 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(6) 64,060
1,650(12)
-------- -------- ------- --------- ----------
Total cost of revenue..................... 29,461 18,883 556 60,075 108,975
-------- -------- ------- --------- ----------
Gross profit.................................. 181,404 180,250 1,754 (62,385) 301,023
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 -- 815,893(6) 859,986
33,713(12)
-------- -------- ------- --------- ----------
Total operating expenses.................. 127,736 147,883 2,748 849,606 1,127,973
-------- -------- ------- --------- ----------
Income (loss) from operations................. 53,668 32,367 (994) (911,991) (826,950)
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) (911,991) (820,711)
Provision for (benefit from) income taxes..... 8,141 15,121 -- (43,576)(14) (20,314)
-------- -------- ------- --------- ----------
Net income (loss)............................. $ 51,648 $ 17,429 $(1,059) $(868,415) $ (800,397)
======== ======== ======= ========= ==========
Net income (loss) per share -- basic.......... $ 0.55 $ (4.82)
======== ==========
Net income (loss) per share -- diluted........ $ 0.50 $ (4.82)
======== ==========
Number of shares used in computing per share
amounts -- basic............................ 94,026 72,180 166,216
======== ========= ==========
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-28
<PAGE> 134

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
THREE MONTHS THREE MONTHS THREE MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
MARCH 31, APRIL 2, MARCH 31, PRO FORMA MARCH 31,
1999 1999 1999 ADJUSTMENTS 1999
------------ ----------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Net revenue:
User license fees......................... $55,786 $59,780 $ 382 $ (382)(15) $ 115,566
Services.................................. 16,118 3,045 436 (436)(15) 19,163
------- ------- ----- --------- ---------
Total net revenue....................... 71,904 62,825 818 818 134,729
Cost of revenue:
User license fees......................... 1,955 3,273 149 5,377
Services.................................. 6,527 865 97 7,489
Amortization of developed technology...... -- 780 -- 14,606(6) 15,799
413(12)
------- ------- ----- --------- ---------
Total cost of revenue................... 8,482 4,918 246 15,019 28,665
------- ------- ----- --------- ---------
Gross profit................................ 63,422 57,907 572 (15,837) 106,064
Operating expenses:
Selling and marketing..................... 26,823 22,674 304 49,801
Research and development.................. 13,816 8,815 253 22,884
General and administrative................ 3,289 5,111 267 8,667
Amortization of goodwill and other
intangibles............................. -- 2,545 -- 203,973(6) 214,946
8,428(12)
------- ------- ----- --------- ---------
Total operating expenses................ 43,928 39,145 824 212,401 296,298
------- ------- ----- --------- ---------
Income (loss) from operations............... 19,494 18,762 (252) (228,238) (190,234)
Interest and other income, net.............. 3,031 1,173 38 4,242
Interest expense............................ (1,433) -- (5) (1,438)
------- ------- ----- --------- ---------
Income (loss) before income taxes........... 21,092 19,935 (219) (228,238) (187,430)
Provision for (benefit from) income taxes... 7,509 7,974 -- (8,260)(14) 7,223
------- ------- ----- --------- ---------
Net income (loss)........................... $13,583 $11,961 $(219) $(219,978) $(194,653)
======= ======= ===== ========= =========
Net income (loss) per share -- basic........ $ 0.14 $ (1.16)
======= =========
Net income (loss) per share -- diluted...... $ 0.13 $ (1.16)
======= =========
Number of shares used in computing per share
amounts -- basic.......................... 95,644 72,190 167,834
======= ========= =========
Number of shares used in computing per share
amounts -- diluted........................ 106,272 61,562 167,834
======= ========= =========
</TABLE>

See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.

F-29
<PAGE> 135

VERITAS UNAUDITED PRO FORMA COMBINED
CONDENSED BALANCE SHEET
(IN THOUSANDS)

<TABLE>
<CAPTION>
VERITAS NETWORK & STORAGE VERITAS
SOFTWARE MANAGEMENT TELEBACKUP PRO FORMA
CORPORATION GROUP SYSTEMS INC. COMBINED
MARCH 31, APRIL 2, MARCH 31, PRO FORMA MARCH 31,
1999 1999 1999 ADJUSTMENTS 1999
----------- ----------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $111,324 $ 2,024 $ 3,534 $ 42,111(1) $ 158,993
Short-term investments......................... 97,225 -- -- 97,225
Loan receivable -- affiliate................... -- 42,111 (42,111)(1) --
Accounts receivable............................ 50,210 23,090 906 74,206
Other current assets........................... 21,309 3,748 125 (532)(7) 22,650
(2,000)(15)
-------- --------- ------- ---------- ----------
Total current assets......................... 280,068 70,973 4,565 (2,532) 353,074
Long-term investments............................ 47,859 -- -- 47,859
Property and equipment, net...................... 32,528 12,733 536 45,797
Goodwill and other intangibles, net.............. -- 31,564 -- (31,564)(1) 3,638,719
3,497,271(1)
141,448(8)
Other assets..................................... 14,421 -- -- 14,421
-------- --------- ------- ---------- ----------
Total assets................................. $374,876 $ 115,270 $ 5,101 $3,604,623 $4,099,870
======== ========= ======= ========== ==========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 4,390 $ 4,754 $ 180 $ -- $ 9,324
Accrued compensation and benefits.............. 7,473 10,107 -- 17,580
Other accrued liabilities...................... 11,488 9,533 83 21,104
Income taxes payable........................... 17,388 18,828 -- 36,216
Accrued acquisition and restructuring costs.... -- -- -- 31,700(3) 48,900
6,200(9)
11,000(16)
Deferred revenue............................... 43,149 7,740 1,912 (4,102)(1) 47,299
(1,400)(15)
-------- --------- ------- ---------- ----------
Total current liabilities.................... 83,888 50,962 2,175 43,398 180,423
Non-current liabilities:
Convertible subordinated notes................. 100,000 -- -- 100,000
Other non-current liabilities.................. 733 -- 180 913
Deferred income taxes.......................... -- 697 -- 181,297(7) 185,026
3,032(13)
-------- --------- ------- ---------- ----------
Total non-current liabilities................ 100,733 697 180 184,329 285,939
Stockholders' equity:
Common stock................................... 206,911 258,884 6,349 3,162,207(4) 3,764,864
130,513(10)
Accumulated deficit............................ (15,833) (195,273) (3,510) 94,073(5) (130,533)
1,610(11)
(600)(15)
(11,000)(16)
Deferred compensation.......................... (24) -- -- (24)
Accumulated other comprehensive income
(loss)....................................... (799) -- (93) 93(8) (799)
-------- --------- ------- ---------- ----------
Total stockholders' equity................... 190,255 63,611 2,746 3,376,896 3,633,508
-------- --------- ------- ---------- ----------
Total liabilities and stockholders' equity... $374,876 $ 115,270 $ 5,101 $3,604,623 $4,099,870
======== ========= ======= ========== ==========
</TABLE>

See accompanying Notes to VERITAS Unaudited Pro Forma Combined Condensed
Financial Statements.

F-30
<PAGE> 136

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 will be 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 68,759 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 will be 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 of the estimated

F-31
<PAGE> 137
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
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.......................... 31,700
----------
Total estimated acquisition cost...... $3,452,791
==========
Purchase price allocation
Tangible net assets acquired............... $ 36,149
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................................ 2,969,261 4 742,315
Deferred tax liabilities................ (181,829)
---------- --------
Total................................. $3,452,791 $874,318
========== ========
</TABLE>

F-32
<PAGE> 138
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 assets acquired............ $ 2,746
Intangible assets acquired
Distribution channel/OEM
agreements......................... 3,100 4 $ 775
Developed technology................. 6,600 4 1,650
Trademark/assembled workforce........ 1,630 4 408
In-process research and
development........................ 1,900
Goodwill............................. 130,118 4 32,530
Deferred tax liabilities............. (3,032)
-------- -------
Total.............................. $143,062 $35,363
======== =======
</TABLE>

Tangible net assets of the Network & Storage Management Group business
acquired principally include cash, accounts receivable, fixed assets and other
current assets. Liabilities assumed principally include accounts payable,
accrued compensation and other current liabilities.

The tangible net assets of TeleBackup acquired principally include cash and
fixed assets. Liabilities assumed principally include convertible debentures and
other non-current liabilities.

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-33
<PAGE> 139
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
was 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-34
<PAGE> 140
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. Management estimates the
completion and release of this product 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 June
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 at any number of locations
for complete data protection or information distribution. Replication

F-35
<PAGE> 141
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
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 June 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 in-process

F-36
<PAGE> 142
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

1. BASIS OF PRO FORMA PRESENTATION (CONTINUED)
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 VERITAS common stock as of the

F-37
<PAGE> 143
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

2. PRO FORMA NET LOSS PER SHARE (CONTINUED)
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, MARCH 31,
POTENTIAL COMMON SECURITIES 1998 1999
--------------------------- ------------ ---------
(IN THOUSANDS)
<S> <C> <C>
VERITAS options outstanding................................. 16,422 16,254
Options to be issued in connection with the NSMG
combination............................................... 6,864 6,856
Options to be issued in connection with the TeleBackup
combination............................................... 156 103
Common stock issuable upon conversion of VERITAS' 5.25%
convertible notes......................................... 4,651 4,651
------ ------
28,093 27,864
====== ======
</TABLE>

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

The VERITAS unaudited pro forma combined condensed financial statements
give effect to the following pro forma adjustments:

(1) To state the assets and liabilities of the Network Storage &
Management Group business at their fair values.

(2) To reclassify certain customer support costs of the Network & Storage
Management Group business to cost of revenues to conform to VERITAS'
presentation.

(3) To reflect the accrual of acquisition costs arising from the NSMG
combination, estimated to be approximately $31.7 million consisting of:

- $20.0 million of direct transaction costs, consisting primarily of
financial advisory services, legal, accounting and government filing
fees;

- $8.2 million for operating lease commitments on sales and
administrative facilities of the Network & Storage Management Group
business that become duplicative and will be vacated. The costs
accrued represent operating lease obligations from the date the
facilities are expected to be vacated through the end of the lease
term, net of any anticipated sublease payments. VERITAS expects that
all duplicate facilities will be vacated within

F-38
<PAGE> 144
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. PRO FORMA ADJUSTMENTS (CONTINUED)
one year after consummation of the NSMG combination. The operating
leases on these duplicate facilities have various termination dates
through 2012; and

- $3.5 million for liabilities related to involuntary employee
termination benefits to be paid to Network & Storage Management Group
business employees whose positions are redundant with current VERITAS
positions and relocations of Network & Storage Management Group
business employees whose function is being relocated to support a
centralized infrastructure. The involuntary terminations and
relocation benefits relate to employees across all functional
organizations.

VERITAS expects that a plan will be finalized in the quarter following the
consummation of the NSMG combination and initial execution of this plan will
begin in the second quarter of 1999. VERITAS also expects the plan to be fully
implemented within one year from the consummation of the NSMG combination.

(4) To reflect the elimination of the Network & Storage Management Group's
contributed capital of $258.9 million and the issuance of VERITAS common stock
and stock options of $3,421.1 million in connection with the NSMG combination.

(5) To reflect the elimination of the Network & Storage Management Group's
accumulated deficit of $195.3 million and the write-off of in-process research
and development $101.2 million.

(6) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology and trademark/assembled
workforce/other intangibles related to the NSMG combination.

(7) To reflect the net tax effect of book/tax basis differences in the
acquired intangibles, excluding goodwill and in-process research and
development. Deferred tax assets have been recognized based on the projected
reversal of taxable temporary differences and have been netted against deferred
tax liabilities for purposes of allocating the purchase price related to the
NSMG combination.

(8) To state the assets and liabilities of TeleBackup at their fair
values.

(9) To reflect the accrual of acquisition costs arising from the
TeleBackup combination, estimated to be approximately $6.2 million consisting
of:

- $5.5 million of direct transaction costs, consisting primarily of
financial advisory services, legal, accounting and government filing
fees;

- $600,000 for liabilities related to involuntary employee termination
benefits to be paid to TeleBackup employees whose positions are
redundant with current VERITAS employee positions and relocations of
TeleBackup employees whose function is being relocated to support a
centralized infrastructure. The involuntary terminations and
relocation benefits relate to engineering and administrative
employees; and

- $100,000 for operating lease commitments on facilities of TeleBackup
that will be vacated. The costs accrued represent operating lease
obligations from the date the facilities are expected to be vacated
through the end of the lease term in 2000, net of any anticipated
sublease payments. VERITAS expects that all duplicate facilities will
be vacated within one year after consummation of the Telebackup
combination.

F-39
<PAGE> 145
NOTES TO VERITAS UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)

4. PRO FORMA ADJUSTMENTS (CONTINUED)
VERITAS expects that the plan will be finalized in the quarter following
the consummation of the TeleBackup combination and initial execution of the plan
will begin in the second quarter of 1999. VERITAS also expects that the plan
will be fully implemented within one year from the consummation of the
TeleBackup combination.

(10) To reflect the elimination of the TeleBackup's common stock of $6.3
million and the issuance of New VERITAS common stock and stock options of $136.9
million in connection with the TeleBackup combination.

(11) To reflect the elimination of the TeleBackup's accumulated deficit of
$3.5 million and the write-off of in-process research and development of $1.9
million.

(12) To reflect amortization of goodwill, distribution channel/original
equipment manufacturer agreements, developed technology, and trademark/assembled
workforce related to the TeleBackup combination.

(13) To reflect the net tax effect of book/tax basis differences in the
acquired intangibles, excluding goodwill and in-process research and
development. Deferred tax assets have been recognized based on the projected
reversal of taxable temporary differences have been netted against deferred tax
liabilities for purposes of allocating the purchase price related to the
TeleBackup combination.

(14) To reflect tax benefits for VERITAS based upon pro forma losses
incurred.

(15) To eliminate the effect of the intercompany transactions between
VERITAS and TeleBackup.

(16) To reflect the accrual for restructuring costs to be incurred as a
result of the NSMG combination of $11.0 million. The $11.0 million includes
$10.0 million for costs to exit duplicate facilities of VERITAS which VERITAS
plans to vacate and $1.0 million for liabilities related to involuntary employee
termination benefits to be paid to VERITAS employees.

F-40
<PAGE> 146

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.

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> 147

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> 148

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> 149

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> 150

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> 151

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> 152
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 accompanying
financial

F-47
<PAGE> 153
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 the amounts reported in the financial
statements and accompanying notes. Actual results could differ materially from
those estimates.

F-48
<PAGE> 154
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-49
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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. 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

F-50
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

$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 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

F-51
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-52
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-53
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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
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
&

F-54
<PAGE> 160
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-55
<PAGE> 161
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-56
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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. 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

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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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

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 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.

F-58
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 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

F-59
<PAGE> 165
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 (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>

F-60
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 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

F-61
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

F-62
<PAGE> 168
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

F-63
<PAGE> 169
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 & 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>

F-64
<PAGE> 170
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 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.

F-65
<PAGE> 171
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

F-67
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NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

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<PAGE> 174
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 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.

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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 $ -- $ -- $ -- -- $ --
====== ====== ====== ==== ====== === ====

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

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 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.

F-70
<PAGE> 176
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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

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.

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.

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.

F-71
<PAGE> 177
NETWORK & STORAGE MANAGEMENT GROUP

NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)

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.

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.

As a result of the closing in May 1999, New VERITAS issued approximately
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-72
<PAGE> 178

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-73
<PAGE> 179

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-74
<PAGE> 180

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-75
<PAGE> 181

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-76
<PAGE> 182

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>

Debt issuance costs are amortized to income over the term of the related
debt financing.

F-77
<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)

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-78
<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)

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-79
<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)

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.

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-80
<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)

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.

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 weighted
average market price of the Company's common shares equaled or exceeded $4.00
per share. At December 31,

F-81
<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)

5. SHARE CAPITAL (CONTINUED)
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.

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.

F-82
<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)

8. RELATED PARTIES (CONTINUED)
(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.

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-83
<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)

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.

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:

F-84
<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)
(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 an US GAAP.

(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

F-85
<PAGE> 191
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)
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.

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>

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-86
<PAGE> 192

[VERITAS LOGO]
<PAGE> 193

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee are estimates.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $229,785
Nasdaq listing fee.......................................... 17,500
NASD filing fee.............................................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Blue Sky....................................................
Accounting fees and expenses................................
Transfer agent and registrar fees and expenses..............
Miscellaneous...............................................
--------
Total..................................................... $
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act").

As permitted by the Delaware General Corporation Law, the Registrant's
restated certificate of incorporation includes a provision that eliminates the
personal liability of its directors for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Registrant or its stockholders, (ii) for acts or
omissions not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law (regarding unlawful dividends and stock purchases) or (iv) for any
transaction from which the director derived an improper personal benefit.

As permitted by the Delaware General Corporation Law, the bylaws of the
Registrant provide that (i) the Registrant is required to indemnify its
directors and officers to the fullest extent permitted by the Delaware General
Corporation Law, subject to certain very limited exceptions, (ii) the Registrant
may indemnify its other employees and agents as set forth in the Delaware
General Corporation Law, (iii) the Registrant is required to advance expenses,
as incurred, to its directors and officers in connection with a legal proceeding
to the fullest extent permitted by the Delaware General Corporation Law, subject
to certain very limited exceptions and (iv) the rights conferred in the bylaws
are not exclusive.

The indemnification provisions in the bylaws and the indemnification
agreements to be entered into between the Registrant and its officers and
directors, may be sufficiently broad to permit indemnification of the
Registrant's officers and directors for liabilities arising under the Securities
Act. The Registrant intends to enter into indemnification agreements with each
of its current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Registrant's restated certificate of
incorporation and to provide additional procedural protections. At present,
there is no pending litigation or proceeding involving a director, officer or
employee of the Registrant regarding which indemnification is sought, nor is the
Registrant aware of any threatened litigation that may result in claims for
indemnification.

II-1
<PAGE> 194

The NSMG combination agreement and the TeleBackup combination agreement
contain covenants on the part of the Registrant to maintain indemnification
provisions in the charter documents of the surviving corporation of the NSMG
combination and the TeleBackup combination which are identical to such
provisions contained in the charter documents of VERITAS prior to the
combinations. Registrant shall also honor, in all respects, all of the indemnity
agreements entered into prior to the combinations, with VERITAS officers and
directors, whether or not such persons continue in their positions with
Registrant following the effective time. In addition, pursuant to the NSMG
combination agreement, Registrant must use its commercially reasonable efforts
to maintain director and officer liability insurance with coverages, which are
similar to the coverages VERITAS maintained prior to the combinations for a
period from and after the effective time until at least six years after the
effective time. These covenants are contained in the NSMG combination agreement
attached as Appendix A to the Registration Statement on Form S-4, as amended,
filed with the Commission on April 21, 1999 under the heading "Indemnification
and Insurance -- VERITAS" and in the TeleBackup combination agreement attached
as Appendix G to the Registration Statement on Form S-4 (Reg. No. 333-76531), as
amended, filed with the Commission on April 21, 1999 under the heading
"Indemnification."

II-2
<PAGE> 195

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Not Applicable.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

The following exhibits are filed herewith or incorporated by reference
herein:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
1.01+ Form of Underwriting Agreement
2.01 Amended and Restated Agreement and Plan of Reorganization
among Registrant, VERITAS Software Corporation ("Old
VERITAS"), Seagate Technology, Inc., Seagate Software, Inc.
("Seagate Software") and Seagate Software NSMG (incorporated
by reference to Exhibit 2.01 of the Registrant's
Registration Statement on Form S-4, as amended, filed with
the SEC on April 19, 1999 (the "April 1999 Form S-4"))
2.02 Amended and Restated Combination Agreement by and among Old
VERITAS and TeleBackup Systems Inc. ("TeleBackup")
incorporated by reference to the April 21, 1999 Form S-4
3.01 Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference to Exhibit 3.01 of the
Registrant's Registration Statement on Form 8-A as amended,
filed with the SEC on June 2, 1999) (the "June 1999 Form
8-A")
3.02 Amendment to the Amended and Restated Certification of
Registrant (incorporated by reference to Exhibit 3.02 of the
June 1999 Form 8-A)
3.03 Amended and Restated Bylaws of Registrant (incorporated by
reference to Exhibit 3.03 of the June 1999 Form 8-A)
4.01 Registration Rights Agreement between Old VERITAS and
Warburg, Pincus Investors, L.P. dated April 25, 1997
(incorporated by reference to Exhibit 4.01 of Old VERITAS'
Quarterly Report on Form 10-Q for the quarter ended June 30,
1997 (the "June 1997 Form 10-Q"))
4.02 Nomination Agreement between Old VERITAS and Warburg, Pincus
Investors, L.P. dated April 25, 1997 (incorporated by
reference to Exhibit 4.02 to the June 1997 Form 10-Q).
4.03 Indenture dated as of October 1, 1997 between Old VERITAS
and State Street Bank and Trust Company of California, N.A.
(incorporated by reference to Exhibit 4.06 of Old VERITAS'
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1997 (the "September 1997 Form 10-Q"))
4.04 Form of Supplemental Indenture (incorporated by reference to
Exhibit 4.04 of the April 1999 Form S-4)
4.05 Registration Rights Agreement dated as of October 1, 1997
between Old VERITAS and UBS Securities LLC (incorporated by
reference to Exhibit 4.07 to the September 1997 Form 10-Q)
4.06 Form of Rights Agreement between Registrant and the Right
Agent, which includes as Exhibit A the form of Certificate
of Designations of Series A Junior Participating Preferred
Stock, as Exhibit B the Form of Right Certificate and as
Exhibit C the Summary of Rights to Purchase Preferred Shares
(incorporated by reference to Exhibit 4.06 of the April 1999
Form S-4
4.07 Form of Registration Rights Agreement between Registrant and
Seagate Software (incorporated by reference to Exhibit 4.07
of the April 1999 Form S-4
4.08 Form of Stockholder Agreement between Registrant, VERITAS,
Seagate Software and Seagate Technology (incorporated by
reference to Exhibit 4.08 of the April 1999 Form S-4
</TABLE>

II-3
<PAGE> 196

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
4.09 Form of Specimen Stock Certificate (incorporated by
reference to Exhibit 4.01 of Old VERITAS' Registration
Statement on Form S-1 (File No. 33-70726) dated October 22,
1993, as amended)
5.01+ Opinion of Fenwick & West LLP
9.01 Form of Voting, Support and Exchange Trust Agreement by and
among the Registrant, Old VERITAS, TeleBackup and Montreal
Trust Company of Canada (incorporated by reference to
Exhibit 9.01 of the Registrant's April 1999 Form S-4)
10.01* Development and License Agreement between Seagate
Technology, Inc. and the Registrant (incorporated by
reference to Exhibit 10.01 of the April 1999 Form S-4
10.02* Cross License Agreement and OEM Agreement between Seagate
Software Information Management Group, Inc. and the
Registrant (incorporated by reference to Exhibit 10.02 of
the April 1999 Form S-4
10.03 VERITAS 1993 Equity Incentive Plan, as amended (incorporated
by reference to Exhibit 10.03 of the April 1999 Form S-4).
10.04 VERITAS 1993 Employee Stock Purchase Plan, as amended
(incorporated by reference to Exhibit 10.04 of the April
1999 Form S-4)
10.05 VERITAS 1993 Directors Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.04 to VERITAS'
Registration Statement on Form S-4 filed with the SEC on
March 24, 1997 (the "March 1997 Form S-4"))
10.06 OpenVision Technologies, Inc. 1996 Employee Stock Purchase
Plan, as amended (incorporated by reference to Exhibit 10.19
to the March 1997 Form S-4)
10.07 Office building sublease dated February 27, 1998, by and
between VERITAS and Space Systems/Loral, Inc. (incorporated
by reference to Exhibit 10.14 of VERITAS' Quarterly Report
on Form 10-Q for the quarter ended September 30, 1998 (the
"September 1998 Form 10-Q"))
10.08 Office building lease dated April 30, 1998, by and between
VERITAS and Ryan Companies US, Inc. (incorporated by
reference to Exhibit 10.15 of the September 1998 Form 10-Q)
10.09 VERITAS' 1997 Chief Executive Officer Compensation Plan
(incorporated by reference to Exhibit 10.05 of VERITAS'
Annual Report on Form 10-K for the year ended December 31,
1997 filed with the SEC on March 2, 1998 (the "1997 Form
10-K"))
10.10 VERITAS' 1997 Executive Officer Compensation Plan
(incorporated by reference to Exhibit 10.06 of the 1997 Form
10-K)
10.11 Form of Key Employee Agreement (incorporated by reference to
Exhibit 10.11 of the April 1999 Form S-4)
10.12 Office Building Lease, dated September 2, 1994, as amended,
by and between VERITAS and John Arriliaga and Richard T.
Peery regarding property located in Mountain View,
California (incorporated by reference to Exhibit 10.09 of
the VERITAS' Annual Report on Form 10-K for the year ended
December 31, 1994 filed with the SEC on March 29, 1995)
10.13 Amendment No 1. to Office Building Lease dated May 28, 1997
by and between VERITAS and John Arriliaga and Richard T.
Perry (incorporated by reference to Exhibit 10.12 of the
1997 Form 10-K)
10.14 Agreement dated November 7, 1996 between VERITAS Software
India Pvt. Ltd. and Talwalkar & Talwalkar and Mr. Rajendra
Dattatraya Pathak, Mrs. Kamal Trimbak Nighojkar, Mrs. Bakul
Prabhakar Pathak, Mrs. Nalini Manohar Saraf, Mr. Narhar
Vaman Pandit, Mr. Madhav Narhar Pandit, Ms. Madhavi Damodar
Thite, and Ms. Medha Narhar Pandit relating to the
development of certain premises in Pune, India (incorporated
by reference to Exhibit 10.12 to the March 1997 Form S-4)
</TABLE>

II-4
<PAGE> 197

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
10.16 Amendment No. 1 to Cross-License and OEM Agreement between
Seagate Software Information Management Group, Inc. and the
Registrant (incorporated by reference to Exhibit 10.16 of
the April 1999 Form S-4)
12.01 Computation of Ratio of Earnings to Fixed Charges
21.01 Subsidiaries of Registrant (incorporated by reference to
Exhibit 21.01 of the April 1999 Form S-4)
23.01 Consent of Ernst & Young LLP, Independent Auditors
23.02 Consent of Ernst & Young LLP, Independent Auditors
23.03 Consent of Independent Accountants
23.04 Consent of Fenwick & West LLP (included in Exhibit 5.01)
24.01 Power of Attorney
</TABLE>

- -------------------------
* Confidential treatment has been granted with respect to certain portions of
this document.

+ To be filed by amendment.

(b) Financial Statement Schedules.

The following financial statement schedule for the years ended December 31,
1998, 1997 and 1996 should be read in conjunction with the consolidated
financial statements of VERITAS Software Corporation filed as part of this
Registration Statement:

- Schedule II -- Valuation and Qualifying Accounts

Schedules other than that listed above have been omitted since they are
either not required, not applicable, or because the information required is
included in the financial statements or the notes thereto.

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.

II-5
<PAGE> 198

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

II-6
<PAGE> 199

SIGNATURES

Pursuant to the requirements of the Securities Act, VERITAS Software
Corporation has duly caused this Registration Statement on Form S-1 to be signed
on its behalf by the undersigned, thereunto duly authorized in the City of
Mountain View, County of Santa Clara, State of California, on the 27th day of
July, 1999.

VERITAS SOFTWARE CORPORATION

By: /s/ MARK LESLIE

------------------------------------
Mark Leslie
Chief Executive Officer and
Chairman of the Board

POWER OF ATTORNEY

KNOW ALL BY THESE PRESENTS that each individual whose signature appears
below constitutes and appoints Mark Leslie and Jay Jones, and each of them, his
attorneys-in-fact and agents, each with the power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to sign any registration statement for the same offering covered by this
Registration Statement that is to be effective upon filing pursuant to Rule
462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Shares and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming all
that said attorneys-in-fact and agents or any of them, or his or their
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
PRINCIPAL EXECUTIVE OFFICER:

/s/ MARK LESLIE Chief Executive Officer and July 27, 1999
- ----------------------------------------------------- Chairman of the Board
Mark Leslie

PRINCIPAL FINANCIAL AND
ACCOUNTING OFFICER:

/s/ KENNETH LONCHAR Senior Vice President, Finance July 27, 1999
- ----------------------------------------------------- and Chief Financial Officer
Kenneth Lonchar
</TABLE>

II-7
<PAGE> 200

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
ADDITIONAL DIRECTORS:

/s/ FRED VAN DEN BOSCH Director July 27, 1999
- -----------------------------------------------------
Fred van den Bosch

/s/ STEVEN BROOKS Director July 27, 1999
- -----------------------------------------------------
Steven Brooks

/s/ TERRENCE R. CUNNINGHAM Director July 27, 1999
- -----------------------------------------------------
Terrence R. Cunningham

/s/ WILLIAM H. JANEWAY Director July 27, 1999
- -----------------------------------------------------
William H. Janeway

/s/ GREGORY B. KERFOOT Director July 27, 1999
- -----------------------------------------------------
Gregory B. Kerfoot

/s/ STEPHEN J. LUCZO Director July 27, 1999
- -----------------------------------------------------
Stephen J. Luczo

/s/ JOSEPH D. RIZZI Director July 27, 1999
- -----------------------------------------------------
Joseph D. Rizzi

/s/ GEOFFREY W. SQUIRE Director July 27, 1999
- -----------------------------------------------------
Geoffrey W. Squire
</TABLE>

II-8
<PAGE> 201

VERITAS SOFTWARE CORPORATION

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING OPERATING END
OF YEAR EXPENSES DEDUCTIONS(1) OF YEAR
---------- ---------- ------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1998......... $1,597 $1,032 $57 $2,572
Year ended December 31, 1997......... $ 697 $ 900 $-- $1,597
Year ended December 31, 1996......... $ 807 $ (75) $35 $ 697
</TABLE>

- ---------------
(1) Deductions related to the allowance for doubtful accounts represent amounts
written off against the allowance.

S-1
<PAGE> 202

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<S> <C>
1.01+ Form of Underwriting Agreement
5.01+ Opinion of Fenwick & West LLP
12.01 Computation of Ratio of Earnings to Fixed Costs
23.01 Consent of Ernst & Young LLP, Independent Auditors
23.02 Consent of Ernst & Young LLP, Independent Auditors
23.03 Consent of Independent Accountants
23.04+ Consent of Fenwick & West LLP (included in Exhibit 5.01)
</TABLE>

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

+ To be filed by amendment.

<PAGE> 1
EXHIBIT 12.01

RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
THREE
MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998 1999
-------- ------ ------- ------- ------- -------
(ALL AMOUNTS, EXCEPT RATIO DATA, IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Earnings(1):
Net income (loss) before
income taxes ...................... $(15,060) $3,136 $14,300 $23,759 $59,789 $21,092
Fixed charges ....................... 1,981 2,411 1,180 1,978 6,746 1,695
-------- ------ ------- ------- ------- -------
Total earnings, as adjusted ..... (13,079) 5,549 15,480 25,737 66,535 22,787
Divided by fixed charges: ............. $ 1,981 $2,411 $ 1,180 $ 1,978 $ 6,746 $ 1,695
-------- ------ ------- ------- ------- -------
Ratio of earnings to fixed
charges(2) .......................... n/a 2.3x 13.1x 13.0x 9.9x 13.4x
</TABLE>

(1) Earnings consist of income (loss) before provision for income taxes plus
fixed charges. Fixed charges consist of interest charges, amortization of
bond issuance costs related to indebtedness, and that portion or rental
expense we believe to be representative of interest.

(2) During the year ended December 31, 1994, there was a deficiency of earnings
to cover fixed charges of approximately $15.1 million.

<PAGE> 1
EXHIBIT 23.01
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated January 27, 1999 in the Registration Statement (Form
S-1) and related Prospectus of Veritas Software Corporation for the registration
of shares of its common stock.

/s/ Ernst & Young LLP

San Jose, California
July 23, 1999

<PAGE> 1
EXHIBIT 23.02
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated 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), with respect to the combined financial statements of the Network
& Storage Management Group included in the Registration Statement (Form S-1) and
related Prospectus of Veritas Software Corporation for the registration of
shares of its common stock.

/s/ Ernst & Young LLP

San Jose, California
July 23, 1999

<PAGE> 1
CONSENT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
TeleBackup Systems Inc.

We consent to the use of our report dated February 5, 1999 with respect to the
balance sheets of TeleBackup Systems Inc. as at December 31, 1997 and 1998, and
the related statements of operations and deficit and changes in financial
position for each of the years in the three year period ended December 31, 1998,
which report appears in the Registration Statement on Form S-1 filed with the
Securities and Exchange Commission on July 23, 1999, and to the reference to our
firm under the heading "Experts" in the Registration Statement.

Chartered Accountants
Calgary, Canada
July 23, 1999