VA LINUX SYSTEMS INC
S-4, 2000-04-27
ELECTRONIC COMPUTERS
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<PAGE>   1

     AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 2000

                                                 REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                            ------------------------

                                    FORM S-4

                             REGISTRATION STATEMENT
                                     UNDER
                           THE SECURITIES ACT OF 1933

                             VA LINUX SYSTEMS, INC.

<TABLE>
<S>                                <C>                                <C>
             DELAWARE                             3571                            77-0399299
 (STATE OR OTHER JURISDICTION OF      (PRIMARY STANDARD INDUSTRIAL             (I.R.S. EMPLOYER
  INCORPORATION OR ORGANIZATION)      CLASSIFICATION CODE NUMBER)           IDENTIFICATION NUMBER)
</TABLE>

                              1382 BORDEAUX DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 542-8600
  (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
                   REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

                               LARRY M. AUGUSTIN
                     PRESIDENT AND CHIEF EXECUTIVE OFFICER
                              1382 BORDEAUX DRIVE
                          SUNNYVALE, CALIFORNIA 94089
                                 (408) 542-8600
 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
                             OF AGENT FOR SERVICE)

                                   COPIES TO:

<TABLE>
<S>                                                 <C>
              JUDITH M. O'BRIEN, ESQ.                             DAVID P. KREISLER, ESQ.
              BRUCE M. MCNAMARA, ESQ.                           HUTCHINS, WHEELER & DITTMAR
               BRET M. DIMARCO, ESQ.                            A PROFESSIONAL CORPORATION
         WILSON SONSINI GOODRICH & ROSATI                           101 FEDERAL STREET
             PROFESSIONAL CORPORATION                                BOSTON, MA 02110
                650 PAGE MILL ROAD                                    (617) 951-6600
                PALO ALTO, CA 94304
                  (650) 493-9300
</TABLE>

          APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
   Upon consummation of the acquisition of Andover.Net by VA Linux described
                                    herein.

    If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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, 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, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.  [ ]

                        CALCULATION OF REGISTRATION FEE

<TABLE>
<S>                                       <C>                  <C>                  <C>                  <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
                                                                PROPOSED MAXIMUM         PROPOSED
TITLE OF EACH CLASS OF                       AMOUNT TO BE        OFFERING PRICE      MAXIMUM AGGREGATE        AMOUNT OF
SECURITIES TO BE REGISTERED                  REGISTERED(1)          PER SHARE         OFFERING PRICE      REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------------------------
Common Stock $0.001 par value(1)........   7,539,438 shares         $40.50(2)          $305,347,239            $80,612
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Represents the number of shares of the Common Stock of the Registrant which
    may be issued to stockholders of Andover.Net, Inc., a Delaware corporation,
    pursuant to the transactions described herein, based on the number of shares
    of Andover.Net common stock outstanding on April 3, 2000.
(2) Pursuant to 457(f)(1) and Rule 457(c) under the Securities Act of 1933, as
    amended, the registration fee has been calculated based on the average of
    the high and low prices per share of VA Linux's Common Stock on April 25,
    2000 as reported on the NASDAQ National Market.

     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

                               ANDOVER.NET, INC.
                        SPECIAL MEETING OF STOCKHOLDERS
                 MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
                                ANDOVER.NET LOGO
                                 MAY    , 2000

To Our Stockholders:

     As you may be aware, the boards of directors of VA Linux Systems, Inc. and
Andover.Net, Inc. have approved a reorganization agreement pursuant to which
Andover.Net will merge with a subsidiary of VA Linux. Upon completion of the
merger, Andover.Net will become a wholly owned subsidiary of VA Linux, and each
issued and outstanding share of Andover.Net common stock shall be converted into
0.425 of a share of VA Linux common stock, as more fully set out on page 53 of
this proxy statement/prospectus.

     We invite you to attend a special meeting of the stockholders of
Andover.Net, Inc. to be held at Hutchins, Wheeler & Dittmar, A Professional
Corporation, 101 Federal Street, Boston, Massachusetts on June   , 2000 at 10:00
a.m. At the special meeting, you will be asked to approve the reorganization
agreement and the transactions contemplated by it and to approve an increase in
the shares reserved under our 1999 Stock Option Plan.

     The merger cannot be completed unless the reorganization agreement and the
merger are approved by the holders of a majority of the outstanding shares of
common stock of Andover.Net. The Andover.Net board of directors unanimously
approved the reorganization agreement, the merger and the increase in the shares
reserved under our 1999 Stock Option Plan and recommends that you vote for the
reorganization agreement, the merger and the increase to our 1999 Stock Option
Plan. Details concerning the proposed merger and other important information
appear in the accompanying proxy statement/prospectus which you are urged to
read carefully. This proxy statement/prospectus is also the prospectus of VA
Linux regarding its common stock to be issued to stockholders of Andover.Net in
exchange for their shares of Andover.Net common stock in connection with the
merger. The shares to be issued in connection with the merger will be listed,
subject to official notice of issuance, on the Nasdaq National Market under the
symbol "LNUX." YOU SHOULD CAREFULLY CONSIDER THE RISK FACTORS BEGINNING ON PAGE
17 OF THIS PROXY STATEMENT/ PROSPECTUS BEFORE VOTING YOUR SHARES.

     YOUR VOTE IS VERY IMPORTANT. A proxy card is enclosed for your signature.
Whether or not you plan to attend the special meeting, please sign, date and
mail the proxy card to us promptly in the return envelope provided. It is
important that you return the proxy card whether or not you plan to attend the
special meeting, so that your shares of Andover.Net common stock are voted. If
you attend the special meeting, you may revoke the proxy and vote in person. You
may also revoke your proxy by submitting a proxy having a later date or by
giving written notice of revocation to the secretary of Andover.Net at any time
before the proxy is exercised. IF YOU DO NOT RETURN YOUR PROXY CARD OR VOTE IN
PERSON AT THE SPECIAL MEETING, THE EFFECT WILL BE THE SAME AS A VOTE AGAINST THE
PROPOSAL.

                                         Sincerely,

                                         BRUCE A. TWICKLER
                                         Chairman of the Board of Directors,
                                         President and Chief Executive Officer

     You may also obtain additional information about VA Linux and Andover.Net
without charge by following the instructions in the section entitled "Where you
can find more information" in this proxy statement/prospectus.

     THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS MAY   , 2000, AND IT IS
FIRST BEING MAILED OR OTHERWISE DELIVERED TO STOCKHOLDERS ON OR ABOUT MAY   ,
2000.

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

   NEITHER THE SECURITIES AND EXCHANGE COMMISSION, NOR ANY STATE SECURITIES
   COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON
   THE ADEQUACY OR ACCURACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY
   REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<PAGE>   3

                               ANDOVER.NET, INC.
                           -------------------------

                   NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

     A special meeting of the stockholders of Andover.Net, Inc., will be held at
Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal Street,
Boston, Massachusetts on June   , 2000 at 10:00 a.m., local time, for the
following purposes:

     1. To consider and vote on proposals to:

       - approve and adopt the Amended and Restated Agreement and Plan of
         Reorganization, dated as of April 26, 2000, by and among VA Linux
         Systems, Inc., Atlanta Acquisition Corp. and Andover.Net, Inc. and the
         Certificate of Merger to be filed to effect the merger. A copy of the
         reorganization agreement is attached as Appendix A and a copy of the
         Certificate of Merger attached as Appendix C to the accompanying proxy
         statement/prospectus; and

       - merge Andover.Net with and into Atlanta Acquisition Corp., a
         wholly-owned subsidiary of VA Linux, whereby holders of Andover.Net
         common stock would receive 0.425 of a share of VA Linux common stock
         for each share of Andover.Net common stock.

     2. To consider and vote on a proposal to approve and adopt an amendment to
        the Andover.Net 1999 Stock Option Plan to increase the number of shares
        of common stock reserved for issuance under the plan from 1,736,225 to
        3,136,225.

     3. To transact such other and further business as may properly come before
        the special meeting or any adjournments or postponements of the special
        meeting.

     The affirmative vote of a majority of the outstanding shares of Andover.Net
common stock is required to approve the reorganization agreement and the
transactions contemplated by it, including the merger. The affirmative vote of a
majority of the shares of Andover.Net common stock present or represented and
entitled to vote is required to approve the amendment to the option plan.

     The close of business on April 3, 2000 was the record date for determining
the stockholders entitled to vote at the special meeting and any adjournments or
postponements thereof. Only holders of record of shares of Andover.Net common
stock at the close of business on the record date are entitled to vote at the
special meeting.

     The accompanying proxy statement/prospectus describes the reorganization
agreement, the proposed merger, certain actions to be taken in connection with
the merger and the amendment to the option plan. You are cordially invited to
attend the meeting in person. To ensure that your vote is counted, please
complete, date and sign the enclosed proxy card and return it promptly in the
enclosed postage-paid envelope, whether or not you plan to attend the special
meeting. You may revoke your proxy in the manner described in the accompanying
proxy statement/ prospectus at any time before it is voted at the special
meeting. Executed proxies with no instructions indicated thereon will be voted
"FOR" approval and adoption of the reorganization agreement and "FOR" approval
of the amendment to the option plan.

     YOUR VOTE IS IMPORTANT. PLEASE SIGN, DATE AND RETURN YOUR PROXY.

     PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.

     OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
AND ADOPTION OF THE REORGANIZATION AGREEMENT AND FOR THE AMENDMENT TO THE OPTION
PLAN.

                                         By Order of the Board of Directors

                                         David P. Kreisler
                                         Secretary

May   , 2000
<PAGE>   4

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
QUESTIONS AND ANSWERS ABOUT THE MERGER......................    1
SUMMARY.....................................................    4
RISK FACTORS................................................   17
FORWARD-LOOKING STATEMENTS..................................   34
THE ANDOVER.NET SPECIAL MEETING.............................   35
THE MERGER..................................................   37
     VA Linux's Reasons for the Merger......................   39
     Andover.Net's Reasons for the Merger...................   41
     Opinion of WR Hambrecht + Co, Financial Advisor to
      Andover.Net...........................................   43
     Accounting Treatment...................................   48
     Material Federal Income Tax Consequences...............   48
     Delisting and Deregistration of Andover.Net Common
      Stock.................................................   50
     Listing of VA Linux common stock to be issued in the
      merger................................................   50
     Conduct of the Business if the Merger is not
      Completed.............................................   50
     Regulatory Compliance..................................   50
     Appraisal Rights.......................................   50
     Federal Securities Laws Consequences; Stock Transfer
      Restrictions..........................................   50
     Interests Of Certain Persons In The Merger.............   50
THE REORGANIZATION AGREEMENT................................   53
AMENDMENT OF THE ANDOVER.NET 1999 STOCK OPTION PLAN.........   65
INFORMATION REGARDING VA LINUX..............................   69
     VA Linux's Business....................................   69
     Market for VA Linux's Common Stock and Related
      Stockholder Matters...................................   80
     Selected Financial Data of VA Linux....................   82
     VA Linux's Management's Discussion and Analysis of
      Financial Condition and Results of Operations.........   83
     VA Linux Management....................................   95
     VA Linux Related Party Transactions....................  104
     Share Ownership of Certain Beneficial Owners and
      Management of VA Linux................................  106
INFORMATION REGARDING ANDOVER.NET...........................  108
     Andover.Net's Business.................................  108
     Selected Consolidated Financial Data of Andover.Net....  118
     Andover.Net's Management's Discussion and Analysis of
      Financial Condition and Results of Operations.........  120
     Andover.Net's Management...............................  130
     Share Ownership of Certain Beneficial Owners and
      Management of Andover.Net.............................  135
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
  INFORMATION...............................................  137
DESCRIPTION OF VA LINUX CAPITAL STOCK.......................  145
COMPARISON OF RIGHTS OF STOCKHOLDERS OF ANDOVER.NET AND
  VA LINUX..................................................  147
EXPERTS.....................................................  151
LEGAL MATTERS...............................................  151
FUTURE STOCKHOLDER PROPOSALS................................  151
WHERE YOU CAN FIND MORE INFORMATION.........................  151
INDEX TO FINANCIAL STATEMENTS...............................  F-1
APPENDIX A - Amended and Restated Agreement and Plan of
  Reorganization............................................  A-1
APPENDIX B - Opinion of WR Hambrecht + Co ..................  B-1
APPENDIX C - Certificate of Merger..........................  C-1
</TABLE>

                                        i
<PAGE>   5

                     QUESTIONS AND ANSWERS ABOUT THE MERGER

Q: WHAT IS THE PROPOSED
   MERGER
   TRANSACTION?              A. The proposed merger transaction is for VA Linux
                                to acquire Andover.Net. To combine the
                                companies, a subsidiary of VA Linux will merge
                                into Andover.Net, resulting in Andover.Net
                                becoming a wholly-owned subsidiary of VA Linux.
                                The boards of directors of VA Linux and
                                Andover.Net have unanimously voted to combine
                                the businesses of VA Linux and Andover.Net. For
                                a more complete description of the merger, see
                                the section entitled "The Merger".

Q: WHAT WILL I RECEIVE IN
   EXCHANGE FOR MY
   ANDOVER.NET
   COMMON STOCK IN THE
   MERGER?                   A. When the merger is completed, Andover.Net
                                stockholders will receive in exchange for each
                                outstanding share of Andover.Net common stock
                                0.425 shares of VA Linux common stock.

                                The VA Linux common stock you receive is called
                                the merger consideration.

                                VA Linux will not issue fractional shares.
                                Instead VA Linux will pay you cash for any
                                fractional shares of VA Linux common stock you
                                would have otherwise received.

                                For example, if you own 1,000 shares of
                                Andover.Net common stock, you will receive 425
                                shares of VA Linux common stock. However, if you
                                own 1,500 shares of Andover.Net common stock,
                                you will receive (x) 637 shares of VA Linux
                                common stock and (y) cash in lieu of 0.50 of a
                                share of VA Linux common stock (instead of a
                                fractional share).

Q: WILL I BE ABLE TO TRADE
   THE
   VA LINUX COMMON STOCK
   THAT
   I RECEIVE IN THE MERGER?  A: Yes. The VA Linux common stock will be listed on
                                the Nasdaq National Market under the symbol
                                "LNUX."

Q: WHEN AND WHERE IS THE
   SPECIAL MEETING?          A: The special meeting will take place at the
                                offices of Hutchins, Wheeler & Dittmar, A
                                Professional Corporation, 101 Federal Street,
                                Boston, Massachusetts on June   , 2000 at 10:00
                                a.m., local time.

Q: WHAT DO I NEED TO DO
   NOW?                      A: After carefully reading this proxy
                                statement/prospectus, mark on your proxy card
                                how you want to vote, and sign and mail the
                                completed proxy card in the enclosed return
                                envelope as soon as possible, so your shares
                                will be represented at the special meeting. If
                                you sign and send in your proxy and do not
                                indicate how you want to vote, your proxy will
                                be counted as a vote for all matters to be voted
                                on at the special meeting, including the merger.
                                If you do not send in your proxy or you abstain,
                                it will have the effect of a vote against all
                                matters to be voted on at the special meeting,
                                including the merger.

Q: WHAT DO I DO IF I WANT
   TO
   CHANGE MY VOTE AFTER I
   HAVE
   SENT IN MY PROXY CARD?    A: Just mail or deliver a later-dated, signed proxy
                                card so that the proxy card is received by us
                                before the special meeting, or attend the
                                special meeting in person and tell the secretary
                                you want to cancel your proxy and vote in
                                person.

                                        1
<PAGE>   6

Q: IF MY SHARES ARE HELD IN
   "STREET NAME" BY MY
   BROKER,
   WILL MY BROKER VOTE MY
   SHARES
   FOR ME?                   A: No. Your broker will vote your shares for you
                                only if you provide instructions on how to vote.
                                You should instruct your broker to vote your
                                shares, following the directions provided by
                                your broker. Without instructions, your broker
                                will not vote your shares, which will have the
                                same effect as a vote against the merger.

Q: WHEN DO YOU EXPECT THE
  MERGER TO BE COMPLETED?    A: We are working toward completing the merger as
                                quickly as possible. We must receive stockholder
                                approval of the merger. We expect to complete
                                the merger before June 30, 2000.

Q: WHOM CAN I CALL WITH
   QUESTIONS?                A: If you have any questions about the merger or
                                any related transactions, please call Marian
                                Scott, Investor Relations at Andover.Net at
                                (978) 635-5300. You may also obtain additional
                                information about VA Linux from documents filed
                                with the Securities and Exchange Commission
                                without charge upon written or oral request by
                                following the instructions in the section
                                entitled "Where you can find more information".

Q: WHAT ARE THE TAX
   CONSEQUENCES OF THE
   MERGER
   TO ME?                    A: VA Linux and Andover.Net each expect the merger
                                to qualify as a tax-free reorganization for U.S.
                                federal income tax purposes. For this reason,
                                you will not recognize gain or loss for U.S.
                                federal income tax purposes with respect to the
                                VA Linux common stock you receive in the merger.
                                You will, however, recognize gain or loss on any
                                cash received instead of a fractional share of
                                VA Linux common stock.

                                Set forth in "Material Federal Income Tax
                                Consequences" is a description of the material
                                U.S. federal income tax consequences of the
                                transaction. The tax consequences to you will
                                depend on the facts of your own situation.
                                Please consult your tax advisors for a full
                                understanding of the tax consequences to you of
                                the merger.

Q: AM I ENTITLED TO
   APPRAISAL
   RIGHTS?                   A: No. Holders of Andover.Net common stock are not
                                entitled to appraisal rights in connection with
                                the merger.

Q: WILL MY RIGHTS AS AN
   ANDOVER.NET STOCKHOLDER
   CHANGE AS A RESULT OF
   THE
   MERGER?                   A: Yes. While your stockholder rights will remain
                                governed by Delaware law, currently Andover.Net
                                stockholder rights are governed by Andover.Net's
                                certificate of incorporation and bylaws, while
                                VA Linux stockholder rights are governed by VA
                                Linux's certificate of incorporation and bylaws.
                                You will become a VA Linux stockholder as a
                                result of the merger. See "Comparison of Rights
                                of Stockholders of Andover.Net and VA Linux."

Q: SHOULD I SEND IN MY
   STOCK
   CERTIFICATES NOW?         A: No. After the merger is completed, VA Linux will
                                send you written instructions for exchanging
                                your Andover.Net stock certificates for VA Linux
                                stock certificates.

Q: ARE THERE RISKS I SHOULD
   CONSIDER IN DECIDING
   WHETHER
   TO VOTE FOR THE MERGER?   A. Yes. In evaluating the merger, you should
                                carefully consider the factors discussion in the
                                section entitled "Risk Factors" on page 17 and
                                "Forward-Looking Statements" on page 34.

                                        2
<PAGE>   7

Q: DOES THE BOARD OF
   DIRECTORS
   OF ANDOVER.NET RECOMMEND
   VOTING IN FAVOR OF THE
   MERGER
   AND THE INCREASE IN THE
   NUMBER OF SHARES OF
   ANDOVER.NET COMMON STOCK
   RESERVED FOR ISSUANCE
   UNDER
   OUR 1999 STOCK OPTION
   PLAN?                     A: Yes. The board of directors of Andover.Net
                                unanimously approved the merger and the share
                                increase and recommends that you vote "FOR" the
                                proposal to approve the merger and the increase
                                in the number of shares of Andover.Net common
                                stock reserved for issuance under our 1999 Stock
                                Option Plan.

                                        3
<PAGE>   8

                                    SUMMARY
                      MERGER OF ANDOVER.NET WITH VA LINUX

     This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. For a more complete understanding of the merger, you should
carefully read the rest of this document including the "Risk Factors" section
beginning on page 17 and the other documents to which we refer. See "Where You
Can Find More Information."

                                 THE COMPANIES

    VA Linux Systems, Inc.
    1382 Bordeaux Drive
    Sunnyvale, California 94089
    Telephone: (408) 542-8600

     VA Linux is a leading provider of integrated Linux-based solutions. VA
Linux offers a single point of contact for all Linux systems, software and
service needs. Since its inception, VA Linux has exclusively focused on
developing and selling Linux-based solutions and has over five years of
experience serving commercial Linux-based customers. This experience, combined
with its broad base of technical expertise in Linux systems and software and its
close ties to the open source development community, enables VA Linux to develop
Linux-based solutions that are generally more reliable, scalable and cost
effective than proprietary software solutions. VA Linux and Andover.Net signed
an Agreement and Plan of Reorganization on February 2, 2000 and an Amended and
Restated Agreement and Plan of Reorganization on April 26, 2000, which is
referred to as the reorganization agreement throughout this proxy
statement/prospectus. Subsequent to February 2, 2000, VA Linux entered into
agreements to acquire TruSolutions, Inc. and Net Attach, Inc. TruSolutions is a
leading manufacturer of rackmount servers based on the Pentium III, Xeon and
UltraSPARC processors specializing in low profile, high performance systems
designed for the Internet Data Center, ISP, ASP, and OEM. Net Attach provides
high-availability data-appliances for mission-critical deployment in corporate
services or engineering environments.

    Andover.Net, Inc.
    50 Nagog Park
    Acton, Massachusetts 01720
    Telephone: (978) 635-5300

     Andover.Net is a leading Linux destination on the Internet. Serving 60
million page impressions to over 3 million unique visitors each month,
Andover.Net includes one of the largest Linux news/community sites, Slashdot
(slashdot.org); one of the largest sites for programmer resources, Freshmeat.net
(www.freshmeat.net), and the popular developer e-commerce site, ThinkGeek
(thinkgeek.com). With these sites and our other Linux sites such as FreeCode
(freecode.com) and LinuxDaveCentral (www.linux.davecentral.com), Andover.Net's
web sites account for over 50% of the visits to Linux destinations on the
Internet. Andover.Net also includes cross-platform sites that provide programmer
and developer resources for users of many popular operating systems such as
Windows, UNIX and Macintosh in addition to Linux.

    Atlanta Acquisition Corp.
    1382 Bordeaux Drive
    Sunnyvale, California 94089
    Telephone: (408) 542-8600

     Atlanta Acquisition is a newly formed, wholly-owned subsidiary of VA Linux.
Upon the completion of the merger, Atlanta Acquisition will be merged with and
into Andover.Net. Andover.Net will become a wholly-owned subsidiary of VA Linux
following the merger, and Atlanta Acquisition will no longer have a corporate
existence.

                                        4
<PAGE>   9

                           SUMMARY OF THE TRANSACTION

     In the merger, Atlanta Acquisition will merge with and into Andover.Net. As
a result, Atlanta Acquisition will cease to exist as a separate corporate
entity, and Andover.Net will continue as the surviving corporation. The current
Andover.Net will become a wholly-owned subsidiary of VA Linux. Stockholders of
Andover.Net will receive 0.425 of a share of VA Linux common stock for each
share of Andover.Net common stock held by them. VA Linux will not issue
fractional shares to Andover.Net stockholders. Instead, VA Linux will pay cash
for any fractional shares that would otherwise have been issued. Immediately
after the merger, and based on the current number of shares of Andover.Net
common stock and VA Linux common stock issued and outstanding as of April 3,
2000, current VA Linux stockholders will own approximately 85.9% of the combined
public company's issued and outstanding shares, while current Andover.Net
stockholders will own approximately 14.1%.

     The reorganization agreement, as amended, is attached to this proxy
statement/prospectus as Appendix A. We encourage you to read it carefully as it
is the legal document that sets forth the parties' rights. See "The
Reorganization Agreement."

REASONS FOR MERGER

     The Andover.Net board of directors believes that the terms of the merger
and reorganization agreement are fair to, and in the best interests of,
Andover.Net and its stockholders. In reaching its unanimous decision, the
Andover.Net board of directors considered the following factors among other
things:

     - Andover.Net's business, results of operations and future prospects as an
       independent entity;

     - the relative interests of Andover.Net and VA Linux stockholders in the
       equity of the combined company;

     - the opinion of our financial advisor presented to the Board; and

     - results of VA Linux's results of operations.

     The potential benefits of the merger may not be realized. For a more
complete description of the risks, see the sections entitled "Risk Factors" on
page 17, and "VA Linux's Reasons for the Merger" and "Andover.Net's Reasons for
the Merger".

RECOMMENDATION TO ANDOVER.NET STOCKHOLDERS

     The Andover.Net board of directors has concluded that the reorganization
agreement, the certificate of merger and the merger are advisable and fair to,
and in the best interest of, the Andover.Net stockholders and unanimously
recommends that the stockholders vote to adopt and approve the reorganization
agreement, the certificate of merger and the merger.

                      AMENDMENT TO 1999 STOCK OPTION PLAN

     The board of directors of Andover.Net has adopted an amendment to the 1999
Stock Option Plan to increase the aggregate number of shares from 1,736,225 to
3,136,225.

RECOMMENDATION TO ANDOVER.NET STOCKHOLDERS

     The Andover.Net board of directors unanimously recommends that the
stockholders vote to adopt and approve the amendment to the Andover.Net option
plan.

                                        5
<PAGE>   10

ANDOVER.NET SPECIAL MEETING

     The special meeting of Andover.Net stockholders will be held on June   ,
2000 at 10:00 a.m., local time, at Hutchins, Wheeler & Dittmar, A Professional
Corporation, 101 Federal Street, Boston, Massachusetts 02110. At the special
meeting, you will be asked to consider and vote upon a proposal to approve the
reorganization agreement and a proposal to amend our 1999 Stock Option Plan.

RECORD DATE; VOTING POWER

     The close of business on April 3, 2000 has been fixed as the record date
for determining the holders of Andover.Net common stock who are entitled to
notice of and to vote at the special meeting. As of the record date, there were
16,003,627 shares of Andover.Net common stock outstanding, of which 6,693,910
shares (approximately 41.8% of the outstanding shares) of Andover.Net common
stock were owned by affiliates of Andover.Net, each of whom has agreed that it
or he will vote all such shares in favor of the approval and adoption of the
reorganization agreement and the certificate of merger, approval of the merger
and the approval of the increase in the number of shares reserved for issuance
under our 1999 Stock Option Plan and has granted an irrevocable proxy to so vote
to VA Linux. You, as a holder of record of shares of Andover.Net common stock on
the record date, are entitled to one vote per share of Andover.Net common stock
on each matter submitted to a vote at the special meeting.

VOTE REQUIRED

     The presence in person or by proxy of the holders of shares representing a
majority of the voting power of Andover.Net common stock entitled to vote is
necessary to constitute a quorum for the transaction of business at the special
meeting. Holders of approximately 41.8% of the outstanding shares of Andover.Net
common stock as of the record date have agreed to vote for the merger and will
be considered present at the special meeting. The affirmative vote of holders of
at least a majority of the Andover.Net common stock outstanding and entitled to
vote is required for stockholder approval of the merger. The affirmative vote of
at least a majority of the Andover.Net common stock present or represented and
entitled to vote is required to approve the amendment to our 1999 Stock Option
Plan. The persons named as proxy holders on the attached proxy card will vote
your shares as you indicate on the card. If you sign your proxy card and do not
specify on the proxy card how to vote your shares, the proxy holders will vote
your shares in favor of (a) the reorganization agreement, the certificate of
merger and the merger and (b) increasing the number of shares reserved under the
Andover.Net 1999 Stock Option Plan. Abstentions and failures to return proxy
cards will have the same effect as negative votes.

EFFECTIVE TIME OF THE MERGER; EXCHANGE OF SHARES

     The merger will become effective at the time and date when a copy of a
certificate of merger is filed with the Secretary of State of the State of
Delaware pursuant to the Delaware General Corporation Law, a copy of which is
attached hereto as Appendix C. The time of such filing is currently expected to
occur as soon as practicable after the special meeting, subject to adoption and
approval of the reorganization agreement and the merger at the special meeting
and satisfaction or waiver of the conditions of the reorganization agreement.

     If the merger is approved at the special meeting, an exchange agent will
send to you detailed instructions with regard to the surrender of your
Andover.Net common stock certificates, together with a letter of transmittal, as
soon as reasonably practicable following the time the merger becomes effective.
You should not submit your certificates to the exchange agent until you have
received these materials. Upon surrender of your shares, you will receive a
certificate representing the number of VA Linux shares you are entitled to
receive under the reorganization agreement. You will also receive cash in lieu
of fractional shares based on the closing price for shares of VA Linux common
stock on the Nasdaq National Market on the last full trading day prior to the
effective time of the merger. No interest will be paid or will accrue on any
cash payable in lieu of any fractional shares of VA Linux common stock. See

                                        6
<PAGE>   11

"Summary -- The Reorganization Agreement" and, for a more detailed discussion,
"The Reorganization Agreement".

                DO NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.

FEES AND EXPENSES

     Each party will pay its own costs and expenses. However, all fees and
printing expenses related to this proxy statement/prospectus, other than
attorneys' and accountants', fees and expenses, will be shared equally by VA
Linux and Andover.Net.

ACCOUNTING TREATMENT

     VA Linux intends to account for the merger as a "purchase" for financial
accounting purposes, in accordance with generally accepted accounting
principles.

     For a more complete description of the accounting treatment of the merger
see the section entitled "The Merger -- Accounting Treatment."

FEDERAL INCOME TAX CONSEQUENCES

     The merger has been structured as a tax-free reorganization for U.S.
federal income tax purposes. Accordingly, Andover.Net stockholders will not
recognize gain or loss for U.S. federal income tax purposes on the exchange of
their Andover.Net shares for shares of VA Linux common stock in the merger.
However, some Andover.Net stockholders will recognize gain or loss in connection
with the receipt of cash instead of a fractional share of VA Linux common stock.

     TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
EACH ANDOVER.NET STOCKHOLDER WILL DEPEND ON THE FACTS OF THAT STOCKHOLDER'S
SITUATION. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF
THE TAX CONSEQUENCES OF THE MERGER TO YOU.

FAIRNESS OPINION OF FINANCIAL ADVISOR TO ANDOVER.NET

     Andover.Net retained WR Hambrecht + Co as its financial advisor and agent
in connection with the merger to render an opinion to the Andover.Net board of
directors as to the financial fairness of the merger to Andover.Net and its
stockholders.

     In deciding to approve the merger, the Andover.Net board considered this
opinion, which stated that as of its date and subject to the considerations
described in it, the consideration to be received in the merger by holders of
Andover.Net common stock was fair from a financial point of view of those
holders. We have attached this opinion as Appendix B to this proxy
statement/prospectus, and this opinion should be read carefully in its entirety
for a description of the assumptions made, matters considered and limitations on
the review undertaken. This opinion does not constitute a recommendation to any
stockholder as to how to vote with respect to any matter relating to the
proposed merger. For a more detailed discussion of the fairness opinion see "The
Merger -- Opinion of WR Hambrecht + Co, Financial Advisor to Andover.Net".

APPRAISAL RIGHTS

     The holders of Andover.Net common stock are not entitled to dissenters' or
appraisal rights in connection with the merger under applicable Delaware law.
For a more detailed description, see "The Merger -- Appraisal Rights."

                                        7
<PAGE>   12

THE REORGANIZATION AGREEMENT

     We have attached the reorganization agreement as Appendix A to this proxy
statement/prospectus. We encourage you to carefully read the reorganization
agreement in its entirety because it is the legal document that governs the
merger.

Conditions to the Merger

     We will complete the merger only if a number of conditions are satisfied or
waived including:

     - the receipt of the approval of the requisite number of Andover.Net
       stockholders at the special meeting;

     - the approval of the amendment to the Andover.Net 1999 Stock Option Plan
       by the requisite number of Andover.Net stockholders at the special
       meeting;

     - approval for listing on the Nasdaq National Market of the shares of VA
       Linux common stock to be issued pursuant to the reorganization agreement;

     - termination of the waiting period under the Hart-Scott-Rodino Antitrust
       Improvements Act;

     - the absence of legal restraints or prohibitions preventing the
       consummation of the merger;

     - the receipt of opinions of counsel to Andover.Net and VA Linux relating
       to the U.S. federal income tax consequences of the merger;

     - the effectiveness of the registration with the SEC of the issuance of
       shares of VA Linux common stock in connection with the merger;

     - the receipt of any necessary consents, orders or approvals of, and
       declarations and filings with, governmental entities;

     - the material correctness of the representations and warranties of each
       party contained in the reorganization agreement;

     - the performance or compliance by the parties in all material respects
       with all agreements and covenants required by the reorganization
       agreement;

     - the absence of a material adverse effect on the business, assets,
       capitalization, financial condition or results of operations of either VA
       Linux or Andover.Net;

     - the receipt of all consents, waivers and approvals of third parties that
       Andover.Net must obtain; and

     - the termination of the Andover.Net registration rights agreement.

Termination of the Reorganization Agreement

     The reorganization agreement may be terminated and the merger may be
abandoned at any time prior to the filing of the certificate of merger with the
Delaware Secretary of State as follows:

     - by mutual written consent of VA Linux and Andover.Net;

     - by either VA Linux or Andover.Net if:

      1. the merger is not consummated on or before June 30, 2000;

      2. any governmental entity prohibits the merger;

      3. Andover.Net stockholder approval is not obtained at the Andover.Net
         special meeting; or

                                        8
<PAGE>   13

      4. the other party breaches a representation, warranty, covenant or
         agreement contained in the reorganization agreement that is not curable
         by such party using commercially reasonable efforts and the party
         terminating the reorganization agreement is not in breach of the
         reorganization agreements.

     - by VA Linux if the Andover.Net board:

      1. withdraws or modifies its recommendation to the Andover.Net
         stockholders to approve the merger or recommends another proposal;

      2. fails to recommend the approval of the reorganization agreement and the
         merger to the Andover.Net stockholders;

      3. fails to reaffirm its unanimous recommendation in favor of the adoption
         and approval of the reorganization agreement and the merger within ten
         days after VA Linux requests in writing that such recommendation be
         reaffirmed;

      4. approves or recommends any offer or proposal relating to any
         transaction or series of related transactions involving: (A) any
         acquisition by any person or group of more than a 5% interest in the
         total outstanding voting securities of Andover.Net or any of its
         subsidiaries or any tender offer or exchange offer that if consummated
         would result in any person or "group" beneficially owning 5% or more of
         the total outstanding voting securities of Andover.Net or any of its
         subsidiaries or any merger, consolidation, business combination or
         similar transaction involving Andover.Net; (B) any sale, lease,
         exchange, transfer, license, acquisition or disposition of more than 5%
         of the assets of Andover.Net; or (C) any liquidation or dissolution of
         Andover.Net;

      5. fails to oppose, or recommends approval of, a tender offer or exchange
         offer, by a party other than VA Linux, that would result in the party
         obtaining 20% or more of the Andover.Net common stock; or

      6. solicits any proposal for any transaction as described above.

     If VA Linux or Andover.Net terminates the reorganization agreement because
the merger is not consummated on or before June 30, 2000 or Andover.Net
stockholder approval is not obtained, and within 15 months of such termination
Andover.Net enters into any transaction or series of related transactions
involving: (A) any acquisition by any person or group of more than a 5% interest
in the total outstanding voting securities of Andover.Net or any of its
subsidiaries or any tender offer or exchange offer that if consummated would
result in any person or "group" beneficially owning 5% or more of the total
outstanding voting securities of Andover.Net or any of its subsidiaries or any
merger, consolidation, business combination or similar transaction involving
Andover.Net; (B) any sale, lease, exchange, transfer, license, acquisition or
disposition of more than 5% of the assets of Andover.Net; or (C) any liquidation
or dissolution of Andover.Net, then upon consummation of such transaction
Andover.Net will pay $30,000,000 to VA Linux.

     If VA Linux terminates the reorganization agreement because Andover.Net
breaches a representation, warranty, covenant or agreement contained in the
reorganization agreement that is not curable by Andover.Net using commercially
reasonable efforts, then Andover.Net will pay $30,000,000 to VA Linux.

     For a more detailed discussion of the reorganization agreement, see "The
Reorganization Agreement".

NO OTHER NEGOTIATIONS INVOLVING ANDOVER.NET

     Andover.Net agreed that until the completion of the merger or unless VA
Linux consents in writing, Andover.Net and its subsidiaries will not, subject to
the fiduciary obligations of Andover.Net's directors, solicit, or take other
actions related to, any transaction other than the merger.

                                        9
<PAGE>   14

     For a detailed description of these limitations on Andover.Net's actions
with respect to other transactions, see "The Reorganization
Agreement -- Additional Covenants -- No Solicitation".

LISTING OF VA LINUX COMMON STOCK

     VA Linux will authorize the VA Linux common stock that is to be issued in
connection with the merger for listing on the Nasdaq National Market. The
listing of the VA Linux common stock to be issued in connection with the merger
is a condition to the merger's completion.

     When considering the unanimous recommendations of Andover.Net's board of
directors, you should be aware that some Andover.Net directors, officers and
affiliates have interests in the merger that are different from, or are in
addition to, yours. These interests include:

     If the merger is completed, certain options to purchase shares of
Andover.Net common stock will accelerate as follows. Fifty percent (50%) of the
unvested option shares held by four members of senior management of Andover.Net,
Peter Phelps, Adam Green, Derek Carroll and Janet Holian, will accelerate. If
the merger occurred on April 3, 2000, options to purchase 132,952 shares held by
these four individuals would accelerate and become vested. One hundred percent
(100%) of the unvested option shares held by one member of senior management,
James Patterson, and one director, James D. Logan, of Andover.Net will
accelerate. If the merger occurred on April 3, 2000, options to purchase 56,723
shares held by these two individuals would accelerate and become vested.

     Twenty-six affiliates of Andover.Net have entered into affiliate agreements
with VA Linux and have agreed not to sell any of the shares of Andover.Net held
by them until the later of the closing of the merger or June 8, 2000.

     For a more complete description of the interests of related persons in the
merger, see "The Merger -- Interests of Certain Persons in the Merger".

FORWARD-LOOKING STATEMENTS

     Some statements contained in this proxy statement/prospectus regarding
future financial performance and results and other statements that are not
historical facts are forward-looking statements. Please see "Forward-Looking
Statements."

COMPARATIVE MARKET DATA

     The following table presents trading information for VA Linux common stock
and Andover.Net common stock on February 2, 2000 and April 25, 2000. February 2,
2000 was the last full trading day prior to our announcement of the signing of
the reorganization agreement. April 25, 2000 was the last practicable trading
day for which information was available prior to the date of this proxy
statement/prospectus. You should read the information presented below in
conjunction with "Comparative Per Share Data".

<TABLE>
<CAPTION>
                                     VA LINUX COMMON STOCK           ANDOVER.NET COMMON STOCK
                                 ------------------------------    -----------------------------
                                  HIGH        LOW      CLOSING      HIGH        LOW      CLOSING
                                 -------    -------    --------    -------    -------    -------
<S>                              <C>        <C>        <C>         <C>        <C>        <C>
February 2, 2000...............  $138.00    $111.50    $136.875    $37.625    $28.625    $36.00
April 25, 2000.................  $ 43.00    $ 38.00    $  39.75    $ 14.00    $12.625    $13.00
</TABLE>

     The market prices of shares of VA Linux common stock and Andover.Net common
stock fluctuate. As a result, you should obtain current market quotations.

                                       10
<PAGE>   15

GOVERNMENTAL AND REGULATORY MATTERS

     The merger is subject to antitrust laws. VA Linux and Andover.Net have made
the required filings with the U.S. Department of Justice and the Federal Trade
Commission on March 20, 2000 and the parties received early termination of the
waiting period on April 5, 2000. The Department of Justice or the Federal Trade
Commission, as well as a foreign regulatory agency or government, may challenge
the merger at any time before or after its completion.

     This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this proxy statement/prospectus, including
the reorganization agreement, which is attached as Appendix A and the opinion of
WR Hambrecht + Co, which is attached as Appendix B.

                                       11
<PAGE>   16

                SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA

     The following tables present summary historical financial data, summary
unaudited pro forma combined financial data, market price and dividend data and
comparative per share data for VA Linux and Andover.Net. The summary unaudited
pro forma data includes the results of operations and financial data of VA
Linux, Andover.Net, TruSolutions, Inc. and NetAttach, Inc. and should be read in
conjunction with the introduction to pro forma financial information, pro forma
financial statements and related notes included elsewhere in this proxy
statement/prospectus. This information has been derived from each company's
respective financial statements and notes, which are included elsewhere in this
proxy statement/prospectus.

     You should read the following summary financial data together with "VA
Linux's Management's Discussion and Analysis of Financial Condition and Results
of Operations," "Andover.Net's Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements and related
notes included elsewhere in this proxy statement/prospectus.

                 SUMMARY HISTORICAL FINANCIAL DATA OF VA LINUX
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                    PERIOD FROM
                                  JANUARY 9, 1995              YEAR ENDED JULY 31,                  SIX MONTHS ENDED
                                    (INCEPTION)     -----------------------------------------   -------------------------
                                        TO                                                      JANUARY 31,   JANUARY 28,
                                   JULY 31, 1995       1996        1997     1998       1999        1999          2000
                                  ---------------   -----------   ------   -------   --------   -----------   -----------
                                    (UNAUDITED)     (UNAUDITED)                                        (UNAUDITED)
<S>                               <C>               <C>           <C>      <C>       <C>        <C>           <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues....................      $ 1,135         $ 2,257     $2,743   $ 5,556   $ 17,710     $ 5,605      $ 35,039
Gross profit....................          388             266        181     1,062        (56)        228         4,796
Income (loss) from operations...          111            (169)      (462)       73    (14,531)     (1,898)      (22,851)
Net income (loss)...............          111            (170)      (474)       84    (14,512)     (1,912)      (21,616)
Net income (loss) attributable
  to common stockholders........          111            (170)      (474)       84    (14,512)     (1,912)      (26,516)
Basic net income (loss) per
  share.........................      $  0.01         $ (0.01)    $(0.05)  $  0.02   $  (2.62)    $ (0.46)     $  (1.73)
Diluted net income (loss) per
  share.........................      $  0.01         $ (0.01)    $(0.05)  $  0.01   $  (2.62)    $ (0.46)     $  (1.73)
Shares used in computing basic
  net income (loss) per share...       15,000          15,000      9,467     5,100      5,530       4,152        15,372
Shares used in computing diluted
  net income (loss) per share...       15,000          15,000      9,467    12,249      5,530       4,152        15,372
</TABLE>

<TABLE>
<CAPTION>
                                                              JULY 31,    JANUARY 28,
                                                                1999         2000
                                                              --------    -----------
                                                                          (UNAUDITED)
<S>                                                           <C>         <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................  $18,653      $148,510
Working capital.............................................   16,230       146,981
Total assets................................................   27,595       165,255
Long-term obligations, less current portion.................      424           575
Total stockholders' equity..................................   18,363       150,144
</TABLE>

                                       12
<PAGE>   17

         SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA OF ANDOVER.NET
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                           YEAR ENDED SEPTEMBER 30,                       DECEMBER 31,
                              ---------------------------------------------------    -----------------------
                                 1995         1996      1997      1998      1999        1998          1999
                              -----------    ------    ------    ------    ------    -----------    --------
                              (UNAUDITED)                                            (UNAUDITED)
<S>                           <C>            <C>       <C>       <C>       <C>       <C>            <C>
STATEMENTS OF OPERATIONS
  DATA:
Revenues..................      $  989       $  316    $  741    $1,290    $2,121      $  373       $  2,057
Gross profit..............         613          287       438       963     1,388         266          1,576
Loss from operations......           1         (573)     (590)     (445)   (5,055)       (796)        (3,774)
Net loss..................         (34)        (654)     (664)     (474)   (5,433)       (784)       (15,720)
Net loss attributable to
  common stockholders.....      $  (34)      $ (654)   $ (705)   $ (608)   $(5,787)    $ (829)      $(15,980)
Basic and diluted net loss
  per share...............      $(1.70)      $(0.38)   $(0.29)   $(0.12)   $(0.78)     $(0.14)      $  (1.61)
Shares used in computing
  basic and diluted net
  loss per share..........          20        1,763     2,468     5,110     7,419       5,960          9,923
</TABLE>

<TABLE>
<CAPTION>
                                                              SEPTEMBER 30,    DECEMBER 31,
                                                                  1999             1999
                                                              -------------    ------------
<S>                                                           <C>              <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................     $ 9,871         $78,409
Working capital.............................................       8,014          78,241
Total assets................................................      14,440          84,417
Long-term obligations, less current portion.................         762              --
Redeemable convertible preferred stock......................      12,669              --
Stockholders' equity (deficit)..............................      (6,313)         81,842
</TABLE>

                                       13
<PAGE>   18

        SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA OF VA LINUX
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

     The summary pro forma financial data below presents VA Linux's summary
statements of operations and certain balance sheet data on a pro forma basis to
reflect VA Linux's acquisition of TruSolutions on March 28, 2000, and NetAttach
on April 5, 2000, and to reflect the proposed acquisition of Andover.Net as
though such transactions had occurred at the beginning of the periods presented.
You should not rely on the selected unaudited pro forma combined financial
information as an indication of the results of operations or financial position
that would have been achieved if these mergers had taken place earlier or of the
results of operations or financial position of VA Linux after completion of the
mergers.

     We have included detailed unaudited pro forma condensed combined financial
data beginning on page 139 of this proxy statement/prospectus.

<TABLE>
<CAPTION>
                                                               YEAR ENDED      SIX MONTHS ENDED
                                                              JULY 31, 1999    JANUARY 28, 2000
                                                              -------------    ----------------
<S>                                                           <C>              <C>
PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues................................................    $  26,347         $  47,334
Gross profit................................................        2,236             8,827
Amortization of intangibles and goodwill....................       77,811            38,906
Compensation expense related to acquisitions................       43,357            23,303
Amortization of deferred stock compensation.................        5,897             8,570
Loss from operations........................................     (142,930)          (89,680)
Net loss....................................................     (145,664)         (100,904)
Net loss applicable to common stockholders..................     (146,018)         (105,804)
Net loss per share:
  Basic net loss per share..................................    $  (10.68)        $   (4.50)
  Shares used in computing basic net loss per share.........       13,668            23,508
</TABLE>

<TABLE>
<CAPTION>
                                                              JANUARY 28, 2000
                                                              ----------------
                                                                (UNAUDITED)
<S>                                                           <C>
PRO FORMA COMBINED BALANCE SHEET DATA:
Cash and cash equivalents...................................      $198,479
Working capital.............................................       194,564
Intangibles and goodwill....................................       319,863
Total assets................................................       540,869
Long-term obligations less current portion..................           686
Stockholders' equity........................................       518,541
</TABLE>

                                       14
<PAGE>   19

                         MARKET PRICE AND DIVIDEND DATA

     VA Linux common stock and Andover.Net common stock are designated for
inclusion on the Nasdaq National Market, or Nasdaq, under the symbols "LNUX" and
"ANDN," respectively. This table sets forth for the periods indicated, the range
of high and low per share sales prices for VA Linux common stock and Andover.Net
common stock as reported on Nasdaq.

<TABLE>
<CAPTION>
                                                            VA LINUX            ANDOVER.NET
                                                          COMMON STOCK         COMMON STOCK
                                                       ------------------    -----------------
                                                         LOW       HIGH        LOW       HIGH
                                                       -------    -------    -------    ------
<S>                                                    <C>        <C>        <C>        <C>
Initial public offering to December 31, 1999.........  $170.50    $320.00    $ 35.06    $90.00
January 1, 2000 to March 31, 2000....................  $ 60.00    $207.75    $ 20.50    $49.00
April 1, 2000 to April 25, 2000......................  $26.875    $ 70.50    $  8.50    $23.50
</TABLE>

     The following table sets forth the per share closing bid prices of VA Linux
common stock and Andover.Net common stock as reported on Nasdaq and the
estimated equivalent per share price, as described below, of Andover.Net common
stock on February 2, 2000 the last full trading day before the initial public
announcement of the proposed merger, on April 3, 2000, the record date for
purposes of the merger vote and on April 25, 2000, the last full trading day
before the amended merger agreement:

<TABLE>
<CAPTION>
                                                                                ESTIMATED EQUIVALENT
                                                  VA LINUX      ANDOVER.NET         ANDOVER.NET
                                                COMMON STOCK    COMMON STOCK      PER SHARE PRICE
                                                ------------    ------------    --------------------
<S>                                             <C>             <C>             <C>
February 2, 2000..............................    $136.88          $36.00             $58.17
April 3, 2000.................................    $ 62.31          $21.13             $26.48
April 25, 2000................................    $ 39.75          $13.00             $16.89
</TABLE>

     The estimated equivalent per share price of a share of Andover.Net common
stock equals the exchange ratio of 0.425 multiplied by the price of a share of
VA Linux common stock. You may use this calculation to determine what your
shares of Andover.Net common stock will be worth if the merger is completed. If
the merger had occurred on April 25, 2000, you would have received 0.425 shares
of VA Linux common stock, worth a total of $16.89 for each share of Andover.Net
common stock you owned. The actual equivalent per share price of a share of
Andover.Net common stock that you will receive if the merger closes may be
different from this price because the per share price of VA Linux common stock
fluctuates.

     Neither VA Linux nor Andover.Net has ever declared or paid cash dividends
on its common stock. The policies of each are to retain earnings for use in its
business. Following the merger, VA Linux common stock will continue to be listed
on Nasdaq and there will be no further market for the Andover common stock.

                                       15
<PAGE>   20

                           COMPARATIVE PER SHARE DATA

     The information below reflects:

     - the historical net loss from continuing operations and book value per
       share of VA Linux common stock and the historical net loss from
       continuing operations and book value per share of Andover.Net common
       stock in comparison with the unaudited combined pro forma loss from
       continuing operations and book value per share of VA Linux after giving
       effect to the proposed merger of VA Linux with Andover.Net, and the
       acquisitions by VA Linux of TruSolutions and NetAttach as though such
       transactions had occurred at the beginning of each the periods presented,
       using the purchase method of accounting for business combinations; and

     - the unaudited combined pro forma loss from continuing operations and book
       value per share attributable to 0.425 of a share of VA Linux common stock
       which will be received for each share of Andover.Net common stock.

     You should read the tables below in conjunction with the respective audited
and unaudited consolidated financial statements and related notes of VA Linux,
Andover.Net, TruSolutions and NetAttach and the unaudited pro forma financial
information and notes related to these consolidated financial statements
included elsewhere in this proxy statement/prospectus.

                                    VA LINUX

<TABLE>
<CAPTION>
                                                               YEAR ENDED     SIX MONTHS ENDED
                                                              JULY 31, 1999   JANUARY 28, 2000
                                                              -------------   ----------------
                                                                                (UNAUDITED)
<S>                                                           <C>             <C>
HISTORICAL PER SHARE DATA:
Loss from continuing operations:
  Basic and diluted net loss per share......................     $(2.62)           $(1.73)
Book value per share........................................     $ 1.19            $ 3.63
</TABLE>

                                  ANDOVER.NET

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS
                                                                  YEAR ENDED             ENDED
                                                              SEPTEMBER 30, 1999   DECEMBER 31, 1999
                                                              ------------------   -----------------
<S>                                                           <C>                  <C>
HISTORICAL PER SHARE DATA:
Loss from continuing operations:
  Basic and diluted net loss per share......................        $(0.78)             $(1.61)
Book value per share........................................        $(0.79)             $ 5.20
</TABLE>

                                    COMBINED

<TABLE>
<CAPTION>
                                                               YEAR ENDED     SIX MONTHS ENDED
                                                              JULY 31, 1999   JANUARY 28, 2000
                                                              -------------   ----------------
                                                                                (UNAUDITED)
<S>                                                           <C>             <C>
COMBINED PRO FORMA PER SHARE DATA:
Loss from continuing operations:
  Basic and diluted net loss per VA Linux share.............     $(10.68)          $(4.50)
  Basic and diluted net loss per equivalent Andover.Net
     share(1)...............................................     $ (4.54)          $(1.91)
Book value per VA Linux share...............................                       $12.53
Book value per equivalent Andover.Net share(1)..............                       $ 5.32
</TABLE>

- -------------------------
(1) The equivalent combined pro forma loss and book value per Andover.Net share
    is calculated by dividing the combined pro forma share amounts by the
    exchange ratio of 0.425 shares of VA Linux common stock for each share of
    Andover.Net common stock.

                                       16
<PAGE>   21

                                  RISK FACTORS

     The merger involves a high degree of risk. By voting in favor of the
merger, you will be choosing to invest in VA Linux common stock. An investment
in VA Linux common stock involves a high degree of risk. In addition to the
other information contained or incorporated by reference in this proxy
statement/prospectus, you should carefully consider the following risk factors
in deciding whether to vote for the merger.

RISKS RELATING TO THE MERGER

YOU WILL RECEIVE 0.425 OF A SHARE OF VA LINUX COMMON STOCK FOR EACH OF YOUR
SHARES OF ANDOVER.NET COMMON STOCK, REGARDLESS OF INCREASES IN MARKET VALUE OF
ANDOVER.NET COMMON STOCK, DECREASES IN THE MARKET VALUE OF VA LINUX COMMON STOCK
OR BOTH.

     Upon completion of the merger, each share of Andover.Net common stock will
be exchanged for 0.425 of a share of VA Linux common stock. There will be no
adjustment for changes in the market price of either Andover.Net or VA Linux
common stock, and Andover.Net is not permitted to withdraw from the merger or
resolicit the vote of its stockholders solely because of changes in the market
value of VA Linux or Andover.Net common stock. Accordingly, the specific dollar
value of VA Linux common stock you will receive upon completion of the merger
will depend on the market value of VA Linux common stock at the time of the
completion of the merger. This value may decrease compared to the market value
of Andover.Net common stock based on decreases in the value of VA Linux common
stock, increases in the value of Andover.Net common stock or both. See "The
Reorganization Agreement -- The Merger".

THE FAILURE TO EFFECTIVELY INTEGRATE VA LINUX AND ANDOVER.NET COULD HAVE A
MATERIAL ADVERSE EFFECT ON THE BUSINESS OF THE COMBINED COMPANY.

     Achieving the anticipated benefits of the merger will depend in part on the
integration of the two businesses in an efficient manner, and there can be no
assurance that this will occur. A successful combination of VA Linux and
Andover.Net will require substantial effort. The difficulty of the integration
may be increased by the geographical separation of the two companies and their
employees. For example, VA Linux may not be able to retain key executives and
employees of Andover.Net after the merger. Diversion of management's attention
from ongoing operations and any difficulties encountered in the transition and
integration process could have a material adverse effect on the revenues,
expenses and operating results of the combined company. VA Linux may not realize
any of the anticipated benefits of the merger.

THE MERGER COULD CAUSE VA LINUX AND ANDOVER.NET TO LOSE CUSTOMERS OR STRATEGIC
PARTNERS.

     Some of Andover.Net's existing customers or strategic partners may view
themselves as competitors of some of VA Linux's customers or of VA Linux itself
and therefore determine that the merger is competitively disadvantageous to
them. As a result, the merger could adversely affect the combined company's
relationship with these customers or strategic partners, and they could
terminate their relationships with the combined company as a result of the
merger.

OFFICERS AND DIRECTORS OF ANDOVER.NET HAVE DIFFERENT INTERESTS FROM YOURS AS AN
ANDOVER.NET STOCKHOLDER.

     The directors and officers of Andover.Net have interests in the merger that
are different from, or are in addition to, those of Andover.Net stockholders
generally. These include:

     - some officers of Andover.Net will become employees of VA Linux and will
       have employment agreements;

     - some officers of Andover.Net will be granted options to purchase VA Linux
       common stock;

                                       17
<PAGE>   22

     - Andover.Net directors and executive officers have customary rights to
       indemnification against liabilities; and

     - some officers and directors of Andover.Net have unvested options that
       will vest partially in connection with this transaction.

     As a result, officers and directors could be more likely to vote to approve
the reorganization agreement and the merger than if they did not hold these
interests. See "The Merger -- Interests of Certain Persons".

RISKS RELATED TO THE BUSINESS OF THE COMBINED COMPANY

BECAUSE BOTH VA LINUX AND ANDOVER.NET HAVE LIMITED OPERATING HISTORIES AND
OPERATE IN A NEW INDUSTRY IT IS DIFFICULT TO EVALUATE THE COMBINED COMPANY'S
BUSINESS PROSPECTS AND RESULTS OF OPERATIONS.

     VA Linux was founded in January 1995, and Andover.Net was founded in May
1992, but only commenced its Internet focus in March 1997. VA Linux has recently
expanded operations significantly. For example, VA Linux grew from 33 employees
at January 31, 1999 to 208 employees at January 28, 2000, and only two members
of VA Linux's current management team were employed by VA Linux at the end of
fiscal 1998. Furthermore, VA Linux participates in the Linux industry, which has
only recently exhibited significant growth. You should consider the risks and
difficulties the combined company may encounter as an early stage company in the
new and rapidly evolving Linux products and services market. Some of the factors
that may affect the combined company include:

     - the evolving and unpredictable nature of the combined company's business
       model;

     - the uncertain rate of growth in usage and acceptance of the Linux
       operating system and other open source software;

     - the uncertain demand for the combined company's products;

     - the need to expand the combined company's sales, professional services
       and customer support organizations;

     - the need to expand the combined company's Internet operations;

     - acquiring businesses and technologies;

     - increased competition in the Linux industry, particularly from larger,
       more established companies that are entering into the Linux market, as
       well as the competition the combined company faces from general purpose
       computer systems manufacturers; and

     - the combined company's ability to attract and retain qualified management
       and professional services personnel.

     If VA Linux fails to address any of these risks or difficulties adequately,
the combined company's business strategy may not be successful, and the combined
company's revenues may not grow and may decline.

VA LINUX HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR NET LOSSES FOR THE
FORESEEABLE FUTURE, AND THE COMBINED COMPANY MAY NEVER ACHIEVE PROFITABILITY.

     VA Linux incurred net losses of $14.5 million in fiscal 1999, $21.6 million
for the six months ended January 28, 2000, and had an accumulated deficit of
$41.5 million as of January 28, 2000. Andover.Net incurred net losses of $5.4
million in fiscal 1999, $15.7 million for the quarter ended December 31, 1999
and had an accumulated deficit of $24.2 million as of December 31, 1999. VA
Linux expects to continue to incur significant product development, sales and
marketing and administrative expenses, particularly as a

                                       18
<PAGE>   23

result of expanding its direct sales force. In addition, VA Linux is investing
considerable resources in its professional services organization and its
Internet operations. VA Linux does not expect to generate sufficient revenues to
achieve profitability and, therefore, VA Linux expects the combined company to
continue to incur net losses for at least the foreseeable future. If VA Linux
does achieve profitability, VA Linux may not be able to sustain it. Failure to
become and remain profitable may materially and adversely affect the market
price of VA Linux common stock and the combined company's ability to raise
capital and continue operations.

AS ITS BUSINESS MATURES, VA LINUX'S NET REVENUES MAY NOT CONTINUE TO GROW AT THE
SAME RATE IN THE FUTURE AS THEY HAVE IN THE PAST.

     Although VA Linux's net revenues have grown substantially in recent
quarters, VA Linux does not expect its net revenues to grow at such a rapid rate
in the future, and they could decline. This growth rate reflects increases in
customers and average order size, as well as the introduction of a new server
model in the third quarter of fiscal 1999 and increased focus on professional
services in the second quarter of fiscal 2000. As VA Linux's business matures,
it is unlikely that its net revenues will continue to grow at the same rate. VA
Linux believes that its future growth rates will depend on the success of its
sales and marketing efforts, which will require significant expenditures that VA
Linux may not have sufficient resources to undertake, as well as the success of
VA Linux's professional services organization, which to date has not represented
a significant portion of VA Linux's revenues. In addition, increased competition
and slower than anticipated growth in VA Linux's market could also affect the
combined company's revenue growth. If the combined company's net revenues do not
increase at or above the rate analysts expect, the trading price for its common
stock may decline.

BECAUSE VA LINUX HAS A LIMITED OPERATING HISTORY AND BECAUSE THE MARKET FOR
LINUX-BASED SYSTEMS IS RAPIDLY EVOLVING, VA LINUX MAY NOT ACCURATELY FORECAST
ITS SALES AND REVENUES, WHICH WOULD CAUSE QUARTERLY FLUCTUATIONS IN THE COMBINED
COMPANY'S NET REVENUES AND RESULTS OF OPERATIONS AND MAY RESULT IN VOLATILITY IN
VA LINUX'S STOCK PRICE.

     VA Linux's ability to accurately forecast its quarterly sales and revenues
is made difficult by its limited operating history and the new and rapidly
evolving market for Linux-based systems in general, and VA Linux's products in
particular. In addition, most of VA Linux's operating costs are fixed and based
on VA Linux's revenue expectations. Therefore, if VA Linux has a shortfall in
revenues, it may be unable to reduce its expenses quickly enough to avoid lower
quarterly operating results. During fiscal 1999, VA Linux hired 138 employees,
moved into significantly larger facilities and greatly increased its operating
expenses. In fiscal 2000 VA Linux has continued to add a significant number of
new employees and plans to relocate to larger facilities. VA Linux does not know
whether its business will grow rapidly enough to absorb these costs. As a
result, the combined company's quarterly operating results could fluctuate, and
such fluctuation could adversely affect the market price of its common stock.

     VA Linux's quarterly net revenues and results of operations may vary
significantly in the future due to a number of additional factors, many of which
are outside of VA Linux's control. The primary factors that may cause VA Linux's
quarterly net revenues and results of operations to fluctuate include the
following:

     - demand for and market acceptance of Linux-based systems and VA Linux's
       products and services;

     - increases in manufacturing costs, including the prices of components
       which are used in VA Linux's products;

     - reductions in the sales price of systems offered by VA Linux's or its
       competitors;

     - VA Linux's ability to develop, introduce and market new products and
       product enhancements that meet customer requirements in a timely manner;

                                       19
<PAGE>   24

     - VA Linux's contract manufacturers' ability to manufacture sufficient
       quantities of systems and maintain the quality of VA Linux's systems;

     - VA Linux's contract manufacturers ability to obtain sufficient supplies
       of sole or single source components, including power supplies, backplane
       circuit boards, motherboards and central processing units;

     - the introduction of competing products by larger companies which market
       general or limited purpose servers and computers;

     - the failure of Linux developers to enhance and develop the Linux
       operating system;

     - economic conditions generally and in the specific industries in which VA
       Linux's customers operate; and

     - costs related to acquisitions of complementary technologies or
       businesses.

     Accordingly, you should not rely on the results of any past periods as an
indication of VA Linux's future performance. It is likely that in some future
periods, VA Linux's operating results may be below expectations of public market
analysts or investors. If this occurs, the price of VA Linux's common stock may
drop.

VA LINUX HAS RECENTLY ACQUIRED SEVERAL COMPANIES AND IT MAY NOT BE ABLE TO
SUCCESSFULLY INTEGRATE AND MANAGE THESE COMPANIES.

     VA Linux has recently acquired TruSolutions, Inc., a San Diego, California
company which designs and manufactures high-performance rack-mounted servers and
computers for the internet/intranet, appliance, telecommunications and military
industries, and Net Attach, Inc., a Santa Clara, California company which
provides network attached storage solutions for the PC server market. These two
companies will have 79 employees which must be integrated with VA Linux's
employees. The integration of these employees and the operations of these
companies into VA Linux's business may also require significant resources of VA
Linux including attention of VA Linux's management. We cannot assure you that VA
Linux will be able to successfully integrate the employees and other operations
of these companies into VA Linux's business or that VA Linux will be successful
in managing the operations of these companies. If VA Linux is not able to
successfully integrate and manage the operations of these operations of these
companies, VA Linux's business may be materially harmed.

IF VA LINUX DOES NOT SUCCESSFULLY MANAGE ITS EXPECTED GROWTH, IT MAY NOT BE ABLE
TO SUCCESSFULLY OFFER ITS SERVICES AND GROW ITS BUSINESS.

     VA Linux's ability to successfully offer our services and grow our business
requires an effective planning and management process. Since VA Linux began
operations, it has significantly increased the size of its operations. This
growth will place a significant demand on VA Linux's management and VA Linux's
operational resources. In order to manage growth effectively, in the past six
months, VA Linux has implemented or updated VA Linux's operational and financial
systems, procedures and controls, including the implementation of an enterprise
resource planning system and a web-based ordering system. VA Linux's systems
will continue to require additional modifications and improvements to respond to
future changes in VA Linux's business. VA Linux's key personnel have limited
experience managing this type of growth. If VA Linux cannot manage its growth
effectively or if VA Linux fails to timely implement appropriate internal
systems, procedures, controls and necessary modifications and improvements to
these systems, VA Linux's business will suffer.

                                       20
<PAGE>   25

FURTHER ACQUISITIONS COULD RESULT IN DILUTION TO THE COMBINED COMPANY'S
STOCKHOLDERS, OPERATING DIFFICULTIES AND OTHER HARMFUL CONSEQUENCES FOR THE
COMBINED COMPANY.

     VA Linux expects that the combined company will acquire or invest in
additional businesses, products, services and technologies that complement or
augment its service and product offerings and customer base. VA Linux has
recently acquired TruSolutions and Net Attach. VA Linux and Andover.Net are
currently engaged in discussions with a number of companies regarding strategic
acquisitions or investments. Although these discussions are ongoing, neither VA
Linux nor Andover.Net has signed any definitive agreements and cannot assure you
that any of these discussions will result in actual acquisitions.

     To be successful, the combined company will need to identify suitable
acquisition candidates. In the event of future acquisitions, the combined
company will face additional financial and operational risks, including:

     - difficulty in assimilating the operations, technology and personnel of
       acquired companies;

     - disruption in the combined company's business because of the allocation
       of resources to consummate these transactions and the diversion of
       management's attention from the combined company's core business;

     - difficulty in retaining key technical and managerial personnel from
       acquired companies;

     - dilution of the combined company's stockholders if the combined company
       issues equity to fund these transactions;

     - assumption of operating losses, increased expenses and liabilities;

     - harm to the combined company's reputation if the open source development
       community does not approve of these transactions;

     - the combined company's relationships with existing employees, customers
       and business partners may be weakened or terminated as a result of these
       transactions; and

     - the combined company may experience one-time in-process research and
       development charges and ongoing expenses associated with amortization of
       goodwill and other purchased intangible assets.

IF VA LINUX EXPANDS ITS INTERNATIONAL OPERATIONS, VA LINUX WILL FACE ADDITIONAL
RISKS, WHICH COULD HARM ITS FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     To date, substantially all of VA Linux's net revenues have been derived
from sales of its products in North America. However, VA Linux intends to begin
selling its products overseas during fiscal 2000. VA Linux anticipates that as
it expands its international sales, it will fulfill orders through international
facilities operated by Synnex. VA Linux could experience difficulties and
disruptions in the manufacture of its products while it transitions some
manufacturing operations to these new facilities. VA Linux's inability to scale
manufacturing of its products in foreign facilities, and any manufacturing
delays or disruptions that occur, could prevent VA Linux from increasing
international sales and achieving the timely delivery of products to customers
located in foreign jurisdictions. This could result in lost revenues and slower
revenue growth.

     Additionally, it will be costly to establish international facilities and
operations, promote VA Linux's brand internationally and develop localized web
sites and other systems. VA Linux may be required to develop foreign language
translations of software incorporated into VA Linux's systems. Revenue from
international sales may not offset the expense of establishing and maintaining
these foreign operations. VA Linux has no previous experience with any of these
matters. As VA Linux expands its international

                                       21
<PAGE>   26

operations, it will face a number of additional challenges associated with the
conduct of business overseas. For example:

     - VA Linux may have difficulty managing and administering a
       globally-dispersed business;

     - fluctuations in exchange rates may negatively affect the combined
       company's operating results;

     - VA Linux may encounter greater difficulty in collecting accounts
       receivable resulting in longer collection periods;

     - VA Linux may not be able to repatriate the earnings of its foreign
       operations;

     - VA Linux will have to comply with a wide variety of foreign laws and
       regulatory requirements with which it is not familiar and unexpected
       changes in these laws and requirements; and

     - VA Linux may not be able to adequately protect its trademarks and other
       intellectual property overseas due to the uncertainty of laws and
       enforcement in certain countries relating to the protection of
       intellectual property rights.

VA LINUX'S FUTURE NET REVENUES DEPEND ON CONTINUED SALES OF ITS SERVERS, AND VA
LINUX'S BUSINESS WILL SUFFER IF DEMAND FOR, OR REVENUES FROM, ITS SERVERS
DECLINES.

     Historically, VA Linux has derived a large percentage of its net revenues
from sales of its servers. Sales of VA Linux's servers represented approximately
59% of its net revenues in fiscal 1999 and approximately 89% of its net revenues
in the six-months ended January 28, 2000. VA Linux expects sales of these
servers to continue to account for a substantial majority of its net revenues
for the foreseeable future. Any factors adversely affecting the pricing of, or
demand for, these servers, including increased competition or decreased market
acceptance of Linux systems, could cause VA Linux's net revenues to decline and
its business to suffer.

VA LINUX'S SUCCESS DEPENDS ON DEVELOPING NEW SYSTEMS THAT ACHIEVE MARKET
ACCEPTANCE AND ON THE SUCCESS OF VA LINUX'S PROFESSIONAL SERVICES ORGANIZATION.

     VA Linux develops systems that are optimized to run the Linux operating
system, particularly for use in Internet-related applications. Developing new
products that meet the needs of emerging market segments requires VA Linux to
incur significant research and development expenses and commit substantial
engineering resources. If VA Linux fails to introduce new products that address
the needs of emerging market segments, or if its new systems do not achieve
market acceptance, its future growth and profitability could suffer. VA Linux's
success also depends on customers choosing its professional consulting services
and support over those of its competitors, and its ability to attract and retain
qualified personnel in the area of professional services. If customers do not
select VA Linux's services, or if VA Linux is unable to meet customer demand for
such services, VA Linux's revenues may not grow and may decline, and VA Linux's
business will be harmed.

FAILURE TO MAINTAIN OR INCREASE VA LINUX'S GROSS MARGIN WILL HARM ITS RESULTS OF
OPERATIONS.

     VA Linux's gross margin may be affected by decreases in the average selling
prices of its systems or increased manufacturing costs or increased costs of
providing service revenues. VA Linux has experienced fluctuations in the average
selling prices of its products to date. VA Linux anticipates that as the market
for Linux systems grows, the average unit price of VA Linux's products will
continue to fluctuate and may decrease. The average unit price of VA Linux's
products may also decrease in response to changes in product mix, competitive
pricing pressures, new product introductions by VA Linux's or its competitors or
other factors. If VA Linux is unable to offset a decrease in the average selling
prices of its existing products by developing and introducing products and
services with higher margins or by reducing its product and manufacturing costs,
VA Linux's gross margins will suffer.
                                       22
<PAGE>   27

     To maintain or increase its gross margin, VA Linux also must continue to
reduce the manufacturing cost of its products and the costs of providing
professional services. VA Linux's products incorporate a significant number of
commodity components, and VA Linux's gross margin will fluctuate as a result of
changes in the cost of these components. Component prices can increase for a
number of reasons, including temporary or extended supply shortages. Increases
in VA Linux's manufacturing costs, whether due to increase component costs or
other factors, could seriously harm VA Linux's business. VA Linux has recently
announced its intention to increase the amount of revenues it derives from
professional services. As a result, it has begun hiring additional staff to
provide these services. If VA Linux, is unable to increase professional services
revenues quickly enough, gross margins on these revenues may decline and may
adversely affect VA Linux's overall gross margins.

IF VA LINUX DOES NOT INTRODUCE NEW PRODUCTS AND SERVICES IN A TIMELY MANNER, ITS
PRODUCTS AND SERVICES WILL BECOME OBSOLETE, AND ITS OPERATING RESULTS WILL
SUFFER.

     The computer systems market is characterized by rapid technological change,
frequent new product enhancements, uncertain product life cycles, changes in
customer demands and evolving industry standards. VA Linux's products could be
rendered obsolete if products based on new technologies are introduced or new
industry standards emerge.

     Enterprise computing environments are inherently complex. As a result, we
cannot accurately estimate the life cycles of our products. New products and
product enhancements can require long development and testing periods, which
requires us to hire and retain increasingly scarce, technically competent
personnel. Significant delays in new product releases or significant problems in
installing or implementing new products could seriously damage VA Linux's
business. VA Linux has, on occasion, experienced delays in the scheduled
introduction of new and enhanced products and may experience similar delays in
the future.

     The combined company's future success depends upon its ability to enhance
existing products, develop and introduce new products, satisfy customer
requirements and achieve market acceptance. This process is made more
challenging by the fact that much of the software development for VA Linux's
products is done by the open source community and the combined company must work
with a large number of developers who are not our employees in this process. The
combined company may not successfully identify new product opportunities and
develop and bring new products to market in a timely and cost-effective manner.

VA LINUX'S ABILITY TO INTRODUCE NEW PRODUCTS OR PRODUCT ENHANCEMENTS WILL BE
IMPAIRED IF LINUX DEVELOPERS DO NOT CONTINUE TO ENHANCE THE CORE SOURCE CODE OF
THE LINUX OPERATING SYSTEM AND DEVELOP LINUX-BASED APPLICATIONS.

     The combined company may not be able to introduce new products or product
enhancements on a timely basis unless efforts by Linux developers to expand the
functionality of the Linux operating system continue and are successful. VA
Linux cannot guarantee that these efforts will continue or be successful because
the core of the Linux operating system, or the Linux kernel, is maintained by
third parties. Linus Torvalds, the original developer of the Linux kernel, and a
small group of independent engineers are primarily responsible for the
development and evolution of the Linux kernel. Mr. Torvalds is not an employee
of VA Linux. If Mr. Torvalds and other third-party developers fail to further
develop the Linux kernel or if the development community does not continue to
improve the functionality of the operating system or introduce new open source
software or software enhancements, VA Linux's ability to market its existing and
future Linux products would suffer. In this event, the combined company may also
be forced to rely to a greater extent on its own development efforts or the
development efforts of third-party consultants, which would significantly
increase its costs. Any failure on the part of the Linux kernel developers to
further develop and enhance the Linux kernel could stifle the development of
additional Linux-based applications for use with the combined company's
products, which would harm the combined company's product sales.

                                       23
<PAGE>   28

IF ADDITIONAL SOFTWARE APPLICATIONS COMPATIBLE WITH LINUX ARE NOT DEVELOPED, VA
LINUX'S BUSINESS AND RESULTS OF OPERATIONS WILL BE HARMED.

     VA Linux's products are currently purchased primarily for Internet-related
applications and by research facilities. For Linux, in general, and VA Linux's
products, in particular, to gain acceptance in mainstream business and consumer
markets, more third-party software applications designed to operate on
Linux-based operating systems must be introduced and achieve market acceptance.
Many widely used applications, such as Microsoft Office, Intuit Quicken, Adobe
PhotoShop and others, cannot run natively on Linux operating systems. Many
available Linux applications, such as word processors, databases, accounting
packages, spreadsheets, e-mail programs, Internet browsers, presentation and
graphics software and personal productivity applications, have not achieved
mainstream market acceptance. If third parties do not introduce more software
applications designed to operate on the Linux operating system and achieve
market acceptance, VA Linux products will not gain mainstream business and
consumer acceptance, and VA Linux may not be able to maintain its product sales
growth.

IF THE LINUX DEVELOPER COMMUNITY FAILS TO SUPPORT US OR REACTS NEGATIVELY TO VA
LINUX'S BUSINESS STRATEGY, VA LINUX'S BUSINESS WILL BE HARMED.

     A majority of the software VA Linux uses is developed and maintained by
third parties in the open source software community. If these third parties fail
to support VA Linux for any reason, VA Linux would be forced to rely to a
significantly greater extent on its own development efforts. This would require
VA Linux to hire additional developers and increase its development expenses and
could adversely impact product release schedules. Some members of the open
source software developer community have criticized companies that profit from
open source software. This type of negative reaction by third parties in the
Linux developer community could harm the combined company's reputation, diminish
the combined company's brand and result in lower net revenues.

IF VA LINUX'S SINGLE SOURCE CONTRACT MANUFACTURER IS UNABLE TO MEET VA LINUX'S
MANUFACTURING NEEDS, VA LINUX'S RESULTS OF OPERATIONS WILL BE HARMED.

     VA Linux relies on Synnex Information Technologies, Inc. to produce all of
its products and does not currently intend to qualify any other contract
manufacturer. With the exception of a small internal systems integration and
prototyping facility, VA Linux has relocated its internal manufacturing
organization to Synnex's manufacturing facility in Fremont, California.
Presently, all of VA Linux's manufacturing is done at this one site and, in the
event of a natural disaster, VA Linux's business could be harmed.

     Under VA Linux's agreement with Synnex, Synnex is not obligated to supply
products to VA Linux for any specific period, or in any specific quantity,
except as may be provided in a particular purchase order which has been accepted
by Synnex. If Synnex experiences delays, disruptions, capacity constraints or
quality control problems in its manufacturing operations, then product shipments
to VA Linux's customers could be delayed, which would negatively impact VA
Linux's net revenues and VA Linux's competitive position and reputation.
Moreover, VA Linux's contract with Synnex may be terminated for any reason at
any time by either party upon 120 days advance notice.

     Synnex subleases to VA Linux space in its facilities for VA Linux's
manufacturing operations. If VA Linux's sublease with Synnex terminates, VA
Linux will need to lease additional space for its manufacturing operations,
which may not be available to VA Linux on commercially reasonable terms, if at
all. In addition, VA Linux may need to qualify a new contract manufacturer and
may be unable to find a contract manufacturer that meets VA Linux's needs or
that can source components as cost-effectively as VA Linux's current contract
manufacturer.

     Additionally, qualifying a new contract manufacturer and commencing volume
production is expensive and time consuming. Transferring manufacturing
operations can significantly disrupt product supply. If VA

                                       24
<PAGE>   29

Linux is required or chooses to change contract manufacturers, VA Linux may lose
sales and may experience increased manufacturing or component costs, and its
customer relationships may suffer.

SYNNEX DEPENDS ON SINGLE AND LIMITED SOURCE SUPPLIERS FOR KEY COMPONENTS, WHICH
MAKES VA LINUX SUSCEPTIBLE TO SUPPLY SHORTAGES OR PRICE FLUCTUATIONS THAT COULD
ADVERSELY AFFECT ITS OPERATING RESULTS.

     Synnex, VA Linux's contract manufacturer, depends on single source
suppliers for a number of key components for VA Linux's products, such as
industry standard processors, power supplies, custom printed circuit boards,
chassis and sheet metal parts. It also depends on a limited number of sources to
supply several other industry standard components. For fiscal 2000, Converter
Concepts, Inc. is VA Linux's single source for power supplies used in its FullOn
model of server product and Tyco International for backplane circuit boards,
motherboards and central processing units in its server products. It would be
difficult for VA Linux to identify another source of supply if either of these
suppliers were unable to meet our requirements for any reason. In addition, VA
Linux does not have a long-term binding agreement with either Converter
Concepts, Inc. or Tyco International.

     In the past, Synnex has experienced, and may in the future experience,
shortages of, or difficulties in, acquiring these components. If Synnex is
unable to buy these components in adequate quantities at the times required, the
combined company may not be able to manufacture its products on a timely basis,
which would harm the combined company's operating results. In addition, if
Synnex is required to pay higher prices for these single or limited source
components and the combined company is required to pay higher prices for
products, its gross margin would be harmed. Furthermore, overall market
conditions affecting supply and pricing for key commodity components are known
to fluctuate significantly at times, and increases in the costs of key
components could harm the combined company's business.

IF VA LINUX FAILS TO ACCURATELY PREDICT ITS MANUFACTURING REQUIREMENTS, VA LINUX
COULD INCUR ADDITIONAL COSTS OR EXPERIENCE MANUFACTURING DELAYS.

     VA Linux provides forecasts of its demand to Synnex up to five months prior
to scheduled delivery of products to its customers. If VA Linux overestimates
its requirements, Synnex may have excess inventory, which would increase the
combined company's costs. If VA Linux underestimates its requirements, Synnex
may have inadequate inventory, which could interrupt manufacturing of the
combined company's products and result in delays in shipments and revenues. Lead
times for materials and components VA Linux orders vary significantly and depend
on factors such as the specific supplier, contract terms and demand for each
component at a given time. The combined company may experience shortages of
certain components from time to time, which could delay the manufacturing of the
combined company's products.

VA LINUX MAY NOT BE ABLE TO COMPETE WITH MORE ESTABLISHED COMPANIES.

     In the market for computer systems, VA Linux faces significant competition
from larger companies who market general-purpose computers and have greater
financial resources, more established direct and indirect sales channels and
greater name recognition than VA Linux does. These companies include Compaq
Computer Corporation, Dell Computer Corporation, Fujitsu International, Inc.,
Hewlett-Packard Company, International Business Machines and Sun Microsystems,
Inc. In most cases, these companies primarily sell systems that run proprietary
operating systems, such as Microsoft Windows and variants of UNIX, including
Solaris. These companies also have larger and more established service
organizations to support these products and operating systems. These companies
may be able to leverage their existing organizations, including their service
organizations, and provide a wider offering of products and higher levels of
support on a more cost-effective basis than the combined company can. VA Linux
may not be able to compete successfully with these current or potential
competitors. In addition, these companies may be able to undertake more
extensive promotional activities, adopt more aggressive pricing policies and
offer more attractive terms to their customers than VA Linux can. In addition,
these companies may be able to undertake more extensive promotional activities,
adopt more aggressive pricing policies and offer more

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<PAGE>   30

attractive terms to their customers than the combined company can. VA Linux also
faces competition in narrow, vertical markets from limited purpose computer
vendors that offer products that are carefully tailored for specific
applications which better address the needs of these customers. Furthermore,
because Linux can be downloaded from the Internet for free or purchased at a
nominal cost and modified and re-sold with few restrictions, traditional
barriers to market entry are minimal. Accordingly, it is possible that new
competitors or alliances among existing competitors may emerge and rapidly
acquire significant market share. Any pricing pressures or loss of potential
customers resulting from our failure to compete effectively would reduce the
combined company's revenues. We also may not be able to compete successfully
with these current or potential competitors.

VA LINUX MAY NOT BE ABLE TO EFFECTIVELY COMPETE AGAINST OTHER PROVIDERS OF
LINUX-BASED COMPUTER PRODUCTS OR NEW MARKET ENTRANTS.

     Many large, general-purpose computer vendors, such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM, have recently introduced Linux-based systems.
The systems offered by these companies may have greater functionality and lower
prices than those VA Linux currently provides, making VA Linux's systems less
attractive to its customers. Even if the functionality of the standard features
of these products is equivalent to VA Linux's, VA Linux faces a substantial risk
that a significant number of customers will choose not to purchase products from
a less well-known vendor regardless of the competitiveness of VA Linux's
solutions.

IF VA LINUX IS UNABLE TO PROVIDE HIGH-QUALITY CUSTOMER SUPPORT AND SERVICES, IT
WILL BE UNABLE TO MEET THE NEEDS OF ITS CUSTOMERS. IN ADDITION, VA LINUX'S
PRODUCTS AND SERVICES ARE DEPENDENT UPON THE EFFORTS OF MEMBERS OF THE OPEN
SOURCE COMMUNITY.

     For VA Linux's business to succeed, it must effectively market its
integrated system and service solution. If VA Linux's service organization does
not meet the needs or expectations of customers, it faces an increased risk that
customers will purchase systems from other integrated solution providers or
purchase systems from one vendor and services from a Linux specialist.

     The quality of VA Linux's products and services is dependent on the efforts
and the expertise of members of the open source community. If VA Linux does not
continue to work productively with these members, its ability to provide product
enhancement and quality services will be harmed, which would harm its revenues
and compromise its reputation in the open source community and with customers.

IF VA LINUX FAILS TO RETAIN AND EXPAND ITS CUSTOMER BASE, ITS REVENUES COULD
DECLINE SUBSTANTIALLY.

     VA Linux faces competition from different sources, and VA Linux must
compete effectively against other current and future competitors to retain and
expand its customer base. VA Linux believes the principal factors on which VA
Linux competes include:

     - product functionality;

     - quality and availability of professional services;

     - quality of product and product support;

     - total cost of ownership;

     - system performance at different price points;

     - reusability for multiple applications;

     - sales and distribution efficiency; and

     - brand name recognition.
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<PAGE>   31

     To be competitive, VA Linux must respond promptly and effectively to the
challenges of technological change, evolving standards and VA Linux's
competitors' innovations by continuing to enhance VA Linux's products and grow
VA Linux's sales and professional services organizations. Any pricing pressures
or loss of potential customers resulting from VA Linux's failure to compete
effectively would reduce its revenues.

VA LINUX COULD BE PREVENTED FROM SELLING OR DEVELOPING ITS PRODUCTS IF THE GNU
GENERAL PUBLIC LICENSE (GPL) AND SIMILAR LICENSES UNDER WHICH THE OPERATING
SYSTEM INCORPORATED INTO VA LINUX'S PRODUCTS IS DEVELOPED AND LICENSED ARE NOT
ENFORCEABLE, OR ARE NOT EFFECTIVELY ENFORCED.

     The Linux kernel and the Linux operating system incorporated into VA
Linux's products have been developed and licensed under the GPL and similar open
source licenses. These licenses require that any software program licensed under
them may be copied, used, modified and distributed freely, so long as all
modifications are also freely made available and licensed under the same
conditions. VA Linux knows of no instance in which a party has challenged the
validity of these licenses or in which these licenses have been interpreted in a
legal proceeding. To date, all compliance with these licenses has been
voluntary.

     It is possible that parties may refuse to comply with the terms of these
licenses. One resulting risk is that entities with the legal right to enforce
these licenses against non-complying parties might not be able to enforce these
licenses effectively, because of a lack of financial resources or otherwise.
Even with vigorous enforcement action, it is possible that a court would hold
one or more of these licenses to be unenforceable in the event that someone were
to file a claim asserting proprietary rights in a program developed and
distributed under them. Any ruling by a court that these licenses are not
enforceable, or that Linux-based operating systems, or significant portions of
them, may not be copied, modified, or distributed freely, would have the effect
of preventing us from selling or developing VA Linux's products, unless VA Linux
is able to negotiate a license for the use of the software or replace the
affected portions. In the event that VA Linux obtains this license, VA Linux
would likely be required to make royalty payments with respect to sale of VA
Linux products covered by the license. Any royalty payments would harm VA
Linux's operating results. VA Linux may not be able to obtain this license. In
the event that VA Linux has to replace portions of the software code ourselves,
which could be time consuming and result in higher development costs, the
combined company's operating results would be harmed.

VA LINUX'S BUSINESS WILL BE HARMED IF VA LINUX IS UNABLE TO PROTECT ITS
INTELLECTUAL PROPERTY RIGHTS FROM MISUSE BY THIRD PARTIES.

     VA Linux's collection of trademarks is important to its business. The
protective steps VA Linux takes or has taken may be inadequate to deter
misappropriation of VA Linux's trademark rights. VA Linux has filed applications
for registration of some of its trademarks in the United States. Effective
trademark protection may not be available in every country in which VA Linux
offers or intends to offer its products and services. Failure to protect its
trademark rights adequately could damage VA Linux's brand identity and impair VA
Linux's ability to compete effectively. Furthermore, defending or enforcing VA
Linux's trademark rights could result in the expenditure of significant
financial and managerial resources.

VA LINUX IS VULNERABLE TO CLAIMS THAT ITS PRODUCTS INFRINGE THIRD-PARTY
INTELLECTUAL PROPERTY RIGHTS, ESPECIALLY BECAUSE VA LINUX'S SYSTEMS INCORPORATE
MANY DISTINCT SOFTWARE COMPONENTS DEVELOPED BY THOUSANDS OF INDEPENDENT THIRD
PARTIES. ANY RESULTING CLAIMS AGAINST VA LINUX COULD BE COSTLY TO DEFEND OR
SUBJECT VA LINUX TO SIGNIFICANT DAMAGES.

     VA Linux may be exposed to future litigation based on claims that VA
Linux's products infringe the intellectual property rights of others. This risk
is exacerbated by the fact that most of the code in VA Linux's products is
developed by independent parties over whom VA Linux exercises no supervision or
control and who, themselves, might not have the same financial resources as VA
Linux to pay damages to a successful litigant. For example, developers may
incorporate code into the Linux operating system under

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<PAGE>   32

the GPL without proper third party consents. In addition, these developers are
unlikely to perform patent searches and may therefore unwittingly infringe third
party patent rights. Although most of the software incorporated into VA Linux's
systems is open source, nothing in open source licenses can prevent current or
future patent holders or other owners of intellectual property from suing VA
Linux and others in seeking monetary damages or an injunction against shipment
of VA Linux's systems. A patent holder may deny VA Linux a license or force VA
Linux to pay royalties. In either event, VA Linux's operating results could be
seriously harmed. In addition, employees hired from competitors might utilize
proprietary and trade secret information from their former employers without VA
Linux's knowledge, even though VA Linux's employment agreements and policies
clearly prohibit such practices. Any litigation, with or without merit, could be
time consuming to defend, result in high litigation costs, divert VA Linux's
management's attention and resources, or cause product shipment delays. VA Linux
also could be required to remove or replace infringing technology. VA Linux is
not aware that the technology employed in its systems infringes any proprietary
rights of third parties.

VA LINUX MAY NOT BE ABLE TO USE INTELLECTUAL PROPERTY TO PROTECT ITSELF FROM
COMPETITION.

     VA Linux's systems consist primarily of commodity hardware components in
combination with the Linux operating system. While VA Linux has developed some
proprietary techniques and expertise, most of VA Linux's activities and systems
are not protectable as proprietary intellectual property and may be used by
competitors, harming the combined company's market share and product revenues.
To protect VA Linux's intellectual property, VA Linux generally enters into
confidentiality or license agreements with its employees, consultants and
corporate partners. VA Linux has also recently commenced a patent program and to
date has filed one patent application. In general, however, VA Linux has taken
only limited steps to protect its intellectual property. Accordingly, VA Linux
may be unable to use intellectual property to prevent other companies from
competing with it. In addition, VA Linux may be unable to prevent third parties
from developing techniques that are similar or superior to VA Linux's
technology, or from designing around VA Linux's copyrights, patents and trade
secrets.

THE COMBINED COMPANY MAY BE SUBJECT TO CLAIMS AS A RESULT OF INFORMATION
PUBLISHED ON, POSTED ON OR ACCESSIBLE FROM ITS INTERNET SITES.

     The combined company may be subject to claims for defamation, negligence,
copyright or trademark infringement (including contributory infringement) or
other claims relating to the information contained on its Internet sites,
whether written by VA Linux, Andover.Net or third parties. These types of claims
have been brought against online services in the past and can be costly to
defend regardless of the merit of the lawsuit. Although recent federal
legislation protects online services from some claims when the material is
written by third parties, this protection is limited. Furthermore, the law in
this area remains in flux and varies from state to state. VA Linux receives
notification from time to time of potential claims, but has not been named as a
party to litigation involving such claims. In the event that a claim is made
against the combined company in the future, the combined company's business
could be seriously harmed if one were asserted.

DEVELOPING VA LINUX'S BRAND IS CRITICAL TO ITS SUCCESS.

     VA Linux believes that it needs a strong brand to compete successfully. In
order to promote and maintain its brand identity and to attract and retain
customers, VA Linux plans to increase its spending on advertising and promotions
and to implement new marketing campaigns. These strategies may not be
successful. If VA Linux is unable to design and implement effective marketing
campaigns or otherwise fails to promote and maintain its brand, the combined
company's sales could decline. VA Linux's business may also be harmed if it
incurs significant expenses in an attempt to promote and maintain its brand
without a corresponding increase in revenues. Linus Torvalds owns the trademark
to "Linux." Mr. Torvalds has consented informally to VA Linux's use of the word
Linux in VA Linux's company name and in the title of VA Linux's web sites, but
has not executed a formal agreement. This informal
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<PAGE>   33

consent may be revoked in the future, however, and the combined company may no
longer be able to use this trademark in its brand or in the title of its web
sites. In this event, the combined company's product sales would decline, and it
would incur significant costs to promote a new brand name, which takes time and
may not be successful.

THE COMBINED COMPANY'S FUTURE SALES AND MARKET SHARE DEPENDS ON EXPANSION OF ITS
DIRECT SALES OPERATIONS AND E-COMMERCE INITIATIVES.

     To date, VA Linux has relied primarily on its direct sales force to
generate demand for its products. Many of VA Linux's products require a
sophisticated sales effort targeted at its prospective customers' information
technology departments. In order to increase market awareness and sales of VA
Linux's products, VA Linux will need to substantially expand its direct sales
operations, both domestically and internationally. Competition for qualified
sales personnel is intense, and the combined company might not be able to hire
the quality and number of sales people it requires. In addition, VA Linux has
devoted significant resources to implementing e-commerce solutions, such as VA
Linux's valinux.com web site, that broaden VA Linux's market reach and intend to
deploy more e-commerce solutions. If VA Linux fails to effectively expand its
direct sales operations or strengthen its e-commerce initiatives, VA Linux's
growth will be limited.

EXPANDING VA LINUX'S SERVICES BUSINESS WILL BE COSTLY AND MAY NOT RESULT IN ANY
BENEFIT TO VA LINUX.

     VA Linux believes that the expansion of both VA Linux's business and the
acceptance of Linux are dependent upon the availability of high quality
professional services to assist customers in designing and implementing
Linux-based systems. If VA Linux is unable to successfully provide these
services, the combined company's business will be harmed. VA Linux has recently
expanded its strategic focus to place additional emphasis on providing
professional services, from which VA Linux has historically derived an
insignificant amount of revenue. VA Linux's customers may not engage VA Linux's
professional services organization to render services such as architecture and
planning, system integration, open source product implementation and security
consulting services. VA Linux may not attract or retain a sufficient number of
the highly qualified service personnel it needs to support the expansion of its
professional services organization. This expansion has required, and will
continue to require, significant additional expenses and resources. VA Linux may
not generate sufficient services revenues to offset these expenses. In addition,
the need for these resources will place further strain on VA Linux's management
and operational resources.

VA LINUX'S REVENUE GROWTH DEPENDS ON VA LINUX'S ABILITY TO HIRE AND RETAIN
STAFF.

     VA Linux intends to hire a significant number of additional support, sales,
marketing, research and development, and other personnel during fiscal 2000.
Competition for these individuals is intense, and VA Linux may not be able to
attract, assimilate or retain highly qualified personnel. VA Linux's future
success and ability to sustain VA Linux's revenue growth also depend upon the
continued service of VA Linux's executive officers and other key engineering,
sales, marketing and support personnel. Competition for qualified personnel in
VA Linux's industry and in the San Francisco Bay Area, as well as the other
geographic markets in which VA Linux recruits, is extremely intense and
characterized by rapidly increasing salaries, which may increase VA Linux's
operating expenses or hinder VA Linux's ability to recruit qualified candidates.

IF MULTIPLE AND INCOMPATIBLE COLLECTIONS OF THE LINUX OPERATING SYSTEM ACHIEVE
SUFFICIENT MARKET ACCEPTANCE, VA LINUX'S OPERATING EXPENSES COULD INCREASE AND
DEMAND FOR VA LINUX'S PRODUCTS COULD DECLINE.

     If multiple, incompatible versions of Linux are developed, customers may
become less likely to purchase Linux products, and VA Linux's sales would
suffer. In addition, should multiple and incompatible versions of Linux achieve
sufficient market acceptance, VA Linux may be required to offer
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<PAGE>   34

and support more distributions of Linux. This would result in increased
operating expenses. Alternatively, if VA Linux sold and supported a single Linux
distribution that was not the predominant Linux distribution, VA Linux's sales
and revenue growth would suffer.

VA LINUX'S MANAGEMENT TEAM IS NEW AND, IF THEY ARE UNABLE TO WORK TOGETHER
EFFECTIVELY, VA LINUX'S BUSINESS COULD BE SERIOUSLY HARMED.

     VA Linux's business is highly dependent on the ability of its management
team to work together effectively to meet the demands of VA Linux's growth. VA
Linux grew from 15 employees at July 31, 1998 to 208 employees at January 28,
2000. Only two members of VA Linux's current management team were employed by VA
Linux at the end of fiscal 1998. These individuals have not previously worked
together as a management team and have had only limited experience managing a
rapidly growing company on either a public or private basis. VA Linux's
productivity and the quality of the products and services VA Linux renders may
be adversely affected if VA Linux does not integrate and train its new employees
quickly and effectively.

IF THE LINUX OPERATING SYSTEM DOES NOT CONTINUE TO GAIN MARKET ACCEPTANCE, VA
LINUX WOULD NOT BE ABLE TO SUSTAIN ITS REVENUE GROWTH AND ITS BUSINESS COULD
FAIL.

     For the foreseeable future, VA Linux expects that substantially all of its
revenues will be derived from sales of systems that run the Linux operating
system and the provision of services and support for these systems. The Linux
operating system has only recently gained broad market acceptance. This
acceptance has been mostly limited to Internet infrastructure applications and
scientific research environments. VA Linux's success depends on the continued
and increased rate of adoption of Linux in these and other markets. If this does
not occur, VA Linux's business would suffer.

     Even if Linux is widely accepted, the Linux operating system is an open
source software product, which users are licensed to freely copy, use, modify
and distribute. Accordingly, anyone may download the Linux operating system and
numerous related software applications from the Internet, or otherwise copy,
without cost and run it on an existing Linux compatible product. VA Linux's
success depends on customers purchasing new systems which integrate and are
optimized to run the Linux operating system.

VA LINUX DEPENDS ON THE CONTINUED SERVICES OF ITS FOUNDERS AND OTHER KEY
ENGINEERING PERSONNEL, WHOSE KNOWLEDGE OF VA LINUX'S BUSINESS AND TECHNICAL
EXPERTISE WOULD BE DIFFICULT TO REPLACE.

     VA Linux's products and technologies are complex, and VA Linux is
substantially dependent upon the continued services of its existing engineering
personnel and executive management, especially Larry M. Augustin, VA Linux's
President and Chief Executive Officer. Aside from certain individuals from
Andover.Net, the combined company will not have employment contracts with any of
its key engineering personnel, so that the employment of any key engineer may be
terminated "at will" by such individual. The loss of any, or a group of, VA
Linux's key engineering personnel, particularly to a competitor, could adversely
affect VA Linux's business, reduce VA Linux's market share, slow VA Linux's
product development processes and diminish VA Linux's brand identity.

VA LINUX'S PRODUCTS MAY CONTAIN DEFECTS THAT COULD BE COSTLY TO CORRECT, DELAY
MARKET ACCEPTANCE OF ITS PRODUCTS AND EXPOSE VA LINUX TO LITIGATION.

     Despite testing by VA Linux and its customers, errors may be found in VA
Linux's products after commencement of commercial shipments. VA Linux buys
almost all of its component hardware parts from third parties. These parts may
fail, cause unexpected electrical or mechanical problems or otherwise not
function properly. In addition, most of the software code in VA Linux's products
is developed by independent parties over whom VA Linux exercises no supervision
or control. If errors are discovered, VA Linux may have to make significant
expenditures of capital to eliminate them and yet may not be able to

                                       30
<PAGE>   35

correct them in a timely manner, if at all. Errors and failures in VA Linux's
products could result in a loss of, or delay in, market acceptance of VA Linux's
products and could damage VA Linux's reputation and VA Linux's ability to
convince commercial users of the benefits of products incorporating Linux-based
operating systems and other open source software products.

     Failures in VA Linux's products could also cause system failures, including
in critical business systems, for VA Linux's customers who may assert warranty
and other claims for substantial damages against VA Linux. Although VA Linux's
warranties typically contain provisions designed to limit VA Linux's exposure to
potential product liability claims, it is possible that these provisions may not
be effective or enforceable under the laws of some jurisdictions. VA Linux's
insurance policies may not provide sufficient coverage to adequately limit its
exposure to this type of claim. These claims, even if unsuccessful, could be
costly and time consuming to defend.

VA LINUX COULD FACE ADDITIONAL BURDENS ASSOCIATED WITH GOVERNMENT REGULATION OF,
AND LEGAL UNCERTAINTIES SURROUNDING, THE INTERNET.

     If the popularity and acceptance of the Internet as an effective medium of
commerce does not continue to grow or declines, the combined company's product
sales and revenue growth will be harmed. VA Linux is significantly dependent on
the Internet to process the sale of VA Linux's products. In January 2000,
substantially all of VA Linux's sales were processed through its valinux.com web
site. VA Linux is also planning on deploying enhanced e-commerce applications to
foster closer relationships with VA Linux's customers, facilitate Internet-based
ordering and tracking, and sales processing. As the use of the Internet
continues to evolve, increased regulation by federal, state or foreign agencies
in areas including user privacy, pricing, content, and quality of products and
services becomes more likely. VA Linux's e-commerce activities might subject VA
Linux to the jurisdiction of the legal systems of other countries. Taxation of
Internet commerce, or other charges imposed by government agencies or by private
organizations, may also be imposed. Laws and regulations applying to the
solicitation, collection, processing of personal or consumer information could
also be enacted. Any of these regulations could result in a decline in the use
or popularity of the Internet as a medium for commerce, which could have an
adverse effect on the combined company's future sales and revenue growth.

BOTH VA LINUX AND ANDOVER.NET RELY ON THE GROWTH OF THE LINUX/OPEN SOURCE
MOVEMENT.

     The combined company's business relies on growth in the use of Linux and
other open source operating systems. Generally, this software is provided for
free or for less than $100. If the open source community of third-party software
developers does not continue to improve the functionality of the Linux operating
system, or fails to introduce new open source software or software enhancements,
or develops predominantly expensive, proprietary software, the use of these
operating systems may not increase and our business, results of operations and
financial condition will suffer.

IF VA LINUX IS PROHIBITED FROM USING THE LINUX TRADEMARK, ITS BUSINESS COULD BE
ADVERSELY AFFECTED.

     Like many other companies, VA Linux markets Linux-based products, systems
and services. VA Linux does not own the trademark to "Linux." The owner has
consented to VA Linux's use of the word Linux in VA Linux's company name and in
the title of VA Linux's web sites. VA Linux believes that the continued efficacy
and use of the "Linux" trademark is important to VA Linux's business. If the
"Linux" trademark is invalidated through a legal action, or VA Linux is no
longer permitted to use it, VA Linux's business could suffer. In addition, VA
Linux cannot control the use of this trademark, and use by others may lead to
confusion about the source, quality, reputation and dependability of Linux,
which may harm VA Linux's business.

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NEGATIVE REACTION WITHIN THE OPEN SOURCE COMMUNITY TO THE COMBINED COMPANY'S
BUSINESS STRATEGY COULD HARM ITS REPUTATION AND BUSINESS.

     Some members of the open source community have criticized the
commercialization of the open source movement through activities such as
licensing proprietary versions of open source software, providing services to
the users of open source software and selling advertisements to companies that
seek access to the user group that visits web sites dedicated to open source
software. Andover.Net currently provides and the combined company will continue
to provide services to the users of open source software and sells
advertisements on its web sites. A negative reaction to the combined company's
actions, if widely shared by the combined company's visitors or the rest of the
open source community, could harm the combined company's reputation and diminish
the combined company's brand. The combined company's business, results of
operations and financial condition could suffer accordingly.

THE COMBINED COMPANY MAY FAIL TO DEVELOP AND PROMOTE ITS NETWORK EFFECTIVELY,
WHICH MAY PREVENT IT FROM ATTRACTING NEW VISITORS AND ADVERTISERS TO ITS
NETWORK.

     Enhancing its network is critical to Andover.Net's ability to increase its
revenue because Andover.Net delivers services and content to users through its
network, and Andover.Net displays advertisements on its network. The combined
company intends to enhance its network by internally creating and externally
acquiring additional complementary web sites. Some of the content currently on
Andover.Net's web sites is developed by Andover.Net. Other content is developed
by third parties and posted on its network. In order to attract and retain
Internet users and advertisers, the combined company intends to substantially
increase its expenditures to further promote and develop its network. The
combined company's success in developing and promoting its network will also
depend on its ability to provide high quality content, features and
functionality. If the combined company fails to promote its network successfully
or if visitors to the combined company's network or advertisers do not perceive
the combined company's services to be useful, current or of high quality, the
combined company's business, results of operations and financial condition could
suffer.

VA LINUX AND ANDOVER.NET ARE VULNERABLE TO UNEXPECTED NETWORK INTERRUPTIONS
CAUSED BY SYSTEM FAILURES, WHICH MAY RESULT IN REDUCED VISITOR TRAFFIC ON THEIR
NETWORKS, DECREASED REVENUE AND HARM TO THE COMBINED COMPANY'S REPUTATION.

     Substantially all of the combined company's communications hardware and
other hardware related to Andover.Net's and VA Linux's web sites will be located
in two locations. Fire, floods, hurricanes, tornadoes, earthquakes, power loss,
telecommunications failures, break-ins and similar events could damage these
systems. In addition, the combined company's servers are vulnerable to computer
viruses, electronic break-ins, human error and other similar disruptive problems
which could adversely affect its systems and web sites. The combined company
could lose revenue and suffer damage to its reputation if any of these
occurrences affected its systems because the combined company would have
decreased visitor traffic on its network. The combined company's insurance
policies may not adequately compensate us for any losses that may occur due to
failures or interruptions in its systems.

THE COMBINED COMPANY'S SYSTEMS MAY FAIL OR EXPERIENCE A SLOWDOWN AND ITS USERS
DEPEND ON OTHERS FOR ACCESS TO THE COMBINED COMPANY'S NETWORK.

     The combined company's network must accommodate a high volume of traffic
and deliver frequently updated information. Andover.Net's network has in the
past, and the combined company's network may in the future, experience slower
response times or decreased traffic for a variety of reasons. Slower response
times can result from general Internet problems, routing and equipment problems
by third-party Internet access providers, problems with third-party advertising
servers and increased traffic to the combined company's servers. Andover.Net's
network could experience interruptions in service due to the failure or delay in
the transmission or receipt of this information. In addition, the combined
company's community

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of Internet users depends on Internet service providers, online service
providers and other web sites' operators for access to the combined company's
network. Those providers have experienced outages in the past, and may
experience outages or delays in the future. Moreover, the combined company's
Internet infrastructure might not be able to support continued growth of its
network. If the combined company experiences any of these problems, its
reputation and brand name could suffer, users might perceive its network as not
functioning properly and its business, results of operations and financial
condition could suffer.

REGULATION COULD REDUCE THE VALUE OF THE COMBINED COMPANY'S DOMAIN NAMES WHICH
WOULD HARM THE COMBINED COMPANY'S BRAND RECOGNITION.

     Both VA Linux and Andover.Net own numerous domain names both in the United
States and internationally. These domain names are important because they allow
visitors to locate the companies' web sites and build brand recognition.
Internet regulatory bodies regulate domain names. The regulation of domain names
in the United States and in foreign countries is subject to change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names. As a
result, the combined company might not acquire or maintain its domain names in
all the countries in which it conducts business, which could harm its business.
Furthermore, the relationship between regulations governing domain names and
laws protecting trademarks and similar proprietary rights is unclear and still
evolving. Therefore, the combined company might be unable to prevent third
parties from acquiring domain names that infringe or otherwise decrease the
value of the combined company's trademarks and other proprietary rights. If this
occurs, its business, results of operations and financial condition would
suffer.

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                           FORWARD-LOOKING STATEMENTS

     Some statements contained in this proxy statement/prospectus regarding
future financial performance and results and other statements that are not
historical facts are forward-looking statements. These statements relate to,
among other things, the merger, future capital expenditures, cost reductions,
cash flows and operating results. The words "expect," "project," "estimate,"
"predict," "anticipate," "believe," "plan," "intend," and similar expressions
are also intended to identify forward-looking statements. These statements are
subject to numerous risks, uncertainties and assumptions, including but not
limited to:

     - general business and economic conditions in our operating regions,
       including the rate of inflation, population, employment and job growth in
       our markets;

     - pricing pressures and other competitive factors;

     - results of our efforts to reduce costs;

     - our ability to achieve operating improvements;

     - conditions to the consummation of the merger, including regulatory
       approval, which could affect the timing of the merger;

     - our estimates of cash balances and working capital, as they relate to the
       calculation of the merger consideration;

     - legal proceedings; and

     - changes in state or federal legislation or regulations.

     Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. VA Linux and Andover.Net do not undertake to update forward-looking
information contained in this proxy statement/prospectus to reflect actual
results, changes in assumptions or changes in other factors affecting the
forward-looking information. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated in, contemplated by or implied by such
statements.

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                        THE ANDOVER.NET SPECIAL MEETING

DATE, TIME AND PLACE

     Andover.Net's board of directors is soliciting the enclosed proxy to be
used at a special meeting of stockholders to be held on June   , 2000, at 10:00
a.m. local time, or at any adjournment or postponement of the meeting. The proxy
will be used for the purposes described in this proxy statement/prospectus and
in the accompanying notice of special meeting. The meeting will be held at the
offices of Hutchins, Wheeler & Dittmar, A Professional Corporation, 101 Federal
Street, Boston, Massachusetts 02110. Andover.Net intends to mail this proxy
statement/prospectus and accompanying notice of special meeting and proxy card
on or about May   , 2000 to all stockholders entitled to vote at the meeting.
The costs of soliciting proxies will be borne by Andover.Net, subject to the
provisions of the reorganization agreement relating to the payment of expenses.
Andover.Net has retained Corporate Investor Communications for a fee of $4,500.
Additionally, regular employees or representatives of Andover.Net (none of whom
will receive extra compensation for their activities) may also solicit proxies
by telephone, telecopier and in person and arrange for brokerage houses and
other custodians, nominees and fiduciaries to send proxies and proxy materials
to their principals at the request of Andover.Net.

PURPOSE

     The purpose of the meeting is to vote upon a proposal to approve and adopt
the reorganization agreement and to approve the merger and to vote on a proposal
to amend the Andover.Net 1999 Stock Option Plan.

RECORD DATE AND OUTSTANDING SHARES

     Only holders of record of Andover.Net common stock at the close of business
on April 3, 2000 will be entitled to notice of and to vote at the meeting. At
the close of business on that date, Andover.Net had outstanding and entitled to
vote 16,003,627 shares of common stock. Each record holder of common stock will
be entitled to one vote for each share held.

VOTE REQUIRED

     Approval and adoption of the reorganization agreement and approval of the
merger and the reorganization agreement will require the affirmative vote of the
holders of a majority of the voting power of Andover.Net entitled to vote at the
special meeting. Approval and adoption of the amendment to the Andover.Net 1999
Stock Option Plan will require the affirmative vote of a majority of shares of
Andover.Net common stock present or represented and entitled to vote at the
special meeting. The persons named as proxy holders on the proxy card will vote
your shares as you indicate on the card. If you return your signed proxy card
without specifying on the proxy card how to vote your shares, the proxy holders
will vote your shares in favor of the reorganization agreement and the merger
and approval of the amendment to the option plan. The inspector of election
appointed for the meeting will separately tabulate affirmative and negative
votes and abstentions.

     The Andover.Net's Bylaws provide that stockholders holding a majority of
the outstanding shares of the corporation entitled to vote on the record date
and represented by person or by proxy shall constitute a quorum at meetings of
stockholders. Shares that are voted "FOR," "AGAINST" or "WITHHELD" on a matter
are treated as being present at the meeting for purposes of establishing a
quorum and are also treated as "entitled to vote on the subject matter" (the
"Votes Cast") at the special meeting with respect to such matter.

     While there is no definitive statutory or case law authority in Delaware as
to the proper treatment of abstentions, Andover.Net believes that abstentions
should be counted for purposes of determining the

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<PAGE>   40

presence or absence of a quorum for the transaction of business and the total
number of Votes Cast with respect to a particular matter (other than the
election of directors). In the absence of controlling precedent to the contrary,
Andover.Net intends to treat abstentions in this manner. Accordingly,
abstentions will have the same effect as a vote against the reorganization and
the merger and the amendment to the option plan.

     In a 1988 Delaware case, Berlin v. Emerald Partners, the Delaware Supreme
Court held that while broker non-votes may be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
broker non-votes should not be counted for purposes of determining the number of
Votes Cast with respect to the particular proposal on which the broker has
expressly not voted. Broker non-votes with respect to proposals set forth in
this Proxy Statement will therefore not be considered "Votes Cast" and,
accordingly, (1) will be treated as a vote against the reorganization agreement
and the merger and (2) will not affect the determination as to whether the
requisite majority of Votes Cast has been obtained with respect to the amendment
of the option plan.

     Directors, executive officers and certain significant stockholders of
Andover.Net, who as of April 3, 2000 together owned a total of approximately
41.8% of the outstanding shares of Andover.Net common stock, have entered into
voting agreements and have agreed to vote in favor of the merger and approval of
the increase to the number of shares reserved for issuance under the Andover.Net
1999 Stock Option Plan. In order to receive the required number of votes to
approve and adopt the reorganization agreement and approve the merger, holders
of approximately 15% of Andover.Net common stock, who are not parties to the
voting agreements, must vote their shares in favor of the reorganization
agreement and the merger.

PROXIES

     You may revoke your proxy before it is voted by filing with Andover.Net's
corporate secretary a written notice of revocation or a duly executed proxy
bearing a later date. You may also revoke your proxy by attending the meeting
and voting in person. Attending the meeting will not, by itself, revoke a proxy.

UNANIMOUS RECOMMENDATION OF ANDOVER.NET BOARD OF DIRECTORS

     The Andover.Net board of directors has approved the reorganization
agreement and the transactions contemplated by the reorganization agreement and
has determined that the merger is fair to, and in the best interests of,
Andover.Net and its stockholders. AFTER CAREFUL CONSIDERATION, THE ANDOVER.NET
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF APPROVAL AND ADOPTION OF
THE REORGANIZATION AGREEMENT AND APPROVAL OF THE MERGER.

     The Andover.Net board of directors has approved the amendment to the
Andover.Net 1999 Stock Option Plan. AFTER CAREFUL CONSIDERATION, THE ANDOVER.NET
BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN FAVOR OF THE APPROVAL OF THE
AMENDMENT TO OUR 1999 STOCK OPTION PLAN.

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<PAGE>   41

                                   THE MERGER

BACKGROUND OF THE MERGER

     On January 4, 2000, Derek Carroll, Vice President, Business Development of
Andover.Net and Brian Biles, Vice President, Marketing of VA Linux held a
telephone conference on the viability of establishing a strategic relationship
for advertising on the two companies' websites. They discussed the basics of the
advertising relationship.

     On January 7, 2000, representatives of WR Hambrecht + Co., Andover.Net's
underwriters from its initial public offering, met with Mr. Carroll at
Andover.Net's offices and discussed several acquisition strategies including the
possibility of being acquired by VA Linux. Following his discussions with WR
Hambrecht + Co, Mr. Carroll spoke with Mr. Biles on a previously scheduled
telephone conference regarding the advertising relationship. During this call,
Mr. Biles broached the topic of the two companies working together other than in
a purely advertising relationship and Mr. Carroll expressed interest in further
discussions.

     On January 12, 2000, Mr. Carroll, Mr. Biles and Larry M. Augustin,
President, Chief Executive Officer and director of VA Linux met in Sunnyvale,
California to discuss a possible acquisition of Andover.Net by VA Linux.

     At the subsequent VA Linux board of directors meeting on January 12, 2000,
Mr. Augustin summarized the opportunity for VA Linux to acquire Andover.Net. At
this board meeting, Mr. Augustin described the business of Andover.Net to the
board, the potential benefits to VA Linux and the possible risks of the
acquisition. After a discussion of the preliminary terms and issues, the board
of directors authorized management to continue discussions with Andover.Net and
to retain Credit Suisse First Boston as a financial advisor in connection with
the proposed acquisition.

     On January 13, 2000, Todd B. Schull, VA Linux's Vice President, Finance and
Chief Financial Officer engaged Credit Suisse First Boston to act as VA Linux's
financial advisor in connection with the proposed acquisition.

     On January 14, 2000, Mr. Schull presented Mr. Carroll of Andover.Net with a
proposed form of confidentiality agreement. Following legal review, the parties
executed a confidentiality agreement on January 14, 2000 with respect to the
exchange of information between the two companies during discussions relating to
a possible acquisition. The confidentiality agreement also contained a non-
solicitation clause which prohibited each company from soliciting for employment
an employee of the other company from one year from the date of the
confidentiality agreement and a standstill provision which prohibited specific
actions with respect to the securities of the other company and extraordinary
transactions with the other company for two years from the date of the
confidentiality agreement.

     On January 14, 2000, senior executives of VA Linux and its legal and
financial advisors met in Palo Alto, California to develop a timeline for the
proposed transaction.

     On January 15 through January 17, 2000, VA Linux's financial advisor
circulated drafts of a non-disclosure agreement to Andover.Net and the legal
advisor to Andover.Net. The parties negotiated and executed a non-disclosure
agreement on January 18, 2000, making the agreement effective January 14.

     On January 18, 2000, Mr. Biles and Mr. Schull, together with their
investment bankers from Credit Suisse First Boston, met with Bruce Twickler,
Andover.Net's President and Chief Executive Officer, Peter Phelps, Andover.Net's
Chief Financial Officer, Mr. Carroll and Adam Green, Andover.Net's Chief
Technical Officer, as well as representatives from WR Hambrecht + Co in Boston
to further discuss proposed terms for VA Linux to acquire Andover.Net.

                                       37
<PAGE>   42

     While in Boston, on January 18, 2000, Mr. Schull, Mr. Biles and
representatives from Credit Suisse First Boston conducted due diligence of
Andover.Net. The parties continued to discuss senior management roles,
integration and consideration.

     On January 19, 2000, the board of directors of Andover.Net held a meeting
at which Mr. Twickler and Mr. Carroll informed the board of the recent
discussions with VA Linux regarding a proposed transaction and reviewed the
proposed term sheet with WR Hambrecht + Co. The Andover.Net board agreed to
retain WR Hambrecht + Co to provide financial advisory services with respect to
a potential transaction. Additionally, the Andover.Net board appointed Mr.
Twickler and directors Jonathan Goldstein and Louis Page to serve as a
negotiating committee of the board with respect to the potential transaction.
The board asked Mr. Carroll to invite representatives from VA Linux to address
the board the following week.

     From January 20 to January 24, 2000, the parties continued negotiations
regarding the terms of a proposed transaction. On January 25, 2000, Mr.
Augustin, Mr. Schull, Mr. Biles, Mr. Hall and representatives from Credit Suisse
First Boston, met with the Andover.Net board of directors in Boston, reviewed
the terms of the proposed transaction, presented financial data with respect to
the proposed transaction and proposed a revised term sheet. There were further
discussions between Credit Suisse First Boston and WR Hambrecht + Co regarding
process and the financial aspects of a potential transaction. Outstanding issues
relating to the term sheet were clarified, and VA Linux agreed to pay a portion
of the merger consideration in cash.

     On January 29 through January 31, 2000, representatives of VA Linux
assembled and provided to Andover.Net due diligence information requested by
Andover.Net.

     Attorneys for VA Linux prepared and delivered to Andover.Net and its
advisors a draft of the reorganization agreement on January 30, 2000.

     On January 31, 2000, the VA Linux board of directors met to review the
status of recent discussions with Andover.Net. The board of directors authorized
management to continue discussions with Andover.Net.

     From January 31, 2000 to February 2, 2000, the parties and their attorneys
negotiated the terms of the reorganization agreement.

     On January 31 through February 2, 2000, representatives of VA Linux
conducted legal and financial due diligence at the offices of Andover.Net's
attorneys' in Boston.

     On February 2, 2000, the Andover.Net board of directors met and discussed
the terms of the proposed transaction. WR Hambrecht + Co presented materials
reviewing the offer from VA Linux. In addition, at the meeting WR Hambrecht + Co
provided its opinion that the exchange ratio pursuant to the reorganization
agreement was, as of that date, fair from a financial point of view to holders
of Andover.Net common stock. The board engaged in a discussion of the merits of
the proposed transaction, including the financial terms, operating fit, long
term strategic value and the risks of the proposal. Based on the material
presented and the discussion, the board unanimously approved the proposed
transaction with VA Linux and the reorganization agreement and unanimously
resolved that the Andover.Net stockholders approve the reorganization agreement,
the certificate of merger and the transactions contemplated thereby. The board
authorized Mr. Twickler to conduct final negotiations and to execute the
definitive reorganization agreement with VA Linux.

     At a VA Linux board of directors meeting on February 2, 2000, VA Linux's
legal advisors further discussed the principal terms of the reorganization
agreement and related agreements. Representatives of Credit Suisse First Boston
reviewed financial analyses relating to the proposed merger. Following
discussion, including a review of the potential benefits and risks to VA Linux,
the VA Linux board unanimously approved the reorganization agreement and the
certificate of merger and the transactions contemplated thereby.
                                       38
<PAGE>   43

     On February 2, 2000, the reorganization agreement, including the disclosure
schedules, the voting agreements and the affiliate agreements were executed
following final negotiations.

     Before the opening of trading on February 3, 2000, VA Linux and Andover.Net
publicly announced the transaction in a joint press release.

     From February through April 2000, the parties worked together to prepare a
registration statement on Form S-4, including the proxy statement/prospectus.

     In early April 2000, the parties and their respective advisors determined
that there was a substantial likelihood that the transaction as structured would
not be considered a tax free reorganization. On April 13, 2000, Messrs.
Twickler, Carroll and Augustin discussed possible ways to restructure the
transaction.

     On April 18, 2000 Messrs. Twickler, Carroll and Augustin as well as
representatives of WR Hambrecht + Co and Credit Suisse First Boston met in
person or telephonically at Andover.Net's offices to discuss various proposals.
Andover.Net representatives proposed that the consideration paid to the
Andover.Net stockholders be solely shares of VA Linux common stock at an
exchange ratio of 0.50. VA Linux representatives proposed that the consideration
paid to the Andover.Net stockholders be solely shares of VA Linux common stock
at an exchange ratio of 0.410. The Andover.Net board of directors met that
evening to discuss the proposals and directed WR Hambrecht + Co to negotiate
further on various points while the board considered the matter.

     On April 19, 2000 the Andover.Net board of directors met and determined to
propose consideration to be paid solely in shares of VA Linux common stock at an
exchange ratio of 0.425 per share, together with amendments to the affiliate
agreements. WR Hambrecht + Co delivered this proposal to Credit Suisse First
Boston.

     For the next several days, the parties continued to discuss amending the
reorganization agreement. On April 24, 2000, the VA Linux board of directors
authorized management to continue negotiations for amending the reorganization
agreement and approved an all-stock transaction at an exchange ratio of 0.425 of
a share of VA Linux common stock for each issued and outstanding share of
Andover.Net common stock.

     The Andover.Net board of directors met on April 25, 2000 in the morning to
discuss the proposal for amending the reorganization agreement. Counsel for
Andover.Net then contacted counsel for VA Linux to confirm the proposed
amendment. The Andover.Net board of directors met again in the evening at which
WR Hambrecht + Co. presented materials reviewing the amended reorganization
agreement. In addition, at the meeting, WR Hambrecht + Co provided its opinion
that the exchange ratio pursuant to the amended and restated reorganization
agreement was, as of that date, fair from a financial point of view to holders
of Andover.Net common stock. The board unanimously approved and adopted the
amended and restated reorganization agreement.

     The parties executed the Amended and Restated Reorganization Agreement and
issued a press release on April 26, 2000.

VA LINUX'S REASONS FOR THE MERGER

     VA Linux's board of directors has determined that the terms of the merger
and the reorganization agreement are fair to, and in the best interests of, VA
Linux and its stockholders. Accordingly, VA Linux's board of directors has
approved the reorganization agreement and the consummation of the merger.

     In reaching its decision to approve the reorganization agreement and
recommend the merger, the VA Linux board of directors consulted with VA Linux's
management, as well as its legal counsel and financial advisor. During these
discussions, the VA Linux board of directors identified several potential
benefits of the merger, the most important of which included:

     - to expand VA Linux's leadership position in the rapidly growing market
       for Linux-based and open source solutions in hardware, software,
       consulting and other services;

                                       39
<PAGE>   44

     - to compete more effectively by providing VA Linux with enhanced ability
       to develop new products and greater functionality for existing products,
       including leveraging the open source developer community;

     - to respond more quickly and effectively to technological change,
       increased competition and market demands in an industry experiencing
       rapid innovation and change;

     - increase the opportunity for (a) effectively utilizing the skills and
       resources of the companies' respective management teams and (b) matching
       the respective "corporate cultures" of the two companies while
       maintaining some of the most important aspects of each culture; and

     - accelerate VA Linux's business model and result in higher non-hardware
       gross margin opportunities.

     VA Linux's board of directors also identified and considered a variety of
potential negative factors in its deliberations concerning the merger,
including, but not limited to:

     - the risk to VA Linux's stockholders that the value to be received by
       Andover.Net stockholders in the merger could increase significantly due
       to the fixed exchange ratio;

     - the risk that the potential benefits sought in the merger might not be
       fully realized;

     - the ability of Andover.Net, under certain circumstances to negotiate with
       other companies regarding an alternative transaction; and

     - the possibility that the merger might not be consummated.

     Among other factors considered by VA Linux's board in its deliberations
were the following:

     - historical information concerning VA Linux's and Andover.Net's respective
       financial performance, results of operations, assets, liabilities,
       operations, technology, management and competitive position, including
       public reports for each company filed with the Securities and Exchange
       Commission;

     - VA Linux's management's view of the financial condition, results of
       operations, businesses and prospects of the combined company after giving
       effect to the merger;

     - current market conditions and historical trading information with respect
       to VA Linux and Andover.Net common stock;

     - comparable merger transactions in the Linux market and other
       technology-based industries;

     - the terms and conditions of the reorganization agreement and the voting
       agreements and the percentage of Andover.Net shares represented by the
       stockholders who signed the voting agreements; and

     - the expectation that the merger will be accounted for as a purchase.

     After due consideration, VA Linux's board of directors believed that the
overall risks associated with the proposed merger were outweighed by the
potential benefits of the merger. VA Linux's board of directors does not intend
the foregoing discussion of information and factors to be exhaustive but
believes the discussion to include the material factors that it considered. In
view of the complexity and wide variety of information and factors, both
positive and negative, that it considered, VA Linux's board of directors did not
find it practical to quantify or otherwise assign relative or specific weights
to the factors considered. However, after taking into consideration all of the
factors set forth above, VA Linux's board of directors concluded that the
reorganization agreement and merger were fair to, and in the best interests of,
VA Linux and its stockholders and that VA Linux should proceed with the merger.

                                       40
<PAGE>   45

ANDOVER.NET'S REASONS FOR THE MERGER

     The Andover.Net board of directors has determined unanimously that the
terms of the reorganization agreement and the merger are fair to, and in the
best interests of, Andover.Net and its stockholders. Accordingly, the
Andover.Net board of directors has approved the reorganization agreement and
recommends that you vote for approval of the reorganization agreement and the
transactions contemplated by the reorganization agreement, including the merger.

     In reaching its decision to approve the reorganization agreement and
recommend the merger, the Andover.Net board of directors consulted with
Andover.Net's management, as well as its legal counsel and financial advisor.
During these discussions, the Andover.Net board of directors identified several
potential benefits of the merger, the most important of which included:

     - Andover.Net stockholders will have the opportunity to participate in the
       potential for growth of the combined company after the merger;

     - the combined company will be able to provide a full range of Linux-based
       solutions, including servers, software and support the resources of the
       open source community;

     - greater diversification of business model;

     - the exchange ratio in the merger represented a premium of approximately
       48.6% over the average stock price ratio over the trading period
       beginning on December 9, 1999 and ending on April 24, 2000, the day prior
       to delivery of the WR Hambrecht + Co fairness opinion; and

     - by combining with VA Linux, Andover.Net stockholders will alleviate the
       difficulty of increasing Andover.Net's public stock price due to limited
       public float and limited daily trading volume, and they will be afforded
       substantially increased trading liquidity for their investment.

     Among the factors considered by Andover.Net's board of directors in its
deliberations were the following:

     - historical information concerning VA Linux's and Andover.Net's respective
       financial performance, results of operations, assets, liabilities,
       operations, technology, management and competitive position, including
       public reports of VA Linux;

     - the complementary nature of the companies' product offerings across a
       range of products and possible synergies from combining VA Linux and
       Andover.Net;

     - Andover.Net's management's view of the financial condition, results of
       operations, assets, liabilities, businesses and prospects of VA Linux and
       Andover.Net after giving effect to the merger;

     - current market conditions and historical trading information with respect
       to VA Linux and Andover.Net's common stock;

     - valuations paid in comparable merger transactions, including Red Hat's
       acquisition of Cygnus and VA Linux's acquisition of TruSolutions;

     - the terms and conditions of the reorganization agreement, including the
       expected tax-free treatment to Andover.Net stockholders;

     - the analysis prepared by Andover.Net's financial advisor, WR Hambrecht +
       Co, and presented to the Andover.Net board of directors and the written
       opinion of WR Hambrecht + Co that, as of the date Andover.Net and VA
       Linux signed the reorganization agreement, the exchange ratio was fair,
       from a financial point of view, to Andover.Net stockholders, as described
       more fully in the text of the entire opinion attached to this document as
       Appendix B;

     - the expectation that the merger will be accounted for as a purchase;

                                       41
<PAGE>   46

     - VA Linux's operational history and its demonstrated ability to compete in
       the market for Linux-based solutions; and

     - the ability of Andover.Net's board of directors to enter into discussions
       with another party in response to an unsolicited superior offer to the
       merger if Andover.Net's directors believed in good faith, after
       consultation with its legal counsel, that such action was required in
       order to comply with its fiduciary obligations.

     In the course of deliberations, Andover.Net's board of directors also
considered the fairness to Andover.Net of the terms of the reorganization
agreement, a copy of which is attached to this document as Appendix A, which was
the product of extensive arm's-length negotiations. In particular, Andover.Net's
board of directors considered the events triggering payment of the termination
fee and the limitations on the ability of Andover.Net to negotiate with other
companies regarding an alternative transaction, and the potential effect these
provisions would have on Andover.Net receiving alternative proposals that could
be superior to the merger. Because Andover.Net's board of directors conducted an
extensive review of its strategic alternatives prior to entering into the
reorganization agreement, and because these provisions were required by VA Linux
for it to enter into the reorganization agreement, Andover.Net's board of
directors determined that the value for Andover.Net's stockholders represented
by the merger justified these requirements.

     Andover.Net's board of directors also identified and considered a variety
of potential negative factors in its deliberations concerning the merger,
including, but not limited to:

     - the risk to Andover.Net stockholders that the value of the VA Linux
       common stock to be received in the merger could decline significantly due
       to the fixed exchange ratio;

     - the loss of control over the future operations of Andover.Net following
       the merger and the potential impact of VA Linux's executive management
       being located in California;

     - the impact of the loss of Andover.Net's status as an independent company
       on Andover.Net stockholders, employees, clients and the members of the
       open source community participating on Andover.Net's websites;

     - the risk that the potential benefits sought in the merger might not be
       fully realized;

     - the possibility that the merger might not be consummated and the
       potential adverse effects of the public announcement of the merger on:

       - Andover.Net's advertising revenue and operating results;

       - Andover.Net's ability to attract and retain key employees; and

       - Andover.Net's overall competitive position.

     After due consideration, Andover.Net's board of directors believed that
Andover.Net could avoid or mitigate some of these risks, and that overall, the
risks associated with the proposed merger were outweighed by the potential
benefits of the merger.

     Andover.Net's board of directors does not intend the foregoing discussion
of information and factors to be exhaustive but believes the discussion to
include all of the material factors that it considered. In view of the
complexity and wide variety of information and factors, both positive and
negative, that it considered, Andover.Net's board of directors did not find it
practical to quantify or otherwise assign relative or specific weights to the
factors considered. In the light of the foregoing factors, the Andover.Net board
of directors decided that it is in the best interests of Andover.Net and its
stockholders to combine Andover.Net with VA Linux at this time.

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<PAGE>   47

OPINION OF WR HAMBRECHT + CO, FINANCIAL ADVISOR TO ANDOVER.NET

     Pursuant to an engagement letter dated January 20, 2000, as amended as of
April 25, 2000 (the "WRH+Co Engagement Letter"), Andover.Net engaged WR
Hambrecht + Co ("WRH+Co") to act as financial advisor and render an opinion as
to the fairness, from a financial point of view, of the consideration to be
received by the stockholders of Andover.Net common stock, other than VA Linux or
any of its affiliates. At the April 25, 2000 meeting of the Andover.Net board,
WRH+Co delivered its oral opinion to the Andover.Net board, subsequently
confirmed in a written opinion dated April 25, 2000 (the "WRH+Co Opinion"), to
the effect that, based upon and subject to various considerations set forth in
such opinion, as of April 25, 2000, the consideration to be received by the
stockholders of Andover.Net pursuant to the merger is fair to such stockholders,
from a financial point of view. No limitations were imposed by the Andover.Net
board upon WRH+Co with respect to investigations made or procedures followed by
WRH+Co in rendering the WRH+Co Opinion.

     THE FULL TEXT OF THE WRH+CO OPINION, WHICH SETS FORTH ASSUMPTIONS MADE,
PROCEDURES FOLLOWED, MATTERS CONSIDERED, LIMITATIONS ON AND SCOPE OF THE REVIEW
BY WRH+CO IN RENDERING THE WRH+CO OPINION, IS ATTACHED TO THIS PROXY
STATEMENT/PROSPECTUS AS APPENDIX B HERETO AND IS INCORPORATED BY REFERENCE
HEREIN. THE WRH+CO OPINION IS DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION
TO ANDOVER.NET FROM A FINANCIAL POINT OF VIEW, HAS BEEN PROVIDED TO THE
ANDOVER.NET BOARD IN CONNECTION WITH ITS EVALUATION OF THE MERGER, DOES NOT
ADDRESS ANY OTHER ASPECT OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION
TO ANY HOLDER OF ANDOVER.NET COMMON STOCK AS TO HOW TO VOTE AT THE ANDOVER.NET
SPECIAL MEETING. THE SUMMARY OF THE WRH+CO OPINION SET FORTH IN THIS PROXY
STATEMENT/ PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF SUCH OPINION. HOLDERS OF ANDOVER.NET COMMON STOCK ARE URGED TO READ THE
WRH+CO OPINION CAREFULLY AND IN ITS ENTIRETY.

     In conducting its investigation and analysis and in arriving at the WRH+Co
Opinion, WRH+Co reviewed such information and took into account such financial
and economic factors as it deemed relevant under the circumstances. In that
connection, WRH+Co, among other things:

     - reviewed certain internal information, primarily financial in nature,
       including projections, concerning the business and operations of
       Andover.Net and VA Linux, furnished to it for purposes of its analysis,
       as well as publicly available information, including but not limited to
       Andover.Net's and VA Linux's recent filings with the Securities and
       Exchange Commission and equity analyst research reports prepared by
       various investment banking firms;

     - reviewed the draft reorganization agreement, as amended, in the form
       presented to Andover.Net's board;

     - compared the historical market prices and trading activity of
       Andover.Net's and VA Linux's common stock with those of certain other
       publicly traded companies WRH+Co deemed relevant;

     - compared the financial position and operating results of Andover.Net and
       VA Linux with those of other publicly traded companies WRH+Co deemed
       relevant;

     - compared the proposed financial terms of the merger with the financial
       terms of certain other transactions WRH+Co deemed relevant;

     - held discussions with members of Andover.Net's and VA Linux's respective
       senior managements concerning Andover.Net's and VA Linux's historical and
       current financial condition and operating results, as well as the future
       prospects of Andover.Net and VA Linux; and

     - considered such other information, financial studies, analysis and
       investigations and financial, economic and market criteria which it
       deemed relevant for the preparation of its opinion.

     In connection with its review, WRH+Co did not assume any obligation
independently to verify the foregoing information and has relied on such
information as being accurate and complete in all material

                                       43
<PAGE>   48

respects. With respect to the financial forecasts for Andover.Net and VA Linux
provided to WRH+Co by their respective managements, upon their advice and with
Andover.Net's consent WRH+Co assumed for purposes of the WRH+Co Opinion that the
forecasts have been reasonably prepared on bases reflecting the best available
estimates and judgments of their respective managements at the time of
preparation as to the future financial performance of Andover.Net and VA Linux
and that they provide a reasonable basis upon which WRH+Co can form its opinion.

     WRH+Co also assumed that there have been no material changes in
Andover.Net's or VA Linux's assets, financial condition, results of operations,
business or prospects since the respective dates of their last financial
statements made available to it. WRH+Co relied on advice of counsel and
independent accountants to Andover.Net as to all legal and financial reporting
matters with respect to Andover.Net, the merger and the reorganization
agreement.

     WRH+Co assumed that the merger will be consummated in a manner that
complies in all respects with the applicable provisions of the Securities Act of
1933 (the "Securities Act"), the Securities Exchange Act of 1934 and all other
applicable federal and state statutes, rules and regulations.

     In addition, WRH+Co did not assume responsibility for reviewing any patent
applications, technology license agreements, individual credit files, etc. or
making an independent evaluation, appraisal or physical inspection of any of the
assets or liabilities (contingent or otherwise) of Andover.Net or VA Linux, nor
has it been furnished with any such appraisals. Andover.Net informed WRH+Co, and
WRH+Co assumed, that the merger will be recorded as a purchase under generally
accepted accounting principles. Finally, the WRH+Co Opinion is based on
financial, economic, monetary and market and other conditions as in effect on,
and the information made available to us as of April 25, 2000.

     Accordingly, although subsequent developments may affect this opinion,
WRH+Co has not assumed any obligation to update, revise or reaffirm this
opinion.

     The following summarizes the significant financial analyses performed by
WRH+Co and reviewed with the Andover.Net board on April 25, 2000 in connection
with the delivery of the WRH+Co Opinion:

     Andover.Net Common Stock Performance. WRH+Co reviewed the closing prices
and trading volumes of Andover.Net common stock from December 8, 1999 (the date
following Andover.Net's initial public offering) to April 24, 2000. During the
period from December 8, 1999 to April 24, 2000, the high closing price for
Andover.Net common stock was $77.50 per share and the low closing price was
$10.125 per share. The price per share of Andover.Net Common Stock to be paid
pursuant to the reorganization agreement (based on the Exchange Ratio of 0.425
and the closing price of VA Linux common stock on April 24, 2000 of $37.625 per
share) of $15.99 (the "Implied Price") represented a premium of 27.9% based on
the April 24, 2000 closing price of $12.50 per share of Andover.Net common
stock.

<TABLE>
<CAPTION>
                                                                            TRANSACTION
                                                            STOCK PRICE   PREMIUM/DISCOUNT
                                                            -----------   ----------------
<S>                                                         <C>           <C>
Implied Price (as of 4/24/00).............................    $15.99             0.0%
Closing Price (as of 4/24/00).............................    $12.50            27.9%
High Closing Price (12/8/99 - 4/24/00)....................    $77.50           (79.4)%
Low Closing Price (12/8/99 - 4/24/00).....................    $10.13            57.9%
</TABLE>

                                       44
<PAGE>   49

     VA Linux Common Stock Performance. WRH+Co reviewed the closing prices and
trading volumes of VA Linux Common Stock from December 9, 1999 (the date of VA
Linux's initial public offering) to April 24, 2000. During the period from
December 9, 1999 to April 24, 2000, the high closing price for VA Linux Common
Stock was $242.875 per share and the low closing price was $28.94 per share.

<TABLE>
<CAPTION>
                                                              STOCK PRICE
                                                              -----------
<S>                                                           <C>
Closing Price (as of 4/24/00)...............................   $ 37.625
High Closing Price (12/9/99 - 4/24/00)......................   $242.875
Low Closing Price (12/9/99 - 4/24/00).......................   $  28.94
</TABLE>

     Historical Stock Price Ratio Analysis. WRH+Co reviewed the ratios
determined by dividing the closing prices of Andover.Net common stock by the
closing prices of VA Linux common stock (the "Stock Price Ratio") for a range of
periods prior to and including April 24, 2000. Such analysis indicated that for
the period beginning with the VA Linux initial public offering and ending April
24, 2000 the average Stock Price Ratio was 0.286, for the 60 days ending April
24, 2000 the average Stock Price Ratio was 0.347, for the 30 days ending April
24, 2000 the average Stock Price Ratio was 0.351, for the 25 days ending April
24, 2000 the average Stock Price Ratio was 0.352, for the 15 days ending April
24, 2000 the average Stock Price Ratio was 0.358, and for the 5 days ending
April 24, 2000 the average Stock Price Ratio was 0.349. As of the closing prices
on April 24, 2000, the Stock Price Ratio was 0.332.

<TABLE>
<CAPTION>
                                                              AVERAGE STOCK
                                                               PRICE RATIO
                                                              -------------
<S>                                                           <C>
Transaction Stock Price Ratio...............................      0.425
April 24, 2000 Closing Prices...............................      0.332
Five trading days ending April 24, 2000.....................      0.349
Fifteen trading days ending April 24, 2000..................      0.358
Twenty-five trading days ending April 24, 2000..............      0.352
Thirty trading days ending April 24, 2000...................      0.351
Sixty trading days ending April 24, 2000....................      0.347
December 9, 1999 - April 24, 2000...........................      0.286
</TABLE>

     Analysis of Selected Publicly Traded Comparable Companies and Selected
Comparable Transactions. VA Linux's $37.625 per share stock price (closing price
as of April 24, 2000) implies an enterprise value for Andover.Net of $211.0
million and multiples of 55.5x for the ratio of enterprise value to revenue for
the twelve months ending December 31, 1999 ("LTM Revenue"), 14.6x for the ratio
of enterprise value to calendar year 2000 estimated revenue and 6.2x for the
ratio of enterprise value to calendar year 2001 estimated revenue. These
multiples were compared to those of publicly traded comparable companies,
including Andover.Net, Cobalt Networks and VA Linux, (as of April 24, 2000) that
have average multiples of 35.6x for the ratio of enterprise value to LTM
Revenue, 13.3x for the ratio of enterprise value to calendar year 2000 estimated
revenue and 7.0x for the ratio of enterprise value to calendar year 2001
estimated revenue. An analysis of comparable precedent transactions, including
Red Hat's acquisition of Cygnus and VA Linux's acquisition of TruSolutions,
yields an average ratio of enterprise value to LTM Revenue of 46.3x.

<TABLE>
<CAPTION>
                                                        ENTERPRISE VALUE/REVENUES
                                                         (AS OF APRIL 24, 2000)
                                            -------------------------------------------------
                                                         ESTIMATED             ESTIMATED
                                             LTM     CALENDAR YEAR 2000    CALENDAR YEAR 2001
                                            -----    ------------------    ------------------
<S>                                         <C>      <C>                   <C>
Implied Transaction Price.................  55.5x          14.6x                  6.2x

Andover.Net...............................  28.7x           9.7x                  4.1x
Cobalt Networks...........................  39.3x          14.7x                  7.8x
VA Linux..................................  38.6x          15.6x                  9.2x
                                            -----          -----                  ----
     Average..............................  35.6x          13.3x                  7.0x
                                            =====          =====                  ====
</TABLE>

                                       45
<PAGE>   50

     Contribution Analysis. Based on public filings, press releases and other
publicly available information of both companies, VA Linux is issuing shares
representing 13.6% of the combined company on a fully diluted basis. Based on
calendar year 1999 results, Andover.Net would have contributed 7.5% of combined
revenue of $50.9 million and 37.4% of combined gross profit of $7.2 million.
Andover.Net is expected to contribute $14.4 million to projected calendar year
2000 revenue, or 10.5% of the total combined company's estimated revenue of
$137.6 million. Without considering synergies, Andover.Net is expected to
contribute 34.8% of the combined company's $29.6 million in estimated gross
profit for calendar year 2000.

<TABLE>
<CAPTION>
                                                     CONTRIBUTION ANALYSIS ($ IN MILLIONS)
                                                     -------------------------------------
                                                           1999                2000E
                                                     ----------------    -----------------
<S>                                                  <C>       <C>       <C>        <C>
Revenue
  Andover.Net......................................  $ 3.8       7.5%    $ 14.4      10.5%
  VA Linux.........................................   47.1      92.5      123.2      89.5
                                                     -----     -----     ------     -----
Total..............................................  $50.9     100.0%     137.6     100.0%
Gross Profit
  Andover.Net......................................  $ 2.7      37.4%    $ 10.3      34.8%
  VA Linux.........................................    4.5      62.6       19.3      65.2
                                                     -----     -----     ------     -----
Total..............................................  $ 7.2     100.0%    $ 29.6     100.0%
</TABLE>

     Pro Forma Merger Analysis. WRH+Co's analysis of the merger, based on
Andover.Net management's projections that include $5.8 million in estimated
pre-tax synergies for calendar year 2000 and $13.1 million in estimated pre-tax
synergies for calendar year 2001, shows the transaction to be accretive to
Andover.Net revenue per share.

     WRH+Co's analysis of the merger, based on Andover.Net management's
projections that include $5.8 million in estimated pre-tax synergies for
calendar year 2000 and $13.1 million in estimated pre-tax synergies for calendar
year 2001, shows the transaction to be accretive to VA Linux revenue per share.

     In arriving at its opinion, WRH+Co performed a variety of financial
analyses, the material portions of which are summarized above. The preparation
of a fairness opinion is a complex process involving various determinations as
to the most appropriate and relevant methods of financial analyses and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not necessarily susceptible to a partial analysis or summary
description. In arriving at its opinion, WRH+Co did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to significance and relevance of each analysis and factor.
Accordingly, WRH+Co believes that its analysis must be considered as a whole and
that selecting portions of its analysis, without considering all such analyses,
could create an incomplete view of the process underlying the WRH+Co Opinion.

     In performing its analyses, WRH+Co relied on numerous assumptions made by
the respective managements of Andover.Net and VA Linux and made numerous
judgments of its own with regard to industry performance, general business and
economic conditions and other matters, many of which are beyond the control of
Andover.Net and VA Linux. Actual values will depend upon several factors,
including changes in interest rates, dividend rates, market conditions, general
economic conditions and other factors that generally influence the price of
securities. The analyses performed by WRH+Co are not necessarily indicative of
actual values or actual future results, which may be significantly more or less
favorable than suggested by such analyses. Such analyses were prepared solely as
a part of WRH+Co's analysis of the fairness of the consideration to Andover.Net
from a financial point of view and were provided to the Andover.Net board in
connection with the delivery of the WRH+Co Opinion. The analyses do not purport
to be appraisals or necessarily reflect the prices at which businesses or
securities might actually be sold, which are inherently subject to uncertainty.
Since such estimates are inherently subject to uncertainty, none of Andover.Net,
VA Linux, WRH+Co or any other person assumes responsibility for their accuracy.

     With regard to the comparable public company analysis and the comparable
transactions analysis summarized above, WRH+Co selected comparable public
companies on the basis of various factors;

                                       46
<PAGE>   51

however, no public company or transaction utilized as a comparison is identical
to Andover.Net or the merger. Accordingly, an analysis of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition or
public trading value of the comparable companies and transactions to which
Andover.Net and the merger are being compared. In addition, as described above,
the WRH+Co Opinion and the information provided by WRH+Co to the Andover.Net
board were two of many factors taken into consideration by the Andover.Net board
in making its determination to approve the merger. Consequently, the WRH+Co
analyses described above should not be viewed as determinative of the opinion of
the Andover.Net board or the view of Andover.Net management with respect to the
value of VA Linux.

     As part of its investment banking activities, WRH+Co is regularly engaged
in the evaluation of businesses and their securities in connection with mergers
and acquisitions, restructurings and valuations for corporate or other purposes.
In the past, WRH+Co has provided investment banking services to Andover.Net for
which services WRH+Co has received customary fees. WRH+Co has acted as financial
advisor to Andover.Net in connection with the merger and will receive a fee for
its services, including rendering the WRH+Co Opinion, a significant portion of
which is contingent upon the consummation of the merger. In the ordinary course
of its business, WRH+Co actively trades the equity securities of Andover.Net and
VA Linux for its own account and for the accounts of customers and, accordingly,
may at any time hold a long or short position in such securities. WRH+Co has
also acted as an underwriter in connection with offerings of securities of
Andover.Net and performed various investment banking services for Andover.Net.
Additionally, WRH+Co owns less than 0.3% of VA Linux through an affiliated
company. The manager of WRH+Co's investment in VA Linux did not participate in
advising Andover.Net with regards to the merger and played no role in the
preparation or delivery of the WRH+Co Opinion.

     Pursuant to the terms of the WRH+Co Engagement Letter, WRH+Co was retained
by Andover.Net as its exclusive financial advisor and to render an opinion to
the Andover.Net board with respect to the merger. Under the WRH+Co Engagement
Letter, Andover.Net has paid WRH+Co fairness opinion fees of $400,000 and
$350,000 to be credited against the Transaction Fee (as defined below). Upon
consummation of the merger, Andover.Net has agreed to pay WRH+Co a transaction
fee (the "Transaction Fee") equal to 0.625% of the Aggregate Transaction Value
(as defined below) paid in the merger. If, in connection with the termination or
abandonment of the merger during the term of the WRH+Co Engagement Letter or
within six months thereafter, Andover.Net receives any so-called "termination,"
"break-up," "topping," or similar fee (including any characterized as expense
reimbursement and any judgment for damages or amount of settlement of any
dispute as a result of any termination or other failure to consummate the
merger), a termination fee equal to 20% of all such fees or profits shall be
payable in cash to WRH+Co promptly upon receipt of any such compensation by
Andover.Net. For purpose of the WRH+Co Engagement Letter, "Aggregate Transaction
Value" shall mean the amount of consideration received by Andover.Net and/or its
stockholders (treating any shares issuable upon exercise of options, warrants or
other rights of conversion as outstanding), plus the amount of any debt assumed,
acquired, remaining outstanding, retired or defeased or preferred stock redeemed
or remaining outstanding in connection with the Transaction, including, in the
case of a sale or other disposition by Andover.Net of assets, the net value of
any assets not sold by Andover.Net. In the event that a sale is structured so as
to provide for existing stockholders of Andover.Net to retain all or part of
their equity securities, such retained securities shall be deemed to constitute
part of the Aggregate Transaction Value and shall be valued immediately
following the closing of the sale. For purposes of computing the Aggregate
Transaction Value, equity securities traded on a national securities exchange or
quoted on the Nasdaq National Market shall be valued at the last closing price
thereof prior to the closing of the sale. Andover.Net has also agreed to
reimburse WRH+Co for reasonable expenses incurred by WRH+Co and to indemnify
WRH+Co and its affiliates, counsel and other professional advisors, and their
respective directors, officers, controlling persons, agents and employees
against certain liabilities and expenses, including certain liabilities under
the federal securities laws, relating to or arising out of such engagement.

                                       47
<PAGE>   52

ACCOUNTING TREATMENT

     The merger will be accounted for as a "purchase" transaction for accounting
and financial reporting purposes, in accordance with generally accepted
accounting principles. After the merger, the results of operations of
Andover.Net will be included in the consolidated financial statements of VA
Linux. The purchase price will be allocated based on the fair values of the
assets acquired and the liabilities assumed. Any excess of cost over fair value
of the net tangible assets of Andover.Net acquired will be recorded as goodwill
and other intangible assets and will be amortized by charges to operations under
U.S. generally accepted accounting principles. These allocations will be made
based upon valuations and other studies that have not yet been finalized.

MATERIAL FEDERAL INCOME TAX CONSEQUENCES

     The following is a summary description of the material U.S. federal income
tax consequences of the merger that generally are applicable to holders of
Andover.Net common stock exchanging such stock for VA Linux common stock,
assuming that the merger is effected pursuant to applicable state law and as
described in the merger agreement and in this proxy statement/prospectus. This
summary is not a comprehensive description of all of the tax consequences that
may be relevant to you. For example, we have not described tax consequences that
arise from rules that apply to some classes of taxpayers. We also have not
described tax consequences that generally are assumed to be known by investors.

     The following discussion is based on and subject to the Internal Revenue
Code of 1986, as amended, the regulations promulgated under the Internal Revenue
Code, and existing administrative rulings and court decisions, all as in effect
as of the date of this proxy statement/prospectus and all of which are subject
to change, possibly with retroactive effect. This discussion is also based on
assumptions, limitations, representations and covenants, including those
contained in certificates of VA Linux, Atlanta Acquisition Corp. and
Andover.Net. You should not rely upon this discussion if any of the factual
assumptions or representations are, or later become, inaccurate.

     In addition, this discussion assumes stockholders hold their shares of
Andover.Net common stock as a capital asset and does not address all U.S.
federal income tax consequences that may be relevant to you in light of your
particular circumstances or if you are a person subject to special rules, such
as rules applicable to:

     - banks and other financial institutions;

     - tax-exempt organizations and pension funds;

     - insurance companies;

     - dealers or traders in securities;

     - Andover.Net stockholders who received their Andover.Net common stock
       through the exercise of employee stock options or similar derivative
       securities or otherwise as compensation;

     - Andover.Net stockholders who are subject to alternative minimum tax
       provisions of the Internal Revenue Code;

     - Andover.Net stockholders whose functional currency is not the U.S.
       dollar;

     - Andover.Net stockholders who are not citizens or residents of the U.S.;
       and

     - Andover.Net stockholders who held Andover.Net common stock as part of a
       hedge, straddle or conversion transaction.

     The discussion does not address any consequences arising under the laws of
any state, locality or foreign jurisdiction. The discussion also does not
discuss the tax consequences of an exchange or conversion of options or warrants
for Andover.Net common stock into options or warrants for VA Linux common stock.

                                       48
<PAGE>   53

     Completion of the merger is conditioned on the receipt by VA Linux of an
opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation, VA
Linux's tax counsel, and the receipt by Andover.Net of an opinion from Hutchins,
Wheeler & Dittmar, A Professional Corporation, Andover.Net's tax counsel,
stating that the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Alternatively, this condition also
will be satisfied upon the delivery to VA Linux and Andover.Net of such tax
opinion of either Wilson Sonsini Goodrich & Rosati, Professional Corporation or
Hutchins, Wheeler & Dittmar, A Professional Corporation. These opinions will be
based upon the existing law and the continuing truth and accuracy of the
representations of Andover.Net, VA Linux and Atlanta Acquisition Corp. described
above, and will be subject to certain assumptions and qualifications, including
the assumption that the merger will be effected pursuant to applicable state law
and otherwise completed according to the terms of the reorganization agreement.
The tax opinions neither bind the Internal Revenue Service or the courts nor
preclude them from adopting a contrary position, and it is possible that the
Internal Revenue Service may assert successfully a contrary position in
litigation or other proceeding. Neither VA Linux nor Andover.Net intends to
obtain a ruling from the Internal Revenue Service with respect to the tax
consequences of the merger.

     Counsel to VA Linux and Andover.Net have stated in writing to VA Linux and
Andover.Net, respectively, their respective views that the discussion in the
five bullet points below fairly presents the material current U.S. federal
income tax consequences of the merger, based upon the opinions of counsel
described above and the foregoing assumptions:

     - no gain or loss will be recognized by VA Linux or Andover.Net as a result
       of the merger;

     - you will not recognize gain or loss on the exchange of your Andover.Net
       common stock for shares of VA Linux common stock in the merger (except
       with respect to cash received instead of a fractional share of VA Linux
       common stock);

     - if you receive cash instead of a fractional share of VA Linux common
       stock, you will, in general, recognize capital gain or loss equal to the
       difference, if any, between the cash amount you receive and the portion
       of your adjusted tax basis in your Andover.Net common stock allocable to
       the fractional share; this gain will be long-term capital gain or loss
       for U.S. federal income tax purposes if your holding period in the
       Andover.Net common stock deemed to have been exchanged for the fractional
       share of VA Linux common stock is more than one year at the time the
       merger is completed;

     - the aggregate tax basis of VA Linux common stock that you receive in the
       merger will be the same as the aggregate tax basis of Andover.Net common
       stock that you surrender in exchange therefore, reduced by any amount of
       tax basis allocable to a fractional share of VA Linux common stock for
       which cash is received; and

     - the holding period of VA Linux common stock that you receive will include
       the holding period of shares of Andover.Net common stock that you
       surrender in exchange.

     Even if the merger qualifies as a reorganization, you could recognize gain
to the extent that shares of VA Linux common stock are considered to be received
in exchange for services or property. All or a portion of such gain may be
taxable as ordinary income.

     If the Internal Revenue Service successfully challenges the status of the
merger as a tax-free reorganization, you would recognize taxable gain or loss
with respect to each share of Andover.Net common stock surrendered equal to the
difference between your tax basis in such share and the fair market value, as of
the completion of the merger, of the VA Linux common stock received in exchange
therefor. In such event, your aggregate basis in the VA Linux common stock so
received would equal its fair market value as of the effective time of the
merger, and your holding period for such stock would begin the day after the
merger.

     TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON YOUR PARTICULAR SITUATION. YOU ARE ENCOURAGED TO CONSULT YOUR
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX

                                       49
<PAGE>   54

CONSEQUENCES OF THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE
APPLICABILITY OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF
ANY PROPOSED CHANGE IN THE TAX LAWS. THIS DISCUSSION IS NOT INTENDED TO BE A
COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL TAX CONSEQUENCES OF THE
MERGER.

DELISTING AND DEREGISTRATION OF ANDOVER.NET COMMON STOCK

     If the merger is completed, the shares of Andover.Net common stock will be
delisted from the Nasdaq National Market and will be deregistered under the
Securities Exchange Act of 1934, as amended. The stockholders of Andover.Net
will become stockholders of VA Linux, and their rights as stockholders will be
governed by VA Linux's restated certificate of incorporation, VA Linux's bylaws
and the laws of the State of Delaware. See "Comparison of Rights of Stockholders
of Andover.Net and VA Linux".

LISTING OF VA LINUX COMMON STOCK TO BE ISSUED IN THE MERGER

     It is a condition to the consummation of the merger that the shares of VA
Linux common stock to be issued in the merger and the shares of VA Linux common
stock to be reserved for issuance be authorized for listing on the Nasdaq
National Market.

CONDUCT OF THE BUSINESS IF THE MERGER IS NOT COMPLETED

     If the merger is not consummated, Andover.Net will carry on its business in
the usual, regular and ordinary course, consistent with past practice.

REGULATORY COMPLIANCE

     A certificate of merger must be filed on behalf of VA Linux, Atlanta
Acquisition Corp. and Andover.Net with the Secretary of State of Delaware in
order to effect the merger. A copy of the certificate of merger is attached
hereto as Appendix C.

     Under the Hart-Scott-Rodino Improvements Act and the rules that have been
promulgated under the act, acquisitions of a sufficient size may not be
consummated unless information has been furnished to the Antitrust Division of
the U.S. Department of Justice and to the FTC and applicable waiting period
requirements have been satisfied or early termination of the waiting period has
been granted. The acquisition of shares of our common stock pursuant to the
merger is subject to the provisions of that act.

     VA Linux and Andover.Net each filed with the Antitrust Division of the U.S.
Department of Justice and the FTC on March 20, 2000, a Hart-Scott-Rodino
Notification and Report Form with respect to the acquisition of the shares of
Andover.Net common stock by VA Linux. On April 5, 2000 early termination of the
waiting period was granted to VA Linux and Andover.Net.

APPRAISAL RIGHTS

     Andover.Net is incorporated under Delaware law. Under applicable Delaware
law, the holders of Andover.Net common stock are not entitled to dissenters' or
appraisal rights in connection with the merger because Andover.Net is a publicly
traded company.

FEDERAL SECURITIES LAWS CONSEQUENCES; STOCK TRANSFER RESTRICTIONS

     This proxy statement/prospectus does not cover any resales of the VA Linux
common stock you will receive in the merger, and no person is authorized to make
any use of this proxy statement/prospectus in connection with any such resale.

     All shares of VA Linux common stock you will receive in the merger will be
freely transferable, except that if you are deemed to be an "affiliate" of
Andover.Net under the Securities Act of 1933, as amended, at the time of the
special meeting you may resell those shares only in transactions permitted by
Rule 145 under the Securities Act or as otherwise permitted under the Securities
Act. In addition, various stockholders of Andover.Net have entered into
affiliate agreements that restrict their ability to transfer the

                                       50
<PAGE>   55

shares of VA Linux Common Stock that they receive in the merger. Persons who may
be affiliates of Andover.Net for those purposes generally include individuals or
entities that control, are controlled by, or are under common control with,
Andover.Net, and would not include stockholders who are not officers, directors
or principal stockholders of Andover.Net.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

     In considering the recommendation of the Andover.Net board of directors
with respect to the approval and adoption of the reorganization agreement and
approval of the merger, you should be aware that certain members of the
management of Andover.Net and the Andover.Net board of directors may have
interests in the merger that are different from, or in addition to, your
interests. Andover.Net's board of directors was aware of these interests and
considered the following matters, among others, in approving the merger. Other
than the reorganization agreement and the transactions contemplated thereby,
there are no past, present or proposed contracts, arrangements, understandings,
relationships or transactions between Andover.Net and its affiliates and VA
Linux and its affiliates.

Assumption and acceleration of stock options

     Pursuant to the reorganization agreement, VA Linux will assume each
outstanding stock option under the Andover.Net 1999 Stock Option Plan.

     Under the pre-existing terms of option agreements entered into with the
employees, officers and directors of Andover.Net, the consummation of the merger
will cause 50% or 100% of their unvested shares to become vested. Pursuant to
these agreements the options held by five officers and one director will
accelerate as set forth on the following table:

<TABLE>
<CAPTION>
                                                 AS OF APRIL 3, 2000        ADDITIONAL OPTIONS
                                             ---------------------------   EXERCISABLE OF MERGER
                                             EXERCISABLE   UNEXERCISABLE   IF MERGER CONSUMMATED
             NAME AND POSITION                 OPTIONS        OPTIONS        ON APRIL 3, 2000
             -----------------               -----------   -------------   ---------------------
<S>                                          <C>           <C>             <C>
Peter A. Phelps, Chief Financial Officer...          0         75,000             37,500
Adam B. Green, Chief Technology Officer....    304,901        100,476             50,238
James E. Patterson, Executive Vice
  President................................     89,891         10,587             10,587
Derek V. Carroll, Vice President, Business
  Development..............................    100,475         60,285             30,143
Janet F. Holian, Vice President,
  Communications...........................     30,142         30,142             15,071
James D. Logan, Director...................     23,663         56,718             56,718
</TABLE>

     Affiliate agreements. Twenty-six affiliates of Andover.Net have entered
into affiliate agreements with VA Linux and have agreed not to sell any of the
shares of Andover.Net held by them until the later of (a) June 8, 2000 and (b)
the closing of the merger.

     Employment offers. On April 26, 2000, VA Linux and certain officers and key
employees of Andover.Net entered into offer letters whereby these employees were
offered employment with VA Linux. The table below lists the names of such
employees and the title of the position offered by VA Linux to each such
employee.

<TABLE>
<CAPTION>
                   NAME                                             POSITION
                   ----                                             --------
<S>                                         <C>
Bruce A. Twickler.........................  President, Andover.Net
Adam B. Green.............................  Chief Technical Officer, Andover.Net
James E. Patterson........................  Executive Vice President, Andover.Net
William M. Dwyer..........................  Senior Vice President, Andover.Net
Janet F. Holian...........................  Vice President, Corporate Communications, Andover.Net
</TABLE>

                                       51
<PAGE>   56

     Other benefits. The individuals listed in the above table were also offered
additional options to purchase stock of Andover.Net, which shall be assumed by
VA Linux subject to the approval by Andover.Net shareholders of the increase to
the number of shares reserved under the 1999 Stock Option Plan, the consummation
of the merger and each becoming an employee of VA Linux.

<TABLE>
<CAPTION>
                 NAME                    OPTIONS
                 ----                    -------
<S>                                      <C>
Bruce A. Twickler......................  100,000
Adam B. Green..........................  100,000
James E. Patterson.....................  100,000
William M. Dwyer.......................  200,000
Janet F. Holian........................   50,000
</TABLE>

     Indemnification. From and after the effective time of the merger, VA Linux
will cause Andover.Net to fulfill and honor in all respects the obligations of
Andover.Net pursuant to any indemnification agreements between Andover.Net and
its directors and officers in effect as of the effective time of the merger and
any indemnification provision under Andover.Net's certificate of incorporation
and bylaws in effect as of the date the reorganization agreement was signed.

     For a period of 6 years after the merger, the articles of incorporation and
bylaws of VA Linux will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the current Andover.Net
officers and directors as those contained in the certificate of incorporation
and bylaws of Andover.Net as in effect on the date the reorganization agreement
was signed. VA Linux will cause Andover.Net to use its commercially reasonable
efforts to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by Andover.Net's
directors' and officers' liability insurance policy on terms comparable to those
applicable to the current directors and officers of Andover.Net; provided,
however, that in no event will VA Linux or the Andover.Net be required to expend
in excess of 150% of the annual premium currently paid by Andover.Net for such
coverage (or such coverage as is available for such 150% of such annual
premium).

     Registration Rights. Affiliates of Andover.Net, including Bruce A.
Twickler, Peter A. Phelps, Adam B. Green, James E. Patterson, Derek V. Carroll,
Janet F. Holian, Walter M. Bird, III, Jonathan M. Goldstein, James F. Logan,
Robert Malda, Louis Page, Thomas R. Shepherd, and John E. Trombly shall receive
registration rights for secondary public offerings initiated by VA Linux, so
that such affiliates in the aggregate shall have the right to sell no less than
twenty percent of the selling stockholder component of the first VA
Linux-initiated secondary public offering of its common stock and pari passu
rights on subsequent secondary offerings.

                                       52
<PAGE>   57

                          THE REORGANIZATION AGREEMENT

GENERAL

     The following summary of the material terms of the reorganization agreement
is subject to, and qualified in its entirety by, the complete text of the
reorganization agreement. A copy of the reorganization agreement, as amended, is
attached as Appendix A to this proxy statement/prospectus and is incorporated in
this proxy statement/prospectus by reference. You should read the full text of
the reorganization agreement, because it, and not this proxy
statement/prospectus, is the legal document that governs the merger. In the
event of any discrepancy between the terms of the reorganization agreement and
the following summary, the reorganization agreement will control.

THE MERGER

     Following the approval and adoption of the reorganization agreement,
attached as Appendix A hereto, by the stockholders of Andover.Net and the
satisfaction or waiver of the other conditions to the merger, Andover.Net will
merge with Atlanta Acquisition Corp., a wholly-owned subsidiary of VA Linux. As
a result, Atlanta Acquisition Corp. will cease to exist as a separate corporate
entity, and Andover.Net will continue as the surviving corporation and retain
its name as a wholly-owned subsidiary of VA Linux. The merger will be effective
at the time the certificate of merger is filed with the Secretary of State of
the State of Delaware.

     Each share of Andover.Net common stock, par value of $0.01 per share,
issued and outstanding immediately before the merger, other than those held in
the treasury of Andover.Net and those owned by VA Linux or Atlanta Acquisition
Corp., will be exchanged for 0.425 shares of VA Linux common stock.

     No certificates or scrip representing fractional shares of VA Linux common
stock will be issued upon the surrender of Andover.Net common share
certificates. Each holder of an Andover.Net common share certificate, at the
time of merger, who would otherwise be entitled to receive a fractional share of
VA Linux common stock will receive cash. The amount of cash paid in lieu of
fractional shares will be the fraction of a share of VA Linux common stock that
would be otherwise issued multiplied by the closing price per share of VA Linux
common stock on the Nasdaq National Market on the last full trading day prior to
the merger. The exchange agent will pay this amount without interest.

     The reorganization agreement provides that at the time the certificate of
merger is filed, Atlanta Acquisition Corp.'s certificate of incorporation will
be the certificate of incorporation of the surviving entity and will be amended
to reflect "Andover.Net, Inc." as the name of the surviving corporation. The
reorganization agreement further provides that the bylaws of Atlanta Acquisition
Corp., as in effect when the certificate of merger is filed, will be the bylaws
of Andover.Net immediately after the certificate of merger is filed. The
reorganization agreement further provides that those persons who are the
directors and officers of Atlanta Acquisition Corp. when the certificate of
merger is filed will be the directors and officers of Andover.Net immediately
after the certificate of merger is filed.

EFFECTIVE TIME AND CLOSING OF THE MERGER

     Promptly after the satisfaction or waiver of the terms and conditions of
the reorganization agreement, the parties shall file a certificate of merger
with the Secretary of State of the State of Delaware as required by the Delaware
General Corporation Law. The merger will be effective when the certificate of
merger is filed. We expect to complete the merger as soon as practicable after
June   , 2000, the date scheduled for the special meeting.

PROCEDURE TO EXCHANGE CERTIFICATES

     The parties will authorize a commercial bank to act as exchange agent. The
exchange agent will mail letters of transmittal and instructions regarding the
exchange process to each record holder of shares of Andover.Net common stock
promptly following the merger. Upon surrender of Andover.Net common

                                       53
<PAGE>   58

stock certificates, together with the letter of transmittal duly executed, the
Andover.Net record stockholders will receive certificates representing VA Linux
common stock. Once the holders of certificates previously representing
Andover.Net common stock surrender these certificates, they will receive any
dividends or other distributions on the VA Linux common stock that have a record
date after the merger and a payment date before the holder surrenders the
Andover.Net common share certificate. However, VA Linux will not pay any
dividends until the holder of the Andover.Net share certificate surrenders that
certificate. The holder will also receive any dividends or other distributions
with a record date after the merger but before the surrender, and a payment date
after the surrender. In each case, taxes will be withheld as required. No
interest will be paid or accrued on unpaid dividends or distributions, if any,
which will be paid on surrender of Andover.Net common share certificates.

     No certificates or scrip representing fractional shares of VA Linux common
stock will be issued upon the surrender of Andover.Net common share
certificates. Each holder of a Andover.Net common share certificate, at the time
of merger, who would otherwise be entitled to receive a fractional share of VA
Linux common stock will receive cash. The amount of cash paid in lieu of
fractional shares will be the fraction of a share of VA Linux common stock that
would be otherwise issued multiplied by the closing price per share of VA Linux
common stock on the Nasdaq National Market on the last full trading day prior to
the merger. The exchange agent will pay this amount without interest.

     Neither VA Linux, Atlanta Acquisition Corp., Andover.Net, nor the exchange
agent will be liable to you for any amount properly delivered to a public
official under applicable abandoned property, escheat or similar law.

     The exchange agent will deliver VA Linux common stock, any cash in lieu of
fractional shares and any unpaid dividends or distribution with respect to VA
Linux common stock in exchange for lost, stolen, or destroyed certificates if
the record holder of such Andover.Net common stock certificates signs an
affidavit or loss, theft or destruction. VA Linux may also, in its discretion,
require the holder of a lost, stolen or destroyed certificate to deliver a bond
in reasonable sum as indemnity against any claim that might be made against VA
Linux regarding the alleged lost, stolen or destroyed certificate.

STOCK OPTIONS AND EMPLOYEE BENEFITS

     Upon the completion of merger, each then outstanding option to purchase
shares of Andover.Net common stock will be assumed by VA Linux. Each Andover.Net
option assumed by VA Linux will continue to have the same terms and conditions
set forth in the Andover.Net stock option plan and option agreement, except that
(a) each Andover.Net option will be exercisable for that number of whole shares
of VA Linux common stock equal to the product of the number of shares of
Andover.Net common stock that were issuable upon exercise of such Andover.Net
option immediately prior to the merger multiplied by 0.425, rounded down to the
nearest whole number of shares of VA Linux common stock and (b) the per share
exercise price for the shares of VA Linux common stock issuable upon exercise of
such assumed Andover.Net option will be equal to the quotient determined by
dividing the exercise price per share of Andover.Net common stock at which such
Andover.Net option was exercisable immediately prior to the merger by 0.425,
rounded down to the nearest whole cent. Each assumed Andover.Net option shall be
vested immediately following the merger as to the same percentage of the total
number of shares subject thereto as it was vested as of the merger, except that
pursuant to the terms of the option agreements under which the assumed
Andover.Net options were granted, certain Andover.Net options shall accelerate
upon the merger. Andover.Net has agreed to use its best efforts to amend such
option agreements so that no more than 50% of the unvested portion of any
Andover.Net option vests as a result of the Merger.

     Prior to the merger, Andover.Net will place into escrow shares of
Andover.Net common stock which would have been issued by Andover.Net in
connection with its prior acquisitions. Upon the merger, such escrow shares
shall be converted into shares of VA Linux common stock in accordance with the
terms of the reorganization agreement and be released from escrow in accordance
with the terms of the respective underlying agreements relating to the initial
grants to such prior acquisitions.

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<PAGE>   59

     Prior to the merger, Andover.Net shall grant stock options pursuant to the
Andover.Net 1999 Stock Option Plan to purchase an aggregate of 1,200,000 shares
of Andover.Net common stock to such persons and in such amounts as to which VA
Linux shall have agreed, with strike prices equal to the fair market value of
Andover.Net common stock at the time of grant, with no acceleration of vesting
triggered by this merger.

     For purposes of determining eligibility to participate, vesting, and
accrual or entitlement to benefits where length of service is relevant under any
employee benefit plan or arrangement of VA Linux or any of its subsidiaries or
affiliates, the employees, officers, directors, and consultants of Andover.Net
at the time of the merger shall receive service credit for service with
Andover.Net to the same extent that such service credit was granted under the
employee plans of Andover.Net.

     VA Linux will assume and honor all written employment, retention,
consulting, bonus, severance and termination plans and agreements of employees,
officers, directors and consultants of Andover.Net provided or made available to
VA Linux on or prior to the merger.

     Subject to any limitations under the Securities Act, VA Linux will file a
registration statement on Form S-8 for the shares of VA Linux common stock
issuable upon the exercise of options to purchase VA Linux common stock which
were previously options to purchase Andover.Net common stock. VA Linux will file
this registration statement as soon as is reasonably practicable after the
merger, and in no event later than 45 days after the merger.

REPRESENTATIONS AND WARRANTIES

     VA Linux and Andover.Net each made a number of representations and
warranties in the reorganization agreement regarding aspects of their respective
businesses, financial condition, structure and other facts pertinent to the
merger.

     The representations given by Andover.Net as they relate to Andover.Net and
its subsidiaries include, among others:

     - capitalization;

     - intellectual property used in its business;

     - changes in its businesses since December 8, 1999;

     - the receipt of a fairness opinion from its financial advisors;

     - financial statements;

     - no conflict with third party agreements as a result of the transaction;
       and

     - taxes.

     The representations given by VA Linux as they relate to VA Linux and its
subsidiaries include, among others:

     - capitalization;

     - financial statements; and

     - taxes.

     The representations and warranties in the reorganization agreement are
complicated and not easily summarized. You are urged to carefully read the
articles of the reorganization agreement entitled "Representations and
Warranties of Company" starting on page A-5 thereof and "Representations and
Warranties of Parent and Merger Sub" starting on page A-20 thereof, as set forth
in Appendix A to this proxy statement/prospectus.

                                       55
<PAGE>   60

COVENANTS RELATING TO CONDUCT OF BUSINESS

     Andover.Net agreed that until the earlier of the completion of the merger
or the termination of the reorganization agreement, unless VA Linux consents in
writing, Andover.Net and its subsidiaries will:

     - carry on its business, in all material respects, in the ordinary course
       as currently conducted;

     - pay its debts and taxes when due;

     - pay or perform other material obligations when due;

     - use commercially reasonable efforts to preserve intact its present
       business organization;

     - use commercially reasonable efforts to keep available the services of its
       present officers and employees; and

     - use commercially reasonable efforts to preserve its relationships with
       customers and suppliers.

     In addition, unless VA Linux consents in writing or the reorganization
agreement provides otherwise, Andover.Net has agreed that, until the earlier of
the completion of the merger or the termination of the reorganization agreement,
it and each of its subsidiaries will not and will not agree to:

     - waive any stock repurchase rights, accelerate, amend or change the period
       of exercisability of options or restricted stock, or reprice options
       granted under any stock plans or authorize cash payments in exchange for
       any options granted under any of such plans;

     - grant any severance or termination pay to any officer or employee except
       pursuant to written agreements outstanding, or policies existing, on the
       date of the reorganization agreement and as previously disclosed in
       writing or made available to VA Linux, or adopt any new severance plan;

     - transfer or license to any person or entity or otherwise extend, amend or
       modify in any material respect any rights to intellectual property, or
       enter into grants to future patent rights, other than non-exclusive
       licenses in the ordinary course of business and consistent with past
       practice;

     - declare, set aside or pay any dividends on or make any other
       distributions on its capital stock or split, combine or reclassify any
       capital stock or issue or authorize the issuance of any other securities
       in substitution for any capital stock;

     - purchase, redeem or otherwise acquire, directly or indirectly, any shares
       of Andover.Net's capital stock or its subsidiaries, except repurchases of
       unvested shares at cost in connection with the termination of the
       employment relationship with any employee pursuant to stock option or
       purchase agreements in effect on January 20, 2000;

     - issue, deliver, sell, authorize, pledge or otherwise encumber, any shares
       of capital stock or any securities convertible into shares of capital
       stock, or subscriptions, rights, warrants or options to acquire any
       shares of capital stock or any securities convertible into shares of
       capital stock, or enter into other agreements or commitments of any
       character obligating it to issue any such shares or convertible
       securities, other than (a) stock options pursuant to the Andover.Net
       stock option plans granted to employees of Andover.Net to purchase
       1,200,000 shares of Andover.Net common stock; (b) issuance of shares of
       the Andover.Net common stock in connection with the prior acquisitions of
       Andover.Net; and (c) issuance of shares by Andover.Net pursuant to the
       exercise of stock options granted as of January 20, 2000 or granted
       pursuant to the preceding clause (a);

     - cause, permit or propose any amendments to its certificate of
       incorporation, bylaws or other charter documents;

     - acquire or agree to acquire by merging or consolidating with, or by
       purchasing any equity interest in or a portion of the assets of, or by
       any other manner, any business or any corporation, partnership,
       association or other business organization or division thereof, or
       otherwise acquire or agree to acquire any assets which are material,
       individually or in the aggregate, to the business of Andover.Net or enter
       into any material joint ventures, strategic partnerships or alliances;
                                       56
<PAGE>   61

     - sell, lease, license, encumber or otherwise dispose of any properties or
       assets which are material, individually or in the aggregate, to the
       business of Andover.Net, except sales of inventory and used equipment in
       the ordinary course of business consistent with past practice;

     - incur any indebtedness for borrowed money or guarantee any such
       indebtedness of another person, issue or sell any debt securities or
       options, warrants, calls or other rights to acquire any debt securities
       of Andover.Net, enter into any "keep well" or other agreement to maintain
       any financial statement condition or enter into any arrangement having
       the economic effect of any of the foregoing other than in connection with
       the financing of ordinary course trade payables consistent with past
       practice;

     - adopt or amend any employee benefit plan or employee stock purchase or
       employee stock option plan, or enter into any employment contract or
       collective bargaining agreement (other than offer letters and letter
       agreements entered into in the ordinary course of business consistent
       with past practice with employees who are terminable "at will"), pay any
       special bonus or special remuneration to any director or employee, or
       increase the salaries or wage rates or fringe benefits (including rights
       to severance or indemnification) of its directors, officers, employees or
       consultants other than in the ordinary course of business, consistent
       with past practice, or change in any material respect any management
       policies or procedures;

     - make any payments outside of the ordinary course of business consistent
       with past practices in excess of $50,000 individually or in the
       aggregate;

     - modify, amend or terminate any material contract or agreement to which
       Andover.Net or any subsidiary thereof is a party or waive, release or
       assign any material rights or claims thereunder;

     - enter into any contracts, agreements, or obligations relating to the
       distribution, sale, license or marketing by third parties of
       Andover.Net's products or products licensed by Andover.Net other than in
       the ordinary course of business consistent with past practice;

     - materially revalue any of its assets or, except as required by United
       States generally accepted accounting principles, make any change in
       accounting methods, principles or practices; or

     - take any action that could reasonably be expected to cause the merger to
       fail to qualify as a "reorganization" under Section 368(a) of the Code.

     VA Linux has agreed that, during the period from the date of the
reorganization agreement through the merger, it will not engage in any action
that could reasonably be expected to cause the merger to fail to qualify as a
reorganization under Section 368(a) of the Internal Revenue Code.

ADDITIONAL COVENANTS

     Stockholder Meeting. Andover.Net has agreed to call a meeting of its
stockholders for the purposes of considering the approval and adoption of the
reorganization agreement as promptly as practicable and in any event within 45
days after the declaration of effectiveness of the registration statement of
which this proxy statement/prospectus is a part. The board of directors of
Andover.Net has agreed to recommend to its stockholders that they approve the
reorganization agreement and the merger; provided, however, that the board of
directors of Andover.Net may withdraw, modify or change its approval or
recommendation where failure to do so could result in breach of its fiduciary
duties.

     Registration Rights. VA Linux has agreed to use its best efforts to amend
the First Amended and Restated Registration Rights Agreement dated June 16,
1999, so that each affiliate of Andover.Net shall receive specified registration
rights.

     Access to Information. VA Linux and Andover.Net have agreed to provide to
the officers, employees, accountants, counsel and other representatives of the
other company reasonable access during normal business hours to the properties,
books, contracts, records and personnel during the period between the date of
the reorganization agreement and the merger.

                                       57
<PAGE>   62

     No Solicitation. Until the merger is completed or the reorganization
agreement is terminated, Andover.Net has agreed that neither it nor any of its
subsidiaries, representatives, affiliates or advisors will, directly or
indirectly, subject to Andover.Net's Board fiduciary obligations:

     - solicit, initiate, knowingly encourage or induce the making, submission
       or announcement of any acquisition proposal;

     - participate in any discussions or negotiations regarding, or furnish to
       any person other than VA Linux any non-public information with respect
       to, or take any other action to facilitate any inquiries or the making of
       any proposal that constitutes or may reasonably be expected to lead to,
       any acquisition proposal;

     - engage in discussions with any person with respect to any acquisition
       proposal;

     - approve, endorse or recommend any acquisition proposal; or

     - enter into any letter of intent or similar document or any contract
       agreement or commitment contemplating or otherwise relating to any
       acquisition proposal.

     An acquisition proposal is defined as a proposal of any transaction or
series of related transactions involving:

     - any purchase of more than a 5% interest in the total outstanding voting
       securities of Andover.Net or any of its subsidiaries or any tender offer
       or exchange offer that if consummated would result in any person
       beneficially owning 5% or more of the total outstanding voting securities
       of Andover.Net or any of its subsidiaries or any merger, consolidation,
       business combination or similar transaction involving Andover.Net;

     - any sale, lease, exchange, transfer, license, acquisition or disposition
       of more than 5% of the assets of Andover.Net; or

     - any liquidation or dissolution of Andover.Net.

     Andover.Net as promptly as practicable shall advise VA Linux orally and in
writing of any acquisition proposal or any request for non-public information
which Andover.Net reasonably believes would lead to an acquisition proposal.

     Andover.Net will keep VA Linux informed as promptly as practicable in all
material respects of the status and details of any such acquisition proposal,
request or inquiry.

     Reasonable Efforts. VA Linux and Andover.Net have each agreed to use their
reasonable efforts to take all actions, and do all things, necessary, proper or
advisable to conclude and make effective the merger and any transactions
contemplated by the reorganization agreement, including, among other things:

     - taking all reasonable acts to cause the conditions precedent to the
       merger to be satisfied;

     - obtaining all necessary actions, waivers, consents, approvals, orders and
       authorizations from governmental entities;

     - obtaining all necessary consents, approvals or waivers from third
       parties;

     - defending any lawsuits or legal proceedings that challenge the
       reorganization agreement; and

     - executing any additional documents necessary to conclude the merger.

     Notice. Andover.Net and VA Linux have each agreed to give the other prompt
notice of any representation or warranty made by it contained in the
reorganization agreement becoming untrue or inaccurate, or any failure to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under the reorganization agreement.

     Third Party Consents. Andover.Net and VA Linux have agreed that each will
use their commercially reasonable efforts to obtain any consents, waivers and
approvals under any of its or its subsidiaries'

                                       58
<PAGE>   63

respective agreements, contracts, licenses or leases required to be obtained in
connection with the consummation of the merger.

     Indemnification. VA Linux has agreed to honor the obligations of
Andover.Net pursuant to any indemnification agreements between Andover.Net and
its directors and officers as of the date of the merger. For a period of six
years, the certificate of incorporation and bylaws of the corporation surviving
the merger will contain provisions with respect to exculpation and
indemnification that are at least as favorable to the directors and officers of
Andover.Net as those contained in the certificate of incorporation and bylaws of
Andover.Net prior to the merger.

     For a period of three years after the merger, VA Linux will cause the
surviving corporation to use its commercially reasonable efforts to maintain in
effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by Andover.Net's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the current directors and officers of Andover.Net.

     Invention Assignment Agreement. Andover.Net has agreed to use its best
efforts to have all employees and independent contractors execute a form of
employee agreement or contractor agreement, respectively. Each employee and
independent contractor will receive $100 in exchange for signing the agreement.

     Nasdaq Listing. VA Linux has agreed to authorize for listing on Nasdaq the
shares of VA Linux common stock issuable, and those required to be reserved for
issuance, in connection with the merger.

     Option Assumption Agreement. Andover.Net has agreed to use its best efforts
to cause each holder of an option to purchase Andover.Net common stock to
execute and deliver to VA Linux an option assumption agreement in form delivered
to Andover.Net by VA Linux.

     1999 Stock Option Plan. Andover.Net has agreed to include in this proxy
statement a proposal to its stockholders to increase the number of shares
authorized under the Company's 1999 Stock Option Plan so that not less than
1,200,000 shares of Company Common Stock are available for grant immediately
prior to the merger.

CONDITIONS PRECEDENT TO THE MERGER

     VA Linux, Atlanta Acquisition Corp. and Andover.Net are required to
complete the merger only if each of the following conditions is met:

     - Stockholder Approval. The holders of a majority of the outstanding shares
       of Andover.Net common stock have approved and adopted the reorganization
       agreement and approved the merger.

     - Registration Statement. The registration statement on Form S-4 of which
       this proxy statement/prospectus is a part has been declared effective
       under the Securities Act. No stop order suspending the effectiveness of
       the Form S-4 has been initiated or issued by the SEC.

     - Hart-Scott-Rodino Act. The waiting period applicable to the consummation
       of the merger under the Hart-Scott-Rodino Act has expired or terminated.

     - No Government Action/Order. No governmental entity has enacted or issued
       any statute, rule, regulation, executive order, decree, injunction or
       other order which is in effect and has the effect of making the merger
       illegal or otherwise prohibiting it.

     - Tax Opinions. VA Linux and Andover.Net have each received opinions from
       their respective tax counsel that the merger will constitute a tax-free
       reorganization within the meaning of Section 368(a) of the Internal
       Revenue Code.

     - Listing on the Nasdaq National Market. The VA Linux common stock to be
       issued in the merger has been approved for listing on the Nasdaq National
       Market.

                                       59
<PAGE>   64

     Additionally, the reorganization agreement obligates VA Linux and Atlanta
Acquisition Corp., on one hand, and Andover.Net on the other hand, to complete
the merger only if, before the merger, the following additional conditions are
satisfied or waived:

     - Each of the representations and warranties of the other party in the
       reorganization agreement is true and correct in all material respects as
       of the effective time of the merger as if made on and as of such date,
       except for those representations and warranties made as of a particular
       date, with the same force and effect as if made on and as of the
       effective time except for those representations and warranties made as of
       an earlier date.

     - The other party has performed or complied in all material respects with
       all agreements and covenants required by the reorganization agreement to
       be performed or complied with prior to completion of the merger.

     - There has not been any adverse material effect on business, operations,
       assets, liabilities, financial condition or results of operations of
       either party since the date of the reorganization agreement.

     In addition, VA Linux is not obligated to complete the merger unless (a)
Andover.Net receives all consents, waivers and approvals from third parties
required as a result of the merger, (b) the Andover.Net registration rights
agreement is terminated and (c) the increase in shares reserved for issuance
under the Andover.Net 1999 Stock Option Plan is approved by the stockholders of
Andover.Net.

TERMINATION; AMENDMENT AND WAIVER

     Conditions to Termination. VA Linux and Andover.Net may terminate the
reorganization agreement at any time prior to the merger, even if the
stockholders of Andover.Net approve matters related to the merger. The
reorganization agreement may be terminated:

     - by VA Linux or Andover.Net if the parties mutually consent in writing to
       terminate the reorganization agreement;

     - by VA Linux or Andover.Net if the merger has not been effected on or
       prior to June 30, 2000; however, this right to terminate will not be
       available to any party whose action or failure to act was the principal
       cause of the failure of the merger to occur by this date and the action
       or failure to act constitutes a material breach of the reorganization
       agreement;

     - by VA Linux or Andover.Net if any governmental entity issues an order,
       decree or ruling or takes any action to permanently restrain, enjoin or
       prohibit the merger, and this order, decree or ruling is final and
       nonappealable;

     - by VA Linux or Andover.Net if the stockholders of Andover.Net do not
       approve the reorganization agreement at the special meeting or any
       adjournment or postponement of the special meeting; provided, that
       Andover.Net may not terminate the reorganization agreement if the failure
       to obtain the stockholder approval was caused by the action or failure to
       act of Andover.Net and the action or failure to act is a breach by
       Andover.Net of the reorganization agreement or a breach of the voting
       agreements between VA Linux and affiliates of Andover.Net by any
       affiliate;

     - by VA Linux (at any time prior to the approval of the reorganization
       agreement and the merger by the Andover.Net stockholders) if (a)
       Andover.Net's board of directors changed, in a manner adverse to VA
       Linux, its unanimous recommendation in favor of the reorganization
       agreement and the merger, (b) Andover.Net fails to include the unanimous
       recommendation of it board of directors in this proxy/prospectus, (c)
       Andover.Net's board of directors fails to reaffirm its unanimous
       recommendation in favor of the reorganization agreement and the merger
       within 10 days after VA Linux requests for such reaffirmation in writing,
       (d) Andover.Net's board of directors approves an acquisition proposal
       other than the transaction contemplated by the reorganization agreement,
       (e) a tender or exchange offer has been commenced by a person
       unaffiliated with VA Linux or Andover.Net and Andover.Net's board of
       directors fails to send a notice to its stockholders recommending against
       such tender or exchange offer;
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<PAGE>   65

     - by VA Linux if Andover.Net violates its covenant not to solicit
       acquisition proposals;

     - by VA Linux if there has been a material breach by Andover.Net of any
       representation, warranty, covenant or agreement which is not curable by
       commercially reasonable efforts or which Andover.Net is not using
       commercially reasonable efforts to cure; or

     - by Andover.Net if there has been a material breach by VA Linux of any
       representation, warranty, covenant or agreement which is not curable by
       commercially reasonable efforts or which VA Linux is not using
       commercially reasonable efforts to cure.

     Effect of Termination. In the event of termination of the reorganization
agreement by either VA Linux or Andover.Net the reorganization agreement will
become void; provided, however, that (a) the confidentiality provisions, general
provisions and termination provisions will survive and (b) nothing will relieve
the parties from any liability for any willful breach of the reorganization
agreement.

     Andover.Net has also agreed to pay $30,000,000 to VA Linux in immediately
available funds in the event that the reorganization agreement is terminated:

     - by VA Linux or Andover.Net if the merger has not been effected on or
       prior to June 30, 2000;

     - by VA Linux or Andover.Net if the stockholders of Andover.Net do not
       approve the reorganization agreement at the special meeting or any
       adjournment or postponement of the special meeting; or

     - by VA Linux if there has been a material breach by Andover.Net of any
       representation, warranty, covenant or agreement which is not curable by
       commercially reasonable efforts or which Andover.Net is not using
       commercially reasonable efforts to cure;

provided, that Andover.Net will not be required to pay the $30,000,000 for
failure to obtain stockholder approval or to effect the merger by June 30, 2000
unless Andover.Net enters into and effects an acquisition proposal or an
agreement for an acquisition proposal or any person or entity purchases 50% or
more of the assets or voting stock of Andover.Net, within fifteen (15) months of
termination of the reorganization agreement.

     Each party will pay its own costs and expenses. However, all filing fees
and printing expenses related to this Form S-4 and proxy statement and the
registration statement will be shared equally by VA Linux and Andover.Net.

     Amendment. Subject to applicable law, the reorganization agreement may be
amended by the parties at any time by a written instrument signed on behalf of
each of the parties to the reorganization agreement.

     Extension; Waiver. At any time prior to the merger, any party to the
reorganization agreement may, in writing:

     - extend the time for performance for any obligations of the other parties
       under the reorganization agreement;

     - waive any inaccuracies in the representations and warranties in the
       reorganization agreement made to that party; and

     - waive compliance with any of the agreements or conditions of the
       reorganization agreement for the benefit of that party.

VOTING AGREEMENTS

     Voting and Proxies. In order to induce VA Linux to enter into the
reorganization agreement, each of the twenty-six (26) Andover.Net affiliates
have entered into a voting agreement at VA Linux's request. A copy of the voting
agreement is attached behind the reorganization agreement, as amended, in
Appendix A to this proxy statement/prospectus. These affiliates are: Bruce A.
Twickler, Peter A. Phelps, Adam B. Green, James E. Patterson, William M. Dwyer,
Derek V. Carroll, Janet F. Holian, Walter M. Bird, III,

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Claflin Capital VI, L.P., Claflin Capital VII, L.P., Jonathan M. Goldstein,
TA/Advent VIII, L.P., TA/Atlantic and Pacific IV, L.P., TA Executives Fund LLC,
TA Investors LLC, James D. Logan, Robert Malda, Louis Page, Window to Wall
Street, Inc., Window to Wall Street Limited Partnership, Window to Wall Street
II Limited Partnership, Thomas R. Shepherd, The Shepherd Group, LLC, The
Shepherd Venture Fund I, L.P., John E. Trombly and Royalty Capital Fund L.P. I.

     Pursuant to and during the terms of the voting agreements, each affiliate
party to a voting agreement has agreed to vote or cause to be voted, all of the
Andover.Net common stock owned by the affiliate and all shares of Andover.Net
common stock subsequently acquired by the affiliate:

     - in favor of approval of the merger and each of the other actions
       contemplated by the reorganization agreement;

     - against approval of any proposal made in opposition to, or in competition
       with, the merger and the reorganization agreement;

     - against any of the following actions, other than those actions that
       relate to the merger and the transactions contemplated by the
       reorganization agreement: (A) any merger, consolidation, business
       combination, sale of assets, reorganization or recapitalization of
       Andover.Net with any party; (B) any sale, lease or transfer of any
       significant part of the assets of Andover.Net; (C) any reorganization,
       recapitalization, dissolution, liquidation or winding up of Andover.Net;
       (D) any material change in the capitalization of the Andover.Net or
       Andover.Net's corporate structure; or (E) any other action that is
       intended, or could reasonably be expected to, impede, interfere with,
       delay, postpone, discourage or adversely affect the merger or any of the
       other transactions contemplated by the reorganization agreement; and

     - in favor of waiving any notice that may have been or may be required
       relating to any reorganization of Andover.Net, any reclassification or
       recapitalization of the capital stock of Andover.Net or any sale of
       assets, change of control, or acquisition of Andover.Net by any other
       person, or any consolidation or merger of Andover.Net with or into any
       other person.

     In addition, each of the Andover.Net affiliates party to a voting agreement
has delivered to VA Linux an irrevocable proxy to vote shares of the Andover.Net
common stock beneficially held by the affiliate or acquired prior to the
termination of the voting agreement. The voting agreements terminate upon the
earliest to occur of the completion of the merger and the termination of the
reorganization agreement.

     As of April 3, 2000, the aggregate number of shares of Andover.Net common
stock that is subject to the voting agreements was 6,693,910, or approximately
41.8% of all Andover.Net common stock outstanding on this date. Including all
options exercisable within 60 days of April 3, 2000, the number of shares was
7,515,241, or approximately 44.7% of all Andover.Net common stock outstanding on
April 3, 2000 (assuming an increase in the number of shares outstanding on April
3, 2000 to include as outstanding all options exercisable within 60 days of
April 3, 2000.)

     Prohibited Actions. Each of the Andover.Net affiliates party to a voting
agreement has also agreed with respect to the shares of Andover.Net common stock
subject to the voting agreement that the affiliate will not without the written
consent of VA Linux:

     - transfer, sell, exchange, pledge or otherwise dispose of or encumber any
       of the shares held prior to February 2, 2000 or any new shares of
       Andover.Net common stock acquired after February 2, 2000; or

     - discuss, negotiate, or make any offer or agreement relating to the sale
       of the shares of Andover.Net common stock.

     The form of voting agreement is attached as Exhibit A to the reorganization
agreement, which is attached as Appendix A to this proxy statement/prospectus.

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AFFILIATE AGREEMENTS

     In order to induce VA Linux to enter into the reorganization agreement,
each of the twenty six (26) Andover.Net affiliates has entered into an affiliate
agreement at VA Linux's request. A copy of the affiliate agreement is attached
behind the reorganization agreement, as amended, in Appendix A to this proxy
statement/prospectus. Pursuant to the terms of the affiliate agreements, the
Andover.Net affiliates have represented the following:

     - the shares of and vested options to purchase Andover.Net common stock
       held by them are not subject to any claim, lien, pledge, charge, security
       interest or other encumbrance or to any rights of first refusal of any
       kind;

     - there are no options, warrants, calls, rights, commitments or agreements
       of any character, written or oral, to which the affiliate is party or by
       which it is bound obligating the affiliate to issue, deliver, sell,
       repurchase or redeem, or cause to be issued, delivered, sold, repurchased
       or redeemed, any Andover.Net common stock or obligating the affiliate to
       grant or enter into any such option, warrant, call, right, commitment or
       agreement;

     - the affiliate has the sole right to transfer the shares of Andover.Net
       common stock held by it; and

     - the shares of Andover.Net common stock are not subject to preemptive
       rights created by any agreement to which the affiliate is party.

     Rule 145. Each affiliate has agreed not to sell, transfer or otherwise
dispose of any VA Linux common stock issued in the Merger unless one of the
following conditions is met:

     - the sale, transfer or other disposition is made in conformity with the
       requirements of Rule 145(d) under the Securities Act;

     - the sale, transfer or other disposition is made pursuant to an effective
       registration statement under the Securities Act or an appropriate
       exemption from registration;

     - the affiliate delivers to VA Linux a written opinion of counsel,
       reasonably acceptable to VA Linux in form and substance, that such sale,
       transfer or other disposition is otherwise exempt from registration under
       the Securities Act; or

     - an authorized representative of the SEC shall have rendered written
       advice to the affiliate to the effect that the SEC would take no action,
       or that the staff of the SEC would not recommend that the SEC take any
       action, with respect to the proposed disposition if consummated.

     Market Stand-Off Agreement. Each affiliate has agreed that until June 8,
2000, the affiliate will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of VA Linux common stock or
securities convertible into or exchangeable or exercisable for any shares of VA
common stock, or publicly disclose the intention to make any such offer, sale,
pledge or disposal without the prior written consent of Credit Suisse First
Boston Corporation; provided, however, that the restrictions set forth in the
immediately prior sentence shall not prohibit some transactions including:

     - the exercise of an option, warrant or other convertible security into VA
       Linux common stock; or

     - transactions involving VA Linux common stock acquired by the affiliate in
       open market transactions following the consummation of the Merger.

     Ongoing Market Stand Off. Each affiliate also agrees to enter into an
agreement in connection with a public offering of VA Linux's securities not to
sell, make any short sale of, loan, grant any option for the purchase of, or
otherwise dispose of any securities of VA Linux for such period of time not to
exceed ninety (90) days from the effective date of such registration as may be
reasonably requested by the underwriters if and to the extent that affiliates of
VA Linux do so and if it participates in the offering. If such Andover.Net
affiliates do not participate in the offering, each will still not be able to
dispose of its VA Linux securities for a period of time up to thirty (30) days
from the effective date of the registration.

     The form of affiliate agreement is attached as Exhibit C to the
reorganization agreement, which is attached as Appendix A to this proxy
statement/prospectus.

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              AMENDMENT OF THE ANDOVER.NET 1999 STOCK OPTION PLAN

GENERAL

     The 1999 Stock Option Plan was adopted by the board of directors and
approved by the stockholders of Andover.Net in September 1999. The purpose of
the 1999 Stock Option Plan is to encourage ownership of the stock of Andover.Net
by employees, directors, consultants and advisors of Andover.Net and its
subsidiaries, to induce qualified personnel to enter and remain in the employ of
Andover.Net and its subsidiaries and otherwise to provide additional incentive
for optionees to promote the success of Andover.Net and its subsidiaries. The
1999 Stock Option Plan provides for the granting of incentive stock options to
purchase Andover.Net common stock to employees of Andover.Net or any of its
subsidiaries and of non-qualified options defined in Section 422 of the Internal
Revenue Code to purchase Andover.Net common stock to employees, directors,
advisors or consultants of Andover.Net or any of its subsidiaries.

     The number of shares of common stock of Andover.Net that may be issued
under the 1999 Stock Option Plan is 1,736,225. As of April 3, 2000 the shares
reserved for issuance under the 1999 Stock Option Plan had an approximate market
value of $36.7 million. The shares issued pursuant to the 1999 Stock Option Plan
shall be either shares of Andover.Net's authorized but unissued common stock or
shares of common stock reacquired by Andover.Net and held as treasury shares.
The number of shares issuable under the 1999 Stock Option Plan is subject to
appropriate adjustment in the event of a stock split, a subdivision or
consolidation of shares of common stock, capital adjustments or payments of
stock dividends or distributions or other increases or decreases in the
outstanding shares of common stock effected without receipt of consideration by
Andover.Net.

PROPOSED AMENDMENT TO THE 1999 STOCK OPTION PLAN

     The board of directors of Andover.Net has adopted an amendment to the 1999
Stock Option Plan, subject to approval by the stockholders, to increase the
aggregate number of shares that may be subject to grants thereunder from
1,736,225 to 3,136,225 in order to ensure that a sufficient number of shares are
available for issuance to create an incentive for current officers and employees
to remain with Andover.Net.

SUMMARY

     Set forth below is a summary of the principal provisions of the 1999 Stock
Option Plan, a copy of which may be obtained from the secretary of Andover.Net
upon request, and is available at http:\\www.sec.gov. See "Where you can find
more information." The affirmative vote of the holders of at least a majority of
the common stock present or represented and entitled to vote is required to
approve the amendment to the 1999 Stock Option Plan.

     Administration. The 1999 Stock Option Plan is administered by the
compensation committee of the Andover.Net board of directors. The committee has
the authority to take the following actions:

     - interpret and apply the 1999 Stock Option Plan;

     - determine the eligibility of an individual to participate in the 1999
       Stock Option Plan; and

     - determine and allocate the cancellation or exchange of outstanding
       options in the case of a recapitalization, acquisition, merger or change
       in control.

     Terms of Options. Subject to the provisions of the 1999 Stock Option Plan,
the compensation committee has the authority to select optionees and to
determine the terms of the options granted, including (a) the number of shares
subject to each option, (b) when the option becomes exercisable, (c) the
exercise price of the option, (d) the duration of the option (which in the case
of an incentive stock option granted to employees or officers holding 10% or
more of the voting stock of Andover.Net

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<PAGE>   69

cannot be in excess of five years), and (e) the time, manner and form of payment
upon exercise of an option.

     Options granted under the 1999 Stock Option Plan are exercisable at such
times and during such period as is set forth in the option agreement, but cannot
have a term in excess of ten years from the date of grant. The compensation
committee is entitled to accelerate the date of exercise of any installment of
any option. The option agreement may contain such provisions and conditions as
may be determined by the compensation committee. The option exercise price for
options designated as non-qualified stock options granted under the 1999 Stock
Option Plan is determined by the compensation committee. The option exercise
price for incentive stock options granted under the 1999 Stock Option Plan shall
be no less than fair market value of the common stock of Andover.Net at the time
the option is granted and no less than 110% of the fair market value in the case
of employees or officers holding 10% or more of the voting stock of Andover.Net.
Vested options may be exercised in full at one time or in part from time to time
in amounts of 50 shares or more.

     The payment of the exercise price may be made as determined by the board,
and set forth in the option agreement, by delivery of one of the following: (a)
cash or a check; (b) shares of Andover.Net's common stock owned by the optionee
having a fair market value equal in amount to the exercise price of the options
being exercised; (c) any combination of (a) and (b); provided, however, that
payment of the exercise price by delivery of shares of common stock owned by
such optionee may be made if the payment does not result in a charge to earnings
for financial accounting purposes as determined by the board; or (d) a properly
executed exercise notice to Andover.Net, together with a copy of irrevocable
instruments to a broker to deliver promptly to Andover.Net the amount of sale or
loan proceeds to pay the exercise price. Andover.Net may delay the issuance of
shares covered by the exercise of an option until the shares for which the
option has been exercised have been registered or qualified under the applicable
federal or state securities laws, or counsel for Andover.Net has opined that the
shares are exempt from the registration requirements of applicable federal or
state securities laws.

     An option is not transferable except by will or the laws of descent, except
that an optionee may transfer nonqualified stock options to the optionee's
spouse or children or to a trust of family limited partnership for the benefit
of the optionee, the holder's spouse or the holder's children. Upon the
termination of an optionee's employment with Andover.Net, his or her options
will terminate between 60 days and 12 months after that optionee leaves the
employ of Andover.Net.

     Termination or Amendment to the 1999 Stock Option Plan. Unless sooner
terminated, the 1999 Stock Option Plan shall terminate in September 2009, ten
years from the date on which the 1999 Stock Option Plan was adopted by the
Andover.Net board of directors. The Andover.Net board of directors may at any
time terminate the 1999 Stock Option Plan or make such modification or amendment
as it deems advisable; provided, however, that the Andover.Net board of
directors may not, without stockholder approval, increase the maximum number of
shares for which options may be granted or change the designation of the class
of persons eligible to receive options under the 1999 Stock Option Plan or make
any other change in the 1999 Stock Option Plan which requires stockholder
approval under applicable law or regulations.

     Recapitalization; Reorganization; Change of Control. The 1999 Stock Option
Plan provides that the number and kind of shares as to which options may be
granted thereunder and as to which outstanding options then unexercised shall be
exercisable shall be adjusted to prevent dilution in the event of any
reorganization or recapitalization (other than as the result of an acquisition
as described below), reclassification, stock subdivision, combination of shares
or dividends payable in capital stock. If Andover.Net is to be consolidated with
or acquired by another entity in a merger or in a sale of all or substantially
all of Andover.Net's assets or otherwise, an acquisition, the compensation
committee may cancel all outstanding options in exchange for consideration in
cash or other consideration that is equal in value to the value the
consideration that the optionee would have received had the holder exercised (to
the extent exercisable).

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     Upon dissolution or liquidation of Andover.Net, all options granted under
the 1999 Stock Option Plan shall terminate.

TAX EFFECTS OF PARTICIPATION IN THE 1999 STOCK OPTION PLAN

     Incentive Stock Options. Except as provided below with respect to the
alternative minimum tax, the optionee will not recognize taxable income upon the
grant or exercise of an incentive stock option. In addition, if the optionee
holds the shares received pursuant to the exercise of the option for more than
one year after the date of transfer of stock to the optionee upon exercise of
the option and for more than two years after the option is granted, the optionee
will recognize long-term capital gain or loss upon the disposition of the stock
measured by the difference between the option exercise price and the amount
received for such shares upon disposition.

     In the event that the optionee disposes of the stock prior to the
expiration of the required holding periods (a "disqualifying disposition"), the
optionee generally will recognize ordinary income to the extent of the lesser of
(i) the fair market value of the stock at the time of exercise over the exercise
price, or (ii) the amount received for the stock upon disposition over the
exercise price. The basis in the stock acquired upon exercise of the option will
equal the amount of income recognized by the optionee plus the option exercise
price. Upon eventual disposition of the stock, the optionee will recognize
long-term or short-term capital gain or loss, depending on the holding period of
the stock and the difference between the amount realized by the optionee upon
disposition of the stock and his basis in the stock.

     For alternative minimum tax purposes, the excess of the fair market value
of stock on the date of the exercise of the incentive stock option over the
exercise price of the option is included in alternative minimum taxable income
for alternative minimum tax purposes. If the alternative minimum tax does apply
to the optionee, an alternative minimum tax credit may reduce the regular tax
upon eventual disposition of the stock.

     Andover.Net will not be allowed an income tax deduction upon the grant or
exercise of an incentive stock option. Upon a disqualifying disposition of
shares by the optionee acquired upon exercise of the incentive stock option,
Andover.Net generally will be allowed a deduction in an amount equal to the
ordinary income recognized by the optionee.

     Under proposed regulations issued by the Internal Revenue Service, the
exercise of an option with previously acquired stock of Andover.Net will be
treated as, in effect, two separate transactions. Pursuant to Section 1036 of
the Code, the first transaction will be a tax-free exchange of the previously
acquired shares for the same number of new shares. The new shares will retain
the basis and, except, as provided below, the holding periods of the previously
acquired shares. The second transaction will be the issuance of additional new
shares having a value equal to the difference between the aggregate fair market
value of all of the new shares being acquired and the aggregate option exercise
price for those shares. Because the exercise of an incentive stock option does
not result in the recognition by the optionee of income, this issuance will also
be tax-free (unless the alternative minimum tax applies, as described above).
The optionee's basis in these additional shares will be zero and the optionee's
holding period for these shares will commence on the date on which the shares
are transferred. For purposes of the one and two-year holding period
requirements which must be met for favorable incentive stock option tax
treatment to apply, the holding periods of previously acquired shares are
disregarded.

     Non-Qualified Stock Options. As in the case of incentive stock options, no
income is recognized by the optionee on the grant of a nonqualified stock
option. On the exercise by an optionee of a non-qualified option, generally the
excess of the fair market value of the stock when the option is exercised over
its cost to the optionee will be (a) taxable to the optionee as ordinary income
and (b) generally deductible for income tax purposes by Andover.Net. The
optionee's tax basis in his stock will equal his cost for the stock plus the
amount of ordinary income he had to recognize with respect to the non-qualified
stock option. If the optionee dies prior to exercising a non-qualified option,
the value of the unexercised non-qualified option will be includible in the
optionee's estate. If the optionee transfers the unexercised non-qualified
option during the optionee's lifetime to a permitted transferee, the optionee
will be liable for gift tax on
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the value of the transferred options, but the non-qualified option will be
excluded from the optionee's estate.

     The Internal Revenue Service will treat the exercise of a non-qualified
stock option with already owned stock of Andover.Net as two transactions. First,
there will be a tax-free exchange of the old shares for a like number of new
shares under Section 1036 of the Code, with the exchanged shares retaining the
basis and holding periods of the old shares. Second, there will be an issuance
of additional new shares representing the spread between the fair market value
of all the new shares (including the exchanged shares and the additional new
shares) and the aggregate option price therefor. The fair market value of the
additional new shares will be taxable as ordinary income to the employee under
Section 83 of the Code. The additional new shares will have a basis equal to the
spread between the fair market value of the additional new shares and the
aggregate exercise price therefor.

     Accordingly, upon a subsequent disposition of stock acquired upon the
exercise of a non-qualified option, the optionee will recognize short-term or
long-term capital gain or loss, depending upon the holding period of the stock
equal to the difference between the amount realized upon disposition of the
stock by the optionee and his basis in the stock.

NEW PLAN BENEFITS

     It is not possible to state the persons who will receive stock options
under the 1999 Stock Option Plan in the future, nor the amount of options which
will be granted thereunder to any specific individual.

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                         INFORMATION REGARDING VA LINUX

                              VA LINUX'S BUSINESS

     VA Linux is a leading provider of Linux-based solutions, integrating
systems, software and services. VA Linux's broad-based technical expertise in
systems and software design, as well as VA Linux's focus on the Linux operating
system and other open source solutions, enables VA Linux to provide high-quality
Linux systems designed for optimal performance, reliability and scalability.
Through VA Linux's staff of Linux system and software engineers, VA Linux also
offers comprehensive customer service and support. To further expand VA Linux's
service offerings, VA Linux recently established a professional services
organization to provide a broad range of services, including system architecture
design, system integration and security consulting.

     VA Linux's products are primarily sold through a direct sales organization
to customers deploying or expanding Internet infrastructure environments. VA
Linux's largest customers included Akamai Technologies, eToys, StarMedia Network
and 24/7 Media with sales to these four customers accounting for 14.5% of VA
Linux's total net revenues in fiscal 1999. In the six months ended January 28,
2000, VA Linux's largest customers included Akamai Technologies, Net Ledger,
Inc., Argonne National Laboratories and Evoke, with sales to these four
customers accounting for 23.9% of VA Linux's total net revenue for the same
period. In fiscal 1999, VA Linux had over 50 customers who each purchased at
least $50,000 of VA Linux's Linux systems.

INDUSTRY BACKGROUND

The Internet Build-Out

     The Internet is rapidly becoming a critical resource for business.
Companies that successfully build an online presence can more efficiently
conduct business with partners and suppliers, communicate with customers and
employees and address the rapidly growing, global base of online consumers.

     To remain competitive, companies are being forced to offer more
sophisticated Internet services more rapidly. As a result, their computing
environments are becoming more complex, and their demand for Internet
infrastructure is growing.

The Growth of the Internet is Fueling Demand for Linux and Other Open Source
Solutions

     In seeking cost-effective, reliable and secure infrastructure for their
Internet services, companies are increasingly implementing open source software,
such as the Linux operating system, the Apache web server (a popular application
running on the Linux operating system which allows for the service of web
pages), the Samba file server (a popular application running on the Linux
operating system which provides file services) and the Sendmail e-mail server (a
popular application running on the Linux operating system which allows the
exchange of e-mail messages).

     The term "open source" applies to software which can be copied, modified
and distributed without any associated fee and with few restrictions. As such,
the source code for Linux can be downloaded from the Internet. Popular open
source software like Linux is continuously maintained and improved by large
communities of developers who share information, code and suggestions. This
collaborative environment has been facilitated and enhanced by the growth of the
Internet and the availability of low-cost computing resources. These market
trends have fueled significant increases in the number of developers in open
source projects, the frequency of software releases and the speed of feature
development and error correction.

     The nature of open source software makes it very easy for multiple groups,
commercial and non-commercial, to create "distributions," or collections, of
this software. The best known distributions of Linux, for example, include those
from Caldera, Debian, Red Hat and S.u.S.E. In most cases, there are only minor
technical variations among distributions and software applications designed for
Linux to run consistently across all of them. When variations among
distributions occur, they are generally market-

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based. For example, some distributions are localized for different languages or
optimized for different hardware systems.

     The following points illustrate some of the benefits consumers receive by
implementing the Linux operating system and related open source solutions:

          Rapid Development and High Quality. Traditional software vendors that
     create proprietary software programs rely on a limited pool of software
     engineers to correct software errors and develop new software or software
     enhancements. In contrast, any end user can access the source code to
     develop new features and applications or suggest fixes and improvements to
     open source software. As a result, businesses are not dependent on a single
     third party vendor and can rely on a larger pool of software engineers and
     service providers. In addition, these software projects promote independent
     peer review. This system of peer review is designed to ensure the quality
     of all submissions and changes to the code. Furthermore, VA Linux believes
     that opening source code to the public ensures that security flaws are
     quickly identified and eliminated, making open source software more secure
     than proprietary software.

          Customer-Focused Solutions. The lack of access to the source code of
     proprietary software makes it more difficult and costly to integrate into
     existing systems than open source software. In addition, in an environment
     where anyone can access and modify the source code, internal development
     personnel in an organization can leverage the efforts of a broad community
     consisting of other information technology specialists and independent
     programmers to develop customized solutions more rapidly and at a
     significantly lower cost. The ability to modify open source software by end
     users also results in open source software implementations that are
     tailored to meet customer needs.

          Lower Cost of Ownership. Consumers can significantly decrease the cost
     of owning and servicing their computing systems in an open source
     environment. According to Gartner Group, the sale price of the computing
     system typically accounts for approximately 10% of the total cost of owning
     that system. The remaining 90% is attributable to services such as
     training, support and maintenance. These are largely software
     support-related activities. Therefore, in addition to having the ability to
     install an unlimited number of copies for free, consumers can reduce their
     costs by sourcing services from more than one party, avoiding the
     significant margins that proprietary software vendors can charge as a
     result of their exclusive knowledge of the product. Open source software
     solutions create a competitive, multi-source market for these software
     support services.

     The benefits of open source initiatives have accelerated the market
penetration of open source software, especially in environments such as the
Internet where highly reliable, secure, low-cost and customizable solutions are
essential. For example, in March 2000, Apache, an open source web server,
commanded a 60% market share, according to the Netcraft Web Server Survey
(netcraft.co.uk/survey), as compared to 21% for Microsoft's Internet Information
Server.

Linux is the Leading Internet Operating System

     Linux has emerged as the leading operating system for the Internet.
According to an April 1999 survey conducted by the Internet Operating System
Counter (leb.net/hzo/ioscount), which polls web sites for operating system
information, Linux ran on approximately 31% of the servers polled, more than any
other single system. According to an IDC report dated January 2000, the use of
Linux grew at an annual rate of 93.2% in 1999 compared to the prior year. In its
report, IDC also projected that the use of Linux will grow faster than the use
of any other operating system through 2003. VA Linux believes that this growth
is largely attributable to decisions by information technology managers to
deploy Linux as a highly cost-effective and reliable way to support web
services. However, VA Linux can give no assurances that any of the referenced
projections will be achieved. VA Linux believes that the reliability, security
and continuous improvement of open source software, complemented by its low
cost, will continue to make Linux a preferred solution for delivering Internet
services.

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The Challenge in Delivering Open Source Solutions

     As companies adopt software solutions that are created in an open source
environment as part of their critical business operations, they face new
challenges. To help maximize the advantages of these software solutions and
address these challenges, consumers require the assistance of vendors that have
significant open source expertise and are able to provide timely and qualified
open source professional services and customer support. The rapid evolution of
open source software requires open source vendors and support providers to:

     - continuously develop knowledge of the ongoing changes in open source
       software distributions;

     - actively engage in research and development with the open source
       development community; and

     - leverage the expertise of this community to deliver customized solutions.

     In addition, as open source software becomes more complex, its interactions
with a diverse range of commodity hardware platforms become more difficult to
support. Supporting too broad a set of hardware platforms and software offerings
can overwhelm many service and support organizations. As a result, vendors must
maintain a thorough understanding of the interoperability of open source
software distributions and hardware platforms and tailor their offerings to
provide the best available hardware and software products.

     Traditional server, workstation and personal computer vendors depend on
highly controlled and scheduled releases of software from major proprietary
software developers. This regimented software environment enables the
disaggregation of hardware, service and support delivery among multiple
companies, while keeping systems and service offerings tied to new proprietary
software releases. Given the rapid rate of development in commodity hardware
markets, systems vendors have become reliant on this controlled software release
process to coordinate the development and create the demand for new products and
services. As open source software gains market acceptance, its rapid and
relatively unconstrained pace of development disrupts these well-defined
processes and poses significant challenges for traditional systems vendors and
service providers. To effectively deliver open source solutions to large
companies, vendors will need to simultaneously:

     - capitalize on the rapid pace of open source software development;

     - manage the high rate of change in commodity hardware markets; and

     - integrate the best available open source software and system components
       to produce the highest-quality solutions for particular customer needs.

     VA Linux believes that, in order to satisfy these market requirements, open
source vendors must deliver integrated system, software and support solutions to
customers.

The Market Opportunity for Open Source Vendors

     VA Linux believes that open source solutions will continue to gain market
acceptance as the limitations of more expensive and less customizable
proprietary applications become more pronounced. To date, no large Intel
processor-based systems vendors have focused their businesses on delivering
high-quality systems optimized for Linux and other open source software. These
vendors are primarily dependent on proprietary operating systems and
applications from vendors such as Microsoft. Alternatively, some systems
vendors, such as Sun Microsystems, offer their own proprietary software. In
neither case do these vendors maintain expertise in creating and implementing
open source systems, nor do they have extensive ties to the open source
community. Linux software and service vendors, on the other hand, have little
experience in developing and supporting systems that are optimized for Linux.

SOLUTION

     VA Linux is a leading provider of Linux-based solutions, integrating
systems, software and services. VA Linux offers high-quality Linux systems that
are designed for optimal performance, reliability and
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scalability in business and Internet-based computing environments. VA Linux also
offers comprehensive service and customer support. VA Linux's products and
services offer the following benefits:

Integrated Linux-Based Solution

     VA Linux offers a single point of contact for all Linux product, service
and support needs. VA Linux's Linux systems are used in a variety of computing
environments, ranging from small desktops to complex, high-performance, groups
of servers and are differentiated to meet the price, performance and scalability
requirements of VA Linux's customers. For example, for the Internet server
markets, VA Linux offers compact servers with high storage capabilities that VA
Linux engineers for use by companies with physical space constraints. VA Linux
also offers professional services consisting of planning, implementation,
installation and integration, security audits and performance analysis, as well
as 24-hour toll-free telephone support and onsite services by Linux
professionals.

Depth of Technical Expertise in Linux and Other Open Source Software

     VA Linux focuses on Linux-based solutions and has developed a comprehensive
understanding of its customers' Linux needs. In addition, by cultivating close
ties with the open source community, VA Linux has assembled a world-class team
of Linux software engineers and community professionals who collaborate on open
source development projects. As of January 28, 2000, VA Linux employed 59 Linux
and open source hardware and software professionals. Many of VA Linux's current
employees are leading contributors to open source projects. Notably, Intel has
contracted with VA Linux to port the Linux operating system to Intel's next
generation series of microprocessors which are used in computers. VA Linux
believes that its involvement in these projects and its investment in Linux
expertise helps position VA Linux as an integral member of the Linux development
community. This also helps enable VA Linux to remain abreast of technical
advances and react quickly to new developments. For more information regarding
VA Linux's contractual arrangement with Intel, see "VA Linux Related Party
Transactions."

High-Quality, Cost-Effective Solutions

     VA Linux offers high-quality systems that provide VA Linux's customers with
significantly lower total costs of system ownership. The Linux expertise of VA
Linux's engineers enables VA Linux to design servers, workstations and desktops
that are tuned for optimal performance, reliability and scalability in Linux
environments. VA Linux's engineers work with engineers of major component
vendors, such as Mylex and Matrox, to improve the performance of their
subsystems and components and ensure interoperability with Linux and other open
source products. VA Linux integrates widely available commodity hardware
components, popular Linux distributions and Linux service and support to deliver
comprehensive low-cost, high-quality industry-standard systems to VA Linux's
customers. By contrast, customers of other vendors are required to purchase
Linux service and support separately from their system provider, which adds
significantly to the total cost of their system.

Support for Multiple Linux Distributions

     VA Linux maintains Linux distribution neutrality by offering its customers
a variety of Linux distributions. This enables VA Linux to offer customers an
optimal distribution for their system or customize a publicly available
distribution to meet their specific needs. By remaining neutral, VA Linux
believes it offers the best open source software for its customers' needs and
can support specialized distributions which meet the requirements of different
geographic or vertical markets more rapidly and effectively than vendors of
single, general purpose distributions. In addition, VA Linux believes its
neutrality is well aligned with the goals of a broad section of the open source
developer community, thus improving VA Linux's ability to recruit and retain the
best community talent.

Extensive Internet Services

     As a Linux vendor, it is imperative that VA Linux maintains close
relationships with the open source developer community and offers a forum where
VA Linux's customers and open source community

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members can interact. VA Linux currently maintains several web sites that serve
VA Linux's customers and the open source community, including linux.com, VA
Linux's flagship open source portal. linux.com offers a central place for
sharing ideas and receiving information related to Linux and other open source
software, creating a conduit for customer and community exchange and providing
technical support. VA Linux's commitment to the open source community has
attracted significant support from its members which, in turn, keeps linux.com
up to date and content-rich through continuous contributions. linux.com and VA
Linux's other web sites received more than twelve million page views in February
2000.

STRATEGY

     VA Linux's objective is to enhance its position as a leading developer and
provider of advanced Linux and related open source solutions. Key elements of VA
Linux's strategy are to:

Continue to Demonstrate Technical Leadership in Linux and Related Open Source
Technologies

     As an open source technology leader, VA Linux will enhance its position in
the marketplace and reinforce its ability to bring high-quality solutions and
support to its customers. VA Linux intends to continue to recruit experts who
are fully engaged in open source development projects. VA Linux intends to
remain at the forefront of high-performance Linux systems and software
development, as demonstrated by VA Linux's development of high-density Linux
servers and VA Linux's software to manage groups of servers. Further, VA Linux
intends to leverage its business agreements with leading technology companies to
reduce the time-to-market for Linux support for emerging hardware technologies,
such as the porting of Linux to Intel's future 64-bit processor family.

Utilize VA Linux's Direct Distribution Model

     VA Linux intends to gain immediate feedback from customers on VA Linux's
designs and product quality by using a direct sales and distribution model. VA
Linux believes this will enable VA Linux to improve its solutions much faster
and more precisely than if VA Linux utilized a traditional reseller-distributor
model. By communicating VA Linux's users' critiques on open source software
reliability, usability and scalability to the open source community, VA Linux
believes VA Linux will facilitate improvements in the quality of open source
software. Furthermore, VA Linux intends to use the direct distribution model to
expand VA Linux's build-to-order fulfillment capability, minimize inventory
costs, increase margin and lower prices to VA Linux's customers. VA Linux
believes the direct model is the most effective means of reaching customers and
establishing long-term customer relationships.

Continue to Leverage the Internet

     As a company that specializes in Linux solutions, Internet strategies are
central to VA Linux's operations. VA Linux intends to continue to strengthen its
brand and its Internet presence through expansion of VA Linux's commercial web
site and its sponsorship of community-oriented sites like linux.com. VA Linux
also plans to use the Internet to enhance VA Linux's relationship with its
customers and suppliers by delivering highly customized order and account
information and offering creative self-service programs. Currently,
substantially all orders are placed through VA Linux's web site. In addition, VA
Linux will continue to engage in Internet-based strategies, which promote closer
ties between VA Linux's customers and the open source community. VA Linux
intends to build strong community relationships by providing Internet resources
to open source community members who want to lead or contribute to open source
projects. Finally, VA Linux intends to continue to use the Internet as a
research and development resource by involving the network of open source
engineers on the Internet in VA Linux's engineering projects.

Accelerate Development of the Open Source Market and Community

     VA Linux intends to continue to invest resources for the development of
open source technologies and the open source community. VA Linux intends to
increase the variety and quality of open source

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applications by encouraging its customers to join with members of the open
source community in application development. By promoting open source solutions,
VA Linux believes it will raise awareness of open source software capabilities.
VA Linux intends to increase the credibility of open source solutions and
educate customers who are currently unaware of the benefits of open source
solutions by partnering with established technology companies such as database
developers and Internet software providers.

Continue to Apply Open Source Practices Within VA Linux's Business and Products

     The popularity of Linux and other open source products demonstrates the
success of innovative, highly collaborative software development models. These
models have been made possible only in recent years through the widespread
availability of the Internet. VA Linux seeks opportunities to apply similar
models of Internet community collaboration across VA Linux's business, in such
areas as market research, product development and ongoing customer support. For
example, VA Linux is collaborating with more than 100 members of the open source
community to help develop a more secure version of Linux for use in university
computing environments. VA Linux will continue to embrace the open source model
not only in the creation of new products and services, but also in the overall
execution of VA Linux's business model.

Increase Brand Awareness

     VA Linux believes that continuing to build its brand is vital to VA Linux's
success in providing Linux-based solutions and strengthening VA Linux's presence
in the Linux and open source communities. VA Linux has established a reputation
for providing high-quality Linux systems and support and for promoting open
source community involvement. VA Linux intends to continue to promote VA Linux's
brand through a variety of campaigns, including promotion of linux.com and
related sites, public relations activities, and tightly-focused advertising
campaigns in computer-related publications and general business media. VA Linux
also intends to continue to contribute engineering resources, leadership,
systems and other services to open source development projects and to
community-wide support organizations, such as Linux International and the Linux
Standard Base.

PRODUCTS AND SERVICES

     VA Linux offers an end-to-end Linux-based solution for its customers that
includes systems, software and services. VA Linux's systems are designed to meet
the reliability and scalability requirements of Internet infrastructure and
other computing intensive markets. Unlike traditional systems vendors, VA Linux
designs its products exclusively around the Linux operating system. All of VA
Linux's systems and components are tested and configured for optimal Linux
compatibility and include support and service as a standard feature. In addition
to system support, VA Linux offers professional service capabilities that
provide in-depth Linux and other open source software expertise to VA Linux's
customers.

Computing Systems

     VA Linux sells a broad line of Linux desktop and server system, introduces
new configurations frequently and VA Linux's Linux systems are built to customer
specifications and can be optimized for a wide range of applications and
environments. VA Linux builds its products with standard components that adhere
to the Intel processor architecture and are carefully selected and tested for
optimal performance in Linux environments. VA Linux believes its comprehensive
testing methodology, combined with VA Linux's significant expertise in solving
hardware and software integration issues in Linux environments, assures its
customers that VA Linux's systems will not suffer from incompatibility problems.
VA Linux's design decisions reflect the benefit of VA Linux's direct channel
sales strategy, which provides VA Linux with early and frequent customer
feedback on product improvements.

     All of VA Linux's systems come pre-installed with a version of a popular
Linux distribution, which VA Linux customizes to enhance quality and performance
for its customers' particular application requirements. All improvements to
popular distributions are posted to the Internet in open source form
immediately, enabling VA Linux to maintain its standing as an active open source
community participant.

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     VA Linux has devoted significant engineering efforts to design its servers
for Internet-related applications. For example, VA Linux has focused on reducing
the height of its server designs to facilitate high-density installation. This
reduces VA Linux's customers' space requirements which can, among other things,
lower the costs of implementing VA Linux's systems in co-location facilities. VA
Linux's recently introduced FullOn model server product offers one of the
highest disk storage densities of any similar server system in the industry for
any operating system. In addition, VA Linux's FullOn model server product
features support for a configuration of multiple disks, which provide back-up in
the event of a system failure. VA Linux's FullOn model server product features a
dual processor configuration, which allows up to five 1.6 inch 10,000 revolution
per minute disk drives, any of which can be swapped while the system is running.

     VA Linux offers a broad range of desktop configurations, from value-priced
to high-performance models. VA Linux's high-performance desktops are designed
for computing-intensive applications, such as Linux development. Most of these
products feature a configuration of multiple disks, which provide back-up in the
event of a system failure, and external storage, which positions these products
as departmental file and database servers.

     VA Linux's customers benefit from a single point of contact for complete
system support. All of VA Linux's system sales include six software support
calls for the first 12 months, along with two day return-to-depot hardware
service. By contrast, customers of other vendors are often required to purchase
Linux service and support separately from their system provider, which adds
significantly to the total cost.

Service and Support

     VA Linux believes that in an open source computing environment an
integrated product and service organization is essential for the delivery of
effective and low-cost solutions. Because of the variability of open source
software and the challenges associated with integrating this continuously
evolving software with standard hardware packages, VA Linux believes only a
vendor that has expertise with both can maintain a strong standing in the open
source community and be in a position to select the best available software and
hardware products to provide high-quality, low-cost solutions to customers.

     Open Source Community Relationship. The quality of VA Linux's services is
dependent on the efforts and the expertise of members of the open source
community. It is imperative, therefore, that VA Linux continues to work
productively with these community members. VA Linux does so by actively
sponsoring, contributing to or otherwise supporting dozens of open source
projects. VA Linux established the linux.com web site to provide a neutral forum
for Linux information and links to other members of the open source community.
VA Linux has also developed other special purpose web sites, such as themes.org.
In addition, unlike some vendors of Linux distributions which act as
intermediaries between Linux users and developers, VA Linux helps establish
direct communication between VA Linux's customers and members of the development
community.

     Professional Services. VA Linux has recently established a professional
service organization that offers a comprehensive suite of services that reduce
VA Linux's customers' time to implement Linux-based infrastructure solutions and
improve the scalability and security of these solutions. These services include
planning, installation, systems integration, performance analysis and security
consulting of Linux solutions.

     Technical Support. VA Linux offers a broad range of Linux technical support
products under the product family "Total Linux Coverage" or "VA TLC." For its
commercial customers, VA Linux offers 24 hours a day, seven days a week access
to VA Linux's technical support specialists by telephone and the Internet. For
smaller customers or end users, VA Linux also offers per-incident technical
support products and upgrades through a toll-free telephone number and VA
Linux's web site. All products include comprehensive support for VA Linux's
systems and Linux software.

     Extended Warranties and Onsite Maintenance. As part of its Total Linux
Coverage product family, VA Linux offers customers a broad range of warranty and
onsite maintenance services. VA Linux's

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standard service options include next business day onsite response for systems
maintenance throughout North America and three year warranties for systems and
components. For its commercial customers, VA Linux offers same day priority
onsite response, with assigned technical support specialists for their specific
Linux configuration.

     Customer Service. VA Linux's customers can access phone and onsite support
across the United States and Canada 24 hours a day, seven days a week. VA Linux
has partnered with DecisionOne, a leading provider of computer maintenance and
support services, for the provision of call center and onsite service functions
to VA Linux's customers. VA Linux has trained DecisionOne employees, who are
dedicated to Linux support and who do not support any other systems vendors.

INTERNET OPERATIONS

     A central component of VA Linux's business strategy is to leverage the
Internet to enhance VA Linux's ties with the open source development community
and promote market acceptance of Linux solutions. The Internet is the primary
communication medium for open source community vendors and developers. In
addition, information about Linux is widely dispersed on the Internet.
Therefore, prominent web sites are important mechanisms for attracting open
source community members, providing a forum to link customers with other
community members, facilitating the initiation of open source projects and
promoting the growth of Linux-based solutions.

     In addition to VA Linux's support of numerous open source web sites through
the donation of systems, hosting and systems administration support, VA Linux
owns and manages several sites that are widely used by the open source community
and VA Linux's customer base.

     - linux.com is VA Linux's flagship web site, which contains news, links and
       articles of interest to open source community members. Its focus is on
       corporate Linux usage, customization and support.

     - themes.org is a repository of desktop themes. Desktop themes are
       background images, icons and other graphic customizations for the window
       systems used in Linux and popular Unix operating systems.

     - valinux.com is VA Linux's e-commerce site, which provides company and
       product information and allows customers to order customized systems as
       well as to access professional and customer support online.

     linux.com and themes.org are continually updated and enhanced with
significant content contributions from the open source community.

ENGINEERING

     VA Linux offers VA Linux's customers a broad range of technical expertise
in Linux-based systems and software design. As of January 28, 2000, VA Linux's
engineering organization consisted of 43 employees. VA Linux's organization
combines extensive knowledge of hardware architecture with in-depth expertise on
how to optimize the performance of Linux for these architectures.

Software Engineering

     As of January 28, 2000, VA Linux had 24 software engineers. These engineers
primarily work to advance Linux technology and customize popular Linux
distributions for VA Linux's customers. VA Linux participates in the development
of Linux and VA Linux's team includes many recognized technologists who have
made significant contributions to the Linux code base. As a result, VA Linux's
software engineers enjoy an in-depth understanding of the capabilities of the
Linux operating system. VA Linux's software engineers concentrate their efforts
on several Linux disciplines, including kernel and driver development;
distribution and product releases; and advanced projects, such as desktop and
graphics applications and software to manage groups of servers.

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Systems Engineering

     As of January 28, 2000, VA Linux had a staff of 16 engineers dedicated to
systems engineering and mechanical design. These engineers design VA Linux's
printed circuit boards, sheet metal chassis and molded plastic parts and have
significant expertise in designing high-density Intel processor-based systems,
including backplane and high-performance input/output design. VA Linux believes
its designs are industry leaders in storage density, clustering technology,
thermal management capabilities, manufacturability, reliability, serviceability
and low cost.

Open Source Development Projects

     VA Linux devotes some of its resources to, and encourages its employees to
be actively involved in, open source development projects. By contributing to
these projects, VA Linux's employees expand VA Linux's relationships with open
source community members, assist in improving open source software and remain
current with all developments in the open source community. VA Linux's employees
actively contribute to a variety of significant and ongoing Linux projects. The
following table highlights some of these efforts:

<TABLE>
<CAPTION>
      PROJECT                                   DESCRIPTION
      -------                                   -----------
<S>                     <C>
Linux Kernel            The core of the Linux operating system
XFree86                 A server for the Xwindow system that runs on Unix and
                        Unix-like systems
Enlightenment           Window manager for the Xwindow system
VACM                    Software to manage groups, or clusters, of servers
Samba                   A file server
Perl                    A programming language
Debian                  A Linux operating system distribution
Linux International     A Linux advocacy group
</TABLE>

CUSTOMERS

     VA Linux's Linux products and services are targeted primarily at Internet
infrastructure and scientific computing applications that demand highly scalable
and reliable solutions. VA Linux believes that sales related to Internet
infrastructure solutions will represent an increasing portion of VA Linux's
revenues. In addition, as Linux becomes more widely used, VA Linux sees a
significant opportunity to increase sales of Linux desktops. The following is a
representative list of VA Linux's customers, each from which VA Linux derived
more than $50,000 in revenues in fiscal 1999:

Akamai Technologies, Inc.
Amteva Technologies, Inc.
Argonne National Laboratory
Brookhaven National Laboratory
Cavalier Telephone
Cisco Systems, Inc.
CNET, Inc.
Connect Innovations, Inc.
Cox Interactive Media, Inc.
Donald Danforth Plant Sciences
  Center
Dartmouth College
eCollege.com
El Camino Resources
  International, Inc.
EMC Corporation
eToys Inc.
Exodus Communications, Inc.
Forman Interactive Corp.
France Telecom
Global Proximity Corporation
GTE Corporation
Hyseq, Inc.
Inabata America Corporation
Integral Access, Inc.
IX Development Laboratories
  Inc.
Linuxcare, Inc.
Lucent Technologies Inc.
Massachusetts Inst. of Tech.
Music Connection Corporation
NaviSite, Inc.
NeoPlanet, Inc.
Powerize.com, Inc.
Rainmaker Digital Inc.
Rhone-Poulenc Rorer Inc.
Sandia National Laboratories
Sarnoff Corporation
Stanford University
StarMedia Network, Inc.
Telestor SARL
TIBCO Software Inc.
Tucows.Com Inc.
24/7 Media, Inc.
Universidade Estadual Paulista
ViaNet Communications
Virtual Networks, Inc.
WinStar Communications, Inc.

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SALES AND MARKETING

     VA Linux sells its products and services primarily through VA Linux's
direct sales organization in the United States and Canada. VA Linux has entered
into an agreement with a reseller who will market VA Linux's products to the
U.S. government. As of January 28, 2000, VA Linux had 46 sales professionals
located in California, Colorado, Florida, Georgia, Illinois, Maryland,
Massachusetts, New York, North Carolina, Texas, Virginia, Washington D.C., and
Toronto, Ontario. VA Linux intends to expand its sales operations into Europe in
the future.

     VA Linux's sales personnel rely on VA Linux's commercial web site,
valinux.com, to expedite and process sales. valinux.com incorporates an advanced
ordering system that offers customers and the company a single point of order
entry. In January 2000, substantially all VA Linux's sales were processed
through VA Linux's web-based ordering system. Most of these orders resulted from
the efforts of VA Linux's direct sales personnel. VA Linux believes that, as VA
Linux builds brand name recognition and as market acceptance of Linux solutions
increases, a larger percent of sales will occur without direct salesperson
support.

     VA Linux continuously strives to associate its brand with Linux and the
open source community in general. VA Linux markets its products and services
aggressively through online advertising campaigns, traditional media advertising
programs, trade shows, Internet-based video seminars and through VA Linux's own
Internet portals. VA Linux's marketing efforts are both broad-based and focused
on specific market segments that represent significant short-term
lead-generation opportunities, such as the Internet infrastructure and
scientific computing markets. VA Linux's Internet infrastructure marketing
includes joint-marketing programs with co-location facilities, such as Abovenet.

MANUFACTURING

     With the exception of a small internal systems integration and prototyping
facility, VA Linux has relocated its internal manufacturing organization to
Synnex's manufacturing facility in Fremont, California. As of January 28, 2000,
Synnex and its affiliated entities owned approximately 0.91% of VA Linux's
common stock. VA Linux selected Synnex for its technical expertise in
build-to-order production and distribution, large scale component purchasing and
distribution capabilities and international operations. VA Linux's relationship
with Synnex has enabled VA Linux to reduce VA Linux's manufacturing and
component costs significantly. While all current volume manufacturing is
conducted in Fremont, California, VA Linux intends to initiate contract
manufacturing and distribution activities internationally with Synnex in the
United Kingdom, Japan and Taiwan should sales in those geographic regions grow
sufficiently. In addition, VA Linux may negotiate with other third party
manufacturers for international activities.

     Substantially all of VA Linux's functional test, quality assurance and
software loading software utilized by Synnex in the manufacturing process has
been developed and is owned by VA Linux. Testing and quality control processes
are also applied to components and parts. Synnex's build-to-order process
enables VA Linux to rapidly manufacture customized computer systems and to
achieve high inventory turnover rates and reduced inventory levels, which
lessens exposure to the risk of declining inventory values. This flexible
manufacturing process also enables VA Linux to quickly incorporate new
technologies and components into VA Linux's process quickly while mitigating the
risk of excess and obsolete inventories.

     By maintaining rigorous quality control processes, VA Linux is able to
supply high quality products. VA Linux tests components, parts and subassemblies
at various stages in the manufacturing process. VA Linux also conducts on-going
production reliability audits and defect tracking for early identification of
workmanship and component problems.

     Although most of VA Linux's components are standard products sold by
multiple vendors, some are available only from one source. For fiscal 2000, VA
Linux has a single source for power supplies, Converter Concepts, Inc., and a
single source for backplane circuit boards, motherboards and central

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processing units, Tyco International, both used in VA Linux's server products.
It would be difficult for VA Linux to identify other sources of supply if these
suppliers were unable to meet VA Linux's requirements for any reason. VA Linux
does not have binding long-term agreements with either Converter Concepts, Inc.
or Tyco International. Therefore, VA Linux is susceptible to supply shortages
and interruptions that could harm VA Linux's operating results. Furthermore,
overall market conditions affecting supply and pricing for key commodity
components are known to fluctuate significantly at times. Recently, the price of
memory chips has increased significantly. Increases in costs of key components
could harm VA Linux's results of operations.

     VA Linux continuously seeks to improve its manufacturing operating
efficiencies through the use of new technologies. For example, to facilitate
rapid and accurate ordering, manufacturing and fulfillment of products, VA Linux
has implemented a complete end-to-end e-commerce solution. VA Linux intends to
continue integrating additional order fulfillment, tracking and related
functionality into VA Linux's back-office systems.

COMPETITION

     VA Linux competes in markets that are new, intensely competitive, highly
fragmented and rapidly changing. VA Linux faces competition primarily from
computer vendors that provide solutions for distributed computing systems.

     Companies offering competitive products vary in scope and breadth of
products and services offered and include:

     - computer systems manufacturers such as Compaq, Dell, Hewlett-Packard, IBM
       and Sun Microsystems, all of which, except Sun Microsystems, have
       recently qualified their systems for Linux; and

     - Linux service and software vendors.

     VA Linux believes it competes favorably on the principal factors that will
draw end users to Linux systems, which include:

     - product functionality;

     - quality of product and product support;

     - total cost of ownership;

     - system performance at different price points;

     - reusability for multiple applications;

     - sales and distribution efficiency;

     - brand name recognition; and

     - quality and availability of professional services.

     To be competitive, VA Linux must respond promptly and effectively to the
challenges of technological change, evolving standards and VA Linux's
competitors' innovations by continuing to enhance VA Linux's products and grow
VA Linux's sales and professional services organizations. Any pricing pressures
or loss of potential customers resulting from VA Linux's failure to compete
effectively would reduce VA Linux's revenues.

     VA Linux expects competition in the computer systems market to increase
significantly as new companies enter the market and current competitors expand
their product lines and services. Many of these potential competitors are likely
to have substantial competitive advantages including:

     - greater resources that can be devoted to the development, promotion and
       sale of their products;

     - more established sales forces and channels;
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     - greater software development experience; and

     - greater name recognition.

INTELLECTUAL PROPERTY RIGHTS

     VA Linux's systems consist primarily of commodity hardware components in
combination with the Linux operating system and incorporate many distinct
software components developed by thousands of independent third parties. While
VA Linux has developed some proprietary techniques and know how, most of VA
Linux's activities and systems are not protectable as proprietary intellectual
property. To protect VA Linux's proprietary intellectual property, VA Linux
generally enters into confidentiality or license agreements with its employees,
consultants, and corporate partners. VA Linux has also recently commenced a
patent program and to date have filed one patent application. To date, VA Linux
has licensed almost all of VA Linux's software development projects under open
source licenses.

EMPLOYEES

     At January 28, 2000 VA Linux had a total of 208 employees, all of whom were
based in the United States and Canada. Of the total, 43 were in research and
development, 83 were engaged in sales and marketing, 20 were engaged in customer
and professional services activities and 62 were in administration, finance and
operations. None of VA Linux's employees are subject to a collective bargaining
agreement and VA Linux believes that its relations with its employees are good.

FACILITIES

     VA Linux's corporate headquarters facility, of approximately 45,000 square
feet, is located in Sunnyvale, California. VA Linux occupies its corporate
headquarters facility pursuant to a sublease that expires on September 30, 2000.
VA Linux expects to require additional space to meet its needs in the next 12
months. VA Linux is currently evaluating additional space in the local area. VA
Linux believes that suitable additional facilities will be available as needed
on commercially reasonable terms.

LEGAL PROCEEDINGS

     VA Linux is not currently a party to any material legal proceedings. VA
Linux may in the future be party to litigation arising in the course of its
business. These claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.

       MARKET FOR VA LINUX'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS

     VA Linux's initial public offering of its common stock was declared
effective by the Securities and Exchange Commission on December 9, 1999. VA
Linux's common stock has been traded on the Nasdaq National Market under the
symbol "LNUX" since December 9, 1999. Prior to that date, there was no public
market for VA Linux's common stock and, therefore, no quoted market prices for
VA Linux's common stock are available for the years ended July 31, 1999 and
1998. The following table lists quarterly information on the price range of VA
Linux common stock based on the high and low reported closing bid prices for VA
Linux common stock as reported on the Nasdaq Stock Market for the periods
indicated below:

<TABLE>
<CAPTION>
                                                               HIGH        LOW
                                                              -------    --------
<S>                                                           <C>        <C>
Fiscal Year Ending July 28, 2000:
  Second Quarter............................................  $242.88    $ 122.63
  Third Quarter (through April 25, 2000)....................  $136.88    $  28.94
</TABLE>

     On April 25, 2000, there were 41,405,424 shares of VA Linux's common stock
issued and outstanding, held by 281 holders of record, which number does not
include the number of shares issued in VA Linux's recent acquisitions of
NetAttach and TruSolutions. Because many of such shares are held by

                                       80
<PAGE>   84

brokers and other institutions on behalf of stockholders, VA Linux is unable to
estimate the total number of stockholders represented by these outstanding
shares.

     The market price of VA Linux's common stock has fluctuated since the date
of its initial public offering and is likely to fluctuate in the future. Factors
that may have a significant effect on the market price of VA Linux's common
stock include:

     - actual or anticipated quarterly variations in VA Linux's operating
       results

     - changes in expectations of future financial performance or changes in
       estimates of securities analysts

     - announcements of technological innovations

     - announcements relating to strategic relationships

     - customer relationship developments

     - conditions affecting the Internet or Linux industries, in general

     The stock market in general, and the market for technology and
Internet-related companies in particular, has experienced extreme volatility
that often has been unrelated to the operating performance of particular
companies. These broad market and industry fluctuations many adversely affect
the trading price of VA Linux's common stock, regardless of VA Linux's actual
operating performance.

     In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted. If this were to happen to VA Linux, litigation would be expensive
and would divert management's attention.

     VA Linux has never declared or paid any cash dividends on VA Linux's common
stock or other securities and does not anticipate paying cash dividends in the
foreseeable future.

                                       81
<PAGE>   85

                      SELECTED FINANCIAL DATA OF VA LINUX
                      (IN THOUSANDS EXCEPT PER SHARE DATA)

     You should read the selected financial data set forth below in conjunction
with "VA Linux's Management's Discussion and Analysis of Financial Condition and
Results of Operations" and VA Linux's financial statements and the related notes
included elsewhere in this proxy statement/prospectus. The statement of
operations data for the years ended July 31, 1997, 1998 and 1999 and the balance
sheet data as of July 31, 1998 and 1999 are derived from, and are qualified by
reference to, the audited financial statements and related notes appearing
elsewhere in this proxy statement/prospectus. The statements of operations data
from the period from January 9, 1995, the date of our inception, to July 31,
1995 and the year ended July 31, 1996 and the balance sheet data as of July 31,
1995 and 1996 are derived from unaudited financial statements not appearing in
this proxy statement/prospectus. The statement of operations data for the six
months ended January 31, 1999 and January 28, 2000 and the balance sheet data as
of January 28, 2000 are derived from the unaudited financial statements included
elsewhere in this proxy statement/prospectus. Historical results are not
necessarily indicative of results that may be expected for any future period.

<TABLE>
<CAPTION>
                                               PERIOD FROM
                                               JANUARY 9,
                                                  1995                                                  SIX MONTHS ENDED
                                               (INCEPTION)           YEAR ENDED JULY 31,            -------------------------
                                               TO JULY 31,   ------------------------------------   JANUARY 31,   JANUARY 28,
                                                  1995        1996      1997     1998      1999        1999          2000
                                               -----------   -------   ------   ------   --------   -----------   -----------
                                                                   (IN THOUSANDS, EXCEPT PER SHARE DATA)   (UNAUDITED)
<S>                                            <C>           <C>       <C>      <C>      <C>        <C>           <C>
STATEMENTS OF OPERATIONS DATA:
  Net revenues...............................    $ 1,135     $ 2,257   $2,743   $5,556   $ 17,710     $ 5,605      $ 35,039
  Cost of revenues...........................        747       1,991    2,562    4,494     17,766       5,377        30,243
                                                 -------     -------   ------   ------   --------     -------      --------
    Gross margin.............................        388         266      181    1,062        (56)        228         4,796
  Operating expenses:
    Sales and marketing......................         21          27      310      382      5,183         583        12,175
    Research and development.................         86         144      115      180      3,189         264         5,205
    General and administrative...............        170         264      218      427      3,791         790         3,154
    Amortization of deferred stock
      compensation...........................         --          --       --       --      2,312         489         7,113
                                                 -------     -------   ------   ------   --------     -------      --------
        Total operating expenses.............        277         435      643      989     14,475       2,126        27,647
                                                 -------     -------   ------   ------   --------     -------      --------
  Income (loss) from operations..............        111        (169)    (462)      73    (14,531)     (1,898)      (22,851)
  Interest and other income (expense), net...         --          (1)     (12)      11         19         (14)        1,235
                                                 -------     -------   ------   ------   --------     -------      --------
  Net income (loss)..........................    $   111     $  (170)  $ (474)  $   84   $(14,512)    $(1,912)     $(21,616)
                                                 =======     =======   ======   ======   ========     =======      ========
  Dividend related to convertible preferred
    stock....................................    $    --     $    --   $   --   $   --   $     --     $    --      $ (4,900)
                                                 =======     =======   ======   ======   ========     =======      ========
  Net income (loss) attributable to common
    stockholders.............................    $   111     $  (170)  $ (474)  $   84   $(14,512)    $(1,912)     $(26,516)
                                                 =======     =======   ======   ======   ========     =======      ========
  Basic net income (loss) per share..........    $  0.01     $ (0.01)  $(0.05)  $ 0.02   $  (2.62)    $ (0.46)     $  (1.73)
                                                 =======     =======   ======   ======   ========     =======      ========
  Diluted net income (loss) per share........    $  0.01     $ (0.01)  $(0.05)  $ 0.01   $  (2.62)    $ (0.46)     $  (1.73)
                                                 =======     =======   ======   ======   ========     =======      ========
  Shares used in computing basic net income
    (loss) per share.........................     15,000      15,000    9,467    5,100      5,530       4,152        15,372
                                                 =======     =======   ======   ======   ========     =======      ========
  Shares used in computing diluted net income
    (loss) per share.........................     15,000      15,000    9,467   12,249      5,530       4,152        15,372
                                                 =======     =======   ======   ======   ========     =======      ========
  Pro forma basic net loss per share
    (unaudited)..............................                                            $  (1.01)    $ (0.23)     $  (0.90)
                                                                                         ========     =======      ========
  Shares used in computing pro forma basic
    net loss per share (unaudited)...........                                              14,317       8,464        29,412
                                                                                         ========     =======      ========
</TABLE>

<TABLE>
<CAPTION>
                                                                            JULY 31,
                                                              -------------------------------------   JANUARY 28,
                                                              1995   1996   1997    1998     1999        2000
                                                              ----   ----   ----   ------   -------   -----------
                                                              (UNAUDITED)                             (UNAUDITED)
<S>                                                           <C>    <C>    <C>    <C>      <C>       <C>
BALANCE SHEET DATA:
  Cash and cash equivalents.................................  $ 21   $147   $ 20   $   62   $18,653    $148,510
  Working capital...........................................   341    129     12     (214)   16,230     146,981
  Total assets..............................................   380    304    591    1,195    27,595     165,255
  Long-term obligations, less current portion...............    50     --     --      275       424         575
  Total stockholders' (deficit) equity......................   319    149     45     (420)   18,363     150,144
</TABLE>

     See Note 2 of Notes to Financial Statements for an explanation of the
determination of the shares used in computing basic and diluted net income
(loss) per share.

                                       82
<PAGE>   86

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

     The following discussion and analysis should be read in conjunction with
"Selected Financial Data of VA Linux" and VA Linux's financial statements and
related notes included elsewhere in this proxy statement/prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. VA Linux's actual results could differ materially from those
anticipated in the forward-looking statements as a result of certain factors
including the risks related to VA Linux's business discussed in "Risk Factors"
and elsewhere in this proxy statement/prospectus.

OVERVIEW

     VA Linux is a leading provider of complete Linux-based solutions,
integrating systems, software and professional services. VA Linux's broad-based
technical expertise in systems and software design, as well as VA Linux's focus
on the Linux operating system and related open source solutions, enables VA
Linux to provide high-quality Linux systems designed for optimal performance,
reliability and scalability.

     VA Linux was founded in January 1995, and grew very modestly until the end
of fiscal 1998. Since July 31, 1998, however, VA Linux has experienced
significant growth and has invested in hiring engineers with Linux expertise,
growing VA Linux's direct sales force to better penetrate the market for Linux
products and marketing VA Linux's brand. To further implement these strategies,
VA Linux expanded operations, customer support and administrative
infrastructure. As a result, VA Linux's employee base has grown from 15 at July
31, 1998 to 208 on January 28, 2000, and VA Linux's operating expenses grew
significantly. This rapid growth has placed significant demands on VA Linux's
management and operational resources. Since VA Linux's inception, VA Linux has
incurred significant losses. At January 28, 2000, VA Linux had an accumulated
deficit of $41.5 million.

     VA Linux's prospects must be considered in light of the risks, expenses and
difficulties frequently encountered by companies in their early stage of
development, particularly companies in new and rapidly evolving markets. These
risks for VA Linux include the emerging market for Linux products and VA Linux's
ability to successfully manage VA Linux's growth. To address these risks, VA
Linux must:

     - develop and increase VA Linux's customer base;

     - implement and successfully execute VA Linux's business and marketing
       strategy;

     - continue to develop, introduce, market and sell new products and
       services;

     - successfully respond to competitive developments; and

     - attract, retain and motivate quality personnel.

     Net revenue in the second quarter of fiscal 2000 grew sequentially by 36.5%
to $20.2 million compared to $14.8 million for the first quarter of fiscal 2000.
The net revenue growth was based primarily on increased sales of VA Linux's
server products. To date, substantially all of VA Linux's revenues have been
derived from sales of systems and related customer support. Sales of VA Linux's
servers accounted for approximately 59% of VA Linux's net revenues in fiscal
1999, approximately 88% in the quarter ended October 29, 1999 and 91% in the
quarter ended January 28, 2000. While VA Linux expects sales of VA Linux's
desktop and storage products to increase, current and future generations of VA
Linux's server product families will continue to represent a significant
majority of VA Linux's net revenues through fiscal 2000.

     VA Linux has targeted the Internet market for strategic emphasis. This
segment includes customers in the ISP, ASP, web caching and e-tailing
businesses. In the second quarter of fiscal 2000, sales to customers in this
segment represented 61% of VA Linux's revenue. The scientific market is also an
important market for VA Linux and represented 15% of VA Linux's revenue. VA
Linux expects that these two market segments will continue to be the central
focus of VA Linux's sales efforts.

                                       83
<PAGE>   87

     VA Linux recognizes revenues from product sales upon shipment. VA Linux
does not grant any rights to VA Linux's customers to return products. VA Linux
also provides allowances for warranty costs at the time of shipment. Customer
support fees are recognized ratably over the term of the service contract.

     VA Linux sells Linux expertise. This expertise is based upon VA Linux's
knowledge of Linux and other open source software and is delivered through sales
and support of VA Linux's hardware and through the delivery of professional
services. Professional services were 1.5% of VA Linux's net revenue for the
three month period ending January 28, 2000 as compared to 0% of VA Linux's net
revenue for the three month period ending January 31, 1999.

     VA Linux believes that the computer industry is generally characterized by
significant demand for professional services. In September 1999, VA Linux
established its professional services organization to expand its existing
customer service and support offerings to better address the demand for Linux
expertise from VA Linux's customers. This organization offers a number of
services, including systems architecture and planning, deployment and
installation, system integration, open source product implementation,
performance analysis and security consulting services.

     Professional services revenues are recognized upon project completion, or
by the percentage completion of a project where cost can be reasonably
estimated. Any payments made prior to completion are recorded as deferred
revenue.

     Prior to January 1999, VA Linux sold its products to customers primarily in
response to telephone inquiries. During the third quarter of fiscal 1999, VA
Linux began implementing its direct sales strategy. VA Linux's direct sales
organization consists of field sales, telesales and sales support personnel.
Although indirect sales have been insignificant to date, VA Linux may pursue
selective channel opportunities to supplement VA Linux's direct sales efforts.
In addition, VA Linux's valinux.com web site permits customers to configure and
order products online, allowing VA Linux to more efficiently sell products and
facilitate order processing. Substantially all of VA Linux's sales were
processed through this web site. VA Linux intends to continue to enhance its
e-commerce solutions to foster closer relationships with VA Linux's customers
and improve the efficiency of VA Linux's sales process.

     To date, substantially all of VA Linux's sales have been in North America.
VA Linux expects to launch sales and marketing efforts internationally during
fiscal 2000, initially focusing on Europe. However, VA Linux expects
international revenues to represent a relatively small percent of VA Linux's
revenues, if any, in fiscal 2000.

     VA Linux outsources virtually all of its manufacturing and supply chain
management operations, including inventory management and component procurement,
to Synnex, VA Linux's contract manufacturer. VA Linux provides Synnex with five
month rolling forecasts based on anticipated product orders. Synnex uses these
forecasts to purchase components for VA Linux's products. If VA Linux
overestimates its component requirements, Synnex may have excess inventory,
which would increase VA Linux's costs. If VA Linux underestimates its component
requirements, Synnex may have inadequate inventory, which could interrupt their
manufacturing of VA Linux's products and result in delays in system shipments.
Any of these events could harm VA Linux's business and results of operations. VA
Linux's agreement with Synnex may be terminated for any reason at any time on
delivery of 120 days advanced notice. A substantial majority of VA Linux's cost
of revenues currently consists of payments to Synnex. Cost of revenues also
includes costs associated with VA Linux's customer support and professional
services. Customer support costs include payments made to DecisionOne, which
provides call-center and onsite service functions to VA Linux's customers. VA
Linux expects revenues from professional services to carry a higher gross margin
than VA Linux's product revenues. VA Linux believes that future gross margin
will primarily be affected by:

     - changes in components and manufacturing costs;

     - the volume and mix of products and services sold;

     - new product introductions both by VA Linux and VA Linux's competitors;

                                       84
<PAGE>   88

     - changes in VA Linux's pricing policies and those of VA Linux's
       competitors;

     - the size of customer orders; and

     - the mix of domestic and international sales.

     Prior to October 1998, VA Linux operated as a small closely-held company.
As such, VA Linux did not have the types of operational and financial controls
normally implemented by growing enterprises. During the second half of fiscal
1999, VA Linux implemented or updated VA Linux's operational and financial
systems, procedures and controls, including the implementation of an enterprise
resource planning system and an Internet-based ordering system. VA Linux's
systems will continue to require additional modifications and improvements, and
possibly new systems, to respond to future changes in VA Linux's business.
Implementation of these modifications and improvements or new systems could be
disruptive to VA Linux's business.

     In connection with the grant of stock options to employees during fiscal
1999 and the first six months of fiscal 2000, VA Linux recorded deferred stock
compensation of $14.4 million and $23.3 million, respectively, representing the
difference between the deemed fair market value of the common stock for
accounting purposes and the exercise price of these options as of the date of
grant. Deferred compensation is presented as a reduction of stockholders' equity
and is amortized on an accelerated basis over the vesting period of the
applicable options, generally four years. VA Linux expensed $4.3 million and
$7.1 million of deferred compensation during the three and six months ended
January 28, 2000. Based on option grant activity through January 28, 2000, VA
Linux expects to amortize deferred stock compensation of $9.2 million during the
remaining six months of fiscal 2000.

     On March 28, 2000, VA Linux acquired TruSolutions, Inc. ("TruSolutions")
for consideration of approximately 938,000 shares of VA Linux's common stock
(assuming a valuation of $75.06 per share of VA Linux's common stock based on
the five-day average closing price of VA Linux common stock beginning on March
21, 2000) and cash of approximately $10.0 million. The purchase agreement also
contains additional payments to be made in common stock, which are solely
contingent upon continued employment of certain key employees of TruSolutions
for a period of three years. Maximum future payments contingent on employment of
the key employees is $119.6 million in stock (approximately 1,593,000 shares
valued at $75.06 per share) and is payable after 12 months, 24 months and 36
months (approximately 613,000 shares, 613,000 shares, and 367,000 shares,
respectively). The contingent payments will be accounted for as compensation
expense over the term of the employment condition and not as part of the
purchase price. Upon consummation of the merger, VA Linux established an escrow
for these future payments. TruSolutions is a leading manufacturer of rackmount
servers based on the Pentium III, Xeon and UltraSPARC processors specializing in
low profile, high performance systems designed for the Internet Data Center,
ISP, ASP, and OEM.

     On April 5, 2000, VA Linux acquired NetAttach, Inc. ("NetAttach") for
consideration of approximately 396,000 shares of VA Linux's common stock
(assuming a valuation of $62.18 per share of VA Linux's common stock based on
the five-day average closing price of VA Linux common stock beginning on March
29, 2000) and cash of $10.0 million. The purchase agreement also contains
additional payments to be made in common stock which are solely contingent upon
continued employment of certain key employees for a period of two years. Maximum
future payments contingent on employment of these key employees is $5.6 million
in stock (approximately 87,000 shares valued at $62.18 per share) and are
payable on the two-year anniversary date of the merger. The contingent payments
will be accounted for as compensation expense over the term of the employment
condition and not as part of the purchase price. Upon consummation of the
merger, VA Linux established an escrow for these future payments. NetAttach
provides high-availability data-appliances for mission-critical deployment in
corporate services or engineering environments.

                                       85
<PAGE>   89

RESULTS OF OPERATIONS

     Although VA Linux has included a discussion of its results of operations
for each of the three fiscal years ended July 31, 1999, VA Linux's significant
growth during the last fiscal year and the first six months of fiscal 2000 makes
period-to-period comparisons involving periods prior to the fiscal year ended
July 31, 1998 less meaningful than an analysis of more recent annual and
quarterly operating results. Accordingly, this discussion and analysis of VA
Linux's operating results is primarily focused on comparisons between fiscal
1998 and 1999 and the first six months of fiscal 2000. The following table sets
forth financial data for the periods indicated as a percent of net revenues:

<TABLE>
<CAPTION>
                                                                                       SIX MONTHS ENDED
                                                         YEAR ENDED JULY 31,      --------------------------
                                                       -----------------------    JANUARY 31,    JANUARY 28,
                                                       1997     1998     1999        1999           2000
                                                       -----    -----    -----    -----------    -----------
<S>                                                    <C>      <C>      <C>      <C>            <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues.........................................  100.0%   100.0%   100.0%      100.0%         100.0%
Cost of revenues.....................................   93.4     80.9    100.3        95.9           86.3
                                                       -----    -----    -----       -----          -----
    Gross margin.....................................    6.6     19.1     (0.3)        4.1           13.7
                                                       -----    -----    -----       -----          -----
Operating expenses:
  Sales and marketing................................   11.3      6.9     29.3        10.4           34.7
  Research and development...........................    4.2      3.2     18.0         4.7           14.9
  General and administrative.........................    7.9      7.7     21.4        14.1            9.0
  Amortization of deferred stock compensation........     --       --     13.0         8.7           20.3
                                                       -----    -----    -----       -----          -----
    Total operating expenses.........................   23.4     17.8     81.7        37.9           78.9
                                                       -----    -----    -----       -----          -----
Income (loss) from operations........................  (16.8)     1.3    (82.0)      (33.8)         (65.2)
Interest and other income (expense), net.............   (0.5)     0.2      0.1         0.2            3.5
                                                       -----    -----    -----       -----          -----
    Net income (loss)................................  (17.3)     1.5    (81.9)      (34.0)         (61.7)
Dividend related to convertible preferred stock......     --       --       --          --          (14.0)
                                                       -----    -----    -----       -----          -----
Net income (loss) applicable to common
  stockholders.......................................  (17.3)%    1.5%   (81.9)%     (34.0)%        (75.7)%
                                                       =====    =====    =====       =====          =====
</TABLE>

YEARS ENDED JULY 31, 1998 AND 1999

Net Revenues

     Net revenues increased from $2.7 million in fiscal 1997, to $5.6 million in
fiscal 1998, to $17.7 million in fiscal 1999. Net revenues for each period
increased due to an increase in VA Linux's customer base from approximately 300
customers in fiscal 1997, to approximately 550 customers in fiscal 1998, to more
than 1,100 customers in fiscal 1999. Additionally, VA Linux's average level of
business with each customer increased during this period from approximately
$9,000 per year in fiscal 1997, to approximately $10,000 per year in fiscal
1998, to more than $15,000 per year in fiscal 1999. Growth of net revenues from
fiscal 1998 to fiscal 1999 benefited from the introduction of VA Linux's new
server product designed for the Internet market late in the second quarter of
fiscal 1999. This new product helped increase overall sales of VA Linux's server
products. In the fourth quarter of fiscal 1999, sales of VA Linux's server
products accounted for approximately 85% of net revenues. VA Linux also believes
this increase in sales reflected the growing market acceptance of Linux and
related open source software. A majority of VA Linux's systems are sold to
customers deploying or expanding Internet infrastructure environments. VA Linux
believes that sales of VA Linux's Internet infrastructure solutions will
represent an increasing portion of VA Linux's revenues.

Cost of Revenues

     Cost of revenues increased from $2.6 million in fiscal 1997, to $4.5
million in fiscal 1998, to $17.8 million in fiscal 1999. Gross margin increased
as a percent of net revenues from 6.6% in fiscal 1997, to 19.1% in fiscal 1998,
primarily due to increased sales volume and the introduction of new products. In
fiscal 1999, gross margin declined to negative 0.3%. This decline was due to
three factors. The largest factor was costs associated with establishing and
moving VA Linux's manufacturing activities to

                                       86
<PAGE>   90

VA Linux's initial contract manufacturer. This represented approximately 50% of
the decline. The second factor was the establishment of VA Linux's technical
support organization and increased headcount in VA Linux's manufacturing
operations, which represented approximately 30% of the decline. The third factor
was increased component costs due to VA Linux's transitioning to more dependable
component suppliers. To become more competitive, VA Linux transferred VA Linux's
manufacturing operations to Synnex in July 1999. While VA Linux incurred
additional expenses in connection with this move, VA Linux believes that
Synnex's position as a distributor of Intel architecture components and other
subsystems, its focus on build-to-order processes and its expertise in material
management will reduce VA Linux's future product costs. In addition, VA Linux
anticipates that VA Linux's gross margins will improve if unit volume increases
and VA Linux successfully markets VA Linux's professional services.

Sales and Marketing Expenses

     Sales and marketing expenses consist of salaries, commissions and related
expenses for personnel engaged in marketing, sales and sales support functions,
as well as costs associated with trade shows, advertising and promotional
activities. Sales and marketing expenses increased from approximately $310,000
in fiscal 1997, to approximately $382,000 in fiscal 1998, to $5.2 million in
fiscal 1999. Sales and marketing expenses as a percent of net revenues were
11.3% in fiscal 1997, 6.9% in fiscal 1998 and 29.3% in fiscal 1999.
Approximately 70% of the increase in absolute dollars from fiscal 1998 to fiscal
1999 was due to an increase in sales and marketing personnel from two at the end
of fiscal 1998 to 66 at the end of fiscal 1999. Of these 66 employees, 34 were
engaged in sales and 32 were engaged in marketing. The remainder of the increase
was due to the launch and ongoing implementation of VA Linux's branding and
other marketing campaigns. VA Linux intends to expand VA Linux's sales and
marketing activities substantially, both domestically and internationally, in
order to increase market awareness and sales of VA Linux's products.
Accordingly, VA Linux expects VA Linux's sales and marketing expenses to
continue to increase in absolute dollars.

Research and Development Expenses

     Research and development expenses consist of payroll and related expenses
for software and hardware engineers and cost of materials for prototyping and
testing units. VA Linux expenses all of VA Linux's research and development
costs as they are incurred. Research and development expenses increased from
approximately $115,000 in fiscal 1997, to approximately $180,000 in fiscal 1998,
to $3.2 million in fiscal 1999. Research and development expenses as a percent
of net revenues were 4.2% in fiscal 1997, 3.2% in fiscal 1998 and 18.0% in
fiscal 1999. Approximately 60% of the increase in absolute dollars from fiscal
1998 to fiscal 1999 was due to an increase in research and development personnel
from two at the end of fiscal 1998 to 29 at the end of fiscal 1999. The
remainder of the increase was due to increased spending for material for new
product development. VA Linux believes that a significant level of investment in
system design, open source software and other research and development
initiatives is required to remain competitive. Accordingly, VA Linux expects
research and development expenses to continue to increase in absolute dollars on
an annual basis.

General and Administrative Expenses

     General and administrative expenses consist of salaries and related
expenses for finance and administrative personnel, professional fees and costs
associated with implementing and expanding VA Linux's information systems.
General and administrative expenses increased from approximately $218,000 in
fiscal 1997, to approximately $427,000 in fiscal 1998, to $3.8 million in fiscal
1999. General and administrative expenses as a percent of net revenues were 7.9%
in fiscal 1997, 7.7% in fiscal 1998 and 21.4% in fiscal 1999. Approximately 60%
of the increase in absolute dollars from fiscal 1998 to fiscal 1999 was due to
an increase in administrative personnel from six at the end of fiscal 1998 to 28
at the end of fiscal 1999. The remainder of the increase was due to expenses
necessary to support VA Linux's increased operations, including the
implementation of a new management information system. VA Linux intends to add
personnel to expand VA Linux's information infrastructure and to support VA
Linux's operation as a

                                       87
<PAGE>   91

public company. As a result, VA Linux expects general and administrative
expenses to increase in absolute dollars on an annual basis.

Amortization of Deferred Stock Compensation

     In connection with the grant of stock options to employees during fiscal
1999, VA Linux recorded deferred stock compensation of $14.4 million. VA Linux
amortized $2.3 million of deferred stock compensation in fiscal 1999. VA Linux
did not record any deferred stock compensation or amortization in fiscal 1997 or
fiscal 1998.

Interest and Other Income (Expense), Net

     Interest and other income, net includes income from VA Linux's cash
investments net of other expenses. VA Linux had net interest and other expense
of approximately $12,000 in fiscal 1997, and net interest and other income of
approximately $11,000 in fiscal 1998 and approximately $19,000 in fiscal 1999.
The increase from fiscal 1998 to fiscal 1999 was primarily due to an increase in
interest income earned on proceeds from issuances of convertible preferred
stock.

Income Taxes

     As of July 31, 1999, VA Linux had $10.8 million of federal and $5.2 million
of state net operating loss carryforwards for tax reporting purposes available
to offset future taxable income. The federal net operating loss carryforwards
expire at various dates through 2019 to the extent that they are not utilized.
VA Linux has not recognized any benefit from these net operating loss
carryforwards because of uncertainty surrounding their realization. The amount
of net operating losses that VA Linux can utilize is limited under tax
regulations because VA Linux has experienced a cumulative stock ownership change
of more than 50% over the last three years.

SIX MONTHS ENDED JANUARY 28, 2000 AND JANUARY 31, 1999

Net Revenues

     Net revenues for the six months ended January 28, 2000 increased by 525% to
$35.0 million compared to $5.6 million for the six months ended January 31,
1999. Sales growth was primarily attributable to the strength of VA Linux's
server products designed for the Internet market and an increase in VA Linux's
customer base. Virtually all of VA Linux's sales are to customers in the United
States and Canada.

     For the six months ended January 28, 2000, VA Linux's top ten customers
accounted for approximately 38.5% of net revenues. For the six months ended
January 31, 1999, VA Linux's top ten customers accounted for 21.3% of net
revenues. Akamai Technologies, which represented 12.1% of net revenues, was the
only customer to account for more than 10% of net revenues in the first six
months ended January 28, 2000. No other customer accounted for more than 10% of
net revenues during any of the periods presented.

     In the six months ended January 28, 2000, revenue from professional
services was $0.3 million, compared to zero revenue for the six months ended
January 31, 1999.

Cost of Revenues

     Cost of revenues for the first six months ended January 28, 2000 increased
to $30.2 million from $5.4 million for the six months ended January 31, 1999.
The gross margin percentage was 13.7% for the six months ended January 28, 2000,
as compared to 4.1% for the six months ended January 31, 1999. The improved
margins were due to lower component costs as VA Linux benefited from VA Linux's
relationship with a different contract manufacturer, Synnex, and continued
leverage of VA Linux's manufacturing and customer support infrastructure as unit
volumes increased. There was no significant contribution from professional
services to gross margins during this fiscal quarter. VA Linux expects

                                       88
<PAGE>   92

continued sequential improvement in VA Linux's gross margins going forward due
to increased revenues from VA Linux's professional services, increased unit
volumes which allow VA Linux to gain certain cost advantages, and the
introduction of new products.

Sales And Marketing Expenses

     In absolute dollars, sales and marketing expenses increased to $12.2
million for the six months ended January 28, 2000 from $0.6 million for the six
months ended January 31, 1999. For the six months ended January 28, 2000 the
increase reflects expenses associated with sales growth, increased marketing
infrastructure and branding activities, and non-recurring non-cash charges
associated with stock options issued for recruiting and marketing services
incurred prior to VA Linux's initial public offering. Sales and marketing
expenses were 34.7% of net revenues for the six months ended January 28, 2000,
an increase of 24.3 percentage points when compared to six months ended January
31, 1999. The increase as a percentage of net revenues was due to the planned
investment in infrastructure to support expected future growth. Excluding the
one-time non-cash charges, sales and marketing expense would have been 30.3% of
net revenues for the second quarter of fiscal 2000. VA Linux expects that sales
and marketing expense will increase in absolute dollars in the future but is
expected to decline as a percentage of net revenues.

Research and Development Expenses

     Research and development expenses consist of payroll and related expenses
for software and hardware engineers and cost of materials for prototyping and
testing units. VA Linux expenses all of VA Linux's research and development
costs as they are incurred. Research and development, as a percentage of net
revenues, was 14.9% for the six month period ended January 28, 2000 and was 4.7%
for the six month period ended January 31, 1999. In absolute dollars, research
and development expenses increased to $5.2 million for the six months ended
January 28, 2000 from $0.3 million for the six months ended January 31, 1999.
The increase in both absolute dollars and as a percentage of net revenues was
due to an increase in engineering personnel and spending for prototyping
material for new product development. VA Linux believes that a significant level
of investment in system design, open source software and other research and
development initiatives is required to remain competitive. Accordingly, VA Linux
expects research and development expenses to continue to increase in absolute
dollars and as a percentage of net revenues in the future.

General and Administrative Expenses

     General and administrative expenses consist of salaries and related
expenses for finance and administrative personnel, professional fees and costs
associated with implementing and expanding VA Linux's information systems.
General and administrative expenses, as a percentage of net revenues, were 9.0%
in the six months ended January 28, 2000, a decrease of 5.1 percentage points
when compared to the six months ended January 31, 1999. In absolute dollars,
general and administrative expenses increased to $3.2 million for the six months
ended January 28, 2000 from $0.8 million for the six months ended January 31,
1999. The increase in absolute dollars was due to an increase in administrative
personnel and the associated costs to support VA Linux's increased operations.
VA Linux intends to add personnel to expand VA Linux's information
infrastructure and to support VA Linux's operation as a public company. As a
result, VA Linux expects general and administrative expenses to increase in
absolute dollars, but decrease as a percentage of net revenues in the future.

Amortization of Deferred Stock Compensation

     In connection with the grant of stock options to employees during fiscal
1999 and prior to VA Linux's initial public offering in fiscal 2000, we expensed
deferred stock compensation of $7.1 million and $0.5 million for the six months
ended January 28, 2000 and six months ended January 31, 1999, respectively. We
expect to expense $4.6 million of deferred stock compensation in each of the
next two quarters of fiscal 2000.

                                       89
<PAGE>   93

Interest and Other Income (Expense), Net

     Interest and other income (expense) net includes income from VA Linux's
cash investments net of other expenses. Net interest and other income (expense)
of $1.1 million in the three months ended January 28, 2000 and $1.2 million for
the six months ended January 28, 2000 increased from virtually zero when
compared to the same periods in the prior year. The increase was due to an
increase in interest income earned on proceeds from the issuance of common stock
as a result of VA Linux's initial public offering.

Income Taxes

     As of January 28, 2000, VA Linux had federal and state net operating loss
carryforwards for tax reporting purposes available to offset future taxable
income. The federal net operating loss carryforwards expire at various dates
through 2019 to the extent that they are not utilized. VA Linux has not
recognized any benefit from these net operating loss carryforwards because of
uncertainty surrounding their realization. The amount of net operating losses
that VA Linux can utilize is limited under tax regulations because VA Linux has
experienced a cumulative stock ownership change of more than 50% over the last
three years.

                                       90
<PAGE>   94

QUARTERLY RESULTS OF OPERATIONS

     The following table presents VA Linux's operating results for each of the
six quarters in the period ending January 28, 2000. The information for each of
these quarters is unaudited and has been prepared on the same basis as VA
Linux's audited financial statements appearing elsewhere in this proxy
statement/prospectus. In the opinion of management, all necessary adjustments,
consisting only of normal recurring adjustments, have been included to present
fairly the unaudited quarterly results when read in conjunction with VA Linux's
audited financial statements and related notes. VA Linux has experienced, and
expects to continue to experience, fluctuations in operating results from
quarter to quarter. Historical operating results are not necessarily indicative
of the results that may be expected for any future period.

<TABLE>
<CAPTION>
                                                                         QUARTER ENDED
                                        --------------------------------------------------------------------------------
                                        OCTOBER 31,   JANUARY 31,    APRIL 30,    JULY 31,    OCTOBER 29,    JANUARY 28,
                                           1998          1999          1999         1999         1999           2000
                                        -----------   -----------    ---------    --------    -----------    -----------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                     <C>           <C>            <C>          <C>         <C>            <C>
STATEMENTS OF OPERATIONS DATA:
Net revenues..........................    $2,435        $ 3,170       $ 4,270     $ 7,835      $ 14,848       $ 20,191
Cost of revenues......................     2,053          3,324         4,295       8,094        12,887         17,356
                                          ------        -------       -------     -------      --------       --------
    Gross profit......................       382           (154)          (25)       (259)        1,961          2,835
                                          ------        -------       -------     -------      --------       --------
Operating expenses:
  Sales and marketing.................       177            406         1,326       3,274         5,064          7,111
  Research and development............        48            216           410       2,515         2,774          2,431
  General and administrative..........       136            654         1,146       1,855         1,496          1,658
  Amortization of deferred stock
    compensation......................       118            371           505       1,318         2,855          4,258
                                          ------        -------       -------     -------      --------       --------
    Total operating expenses..........       479          1,647         3,387       8,962        12,189         15,458
                                          ------        -------       -------     -------      --------       --------
Loss from operations..................       (97)        (1,801)       (3,412)     (9,221)      (10,288)       (12,623)
Interest and other income (expense),
  net.................................        --            (14)           --          33           173          1,062
                                          ------        -------       -------     -------      --------       --------
    Net loss..........................       (97)        (1,815)       (3,412)     (9,188)      (10,055)       (11,561)
Dividend related to convertible
  preferred stock.....................        --             --            --          --        (4,900)            --
                                          ------        -------       -------     -------      --------       --------
Net loss attributable to common
  stockholders........................    $  (97)       $(1,815)      $(3,412)    $(9,188)     $(14,955)      $(11,561)
                                          ======        =======       =======     =======      ========       ========

AS A PERCENT OF NET REVENUE:
Net revenues..........................     100.0%         100.0%        100.0%      100.0%        100.0%         100.0%
Cost of revenues......................      84.3          104.9         100.6       103.3          86.8           86.0
                                          ------        -------       -------     -------      --------       --------
    Gross margin......................      15.7           (4.9)         (0.6)       (3.3)         13.2           14.0
                                          ------        -------       -------     -------      --------       --------
Operating expenses:
  Sales and marketing.................       7.3           12.8          31.1        41.8          34.1           35.2
  Research and development............       2.0            6.8           9.6        32.1          18.7           12.0
  General and administrative..........       5.6           20.6          26.8        23.7          10.1            8.2
  Amortization of deferred stock
    compensation......................       4.8           11.7          11.8        16.8          19.2           21.1
                                          ------        -------       -------     -------      --------       --------
    Total operating expenses..........      19.7           51.9          79.3       114.4          82.1           76.5
                                          ------        -------       -------     -------      --------       --------
Loss from operations..................      (4.0)         (56.8)        (79.9)     (117.7)        (68.9)         (62.5)
Interest and other income (expense),
  net.................................        --           (0.4)           --         0.4           1.2            5.3
                                          ------        -------       -------     -------      --------       --------
    Net loss..........................      (4.0)         (57.2)        (79.9)     (117.3)        (67.7)         (57.2)
Dividend related to convertible
  preferred stock.....................        --             --            --          --         (33.0)            --
                                          ------        -------       -------     -------      --------       --------
Net loss attributable to common
  stockholders........................      (4.0)%        (57.2)%       (79.9)%    (117.3)%      (100.7)%        (57.2)%
                                          ======        =======       =======     =======      ========       ========
</TABLE>

                                       91
<PAGE>   95

     Gross margin decreased from 15.7% in the quarter ended October 31, 1998, to
negative 3.3% in the quarter ended July 31, 1999. Approximately 70% of this
decline during fiscal 1999 was due to an increase in component costs due to VA
Linux's transitioning to more dependable component suppliers. The remainder of
the decline was due to costs associated with the establishment of VA Linux's
technical support organization. Gross margin increased from 13.2% in the quarter
ended October 29, 1999 to 14.0% in the quarter ended January 28, 2000. The
improved margins were due to lower material costs as a result of transferring VA
Linux's manufacturing operations to Synnex and continued leverage of
manufacturing and customer support infrastructure as unit volumes increased. VA
Linux expects sales and marketing expenses to continue to increase in absolute
dollars on a quarterly basis through fiscal 2000 as VA Linux continues to hire
additional sales and marketing personnel and invest in branding activities. VA
Linux also expects research and development expenses to increase in absolute
dollars on a quarterly basis through fiscal 2000 as VA Linux continues to hire
additional personnel and invest in prototyping activities. General and
administrative expenses of $1.7 million in the quarter ended January 28, 2000
increased in absolute dollars due to an increase in administrative personnel and
the associated costs to support increased operations. VA Linux intends to add
personnel to expand its information infrastructure and to support its operation
as a public company. As a result, VA Linux expects general and administrative
expenses to increase in absolute dollars, but decrease as a percentage of net
revenues in the future. VA Linux's operating expenses are largely fixed and are
based on anticipated revenue trends. As a result, a delay in generating or
recognizing revenues could cause significant variations in VA Linux's operating
results from quarter to quarter and could result in substantially greater
operating losses. In addition, VA Linux intends to broaden VA Linux's
professional service organization and begin manufacturing products
internationally, both of which will increase VA Linux's cost of revenues.

     VA Linux's net revenues and operating results will vary significantly from
quarter to quarter due to a number of factors, many of which are outside of VA
Linux's control and any of which may cause VA Linux's stock price to fluctuate.
The primary factors that could affect VA Linux's quarterly operating results
include:

     - demand for and market acceptance of Linux-based systems and VA Linux's
       products and services;

     - increases in manufacturing costs, including the prices of components VA
       Linux purchases;

     - reductions in the sales price of systems offered by VA Linux or VA
       Linux's competitors;

     - VA Linux's ability to develop, introduce and market new products and
       product enhancements that meet customer requirements in a timely manner;

     - VA Linux's contract manufacturer's ability to manufacture sufficient
       quantities of systems and maintain the quality of VA Linux's systems;

     - VA Linux's ability to obtain sufficient supplies of sole or single source
       components, including power supplies and chassis;

     - the introduction of competing products by larger companies which market
       general or limited purpose servers and computers;

     - the failure of Linux developers to enhance and develop the Linux
       operating system;

     - economic conditions generally and in the specific industries in which VA
       Linux's customers operate; and

     - costs related to acquisitions of complementary technologies or
       businesses.

     Although VA Linux grew sequentially each quarter during fiscal 1999 and the
first quarter and second quarter of fiscal 2000, VA Linux may experience some
seasonality in VA Linux's operating results. It is difficult for VA Linux to
evaluate the degree to which this seasonality may affect VA Linux's business
because of VA Linux's limited operating history and the fact that VA Linux's
recent growth may have overshadowed seasonality in recent periods. In addition,
if VA Linux's international sales grow, VA Linux may experience lower sales in
Europe or other international locations during the summer months.
                                       92
<PAGE>   96

Concerns regarding year 2000 compliance issues may also adversely affect the
demand for VA Linux's products in the next few quarters.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, VA Linux's operations have been financed through private
sales of convertible preferred stock and the sale of common stock in VA Linux's
initial public offering, and from cash flows from operations.

     At January 28, 2000, cash and cash equivalents were $148.5 million, as
compared to $18.7 million at January 31, 1999. During the same period working
capital increased to $147.0 million from $16.2 million. The increase in cash was
partially due to proceeds from the sale of common stock in VA Linux's initial
public offering, partially offset by investments in working capital and capital
expenditures to support operations growth.

     Cash used in operations of $13.1 million for the first six months of fiscal
2000 represented the net loss of $21.6 million, an increase in accounts
receivable of $7.5 million, the add back of the amortization of deferred stock
compensation expense of $7.1 million, an increase in accounts payable of $3.4
million, while partially offset by a decrease in inventory of $2.0 million. The
increase in accounts receivable and accounts payable for the first six months of
fiscal 2000 was principally due to the increase in sales, and the decrease in
inventory was due to the sale of inventory to VA Linux's contract manufacturer.

     Cash used in investing activities consisted of the purchase of $1.8 million
in computer and facilities related assets.

     Cash from financing activities of $144.7 million for the first six months
of fiscal 2000 was primarily from the sale of VA Linux's common stock from the
initial public offering in December 1999 and from the proceeds from the issuance
of convertible preferred stock.

     VA Linux's future liquidity and capital requirements will depend upon
numerous factors, including the costs associated with the expansion of VA
Linux's sales and marketing activities and product development efforts,
continued establishment of VA Linux's professional services group, the level and
timing of product and service revenues, the amount of working capital required,
possible future acquisitions, the level of fixed asset investment required, and
available borrowings under VA Linux's line of credit arrangements. VA Linux
believes that the net proceeds from VA Linux's initial public offering, together
with VA Linux's current cash and investment balances and any cash generated from
current or future debt financing, will be sufficient to meet VA Linux's
operating and capital requirements for at least the next 12 months. However, it
is possible that we may require additional financing within this period,
particularly if VA Linux elects to acquire complementary businesses or
technologies. The factors described in this paragraph and other factors which
may arise subsequently, will affect VA Linux's future capital requirements and
the adequacy of VA Linux's available funds. As a result, VA Linux may be
required to raise additional funds through public financings, strategic
relationships or other arrangements. VA Linux cannot assure you that additional
funding, if needed, will be available on reasonable terms, or at all.
Furthermore, any additional equity financing may be dilutive to stockholders,
and debt financing, if available, may involve restrictive covenants. VA Linux's
inability to raise capital when needed could seriously harm VA Linux's business.

RECENT ACCOUNTING PRONOUNCEMENTS

     In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," ("SOP No. 98-1"). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was adopted by VA
Linux in fiscal 1999. The adoption of SOP No. 98-1 did not have a material
impact on the Company's financial position or results of operations.

     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").
                                       93
<PAGE>   97

SFAS No. 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. VA Linux believes the
adoption of SFAS No. 133 will not have a material effect on the VA Linux's
financial position or results of operations.

     In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition, With Respect to Certain Transactions," ("SOP
No. 98-9"). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending the
deferral of the application of certain provisions of SOP No. 97-2 amended by SOP
No. 98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP No. 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. VA Linux has not had significant software
sales to date and management does not expect the adoption of SOP No. 98-9 to
have a significant effect on the financial position or results of operations.

     In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition" ("SAB No. 101"). SAB No. 101
summarizes certain areas of the Staff's views in applying generally accepted
accounting principles to revenue recognition in financial statements. VA Linux
believes that its current revenue recognition policies comply with SAB No. 101.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

     The primary objective of VA Linux's investment activities is to preserve
principal while at the same time maximize the income VA Linux receives from VA
Linux's investments without significantly increasing risk. Some of the
securities that VA Linux may invest in may be subject to market risk. This means
that a change in prevailing interest rates may cause the principal amount of the
investment to fluctuate. For example, if VA Linux holds a security that was
issued with a fixed interest rate at the then-prevailing rate and the prevailing
interest rate later rises, the principal amount of VA Linux's investment will
probably decline. To minimize this risk in the future, VA Linux intends to
maintain VA Linux's portfolio of cash equivalents and short-term investments in
a variety of securities, including commercial paper, money market funds and
government and non-government debt securities. In general, money market funds
are not subject to market risk because the interest paid on such funds
fluctuates with the prevailing interest rate. As of January 28, 2000, all of VA
Linux's cash and cash equivalents were in money market and checking funds.

     VA Linux has operated primarily in the United States, and all sales have
been made in U.S. dollars. Accordingly, VA Linux has not had any material
exposure to foreign currency rate fluctuations.

                                       94
<PAGE>   98

                              VA LINUX MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

     The following table sets forth certain information with respect to VA
Linux's executive officers and directors as of January 31, 2000.

<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>    <C>
Larry M. Augustin....................  37     President, Chief Executive Officer and Director
Robert Russo.........................  54     General Manager and Executive Vice President,
                                              Worldwide Field Operations
Brian D. Biles.......................  42     Vice President, Marketing
John T. Hall.........................  27     Vice President, Support and Professional Services
Todd B. Schull.......................  41     Vice President, Finance and Chief Financial Officer
Daniel R. Shore......................  36     Vice President, Operations
Gregg E. Zehr........................  47     Vice President, Engineering
Leonard N. Zubkoff...................  42     Chief Technical Officer
Jeffry R. Allen(1)...................  48     Director
Carol A. Bartz(2)....................  51     Director
Douglas Leone(2).....................  42     Director
Eric S. Raymond......................  42     Director
Carl Redfield(1).....................  53     Director
</TABLE>

- -------------------------
(1) Member of the audit committee.

(2) Member of the compensation committee.

     Larry M. Augustin, one of VA Linux's founders, has served as VA Linux's
President and Chief Executive Officer and as a member of VA Linux's Board of
Directors since March 1995. From September 1989 through December 1995, Mr.
Augustin was a Consultant for Fintronic USA, Inc., a provider of high
performance EDA tools, and was a Research Associate at Stanford University. Mr.
Augustin is a director of Linux International, a Linux vendor and advocacy
association.

     Robert Russo has served as VA Linux's General Manager and Executive Vice
President, Worldwide Field Operations since October 1999. He was Senior Vice
President, Worldwide Field Operations at Synopsys, Inc., a leading supplier of
EDA software tools and services, from February 1993 through October 1999. Mr.
Russo served as General Manager Entry Level Systems Division at Cray Research
Inc., a developer of mini-supercomputers, from September 1991 to January 1993.

     Brian D. Biles has served as VA Linux's Vice President, Marketing since
March 1999. He was a consultant to various companies from June 1998 to March
1999. Prior to that, Mr. Biles was Director of Marketing, Enterprise Network
Products Group at Sun Microsystems, where he worked from September 1987 to April
1998.

     John T. Hall has served as VA Linux's Vice President, Support and
Professional Services since August 1998. He was VA Linux's Vice President,
Finance from August 1997 through August 1998. Prior to that, Mr. Hall was Chief
Executive Officer and a founder of Stanford Student Enterprises, a student-
managed company that provides campus services through its subsidiaries, from
August 1996 through June 1997. From May 1995 to June 1997, Mr. Hall was the head
counselor at the Bridge, a suicide prevention and counseling center in Palo
Alto, California.

     Todd B. Schull has served as VA Linux's Vice President, Finance and Chief
Financial Officer since June 1999. He was Vice President and Chief Financial
Officer at Repeater Technologies, Inc, a wireless infrastructure company, from
January 1997 through May 1999. Mr. Schull held various positions, most recently
Vice President of Finance, North America and Corporate Controller at Solectron
Corporation, from December 1987 through December 1996.

                                       95
<PAGE>   99

     Daniel R. Shore has served as VA Linux's Vice President, Operations since
November 1998. He was Director of Operations, Digital Video Group at Philips
Consumer Electronics from November 1997 through October 1998. Mr. Shore held
various positions, including Business Unit General Manager and Product Marketing
Manager for AccuTouch and TouchMonitor Business Unit, at Elo TouchSystems, a
leading supplier of touch screen computers, from June 1990 through November
1997.

     Gregg E. Zehr has served as VA Linux's Vice President of Engineering since
December 1998. He was a founder and Executive Vice President, Engineering at
Ridge Technologies, a company that provides external RAID storage for NT
servers, from July 1997 to May 1998. Mr. Zehr was Director, Desktop Hardware
Engineering, then Vice President, PowerBook Engineering at Apple Computer, Inc.
from October 1988 to July 1997.

     Leonard N. Zubkoff has served as VA Linux's Chief Technical Officer since
July 1998. He was a member of the principal technical staff at Oracle
Corporation from December 1993 to June 1998. Prior to that, he held various
technical positions, most recently Principal Scientist, at Lucid, Incorporated,
a LISP and C/C++ software company, from February 1985 through September 1993.

     Jeffry R. Allen has served on VA Linux's Board of Directors since October
1998. He has been with Network Appliance, Inc., a leading provider of network
data access solutions, since December 1996, where he currently serves as Senior
Vice President, Finance and Operations, Chief Financial Officer and Secretary.
Prior to December 1996, Mr. Allen served in various capacities, including Senior
Vice President of Operations and Vice President and Controller of Bay Networks,
Inc., a networking company, from October 1994 to December 1996.

     Carol A. Bartz has served on VA Linux's Board of Directors since July 1999.
She has served as Chief Executive Officer and Chairman of the Board of Autodesk
Inc. since May 1992. Ms. Bartz served as President of Autodesk from May 1992
through September 1996, and from June 1999 to the present. Ms. Bartz is a
director of Network Appliance, Inc., a leading provider of network data access
solutions, BEA Systems, Inc., a provider of software that allows cross-platform
middleware solutions from enterprise business applications, Cadence Design
Systems, Inc., a leading electronic design firm, and Cisco Systems, Inc.

     Douglas Leone has served on VA Linux's Board of Directors since October
1998. He has been at Sequoia Capital, a venture capital firm, since July 1988
and has been a General Partner since 1993. He is a member of the board of
directors of Scient Corporation and several other private corporations.

     Eric S. Raymond has served on VA Linux's Board of Directors since October
1998. He has served as Technical Director at Chester County InterLink, a
nonprofit Internet service provider, since September 1993. Prior to that, Mr.
Raymond was an independent consultant from May 1985 through October 1993.

     Carl Redfield has served on VA Linux's Board of Directors since October
1998. He has served as Senior Vice President, Manufacturing and Logistics of
Cisco Systems, Inc. since February 1997. From September 1993 through February
1997, Mr. Redfield was Vice President of Manufacturing of Cisco Systems. Mr.
Redfield serves on the boards of CTC Communications, Inc. and iBASIS Inc., both
of which are competitive local exchange carriers.

BOARD OF DIRECTORS

     VA Linux's Board of Directors has seven authorized directors and currently
consists of six members. Each director holds office until his or her term
expires or until his or her successor is duly elected and qualified. Upon
completion of this offering, VA Linux's amended and restated certificate of
incorporation and bylaws will provide for a classified Board of Directors. In
accordance with the terms of VA Linux's certificate, VA Linux's Board of
Directors will be divided into three classes whose terms will expire at
different times. The three classes will be comprised of the following directors:

     - Class I consists of Messrs. Augustin and Leone, who will serve until the
       annual meeting of stockholders to be held in 2000;

                                       96
<PAGE>   100

     - Class II consists of Messrs. Raymond and Redfield, who will serve until
       the annual meeting of stockholders to be held in 2001; and

     - Class III consists of Mr. Allen and Ms. Bartz, who will serve until the
       annual meeting of stockholders to be held in 2002.

     At each annual meeting of stockholders beginning with the 2000 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.

Committees

     VA Linux's Board of Directors has an audit committee and a compensation
committee. The audit committee consists of Messrs. Allen and Redfield. The audit
committee reviews VA Linux's internal accounting procedures, consults with and
reviews the services provided by VA Linux's independent accountants and makes
recommendations to the Board of Directors regarding the selection of independent
accountants. The compensation committee consists of Ms. Bartz and Mr. Leone. The
compensation committee reviews and recommends to the Board of Directors the
salaries, incentive compensation and benefits of VA Linux's officers and
employees and administers VA Linux's stock plans and employee benefit plans.

Compensation Committee Interlocks and Insider Participation

     VA Linux's Board of Directors established the compensation committee in
October 1999. Prior to establishing the compensation committee, VA Linux's Board
of Directors as a whole performed the functions delegated to the compensation
committee. Ms. Bartz, a member of VA Linux's compensation committee, serves as a
member of the board of directors and compensation committee of Network
Appliance, Inc. of which Mr. Allen is an executive officer. No other member of
VA Linux's compensation committee has served as a member of the board of
directors or compensation committee of any entity that has one or more executive
officers serving as a member of VA Linux's Board of Directors or compensation
committee. Since the formation of VA Linux's compensation committee, none of its
members has been VA Linux's officer or employee.

Compensation

     VA Linux reimburses VA Linux's directors who are not officers or employees
for expenses incurred in attending any Board of Directors or committee meeting.
Directors who are also VA Linux's officers or employees are not reimbursed for
expenses incurred in attending Board of Directors or committee meetings.

     VA Linux's non-employee directors are eligible to participate in VA Linux's
1999 Director Option Plan. Each non-employee director who joins VA Linux's Board
of Directors following December 9, 1999 will automatically receive a grant of an
option to purchase 40,000 shares of VA Linux's common stock on the date on which
such person becomes a director. The shares subject to each of these options will
vest over a four year period following the date of grant with 1/4 vesting one
year from the date of grant and 1/48 vesting each month thereafter.
Additionally, beginning at VA Linux's annual meeting of stockholders to be held
in 2000 and at each successive annual stockholder meeting, each non-employee
director who has previously served at least six consecutive months prior thereto
(including VA Linux's current non-employee directors) will receive an option to
purchase 16,000 shares of VA Linux's common stock which will also vest over four
years. The vesting of these options will automatically accelerate upon a change
of control of VA Linux. The exercise price per share for all options
automatically granted to directors under VA Linux's 1999 Director Option Plan
will be equal to the market price of VA Linux's common stock on the date of
grant and will have a ten year term, but will generally terminate within a
specified time, as
                                       97
<PAGE>   101

defined in the 1999 Director Option Plan, following the date the option holder
ceases to be a director or consultant.

     Employee directors, including Mr. Augustin, are eligible to participate in
VA Linux's 1999 Employee Stock Purchase Plan and to receive discretionary grants
under VA Linux's 1998 Stock Plan.

EXECUTIVE OFFICERS

     VA Linux's executive officers are appointed by VA Linux's Board of
Directors and serve until their successors are elected or appointed.

Compensation

     The following table sets forth all compensation paid or accrued during
fiscal 1999 to VA Linux's President and Chief Executive Officer, and each of VA
Linux's three other most highly compensated officers whose annual compensation
exceeded $100,000 for the period. Messrs. Shore and Zehr joined VA Linux during
fiscal 1999 and therefore their annual compensation does not reflect their full
base salary.

<TABLE>
<CAPTION>
                                                                                      LONG TERM
                                                ANNUAL COMPENSATION    SECURITIES    COMPENSATION
                                                -------------------    UNDERLYING     ALL OTHER
         NAME AND PRINCIPAL POSITIONS            SALARY      BONUS      OPTIONS      COMPENSATION
         ----------------------------           --------    -------    ----------    ------------
<S>                                             <C>         <C>        <C>           <C>
Larry M. Augustin.............................  $ 96,133    $ 6,199    1,155,000       $13,294(1)
  President and Chief Executive Officer
Gregg E. Zehr.................................   116,667     31,250      665,910            --
  Vice President, Engineering
Daniel R. Shore(2)............................    94,225     45,500      449,434        37,836(2)
  Vice President, Operations
John T. Hall..................................    99,100      7,967    2,919,000            --
  Vice President, Support and Professional
     Services
</TABLE>

- -------------------------
(1) VA Linux forgave and wrote off a loan in the principal amount of $13,294 to
    Mr. Augustin.

(2) VA Linux paid $37,836 in premiums for a life insurance policy payable to Mr.
    Shore's wife.

Option Grants in Fiscal 1999

     The following table sets forth information concerning grants of stock
options to each of the executive officers named in the VA Linux compensation
table above during fiscal year 1999. All options granted to these executive
officers in the last fiscal year were granted under the VA Linux 1998 Stock
Plan. One-quarter of the shares subject to each option vests and becomes
exercisable on the first anniversary of the date of grant, and an additional
1/48 of the shares subject to each option vests each month thereafter. In
addition, options granted to each of the individuals set forth below may be
early exercised, provided that such individual enters into a restricted stock
purchase agreement. The shares thus acquired remain subject to a right of
repurchase by VA Linux. The percent of the total options set forth below is
based on an aggregate of 15,962,180 options granted to employees during fiscal
1999. All options were granted at a fair market value as determined by VA
Linux's Board of Directors on the date of grant.

                                       98
<PAGE>   102

     Potential realizable value represents hypothetical gains that could be
achieved for the options if exercised at the end of the option term assuming
that the fair market value of the common stock on the date of grant appreciates
at 5% and 10% over the option term (ten years) and that the option is exercised
and sold on the last day of its option term for the appreciated stock price. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the Securities and Exchange Commission and do not represent VA
Linux's estimate or projection of VA Linux's future common stock price. The
calculation includes the difference, if any, between the fair market value on
the date of grant and the exercise price for such options. Actual gains, if any,
on stock option exercises will depend on the future performance of VA Linux's
common stock.

<TABLE>
<CAPTION>
                                                   INDIVIDUAL GRANTS                    POTENTIAL REALIZABLE
                                  ---------------------------------------------------     VALUE AT ASSUMED
                                  NUMBER OF     % OF TOTAL                                 ANNUAL RATES OF
                                  SECURITIES      OPTIONS                                STOCK APPRECIATION
                                  UNDERLYING    GRANTED TO     EXERCISE                    FOR OPTION TERM
                                   OPTIONS       EMPLOYEES       PRICE     EXPIRATION   ---------------------
              NAME                 GRANTED     DURING PERIOD   PER SHARE      DATE         5%          10%
              ----                ----------   -------------   ---------   ----------   ---------   ---------
<S>                               <C>          <C>             <C>         <C>          <C>         <C>
Larry W. Augustin(1)............  1,155,000         7.24%       $0.020      09/30/08    $ 14,527    $ 36,815
Gregg E. Zehr(1)................    665,910         4.17         0.043      02/24/09     465,988     758,969
Daniel R. Shore.................    499,434         3.13         0.043      12/08/08     275,461     451,346
John T. Hall(1).................  2,919,000        18.29         0.020      09/30/08      95,095     151,423
</TABLE>

- -------------------------
(1) These options are subject to a change of control provision. One-fourth of
    the shares originally granted vest and become immediately exercisable upon
    the occurrence of both a change of control and the involuntary termination
    of service with VA Linux or the termination of service with VA Linux without
    cause.

Aggregate Option Exercises in Fiscal Year 1999 and Values at July 31, 1999

     The following table sets forth information concerning option exercises in
fiscal 1999 and exercisable and unexercisable stock options held by the VA Linux
executive officers named in the summary compensation table at July 31, 1999. The
value of unexercised in-the-money options is based on a value of $5.40 per
share, the fair market value of VA Linux's common stock as of July 31, 1999,
minus the actual per share exercise prices, multiplied by the number of shares
underlying the option. All options were granted under VA Linux's 1998 Stock
Plan.

<TABLE>
<CAPTION>
                                                            NUMBER OF SECURITIES
                                                                 UNDERLYING               VALUE OF UNEXERCISED
                                                             UNEXERCISED OPTIONS          IN-THE-MONEY OPTIONS
                                  SHARES                      AT JULY 31, 1999              AT JULY 31, 1999
                                 ACQUIRED      VALUE     ---------------------------   ---------------------------
            NAME               ON EXERCISE    REALIZED   EXERCISABLE   UNEXERCISABLE   EXERCISABLE   UNEXERCISABLE
            ----               ------------   --------   -----------   -------------   -----------   -------------
<S>                            <C>            <C>        <C>           <C>             <C>           <C>
Larry M. Augustin............          --      $   --     1,555,000         --         $8,365,900         $--
Gregg E. Zehr................     665,910          --            --         --                 --         --
Daniel R. Shore..............     249,750          --       249,684         --          1,337,557         --
John T. Hall.................   2,919,000       4,865            --         --                 --         --
</TABLE>

CHANGE OF CONTROL AND EMPLOYMENT AGREEMENTS

     In March 1995, VA Linux entered into a five year employment agreement with
Mr. Augustin that provides for annual salary and benefits. This agreement has
been terminated.

     In October 1998, VA Linux entered into stock option agreements under VA
Linux's 1998 Stock Plan with each of Messrs. Augustin, Hall, Zehr and Zubkoff
that include change of control provisions. Each of these agreements provides
that if the officer is terminated without cause or involuntarily terminated upon
a change of control, he will receive one year accelerated vesting of all of his
stock options (or an accelerated lapsing of the repurchase right applicable for
the common stock issued upon an early exercise of the option). If the officer
voluntarily resigns, is terminated for cause or is terminated for any other
reason, he is not entitled to this acceleration.

                                       99
<PAGE>   103

     In October 1998, VA Linux entered into a Founder's Stock Repurchase
Agreement with Mr. Augustin. Pursuant to this agreement, VA Linux has the right
to repurchase shares from Mr. Augustin that have not been released from VA
Linux's repurchase option. Sixty percent of Mr. Augustin's 4,950,000 shares were
released from the repurchase option upon execution of the agreement; 1/24 of the
remaining shares are released each month starting in November 1998. This
agreement provides that if Mr. Augustin is terminated without cause or
involuntarily terminated, 50% of the remaining unreleased shares will be
released from VA Linux's repurchase right. If Mr. Augustin voluntarily resigns,
is terminated for cause or is terminated for any other reason, he is not
entitled to this release of shares.

     In October 1998, VA Linux entered into an employment agreement with Mr.
Shore that provides that if he is involuntarily terminated for any reason, he
will receive a severance package equal to the higher of either one month's
salary for every year of service or three month's salary. In December 1998, VA
Linux entered into an employment agreement with Mr. Zehr that provides that if
he is involuntarily terminated for any reason, he will receive a severance
package equal to his salary for six months. These amounts will be paid monthly
following the termination of either officer's employment. VA Linux will pay
these amounts on a salary continuation basis with medical benefits coverage
during the severance period.

     In October 1999, VA Linux entered into an employment agreement with Mr.
Russo that provides that if he is involuntarily terminated in the first year of
his employment he would receive six months salary and benefits and also six
months accelerated vesting of his stock options. If Mr. Russo is involuntarily
terminated after his first year of employment he would receive three months
salary and three months accelerated vesting of his stock options. In the event
that VA Linux appoints a new Chief Executive Officer by October 2000, and Mr.
Russo's employment is terminated within the longer of six months of the new
Chief Executive Officer's appointment or twelve months from Mr. Russo's start
date, Mr. Russo's initial stock grant would be accelerated by 25%. Also, Mr.
Russo would receive twelve additional months of accelerated vesting of his stock
options in the event of a change of control followed by his involuntary
termination within six months of the change of control.

LIMITATIONS ON DIRECTORS' AND OFFICERS' LIABILITY AND INDEMNIFICATION

     VA Linux's amended and restated certificate of incorporation to be filed
upon completion of this offering limits the liability of VA Linux's directors to
the maximum extent permitted by Delaware law. Delaware law provides that
directors of a corporation will not be personally liable for monetary damages
for breach of their fiduciary duties as directors, except liability associated
with any of the following:

     - any breach of their duty of loyalty to the corporation or its
       stockholders;

     - acts or omissions not in good faith or which involve intentional
       misconduct or a knowing violation of law;

     - unlawful payments of dividends or unlawful stock repurchases or
       redemption; or

     - any transaction from which the director derived an improper personal
       benefit.

     The limitation of VA Linux's director's liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.

     VA Linux's amended and restated certificate of incorporation and bylaws
also provide that VA Linux shall indemnify VA Linux's directors and executive
officers and may indemnify VA Linux's other officers and employees and other
agents to the fullest extent permitted by law. VA Linux believes that
indemnification under VA Linux's bylaws covers at least negligence and gross
negligence on the part of indemnified parties. VA Linux's bylaws also permit VA
Linux to secure insurance on behalf of any officer, director, employee or other
agent for any liability arising out of his or her actions in such capacity,
regardless of whether VA Linux's bylaws would permit indemnification.

                                       100
<PAGE>   104

     VA Linux is entering into indemnification agreements with each of VA
Linux's officers and directors containing provisions that require VA Linux to,
among other things, indemnify VA Linux's officers and directors against
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified, and to cover VA Linux's
directors and officers under any of VA Linux's liability insurance policies
applicable to VA Linux's directors and officers. VA Linux believes that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.

STOCK PLANS

1998 Stock Plan

     VA Linux's 1998 Stock Plan was originally approved by VA Linux's Board of
Directors and stockholders in October 1998. On October 7, 1999 VA Linux's Board
of Directors amended the 1998 Stock Plan, to be effective upon the completion of
this offering. VA Linux expect VA Linux's stockholders will approve this amended
plan in November 1999. The 1998 Stock Plan, as amended, provides for the
granting to VA Linux's employees of incentive stock options within the meaning
of Section 422 of the United States tax code, and for the granting to employees,
including officers and directors, non-employee directors and consultants of
non-statutory stock options and stock purchase rights. VA Linux has reserved an
aggregate of 27,257,144 shares of common stock for issuance under this plan. The
number of shares reserved for issuance under this plan will be subject to an
annual increase on the first day of each fiscal year equal to the lesser of (a)
4,000,000 shares, (b) 4.9% of the outstanding shares on that date, or (c) a
lesser amount as determined by VA Linux's Board of Directors. As of January 28,
2000, options to purchase 8,147,826 shares of common stock were outstanding
under this plan; 10,426,648 shares had been issued upon exercise of options, net
of repurchases, and 11,012,332 shares were available for future grant. Unless
terminated sooner, the 1998 Stock Plan will terminate automatically in 2008.

     VA Linux's 1998 Stock Plan is administered by VA Linux's Board of Directors
who determine the terms of the options or stock purchase rights granted,
including the exercise price, the number of shares subject to each option or
stock purchase right, the vesting and the form of consideration payable upon
such exercise. In addition, the Board of Directors has the authority to amend,
suspend or terminate the plan, provided that no such action may affect any share
of common stock previously issued and sold or any option previously granted and
then outstanding under the plan. The Board of Directors has the exclusive
authority to interpret and apply the provisions of the 1998 Stock Plan.

     Options and stock purchase rights granted under VA Linux's 1998 Stock Plan
are not generally transferable by the optionee, and each option and stock
purchase right is exercisable during the lifetime of the optionee only by the
optionee. Options granted under the 1998 Stock Plan must generally be exercised
within three months of the end of optionee's status as VA Linux's employee or
consultant (or such shorter time as may be specified in the option agreement),
or within twelve months after his or her termination by death or disability, but
in no event later than the expiration of the option's ten year term. In the case
of stock purchase rights, unless the Board of Directors determines otherwise,
the agreement evidencing the grant shall provide that VA Linux has a repurchase
option exercisable upon the voluntary or involuntary termination of his or her
employment for any reason (including death or disability). In this event, the
purchase price per share will be equal to the original price and may be paid by
cancellation of his or her outstanding indebtedness to VA Linux, if any. VA
Linux's repurchase option shall lapse at a rate determined by the Board of
Directors. The exercise price of any incentive stock options granted under the
1998 Stock Plan and any non-statutory stock options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
United States tax code, must be at least equal to the fair market value of VA
Linux's common stock on the date of grant. With respect to any participant who
owns stock possessing more than 10% of the voting power of all classes of VA
Linux's outstanding capital stock, the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value on the grant
date and the term of such incentive stock option must not exceed five years. The
term of all other options granted under the 1998 Stock Plan may not exceed ten
years.

                                       101
<PAGE>   105

     Options granted under VA Linux's 1998 Stock Plan, as amended, will
accelerate and become fully vested in the event VA Linux is acquired, unless the
successor corporation assumes or substitutes other options in their place.

1999 Employee Stock Purchase Plan

     VA Linux's 1999 Employee Stock Purchase Plan was adopted by VA Linux's
Board of Directors in October 1999 and approved by the stockholders in November
1999. A total of 1,000,000 shares of common stock have been reserved for
issuance under VA Linux's 1999 Employee Stock Purchase Plan. This plan provides
for annual increases equal to the lesser of (a) 500,000 shares, (b) 1% of the
outstanding shares on the last day of VA Linux's fiscal year, or (c) a lesser
amount determined by VA Linux's Board of Directors.

     VA Linux's 1999 Employee Stock Purchase Plan, which is intended to qualify
under Section 423 of the United States tax code, contains consecutive six month
offering and purchase periods. The offering periods generally start on the first
trading day on or after September 1 and March 1 of each year, except for the
first such offering period which commences on the first trading day on or after
the effective date of this offering and ends on the last trading day on or
before August 31, 2000.

     Employees are eligible to participate if they are customarily employed by
VA Linux or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. However, any employee who immediately
after grant owns stock possessing 5% or more of the total combined voting power
or value of all classes of VA Linux's capital stock, or whose rights to purchase
stock under all of VA Linux's employee stock purchase plans accrues at a rate
which exceeds $25,000 worth of stock for each calendar year may not be granted
an option to purchase stock under this plan. The 1999 Employee Stock Purchase
Plan permits participants to purchase common stock through payroll deductions of
up to 10% of the participant's "compensation." Compensation is defined as the
participant's base straight time gross earnings and commissions, but is
exclusive of payments for overtime, shift premium payments, incentive
compensation, incentive payments, bonuses and other compensation.

     Amounts deducted and accumulated by the participant are used to purchase
shares of common stock at the end of each purchase period. The price of stock
purchased under the 1999 Employee Stock Purchase Plan is generally 85% of the
lower of the fair market value of the common stock at the beginning of the
offering period, or at the end of the purchase period. Participants may end
their participation at any time during an offering period, and they will be paid
their payroll deductions to date. Participation ends automatically upon
termination of employment with VA Linux.

     Rights granted under the 1999 Employee Stock Purchase Plan are not
transferable by a participant other than by will, the laws of descent and
distribution, or as otherwise provided under the plan. The 1999 Employee Stock
Purchase Plan provides that, in the event of VA Linux's merger with or into
another corporation or a sale of substantially all VA Linux's assets, each
outstanding option may be assumed or substituted for a new option by the
successor corporation. If the successor corporation refuses to assume or
substitute a new option for the outstanding options, the offering period then in
progress will be shortened and a new exercise date will be set. The 1999
Employee Stock Purchase Plan will terminate automatically in 2009, unless
terminated earlier. The Board of Directors has the authority to amend or
terminate the purchase plan, except that no such action may adversely affect any
outstanding rights to purchase stock under the purchase plan. The Board of
Directors has the exclusive authority to interpret and apply the provisions of
the purchase plan.

1999 Director Option Plan

     VA Linux's 1999 Director Option Plan was approved by VA Linux's Board of
Directors in October 1999 and approved by the stockholders in November 1999. A
total of 500,000 shares of VA Linux's common stock have been reserved for
issuance under VA Linux's 1999 Director Option Plan. This plan provides for
annual increases equal to the lesser of (a) 250,000 shares, (b) 0.5% of the
outstanding shares on the last day of VA Linux's fiscal year, or (c) a lesser
amount determined by VA Linux's Board of
                                       102
<PAGE>   106

Directors. No awards will be made under the 1999 Director Option Plan until a
new non-employee director is elected after the completion of this offering. The
purpose of the 1999 Director Option Plan is to attract and retain the best
available non-employee directors, to provide them additional incentives and,
therefore, to promote the success of VA Linux's business.

     The 1999 Director Option Plan establishes an automatic grant of 40,000
shares of common stock to each non-employee director who is elected after the
completion of this offering. The 1999 Director Option Plan also provides that
upon the date of each annual stockholders' meeting, each non-employee director
who has been a member of VA Linux's Board of Directors for at least six months
prior to the date of the stockholders' meeting (including VA Linux's current
non-employee directors) will receive automatic annual grants of options to
acquire 16,000 shares of VA Linux's common stock.

     Each automatic grant will have an exercise price per share equal to the
fair market value of VA Linux's common stock at the date of grant and will vest
as to 1/4 of the shares subject to the option one year after the date of grant
and 1/48 each month thereafter. Each automatic grant will have a term of ten
years.

     The 1999 Director Option Plan is administered by VA Linux's Board of
Directors or by a committee designated by VA Linux's Board of Directors
constituted to permit non-employee director awards to be exempt from Section
16(b) of the Exchange Act in accordance with Rule 16(b)-3 thereunder. The
administrator shall approve forms of award agreements for use under the plan,
determine the terms and conditions of awards pursuant to the 1999 Director
Option Plan and construe and interpret the terms of the plan and awards granted
under it.

     In the event of VA Linux's merger with another corporation or the sale of
substantially all of VA Linux's assets, each non-employee director's outstanding
option will become fully vested and exercisable. Options granted under the 1999
Director Option Plan must be exercised within 3 months of the end of the
non-employee director's tenure as a member of VA Linux's Board of Directors, or
within 12 months after a non-employee director's termination by death or
disability, provided that the option does not terminate by its terms earlier.

     Unless terminated sooner, VA Linux's 1999 Director Option Plan terminates
automatically in 2009. VA Linux's Board of Directors has the authority to amend,
suspend or terminate the plan, subject to stockholder approval of some
amendments and provided no amendment, suspension or termination may affect
awards to non-employee directors previously granted under the plan, unless
agreed to by the affected non-employee director.

401(k) Plan

     In September 1998, VA Linux adopted a 401(k) Profit Sharing Plan and Trust
covering VA Linux's employees who are age 21 as of the 401(k) Profit Sharing
Plan and Trust effective date, and/or have at least 1,000 hours of service
credited as of their anniversary hire date with VA Linux and for every plan year
thereafter. The 401(k) Profit Sharing Plan and Trust excludes nonresident alien
employees. The 401(k) Profit Sharing Plan and Trust is intended to qualify under
Section 401(k) of the United States tax code, so that contributions to the
401(k) Profit Sharing Plan and Trust by employees or by VA Linux and the
investment earnings thereon are not taxable to the employees until withdrawn. If
VA Linux's 401(k) Profit Sharing Plan and Trust qualifies under Section 401(k)
of the United States tax code, VA Linux's contributions will be deductible by VA
Linux when made. VA Linux's employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit of $10,000 in 1999
and to have those funds contributed to the 401(k) Profit Sharing Plan and Trust.
The 401(k) Profit Sharing Plan and Trust permits VA Linux, but does not require
VA Linux, to make additional matching contributions on behalf of all
participants. To date, VA Linux has not made any contributions to the 401(k)
Profit Sharing Plan and Trust.

                                       103
<PAGE>   107

                      VA LINUX RELATED PARTY TRANSACTIONS

PREFERRED STOCK

     On October 30, 1998 and February 19, 1999, VA Linux sold an aggregate of
8,623,773 shares and 3,525,549 shares, respectively, of VA Linux's series A
preferred stock at a purchase price of $0.4567 per share. On July 16, 1999 and
September 24, 1999, VA Linux sold an aggregate of 6,502,592 shares and 1,256,454
shares, respectively, of VA Linux's series B preferred stock at a purchase price
of $3.86 per share. On August 1, 1999, VA Linux issued 12,954 shares of VA
Linux's series B preferred stock in consideration for certain assets. The
following officers, directors and 5% stockholders purchased shares in these
financings:

<TABLE>
<CAPTION>
                                                               SHARES OF        SHARES OF
                         PURCHASER                           SERIES A STOCK   SERIES B STOCK
                         ---------                           --------------   --------------
<S>                                                          <C>              <C>
Sequoia Capital Entities:
  Sequoia Capital VIII.....................................    7,299,666         469,586
  Sequoia International Technology Partners VIII(Q)........      483,261          31,088
  CMS Partners LLC.........................................      161,088          10,362
  Sequoia International Technology Partners VIII...........       92,625           5,958
  Sequoia 1997.............................................       17,718           1,140
  Sequoia Capital Franchise Fund...........................           --         419,690
  Sequoia Capital Franchise Partners.......................           --          46,632
Intel Corporation..........................................    3,284,673         259,068
Larry M. Augustin..........................................      109,488              --
</TABLE>

     CMS Partners LLC, Sequoia International Technology Partners VIII(Q),
Sequoia Capital VIII, Sequoia International Technology Partners VIII, Sequoia
1997, Sequoia Capital Franchise Fund and Sequoia Capital Franchise Partners are
affiliated entities and together are considered a 5% stockholder. Mr. Leone, one
of VA Linux's directors, is the managing member of the general partner of
Sequoia International Technology Partners VIII(Q), Sequoia Capital VIII, Sequoia
International Technology Partners VIII, Sequoia Capital Franchise Fund and
Sequoia Capital Franchise Partners, and has signature authority for CMS Partners
LLC and Sequoia 1997. Mr. Leone disclaims beneficial ownership of the securities
held by such entities, except for his proportional interest in the entities.
Larry M. Augustin is VA Linux's President, Chief Executive Officer, one of VA
Linux's directors and a 5% stockholder. VA Linux's director Ms. Bartz is the
beneficial owner of limited partnership interests of Sequoia International
Technology Partners VIII(Q) and Sequoia Franchise Partners. VA Linux's director
Mr. Redfield is the beneficial owner of limited partnership interests of Sequoia
Franchise Partners.

INVESTOR RIGHTS AGREEMENT

     VA Linux has entered into an agreement with the preferred stockholders
described above pursuant to which these and other preferred stockholders will
have registration rights with respect to their shares of common stock following
this offering. For a description of these registration rights, see "Description
of Capital Stock." Upon the completion of this offering, all shares of VA
Linux's outstanding preferred stock will be automatically converted into an
equal number of shares of common stock.

                                       104
<PAGE>   108

STOCK OPTION GRANTS TO OFFICERS AND DIRECTORS

     During fiscal 1999, VA Linux granted the following options to purchase VA
Linux's common stock to VA Linux's officers, directors and stockholders who
beneficially own 5% or more of VA Linux's common stock. In order to comply with
the closing conditions of the investors for the sale of the series A preferred
stock, on October 1, 1998, options previously granted to Messrs. Augustin, Hall
and Zubkoff were cancelled and exchanged for options to purchase the same number
of shares of common stock under VA Linux's 1998 Stock Plan. These new options
had vesting and pricing terms consistent with the prior grants.

<TABLE>
<CAPTION>
                                                                           EXERCISE PRICE
                  NAME                     DATE OF GRANT       OPTIONS       PER SHARE
                  ----                    ----------------    ---------    --------------
<S>                                       <C>                 <C>          <C>
Larry M. Augustin.......................  October 1, 1998     1,155,000        $0.02
John T. Hall............................  October 1, 1998     2,919,000         0.02
Leonard N. Zubkoff......................  October 1, 1998     2,376,000         0.02
Jeffry R. Allen.........................  October 30, 1998      150,000         0.043
Eric S. Raymond.........................  October 30, 1998      150,000         0.043
Carl Redfield...........................  October 30, 1998      150,000         0.043
Daniel R. Shore.........................  December 9, 1998      499,434         0.043
                                          February 25,
Gregg E. Zehr...........................  1999                  665,910         0.043
Brian D. Biles..........................  April 13, 1999        499,434         0.50
Todd B. Schull..........................  June 1, 1999          499,434         0.50
Carol A. Bartz..........................  July 14, 1999         150,000         1.00
</TABLE>

INDEMNIFICATION, CHANGE OF CONTROL AND EMPLOYMENT AGREEMENTS

     VA Linux has entered into indemnification agreements with each of VA
Linux's directors and officers. Such indemnification agreements will require VA
Linux to indemnify VA Linux's directors and officers to the fullest extent
permitted by Delaware law. For a description of the limitation of VA Linux's
directors' liability and VA Linux's indemnification of such officers, see
"Management -- Limitation on Directors' Liability and Indemnification." For a
description of an employment agreements VA Linux entered into with Messrs.
Augustin and Russo and change of control agreements entered into with Messrs.
Augustin, Hall, Zehr and Zubkoff, see "Management -- Change of Control and
Employment Agreements."

AGREEMENT WITH INTEL

     VA Linux has entered into an agreement with Intel for VA Linux to adapt the
Linux operating system to work with Intel's series of next generation
microprocessors used in computers. The term of this agreement is until February
2002, and will be automatically renewed for additional one-year periods unless
terminated by either party.

     The agreement contemplates the release of the this adaptation under an open
source license no later than six months following the release by Intel of its
series of next generation microprocessors. VA Linux is also subject to a
restriction on Intel's underlying proprietary technology, under which VA Linux
would need Intel's written permission, which shall not be unreasonably withheld,
before making a modification to this adaptation for Intel's series of next
generation microprocessors on behalf of a third party during the term of the
agreement. Under VA Linux's agreement with Intel, VA Linux has also granted
Intel the right to purchase or license VA Linux's products, without right to
sublicense or distribute such products, at a price not to exceed the lowest
price VA Linux charges for such products. In addition, VA Linux has agreed not
to sue Intel for any patent rights relating to Intel's products as long as Intel
does not sue VA Linux for similar rights on VA Linux's products, until the
earlier of February 2004 or the date on which Intel ceases to hold at least half
of its current investment in VA Linux.

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<PAGE>   109

                SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                             MANAGEMENT OF VA LINUX

     The following table sets forth information known to VA Linux with respect
to the beneficial ownership of VA Linux's common stock as of April 3, 2000 and
as adjusted to reflect the sale of common stock offered hereby by:

     - each stockholder known by VA Linux to own beneficially more than 5% of VA
       Linux's common stock;

     - each of VA Linux's executive officers named in the compensation table
       above;

     - each of VA Linux's directors; and

     - all current directors and executive officers as a group.

     Except as otherwise indicated, VA Linux believes that the beneficial owners
of the VA Linux common stock listed below, on the information furnished by such
owners, have sole voting power and investment power with respect to such shares.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percent ownership of that person, shares
of common stock subject to options or warrants held by that person that are
currently exercisable or will become exercisable within 60 days after February
29, 2000 are deemed outstanding, while such shares are not deemed outstanding
for purposes of computing percent ownership of any other person. Percent of
beneficial ownership prior to the merger is based upon 41,400,986 shares of VA
Linux's common stock outstanding as of April 3, 2000. Percent of beneficial
ownership after the merger is based upon 41,400,986 shares of VA Linux's common
stock outstanding as of April 3, 2000 plus the expected 6,321,433 shares of VA
Linux's common stock to be issued in connection with the merger (based on
16,003,627 shares of Andover.Net common stock outstanding on April 3, 2000)
which equal a total of 47,722,419 shares of VA Linux's common stock outstanding
upon completion of the merger. Unless otherwise indicated in the footnotes
below, the persons and entities named in the table have sole voting and
investment power with respect to all shares beneficially owned, subject to
community property laws where applicable. The address for those individuals for
which an address is not otherwise indicated is VA Linux Systems, Inc., 1382
Bordeaux Drive, Sunnyvale, California 94089.

<TABLE>
<CAPTION>
                                                                               PERCENT OF SHARES
                                                                 SHARES           OUTSTANDING
                                                              BENEFICIALLY    -------------------
                                                              OWNED PRIOR       PRIOR      AFTER
             NAME OR GROUP OF BENEFICIAL OWNERS                TO MERGER      TO MERGER    MERGER
             ----------------------------------               ------------    ---------    ------
<S>                                                           <C>             <C>          <C>
Entities affiliated with Sequoia Capital Funds(1)...........    9,038,814       21.83%     18.94%
  3000 Sand Hill Road, Building 4, Suite 280
  Menlo Park, California 94025
Douglas Leone(1)............................................    9,038,814       21.83%     18.94%
  Sequoia Capital
  3000 Sand Hill Road, Bldg. 4, Ste. 280
  Menlo Park, CA 94025
Larry M. Augustin(2)........................................    6,598,488       15.51%     13.52%
Intel Corporation...........................................    3,543,741        8.56%      7.43%
  2200 Mission College Blvd. Mail Stop RN6-46
  Santa Clara, CA 95052
  Attn: M&A Portfolio Manager
John T. Hall(3).............................................    2,869,000        6.93%      6.01%
Gregg E. Zehr(4)............................................      665,910        1.61%      1.40%
Daniel R. Shore(5)..........................................      499,434        1.20%      1.04%
Jeffry Allen(6).............................................      311,300           *          *
Carl Redfield(7)............................................      311,300           *          *
Carol A. Bartz(8)...........................................      201,812           *          *
</TABLE>

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<PAGE>   110

<TABLE>
<CAPTION>
                                                                               PERCENT OF SHARES
                                                                 SHARES           OUTSTANDING
                                                              BENEFICIALLY    -------------------
                                                              OWNED PRIOR       PRIOR      AFTER
             NAME OR GROUP OF BENEFICIAL OWNERS                TO MERGER      TO MERGER    MERGER
             ----------------------------------               ------------    ---------    ------
<S>                                                           <C>             <C>          <C>
Eric S. Raymond(6)..........................................      162,952           *          *
All directors and officers as a group (13 persons)(9).......   25,450,712       56.87%     49.83%
</TABLE>

- -------------------------
 *  Less than 1% of the outstanding shares of common stock.

(1) Includes 7,769,252 shares held by Sequoia Capital VIII, 514,349 shares held
    by Sequoia International Technology Partners VIII(Q), 171,450 shares held by
    CMS Partners LLC, 98,583 shares held by Sequoia International Technology
    Partners VIII, 18,858 shares held by Sequoia 1997, 419,690 shares held by
    Sequoia Capital Franchise Fund, 46,632 shares held by Sequoia Capital
    Franchise Partners. Mr. Leone is the managing member of Sequoia
    International Technology Partners VIII, Sequoia Capital VIII, Sequoia
    International Technology Partners VIII(Q), Sequoia Capital Franchise Fund
    and Sequoia Capital Franchise Partners, and has signature authority for CMS
    Partners LLC and Sequoia 1997. Mr. Leone disclaims beneficial ownership of
    shares held by these entities except to the extent of his pecuniary interest
    in these entities.

(2) Includes 660,000 shares subject to VA Linux's right of repurchase, which
    lapses over time, and an option exercisable for 1,155,000 shares, of which
    all 1,155,000 shares may be exercised by Mr. Augustin and upon exercise will
    become subject to VA Linux's right of repurchase, which lapses over time.
    Also includes 384,000 shares owned by Alice Kitsuta Augustin, Mr. Augustin's
    wife and 100,000 shares held in the Larry M. Augustin 1999 Grantor Retained
    Annuity Trust dated November 30, 1999 in which Larry M. Augustin is the
    trustee.

(3) Includes 1,155,439 shares subject to VA Linux's right of repurchase, which
    lapses over time.

(4) Includes 471,686 shares subject to VA Linux's right of repurchase, which
    lapses over time.

(5) Includes 93,677 shares subject to VA Linux's right of repurchase, which
    lapses over time and an option exercisable for 249,684 shares, of which all
    249,684 shares may be exercised by Mr. Shore and upon exercise will become
    subject to VA Linux's right of repurchase, which lapses over time.

(6) Includes 100,000 shares subject to VA Linux's right of repurchase, which
    lapses over time.

(7) Includes 161,300 shares held in the Carl Redfield Annuity Trust 1 u/i dtd
    11/29/99 and 100,000 shares subject to VA Linux's right of repurchase, which
    lapses over time.

(8) Includes 150,000 shares subject to VA Linux's right of repurchase, which
    lapses over time.

(9) Includes the shares beneficially owned by the persons and entities described
    in footnotes (1) - (8).

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<PAGE>   111

                       INFORMATION REGARDING ANDOVER.NET

                             ANDOVER.NET'S BUSINESS

INTRODUCTION

     Andover.Net's network of web sites, including slashdot.org, one of the
leading Linux/open source destinations on the Internet, provides products,
online tools, news and other services for programmers, software developers, web
site designers, technology managers and corporate buyers. Andover.Net's network
of web sites provides an independent, unbiased source for content, community and
commerce for the Linux and, more generally, open source communities of
information technology, or IT, professionals, including programmers and
developers.

     Andover.Net's position in the Linux market allows it to provide advertisers
targeted access to the Linux/open source communities of IT professionals,
including programmers and developers.

     Andover.Net was incorporated in Massachusetts in 1992 as Andover Advanced
Technologies, Inc. In September 1999, it changed its name to Andover.Net, Inc.
and reincorporated in Delaware. Andover.Net's headquarters are located at 50
Nagog Park, Acton, Massachusetts, and its telephone number is (978) 635-5300.

INDUSTRY OVERVIEW

Growth and impact of the Internet

     The Internet has emerged as a global communications medium, enabling
millions of people to gather information, communicate and conduct business
electronically.

     The Internet is an attractive medium for advertisers because it allows
flexibility, interactivity and measurement capabilities and provides users with
immediate access to information about advertisers and their products. For
example, the Internet allows advertisers to change messages frequently in
response to market developments or current events. The Internet also allows
advertisers to gather demographic information about users and to deliver
targeted messages to specific consumer groups.

Growth of the information technology profession

     As the pace and complexity of technological change has increased,
professionals in the IT industry have become more specialized and grown in
number. IT professionals, including programmers and developers, play a central
role in many companies because of their ability to deploy and integrate new
information technologies. Organizations are increasingly adopting technologies
such as client/server architectures, data warehousing, Internet/intranet
applications and software development to execute business strategies and
maintain competitiveness. These and other technologies have continued to fuel
the growth in the worldwide market for IT products and services.

     IT professionals devote considerable time, effort and financial resources
researching new technologies, seeking answers to technical questions and
developing and implementing IT solutions. These professionals need to stay
abreast of rapid technological developments in a marketplace where vendors
continually introduce new products with a variety of standards and short life
cycles. They have historically relied on resources provided by IT publishers,
software vendors, hardware vendors, training service providers and fellow
professionals to follow the latest trends in the industry. Andover.Net does not
believe that any of these sources provides a comprehensive solution for IT
professionals' need for continuous education, access to new products and a
medium in which professionals can exchange ideas. Due to the rapid rate of
change,

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technical information, training materials and software become dated and obsolete
relatively quickly. Therefore, IT professionals, including programmers and
developers, have the following common needs:

     Content -- News and other resources that keep them informed of changes
     within the industry;

     Community -- The exchange of ideas and collaboration through a central
     medium by which they can share their experiences to increase their personal
     knowledge as well as grow the industry and technology; and

     Commerce -- An efficient, comprehensive source for products and services
     that meet their purchasing needs.

Growth of the Linux and open source movement

     The Internet has accelerated the growth of the open source movement. The
open source movement is a collaborative approach to the development and
distribution of software and has emerged as a viable alternative to traditional
proprietary software development. The growth of the Internet has greatly
increased the scale and efficiency of open source development by enabling large
communities of independent developers to collaborate online.

     The growth of the open source movement is principally based on access to
software source code. Developers write programs in source code. This source code
is then translated into object code, which is read by the computer. Under the
proprietary model of software development, a software developer generally
licenses only the object code, not the source code, to the user. The source code
is always controlled and maintained by the proprietary software developer. By
contrast, under the open source development model, the software developer
provides the user access to the source code which allows the software to be
modified by the user to meet specific needs. This code is often provided for
free or for a minimal cost and is adaptable by the user for a wide variety of
applications, including running web servers and low cost computer products known
as electronic "appliances." These appliances are designed to provide basic
computer applications such as Internet access, word processing and e-mail at a
lower cost than traditional personal computers. As a result, manufacturers can
create products that are unique, but which generally can be sold at a lower cost
because they are not required to pay a license fee for a proprietary operating
system such as Windows for their products.

     A necessary element to the continued success of the open source movement is
the continued ability of software developers to communicate, share and develop
software in a collaborative manner. For technology developers, locating and
fostering a community within which one can share information is of critical
importance.

     Andover.Net believes that an open source leader must broadly promote the
adoption of open source software, provide a trusted, responsive,
industry-focused information resource that offers support and collaboration at a
consistently high level, and enable a market for open source products and
services.

THE ANDOVER.NET SOLUTION

     Through Andover.Net's network of web sites, Andover.Net provides a solution
designed to meet the needs of the open source community and its developing
markets. Andover.Net's slashdot.org, freshmeat.net and freecode.com web sites
combined provide for an exchange of information about open source, and access to
downloadable resources through links to other web sites. Andover.Net generates
advertising revenues on each of these web sites, and the information provided to
users of these sites is free. Andover.Net generates the majority of this
information, including news and online tools. At Andover.Net's community web
site, slashdot.org, visitors generate content by commenting on various news
stories that are posted throughout the day. Some of Andover.Net's web sites
contain archives of free downloadable software products developed by various
third parties.

     Transition path. Andover.Net believes the best way for people to discover
and understand open source issues is for them to visit slashdot.org, a leading
hub for community, news and information. To

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make slashdot.org highly visible to non-Linux developers, Andover.Net includes
links, banners and buttons throughout Andover.Net's web sites that contain
content useful for both Linux and Windows.

     Trusted content. Andover.Net provides an independent, unbiased source for
content, much of which comes from the open source community itself. Moreover,
the comprehensive information provided by Andover.Net covers a broad range of
open source topics rather than a single version of Linux or a single hardware
platform. Freshmeat.net comprehensively rates and categorizes the latest in
Linux products regardless of developer or distribution. Further, freecode.com
has hundreds of code modules that can run on, or be adapted to run on, Linux and
other open source systems.

     Comprehensive support. The open source websites community offers advice and
counsel on slashdot.org. Further, freshmeat.net provides descriptions and free
downloadable software resources. At questionexchange.com people with technical
questions can connect with experts worldwide to solve technical problems. Other
Andover.Net sites provide tutorials, reviews, screenshots of products, links to
these products and market information.

     Open marketplace. Andover.Net provides one of the largest Internet media
channels through which open source vendors can promote and advertise their goods
and services and on which purchasers can identify, evaluate and buy the
Linux/open source products and services they need. In addition, Andover.Net
promotes application development through discussion forums, provides free
advertising for Linux-based products that are free, and broadly supports
promising new business models to encourage growth in the market.

     The benefits of Andover.Net's solution accrue to both members of the open
source community as well as to vendors who are targeting that community.

     Benefits for Andover.Net's community. This network has become one of the
most popular and most visited meeting place for the open source community.
Andover.Net provides editorials, community, commentary, reviews, products,
tools, news, information and services for programmers, software developers,
system engineers, web site designers, web site managers and corporate technology
buyers.

     Benefits for vendors. Andover.Net provides vendors with targeted channels
to reach this highly focused technology community. As the network has grown to
become a central site for members of the open source community, it has likewise
evolved as a selling opportunity for advertisers. Andover.Net believes that its
users represent a large and targeted online community of Internet industry and
IT professionals, web developers, programmers and experienced Internet users. As
a result, vendors can enhance the effectiveness of their advertising by
customizing advertisements and placing them on targeted pages on Andover.Net's
network.

STRATEGY

     Andover.Net's goal is to maintain and enhance its position as the leading
destination for Linux and, more generally, the open source community. Key
elements of this strategy are:

Grow the size and share of Andover.Net's open source position

     Andover.Net is one of the leading open source destinations on the Internet.
To grow this position, Andover.Net intends to increase its traffic by offering
more viewable pages, high quality content and additional services. Andover.Net
also intends to support the overall growth in the Linux and open source
communities. Andover.Net supports open source and all versions of Linux rather
than a single version of that operating system. Andover.Net intends to support
open source communities through free web site hosting, contributions of
advertising and trade show space to promote free Linux products and the
acceptance of the open source movement, funding of application development and
benchmark testing for developers of free products, supporting new business
models and expanding its open source partnership programs.

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Facilitate and guide the transition of Windows developers to open source

     The Andover.Net network includes sites for IT professionals, including
programmers, software developers, web designers and web site managers, many of
whom have not yet adopted Linux. These cross-platform web sites offer products,
online tools, news and other services that are usable with many of the major
operating systems including Linux, Windows and Macintosh. To accelerate the
growth of these open source web sites, Andover.Net intends to educate visitors
on these cross-platform web sites and inform, guide and encourage developers to
adopt and support Linux. At questionexchange.com, novice Linux users find help
to guide them as they transition from Windows to Linux.

Expand Andover.Net's e-commerce offerings to Andover.Net's targeted, high volume
traffic

     Andover.Net's network currently provides content, community and commerce.
Andover.Net currently sells compact discs of animated graphics and subscriptions
to animations archives online at mediabuilder.com. Open source related gifts,
books and paraphernalia are sold on thinkgeek.com. Andover.Net intends to expand
these e-commerce offerings by selling various additional Linux products such as
computer hardware, Internet appliances and compact discs as well as services
such as installation and support. Moreover, these e-commerce offerings can
generate increased traffic and encourage longer time spent on the network.

Acquire complementary open source web sites

     Andover.Net has already acquired and integrated leading open source web
sites such as slashdot.org and freshmeat.net and expects to continue to pursue
strategic acquisitions to strengthen content offerings and services. Andover.Net
may also acquire complementary web sites to obtain valuable brands, expertise or
access to new users, advertisers and vendors.

Expand the number and participation of major advertisers

     Andover.Net intends to increase the number of major advertisers on its
network by expanding its direct sales force and by increasing its sales
promotion to open source vendors. Andover.Net's position in providing open
source resource sites allows Andover.Net to provide advertisers targeted access
to the Linux/open source communities.

Strengthen the Andover.Net brand

     Andover.Net intends to strengthen its brand through a combination of online
and offline advertising, sales promotion, trade shows, direct mail, public
relations, syndicated content and events to promote the use of its network to
the technical community, advertisers and vendors. Andover.Net expects to
significantly increase both online and other media advertising in the future.
Andover.Net also intends to continue to promote its brand with licensing
programs.

THE ANDOVER.NET NETWORK

     Andover.Net's closely integrated network consists of content-rich web sites
and provides programmers and developers with extensive online resources.
Andover.Net believes that as sophisticated IT professionals and technology
hobbyists move to Linux and other open source-based operating systems, its
network, which includes news and tools for the Windows operating system, will
become an important component of this transition. This network can introduce
Linux and other similar operating systems to many of Andover.Net's technology
oriented customers who have not yet migrated to these systems.

     The Andover.Net network consists of three categories of web sites:

     - open source sites which attract sophisticated Linux users and developers,
       who seek new open source content;

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     - Cross-platform sites which offer visitors a wide range of content
       including news, products and online software applications; and

     - Windows site which features daily reviews and updates of Windows software
       downloads.

     Each of these main web sites and product offerings are summarized below.

OPEN SOURCE SITES

     slashdot.org -- Slashdot.org provides news, commentary, information and
reviews on a wide range of subjects. Slashdot.org focuses on issues of
importance to the open source community allowing individuals to post comments
and debate news items and technical issues.

     freshmeat.net -- Freshmeat.net also contains application news and a
community section. At freshmeat.net, open source developers and users can
exchange information online to collaborate on open source software projects. One
feature of this web site shows the number of hits each application has received
which allows Andover.Net to determine which Linux product is currently most
popular.

     freecode.com -- FreeCode.com is an online resource for programming source
code which offers a constantly updated and expanded database of free,
Internet-related programs. FreeCode.com contains programs written in Perl, C++,
Java and Visual Basic.

     thinkgeek.com -- Thinkgeek.com is an online retailer of Linux/open source
related gifts, books and paraphernalia. Thinkgeek.com's product offerings
include items branded with logos of other Andover.Net web sites and hard-to-find
novelty products that are pertinent to individuals who identify with the open
source community.

     questionexchange.com -- Questionexchange.com is a technical support web
site. Questionexchange.com provides a technical support marketplace over the Web
to individuals and corporations adopting Linux and open source products. Through
questionexchange.com's information auction model, open source developers can ask
and receive answers to their technical questions at lower costs than typical
support models by leveraging the Internet and other users of the site.

CROSS-PLATFORM SITES

     davecentral.com -- Davecentral.com has two components, one for Linux and
one for Windows. The site archives free software downloads and reviews. Both the
Linux and Windows web sites group the software by category that facilitates
searches. The site also has a ticker showing recent updates in the web site as
well as keyword search capabilities.

     andovernews.com -- Andovernews.com provides free, timely and searchable
computer-industry news from multiple sources. IT professionals visit
andovernews.com for information and editorials about a broad range of
technologies and technology companies.

     itmanagersjournal.com -- Itmanagersjournal.com provides IT news and advice
for professionals and managers. The site features daily editorial articles on a
wide variety of IT topics, survey questions with live results and discussions
about a broad range of IT issues.

     mediabuilder.com -- Mediabuilder.com is an online multimedia resource
center which contains multimedia software; online tools; GIF animations, one of
the most popular file formats for animations on the web; one of the largest
collections of free images on the Internet; and a font library. Some of the more
popular web tools found within mediabuilder.com are summarized below:

     - gifworks.com -- Gifworks.com is a free on-line software application. With
       easy-to-use pull down menus, gifworks.com allows users to resize any GIF
       animation.

     - htmlworks.com -- Htmlworks.com is an online application that enables
       users to create, edit and improve their web pages through their web
       browser.

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     techmailings.com -- Techmailings.com offers one of the largest collection
of technology mailing lists on the Internet with fifteen categories covering
everything from cyber-culture to Internet marketing.

     techsightings.com -- Techsightings.com searches the Internet for technology
sites and presents informative daily reviews of the best high-tech sites for IT
professionals. Chosen sites include targeted information on topics such as
hardware, software, programming and web building.

     internettrafficreport.com -- Internettrafficreport.com monitors the flow of
Internet data around the world. Internettrafficreport.com analyzes the data and
displays a value ranging from zero to 100 with higher values indicating faster,
more reliable connections.

WINDOWS SITE

     slaughterhouse.com -- Slaughterhouse.com ranks and updates a wide variety
of Windows software, including Internet applications, multimedia tools,
utilities and games. Slaughterhouse.com also offers daily news updates and a
"Product of the Day Review."

     By combining its open source, cross-platform and Windows web sites into the
network, Andover.Net provides IT professionals with a leading online resource.

MARKETING AND SALES

Marketing

     Andover.Net employs a combination of online and offline advertising, sales
promotion, trade shows, direct mail, public relations, syndicated content and
events to promote the use of its network to the technical community, advertisers
and vendors. Andover.Net currently places banner advertisements on over eight
million pages online each month, usually on complementary programmer and
developer sites. Andover.Net uses barter, content licensing and partnerships to
extend its online presence to offline media including technical trade magazines
and Internet marketing guides.

     Andover.Net's sales promotion includes seminars at major online media
agencies and forums for presenting its Linux/open source marketing opportunities
to major product vendors. Andover.Net focuses its trade show marketing on
Linux-related shows, such as LinuxWorld, computer related shows such as COMDEX
and online media planning conferences, such as @d:tech. Andover.Net announces
and promotes major events and advertising opportunities to media planners and
vendors through direct mail, as well as with advertising campaigns on the major
online web-marketing sites. Andover.Net also promotes its network to over
150,000 users who subscribe to Andover Update, Autopsy Report and other online
newsletters for free and to its 3 million visitors.

     Andover.Net uses online tools, including internettrafficreport.com,
gifworks.com and htmlworks.com, to attract technology-oriented visitors.
Andover.Net believes that this encourages long and repeat visits. These tools
are also utilized in a variety of licensing and partnership programs to extend
Andover.Net's promotional frequency and reach.

Sales

     The core of Andover.Net's online advertising business is a professional
direct sales force that makes sales calls on computer product vendors and media
planners at major agencies. Andover.Net has built and is expanding its
nationwide direct sales force with representatives currently in San Francisco,
New York, Los Angeles and Boston. As of March 31, 2000, its direct sales force
had 18 members. Andover.Net's direct sales force is dedicated to increasing the
sales of banner advertising, sponsorships, email newsletters, display
advertisements and recruitment advertising. Andover.Net sells its advertising
services primarily to high technology companies, consumer goods companies,
independent software developers, advertising agencies, and high technology
recruitment agencies.

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     Andover.Net's current offering of advertising products is shown below:

     - Display Advertisements -- Appear in the navigation bar on most
       Andover.Net web sites and combine visually appealing graphics with text.
       They are approximately two inches wide and six inches long and generally
       contain 100 words of copy and extend down the right hand side of our web
       pages. They can be rotated throughout the network to pages and web sites
       specified by advertisers just as a regular banner advertisement.

     - Large Banners -- Combine a display advertisement with a large top-of-page
       banner resulting in sixteen square inches filled with graphics and text
       in the top right hand corner of Andover.Net's web page.

     - Online Tools -- Allow advertisers to communicate directly to users of
       gifworks.com and htmlworks.com.

     - Sponsorships -- Include banners, display advertisements and logo/slogan
       design elements on targeted web sites, online tools, home pages and
       newsletters.

     Andover.Net believes that its advertisers can customize their advertising
campaigns and deliver their message in a highly targeted fashion by choosing
specific placements, or channels, on Andover.Net's network.

     Andover.Net believes that it enables advertisers to efficiently and
effectively reach targeted Linux/open source programmers, developers, engineers,
web site designers and managers, and other buyers of technical products and
services.

Andover.Net's Advertisers

     Andover.Net's customers include high technology and consumer advertisers.
Andover.Net's base of advertisers has been increasing and, for the quarter ended
December 31, 1999, Andover.Net had over 107 advertisers on its network. These
advertisers account for total revenues of $1,772,000, for the quarter ended
December 31, 1999, which includes barter arrangements. Only one of Andover.Net's
customers accounted for over 10% of total net revenues for the quarter ended
December 31, 1999: IBM at 18.2%. Based on percentage of total net revenues,
Andover.Net's five largest advertisers who accounted for 36.7% of Andover.Net's
total net revenues for the quarter ended December 31, 1999, were IBM, Doubleday
Books, Silicon Graphics, American Power Corp. and Sendmail.

SOFTWARE ENGINEERING AND DEVELOPMENT

     Andover.Net has invested, and intends to continue to invest, significant
resources in product and technology development. Andover.Net focuses and
modifies its product development efforts based on the needs of users and changes
in the marketplace. Andover.Net's software development efforts are focused on
four key areas.

     Advertisement and statistics systems. Andover.Net has created and
continually enhances two software systems necessary for the efficient operation
of its web sites: a banner advertisement system and a page traffic statistics
system. Using an internally developed advertising system has allowed Andover.Net
to create new advertising products, such as its large banner product, and to
rapidly adjust to requests from advertising clients.

     Database generated web sites. All of Andover.Net's web sites are created
and managed through centralized, online databases. This allows data entry
operators working both in-house and off-site to enter new content and update
existing content for Andover.Net's sites using password protected web forms. At
regular intervals, a completely new copy of each web site is automatically
generated from these databases using internally developed programs. These web
pages are automatically uploaded to Andover.Net's web servers, providing
Andover.Net's visitors with updated versions of each site. This database driven
model of web site creation provides a higher level of efficiency than
traditional publishing models, where large

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numbers of people are required to write each web page by hand. Therefore,
Andover.Net believes that it is able to provide a high level of content at
minimal incremental cost with a much smaller staff.

     Online web applications Another component of Andover.Net's network is
Andover.Net's online tools that are part of Andover.Net's mediabuilder.com site
and include gifworks.com and htmlworks.com. These server-based applications are
usable through any web browser, and provide a high level of functionality,
without requiring the user to download or install any additional software. All
of Andover.Net's online tools have been developed and are regularly enhanced
internally.

     Technical integration of acquired web sites. Andover.Net continues to
integrate new acquisitions into its network. All of Andover.Net's web sites are
linked into Andover.Net's network. Acquired web sites are modified to utilize
Andover.Net's statistics and advertising systems. Some acquired web sites are
completely redesigned if necessary to increase their quality and performance.

     All of Andover.Net's software systems have been written in the C++ and Perl
programming languages. These languages are commonly used for Internet
applications and are understood and used by a wide number of software engineers.

     As of March 31, 2000, Andover.Net employed a development staff of 27 that
included 18 software engineers, 6 web design professionals, and 3 network
operations engineers. Andover.Net intends to increase its development staff
significantly to accommodate the increased technical demands of acquisitions,
new internal systems and additional e-Tools.

SYSTEM TECHNOLOGY AND DATA CENTER ARCHITECTURE

     Maintaining a high level of performance and reliability while accommodating
rapid growth in visitors to Andover.Net web sites is a major focus of
Andover.Net's network operations engineers. To that end, Andover.Net has
developed expandable and fault-tolerant data center architecture for delivering
content and advertisements on its web sites.

     Andover.Net's current data center is located on the East coast of the
United States. Andover.Net intends to add three additional data centers using
the same software and hardware architecture on the West coast of the United
States, Europe and Asia. This multiple data center architecture will increase
the fault tolerance of Andover.Net's network, and minimize the impact of
localized interruptions of service on the Internet on the network.

     Andover.Net maintains and continually enhances a quality assurance process
to monitor its servers, processes and network connectivity. This process
involves both internal staff and external contractors who run regular system and
security audits of Andover.Net's servers. Andover.Net currently runs automatic
monitoring programs that immediately notify its network operations engineers by
email and pager in the case of any current or potential interruptions in
service.

INTELLECTUAL PROPERTY

     Andover.Net seeks to protect its intellectual property through a
combination of license agreements, service mark, copyright, trade secret laws
and other methods of restricting disclosure and transferring title. Andover.Net
obtains the majority of its content under license agreements with publishers,
through work for hire arrangements with third parties and from internal staff
development. Andover.Net has no patents or patents pending for its current
online services and does not anticipate that patents will become a significant
part of its intellectual property in the foreseeable future. Where appropriate,
Andover.Net also enters into confidentiality agreements with its employees,
consultants, vendors and customers. Andover.Net generally seeks to control
access to and distribution of its technology, documentation and other
proprietary information. Andover.Net pursues the registration of its trademarks
in the United States and internationally, and has submitted trademark
registration applications for its Andover.Net, Slashdot, Slashdot Design,
Freshmeat, News for Nerds. Stuff that Matters, Gifworks, Internet Traffic
Report, ThinkGeek, and Brain Design trademarks. Content created or acquired by
Andover.Net is protected by copyright. The proprietary software that Andover.Net
uses to run its business is protected generally by
                                       115
<PAGE>   119

restricting third party access, entering into confidentiality agreements with
third parties who do have access and relying on copyright law.

COMPETITION

     Competition within the Internet is intense and is expected to increase
significantly in the future. Specifically, the market is rapidly evolving and
barriers to entry are low, enabling newcomers to launch competitive web sites at
relatively low costs.

     Andover.Net believes that it competes on the basis of brand recognition,
quality and quantity of content, product and resource selection, convenience and
reliability. Andover.Net believes that it is differentiated from its competitors
due to:

     - its focus on the open source operating system;

     - the fact that it is independent of a particular version of the open
       source operating systems; and

     - its vertical focus of providing content, community and commerce to
       technology professionals.

     Andover.Net competes for advertisers, merchants, users and strategic
partners with:

     - web sites specifically targeting the open source communities;

     - web sites specializing in technology information;

     - Internet portals, search sites and content aggregators; and

     - traditional media content businesses such as newspapers, magazines, radio
       and television.

     Increased competition could result in advertising price reductions, reduced
margins or loss of market share, any of which could harm Andover.Net's business.
Competition is likely to increase significantly as new companies enter the
market and current competitors expand their services. Many of Andover.Net's
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than Andover.Net. These competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements and to devote greater resources to the development, promotion and
sale of their products and services than Andover.Net.

     Additionally, Andover.Net's success is in large part dependant on the
success of Linux, which is in competition with other operating systems. In the
market for operating systems, Linux competes with a number of large and
well-established companies that have significantly greater financial resources,
larger development staffs and more extensive marketing and distribution
capabilities. While Andover.Net does not directly compete with these companies,
its future success may depend on the ability of Linux to effectively compete
with these other more established operating systems.

EMPLOYEES

     As of March 31, 1999, Andover.Net had a total of 87 employees. Of the total
employees, 27 were in engineering, 9 in content development, 31 in sales and
marketing and 20 in general and administration. Andover.Net's future success
will depend in part on its ability to attract, retain and motivate highly
qualified technical and management personnel, for whom competition is intense.
From time to time Andover.Net also employs independent contractors to support
its professional services, product development, sales, marketing and business
development organizations. Andover.Net's employees are not represented by any
labor union and are not organized under a collective bargaining agreement, and
Andover.Net has never experienced work stoppage. Andover.Net believes its
relations with its employees are good.

                                       116
<PAGE>   120

PROPERTIES

     Andover.Net's headquarters are currently located in a leased facility in
Acton, Massachusetts, consisting of 11,740 square feet under a five-year lease
that will expire on April 30, 2004. The current annual rental expense under this
lease is approximately $208,000. Andover.Net has an option to extend the term of
this lease for another five years at the end of the initial five-year term.
Andover.Net is amending its existing lease and leasing an additional 17,138
square feet, adjacent to its existing leased location, effective April 1, 2000.
The annual rental for the combined 28,878 square feet will be approximately
$527,000 per year. This amended lease will expire on April 30, 2004.

LEGAL PROCEEDINGS

     From time to time, Andover.Net is subject to legal proceedings and claims
in the ordinary course of business. Andover.Net is not currently involved in any
legal proceedings that it believes could have, either individually or in the
aggregate, a material adverse effect on its business or financial condition.

                                       117
<PAGE>   121

              SELECTED CONSOLIDATED FINANCIAL DATA OF ANDOVER.NET

     The selected financial data of Andover.Net set forth below as of September
30, 1998 and 1999 and December 31, 1999 and for each of the years ended
September 30, 1997, 1998 and 1999 and the three months ended December 31, 1999
are derived from financial statements of Andover.Net audited by Arthur Andersen
LLP, independent public accountants, which are included elsewhere in this proxy
statement/prospectus. The selected financial data as of September 30, 1996 and
1997, and for the year ended September 30, 1996 are derived from audited
financial statements of Andover.Net which are not included in this prospectus.
The selected financial data as of December 31, 1998 and for the three months
then ended are derived from unaudited financial statements of Andover.Net
included elsewhere in this proxy statement/prospectus. The selected financial
data as of September 30, 1995 and the year then ended are derived from unaudited
financial statements of Andover.Net which are not included in this proxy
statement/prospectus. All unaudited data includes, in the opinion of
Andover.Net, all adjustments (consisting only of normal recurring adjustments)
that are necessary for a fair presentation of its financial position and the
results of its operations for those periods. The data should be read in
conjunction with the Financial Statements and the Notes thereto and with
Management's Discussion and Analysis of Financial Condition and Results of
Operations appearing elsewhere in this proxy statement/prospectus.

<TABLE>
<CAPTION>
                                                                                             THREE MONTHS ENDED
                                                      YEARS ENDED SEPTEMBER 30,                 DECEMBER 31,
                                             -------------------------------------------   ----------------------
                                              1995     1996     1997     1998     1999        1998         1999
                                             ------   ------   ------   ------   -------   -----------   --------
                                                                                           (UNAUDITED)
                                                                                           -----------
<S>                                          <C>      <C>      <C>      <C>      <C>       <C>           <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
  Advertising..............................  $   --   $   --   $  469   $1,290   $ 2,021     $  373      $  1,772
  E-commerce...............................      --       --       --       --       100         --           285
  Software products........................     989      316      272       --        --         --            --
                                             ------   ------   ------   ------   -------     ------      --------
    Total revenues.........................     989      316      741    1,290     2,121        373         2,057
COST OF REVENUES:
  Editorial content and related............      --       --      136      327       731        107           355
  E-commerce...............................      --       --       --       --         2         --           126
  Software products........................     376       29      167       --        --         --            --
                                             ------   ------   ------   ------   -------     ------      --------
    Total cost of revenues.................     376       29      303      327       733        107           481
                                             ------   ------   ------   ------   -------     ------      --------
Gross profit...............................     613      287      438      963     1,388        266         1,576
OPERATING EXPENSES:
  Sales and marketing......................     301      339      496      744     1,952        213         1,283
  General and administrative...............     311      521      338      360     1,480        145           949
  Research and development.................      --       --      194      304       770        127           323
  Amortization of deferred compensation....      --       --       --       --     1,023        577         1,154
  Amortization of intangible assets........      --       --       --       --       405         --           424
  Compensation related to acquisitions.....      --       --       --       --       813         --         1,217
                                             ------   ------   ------   ------   -------     ------      --------
    Total operating expenses...............     612      860    1,028    1,408     6,443      1,062         5,350
                                             ------   ------   ------   ------   -------     ------      --------
Loss from operations.......................       1     (573)    (590)    (445)   (5,055)      (796)       (3,774)
Interest income............................                3        1       20        88         12           309
Interest expense...........................     (35)     (84)     (75)     (49)     (466)        --       (12,255)
                                             ------   ------   ------   ------   -------     ------      --------
Net loss...................................  $  (34)  $ (654)  $ (664)  $ (474)  $(5,433)    $ (784)     $(15,720)
                                             ======   ======   ======   ======   =======     ======      ========
Accrued dividends on redeemable preferred
  stock....................................      --       --       41      134       354         45           260
                                             ------   ------   ------   ------   -------     ------      --------
Net loss attributable to common
  stockholders.............................  $  (34)  $ (654)  $ (705)  $ (608)  $(5,787)    $ (829)     $(15,980)
                                             ======   ======   ======   ======   =======     ======      ========
Net loss per share attributable to common
  stockholders.............................  $(1.70)  $(0.38)  $(0.29)  $(0.12)  $ (0.78)    $(0.14)     $  (1.61)
                                             ======   ======   ======   ======   =======     ======      ========
Basic and diluted weighted average shares
  outstanding..............................      20    1,763    2,468    5,110     7,419      5,960         9,923
                                             ======   ======   ======   ======   =======     ======      ========
</TABLE>

                                       118
<PAGE>   122

<TABLE>
<CAPTION>
                                                          SEPTEMBER 30,                          DECEMBER 31,
                                         ------------------------------------------------   ----------------------
                                            1995        1996     1997     1998     1999        1998         1999
BALANCE SHEET DATA:                      -----------   ------   ------   ------   -------   -----------   --------
                                         (UNAUDITED)                                        (UNAUDITED)
<S>                                      <C>           <C>      <C>      <C>      <C>       <C>           <C>
Cash and cash equivalents..............    $    2      $  128   $  837   $  196   $ 9,871     $2,676      $ 78,409
Working capital........................       (72)        155      710      230     8,014      2,076        78,241
Total assets...........................       142         404    1,099      533    14,440      3,033        84,417
Long-term obligations, less current
  portion..............................        --          51       --       --       762         --            --
Redeemable preferred stock.............        --         988    2,228    2,362     4,800      4,459            --
Redeemable convertible preferred
  stock................................        --          --       --       --    12,669         --            --
Stockholders' equity (deficit).........       (64)       (870)  (1,503)  (2,109)   (6,313)    (1,742)       81,842
</TABLE>

                                       119
<PAGE>   123

             ANDOVER.NET'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data of Andover.Net" and Andover.Net's
financial statements and related notes included elsewhere in this proxy
statement/prospectus. This discussion contains forward-looking statements that
involve risks and uncertainties. Andover.Net's actual results could differ
materially from those anticipated in the forward-looking statements as a result
of certain factors including the risks discussed in "Risk Factors" and elsewhere
in this proxy statement/prospectus.

OVERVIEW

     Andover.Net operates a network of web sites that provides an independent,
unbiased source for content, community and commerce for the Linux and, more
generally, open source communities. Andover.Net provides products, online tools,
news and other services for programmers, software developers, web site
designers, technology managers and corporate buyers.

     Andover.Net was incorporated in Massachusetts in 1992 as Andover Advanced
Technologies, Inc. In September 1999, Andover Advanced Technologies, Inc. was
merged into its wholly owned subsidiary, Andover.Net, Inc., a Delaware
corporation, and changed its fiscal year end from September 30 to December 31.

     Prior to fiscal 1996, Andover.Net was a software publisher of multimedia
and web authoring tools. Andover.Net derived revenues from licensing,
developing, marketing and distributing packaged multimedia software, primarily
to large distributors and retailers. In fiscal 1996, Andover.Net launched its
first web site, davecentral.com. During fiscal 1997, Andover.Net transitioned
from a software publisher to a web site publisher. Since March 1997, all of
Andover.Net's activities have been focused on expanding Andover.Net's Internet
business.

     Andover.Net currently generates revenue from advertisements on its network
of web sites and from e-commerce. Advertising revenues of $1,325,000 represented
64.4% of total net revenues during the quarter ended December 31, 1999. For the
quarter ended December 31, 1998, advertising revenues were $337,000 or 90.3% of
total net revenues. Andover.Net recognizes advertising revenue in the period
that the advertising is displayed, provided that Andover.Net deems the
collectibility of the resulting receivable as probable. Andover.Net sells
advertising through its nationwide direct sales force.

     Andover.Net enters into barter transactions with other web sites in order
to increase traffic to its network of web sites and to strengthen the
Andover.Net brand. A barter transaction is the exchange by Andover.Net of
advertising space on its web sites for reciprocal advertising space on the web
sites of others. Andover.Net records revenues only on the portion of its barter
transactions for which it is able to determine fair value and for which the
advertiser has the financial ability to pay cash. To make the determination of
whether the advertiser could pay cash, Andover.Net reviews the current liquidity
of the advertiser based on recent public disclosures. Only advertisers with
exceptional liquidity positions are considered when recognizing barter revenue.
Andover.Net records revenue from these barter transactions, and the
corresponding advertising expense, based upon the fair market value of the
advertising space exchanged. Revenues from barter transactions, representing
advertising space given, is recognized as income when advertisements are
delivered on Andover.Net's network. Barter expense, representing advertising
space received, is recognized when Andover.Net's advertisements are run on other
companies' web sites, which is the same period when the related barter revenue
is recognized. For the quarter ended December 31, 1999, Andover.Net recognized
$447,000 in barter revenue, which represented 21.7% of total net revenues, and
$447,000 in barter expense, which represented 8.4% of total operating expenses.
Andover.Net recognized $36,000 in barter revenues, which represented 9.7% of
total net revenues and $36,000 in barter expenses, which represented 3.4% of
total operating expenses, for the quarter ended December 31, 1998.

                                       120
<PAGE>   124

     E-commerce revenues related to the online sale of compact discs of animated
graphics and subscriptions to Andover.Net's animations archives online at
mediabuilder.com. Linux and open source related gifts, books and paraphernalia
are sold on thinkgeek.com. E-commerce revenues of $285,000 represented 13.9% of
net revenues for the quarter ended December 31, 1999. No e-commerce revenues
were recognized for the quarter ended December 31, 1998. Revenue from e-commerce
products and the online sale of compact discs of animated graphics, for which no
technical support is provided, are generally recognized upon shipment of the
products, net of estimated returns. Andover.Net intends to increase e-commerce
revenues by adding additional merchandise to its e-commerce sites and through
additional acquisitions.

     Andover.Net has incurred significant losses since its inception. As of
December 31, 1999, Andover.Net had an accumulated deficit of $24.1 million and
tax net operating loss carryforwards that may be used to offset future taxable
income, if any, in the amount of $17.7 million. Andover.Net anticipates
incurring additional expenses to increase its product development and sales and
marketing efforts, to pursue additional strategic acquisitions and to support
the growth of the organization. As a result, Andover.Net believes that it will
incur additional losses in the foreseeable future.

RECENT DEVELOPMENTS

     Acquisition by VA Linux Systems. On February 2, 2000, Andover.Net entered
into a reorganization agreement, which was amended an April 26, 2000 with VA
Linux, pursuant to which VA Linux agreed to acquire all common shares of
Andover.Net (the "Transaction"). In connection with the Transaction, each share
of Andover.Net common stock will be exchanged for 0.425 of a share of VA Linux
common stock. The Transaction is subject to approval by the stockholders of
Andover.Net and customary closing conditions. See "The Reorganization
Agreement."

     On December 8, 1999, Andover.Net completed its initial public offering
("Offering") of 4,600,000 shares of its common stock, including 600,000 shares
issued in connection with the underwriter's overallotment option on the date of
the Offering. The shares were offered to the public at a price of $18 per share.
The proceeds from the Offering, net of offering expenses and the $1.17 per share
underwriting discount, were approximately $77,418,000. Concurrent with the
Offering, all of the Series A Redeemable Preferred Stock was redeemed for
$4,874,000.

     Sale of Series B Convertible Preferred Stock. Andover.Net issued 600,568
shares of Series B convertible preferred stock on September 15, 1999. Of these
shares, 480,354 shares were issued and sold for consideration of $10.1 million
and 120,214 shares were issued to holders of convertible notes in consideration
for the conversion of approximately $2.1 million of principal and interest. All
of the Series B Redeemable Convertible Preferred Stock were converted into
3,017,134 shares of common stock on the date of the Offering. This conversion
resulted in an interest charge of $12.2 million caused by the beneficial
conversion of the Series B preferred shares.

ACQUISITIONS AND LICENSING AGREEMENTS

     Acquisition of Slashdot.org. In June 1999, Andover.Net acquired
substantially all of the assets and assumed certain liabilities relating to the
slashdot.org web site from BlockStackers, Inc. for $1,500,000 in cash. The
purchase agreement also contains additional cash payments and common stock
consideration contingent upon certain future events. Maximum future cash
payments are $3,500,000 payable over the next two years contingent on two key
employees' continued employment. Maximum future stock consideration of
$7,000,000 is payable over two years. The number of shares paid is calculated
based on the price per share in the Offering and is contingent upon the
continued employment of two key employees and other performance milestones
relating to the web site.

     - 55,555 shares issuable seven months after December 8, 1999;

     - 37,037 shares issuable 12 months after December 8, 1999;

                                       121
<PAGE>   125

     - 74,074 shares issuable 12 months after December 8, 1999 provided that the
       milestones in the agreement have been met;

     - 37,037 shares issuable 24 months after December 8, 1999; and

     - 74,074 shares issuable 24 months after December 8, 1999 provided that the
       milestones in the agreement have been met.

     Acquisition of the Animation Factory. In June 1999, Andover.Net acquired
substantially all of the assets and assumed certain liabilities of Eclipse
Digital Imaging, Inc., including the graphical and artistic web site known as
the Animation Factory for $1,500,000 in cash, of which $250,000 was paid on the
closing of the acquisition and $1,250,000 is payable in 15 equal monthly
installments beginning in October 1999. The purchase agreement also contains
stock consideration of $600,000 payable over two years contingent upon continued
employment of the two principals of Eclipse and other milestones relating to the
creation of new animation images. Any stock consideration given, when the
contingencies are resolved, will be accounted for as compensation expense over
the period earned, as they are directly related to the continued employment and
performance of these two key employees. The number of shares paid is calculated
based on the price per share offered in the Offering.

     - 11,111 shares issuable 12 months after December 8, 1999; and

     - 11,111 shares issuable 24 months after December 8, 1999.

     Acquisition of Freshmeat.net. In August 1999, Andover.Net acquired
substantially all of the assets and assumed the liabilities relating to the
Freshmeat.net web site for $367,000 of cash at the closing and guaranteed future
payments aggregating $300,000 payable monthly through November 2000. Future
stock consideration of $333,000 will be paid over the term of a service contract
with the selling stockholder.

     - 6,172 shares issuable 12 months after December 8, 1999; and

     - 6,172 shares issuable 24 months after December 8, 1999.

     Acquisition of ThinkGeek.com. In October 1999, Andover.Net acquired all of
the assets relating to the web site known as thinkgeek.com from ThinkGeek, LLC
for $200,000 cash paid at the closing and $200,000 payable in eight equal
quarterly contingent installments beginning in January 2000. These payments are
contingent on the continued employment of the key employees of thinkgeek.com and
are not considered part of the purchase price.

     Lycos, Inc. Licensing Agreement. In October 1999, Andover.Net entered into
a licensing agreement with Lycos, Inc. to release Gifworks 3.0, an online
software application, on tripod.com. The agreement enables Andover.Net to
provide online tools for the angelfire.com and the tripod.com community web
sites in exchange for a monthly fee and a percentage of the advertising revenue
earned on the licensed web pages.

     Acquisition of QuestionExchange, Inc. On February 7, 2000, Andover.Net
entered into a stock purchase agreement to acquire all outstanding shares of
QuestionExchange, Inc. for $12,500,000 in Andover.Net common stock and cash. The
purchase price consists of $8,170,000 in common stock valued at $32 per share
and cash. Additional cash payments of approximately $1,750,000 will be paid over
the next three years. Additionally, there are contingent stock payments totaling
$2,500,000 based on meeting certain financial targets. Additional contingent
payments of $80,000 will be payable over two years contingent on the continued
employment of certain sellers.

AMORTIZATION OF DEFERRED STOCK-BASED COMPENSATION

     In the quarter ended December 31, 1999, Andover.Net recorded deferred
stock-based compensation of $279,000 in connection with stock option grants of
75,000, which represents the aggregate difference between the exercise price and
the fair market value of the common stock, as determined for accounting
purposes. Andover.Net is amortizing deferred compensation over the vesting
period of the underlying stock

                                       122
<PAGE>   126

options. These vesting periods range up to four years. The amortization of
deferred stock-based compensation was $1.2 million for the quarter ended
December 31, 1999.

NET OPERATING LOSS CARRYFORWARDS

     As of December 31, 1999, Andover.Net had net operating loss carryforwards
of $17.7 million. Net operating loss carryforwards can be used to offset taxable
income in future periods. The net operating loss carryforwards will expire at
various dates through 2019, if not utilized. The Tax Reform Act of 1986 imposes
substantial restrictions on the utilization of net operating loss carryforwards
in the event of an "ownership change" of a corporation. Andover.Net's ability to
utilize net operating loss and tax credit carryforwards on an annual basis would
be limited as a result of an "ownership change" as defined by Section 382 of the
Internal Revenue Code. Andover.Net has completed several financings since
inception and believes that it has incurred ownership changes. Andover.Net does
not believes the ownership changes to date will have a material impact on its
ability to utilize its net operating loss and tax credit carryforwards. There
can be no assurance that Andover.Net's future acquisitions, if any, will not
result in an ownership change that would limit its ability to utilize its net
operating losses and tax credit carryforwards.

RESULTS OF OPERATIONS

     The following table sets forth certain statements of operations data as a
percentage of revenues for the periods indicated:

<TABLE>
<CAPTION>
                                                                                                       THREE MONTHS
                                                                                                           ENDED
                                                            YEAR ENDED SEPTEMBER 30,                   DECEMBER 31,
                                                 -----------------------------------------------     -----------------
                                                 1995       1996      1997      1998       1999       1998       1999
                                                 -----     ------     -----     -----     ------     ------     ------
                                                                     (AS A PERCENTAGE OF REVENUES)
<S>                                              <C>       <C>        <C>       <C>       <C>        <C>        <C>
STATEMENTS OF OPERATIONS DATA:
Revenues.......................................  100.0%     100.0%    100.0%    100.0%     100.0%     100.0%     100.0%
Cost of revenues...............................   38.0        9.2      40.9      25.3       34.6       28.7       23.4
                                                 -----     ------     -----     -----     ------     ------     ------
Gross profit...................................   62.0       90.8      59.1      74.7       65.4       71.3       76.6
Operating expenses:
  Sales and marketing..........................   30.4      107.3      66.9      57.7       92.0       57.1       62.4
  General and administrative...................   31.4      164.9      45.6      27.9       69.8       38.9       46.1
  Research and development.....................     --         --      26.2      23.6       36.3       34.0       15.7
  Amortization of deferred compensation........     --         --        --        --       48.2      154.6       56.1
  Amortization of intangible assets............     --         --        --        --       19.1         --       20.6
  Compensation related to acquisitions.........     --         --        --        --       38.3         --       59.2
                                                 -----     ------     -----     -----     ------     ------     ------
  Total operating expenses.....................   61.8      272.2     138.7     109.2      303.7      284.7      260.1
                                                 -----     ------     -----     -----     ------     ------     ------
Loss from operations...........................    0.2     (181.4)    (79.6)    (34.5)     238.3     (213.4)    (183.5)
Interest income................................     --        0.9       0.1       1.6        4.1        3.2       15.0
Interest expense...............................   (3.5)     (26.6)    (10.1)     (3.8)     (22.0)        --      595.8
                                                 -----     ------     -----     -----     ------     ------     ------
Net loss.......................................   (3.3)%   (207.1)%   (89.6)%   (36.7)%   (256.2)%   (210.2)%   (764.2)%
                                                 =====     ======     =====     =====     ======     ======     ======
</TABLE>

QUARTERS ENDED DECEMBER 31, 1998 AND 1999

     Revenues. Substantially all of the total net revenues for the quarter ended
December 31, 1998 and the quarter ended December 31, 1999 were from
advertisements on Andover.Net's network of web sites. In the quarter ended
December 31, 1999, Andover.Net's total net revenues also included $285,000 of
e-commerce revenue. There was no e-commerce revenue in the quarter ended
December 31, 1998. Total net revenues increased 451.5% from $373,000 in the
quarter ended December 31, 1998 to $2.1 million in the quarter ended December
31, 1999. The increase was primarily due to an increase in banner advertising
and sponsorships on Andover.Net's network of web sites, the advertising revenue
attributed to the acquisition of the Animation Factory and the e-commerce
revenue. Barter advertising was $36,000 or 9.7% of total net revenues in the
quarter ended December 31, 1998, as compared to $447,000 or 21.7% of revenues in
the quarter ended December 31, 1999.

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     Cost of Revenues. Cost of revenues primarily consists of expenses
associated with editorial content, communications infrastructure, and web site
hosting. Cost of revenues increased from $107,000, or 28.7% of revenues, in the
quarter ended December 31, 1998 to $481,000, or 23.4% of revenues, in the
quarter ended December 31, 1999. The increase in cost of revenues reflects
additional operations personnel and expenses for freelance contributors for
editorial content, as well as higher costs for hosting Andover.Net's network of
web sites, which includes expenses for Andover.Net's server leases. Andover.Net
anticipates that cost of revenues will continue to increase in absolute dollars
as Andover.Net continues to enhance its content offerings and services and
expand the number of data centers hosting its web sites. The cost of revenues
will also continue to increase as Andover.Net expands its e-commerce
merchandise.

     Sales and Marketing Expenses. Sales and marketing expenses primarily
consist of advertising and promotional expenditures and payroll, sales
commissions and related expenses for personnel engaged in sales and marketing
activities. Sales and marketing expenses increased from $177,000, or 47.5% of
revenues, in the quarter ended December 31, 1998 to $836,000, or 40.6% of
revenues, in the quarter ended December 31, 1999. The increase in expenses
relates to added sales personnel and an increase in advertising and promotional
expenses. Andover.Net anticipates its sales and marketing expenses will
substantially increase in the future as it continues to expand its direct sales
force and invest in advertising and promotions to strengthen the Andover.Net
brand.

     General and Administrative Expenses. General and administrative expenses
primarily consist of payroll and related costs of management and administrative
personnel, as well as professional fees and facility costs. General and
administrative expenses increased from $145,000, or 38.9% of revenues, in the
quarter ended December 31, 1998 to $949,000, or 46.1% of revenues, in the
quarter ended December 31, 1999. The increase in expenses largely reflects the
hiring of additional management and administrative personnel. Andover.Net
anticipates that its general and administrative expenses will continue to
increase in absolute dollars as it continues to hire additional personnel.

     Research and Development Expenses. Research and development expenses
primarily consist of payroll and related costs for developing Andover.Net's web
sites, including internal banner advertising and page statistic systems, as well
as developing Andover.Net's online tools, free software products that help
Andover.Net web site visitors build their own web sites. Research and
development expenses increased from $127,000, or 34.0% of revenues, in the
quarter ended December 31, 1998 to $323,000, or 15.7% of revenues, in the
quarter ended December 31,1999. The increase in research and development
expenses largely reflects additions to Andover.Net's research and development
staff of direct and contract personnel increasing headcount from 19 to 24.
Andover.Net anticipates that these expenses will increase significantly as it
continues to expand its technical staff to handle the integration of future
acquisitions and development of new systems and online tools.

     Barter Advertising Expenses. For the quarter ended December 31, 1998, there
were non-cash advertising costs of $36,000, or 9.7% of revenues, from barter
transactions as compared to $447,000, or 21.7% of revenues, in the quarter ended
December 31, 1999.

     Amortization of Deferred Stock-Based Compensation. Amortization expense of
deferred stock-based compensation represents the vested portion of stock options
that were granted to certain employees at exercise prices below the estimated
fair value. Amortization expense for the quarter ended December 31, 1998 was
$577,000 as compared to $1,154,000 in the quarter ended December 31, 1999.

     Amortization of Intangible Assets. Amortization expense of intangible
assets relates to the intangible assets of acquisitions. These intangible assets
include goodwill, covenants not to compete, trademarks and animation libraries.
There was no amortization expense for the quarter ended December 31, 1998 as
compared to $424,000 in the quarter ended December 31, 1999.

     Compensation Expense Related to Acquisitions. Compensation expense related
to acquisitions consists of the cash and stock payments related to acquisitions
that are contingent solely on the continued employment of certain key employees
of those acquisitions. These payments are considered by Andover.Net for
accounting purposes to be compensation for services performed by these key
individuals.

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There was no expense for the quarter ended December 31, 1998 as compared to
$1,217,000 for the quarter ended December 31, 1999.

     Interest Income and Expense. Interest income increased from $12,000 in the
quarter ended December 31, 1998, to $309,000 in the quarter ended December 31,
1999. The increase in interest income reflects the higher average cash balances
resulting from the Offering during the quarter ended December 31, 1999. There
was no interest expense in the quarter ended December 31, 1998 as compared to
$12.3 million in the quarter ended December 31, 1999. This increase is primarily
attributable to the interest charge relating to the beneficial conversion of
Series B redeemable convertible preferred stock into common stock in connection
with the Offering.

     Provision for Income Taxes. Andover.Net had no provision for income taxes
for the quarters ended December 31, 1998 and 1999 because it incurred losses
during these periods.

FISCAL YEARS ENDED SEPTEMBER 30, 1998 AND 1999

     Revenues. Substantially all of the revenues for the year ended September
30, 1998 and year ended September 30, 1999 were from advertisements on
Andover.Net network of web sites. In fiscal 1999, Andover.Net's revenues also
included $100,000 of software product revenues related to the online sale of
compact discs of animated graphics. Revenues increased 61.5% from $1.3 million
in the year ended September 30, 1998 to $2.1 million in the year ended September
30, 1999. The increase was primarily due to an increase in banner advertising
and sponsorships on Andover.Net's network of web sites and the advertising
revenue attributed to the acquisitions of slashdot.org, the Animation Factory
and freshmeat.net. There were no barter revenues in the year ended September 30,
1998. In the year ended September 30, 1999, revenues from barter transactions
were $570,000, or 26.9% of revenues.

     Cost of Revenues. Cost of revenues primarily consists of expenses
associated with editorial content, communications infrastructure, and web site
hosting. Andover.Net's web site hosting expenses include expenses associated
with Andover.Net's ownership of two servers, Andover.Net's lease of 17 servers
and media fees. Cost of revenues increased from $327,000, or 25.3% of revenues,
in the year ended September 30, 1998 to $733,000, or 34.6% of revenues, in the
year ended September 30, 1999. The increase in cost of revenues reflects
additional operations personnel and expenses for freelance contributors for
editorial content, as well as higher costs for hosting Andover.Net's network of
web sites which includes expenses for Andover.Net's server leases. Andover.Net
anticipates that cost of revenues will continue to increase in absolute dollars
as Andover.Net continues to enhance its content offerings and services and
expand the number of data centers hosting its web sites.

     Sales and Marketing Expenses. Sales and marketing expenses primarily
consist of advertising and promotional expenditures and payroll, sales
commissions and related expenses for personnel engaged in sales and marketing
activities. Sales and marketing expenses increased from $744,000, or 57.7% of
revenues, in the year ended September 30, 1998 to $2.0 million, or 92.0% of
revenues, in the year ended September 30, 1999. The increase in expenses relates
to added sales personnel and an increase in advertising and promotional
expenses. In January 1999, Andover.Net began to transition to a direct sales
force. Previously, Andover.Net had relied primarily on a limited number of
independent, non-exclusive sales representatives to sell its advertising.
Between January and September of 1999, Andover.Net expanded its direct sales
personnel from three to 15. In addition to the increase in sales personnel,
Andover.Net substantially increased its advertising and promotional expenditures
in the year ended September 30, 1999. Andover.Net anticipates its sales and
marketing expenses will substantially increase in the future as it continues to
expand its direct sales force and invest in advertising and promotions to
strengthen the Andover.Net brand.

     General and Administrative Expenses. General and administrative expenses
primarily consist of payroll and related costs of management and administrative
personnel, as well as professional fees and facility costs. General and
administrative expenses increased from $360,000, or 27.9% of revenues, in the
year ended September 30, 1998 to $1.5 million, or 69.8% of revenues, in the year
ended September 30, 1999. The increase in expenses largely reflects the hiring
of additional management and administrative
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personnel increasing Andover.Net's headcount from one to nine, employee
recruiting costs and an increase in facility costs due to Andover.Net's move to
larger, leased office space in May 1999. Andover.Net anticipates that its
general and administrative expenses will continue to increase in absolute
dollars as Andover.Net plans on hiring additional personnel and will incur costs
associated with being a public company, including directors' and officers'
liability insurance and higher professional service fees.

     Research and Development Expenses. Research and development expenses
primarily consist of payroll and related costs for developing Andover.Net's web
sites, including internal banner advertising and page statistic systems, as well
as developing Andover.Net's e-Tools, free software products that help
Andover.Net web site visitors build their own web sites. Research and
development expenses increased from $304,000, or 23.6% of revenues, in the year
ended September 30, 1998 to $800,000, or 36.3% of revenues, in the year ended
September 30, 1999. The increase in research and development expenses largely
reflects additions to Andover.Net's research and development staff of direct and
contract personnel increasing Andover.Net's headcount from six to 19.
Andover.Net anticipates that these expenses will increase significantly as it
continues to expand its technical staff to handle the integration of future
acquisitions and development of new internal systems and e-Tools.

     Barter Advertising Expenses. For the year ended September 30, 1999, there
were non-cash advertising costs of $570,000, or 26.9% of revenues, from barter
transactions. There were no barter advertising costs in the year ended September
30, 1998.

     Amortization of Deferred Compensation -- Amortization expense of deferred
compensation represents the vested portion of stock options which were granted
to certain employees at exercise prices below the estimated fair value.

     Amortization of Intangible Assets -- Amortization expense of intangible
assets relates to the intangible assets acquired of slashdot.org, the Animation
Factory and freshmeat.net. This amortization was $405,000, or 19.1% of revenues,
for the year ended September 30, 1999 and was recorded in the fourth quarter of
the fiscal year as the acquisitions were consummated on or after June 30, 1999.

     Compensation Related to Acquisitions -- Compensation related to
acquisitions consists of the cash and stock payments related to the
slashdot.org, the Animation Factory and freshmeat.net acquisitions that are
contingent solely on the continued employment of key employees of those
acquisitions. These payments are considered by Andover.Net for accounting
purposes to be compensation for services performed by these key individuals.
This compensation was $813,000, or 38.3% of revenues, for the year ended
September 30, 1999 and was recorded in the fourth quarter of the fiscal year as
the service provided related solely to the post-acquisition period.

     Interest Income and Expense. Interest income increased from $20,000 in the
year ended September 30, 1998 to $88,000 in the year ended September 30, 1999.
The increase in interest income reflects the higher average cash balances
resulting from the private sale of equity securities during the year ended
September 30, 1999. Interest expense increased from $49,000 in the year ended
September 30, 1998 to $466,000 in the year ended September 30, 1999. Net
interest expense increased from $29,000 for the year ended September 30, 1998 to
$378,000 for the year ended September 30, 1999. This increase is primarily
attributable to the interest charge relating to the beneficial conversion of
notes payable into Series B redeemable convertible preferred stock.

     Provision for Income Taxes. Andover.Net had no provision for income taxes
for the year ended September 30, 1998 and 1999 because Andover.Net incurred
losses during these periods.

FISCAL YEARS ENDED SEPTEMBER 30, 1997 AND 1998

     Revenues. Revenues increased 74.1% from $741,000 in the fiscal year ended
September 30, 1997 to $1.3 million in the fiscal year ended September 30, 1998.
In fiscal 1997, Andover.Net transitioned its business activities from software
publishing to web site publishing. Revenues derived from sales of packaged goods
software products in fiscal 1997 were $272,000 and initial advertising revenues
on its web sites were $469,000. In fiscal 1998, substantially all of
Andover.Net's revenues of $1.3 million represent
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<PAGE>   130

advertising on Andover.Net's network of web sites. The increase in advertising
revenues in fiscal 1998 was a result of increased sales of banner advertising
and sponsorships from Andover.Net's expanding base of customers.

     Cost of Revenues. Cost of revenues increased from $303,000, or 40.9% of
revenues, in the fiscal year ended September 30, 1997 to $327,000, or 25.3% of
revenues, in the fiscal year ended September 30, 1998. In fiscal 1997, costs of
advertising revenues were $136,000, or 29.0% of advertising revenues, and costs
of software publishing revenues were $167,000, or 61.4% of software publishing
revenues. In fiscal 1998, costs of revenues related entirely to advertising
revenues. The lower costs of advertising revenues, as a percentage of
advertising revenues, in fiscal 1998 was due to lower proportionate fixed costs
on the higher year-to-year revenues.

     Sales and Marketing Expenses. Sales and marketing expenses increased from
$496,000, or 66.9% of revenues, in the fiscal year ended September 30, 1997 to
$744,000, or 57.7% of revenues, in the fiscal year ended September 30, 1998. The
increase in absolute dollars in sales and marketing expenses relates primarily
to higher variable sales commissions on the year-to-year increases in revenues.
During fiscal 1997 and 1998, Andover.Net primarily relied on independent,
non-exclusive sales representatives to sell its advertising. During this period,
Andover.Net increased its sales and marketing staff from two to three persons.

     General and Administrative Expenses. General and administrative expenses
increased from $338,000, or 45.6% of revenues, in the fiscal year ended
September 30, 1997 to $360,000, or 27.9% of revenues, in the fiscal year ended
September 30, 1998. The increase in general and administrative expenses, in
absolute dollars, relates primarily to administrative support from contract
employees and other non-payroll administrative costs. For this period,
Andover.Net's headcount decreased from two for the year ended September 30, 1997
to one for the year ended September 30,1998.

     Research and Development Expenses. Research and development expenses
increased from $194,000, or 26.2% of revenues, in the fiscal year ended
September 30, 1997 to $304,000, or 23.6% of revenues, in the fiscal year ended
September 30, 1998. The increase in research and development expenses, in
absolute dollars, relates primarily to personnel additions to Andover.Net's
development staff which increased headcount from four to six.

     Interest Income and Expense. Interest income increased from $1,000 in the
year ended September 30, 1997 to $20,000 in the fiscal year ended September 30,
1998. Interest expense decreased from $75,000 in the fiscal year ended September
30, 1997 to $49,000 in the fiscal year ended September 30, 1998. Net interest
expense decreased from $74,000 for the year ended September 30, 1999 to $29,000
for the year ended September 30, 1998. The increase in interest income in fiscal
1998 over fiscal 1997 relates to higher average cash balances during fiscal
1998. The interest expense over this two-year period relates to a secured loan
Andover.Net received from two of its stockholders in fiscal 1993. This loan was
repaid in early fiscal 1998.

     Provision for Income Taxes. Andover.Net had no provision for income taxes
for fiscal years ended September 30, 1997 or 1998 because Andover.Net incurred
losses during these periods.

LIQUIDITY AND CAPITAL RESOURCES

     Since inception, Andover.Net has funded operations primarily through the
private sales of common and preferred stock and short-term loans, which are
convertible into equity securities, together with cash flow from operations. As
of December 31, 1999, it had $78.4 million in cash and cash equivalents, total
current assets of $80.8 million and working capital of $78.2 million.
Andover.Net completed an initial public offering of its common stock on December
8, 1999. Andover.Net received proceeds of $77.4 million from the issuance of 4.6
million shares of its common stock. In September 1999, Andover.Net issued
600,568 shares of Series B convertible preferred stock. Andover.Net received
proceeds of $10.1 million from the issuance of the 480,354 shares of Series B
convertible preferred stock to a new investor. In addition, Andover.Net issued
120,214 shares of Series B convertible preferred stock upon conversion of

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approximately $2.1 million of principal and interest under convertible notes
that were issued to existing shareholders in June 1999.

     Net cash used in operating activities was $2.5 million in fiscal 1999 and
$2.0 million for the quarter ended December 31, 1999. The net cash used in
operating activities for all of these periods was primarily a result of
Andover.Net's operating losses before non-cash expenses.

     Cash used for additions to property and equipment was $242,000 in fiscal
1999, and $268,000 for the quarter ended December 31, 1999. For the year ended
September 30, 1999 and the quarter ended December 31, 1999, the additions to
property and equipment consisted of leasehold improvements, furniture and office
equipment for Andover.Net's new leased office space, as well as computer
equipment necessary to support personnel additions.

     In June 1999, Andover.Net paid $1.75 million in cash at closing for
Andover.Net's acquisitions of slashdot.org ($1.5 million) and the Animation
Factory ($250,000). Under the terms of the slashdot.org acquisition, there are
additional contingent cash payments of up to $1.5 million in January 2000, $1.0
million in June 2000 and $1.0 million in June 2001. The amount of each of these
cash payments is dependent on the continued employment of two key employees of
slashdot.org. In addition, the acquisition price of slashdot.org includes the
issuance of $2.0 million of stock at the time of the Offering valued at the
Offering price and contingent payments of up to an additional $5.0 million of
stock valued at the Offering price and payable in installments over a two-year
period, following the Offering. The payment of this stock consideration is
contingent upon the continued employment of the key employees of slashdot.org
and the achievement of certain performance milestones relating to traffic on the
web site over the two-year period. Under the terms of the Animation Factory
acquisition, there are additional cash payments totaling $1.25 million, payable
in 15 equal monthly installments beginning October 1999. The remaining payable
of $1.0 million at December 31, 1999 is reflected in current liabilities less
imputed interest at $953,000. In addition, the acquisition price of the
Animation Factory includes the issuance of $200,000 of stock at the time of the
Offering valued at the Offering price and contingent payments of up to an
additional $400,000 of stock valued at the Offering price and payable in
installments over a two-year period. The payment of this stock consideration is
contingent upon the continued employment of the two key employees of the
Animation Factory and the achievement of certain performance milestones relating
to sales and traffic on the web site over the two-year period.

     Andover.Net had net intangible assets of $3.0 million, consisting primarily
of goodwill, as of December 31, 1999 relating to the acquisitions of
slashdot.org and the Animation Factory. The purchase price for these
acquisitions represents the up-front cash payment for both acquisitions, as well
as the installment cash payments due under the Animation Factory acquisition.
Goodwill is being amortized over a two-year period on a straight-line basis.
Other intangible assets are being amortized over two and five year periods on a
straight-line basis. The future contingent cash payments under the slashdot.org
acquisition, as well as the future contingent stock payments under both
acquisitions that are directly based on continued employment, will be charged to
operations over the period during which the payments are made. The future
contingent stock payments that are based on the achievement of future milestones
and the continued employment of the key employees will be recognized upon the
achievement of these milestones.

     On August 1999, Andover.Net paid $367,000 in cash at closing for its
acquisition of freshmeat.net. Under the terms of the acquisition agreement,
there are additional cash payments totaling $300,000, payable in 15 equal
monthly installments beginning September 1999. The remaining payable of $220,000
at December 31, 1999 is reflected in current liabilities less imputed interest
at $953,000. In addition, the purchase agreement also includes the issuance of
$111,111 of stock at the time of the Offering valued at the Offering price and
contingent payments of up to an additional $222,222 of stock valued at the
Offering price and payable over a two-year period. The payment of this stock
consideration is contingent upon the continued services provided by the
principal of freshmeat.net in accordance with a service agreement. These future
contingent stock payments will be charged to operations over the period during
which the payments are made.

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     During fiscal 1997, Andover.Net received net proceeds of $1.3 million from
sales of Series B convertible preferred stock, Series A redeemable preferred
stock and common stock. Andover.Net then changed its capital structure and
issued Series C redeemable preferred stock and common stock in exchange for its
outstanding Series A convertible preferred stock and Series B convertible
preferred stock. Between November 1998 and January 1999, Andover.Net received
net proceeds of $2.8 million for the issuance of Series C redeemable preferred
stock and common stock. In connection with Andover.Net's merger in September
1999 with a wholly owned subsidiary to effect its reincorporation in Delaware,
the Series C redeemable preferred stock was converted into Series A redeemable
preferred stock.

     Andover.Net currently anticipates that available funds as of December 31,
1999 will be sufficient to meet its anticipated cash requirements for working
capital and capital expenditures through at least December 31, 2000.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

     Andover.Net has no derivative financial instruments or derivative commodity
instruments in its cash and cash equivalents and investments. Andover.Net
invests its cash and cash equivalents and investments in short-term,
interest-bearing, investment grade securities. Andover.Net's transactions are
conducted, and Andover.Net's accounts are denominated, in United States dollars.
Accordingly, Andover.Net is not exposed to significant foreign currency risk.

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Pursuant to SFAS No.
137, Accounting for Derivative Instruments and Hedging Activities -- Deferral of
the Effective Date of FASB Statement No. 133, SFAS No. 133 is effective for all
fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material impact on Andover.Net's Consolidated Financial
Statements.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The adoption of this statement did not have a
material impact on Andover.Net's financial position or consolidated results of
operations.

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                            ANDOVER.NET'S MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

     Andover.Net's directors and executive officers, as of April 25, 2000, and
their respective ages and positions are as follows:

<TABLE>
<CAPTION>
                 NAME                    AGE                       POSITION
                 ----                    ---                       --------
<S>                                      <C>   <C>
Bruce A. Twickler......................  53    President, Chief Executive Officer and Chairman
Peter A. Phelps........................  54    Chief Financial Officer
Adam B. Green..........................  43    Chief Technology Officer
James E. Patterson.....................  61    Executive Vice President
William M. Dwyer.......................  47    Vice President, Publishing
Derek V. Carroll.......................  44    Vice President, Business Development
Janet F. Holian........................  39    Vice President, Communications
Walter M. Bird, III....................  42    Director
Jonathan M. Goldstein..................  39    Director
James D. Logan.........................  47    Director
Robert Malda...........................  23    Director
Louis Page.............................  33    Director
Thomas R. Shepherd.....................  40    Director
John E. Trombly........................  52    Director
</TABLE>

     Bruce A. Twickler. Mr. Twickler founded Andover.Net in 1992, has been a
director, President and Chief Executive Officer since its formation and was
elected Chairman of the Board in September 1999. From 1988 to 1991, Mr. Twickler
was Vice President of Microcom. From 1987 to 1988, Mr. Twickler was President of
Shiva Corporation, and from 1983 to 1986 he was President of Hayden Software.
Prior to that time, Mr. Twickler was Vice President of Marketing of Pioneer
Electronics USA.

     Peter A. Phelps. Mr. Phelps joined Andover.Net in October 1999 as Chief
Financial Officer. In 1998 Mr. Phelps co-founded Marathon Investment Partners,
LP, a Small Business Investment Company that provides capital for middle market
operating companies. From 1998 to October 1999, Mr. Phelps was the Chief
Financial Officer and a Partner of Marathon Investment Partners. From 1987 to
1998, Mr. Phelps was the Chief Financial Officer of Rosse Enterprises Limited, a
private equity firm. Mr. Phelps was also previously a Manager at
PricewaterhouseCoopers LLP and Audit Supervisor at Ernst & Young LLP. Mr. Phelps
is a Certified Public Accountant.

     Adam B. Green. Mr. Green has been Chief Technology Officer of Andover.Net
since July 1996. From 1995 to 1996, Mr. Green was Vice President of Internet
Products at Clear Software, Inc. In 1994, Mr. Green was a consultant and
contract trainer for Alpha Software, Inc. In 1993, Mr. Green was a consultant
and contract trainer for Powersoft.

     James E. Patterson. Mr. Patterson has been an Executive Vice President of
Andover.Net since May 1999. He is responsible for implementing our e-commerce
strategy. From February 1997 to May 1999, he was Andover.Net's Vice President,
Sales and Marketing, and from November 1995 to February 1997, he was our Vice
President, Sales. From May 1991 to November 1995, Mr. Patterson was Director of
the IBM Business Unit of Wang Global.

     William M. Dwyer. Mr. Dwyer has been Vice President, Publishing of
Andover.Net since May 1999. He is responsible for sales and marketing. From 1994
to 1999, Mr. Dwyer was self-employed. Through his companies The InterMedia Group
and IT/World Inc., he provided publishing and media sales consulting services to
companies such as PennWell Publishing and Skinner James Publishing. As
Publisher, Mr. Dwyer created and launched "BackOffice Magazine" for PennWell
Publishing. Prior to founding

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IT/World, Inc., Mr. Dwyer was Vice President of Sales for BYTE Magazine at
McGraw-Hill, Inc. Previously, Mr. Dwyer held a variety of positions at
Ziff-Davis over a 10 year period including Director of the Ziff-Davis Magazine
Network.

     Derek V. Carroll. Mr. Carroll has been Vice President, Business Development
of Andover.Net since February 1999. From 1995 to 1999, Mr. Carroll was
Vice-President of Sales and Marketing of Silent Systems, Inc. From 1985 to 1995,
Mr. Carroll was Director of Business Development of MicroTouch Systems, Inc.

     Janet F. Holian. Ms. Holian has been Vice President, Communications of
Andover.Net since August 1999. Ms. Holian joined Andover.Net in February 1999 as
Director of Marketing. From 1996 to 1998, Ms. Holian was Vice President of
Marketing of PersonalAudio, Inc. From 1993 to 1996, Ms. Holian was Director of
Marketing of MicroTouch Systems, Inc.

     Walter M. Bird, III. Mr. Bird has been a director of Andover.Net since July
1997. Since 1996, Mr. Bird has been Vice President of Claflin Capital
Management, Inc., a venture capital investment management firm. From 1990 to
1996, Mr. Bird was a Vice President of BankBoston, N.A.

     Jonathan M. Goldstein. Mr. Goldstein has been a director of Andover.Net
since September 1999. Since 1986, he has been associated with TA Associates,
Inc., a venture capital firm, a Vice President from 1990 to 1996 and as a
Principal from January 1997 to date.

     James D. Logan. Mr. Logan has been a director of Andover.Net since January
1999. Mr. Logan is the President and Chief Executive Officer of Gotuit Media,
Inc. which he founded in 1999. From 1996 to 1998, Mr. Logan was President and
Chief Executive Officer of PersonalAudio, Inc. which he founded. From 1982 to
1996, Mr. Logan was the Chief Executive Officer and President of MicroTouch
Systems Inc. Mr. Logan is currently Chairman of the Board of Directors of
MicroTouch Systems Inc.

     Robert Malda. Mr. Malda has been a director of Andover.Net since July 1999,
joining the Board following our acquisition of Slashdot.org from BlockStackers,
Inc. He is currently the editor of the Slashdot.org web site. Mr. Malda is
President of BlockStackers which he co-founded in 1996. Mr. Malda served as a
web site developer for The Image Group from 1996 to 1998. From 1994 to 1996, Mr.
Malda was a personal computer technician at the Donnelly Corporation.

     Louis Page, CFA. Mr. Page has been a director of Andover.Net since October
1995. Mr. Page is and has been since 1994 the President and founder of Window to
Wall Street, Inc., a company that serves as the general partner of a number of
venture capital investment firms.

     Thomas R. Shepherd. Mr. Shepherd has been a director of Andover.Net since
July 1999. Mr. Shepherd is a co-founder and has been the Chairman of The
Shepherd Group, LLC, a private equity investment firm, since 1996. Additionally,
Mr. Shepherd is a Special Partner, and until 1998 was a Managing Director, of
the Thomas H. Lee Company, a private equity investment firm. Prior to joining
the Thomas H. Lee Company in 1986, Mr. Shepherd was President of the GTE
Lighting Products Group of GTE Sylvania from 1983 to 1986, and was President of
North American Philips Commercial Electronics Corporation from 1981 to 1983. Mr.
Shepherd is also a director of Rayovac Corporation and The Vermont Teddy Bear
Co., Inc.

     John E. Trombly. Mr. Trombly has been a director of Andover.Net since
October 1995. Since 1992, Mr. Trombly has been an Executive Vice President of
Royalty Capital Management, Inc., a venture capital management firm, and a
General Partner of Royalty Capital Fund L.P. I, a venture capital investment
fund. Prior to co-founding Royal Capital Fund, Mr. Trombly was President of
Foxboro/Octek from 1978 to 1988.

BOARD COMMITTEES

     The compensation committee of the board of directors of Andover.Net is
comprised of Walter M. Bird, III, James D. Logan and Jonathan M. Goldstein. The
compensation committee reviews and evaluates the compensation and benefits of
all of Andover.Net's officers, reviews general policy matters
                                       131
<PAGE>   135

relating to compensation and employee benefits and makes recommendations
concerning these matters to the board of directors. The compensation committee
also administers Andover.Net's stock options and stock purchase plans. The audit
committee of the board of directors of Andover.Net is comprised of Louis Page,
Thomas R. Shepherd and Jonathan M. Goldstein. The audit committee reviews, with
Andover.Net's independent auditors, the scope and timing of the auditors'
services, the auditors report on Andover.Net's financial statements following
completion of the auditors' audit, and Andover.Net's internal accounting and
financial control policies and procedures. In addition, the audit committee
makes annual recommendations to the board of directors for the appointment of
independent auditors for the ensuing year.

ELECTION AND COMPENSATION OF DIRECTORS

     Andover.Net's certificate of incorporation provides for a classified board
of directors divided into three classes. Class I will expire at the annual
meeting of stockholders to be held in 2000, Class II will expire at the annual
meeting of stockholders to be held in 2001 and Class III will expire at the
annual meeting of stockholders to be held in 2002. Messrs. Bird and Trombly will
initially serve as Class I Directors; Messrs. Logan, Shepherd and Page will
initially serve as Class II Directors; and Messrs. Twickler, Goldstein and Malda
will initially serve as Class III Directors. At each annual meeting of
stockholders, beginning with the 2000 annual meeting, the successors to
directors whose terms will then expire will be elected to serve from the time of
election and qualification until the third annual meeting following election and
until their successors have been duly elected and qualified, or until their
earlier resignation or removal, if any. To the extent there is an increase or
reduction in the number of directors, increase or decrease in directorships
resulting therefrom will be distributed among the classes so that, as nearly as
possible, each class will consist of an equal number of directors. Two directors
will be independent, as required by the rules of the Nasdaq National Market,
Inc. All of the directors were appointed pursuant to contractual rights of
certain stockholders. No individual stockholder has a contractual right to
designate a director. Following the consummation of the merger of Andover.Net
with VA Linux, all of the current members of Andover.Net's board of directors
will resign.

     Andover.Net's current directors receive no compensation for serving as
directors; however, they may be reimbursed for the expenses they incur in
attending meetings of the board or board committees. Although Andover.Net's
directors are not entitled to any specified number of options as a result of
their positions as directors, Andover.Net has granted in the past, and intends
to grant in the future, non-qualified stock options to Andover.Net's
non-employee directors.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     None of the directors of Andover.Net serves as a member of the board of
directors or compensation committee of any other company that has one or more
executive officers serving as a member of the Andover.Net board of directors or
compensation committee.

                                       132
<PAGE>   136

EXECUTIVE COMPENSATION

     The following table sets forth the compensation earned by the Chief
Executive Officer of Andover.Net and each of Andover.Net's other most highly
compensated executive officers, collectively, the named executive officers,
during the year ended December 31, 1999:

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
                                                                                                   LONG-TERM
                                                             ANNUAL COMPENSATION                 COMPENSATION
                                                ---------------------------------------------   ---------------
                                                         COMPENSATION($)                          SECURITIES
                                                       --------------------    OTHER ANNUAL       UNDERLYING
                    AWARDS                      YEAR   SALARY($)   BONUS($)   COMPENSATION($)   OPTIONS/SARS(#)
- ----------------------------------------------  ----   ---------   --------   ---------------   ---------------
<S>                                             <C>    <C>         <C>        <C>               <C>
NAME AND PRINCIPAL POSITION
Bruce A. Twickler.............................  1999   $127,000    $20,000        $    --                --
  President, Chief Executive Officer and
    Chairman
Adam B. Green.................................  1999   $130,000    $23,500             --           100,476
  Chief Technology Officer
James E. Patterson............................  1999   $109,800    $17,000        $27,051(1)             --
  Executive Vice President
Derek V. Carroll..............................  1999   $102,605    $20,500             --           160,760
  Vice President, Business Development
    (commenced employment with Andover.Net in
    February 1999)
William M. Dwyer..............................  1999   $ 76,672    $12,500             --            80,380
  Vice President, Publishing (commenced
    employment with Andover.Net in May 1999)
</TABLE>

- ---------------
(1) Compensation due to the exercise of employee stock options.

                                       133
<PAGE>   137

GRANTS OF STOCK OPTIONS

     The following table sets forth certain information regarding the option
grants made during the year ended December 31, 1999 to each of Andover.Net's
named executive officers in the summary compensation table above. Andover.Net
issued no stock appreciation rights in the year ended December 31, 1999.

                     OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
                                                                                         POTENTIAL REALIZABLE
                                                                                           VALUE AT ASSUMED
                       NUMBER OF    PERCENT OF                                          ANNUAL RATES OF STOCK
                       SECURITIES     TOTAL                                               PRICE APPRECIATION
                       UNDERLYING   OPTIONS GRANTED   EXERCISE OR                         FOR OPTION TERM(1)
                       OPTIONS      TO EMPLOYEES IN   BASE PRICE    EXPIRATION   ------------------------------------
        NAME           GRANTED(#)   FISCAL YEAR(%)    ($/SHARE)       DATE         0%($)        5%($)        10%($)
- ---------------------  ----------   ---------------   -----------   ----------   ----------   ----------   ----------
<S>                    <C>          <C>               <C>           <C>          <C>          <C>          <C>
Bruce A. Twickler....         0             --              --             --            --           --           --
Adam B. Green........   100,476           9.92%         0.2613       9/1/2009    $1,058,886   $1,741,326   $2,788,321
James E. Patterson...         0             --              --             --            --           --           --
Derek V. Carroll.....    80,380           7.94%         0.0936       9/1/2009    $  860,580   $1,406,526   $2,244,115
                         20,095           1.98%         0.2613       9/1/2009    $  211,775   $  348,262   $  557,659
                         60,285           5.95%         0.2613       9/1/2009    $  635,326   $1,044,785   $1,672,976
                        -------          -----                                   ----------   ----------   ----------
Derek V. Carroll
  Total:.............   160,760          15.88%                                  $1,707,681   $2,799,573   $4,474,750
William M. Dwyer.....    80,380           7.94%         0.1433       9/2/2009    $  856,586   $1,402,531   $2,240,120
</TABLE>

- ---------------
(1) In accordance with the rules of the SEC, shown are the gains or "option
    spreads" that would exist for the respective options granted, assuming a
    fair market value at the time of grant of $10.80 per share. These gains are
    based on the assumed rates of annual compound stock price appreciation of 5%
    and 10% from the date the option was granted over the full option term.
    These assumed annual compound rates of stock price appreciation are mandated
    by the rules of the SEC and do not represent Andover.Net's estimate or
    projection of future common stock prices.

    YEAR END OPTION TABLE

     The following table sets forth information regarding exercise of options
and the number and value of options held at December 31, 1999, by each of
Andover.Net's named executive officers in the Summary Compensation Table above:

               AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND
                           YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
                                                             NUMBER OF SECURITIES                VALUE OF UNEXERCISED
                                                            UNDERLYING UNEXERCISED                   IN-THE-MONEY
                                                                  OPTIONS AT                          OPTIONS AT
                                                                FISCAL YEAR END                   FISCAL YEAR END(1)
                       SHARES ACQUIRED      VALUE      ---------------------------------   ---------------------------------
        NAME           ON EXERCISE(#)    REALIZED($)   EXERCISABLE(#)   UNEXERCISABLE(#)   EXERCISABLE($)   UNEXERCISABLE($)
        ----           ---------------   -----------   --------------   ----------------   --------------   ----------------
<S>                    <C>               <C>           <C>              <C>                <C>              <C>
Bruce A. Twickler....          --               --        147,760                --         $ 5,260,260                --
Adam B. Green........          --               --        304,901           100,476         $10,854,484        $3,553,203
James Patterson......      30,203         $479,595         84,395            16,082         $ 3,004,464        $  572,520
Derek E. Carroll.....          --               --        100,475            60,285         $ 1,795,776        $2,131,901
William M. Dwyer.....          --               --         80,380                --         $ 2,852,019                --
</TABLE>

- ---------------
(1) Value is based on the difference between the option exercise price and the
    December 31, 1999 closing price of the common stock of $35.625 multiplied by
    the number of shares of common stock underlying the option. No market
    existed for the common stock prior to this offering. Exercise prices vary
    and are noted in the Option Grants in Last Fiscal Year table.

                                       134
<PAGE>   138

                  SHARE OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                             MANAGEMENT OF ANDOVER.NET

     The following table sets forth information regarding the beneficial
ownership of Andover.Net's common stock as of April 25, 2000, by:

     - each person who is known by Andover.Net to own beneficially more than 5%
       of the outstanding shares of our capital stock;

     - each of Andover.Net's directors;

     - the named executive officers; and

     - all directors and executive officers as a group.

     Percentage of ownership is calculated as required by the Securities and
Exchange Commission, or SEC. Except as indicated in the footnotes to this table,
the persons named in the table have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
Unless otherwise indicated, the address of each of the beneficial owners
identified is 50 Nagog Park, Acton, Massachusetts 01720.

<TABLE>
<CAPTION>
                                                                               PERCENTAGE OF
                                                                                ANDOVER.NET
                                                          NUMBER OF SHARES        SHARES
         NAME AND ADDRESS OF BENEFICIAL OWNER            BENEFICIALLY OWNED     OUTSTANDING
         ------------------------------------            ------------------    -------------
<S>                                                      <C>                   <C>
NAMED EXECUTIVE OFFICERS AND DIRECTORS
Bruce A. Twickler(1)...................................      1,146,170              7.2%
Peter A. Phelps........................................             --                *
Adam B. Green(2).......................................        304,901              1.9
James E. Patterson(3)..................................        120,094                *
William M. Dwyer(4)....................................         80,380                *
Derek V. Carroll(5)....................................        100,475                *
Janet F. Holian(6).....................................         30,142                *
Walter M. Bird III(7)..................................        792,686              4.9%
Jonathan M. Goldstein(8)...............................      2,381,341             14.9%
James D. Logan(9)......................................        203,504              1.3%
Robert Malda...........................................         27,778                *
Louis Page(10).........................................      1,327,178              8.3%
Thomas R. Shepherd(11).................................        199,605              1.2%
John E. Trombly(12)....................................        517,452              3.2%
All Directors and Executive Officers as a Group (14
  persons, including the above)........................      7,231,706             45.1%
5% STOCKHOLDERS
James S. Mulhullond, Jr................................        926,329              5.8%
  One East 66th Street
  New York, NY 10021
TA/Advent VIII L.P.(13)................................      1,592,871             10.0%
  High Street Tower
  125 High Street
  Boston, MA 02110
</TABLE>

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

 (1) Shares listed as held by Bruce A. Twickler includes options to purchase
     147,760 shares.

 (2) Shares listed as held by Adam B. Green include options to purchase 304,901
     shares. An additional 50,238 shares would have become exercisable if the
     merger had occurred on April 25, 2000.

                                       135
<PAGE>   139

 (3) Shares listed as held by James E. Patterson include options to purchase
     89,891 shares. An additional 10,587 shares would have become exercisable if
     the merger had occurred on April 25, 2000.

 (4) Shares listed as held by William M. Dwyer include options to purchase
     80,380.

 (5) Shares listed as held by Derek V. Carroll include options to purchase
     100,475 shares. An additional 30,143 shares would have become exercisable
     if the merger had occurred on April 25, 2000 shares.

 (6) Shares listed as held by Janet F. Holian include options to purchase 30,142
     shares. An additional 15,071 shares would have become exercisable if the
     merger had occurred on April 25, 2000.

 (7) Shares listed as held by Walter M. Bird III include 461,007 shares held by
     Claflin Capital VI, L.P. and 331,679 Claflin Capital VII, L.P. of which Mr.
     Bird is the general partner. Mr. Bird disclaims beneficial ownership of
     these shares.

 (8) Shares listed as held by Jonathan M. Goldstein include an aggregate of
     1,592,871 shares held by TA/Advent VIII L.P., 726,351 shares held by
     TA/Atlantic and Pacific IV, L.P., 30,263 shares held by TA Executives Fund
     LLC, and 31,856 shares held by TA Investors LLC. Mr. Goldstein has
     beneficial ownership of 6,636 of such shares. Mr. Goldstein disclaims
     beneficial ownership of the remaining shares.

 (9) Shares listed as held by James D. Logan include 94,085 shares held by the
     James D. and Kerry M. Logan Family Trust U/A/D 12/30/93 of which his mother
     Bernice C. Logan is a trustee and 94,085 shares held by the Logan
     Children's Trust U/A/D 8/31/99 of which Bernice Logan is also a Trustee.
     Mr. Logan disclaims beneficial ownership of these shares.

(10) Shares listed as held by Louis Page include 561,480 shares held by Window
     to Wall Street, Inc. of which Mr. Page is the president, 569,197 shares
     held by Window to Wall Street Limited Partnership of which Window to Wall
     Street Inc. is the general partner and 196,501 shares held by Window to
     Wall Street II Limited Partnership of which Window to Wall Street, Inc. is
     the general partner. Mr. Page disclaims beneficial ownership of the shares
     held by Window to Wall Street Limited Partnership and Window to Wall Street
     II Limited Partnership.

(11) Shares listed as held by Thomas R. Shepherd include an aggregate of 10,188
     shares held by The Shepherd Group, LLC of which Mr. Shepherd is the
     Chairman and 80,883 shares held by The Shepherd Venture Fund I, L.P. of
     which The Shepherd Group, LLC is the general partner. Mr. Shepherd
     disclaims beneficial ownership of these shares.

(12) Shares listed as held by John E. Trombly include 334,927 shares held by
     Royalty Capital Fund L.P. I, of which Royalty Capital Management, Inc. is
     the general partner. Mr. Trombly is the Executive Vice President of Royalty
     Capital Management, Inc. Mr. Trombly disclaims beneficial ownership of
     these shares.

(13) TA/Advent VIII L.P., TA/Atlantic and Pacific IV, L.P., TA Executives Fund
     LLC and TA Investors LLC are under common control. Collectively these
     entities own 2,381,341 shares of Andover.Net.

                                       136
<PAGE>   140

          UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

                                VA LINUX SYSTEMS

                INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION

     On February 2, 2000, VA Linux entered into an agreement and plan of
reorganization to purchase Andover.Net. This agreement was amended and restated
on April 26, 2000. Under the terms of the amended and restated agreement, VA
Linux will purchase Andover.Net for consideration of approximately 6,802,000
shares of VA Linux's common stock, based on the number of shares of Andover.Net
common stock issued and outstanding as of April 3, 2000. Additionally, VA Linux
will assume the outstanding options to purchase Andover.Net common stock except
(a) each Andover.Net option will be exercisable for that number of whole shares
of VA Linux common stock equal to the product of the number of shares of
Andover.Net common stock that were issuable upon exercise of such Andover.Net
option immediately prior to the merger multiplied by 0.425, rounded down to the
nearest whole number of shares of VA Linux common stock and (b) the per share
exercise price for the shares of VA Linux common stock issuable upon exercise of
such assumed Andover.Net option will be equal to the quotient determined by
dividing the exercise price per share of Andover.Net common stock at which such
Andover.Net option was exercisable immediately prior to the merger by 0.425,
rounded down to the nearest whole cent. The value of the stock options to be
assumed by VA Linux has been estimated at approximately $22.0 million, and this
amount has been included in the purchase price for pro forma purposes.
Andover.Net provides products, online tools, news and other services for
programmers, software developers, web site designers, technology managers and
corporate buyers.

     On March 28, 2000, VA Linux acquired TruSolutions for consideration of
approximately 938,000 shares of VA Linux's common stock (assuming a valuation of
$75.06 per share of VA Linux's common stock based on the five-day average
closing price of VA Linux common stock beginning on March 21, 2000) and cash of
approximately $10.0 million. The purchase agreement also contains additional
payments to be made in common stock, which are solely contingent upon continued
employment of certain key employees of TruSolutions for a period of three years.
Maximum future payments contingent on employment of the key employees is $119.6
million in stock (approximately 1,593,000 shares valued at $75.06 per share) and
is payable after 12 months, 24 months and 36 months (approximately 613,000
shares, 613,000 shares, and 367,000 shares, respectively). The contingent
payments will be accounted for as compensation expense over the term of the
employment condition and not as part of the purchase price. Upon consummation of
the merger, VA Linux established an escrow for these future payments.
TruSolutions is a leading manufacturer of rackmount servers based on the Pentium
III, Xeon and UltraSPARC processors specializing in low profile, high
performance systems designed for the Internet Data Center, ISP, ASP, and OEM.

     On April 5, 2000, VA Linux acquired NetAttach for consideration of
approximately 396,000 shares of VA Linux's common stock (assuming a valuation of
$62.18 per share of VA Linux's common stock based on the five-day average
closing price of VA Linux common stock beginning on March 29, 2000) and cash of
$10.0 million. The purchase agreement also contains additional payments to be
made in common stock which are solely contingent upon continued employment of
certain key employees for a period of two years. Maximum future payments
contingent on employment of these key employees is $5.6 million in stock
(approximately 87,000 shares valued at $62.18 per share) and are payable on the
two-year anniversary date of the merger. The contingent payments will be
accounted for as compensation expense over the term of the employment condition
and not as part of the purchase price. Upon consummation of the merger, VA Linux
established an escrow for these future payments. NetAttach provides high-
availability data-appliances for mission-critical deployment in corporate
services or engineering environments.

     The acquisitions of Andover.Net, TruSolutions and NetAttach (collectively
referred to as the "Acquisitions") will be accounted for under the purchase
method of accounting whereby the total cost of each acquisition, including
related fees and expenses, is allocated to the tangible and intangible assets
acquired and liabilities assumed based upon their respective fair values at the
effective dates of such
                                       137
<PAGE>   141

acquisitions. Such allocations have been made based upon currently available
information and management's estimates. Final allocations will be determined
upon completion of the analysis of the assets acquired and liabilities assumed
at the effective dates of the acquisitions. Since the acquisition of Andover.Net
has not been completed, the actual consideration cannot yet be determined. For
the purpose of the pro forma financial information included herein, the number
of shares of VA Linux common stock issued in the acquisition of Andover.Net, has
been estimated based on the number of shares and options of Andover.Net common
stock outstanding on April 3, 2000. The actual number of VA Linux common shares
to be issued will be based on the actual shares and options outstanding as of
the completion of the merger.

     The unaudited pro forma condensed combined balance sheet gives effect to
the Acquisitions as if they had occurred on January 28, 2000, and includes VA
Linux's balance sheet as of January 28, 2000, and the balance sheet as of
December 31, 1999 for Andover.Net, NetAttach, and TruSolutions. The unaudited
pro forma condensed combined statements of operations give effect to the
proposed Acquisitions as if each had occurred at the beginning of the period
presented. The unaudited pro forma condensed combined statement of operations
for the year ended July 31, 1999, includes the results of operations of VA Linux
for the year ended July 31, 1999, combined with the pro forma results of
operations of Andover.Net for the year ended September 30, 1999, the results of
operations of NetAttach for the period from inception (July 8, 1998) to June 30,
1999, and the results of operations of TruSolutions for the year ended June 30,
1999. The results of operations for Andover.Net for the year ended September 30,
1999 have been shown on a pro forma basis to include the effect of significant
acquisitions made by Andover.Net in the year ended September 30, 1999, and
should be read in conjunction with the Andover.Net pro forma statement of
operations and notes thereto included elsewhere in this proxy
statement/prospectus. The unaudited pro forma condensed combined statement of
operations for the six months ended January 28, 2000, includes the results of
operations for VA Linux for the six months ended January 28, 2000 combined with
the results of operations of Andover.Net, NetAttach, and TruSolutions for the
six months ended December 31, 1999. The results of operations for Andover.Net
for the three months ended September 30, 1999 are included in both the unaudited
pro forma condensed combined results of operations for the year ended July 31,
1999, and the six months ended January 28, 2000. For the quarter ended September
30, 1999, Andover.Net reported revenue of $1.0 million and a net loss of $3.3
million.

     The unaudited pro forma condensed combined financial statements do not
purport to represent what the results of operations or financial position of VA
Linux would actually have been if any of the transactions had occurred on such
dates or to project the results of operations or financial positions of VA Linux
for any future date or period. Furthermore, the unaudited pro forma condensed
combined statements of operations set forth below are based on assumptions that
the Company believes are reasonable and should be read in conjunction with the
respective Financial Statements and Notes thereto included elsewhere in this
proxy statement/prospectus, and "VA Linux -- Management's Discussion and
Analysis of Financial Condition and Results of Operations."

                                       138
<PAGE>   142

              UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
                             AS OF JANUARY 28, 2000
                                 (IN THOUSANDS)
<TABLE>
<CAPTION>
                                           HISTORICAL       HISTORICAL       HISTORICAL       PRO FORMA
                                            VA LINUX       TRUSOLUTIONS      NETATTACH       ADJUSTMENTS            SUBTOTAL
                                           ----------      ------------      ----------      -----------            --------
<S>                                        <C>             <C>               <C>             <C>                    <C>
ASSETS
Current assets:
  Cash and cash equivalents..............   $148,510          $  116          $   296         $(20,758)(a)(b)(c)    $128,164
  Accounts receivable, net...............     11,537           1,931               47               --                13,515
  Inventories............................         --           1,368               26               --                 1,394
  Prepaid expenses and other assets......      1,470              42                5             (500)(c)             1,017
                                            --------          ------          -------         --------              --------
    Total current assets.................    161,517           3,457              374          (21,258)              144,090
Property and equipment, net..............      2,931             379               31               --                 3,341
Intangibles..............................         --              --               --           12,500(a)(b)          12,500
Goodwill.................................         --              --               --          100,196(a)(b)         100,196
Other assets.............................        807               7                3               --                   817
                                            --------          ------          -------         --------              --------
    Total assets.........................   $165,255          $3,843          $   408         $ 91,438              $260,944
                                            ========          ======          =======         ========              ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Current portion of notes payable.......   $    563          $2,141          $   250         $   (250)(c)          $  2,704
  Accounts payable.......................      9,629           1,483              216               --                11,328
  Accrued warranty.......................        607              --               --               --                   607
  Accrued liabilities and others.........      3,737             424              932             (665)(b)             4,428
                                            --------          ------          -------         --------              --------
    Total current liabilities............     14,536           4,048            1,398             (915)               19,067
                                            --------          ------          -------         --------              --------
  Notes payable and other, net current
    portion..............................        575             111               --               --                   686
                                            --------          ------          -------         --------              --------
Stockholders' (deficit) equity:
  Convertible preferred stock............         --              --                1               (1)(a)(b)             --
  Common stock...........................         41              --                2               (1)(a)(b)             42
  Additional paid-in capital.............    219,956               2              992           94,052(a)(b)         315,002
  Deferred stock compensation............    (28,376)             --               --               --               (28,376)
  Accumulated deficit....................    (41,477)           (318)          (1,985)          (1,697)(a)(b)        (45,477)
                                            --------          ------          -------         --------              --------
    Total stockholders' (deficit)
      equity.............................    150,144            (316)            (990)          92,353               241,191
                                            --------          ------          -------         --------              --------
      Total stockholders' (deficit)
        equity and liabilities...........   $165,255          $3,843          $   408         $ 91,438              $260,944
                                            ========          ======          =======         ========              ========

<CAPTION>
                                           HISTORICAL        PRO FORMA       PRO FORMA
                                           ANDOVER.NET      ADJUSTMENTS      COMBINED
                                           -----------      -----------      ---------
<S>                                        <C>              <C>              <C>
ASSETS
Current assets:
  Cash and cash equivalents..............   $ 79,015         $ (8,700)(d)    $198,479
  Accounts receivable, net...............      1,084               --          14,599
  Inventories............................        124               --           1,518
  Prepaid expenses and other assets......        593               --           1,610
                                            --------         --------        --------
    Total current assets.................     80,816           (8,700)        216,206
Property and equipment, net..............        457               --           3,798
Intangibles..............................         --           38,400(d)       50,900
Goodwill.................................      2,959          165,808(d)      268,963
Other assets.............................        185               --(d)        1,002
                                            --------         --------        --------
    Total assets.........................   $ 84,417         $195,508        $540,869
                                            ========         ========        ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) E
Current liabilities:
  Current portion of notes payable.......   $  1,163         $     --        $  3,867
  Accounts payable.......................        309               --          11,637
  Accrued warranty.......................         --               --             607
  Accrued liabilities and others.........      1,103               --           5,531
                                            --------         --------        --------
    Total current liabilities............      2,575               --          21,642
                                            --------         --------        --------
  Notes payable and other, net current
    portion..............................         --               --             686
                                            --------         --------        --------
Stockholders' (deficit) equity:
  Convertible preferred stock............         --               --              --
  Common stock...........................        158             (151)(d)          49
  Additional paid-in capital.............    110,116          172,227(d)      597,345
  Deferred stock compensation............     (4,281)           4,281(d)      (28,376)
  Accumulated deficit....................    (24,151)          19,151(d)      (50,477)
                                            --------         --------        --------
    Total stockholders' (deficit)
      equity.............................     81,842          195,508         518,541
                                            --------         --------        --------
      Total stockholders' (deficit)
        equity and liabilities...........   $ 84,417         $195,508        $540,869
                                            ========         ========        ========
</TABLE>

                                       139
<PAGE>   143

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                        FOR THE YEAR ENDED JULY 31, 1999
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                 HISTORICAL       HISTORICAL       HISTORICAL       PRO FORMA
                                                  VA LINUX       TRUSOLUTIONS      NETATTACH       ADJUSTMENTS      SUBTOTAL
                                                 ----------      ------------      ----------      -----------      --------
<S>                                              <C>             <C>               <C>             <C>              <C>
Net revenues...................................   $ 17,710         $ 5,993          $    15         $     --        $ 23,718
Cost of revenues...............................     17,766           5,309               30               --          23,105
                                                  --------         -------          -------         --------        --------
    Gross profit...............................        (56)            684              (15)              --             613
                                                  --------         -------          -------         --------        --------
Operating expenses:
  Sales and marketing..........................      5,183             160              202               --           5,545
  Research and development.....................      3,189              92              380               --           3,661
  General and administrative...................      3,791             370              532               --           4,693
  Amortization of goodwill.....................         --              --               --           20,039(e)       20,039
  Amortization of intangibles..................         --              --               --            2,780(e)        2,780
  Compensation expense related to
    acquisitions...............................         --              --               --           42,544(f)       42,544
  Amortization of deferred stock
    compensation...............................      2,312              --               --               --           2,312
                                                  --------         -------          -------         --------        --------
    Total operating expenses...................     14,475             622            1,114           65,363          81,574
                                                  --------         -------          -------         --------        --------
Loss from operations...........................    (14,531)             62           (1,129)         (65,363)        (80,961)
Interest and other income (expense), net.......         19            (100)              (2)              --             (83)
                                                  --------         -------          -------         --------        --------
Net loss.......................................   $(14,512)        $   (38)         $(1,131)        $(65,363)       $(81,044)
                                                  ========         =======          =======         ========        ========
Accretion on preferred stock...................         --              --               --               --              --
                                                  --------         -------          -------         --------        --------
Net loss attributable to common stockholders...   $(14,512)        $   (38)         $(1,131)        $(65,363)       $(81,044)
                                                  ========         =======          =======         ========        ========
Basic net loss per share.......................   $  (2.62)        $(38.00)         $ (1.35)                        $ (11.80)
                                                  ========         =======          =======                         ========
Shares used in computing basic net loss per
  share........................................      5,530               1              837                            6,866
                                                  ========         =======          =======                         ========

<CAPTION>
                                                  PRO FORMA        PRO FORMA       PRO FORMA
                                                 ANDOVER.NET      ADJUSTMENTS      COMBINED
                                                 -----------      -----------      ---------
<S>                                              <C>              <C>              <C>
Net revenues...................................   $  2,629         $     --        $  26,347
Cost of revenues...............................      1,006               --           24,111
                                                  --------         --------        ---------
    Gross profit...............................      1,623               --            2,236
                                                  --------         --------        ---------
Operating expenses:
  Sales and marketing..........................      1,382               --            6,927
  Research and development.....................        770               --            4,431
  General and administrative...................      2,050               --            6,743
  Amortization of goodwill.....................      1,279           40,913(g)        62,231
  Amortization of intangibles..................        120           12,680(g)        15,580
  Compensation expense related to
    acquisitions...............................        813               --           43,357
  Amortization of deferred stock
    compensation...............................      3,585               --            5,897
                                                  --------         --------        ---------
    Total operating expenses...................      9,999           53,593          145,166
                                                  --------         --------        ---------
Loss from operations...........................     (8,376)         (53,593)        (142,930)
Interest and other income (expense), net.......     (2,651)              --           (2,734)
                                                  --------         --------        ---------
Net loss.......................................   $(11,027)        $(53,593)       $(145,664)
                                                  ========         ========        =========
Accretion on preferred stock...................       (354)              --             (354)
                                                  --------         --------        ---------
Net loss attributable to common stockholders...   $(11,381)        $(53,593)       $(146,018)
                                                  ========         ========        =========
Basic net loss per share.......................   $  (1.50)                        $  (10.68)
                                                  ========                         =========
Shares used in computing basic net loss per
  share........................................      7,564                            13,668
                                                  ========                         =========
</TABLE>

                                       140
<PAGE>   144

         UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
                   FOR THE SIX MONTHS ENDED JANUARY 28, 2000
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
                                                 HISTORICAL       HISTORICAL       HISTORICAL       PRO FORMA
                                                  VA LINUX       TRUSOLUTIONS      NETATTACH       ADJUSTMENTS      SUBTOTAL
                                                 ----------      ------------      ----------      -----------      --------
<S>                                              <C>             <C>               <C>             <C>              <C>
Net revenues...................................   $ 35,039         $ 8,936          $   290         $     --        $ 44,265
Cost of revenues...............................     30,243           7,174              306               --          37,723
                                                  --------         -------          -------         --------        --------
    Gross profit...............................      4,796           1,762              (16)              --           6,542
                                                  --------         -------          -------         --------        --------
Operating expenses:
  Sales and marketing..........................     12,175             189              211               --          12,575
  Research and development.....................      5,205             383              253               --           5,841
  General and administrative...................      3,154           1,301              367               --           4,822
  Amortization of goodwill.....................         --              --               --           10,020(e)       10,020
  Amortization of intangibles..................         --              --               --            1,390(e)        1,390
  Compensation expense related to
    acquisitions...............................         --              --               --           21,273(f)       21,273
  Amortization of deferred stock
    compensation...............................      7,113              --               --               --           7,113
                                                  --------         -------          -------         --------        --------
    Total operating expenses...................     27,647           1,873              831           32,683          63,034
                                                  --------         -------          -------         --------        --------
Loss from operations...........................    (22,851)           (111)            (847)         (32,683)        (56,492)
Interest and other income (expense), net.......      1,235             (69)              (7)              --           1,159
                                                  --------         -------          -------         --------        --------
Net loss.......................................    (21,616)           (180)            (854)         (32,683)        (55,333)
                                                  ========         =======          =======         ========        ========
Dividend related to convertible preferred
  stock........................................     (4,900)             --               --               --          (4,900)
                                                  --------         -------          -------         --------        --------
Net loss attributable to common stockholders...   $(26,516)        $  (180)         $  (854)        $(32,683)       $(60,233)
                                                  ========         =======          =======         ========        ========
Basic net loss per share.......................   $  (1.73)        $180.00          $ (0.72)                        $  (3.61)
                                                  ========         =======          =======                         ========
Shares used in computing basic net loss per
  share........................................     15,372               1            1,186                           16,706
                                                  ========         =======          =======                         ========

<CAPTION>
                                                 HISTORICAL        PRO FORMA       PRO FORMA
                                                 ANDOVER.NET      ADJUSTMENTS      COMBINED
                                                 -----------      -----------      ---------
<S>                                              <C>              <C>              <C>
Net revenues...................................   $  3,069         $     --        $  47,334
Cost of revenues...............................        784               --           38,507
                                                  --------         --------        ---------
    Gross profit...............................      2,285               --            8,827
                                                  --------         --------        ---------
Operating expenses:
  Sales and marketing..........................      2,117               --           14,692
  Research and development.....................        622               --            6,463
  General and administrative...................      1,751               --            6,573
  Amortization of goodwill.....................        829           20,267(g)        31,116
  Amortization of intangibles..................         --            6,400(g)         7,790
  Compensation expense related to
    acquisitions...............................      2,030               --           23,303
  Amortization of deferred stock
    compensation...............................      1,457               --            8,570
                                                  --------         --------        ---------
    Total operating expenses...................      8,806           26,667           98,507
                                                  --------         --------        ---------
Loss from operations...........................     (6,521)         (26,667)         (89,680)
Interest and other income (expense), net.......    (12,383)              --          (11,224)
                                                  --------         --------        ---------
Net loss.......................................    (18,904)         (26,667)        (100,904)
                                                  ========         ========        =========
Dividend related to convertible preferred
  stock........................................         --               --           (4,900)
                                                  --------         --------        ---------
Net loss attributable to common stockholders...   $(18,904)        $(26,667)       $(105,804)
                                                  ========         ========        =========
Basic net loss per share.......................   $  (1.97)                        $   (4.50)
                                                  ========                         =========
Shares used in computing basic net loss per
  share........................................      9,618                            23,508
                                                  ========                         =========
</TABLE>

                                       141
<PAGE>   145

                          NOTES TO UNAUDITED PRO FORMA

                    CONDENSED COMBINED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION

     The unaudited pro forma condensed combined financial statements included
herein have been prepared by VA Linux pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and certain footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. However, VA Linux believes that the
disclosures are adequate to make the information presented not misleading.

2. UNAUDITED CONDENSED COMBINED PRO FORMA ADJUSTMENTS

     AS OF JANUARY 28, 2000

     (a) Records the purchase of TruSolutions by VA Linux.

        - The purchase of TruSolutions is allocated based upon the estimated
          fair value of the assets acquired and liabilities assumed, which
          approximates book value. The following table summarizes the components
          of the total purchase price and the estimated allocation (in
          thousands, except share amounts):

<TABLE>
<S>                                                          <C>
Fair value of VA Linux common stock (938,000 shares).......  $70,405
Cash.......................................................   10,000
Transaction costs..........................................      568
                                                             -------
  Estimated total purchase price...........................   80,973
Net liabilities assumed....................................      316
                                                             -------
Estimated acquired intangibles.............................  $81,289
                                                             =======
</TABLE>

        - Records the write-off of in-process research and development of $4.0
          million. The in-process research and development charge has not been
          included in the accompanying unaudited pro forma condensed combined
          statements of operations as it represents a non-recurring charge
          directly related to the acquisition.

     (b) Records the purchase of NetAttach by VA Linux.

        - The purchase of NetAttach is allocated based upon the estimated fair
          value of the assets acquired and liabilities assumed, which
          approximates book value. The following table summarizes the components
          of the total purchase price and the estimated allocation (in
          thousands, except share amounts):

<TABLE>
<S>                                                          <C>
Fair value of VA Linux common stock (396,000 shares).......  $24,642
Cash.......................................................   10,000
Transaction costs..........................................      440
                                                             -------
  Estimated total purchase price...........................   35,082
Net liabilities assumed (net of $665 of accrued salaries to
  be paid by the existing shareholders of NetAttach
  immediately prior to the merger).........................      325
                                                             -------
Estimated acquired intangibles.............................  $35,407
                                                             =======
</TABLE>

     (c) Records the elimination of a note payable from NetAttach to VA Linux.
         The total loan receivable on VA Linux's books as of January 28, 2000
         was $500,000, of which $250,000 was borrowed by NetAttach in January
         2000, and therefore is not included in the NetAttach balance sheet as
         of December 31, 1999 used in the accompanying condensed combined pro
         forma

                                       142
<PAGE>   146
                          NOTES TO UNAUDITED PRO FORMA

              CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)

         financial statements. Therefore, the elimination reduces VA Linux's
         receivable by $500,000 and reduces the payable on NetAttach's books by
         $250,000 with the remaining $250,000 increase recorded to cash. There
         has been no elimination of the related interest in the accompanying pro
         forma condensed combined statement of operations as the amount is
         immaterial.

     (d) Records the purchase of Andover.Net by VA Linux.

        - The purchase of Andover.Net is allocated based upon the estimated fair
          value of the assets acquired and liabilities assumed, which
          approximates book value. The following table summarizes the components
          of the total purchase price and the estimated allocation (in
          thousands, except share amounts):

<TABLE>
<S>                                                         <C>
Fair value of VA Linux common stock (6,802,000 shares)....  $260,350
Fair value of Andover.Net options assumed.................    22,000
Transaction costs.........................................     8,700
                                                            --------
  Estimated total purchase price..........................   291,050
Net tangible assets acquired..............................   (78,883)
                                                            --------
Estimated acquired intangibles and goodwill...............  $212,167
                                                            ========
</TABLE>

        - Eliminates deferred compensation relating to Andover.Net options
          issued at a price less than their fair value for accounting purposes.
          The deferred compensation charge has not been included in the
          accompanying unaudited pro forma condensed combined statements of
          operations as it represents a non-recurring charge directly related to
          the acquisition.

        - Records the write-off of in-process research and development of $5.0
          million. The in-process research and development charge has not been
          included in the accompanying unaudited pro forma condensed combined
          statements of operations as it represents a non-recurring charge
          directly related to the acquisition.

YEAR ENDED JULY 31, 1999 AND THE SIX MONTHS ENDED JANUARY 28, 2000

     (e) Reflects goodwill, developed technology and other intangible asset
         amortization related to the acquisition of TruSolutions and NetAttach.
         For each of the acquisitions, goodwill is being amortized over five
         years, developed technology is being amortized over five years, and
         other intangibles are being amortized over three years using the
         straight-line method as follows (in thousands):

<TABLE>
<CAPTION>
                                                                 TRUSOLUTIONS                     NETATTACH
                                                      -----------------------------------   ---------------------
                                                                 DEVELOPED                             DEVELOPED
                                                      GOODWILL   TECHNOLOGY   INTANGIBLES   GOODWILL   TECHNOLOGY
                                                      --------   ----------   -----------   --------   ----------
            <S>                                       <C>        <C>          <C>           <C>        <C>
            Purchase price allocated................  $69,589      $5,600       $2,100      $30,607      $4,800
            Amortization period, in months..........       60          60           36           60          60
            Amortization expense
              per month.............................  $ 1,160      $   93       $   58      $   510      $   80
            12 month pro forma adjustment to
               goodwill and other intangibles.......  $13,918      $1,120       $  700      $ 6,121      $  960
             6 month pro forma adjustment to
               goodwill and other intangibles.......  $ 6,959      $  560       $  350      $ 3,061      $  480
</TABLE>

     (f) Reflects additional compensation payments required pursuant to the
         purchase agreements relating to the acquisition of TruSolutions and
         NetAttach. These payments, which are solely contingent upon the
         continued employment of certain key employees, are payable over three
         years for the TruSolutions employees and two years for the NetAttach
         employees. All payments are comprised

                                       143
<PAGE>   147
                          NOTES TO UNAUDITED PRO FORMA

              CONDENSED COMBINED FINANCIAL STATEMENTS (CONTINUED)

         entirely of VA Linux common stock. VA Linux is recognizing this
         compensation expense ratably over a three and two year period for
         TruSolutions and NetAttach, respectively, based on the terms of the
         contingent employment compensation payments.

<TABLE>
<CAPTION>
                                                            TRUSOLUTIONS   NETATTACH    TOTAL
                                                            ------------   ---------   --------
                                                                      (IN THOUSANDS)
            <S>                                             <C>            <C>         <C>
            Total deferred compensation related
              to employment...............................    $119,595      $ 5,358    $124,953
            Amortization period, in months................          36           24
            Amortization expense per month................    $  3,322      $   223    $  3,545
            12 month pro forma expense to be recognized...    $ 39,865      $ 2,679    $ 42,544
             6 month pro forma expense to be recognized...    $ 19,933      $ 1,340    $ 21,273
</TABLE>

     (g) Reflects goodwill and other intangible asset amortization related to
         the acquisition of Andover.Net, and the elimination of amortization
         relating to historical goodwill carried on the books of Andover.Net,
         which is eliminated in the purchase of Andover.Net by VA Linux.
         Historical amortization included in the Andover.Net financial
         statements, was $1,399,000 and $829,000 for the pro forma 12 months
         ended September 30, 1999 and the six months ended December 31, 1999,
         respectively. The goodwill is being amortized over four years and the
         intangibles are amortized over three years using the straight-line
         method as follows (in thousands):

<TABLE>
<CAPTION>
                                                      ANDOVER.NET
                                                -----------------------
                                                GOODWILL    INTANGIBLES
                                                --------    -----------
<S>                                             <C>         <C>
Purchase price allocated......................  $168,767      $38,400
Amortization period, in months................        48           36
Amortization expense per month................  $  3,516      $ 1,067
12 month pro forma adjustment to goodwill and
  other intangibles...........................  $ 42,192      $12,800
 6 month pro forma adjustment to goodwill and
  other intangibles...........................  $ 21,096      $ 6,400
</TABLE>

                                       144
<PAGE>   148

                     DESCRIPTION OF VA LINUX CAPITAL STOCK

     VA Linux is authorized to issue 260,000,000 shares, $0.001 par value per
share. The authorized shares are divided into two classes which are designated
common stock and preferred stock. Of the shares authorized, 250,000,000 shares
are designated as common stock and 10,000,000 shares are designated as preferred
stock. The following description of the capital stock of VA Linux is only a
summary. You should refer to VA Linux's amended and restated certificate of
incorporation and bylaws which are included as appendices to this proxy
statement/prospectus.

COMMON STOCK

     As of April 3, 2000 there were 41,400,986 shares of common stock
outstanding which were held of record by approximately 108 stockholders. There
are outstanding options to purchase a total of 8,141,826 shares of VA Linux's
common stock.

     The holders of VA Linux's common stock are entitled to one vote per share
held of record on all matters submitted to a vote of the stockholders. VA
Linux's amended and restated certificate of incorporation to be filed
concurrently with completion of this offering, does not provide for cumulative
voting in the election of directors. Subject to preferences that may be
applicable to any outstanding preferred stock, the holders of common stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by VA Linux's Board of Directors out of funds legally available for that
purpose. In the event of VA Linux's liquidation, dissolution or winding up,
holders of VA Linux's common stock are entitled to share ratably in all assets
remaining after payment of liabilities, subject to prior distribution rights of
preferred stock, if any, then outstanding. Holders of VA Linux's common stock
have no preemptive or other subscription or conversion rights. There are no
redemption or sinking fund provisions applicable to VA Linux's common stock.

PREFERRED STOCK

     Upon the completion of this offering and filing of VA Linux's amended and
restated certificate of incorporation, VA Linux's Board of Directors will be
authorized, without action by the stockholders, to issue 10,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof. These rights, preferences and privileges
may include dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series, all or any of which
may be greater than the rights of the common stock. It is not possible to state
the actual effect of the issuance of all shares of preferred stock upon the
right of holders of VA Linux's common stock until VA Linux's Board of Directors
determines the specific rights of the holders of any preferred stock that may be
issued. However, the effect might include, among other things: (a) restricting
dividends on the common stock, (b) diluting the voting power of the common
stock, (c) impairing the liquidation rights of the common stock and (d) delaying
or preventing a change in VA Linux's control without further action by the
stockholders. Upon the closing of this offering, no shares of preferred stock
will be outstanding and VA Linux has no present plans to issue any shares of
preferred stock.

REGISTRATION RIGHTS

     Pursuant to a registration rights agreement VA Linux entered into with
holders of 19,915,082 shares of VA Linux's common stock (assuming conversion of
all outstanding shares of preferred stock), the holders of these shares are
entitled to certain registration rights regarding these shares. VA Linux has
agreed to use its best efforts to amend the registration rights agreement so
that each affiliate of Andover.Net shall also be a party to this agreement. The
registration rights provide that if VA Linux proposes to register any securities
under the Securities Act, either for VA Linux's own account or for the account
of other security holders exercising registration rights, they are entitled to
notice of the registration and are entitled to include shares of their common
stock in the registration. This right is subject to conditions and limitations,
including the right of the underwriters in an offering to limit the number

                                       145
<PAGE>   149

of shares included in the registration. The holders of these shares may also
require VA Linux to file up to two registration statements under the Securities
Act at VA Linux's expense with respect to their shares of common stock. VA Linux
is required to use VA Linux's best efforts to effect these registrations,
subject to conditions and limitations. Furthermore, the holders of these shares
may require VA Linux to file additional registration statements on Form S-3,
subject to conditions and limitations. These rights terminate on the earlier of
five years after the effective date of this offering, the date on which all
shares subject to these registration rights have been sold to the public, or
when a holder is able to sell all its shares pursuant to Rule 144 under the
Securities Action in any 90-day period.

DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS

     Certain provisions of Delaware law and VA Linux's certificate of
incorporation and bylaws could make VA Linux's acquisition more difficult by
means of a tender offer, a proxy contest or otherwise and could also make the
removal of incumbent officers and directors more difficult. These provisions,
summarized below, are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of VA Linux to first negotiate with VA Linux. VA Linux believes
that the benefits of increased protection of VA Linux's potential ability to
negotiate with the proponent of an unfriendly or unsolicited proposal to acquire
or restructure VA Linux outweighs the disadvantages of discouraging such
proposals because, among other things, negotiation of such proposals could
result in an improvement of their terms.

     VA Linux is subject to Section 203 of the Delaware General Corporation Law,
an anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years following the date the person became an
interested stockholder, unless (with certain exceptions) the "business
combination" or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the interested stockholder. Generally, an
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years prior to the determination of interested
stockholder status, did own) 15% or more of a corporation's voting stock. The
existence of this provision would be expected to have an anti-takeover effect
with respect to transactions not approved in advance by the board of directors,
including discouraging attempts that might result in a premium over the market
price for the shares of common stock held by stockholders.

     VA Linux's certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting and limits the ability
of stockholders to call a special meeting. The certificate of incorporation and
bylaws do not provide for cumulative voting in the election of directors. The
authorization of undesignated preferred stock makes it possible for the board of
directors to issue preferred stock with voting or other rights or preferences
that could impede the success of any attempt to change control of VA Linux.
These and other provisions may have the effect of deterring hostile takeovers or
delaying changes in control or management of VA Linux. The amendment of any of
these provisions would require approval by holders of at least 66 2/3% of VA
Linux's outstanding common stock.

     VA Linux's Board of Directors is divided into three classes, each with
staggered three-year terms. As a result, only one class of directors will be
elected at each annual meeting of VA Linux's stockholders, with the other
classes continuing for the remainder of their respective three-year terms.

TRANSFER AGENT AND REGISTRAR

     The transfer agent and registrar for the common stock is Boston EquiServe,
N.A.

NASDAQ STOCK MARKET NATIONAL MARKET LISTING

     VA Linux's common stock is listed on The Nasdaq Stock Market's National
Market under the symbol "LNUX."

                                       146
<PAGE>   150

        COMPARISON OF RIGHTS OF STOCKHOLDERS OF ANDOVER.NET AND VA LINUX

     Both VA Linux and Andover.Net are Delaware corporations governed by
Delaware law. In addition to the applicable provisions of the Delaware General
Corporation Law, currently the rights of VA Linux's stockholders are governed by
VA Linux's restated certificate of incorporation and amended and restated
bylaws, and the rights of Andover.Net's stockholders are currently governed by
Andover.Net's amended and restated certificate of incorporation and amended and
restated bylaws.

     If we complete the merger, Andover.Net stockholders will become VA Linux
stockholders. After the merger, the rights of Andover.Net stockholders will be
governed by VA Linux's restated certificate of incorporation and bylaws and
applicable provisions of the Delaware General Corporation Law.

     Set forth below is a summary describing material differences between the
rights of VA Linux's stockholders and the rights of Andover.Net's stockholders.
Because VA Linux and Andover.Net are both Delaware corporations, differences
between the rights of VA Linux's stockholders and Andover.Net's stockholders
will arise from differences in the respective certificates of incorporation and
bylaws of VA Linux and Andover.Net, rather than from differences in applicable
state law.

     While we believe that this summary covers the material differences between
the two companies, this summary may not contain all the information that is
important to you. This summary is not intended to be a complete discussion of
the certificates of incorporation and bylaws of VA Linux and Andover.Net, and it
is qualified in its entirety by reference to applicable Delaware law as well as
to VA Linux's and Andover.Net's respective certificates of incorporation and
bylaws. You should carefully read this summary and the documents that are
referenced in this summary for a more complete understanding of the differences
between being a stockholder of VA Linux and a stockholder of Andover.Net. VA
Linux's and Andover.Net's amended and restated certificate of incorporation and
bylaws are on file with the SEC, and will also be sent to you upon request. See
"Where You Can Find More Information".

           SUMMARY OF MATERIAL DIFFERENCES BETWEEN CURRENT RIGHTS OF
      ANDOVER.NET STOCKHOLDERS AND RIGHTS THOSE STOCKHOLDERS WILL HAVE AS
                   VA LINUX STOCKHOLDERS FOLLOWING THE MERGER

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
                                       ANDOVER.NET                               VA LINUX
- --------------------------------------------------------------------------------------------------------
<S>                       <C>                                     <C>
  BOARD OF DIRECTORS
- --------------------------------------------------------------------------------------------------------
  SIZE OF THE BOARD OF    The number of directors shall be fixed  The authorized number of directors of
    DIRECTORS             by resolution of the board.             the corporation is 7.
                          The current board consists of 8         The current board consists of 6
                          directors.                              directors.
- --------------------------------------------------------------------------------------------------------
  REMOVAL OF DIRECTORS    Any director or the entire board of     Any director or the entire board of
                          directors, may be removed without       directors may be removed from office
                          cause by the majority of the            at any time (i) with cause by the
                          outstanding capital stock entitled to   affirmative vote of the holders of at
                          vote generally in the election of       least a majority of the voting power
                          directors, or by a two-thirds vote of   of all of the then outstanding shares
                          the board of directors.                 of voting stock, voting together as a
                                                                  single class, or (ii) without cause by
                                                                  the affirmative vote of the holders of
                                                                  at least sixty-six and two-thirds
                                                                  percent (66 2/3%) of the voting power
                                                                  of all the outstanding shares of the
                                                                  voting stock.
- --------------------------------------------------------------------------------------------------------
</TABLE>

                                       147
<PAGE>   151

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
                                       ANDOVER.NET                               VA LINUX
- --------------------------------------------------------------------------------------------------------
<S>                       <C>                                     <C>
  VACANCIES ON THE BOARD  Vacancies resulting from any increase   Vacancies on the Board of Directors
    OF DIRECTORS          in the authorized number of directors   resulting from death, resignation,
                          will be filled by a majority of the     disqualification, removal, or other
                          directors then in office, though less   causes shall be filled by either (i)
                          than a quorum, unless previously        the affirmative vote of the holders of
                          filled by the stockholders entitled to  a majority of the voting power of the
                          vote for the election of directors,     then-outstanding shares of voting
                          and the directors so chosen shall hold  stock of the Corporation entitled to
                          subject to the bylaws until the next    vote generally in the election of
                          annual meeting of stockholders at       directors voting together as a single
                          which the term of office of their       class; or (ii) by the affirmative vote
                          class expires and their successors are  of a majority of the remaining
                          duly elected and qualified or until     directors then in office, even though
                          their earlier resignation or removal.   less than a quorum of the Board of
                                                                  Directors. Newly created directorships
                                                                  resulting from any increase in the
                                                                  number of directors shall, unless the
                                                                  Board of Directors determines by
                                                                  resolution that any such newly created
                                                                  directorship shall be filled by the
                                                                  stockholders, be filled only by the
                                                                  affirmative vote of the directors then
                                                                  in office, even though less than a
                                                                  quorum of the Board of Directors. Any
                                                                  director elected to hold a newly
                                                                  created directorship shall hold the
                                                                  office for the remainder of the full
                                                                  term of the class of directors in
                                                                  which the new directorship was created
                                                                  or the vacancy occurred and until such
                                                                  director's successor shall have been
                                                                  elected and qualified.
                                                                  The VA Linux bylaws provide that
                                                                  whenever the holders of any class or
                                                                  classes of stock or series thereof is
                                                                  entitled to elect one or more
                                                                  directors by the provisions of the
                                                                  certificate of incorporation,
                                                                  vacancies and newly created
                                                                  directorships of such class or classes
                                                                  or series may be filled by a majority
                                                                  of the directors elected by such class
                                                                  or classes or series thereof then in
                                                                  office, or by a sole remaining
                                                                  director.
</TABLE>

<TABLE>
<CAPTION>

- --------------------------------------------------------------------------------------------------------
<S>                       <C>                                     <C>
  STOCKHOLDERS' MEETINGS
- --------------------------------------------------------------------------------------------------------
  ANNUAL MEETINGS         The annual meeting will be held on the  The annual meeting of the stockholders
                          2nd Tuesday of April in each year at    will be held each year on a date and
                          10:00 A.M. or at such other date and    time designated by the board of
                          time as designated by the board of      directors.
                          directors, the chairman of the board
                          or the president.
- --------------------------------------------------------------------------------------------------------
  SPECIAL MEETINGS        Special meetings may be called by the   Special meetings of the stockholders
                          president, the chairman of the board    may be called at any time by the (i)
                          or the board itself and must be called  board of directors, (ii) the chairman
                          by the president or secretary at the    of the board or (iii) the chief
                          written request of a majority of the    executive officer. Stockholders do not
                          directors then in office.               have the right to call a special
                                                                  meeting.
                          Stockholders do not have the right to
                          call a special meeting.
- --------------------------------------------------------------------------------------------------------
</TABLE>

                                       148
<PAGE>   152

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
                                       ANDOVER.NET                               VA LINUX
- --------------------------------------------------------------------------------------------------------
<S>                       <C>                                     <C>
  ADVANCE NOTICE          Stockholders must receive notice of a   ADVANCE NOTICE OF MEETING:
    PROVISIONS            meeting (whether annual or special)
                          not less than ten days nor more than    Stockholders must receive notice of a
                          sixty days before the date of the       meeting (whether annual or special)
                          meeting.                                not less than ten days nor more than
                                                                  sixty days before the date of the
                                                                  meeting.
                                                                  ADVANCE NOTICE OF STOCKHOLDER NOMINEES
                                                                  AND STOCKHOLDER BUSINESS:
                                                                  In order to be properly brought before
                                                                  an annual meeting or special meeting,
                                                                  nominations for the election of
                                                                  director or other business must be (i)
                                                                  specified in the notice of meeting (or
                                                                  any supplement thereto) given by or at
                                                                  the direction of the board of
                                                                  directors, (ii) otherwise properly
                                                                  brought before the meeting by or at
                                                                  the direction of the board of
                                                                  directors, or (iii) otherwise properly
                                                                  brought before the meeting by a
                                                                  stockholder. For such nominations or
                                                                  other business to be considered
                                                                  properly brought before the meeting by
                                                                  a stockholder, such stockholder must
                                                                  have given timely notice and in proper
                                                                  form of his intent to bring such
                                                                  business before such meeting, as
                                                                  described in the bylaws of the
                                                                  corporation.
- --------------------------------------------------------------------------------------------------------
  ACTION BY CONSENT OF    Any action to be taken by the           Stockholders may not take action
    STOCKHOLDERS          stockholders may be taken without a     without at meeting.
                          meeting, without prior notice and
                          without a vote, only if all
                          stockholders entitled to vote on the
                          matter consent to the action in
                          writing.
- --------------------------------------------------------------------------------------------------------
  AMENDMENTS TO
    ORGANIZATIONAL
    DOCUMENTS
- --------------------------------------------------------------------------------------------------------
  CERTIFICATE OF          The Delaware General Corporation Law    The VA Linux certificate of
    INCORPORATION         generally requires a vote of            incorporation requires the affirmative
                          Andover.Net's board of directors        vote of two-thirds of the then
                          followed by the affirmative vote of     outstanding shares of the voting stock
                          the holders of a majority of the        of the corporation, voting together as
                          outstanding stock of each class         a single class, to alter, amend or
                          entitled to vote for any amendment to   repeal the provisions relating to the
                          the certificate of incorporation        number of and election and removal of
                          unless a higher vote is required by     directors and shareholder action.
                          the corporation's certificate of
                          incorporation. If an amendment alters
                          the powers, preferences or special
                          rights of a particular class or series
                          of stock so as to affect them
                          adversely, that class or series
                          generally has the power to vote as a
                          class notwithstanding the absence of
                          any specifically enumerated power in
                          the certificate of incorporation.
- --------------------------------------------------------------------------------------------------------
</TABLE>

                                       149
<PAGE>   153

<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
                                       ANDOVER.NET                               VA LINUX
- --------------------------------------------------------------------------------------------------------
<S>                       <C>                                     <C>
  BYLAWS                  The bylaws may be altered, amended or   The VA Linux bylaws provide that the
                          repealed or new bylaws may be adopted   bylaws of the corporation may be
                          by the stockholders or by the board,    adopted, amended or repealed by the
                          at any regular or special meeting of    stockholders entitled to vote and that
                          the stockholders or of the board of     the certificate of incorporation may
                          directors, or by the written consent    confer the power upon the directors to
                          of a majority in interest of the        adopt, amend or repeal the bylaws. The
                          outstanding voting stock of             fact that such power has been
                          Andover.Net or by the unanimous         conferred upon the directors does not
                          written consent of the directors. The   divest the stockholders of the power,
                          power of the board of directors to      nor does it limit their power to
                          adopt, amend or repeal the bylaws will  adopt, amend or repeal bylaws.
                          not divest or limit the power of the
                          stockholders to adopt, amend or repeal  The VA Linux certificate of
                          bylaws.                                 incorporation expressly confers upon
                                                                  the board of directors the power to
                                                                  make, alter, amend and repeal the
                                                                  bylaws. The certificate of
                                                                  incorporation also requires the
                                                                  affirmative vote of two-thirds of the
                                                                  voting power of the then outstanding
                                                                  shares of voting stock, voting
                                                                  together as a single class, in order
                                                                  for the stockholders to adopt, amend
                                                                  or repeal the section of the bylaws
                                                                  relating to the annual meeting and
                                                                  special meeting of stockholders.
- --------------------------------------------------------------------------------------------------------
  INDEMNIFICATION         Andover.Net will indemnify its          VA Linux's amended and restated
                          directors, officers, employees and      certificate of incorporation and
                          agents against expenses, judgments,     bylaws also provide that VA Linux
                          fines and amounts paid in settlement.   shall indemnify VA Linux's directors
                                                                  and executive officers and may
                          Expenses, including attorneys' fees,    indemnify VA Linux's other officers
                          incurred in defending an action will    and employees and other agents to the
                          be paid by the corporation in advance   fullest extent permitted by law. VA
                          of the final disposition of such        Linux believes that indemnification
                          action, promptly after the corporation  under VA Linux's bylaws covers at
                          receives a request therefor. The        least negligence and gross negligence
                          claimant must post an undertaking to    on the part of indemnified parties. VA
                          repay such amount if it is ultimately   Linux's bylaws also permit VA Linux to
                          determined that the claimant is not     secure insurance on behalf of any
                          entitled to be indemnified by the       officer, director, employee or other
                          corporation.                            agent for any liability arising out of
                                                                  his or her actions in such capacity,
                          The right to indemnification continues  regardless of whether VA Linux's
                          to persons who have ceased to be        bylaws would permit indemnification.
                          directors, officers, employees or
                          agents and inures to the benefit of     VA Linux is entering into
                          their heirs, executors and              indemnification agreements with each
                          administrators.                         of VA Linux's officers and directors
                                                                  containing provisions that require VA
                          A majority vote of a quorum consisting  Linux to, among other things,
                          of directors who were not parties to    indemnify VA Linux's officers and
                          such an action or if such a quorum is   directors against liabilities that may
                          not obtainable, independent legal       arise by reason of their status or
                          counsel (if such quorum is not          service as directors or officers
                          obtainable or, even if obtainable, a    (other than liabilities arising from
                          quorum of disinterested directors so    willful misconduct of a culpable
                          directs) or the stockholders will       nature), to advance their expenses
                          determine if indemnification is         incurred as a result of any proceeding
                          proper.                                 against them as to which they could be
                                                                  indemnified, and to cover VA Linux's
                                                                  directors and officers under any of VA
                                                                  Linux's liability insurance policies
                                                                  applicable to VA Linux's directors and
                                                                  officers.
- --------------------------------------------------------------------------------------------------------
</TABLE>

                                       150
<PAGE>   154

                                    EXPERTS

     The financial statements and schedules included in this proxy
statement/prospectus to the extent and for the periods indicated in their
reports have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.

     Representatives for Arthur Andersen LLP, independent auditors for
Andover.Net for the current year and for the most recently completed fiscal
year: (a) are expected to be present at the special meeting; (b) will have the
opportunity to make a statement if they desire to do so; and (c) are expected to
be available to respond to appropriate questions.

                                 LEGAL MATTERS

     The legality of the shares of VA Linux common stock offered will be passed
upon for VA Linux by Wilson Sonsini Goodrich & Rosati of Palo Alto, California,
counsel for VA Linux. As of the date of this proxy statement/prospectus, WS
Investment Company 98B, WS Investment Company 99A and WS Investment Company 99B,
each an investment partnership composed of certain current and former members of
and persons associated with Wilson Sonsini Goodrich & Rosati, Professional
Corporation, in addition to certain current individual members of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially own an aggregate of
102,584 shares of VA Linux Systems, Inc. common stock.

     Wilson Sonsini Goodrich & Rosati and Hutchins Wheeler & Dittmar, A
Professional Corporation, of Boston, Massachusetts, counsel for Andover.Net,
have delivered opinions concerning certain federal income tax consequences of
the merger. See "The Merger -- Material Federal Income Tax Consequences" and
"The Reorganization Agreement -- Conditions to Precedent to the Merger". As of
the date of this Proxy Statement/Prospectus, certain stockholders of Hutchins,
Wheeler & Dittmar, A Professional Corporation, beneficially own 9,166 shares of
Andover.Net common stock.

                          FUTURE STOCKHOLDER PROPOSALS

     If the merger is not consummated, the only proposals of holders of
Andover.Net common stock eligible to be considered for inclusion in the proxy
statement and form of proxy relating to the Annual Meeting of the Stockholders
of Andover.Net in 2001 will be those which have been duly received by
Andover.Net, 50 Nagog Park, Acton, Massachusetts 01720, no later than December
31, 2000 (which date is 120 days prior to the anticipated mailing date of the
proxy statement and form of proxy relating to such Annual Meeting). Receipt by
Andover.Net of any such proposal from a stockholder will not ensure its
inclusion in the proxy materials because there are other requirements in the
proxy rules for such inclusions. If Andover.Net is not notified of a stockholder
proposal by March 16, 2001, then proxies held by management of Andover.Net
provide discretionary authority to vote on such stockholder proposal, even
though the proposal is not discussed in the proxy statement. If the merger is
approved at the Special Meeting, no Annual Meeting will be held in 2000.

                      WHERE YOU CAN FIND MORE INFORMATION

     VA Linux and Andover.Net file annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy reports,
proxy statements and other information filed by VA Linux and Andover.Net with
the SEC at the following locations:

     - SEC's public reference room located at Judiciary Plaza, 450 Fifth Street,
       N.W., Room 1024, Washington, D.C. 20549; and

     - Public reference facilities in the SEC's regional offices located at 500
       West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7 World
       Trade Center, Suite 1300, New York, New York 10048.

                                       151
<PAGE>   155

     You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. You may also obtain copies of the materials
described above at prescribed rates by writing to the SEC, Public Reference
Section, 450 Fifth Street, N.W., Washington, D.C. 20549.

     VA Linux and Andover.Net file their reports, proxy statements and other
information electronically with the SEC. You may access information on VA Linux
and Andover.Net at the SEC's web site containing reports, proxy statements and
other information at: http://www.sec.gov.

     VA Linux has filed a Registration Statement on Form S-4 to register with
the SEC the VA Linux common stock to be issued to Andover.Net stockholders in
the merger. This document is part of that registration statement and constitutes
a prospectus of VA Linux in addition to being a proxy statement to the
Andover.Net stockholders. All information contained in this proxy
statement/prospectus relating to VA Linux has been supplied by VA Linux, and all
information relating to Andover.Net has been supplied by Andover.Net.

     YOU SHOULD RELY ON THE INFORMATION CONTAINED IN THIS PROXY
STATEMENT/PROSPECTUS TO VOTE ON THE REORGANIZATION AGREEMENT AND MERGER. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. YOU SHOULD NOT ASSUME THAT
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF
ANY DATE OTHER THAN MAY   , 2000. THIS PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES,
OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON
TO WHOM, IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.

                                       152
<PAGE>   156

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
VA LINUX SYSTEMS, INC.
  Report of Independent Public Accountants..................  F-2
  Balance Sheets as of July 31, 1998 and 1999 and January
     28, 2000...............................................  F-3
  Statements of Operations for the Years Ended July 31,
     1997, 1998 and 1999 and the Six Months Ended January
     31, 1999 and January 28, 2000..........................  F-4
  Statements of Stockholders' Equity (Deficit) for the Years
     Ended July 31, 1997, 1998 and 1999.....................  F-5
  Statements of Cash Flows for the Years Ended July 31,
     1997, 1998 and 1999 and the Six Months Ended January
     31, 1999 and January 28, 2000..........................  F-6
  Notes to Financial Statements.............................  F-7
ANDOVER.NET INC.
  Report of Independent Public Accountants..................  F-20
  Balance Sheets as of September 30, 1998 and 1999 and
     December 31, 1999......................................  F-21
  Statements of Operations for the Years Ended September 30,
     1997, 1998 and 1999 and the Three Months Ended December
     31, 1998 and 1999......................................  F-22
  Statements of Stockholders' Equity (Deficit) for the Years
     Ended September 30, 1997, 1998 and 1999 and the Three
     Months Ended December 31, 1999.........................  F-23
  Statements of Cash Flows for the Years Ended September 30,
     1997, 1998 and 1999 and the Three Months Ended December
     31, 1998 and 1999......................................  F-24
  Notes to Financial Statements.............................  F-25
TRUSOLUTIONS, INC.
  Report of Independent Public Accountants..................  F-46
  Balance Sheets as of December 31, 1999 and March 31,
     1999...................................................  F-47
  Statements of Operations for the Nine Months Ended
     December 31, 1999 and the Year Ended March 31, 1999....  F-48
  Statements of Stockholders' Deficit for the Nine Months
     Ended December 31, 1999 and the Year Ended March 31,
     1999...................................................  F-49
  Statements of Cash Flows for the Nine Months Ended
     December 31, 1999 and the Year Ended March 31, 1999....  F-50
  Notes to Financial Statements.............................  F-51
NETATTACH, INC.
  Report of Independent Public Accountants..................  F-60
  Balance Sheets as of June 30, 1999 and December 31,
     1999...................................................  F-61
  Statements of Operations for the Year Ended June 30, 1999
     and the Six Months Ended December 31, 1998 and 1999....  F-62
  Statements of Stockholders' Deficit.......................  F-63
  Statements of Cash Flows for the Year Ended June 30, 1999
     and the Six Months Ended December 31, 1998 and 1999....  F-64
  Notes to Financial Statements.............................  F-65
</TABLE>

                                       F-1
<PAGE>   157

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
VA Linux Systems, Inc.:

     We have audited the accompanying balance sheets of VA Linux Systems, Inc.
(a Delaware corporation) as of July 31, 1998 and 1999, and the related
statements of operations, stockholders' equity (deficit) and cash flows for each
of the three years in the period ended July 31, 1999. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of VA Linux, Inc. as of July
31, 1998 and 1999, and the results of its operations and its cash flows for each
of the three years in the period ended July 31, 1999 in conformity with
accounting principles generally accepted in the United States.

                                      ARTHUR ANDERSEN LLP

San Jose, California
September 30, 1999 (except with
respect to the matters referred to
in Note 10, as to which the date
is November 29, 1999)

                                       F-2
<PAGE>   158

                             VA LINUX SYSTEMS, INC.

                                 BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)

<TABLE>
<CAPTION>
                                                                  JULY 31,
                                                              -----------------   JANUARY 28,
                                                               1998      1999        2000
                                                              ------   --------   -----------
                                                                                  (UNAUDITED)
<S>                                                           <C>      <C>        <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $   62   $ 18,653    $148,510
  Accounts receivable, net of allowances of $39, $207 and
     $821, respectively.....................................     746      4,033      11,537
  Inventories...............................................     315      1,971          --
  Prepaid expenses and other assets.........................       3        381       1,470
                                                              ------   --------    --------
     Total current assets...................................   1,126     25,038     161,517
Property and equipment, net.................................      55      1,759       2,931
Other assets................................................      14        798         807
                                                              ------   --------    --------
                                                              $1,195   $ 27,595    $165,255
                                                              ======   ========    ========
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
Current liabilities:
  Current portion of loan and notes payable.................  $  275   $    759    $    563
  Accounts payable..........................................     820      6,243       9,629
  Accrued warranty..........................................     167        239         607
  Accrued liabilities and other.............................      78      1,567       3,737
                                                              ------   --------    --------
     Total current liabilities..............................   1,340      8,808      14,536
                                                              ------   --------    --------
Notes payable and other, net of current portion.............     275        424         575
                                                              ------   --------    --------
Commitments (Note 5)
Stockholders' (deficit) equity:
  Convertible preferred stock, $0.001 par value;
     Authorized -- 20,149,322
     Outstanding -- 0 shares at July 31, 1998; 18,651,914 at
     July 31, 1999; 0 at January 28, 2000...................      --         19          --
  Common stock , $0.001 par value;
     Authorized -- 250,000,000
     Outstanding -- 5,100,000 shares at July 31, 1998;
     15,444,860 at July 31, 1999; 41,385,986 at January 28,
     2000...................................................       5         15          41
Additional paid-in capital..................................      24     45,461     219,956
Stockholder note receivable.................................      --        (50)         --
Deferred stock compensation.................................      --    (12,121)    (28,376)
Accumulated deficit.........................................    (449)   (14,961)    (41,477)
                                                              ------   --------    --------
     Total stockholders' (deficit) equity...................    (420)    18,363     150,144
                                                              ------   --------    --------
                                                              $1,195   $ 27,595    $165,255
                                                              ======   ========    ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-3
<PAGE>   159

                             VA LINUX SYSTEMS, INC.

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

<TABLE>
<CAPTION>
                                                                                       SIX MONTHS ENDED
                                                         YEAR ENDED JULY 31,       -------------------------
                                                      --------------------------   JANUARY 31,   JANUARY 28,
                                                       1997     1998      1999        1999          2000
                                                      ------   ------   --------   -----------   -----------
                                                                                          (UNAUDITED)
<S>                                                   <C>      <C>      <C>        <C>           <C>
Net revenues........................................  $2,743   $5,556   $ 17,710     $ 5,605      $ 35,039
Cost of revenues....................................   2,562    4,494     17,766       5,377        30,243
                                                      ------   ------   --------     -------      --------
    Gross margin....................................     181    1,062        (56)        228         4,796
                                                      ------   ------   --------     -------      --------
Operating expenses:
  Sales and marketing...............................     310      382      5,183         583        12,175
  Research and development..........................     115      180      3,189         264         5,205
  General and administrative........................     218      427      3,791         790         3,154
  Amortization of deferred stock compensation.......      --       --      2,312         489         7,113
                                                      ------   ------   --------     -------      --------
  Total operating expenses..........................     643      989     14,475       2,126        27,647
                                                      ------   ------   --------     -------      --------
Income (loss) from operations.......................    (462)      73    (14,531)     (1,898)      (22,851)
Interest and other income (expense), net............     (12)      11         19         (14)        1,235
                                                      ------   ------   --------     -------      --------
Net income (loss)...................................    (474)      84    (14,512)     (1,912)      (21,616)
                                                      ======   ======   ========     =======      ========
Dividend related to convertible preferred stock.....      --       --         --          --        (4,900)
                                                      ------   ------   --------     -------      --------
Net income (loss) attributable to common
  stockholders......................................  $ (474)  $   84   $(14,512)    $(1,912)     $(26,516)
                                                      ======   ======   ========     =======      ========
Basic net income (loss) per share...................  $(0.05)  $ 0.02   $  (2.62)    $ (0.46)     $  (1.73)
Diluted net income (loss) per share.................  $(0.05)  $ 0.01   $  (2.62)    $ (0.46)     $  (1.73)
Shares used in computing basic net income (loss)
  per share.........................................   9,467    5,100      5,530       4,152        15,372
Shares used in computing diluted net income (loss)
  per share.........................................   9,467   12,249      5,530       4,152        15,372
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-4
<PAGE>   160

                             VA LINUX SYSTEMS, INC.

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                    (IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
                                         CONVERTIBLE
                                       PREFERRED STOCK        COMMON STOCK       ADDITIONAL   STOCKHOLDER
                                     -------------------   -------------------    PAID-IN        NOTE       DEFERRED STOCK
                                       SHARES     AMOUNT     SHARES     AMOUNT    CAPITAL     RECEIVABLE     COMPENSATION
                                     ----------   ------   ----------   ------   ----------   -----------   --------------
<S>                                  <C>          <C>      <C>          <C>      <C>          <C>           <C>
BALANCE AT JULY 31, 1996...........          --    $--     15,000,000    $ 15     $    69        $ --          $     --
  Issuance of convertible preferred
    stock for cash.................   1,734,000      2             --      --         498          --                --
  Repurchase of common stock for
    cash...........................          --     --     (9,900,000)    (10)        (45)         --                --
  Net loss.........................          --     --             --      --          --          --                --
                                     ----------    ---     ----------    ----     -------        ----          --------
BALANCE AT JULY 31, 1997...........   1,734,000      2      5,100,000       5         522          --                --
  Repurchase of convertible
    preferred stock in exchange for
    note payable...................  (1,734,000)    (2)            --      --        (498)         --                --
  Net income.......................          --     --             --      --          --          --                --
                                     ----------    ---     ----------    ----     -------        ----          --------
BALANCE AT JULY 31, 1998...........          --     --      5,100,000       5          24          --                --
  Issuance of Series A convertible
    preferred stock for cash and
    note receivable, net...........  12,149,322     12             --      --       5,482         (50)               --
  Exercise of stock options and
    stock purchase rights for cash
    and services rendered..........          --     --     10,304,860      10         308          --                --
  Issuance of Series B convertible
    preferred stock for cash,
    net............................   6,502,592      7             --      --      25,084          --                --
  Issuance of common stock for
    assets acquired................          --     --         40,000      --          20          --                --
  Fair value of options and stock
    purchase rights granted for
    services rendered and assets
    acquired.......................          --     --             --      --         110          --                --
  Deferred stock compensation......          --     --             --      --      14,433          --           (14,433)
  Amortization of deferred stock
    compensation...................          --     --             --      --          --          --             2,312
  Net loss.........................          --     --             --      --          --          --                --
                                     ----------    ---     ----------    ----     -------        ----          --------
BALANCE AT JULY 31, 1999...........  18,651,914    $19     15,444,860    $ 15     $45,461        $(50)         $(12,121)
                                     ==========    ===     ==========    ====     =======        ====          ========

<CAPTION>
                                       RETAINED         TOTAL
                                       EARNINGS     STOCKHOLDERS'
                                     (ACCUMULATED     (DEFICIT)
                                       DEFICIT)        EQUITY
                                     ------------   -------------
<S>                                  <C>            <C>
BALANCE AT JULY 31, 1996...........    $     66       $    150
  Issuance of convertible preferred
    stock for cash.................          --            500
  Repurchase of common stock for
    cash...........................         (75)          (130)
  Net loss.........................        (474)          (474)
                                       --------       --------
BALANCE AT JULY 31, 1997...........        (483)            46
  Repurchase of convertible
    preferred stock in exchange for
    note payable...................         (50)          (550)
  Net income.......................          84             84
                                       --------       --------
BALANCE AT JULY 31, 1998...........        (449)          (420)
  Issuance of Series A convertible
    preferred stock for cash and
    note receivable, net...........          --          5,444
  Exercise of stock options and
    stock purchase rights for cash
    and services rendered..........          --            318
  Issuance of Series B convertible
    preferred stock for cash,
    net............................          --         25,091
  Issuance of common stock for
    assets acquired................          --             20
  Fair value of options and stock
    purchase rights granted for
    services rendered and assets
    acquired.......................          --            110
  Deferred stock compensation......          --             --
  Amortization of deferred stock
    compensation...................          --          2,312
  Net loss.........................     (14,512)       (14,512)
                                       --------       --------
BALANCE AT JULY 31, 1999...........    $(14,961)      $ 18,363
                                       ========       ========
</TABLE>

   The accompanying notes are an integral part of these financial statements.

                                       F-5
<PAGE>   161

                             VA LINUX SYSTEMS, INC.

                            STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                                      SIX MONTHS ENDED
                                                      YEAR ENDED JULY 31,        --------------------------
                                                   --------------------------    JANUARY 31,    JANUARY 28,
                                                   1997     1998       1999         1999           2000
                                                   -----    -----    --------    -----------    -----------
                                                                                        (UNAUDITED)
<S>                                                <C>      <C>      <C>         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................  $(474)   $  84    $(14,512)     $(1,912)      $(21,616)
  Adjustments to reconcile net income (loss) to
    net cash provided by (used in) operating
    activities:
    Depreciation and amortization................      9       18         449          110            537
    Loss on disposal of assets...................     --       --          75           84            177
    Amortization of deferred stock
      compensation...............................     --       --       2,312          489          7,113
    Non-cash compensation expense................     --       --          64            5          1,434
    Changes in assets and liabilities:
      Accounts receivable........................   (149)    (449)     (3,287)        (610)        (7,504)
      Inventories................................   (102)     (76)     (1,656)           7          1,971
      Prepaid expenses and other assets..........     (1)     (11)       (517)         (26)        (1,162)
      Accounts payable...........................    279      403       5,423        1,207          3,386
      Accrued liabilities and other..............     74      (12)      1,426          208          2,172
      Accrued warranty...........................     39      129          72          (72)           368
                                                   -----    -----    --------      -------       --------
         Net cash provided by (used in) operating
           activities............................   (325)      86     (10,151)        (510)       (13,124)
                                                   -----    -----    --------      -------       --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property and equipment.............    (25)     (44)     (2,139)        (447)        (1,763)
  Purchase of other long-lived assets............     --       --        (154)          --             --
                                                   -----    -----    --------      -------       --------
         Net cash used in investing activities...    (25)     (44)     (2,293)        (447)        (1,763)
                                                   -----    -----    --------      -------       --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes payable......................     --       --        (275)        (275)           (45)
  Proceeds from borrowings on equipment loan and
    line of credit...............................     --       --         700           --             --
  Repayments of borrowings on equipment loan and
    line of credit...............................     --       --        (200)          --             --
  Proceeds from stockholder note receivable......                                                      50
  Proceeds from issuance of convertible preferred
    stock, net...................................    500       --      30,535        3,885          4,834
  Proceeds from issuance of common stock.........     --       --         275           --        139,930
  Repurchase of common stock.....................   (130)      --          --           --            (25)
                                                   -----    -----    --------      -------       --------
         Net cash provided by financing
           activities............................    370       --      31,035        3,610        144,744
                                                   -----    -----    --------      -------       --------
Net increase in cash and cash equivalents........     20       42      18,591        2,653        129,857
Cash and cash equivalents, beginning of period...     --       20          62           62         18,653
                                                   -----    -----    --------      -------       --------
Cash and cash equivalents, end of period.........  $  20    $  62    $ 18,653      $ 2,715       $148,510
                                                   =====    =====    ========      =======       ========
SUPPLEMENTAL CASH FLOW INFORMATION:
  Repurchase of convertible preferred stock
    pursuant to notes payable....................  $  --    $ 550    $     --      $    --       $     --
  Issuance of convertible preferred stock for
    note receivable..............................  $  --    $  --    $     50      $    --       $     --
  Issuance of convertible preferred stock for
    assets.......................................  $  --    $  --    $     --      $    --       $     50
  Dividends on convertible preferred stock.......  $  --    $  --    $     --      $    --       $  4,900
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       F-6
<PAGE>   162

                             VA LINUX SYSTEMS, INC.

                         NOTES TO FINANCIAL STATEMENTS
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

1. ORGANIZATION AND OPERATIONS OF THE COMPANY:

     VA Linux Systems, Inc. ("the Company"), formerly known as VA Research,
Inc., was incorporated in California in January 1995 and is a provider of
Linux-based computer systems and services. Additionally, the Company has
recently established a professional services organization to provide other
services including system architecture design, system integration and security
consulting. Effective August 1, 1999, the Company began operating on a 52-53
week year ending the Friday before July 31. Accordingly, the accompanying
statements of operations, stockholders' (deficit) equity and cash flow for the
second quarter of fiscal 2000 reflect the period ended January 28, 2000.

     The Company is subject to certain risks including the emergence of the
Linux industry, dependence on a key supplier for manufacturing, competition from
larger, more established companies, short product life cycles, the Company's
ability to develop and bring to market new products on a timely basis,
dependence on key employees, the ability to attract and retain additional
qualified personnel and the ability to obtain adequate financing to support
growth.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.

Unaudited Interim Financial Data

     The unaudited interim financial statements for the six months ended January
31, 1999 and January 28, 2000 have been prepared on the same basis as the
audited financial statements and, in the opinion of management, reflect all
normal recurring adjustments necessary to present fairly the financial
information set forth therein, in accordance with generally accepted accounting
principles.

Cash and Cash Equivalents

     The Company considers all highly liquid debt instruments or money-market
type funds with an original maturity of three months or less to be cash
equivalents. Cash and cash equivalents consist principally of cash deposited in
money market and checking accounts.

Inventories

     Inventories are stated at the lower of cost or market and consist of the
following (in thousands):

<TABLE>
<CAPTION>
                                                                 JULY 31,
                                                              --------------
                                                              1998     1999
                                                              ----    ------
<S>                                                           <C>     <C>
Raw materials...............................................  $256    $1,813
Finished goods..............................................    59       158
                                                              ----    ------
  Total.....................................................  $315    $1,971
                                                              ====    ======
</TABLE>

     Provisions, when required, are made to reduce excess and obsolete
inventories to their estimated net realizable values. Due to competitive
pressures and technological innovation, it is possible that estimates of

                                       F-7
<PAGE>   163
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

net realizable value could change in the near term. The inventory value as of
January 28, 2000 was zero due to the sale, at cost, of material to the Company's
contract manufacturer.

Property and Equipment

     Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to five years) of
the assets. Leasehold improvements are amortized over the corresponding lease
term.

     Property and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                                 JULY 31,
                                                              --------------
                                                              1998     1999
                                                              ----    ------
<S>                                                           <C>     <C>
Computer and office equipment...............................  $ 22    $1,314
Furniture and fixtures......................................    76       110
Leasehold improvements......................................    --       572
Software....................................................    --       125
                                                              ----    ------
  Total property and equipment..............................    98     2,121
Less: Accumulated depreciation and amortization.............   (43)     (362)
                                                              ----    ------
  Property and equipment, net...............................  $ 55    $1,759
                                                              ====    ======
</TABLE>

     The Company periodically evaluates the carrying amount of its long-lived
assets and applies the provisions of SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121"). SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles to be held and used or disposed of by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.

Revenue Recognition

     Product revenues from the sale of Linux-based servers and desktop computers
are recognized upon shipment of goods. The Company does not grant to its
customers any rights to return products. The Company provides allowances for
warranty costs at the time of shipment. Revenues from customer support services,
including on-site maintenance and technical support, are recognized pro-rata
over the term of the related service agreement. Revenues from professional
service contracts, including planning, deployment and installation, systems
integration, performance analysis and security consulting of Linux-based
solutions, are recognized as revenue on a completed contract basis. For the
years ended July 31, 1997, 1998 and 1999, and for the six months ended January
31, 1999 and January 28, 2000, revenues from customer support services and
professional service contracts have not been material.

Stock Split

     Effective October 15, 1998 and March 30, 1999, the Company completed a
2-for-1 and 3-for-2 split, respectively, of its common stock. As a result of the
stock splits, outstanding and reserved common shares increased. The rights of
the holders of these securities were not otherwise modified. Subsequent to July
31, 1999, the Board of Directors approved, subject to stockholder approval,
additional stock splits (see Note 10).

                                       F-8
<PAGE>   164
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

Stock-Based Compensation and Equity Instruments Exchanged for Services and
Assets

     The Financial Accounting Standards Board issued SFAS No. 123, "Accounting
for Stock-Based Compensation" ("SFAS No. 123"), in October 1995. SFAS No. 123
permits the use of either a fair value based method or the method defined in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB No. 25"), to account for stock-based compensation arrangements.
Companies that elect to employ the valuation method provided in APB No. 25 are
required to disclose the pro forma net income (loss) that would have resulted
from the use of the fair value based method. The Company has elected to continue
to determine the value of stock-based compensation arrangements under the
provisions of APB No. 25 and, accordingly, it has included the pro forma
disclosures required under SFAS No. 123 in the financial statements (see Note
8).

     The value of options, stock purchase rights and stock exchanged for
services rendered or assets acquired are valued using the Black-Scholes option
pricing model. To calculate the expense or asset value, the Company uses either
the fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.

Software Development Costs

     In accordance with SFAS No. 86, "Accounting for the Cost of Computer
Software to be Sold, Leased, or Otherwise Marketed," development costs incurred
in the research and development of new software products are expensed as
incurred until technological feasibility in the form of a working model has been
established. To date, the Company's software development has been completed
concurrent with the establishment of technological feasibility and, accordingly,
all software development costs have been charged to research and development
expense in the accompanying statements of operations.

Computation of Per Share Amounts

     Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with SFAS No. 128, "Earnings Per Share"
("SFAS No. 128") for all periods presented. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering must be included in
the calculation of basic and diluted net income (loss) per common share as if
such stock had been outstanding for all periods presented. To date, the Company
has not had any issuances or grants for nominal consideration.

     In accordance with SFAS No. 128, basic net income (loss) per common share
has been calculated using the weighted-average number of shares of common stock
outstanding during the period, less shares subject to repurchase. For the years
ended July 31, 1997 and 1999, and the six months ended January 31, 1999 and
January 28, 2000, the Company has excluded all convertible preferred stock and
outstanding stock options from the calculation of diluted net loss per common
share because all such securities are antidilutive for those periods. The total
number of shares excluded from the calculations of diluted net loss per common
share were 3,245,000 and 25,320,000 for the years ended July 31, 1997 and 1999,
respectively, and 9,809,934 and 8,177,826 for the six months ended January 31,
1999 and January 28, 2000, respectively. Pro forma basic net loss per common
share has been calculated assuming the conversion of the convertible preferred
stock using the if-converted method into an equivalent number of common shares
as if the shares had been converted on the dates of issuance.

                                       F-9
<PAGE>   165
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

     The following table presents the calculation of basic, diluted and pro
forma basic net income (loss) per share (in thousands, except per share data):

<TABLE>
<CAPTION>
                                                                                       SIX MONTHS ENDED
                                                      YEAR ENDED JULY 31,         --------------------------
                                                 -----------------------------    JANUARY 31,    JANUARY 28,
                                                  1997      1998        1999         1999           2000
                                                 ------    -------    --------    -----------    -----------
<S>                                              <C>       <C>        <C>         <C>            <C>
Net income (loss) attributable to common
  stockholders.................................  $ (474)   $    84    $(14,512)     $(1,912)      $(26,516)
                                                 ------    -------    --------      -------       --------
Basic:
Weighted average shares of common stock
  outstanding..................................   9,467      5,100       8,268        5,100         22,699
Less: Weighted average shares subject to
  repurchase...................................      --         --      (2,738)        (948)        (7,237)
                                                 ------    -------    --------      -------       --------
Shares used in computing basic net income
  (loss) per share.............................   9,467      5,100       5,530        4,152         15,372
                                                 ======    =======    ========      =======       ========
Basic net income (loss) per share..............  $(0.05)   $  0.02    $  (2.62)     $ (0.46)      $  (1.73)
                                                 ======    =======    ========      =======       ========
Diluted:
Shares used above..............................   9,467      5,100       5,530        4,152         15,372
Add: Weighted average dilutive convertible
  preferred stock and stock options............      --      7,149          --           --             --
                                                 ------    -------    --------      -------       --------
Shares used in computing diluted net income
  (loss) per share.............................   9,467     12,249       5,530        4,152         15,372
                                                 ======    =======    ========      =======       ========
Diluted net income (loss) per share............  $(0.05)   $  0.01    $  (2.62)     $ (0.90)      $  (1.73)
                                                 ======    =======    ========      =======       ========
</TABLE>

Comprehensive Income (Loss)

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," ("SFAS No. 130") which establishes standards
for reporting and presentation of comprehensive income. SFAS No. 130 was adopted
by the Company in 1998. This standard defines comprehensive income as the
changes in equity of an enterprise except those resulting from stockholder
transactions. Comprehensive income (loss) for the years ended July 31, 1997,
1998 and 1999, and for the six months ended January 31, 1999 and January 28,
2000 equaled net income (loss).

Segment Reporting

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers. The
Company is organized and operates as one operating segment, the provision of
Linux-based products and services. The Company markets its products in the
United States through its direct sales force. Revenues for each of the years
ended July 31, 1997, 1998 and 1999, and for the six months ended January 31,
1999 and January 28, 2000 were primarily generated from sales to end users in
the United States.

Recent Accounting Pronouncements

     In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1"). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was

                                      F-10
<PAGE>   166
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

adopted by the Company in fiscal 1999. The adoption of SOP No. 98-1 did not have
a material impact on the Company's financial position or results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. Management believes
the adoption of SFAS No. 133 will not have a material effect on the Company's
financial position or results of operations.

     In December 1998, the AICPA issued SOP No. 98-9, "Modification of SOP No.
97-2, Software Revenue Recognition, With Respect to Certain Transactions" ("SOP
No. 98-9"). SOP No. 98-9 amends SOP No. 97-2 and SOP No. 98-4 by extending the
deferral of the application of certain provisions of SOP No. 97-2 amended by SOP
No. 98-4 through fiscal years beginning on or before March 15, 1999. All other
provisions of SOP No. 98-9 are effective for transactions entered into in fiscal
years beginning after March 15, 1999. The Company has not had significant
software sales to date and management does not expect the adoption of SOP No.
98-9 to have a significant effect on the financial position or results of
operations.

Supplier Concentration

     The Company is dependent on a single contract manufacturer for
substantially all of its manufacturing and supply chain management, including
component procurement and inventory management. The contract manufacturer is
also an investor in the Company. The inability of the manufacturer to fulfill
the production requirements of the Company or make distributions of the
Company's products on a timely basis could negatively impact future results.
Although there are other contract manufactures that could provide similar
services, a change in the contract manufacturer could cause delays in
manufacturing and distribution of the Company's products and possible loss of
sales.

Concentrations of Credit Risk and Significant Customers

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company provides credit, in the normal course of business, to a number of
companies and performs ongoing credit evaluations of its customers. As of
January 28, 2000, approximately 24% of gross accounts receivable were
concentrated with two customers. As of July 31, 1999, approximately 37% of gross
accounts receivable was concentrated with one customer. As of July 31, 1998,
approximately 32% of gross accounts receivable was concentrated with five
customers. No single customer accounted for more than 10% of net revenues in
fiscal 1997, 1998 and 1999, and the six months ended January 31, 1999. For the
six months ended January 28, 2000, one customer accounted for 12% of net
revenues.

3. NOTES PAYABLE:

UMAX Data Systems

     In April 1998, the Company entered into a note payable arrangement with
UMAX Data Systems ("UMAX") for the repurchase of 1,734,000 shares of the
Company's Series A preferred stock held by UMAX. The note payable was for
$550,000, of which $275,000 was paid in November 1998. The remaining note
payable bears no interest and is to be repaid in 12 equal monthly installments
of approximately $23,000, beginning in February 2000 and ending in January 2001.
As of July 31, 1999, principal maturities under the note payable are $115,000
and $160,000 in fiscal 2000 and fiscal 2001,

                                      F-11
<PAGE>   167
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

respectively. For the period during fiscal 1998 when UMAX was a significant
shareholder, the Company purchased approximately $395,000 of computer components
from UMAX.

Acquisition of Rights

     In connection with the acquisition of certain Internet properties and
rights during fiscal 1999, the Company entered into an obligation to pay a total
of $396,000 in cash. The obligation bears no interest and is repayable in 33
equal monthly installments of $12,000 beginning in April 1999 and ending
December 2001. As of July 31, 1999, principal maturities under the obligation
are $144,000 in fiscal 2000, $144,000 in fiscal 2001 and $60,000 in fiscal 2002.

4. LINE OF CREDIT AND EQUIPMENT LOAN:

     In February 1999, the Company entered into a loan and security agreement
with a bank for maximum borrowings of $4,000,000 under a revolving line of
credit ("Line of Credit") and $500,000 under an equipment loan ("Equipment
Loan"). The interest rate for both the Line of Credit and the Equipment Loan is
the bank's base rate plus 0.75% (8.75% at July 31, 1999). The amount available
for borrowing under the Line of Credit is limited to an amount equal to 80% of
the Company's eligible accounts receivable, less any outstanding letters of
credit issued under the Line of Credit. The Company can borrow $500,000 under
the Line of Credit without limitation to eligible accounts receivable. The
amount available for borrowing under the Equipment Loan can only be utilized to
acquire equipment that the bank approves. Advances under the Equipment Loan can
only be made through December 31, 1999. Borrowings under the Equipment Loan are
repayable in 36 equal monthly installments of principal and interest beginning
on a date no later than January 1, 2000. The Company has now agreed with the
bank to commence repayment of the Equipment loan in equal monthly installments
commencing October 31, 1999. Borrowings under the Line of Credit mature in
February 2000 and borrowings under the Equipment Loan mature in July 2002. As of
July 31, 1999, the Company had no borrowings on the Line of Credit and $500,000
outstanding on the Equipment Loan. The Equipment Loan and Line of Credit require
that the Company maintain certain financial and non-financial ratios and
covenants. As of July 31, 1999 and January 28, 2000, the Company was not in
compliance with all of the ratios and covenants. The Company obtained a waiver
from the bank to waive this non-compliance as of July 31, 1999 and January 28,
2000.

5. COMMITMENTS:

     The Company leases its facilities under operating leases that expire at
various dates through April 30, 2004. Future minimum rental payments as of July
31, 1999 are as follows (in thousands):

<TABLE>
<S>                                           <C>
2000........................................  $  639
2001........................................     514
2002........................................     496
2003........................................     107
2004........................................      25
                                              ------
                                              $1,781
                                              ======
</TABLE>

     Rent expense for the years ended July 31, 1997, 1998 and 1999 was
approximately $42,000, $55,000 and $344,000, respectively.

                                      F-12
<PAGE>   168
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

6. RETIREMENT SAVINGS PLAN:

     The Company maintains an employee savings and retirement plan which is
intended to be qualified under Section 401(k) of the Internal Revenue Code and
is available to substantially all full-time employees of the Company. The plan
provides for tax deferred salary deductions and after-tax employee
contributions. Contributions include employee salary deferral contributions and
discretionary employer contributions. To date, there have been no employer
discretionary contributions.

7. CONVERTIBLE PREFERRED STOCK:

     During fiscal 1999, the Company issued 12,149,322 shares of Series A at
$0.4567 per share. In June 1999, the Company issued 6,502,592 shares of Series B
at $3.86 per share and an additional 1,256,454 shares of Series B at $3.86 per
share in September 1999. Prior to the initial public offering of VA Linux common
stock ("IPO"), the Company issued 12,954 shares of Series B in exchange for
assets acquired. The Company has recorded a preferred stock dividend of $4.9
million representing the value of the beneficial conversion feature on the
issuance of Series B in September 1999. The beneficial conversion feature was
calculated at the commitment date based on the difference between the conversion
price of $3.86 per share and the estimated fair value of the common stock at
that date. The amount of the beneficial conversion feature was limited to the
amount of the gross proceeds received from the issuance of Series B. The excess
of the beneficial conversion feature over the gross proceeds received was $4.2
million. There were no shares of preferred stock outstanding as of July 31, 1998
or January 28, 2000. Upon completion of the IPO in December 1999, 19,921,322
shares of preferred stock were converted to an equal number of shares of common
stock. The rights, restrictions and preferences of the Series A and Series B
(collectively, "Preferred Stock") were as follows:

     - The holders of Series A and Series B are entitled to receive
       non-cumulative cash dividends, at the rate of $0.0228 and $0.1930,
       respectively, when and as declared by the Board of Directors, prior and
       in preference to any cash dividend declarations or distributions to
       holders of common stock.

     - In the event of any liquidation, dissolution or winding up of the
       Company, the holders of Series A and Series B are entitled to receive
       proceeds equal to $0.4567 per share and $3.86 per share, respectively,
       plus all declared but unpaid dividends, prior and in preference to any
       distribution to holders of common stock. If the assets available for
       distribution are insufficient to pay the preferred stockholders in full,
       the assets will be distributed ratably among the preferred stockholders.

     - Each share of Preferred Stock is convertible at the option of the holder
       into one share of common stock. Each share of Preferred Stock converts
       automatically into common stock at the earlier of (1) the closing of an
       underwritten public offering of the Company's common stock at an
       aggregate offering price of greater than $15,000,000 or (2) the date
       specified by affirmative vote of a majority of the holders of Preferred
       Stock outstanding.

     - The holder of each share of Preferred Stock is entitled to one vote for
       each share of common stock into which it is convertible.

Stockholder Note Receivable

     In connection with the issuance of 36,496 shares of Series A to an officer
of the Company, the Company received a non-interest bearing note receivable. The
note had no maturity date. The outstanding principal balance at July 31, 1999
was $50,000 and this entire amount was repaid in the six months ended January
28, 2000.

                                      F-13
<PAGE>   169
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

8. COMMON STOCK:

     In December 1999, the Company completed an initial public offering of
common stock that resulted in the issuance of 4,400,000 shares of common stock
with an IPO price of $30.00 per share. Upon closing of the IPO, all of the
outstanding shares of convertible preferred stock were automatically converted
into 19,921,322 shares of common stock. In conjunction with the initial public
offering, the underwriters exercised their option to purchase an additional
660,000 shares to cover the over-allotments of shares at the $30.00 per share
offering price. The IPO raised approximately $141 million after underwriting
fees and $139 million after all other direct costs.

     As of January 28, 2000, the Company had reserved shares of its common stock
for future issuance as follows (unaudited):

<TABLE>
<S>                                                           <C>
1998 Stock Option Plan......................................  16,244,812
1999 Director Option Plan...................................     500,000
Non-Plan Stock Options and Stock Purchase Rights............      30,000
1999 Employee Stock Purchase Plan...........................   1,000,000
                                                              ----------
                                                              17,774,812
                                                              ==========
</TABLE>

Repurchase of Stock

     In January 1997, the Company repurchased 9,900,000 shares of common stock
from two of the Company's founders. The Company paid approximately $130,000 in
cash for repurchase of the common stock, which was subsequently retired.

Stock Repurchase Agreements

     In October 1998, a founder of the Company holding 4,950,000 shares of
common stock entered into a Stock Repurchase Agreement ("Agreement") with the
Company. Under the terms of the Agreement, in the event of any voluntary or
involuntary termination of the founder's employment with the Company, the
Company shall have an irrevocable, exclusive option, for a period of 90 days
from termination, to repurchase any shares of common stock held by the founder,
at $0.02 per share. The founder's shares of common stock are released from the
repurchase option as follows: 2,970,000 are not subject to repurchase as of
October 30, 1998 and 1/24 of the remaining shares are released from the
repurchase option each month after October 1998 until all shares have been
released. As of July 31, 1999, 1,237,500 shares are subject to repurchase by the
Company.

     In connection with the exercise of options pursuant to the Company's Stock
Option Plan, employees entered into restricted stock purchase agreements with
the Company. Under the terms of these agreements, the Company has a right to
repurchase any unvested shares at the original exercise price of the shares upon
termination of the employee. The repurchase right lapses ratably over the
vesting term of the original option grant. As of July 31, 1999, 5,011,448 shares
were subject to repurchase by the Company.

Stock Issued for Services Rendered

     In October 1999, the Company issued 5,714 shares of common stock to a
non-employee in exchange for recruiting services rendered. The Company recorded
approximately $71,000 of consulting expense based on the fair value of the
Company's common stock on the date of issuance.

                                      F-14
<PAGE>   170
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

Stock Option Plan

     In fiscal 1997, the Company adopted and the Board of Directors approved the
1996 Stock Option Plan ("1996 Plan"), under which a total of 4,650,000 shares
were reserved for issuance. The 1996 Plan permitted options to be granted to
employees, consultants and directors to purchase shares of the Company's common
stock at a price determined by the Board. The Company granted 4,650,000 options
under the 1996 Plan during fiscal 1997 and 1998. In fiscal 1998, the Company
granted options to purchase 4,026,000 shares of common stock outside of the 1996
Plan at an exercise price of $0.02 per share. In October 1998, the Company
cancelled all stock options outstanding under the 1996 Plan and the 4,026,000
options that had been issued in fiscal 1998 outside of the 1996 Plan. The
cancelled options were replaced with options under the 1998 Plan that had
vesting and exercise prices consistent with the terms of the cancelled options.
The 1996 Plan was terminated in October 1998.

     In fiscal 1999, the Company adopted and the Board of Directors approved the
1998 Stock Plan (the "1998 Plan"). The number of shares reserved for issuance
under the 1998 Plan is 23,257,144. Subsequent to July 31, 1999, the Board of
Directors approved an amendment to the 1998 Plan to increase the number of
authorized shares by 4,000,000 (See Note 10). Under the 1998 Plan, the Board of
Directors may grant to employees and consultants options and/or stock purchase
rights to purchase the Company's common stock at terms and prices determined by
the Board of Directors. The Plan will terminate in 2008. Nonqualified options
granted under the 1998 Plan must be issued at a price equal to at least 85% of
the fair market value of the Company's common stock at the date of grant. All
options may be exercised at any time within 10 years of the date of grant or
within three months of termination of employment, or such shorter time as may be
provided in the stock option agreement, and vest over a vesting schedule
determined by the Board of Directors.

     A summary of the option activity under the 1996 and 1998 Plans and related
information for the years ended July 31 is as follows:

<TABLE>
<CAPTION>
                                                                  OPTIONS OUTSTANDING
                                                             -----------------------------
                                                                               WEIGHTED
                                                OPTIONS                        AVERAGE
                                               AVAILABLE       SHARES       EXERCISE PRICE
                                              -----------    -----------    --------------
<S>                                           <C>            <C>            <C>
Balance, July 31, 1996......................           --             --        $  --
  Authorized................................    4,650,000             --           --
  Granted...................................   (3,021,000)     3,021,000         0.02
  Cancelled.................................       55,800        (55,800)        0.02
                                              -----------    -----------
Balance, July 31, 1997......................    1,684,800      2,965,200         0.02
  Granted...................................   (2,644,800)     2,644,800         0.02
  Cancelled.................................      960,000       (960,000)        0.02
                                              -----------    -----------
Balance, July 31, 1998......................           --      4,650,000         0.02
  Authorized................................   23,257,144             --           --
  Granted...................................  (16,757,146)    16,757,146         0.20
  Exercised.................................           --    (10,221,528)        0.03
  Cancelled.................................       52,642     (4,702,642)        0.31
                                              -----------    -----------
Balance, July 31, 1999......................    6,552,640      6,482,976        $0.46
                                              ===========    ===========
</TABLE>

                                      F-15
<PAGE>   171
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

<TABLE>
<CAPTION>
                                                 OPTIONS OUTSTANDING
                                         ------------------------------------
                         NUMBER              WEIGHTED
                     OUTSTANDING AT          AVERAGE              WEIGHTED
   RANGE OF             JULY 31,            REMAINING             AVERAGE
EXERCISE PRICES           1999           CONTRACTUAL LIFE      EXERCISE PRICE
- ---------------      --------------      ----------------      --------------
<S>                  <C>                 <C>                   <C>
$0.02 - $0.04..        1,857,684               9.33                $0.02
$0.50 - $1.00..        4,625,292               9.81                 0.64
                       ---------
                       6,482,976                                   $0.46
                       =========
</TABLE>

     As of July 31, 1999, there were 1,292,708 shares issuable upon the exercise
of fully vested options under the 1998 Plan at a weighted average exercise price
of $0.02 per share.

     During fiscal 1999, the Company also granted to non-employees options and
stock purchase rights to acquire 268,332 shares of common stock outside of the
1998 Plan at a weighted average exercise price of $0.15 and a weighted average
fair value of $0.57. These equity instruments were either granted in exchange
for certain assets, including certain Internet properties and rights, or for
consulting services rendered. During fiscal 1999, 83,332 options and stock
purchase rights, with weighted average exercise prices of $0.26, were exercised.
As of July 31, 1999, 185,000 options and stock purchase rights granted outside
of the 1998 Plan were outstanding and exercisable at exercise prices ranging
from $0.04 to $0.50. The weighted average exercise price of these outstanding
options and stock purchase rights was $0.09 and the weighted average remaining
contractual life was 8.53 years.

     During fiscal 1999, the Company recorded compensation expense of $64,000
and assets of $90,000 based upon the fair value of the equity instruments at the
date of grant. Pursuant to the provisions of SFAS No. 123, the fair value of
options and stock purchase rights issued was determined based on the fair value
of the consideration received, where such amount was reliably measurable, or the
fair value of the equity instruments issued, in which case, the fair value was
estimated on the grant date using the Black-Scholes model and the following
assumptions:

<TABLE>
<S>                                                           <C>
Risk free interest rate.....................................  5.75%
Average expected life of options............................  1 year
Dividend yield..............................................    0%
Volatility of common stock..................................   65%
</TABLE>

     The Company accounts for stock options issued to employees under APB
Opinion No. 25 whereby the difference between the exercise price and the fair
value at the date of grant is recognized as compensation expense. Had
compensation expense been determined consistent with SFAS No. 123, net income
(loss) would have decreased and losses would have increased to the following pro
forma amounts (in thousands except per share data):

<TABLE>
<CAPTION>
                                                      YEAR ENDED JULY 31,
                                                  ---------------------------
                                                   1997     1998       1999
                                                  ------    -----    --------
<S>                                               <C>       <C>      <C>
Net income (loss) as reported...................  $ (474)   $  84    $(14,512)
Pro forma net income (loss).....................    (474)      84     (14,683)
Basic net income (loss) per share...............   (0.05)    0.02       (2.62)
Diluted net income (loss) per share.............   (0.05)    0.01       (2.62)
Pro forma basic and diluted net income (loss)
  per share.....................................   (0.05)    0.02       (2.66)
</TABLE>

                                      F-16
<PAGE>   172
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

     The weighted average fair value of options granted during fiscal 1999 was
$0.03. The fair value of options granted in fiscal 1997 and 1998 is not
material. Pursuant to the provisions of SFAS No. 123, the compensation cost
associated with options granted in fiscal 1999 was estimated on the grant date
using the Black-Scholes model and the following assumptions:

<TABLE>
<S>                                                           <C>
Risk free interest rate.....................................   5.75%
Average expected life of option.............................  3 years
Dividend yield..............................................    0%
Volatility of common stock..................................   0.01%
</TABLE>

Deferred Stock Compensation

     In connection with the grant of certain stock options to employees during
fiscal 1999 and the six months ended January 28, 2000, the Company recorded
deferred stock compensation within stockholders' equity of approximately $37.7
million, representing the difference between the estimated fair value of the
common stock for accounting purposes and the option exercise price of these
options at the date of grant. The Company recorded amortization of deferred
compensation of approximately $2.3 million during fiscal 1999 and approximately
$7.1 million during the six months ended January 28, 2000. The deferred stock
compensation expense is being amortized on an accelerated basis over the vesting
period of the individual award, generally four years. The method is in
accordance with Financial Accounting Standards Board Interpretation No. 28.
Accordingly, at January 28, 2000, the remaining deferred compensation of
approximately $28.3 million will be amortized as follows: $9.2 million during
the remaining six months of fiscal 2000, $10.8 million during fiscal 2001, $5.7
million during fiscal 2002, $2.5 million during fiscal 2003 and the remainder
during fiscal 2004. The amortization expense relates to options awarded to
employees in all operating expense categories. The amortization of deferred
compensation has not been separately allocated to these categories. The amount
of deferred compensation expense to be recorded in future periods could decrease
if options for which accrued but unvested compensation has been recorded are
forfeited.

9. INCOME TAXES:

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS No. 109"). Due to the Company's loss
position in fiscal 1997 and 1999, and availability of loss carryforwards in
fiscal 1998, there was no provision for income taxes for the years ended July
31, 1997, 1998 or 1999. A valuation allowance has been recorded for the total
deferred tax assets as a result of uncertainties regarding realization of the
assets based upon the limited operating history of the Company, the lack of
consistent profitability to date and the uncertainty of future profitability.
The components of the net deferred tax assets are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            YEAR ENDED JULY 31,
                                                            --------------------
                                                             1998        1999
                                                            -------    ---------
<S>                                                         <C>        <C>
Net operating loss carryforwards..........................   $  73      $ 3,970
Other reserves and accruals...............................     141          638
                                                             -----      -------
Basic net income (loss) per share.........................     214        4,608
Valuation allowance.......................................    (214)      (4,608)
                                                             -----      -------
Net deferred income tax asset.............................   $  --      $    --
                                                             =====      =======
</TABLE>

     As of July 31, 1999, the Company has net operating loss carryforwards of
approximately $10.8 million to offset future federal taxable income, which
expire at various dates through the year 2019. The Company also has California
net operating loss carryforwards of approximately $5.2 million to offset future
California
                                      F-17
<PAGE>   173
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

taxable income, which expire in the year 2004. The operating loss carryforwards
to be used in future years is limited in accordance with the provisions of the
Tax Reform Act of 1986 as the Company has experienced a cumulative stock
ownership change of more than 50% over the last three years.

10. SUBSEQUENT EVENTS:

     On October 7, 1999, the Board of Directors approved, subject to stockholder
approval, the following:

     - amendment of the 1998 Stock Plan to increase the number of authorized
       shares by 4,000,000 and provide for an automatic annual increase in the
       number of shares authorized under the 1998 Stock Plan. Such increase is
       to be added on the first day of the Company's fiscal year beginning in
       2000 and will be equal to the lesser of (i) 4,000,000 shares, (ii) 4.9%
       of the then outstanding common stock shares, or (iii) a lesser amount
       determined by the Board.

     - adoption of the 1999 Employee Stock Purchase Plan under which 1,000,000
       shares of common stock have been reserved for issuance initially, subject
       to an annual increase of the lesser of 500,000 shares or 1% of the then
       outstanding common stock. The plan allows employees to purchase shares of
       common stock at a 15% discount.

     - adoption of the 1999 Director Option Plan under which 500,000 shares of
       common stock have been reserved, subject to an annual increase of the
       lesser of 250,000 shares or 0.5% of the then outstanding common stock.
       Under the plan, options will be granted when a non-employee director
       joins the Board following the IPO and at each annual meeting where the
       director continues to serve on the Board.

     - reincorporation into Delaware by way of a merger with a newly-formed
       Delaware subsidiary, and the associated issuance of one share of common
       stock of the subsidiary for each one share of common stock of the Company
       held by the stockholders of record. Additionally, stockholders of record
       of Series A and Series B of the Company will be entitled to receive one
       share of Series A and Series B preferred stock of the subsidiary.

     - an increase in the authorized shares of common stock to 250,000,000 and
       the creation of newly undesignated preferred stock totaling 10,000,000,
       contingent upon the reincorporation of the Company in Delaware and the
       closing of the IPO.

     - a 3-for-1 split of the outstanding shares of Series A.

     - a 2-for-1 split of the outstanding shares of common and Series B
       preferred stock.

     - an amendment to the conversion ratios of the Series A and Series B to
       provide that each share of preferred stock will convert into one share of
       common stock.

     All share and per share amounts in these financial statements have been
adjusted to give effect to the reincorporation and all stock splits.

11. ACQUISITIONS (UNAUDITED):

     On April 26, 2000, VA Linux entered into an amended agreement and plan of
reorganization to purchase Andover.Net, Inc. ("Andover.Net") for consideration
of approximately 6,802,000 shares of VA Linux's common stock. Additionally, VA
Linux will assume Andover.Net stock options. The value of the stock options to
be assumed by VA Linux has been estimated at approximately $22.0 million.
Andover.Net provides products, online tools, news and other services for
programmers, software developers, web site designers, technology managers and
corporate buyers.

                                      F-18
<PAGE>   174
                             VA LINUX SYSTEMS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
     (INFORMATION AS OF JANUARY 31, 1999 AND JANUARY 28, 2000 IS UNAUDITED)

     On March 28, 2000, VA Linux acquired TruSolutions, Inc. ("TruSolutions")
for consideration of approximately 938,000 shares of VA Linux's common stock
(assuming a valuation of $75.06 per share of VA Linux's common stock based on
the five-day average closing price of VA Linux common stock beginning on March
21, 2000) and cash of approximately $10.0 million. The purchase agreement also
contains additional payments to be made in common stock, which are solely
contingent upon continued employment of certain key employees of TruSolutions
for a period of three years. Maximum future payments contingent on employment of
the key employees is $119.6 million in stock (approximately 1,593,000 shares
valued at $75.06 per share) and is payable after 12 months, 24 months and 36
months (approximately 613,000 shares, 613,000 shares, and 367,000 shares,
respectively). The contingent payments will be accounted for as compensation
expense over the term of the employment condition and not purchase price. Upon
consummation of the merger, VA Linux established an escrow for these future
payments. TruSolutions is a leading manufacturer of rackmount servers based on
the Pentium III, Xeon and UltraSPARC processors specializing in low profile,
high performance systems designed for the Internet Data Center, ISP, ASP, and
OEM.

     On April 5, 2000, VA Linux acquired NetAttach, Inc. ("NetAttach") for
consideration of approximately 396,000 shares of VA Linux's common stock
(assuming a valuation of $62.18 per share of VA Linux's common stock based on
the five-day average closing price of VA Linux common stock beginning on March
29, 2000) and cash of $10.0 million. The purchase agreement also contains
additional payments to be made in common stock which are solely contingent upon
continued employment of certain key employees for a period of two years. Maximum
future payments contingent on employment of these key employees is $5.6 million
in stock (approximately 87,000 shares valued at $62.18 per share) and are
payable on the two-year anniversary date of the merger. The contingent payments
will be accounted for as compensation expense over the term of the employment
condition and not purchase price upon consummation of the merger. VA Linux
established an escrow for these future payments. NetAttach provides
high-availability data-appliances for mission-critical deployment in corporate
services or engineering environments.

     The acquisitions of Andover.Net, TruSolutions and NetAttach (collectively
referred to as the "Acquisitions") will be accounted for under the purchase
method of accounting whereby the total cost of each acquisition, including
related fees and expenses, is allocated to the tangible and intangible assets
acquired and liabilities assumed based upon their respective fair values at the
effective dates of such acquisitions. Such allocations have been made based upon
currently available information and management's estimates. Final allocations
will be determined upon completion of the analysis of the assets acquired and
liabilities assumed at the effective dates of the acquisitions. Since the
acquisition of Andover.Net has not been completed, the actual consideration
cannot yet be determined.

                                      F-19
<PAGE>   175

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders and Board of Directors of
Andover.Net, Inc. and Subsidiary:

We have audited the accompanying consolidated balance sheets of Andover.Net,
Inc. (a Delaware corporation) and subsidiary as of September 30, 1998 and 1999
and December 31, 1999, and the related consolidated statements of operations,
stockholders' equity (deficit) and cash flows for the three years ended
September 30, 1997, 1998 and 1999 and for the three months ended December 31,
1999. 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 auditing standards generally accepted
in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Andover.Net, Inc.
and subsidiary as of September 30, 1998 and 1999 and December 31, 1999, and the
results of its operations and cash flows for the three years ended September 30,
1997, 1998 and 1999 and for the three months ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.

                                          ARTHUR ANDERSEN LLP

Boston, Massachusetts
January 25, 2000 (except for the matters
discussed in Note 14(a) and (b), as to
which the date is February 7, 2000)

                                      F-20
<PAGE>   176

                        ANDOVER.NET, INC. AND SUBSIDIARY

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

<TABLE>
<CAPTION>
                                                               SEPTEMBER 30,
                                                             ------------------    DECEMBER 31,
                                                              1998       1999          1999
                                                             -------    -------    ------------
<S>                                                          <C>        <C>        <C>
                                            ASSETS
Current assets:
  Cash and cash equivalents................................  $   196    $ 9,871      $ 78,409
  Restricted cash..........................................       --         --           606
  Accounts receivable, net of allowance of $13, $100 and
     $150 as of September 30, 1998 and 1999 and December
     31, 1999, respectively................................      308        539         1,084
  Other current assets.....................................        6        126           717
                                                             -------    -------      --------
          Total current assets.............................      510     10,536        80,816
Property and equipment, net................................       23        218           457
Other assets:
  Intangible assets........................................       --      3,166         2,959
  Deferred offering costs..................................       --        485            --
  Other....................................................       --         35           185
                                                             -------    -------      --------
                                                                  --      3,686         3,144
                                                             -------    -------      --------
                                                             $   533    $14,440      $ 84,417
                                                             =======    =======      ========

          LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.........................................  $   121    $   301      $    309
  Accrued expenses.........................................      159      1,567           497
  Amounts due to stockholders..............................       --         --           606
  Long-term debt -- Current portion........................       --        654         1,163
                                                             -------    -------      --------
          Total current liabilities........................      280      2,522         2,575
Long-term debt.............................................       --        762            --
Commitments and contingencies (Note 9)
Series A redeemable preferred stock, at redemption value
  (Note 10(b)).............................................    2,362      4,800            --
Series B redeemable convertible preferred stock at
  redemption value (Note 10(c))............................       --     12,669            --
Stockholders' equity (deficit):
  Common stock, $0.01 par value -- Authorized -- 100,000
     shares; issued and outstanding -- 5,119 shares at
     September 30, 1998, 7,983 shares at September 30, 1999
     and 15,734 shares at December 31, 1999................       51         80           158
  Additional paid in capital...............................      105      6,934       110,116
  Deferred stock-based compensation........................       --     (5,156)       (4,281)
  Accumulated deficit......................................   (2,265)    (8,171)      (24,151)
                                                             -------    -------      --------
          Total stockholders' equity (deficit).............   (2,109)    (6,313)       81,842
                                                             -------    -------      --------
                                                             $   533    $14,440      $ 84,417
                                                             =======    =======      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-21
<PAGE>   177

                        ANDOVER.NET, INC. AND SUBSIDIARY

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

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                              YEARS ENDED SEPTEMBER 30,        DECEMBER 31,
                                              -------------------------   ----------------------
                                               1997     1998     1999        1998         1999
                                              ------   ------   -------   -----------   --------
                                                                          (UNAUDITED)
<S>                                           <C>      <C>      <C>       <C>           <C>
Net revenues:
  Advertising...............................  $  469   $1,290   $ 1,451     $  337      $  1,325
  Barter advertising........................      --       --       570         36           447
  E-commerce................................      --       --       100         --           285
  Software products.........................     272       --        --         --            --
                                              ------   ------   -------     ------      --------
          Total net revenues................     741    1,290     2,121        373         2,057
                                              ------   ------   -------     ------      --------
Cost of revenues:
  Editorial content and related.............     136      327       731        107           355
  E-commerce................................      --       --         2         --           126
  Software products.........................     167       --        --         --            --
                                              ------   ------   -------     ------      --------
          Total cost of revenues............     303      327       733        107           481
                                              ------   ------   -------     ------      --------
Gross profit................................     438      963     1,388        266         1,576
Operating expenses:
  Sales and marketing.......................     496      744     1,382        177           836
  General and administrative................     338      360     1,480        145           949
  Research and development..................     194      304       770        127           323
  Barter advertising........................      --       --       570         36           447
  Amortization of deferred stock-based
     compensation...........................      --       --     1,023        577         1,154
  Amortization of intangible assets.........      --       --       405         --           424
  Compensation expense related to
     acquisitions...........................      --       --       813         --         1,217
                                              ------   ------   -------     ------      --------
          Total operating expenses..........   1,028    1,408     6,443      1,062         5,350
                                              ------   ------   -------     ------      --------
          Loss from operations..............    (590)    (445)   (5,055)      (796)       (3,774)
Interest income.............................       1       20        88         12           309
Interest expense............................     (75)     (49)     (466)        --       (12,255)
                                              ------   ------   -------     ------      --------
          Net loss..........................  $ (664)  $ (474)  $(5,433)    $ (784)     $(15,720)
                                              ------   ------   -------     ------      --------
Accrued dividends on redeemable preferred
  stock.....................................      41      134       354         45           260
                                              ------   ------   -------     ------      --------
          Net loss attributable to common
            stockholders....................  $ (705)  $ (608)  $(5,787)    $ (829)     $(15,980)
                                              ======   ======   =======     ======      ========
Basic and diluted net loss per share
  applicable to common stockholders (Note
  2(j)).....................................  $(0.29)  $(0.12)  $ (0.78)    $(0.14)     $  (1.61)
                                              ======   ======   =======     ======      ========
Basic and diluted weighted average shares
  outstanding...............................   2,468    5,110     7,419      5,960         9,923
                                              ======   ======   =======     ======      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-22
<PAGE>   178

                        ANDOVER.NET, INC. AND SUBSIDIARY

                  STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                  COMMON STOCK
                                                 $.01 PAR VALUE
                                               ------------------     DEFERRED     ADDITIONAL                      TOTAL
                                               NUMBER OF            STOCK-BASED     PAID-IN     ACCUMULATED    STOCKHOLDERS'
                                                SHARES     AMOUNT   COMPENSATION    CAPITAL       DEFICIT     EQUITY (DEFICIT)
                                               ---------   ------   ------------   ----------   -----------   ----------------
<S>                                            <C>         <C>      <C>            <C>          <C>           <C>
Balance, September 30, 1996..................    1,763      $ 18      $    --       $     --     $   (813)        $   (795)
  Recapitalization of preferred stock........    1,709        17           --             --         (139)            (122)
  Issuance of common stock...................    1,206        12           --             78           --               90
  Issuance costs related to Series A
    redeemable preferred stock...............       --        --           --             --          (41)             (41)
  Conversion of convertible promissory notes
    to Series A redeemable preferred stock
    and common stock.........................      402         4           --             27           --               31
  Exercise of stock options..................       15        --           --             --           --               --
  Net loss...................................       --        --           --             --         (664)            (664)
                                                ------      ----      -------       --------     --------         --------
Balance, September 30, 1997..................    5,095        51           --            105       (1,657)          (1,501)
  Accrued dividends on Series A redeemable
    preferred stock..........................       --        --           --             --         (134)            (134)
  Exercise of stock options..................       24        --           --             --           --               --
  Net loss...................................       --        --           --             --         (474)            (474)
                                                ------      ----      -------       --------     --------         --------
Balance, September 30, 1998..................    5,119        51           --            105       (2,265)          (2,109)
  Accrued dividends on Series A redeemable
    preferred stock..........................       --        --           --             --         (313)            (313)
  Issuance of common stock...................    2,636        26           --            650           --              676
  Issuance costs related to Series A
    redeemable preferred stock...............       --        --           --             --          (34)             (34)
  Issuance costs related to Series B
    redeemable convertible preferred stock...       --        --           --             --          (85)             (85)
  Accrued dividends on Series B redeemable
    convertible preferred stock..............       --        --           --             --          (41)             (41)
  Exercise of stock options..................      228         3           --             --           --                3
  Deferred stock-based compensation related
    to stock options.........................       --        --       (6,179)         6,179           --               --
  Amortization of deferred stock-based
    compensation.............................       --        --        1,023             --           --            1,023
  Net loss...................................       --        --           --             --       (5,433)          (5,433)
                                                ------      ----      -------       --------     --------         --------
Balance, September 30, 1999..................    7,983      $ 80      $(5,156)      $  6,934     $ (8,171)        $ (6,313)
                                                ------      ----      -------       --------     --------         --------
  Issuance of common stock from initial
    public offering, net of $1,861 issuance
    costs....................................    4,600        46           --         75,511           --           75,557
  Conversion of Series B redeemable
    convertible preferred stock to common
    stock....................................    3,017        30           --         12,824           --           12,854
  Accrued dividends on Series A redeemable
    preferred stock..........................       --        --           --             --          (75)             (75)
  Accrued dividends on Series B redeemable
    preferred stock..........................       --        --           --             --         (185)            (185)
  Exercise of stock options..................        6         1           --              6           --                7
  Deferred stock-based compensation related
    to stock options.........................       --        --         (279)           279           --               --
  Amortization of deferred stock-based
    compensation.............................       --        --        1,154             --           --            1,154
  Issuance of common stock in connection with
    Acquisitions (Note 4)....................      128         1           --          2,310           --            2,311
  Amount related to beneficial conversion of
    Series B redeemable convertible preferred
    stock (Note 10(c)).......................       --        --           --         12,224           --           12,224
  Compensation related to stock options
    issued to nonemployees...................       --        --           --             28           --               28
  Net loss...................................       --        --           --             --      (15,720)         (15,720)
                                                ------      ----      -------       --------     --------         --------
Balance, December 31, 1999...................   15,734      $158      $(4,281)      $110,116     $(24,151)        $ 81,842
                                                ======      ====      =======       ========     ========         ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-23
<PAGE>   179

                        ANDOVER.NET, INC. AND SUBSIDIARY

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                    YEARS ENDED            THREE MONTHS ENDED
                                                                   SEPTEMBER 30,              DECEMBER 31,
                                                              ------------------------   ----------------------
                                                               1997    1998     1999        1998         1999
                                                              ------   -----   -------   -----------   --------
                                                                                         (UNAUDITED)
<S>                                                           <C>      <C>     <C>       <C>           <C>
Cash flows from operating activities:
  Net loss..................................................  $ (664)  $(474)  $(5,433)    $ (784)     $(15,720)
  Adjustments to reconcile net loss to net cash used in
    operating activities --
    Depreciation and amortization...........................       6       9       432          4           438
    Amortization of deferred stock-based compensation.......      --      --     1,023        577         1,154
    Amount related to beneficial conversion of convertible
      notes payable to stockholders classified as interest
      expense...............................................      --      --       438         --            --
    Amount related to beneficial conversion of Series B
      preferred stock classified as interest expense........      --      --        --         --        12,224
    Compensation related to stock options issued to
      non-employees.........................................      --      --        --         --            28
    Compensation expense related to acquisitions............      --      --        --         --         1,217
    Changes in operating assets and liabilities --
      Accounts receivable...................................     (91)   (136)     (231)         4          (545)
      Other current assets..................................     107      69       (38)        (7)         (310)
      Accounts payable......................................      45    (120)      180        (28)            8
      Accrued expenses......................................      68      78     1,091         63          (451)
                                                              ------   -----   -------     ------      --------
         Net cash used in operating activities..............    (529)   (574)   (2,538)      (171)       (1,957)
                                                              ------   -----   -------     ------      --------
Cash flows from investing activities:
  Cash paid for acquisitions................................      --      --    (2,117)        --            --
  Purchases of property and equipment.......................      (8)    (17)     (242)       (21)         (268)
  (Decrease) increase in other assets.......................      --      --      (285)        --           334
                                                              ------   -----   -------     ------      --------
         Net cash (used in) provided by investing
           activities.......................................      (8)    (17)   (2,644)       (21)           66
                                                              ------   -----   -------     ------      --------
Cash flows from financing activities:
  Proceeds from the issuance of Series B redeemable
    convertible preferred stock.............................      --      --    10,015         --            --
  Proceeds from the issuance of AAT Series B convertible
    preferred stock.........................................      10      --        --         --            --
  Proceeds from the issuance of Series A redeemable
    preferred stock, net of issuance costs..................     769      --     2,091      2,052            --
  Proceeds from issuance of common stock, net of issuance
    cost....................................................      90      --       679        620        75,557
  Proceeds from exercise of AAT Series B warrants...........     103      --        --         --            --
  Payments on related party notes payable to stockholders...     (26)    (50)      (18)        --            --
  Proceeds from convertible notes payable to stockholders...      --      --     2,090         --            --
  Proceeds from convertible notes payable to stockholders
    and issuance of Series A redeemable preferred stock and
    common stock............................................     300      --        --         --            --
  Redemption of Series A redeemable preferred stock.........      --      --        --         --        (4,875)
  Amounts due to stockholders...............................      --      --        --         --           606
  Payments on notes relating to acquisitions................      --      --        --         --          (253)
                                                              ------   -----   -------     ------      --------
         Net cash provided by (used in) financing
           activities.......................................   1,246     (50)   14,857      2,672        71,035
                                                              ------   -----   -------     ------      --------
Net increase (decrease) in cash and cash equivalents........     709    (641)    9,675      2,480        69,144
Increase in restricted cash.................................      --      --        --         --          (606)
Cash and cash equivalents, beginning of period..............     128     837       196        196         9,871
                                                              ------   -----   -------     ------      --------
Cash and cash equivalents, end of period....................  $  837   $ 196   $ 9,871     $2,676      $ 78,409
                                                              ======   =====   =======     ======      ========
Supplemental disclosure of cash flow information:
  Cash paid for interest....................................  $   48   $  27   $     2     $   --      $     31
                                                              ======   =====   =======     ======      ========
Supplemental disclosure of noncash financing transactions:
  Conversion of notes payable to Series A redeemable
    preferred stock and common stock........................  $  100   $  --   $    --     $   --      $     --
                                                              ======   =====   =======     ======      ========
  Conversion of convertible notes payable to stockholders
    and accrued interest to Series B redeemable convertible
    preferred stock.........................................  $   --   $  --   $ 2,124     $   --      $     --
                                                              ======   =====   =======     ======      ========
  Notes payable and accrued interest recorded in connection
    with acquisitions.......................................  $   --   $  --   $ 1,463     $   --      $    200
                                                              ======   =====   =======     ======      ========
  Conversion of Series B preferred stock into common stock
    upon initial public offering............................  $   --   $  --   $    --     $   --      $ 12,854
                                                              ======   =====   =======     ======      ========
  Common stock issued in connection with acquisitions.......  $   --   $  --   $    --     $   --      $  2,310
                                                              ======   =====   =======     ======      ========
</TABLE>

  The accompanying notes are an integral part of these consolidated financial
                                  statements.
                                      F-24
<PAGE>   180

                        ANDOVER.NET, INC. AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)

(1) OPERATIONS

     Andover.Net, Inc. ("Andover.Net") (formerly, Andover Advanced Technologies,
Inc.) is a network of Web sites that provides an independent, unbiased source
for content, community and commerce for the Linux and, more generally, the Open
Source communities. Andover.Net provides products, online tools, news and other
services for programmers, software developers, Web site designers, technology
managers and corporate buyers.

     Andover.Net was incorporated in Massachusetts in 1992 as Andover Advanced
Technologies, Inc. In September 1999, Andover Advanced Technologies, Inc. was
merged into its wholly owned subsidiary, Andover.Net, Inc., a Delaware
corporation, and changed its fiscal year-end from September 30 to December 31.

     Prior to fiscal 1996, Andover.Net was a software publisher of multimedia
and Web authoring tools, deriving revenues from licensing, developing, marketing
and distributing packaged multimedia software, primarily to large distributors
and retailers. In fiscal 1996, Andover.Net launched its first Web site,
DaveCentral.com. During fiscal 1997, Andover.Net transitioned from a software
publisher to a Web site publisher to participate in the commercial opportunities
emerging on the Internet. Since March 1997, all of its activities have been
focused on expanding its Internet business.

     Since its inception, Andover.Net has incurred a significant accumulated
deficit and is devoting substantially all of its efforts toward marketing its
Web sites and products. Andover.Net is subject to the risks associated with
emerging, technology-oriented companies with a limited operating history,
including a developing business model, limited history of commerce on the
Internet, the need for initial and continued market acceptance of Andover.Net's
Web sites and services, competition, the need to successfully market its current
Web sites and the continued need to manage and fund Andover.Net's future
operations. On February 2, 2000, Andover.Net announced a merger agreement
whereby the Company will be acquired by VA LINUX. (See Note 14(a).)

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described in this note and
elsewhere in the notes to consolidated financial statements.

  (a) Principles of Consolidation

     In December 1999, Andover.Net formed a wholly owned subsidiary, Andover.Net
Securities Corporation. These consolidated financial statements include the
accounts of Andover.Net and its wholly owned subsidiary. All significant
intercompany transactions have been eliminated in consolidation.

  (b) Interim Financial Statements

     The accompanying consolidated statements of Operations and Cash Flows for
the period ended December 31, 1998 are unaudited, but, in the opinion of
management, include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of results of operations for the
interim period. Certain financial information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been omitted with respect to the three-month period
ended December 31, 1998, although the Company believes that the disclosures
included are adequate to make the information presented not misleading. Interim
results are not necessarily indicative of results for a full year.

                                      F-25
<PAGE>   181
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (c) Use of Estimates in the Preparation of Financial Statements

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of net revenues and expenses
during the reporting periods. Actual results could differ from those estimates.

  (d) Revenue Recognition

     Advertising revenues are derived from the sale of advertising space on
Andover.Net's various Web sites. Advertising revenues are recognized over the
period in which the advertisements are displayed, provided that no significant
obligations remain and collection of the receivable is reasonably assured.
Andover.Net's obligations typically include guarantees of a minimum number of
"impressions" (times that an advertisement is viewed by users of Andover.Net's
online services over a specified period of time). To the extent that minimum
guaranteed impressions are not met, Andover.Net does not recognize the
corresponding revenues until the guaranteed impressions are achieved.

     Andover.Net has adopted Emerging Issued Task Force (EITF) Issue 93-11,
Accounting for Barter Transactions Involving Barter Credits, to account for
barter transactions. Revenues from barter transactions are recorded at the lower
of the estimated fair value of the advertisements, goods or services received or
the estimated fair value of the advertisements given. Andover.Net records barter
revenues only on the portion of the barter transactions for which Andover.Net is
able to determine fair value based on comparable cash transactions and for which
the advertiser has the financial ability to pay cash. Otherwise, barter revenue
is not recognized. Revenues from barter transactions, representing advertising
space given, is recognized as income when advertisements are delivered on
Andover.Net's Web site. Barter expense, representing advertising space received,
is recognized when Andover.Net advertisements are run on other companies' Web
sites, which is typically in the same period when the related barter revenue is
recognized. Andover.Net did not recognize any barter revenue for the years ended
September 30, 1997 and 1998 and recognized $570,000, $36,000 and $447,000 of
barter revenue for the year ended September 30, 1999 and for the three months
ended December 31, 1998 and 1999, respectively.

     E-commerce revenue from the sale of software animation and e-commerce
merchandise, is recognized upon shipment of the products, net of estimated
returns. There is no technical support provided for any software animation
products.

     Andover.Net derived revenue from Web-related software products during 1997
for use on desktop computers. Revenue from the licensing of software products
was recognized when the products were shipped, as there were no significant post
delivery obligations. Andover.Net provided for estimated returns and warranty
costs at the time of sale. Andover.Net did not offer maintenance and support on
its products. There were no significant software sales after fiscal 1997.

  (e) Cost of Revenues

     Cost of revenues for advertising includes expenses associated with
editorial content, communication infrastructure, including servers equipped with
a redundant array of interdependent dishes and local balancing switches for our
Web site data center and Web site hosting.

     E-commerce cost of revenues includes the cost of merchandise to be sold on
the Company's Web sites.

                                      F-26
<PAGE>   182
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (f) Sales and Marketing Expenses

     Sales and marketing expenses consist primarily of costs, including salaries
and sales commissions, of all personnel involved in the sales process and
related expenses. All advertising costs are expensed as incurred. Advertising
expense totaled approximately $241,000, $546,000 and $794,000 for the years
ended September 30, 1997, 1998 and 1999, respectively, and approximately $46,000
and $478,000 for the three months ended December 31, 1998 and 1999,
respectively.

  (g) Research and Development

     Research and development expenses include all research and
development-related direct costs, primarily salaries for Andover.Net research
and development personnel and outside contractors for the development of new Web
sites, improved design of existing Web sites and related infrastructure.

  (h) Cash and Cash Equivalents

     Cash equivalents are stated at cost, which approximates fair market value.
Andover.Net considers highly liquid investments with original maturities of 90
days or less to be cash equivalents and includes money market accounts and
commercial paper that are readily convertible to cash.

  (i) Property and Equipment

     Andover.Net provides for depreciation using the straight-line method, by
charges to operations in amounts estimated to allocate the cost of property and
equipment over their estimated useful lives.

<TABLE>
<CAPTION>
                                                           ESTIMATED
ASSET CLASSIFICATION                                      USEFUL LIFE
- --------------------                                     -------------
<S>                                                      <C>
Computer equipment.....................................     3 years
Furniture and fixtures.................................     7 years
Office equipment.......................................     5 years
Leasehold improvements.................................  Life of lease
</TABLE>

     Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30,
                                                  --------------    DECEMBER 31,
                                                  1998     1999         1999
                                                  -----    -----    ------------
                                                  (IN THOUSANDS)
<S>                                               <C>      <C>      <C>
Computer equipment..............................  $ 43     $180        $ 375
Furniture and fixtures..........................    13       51          120
Office equipment................................    --       23           23
Leasehold improvements..........................    --       44           50
                                                  ----     ----        -----
                                                    56      298          568
Less -- Accumulated depreciation................   (33)     (80)        (111)
                                                  ----     ----        -----
                                                  $ 23     $218        $ 457
                                                  ====     ====        =====
</TABLE>

  (j) Concentration of Credit Risk

     Andover.Net has no significant off-balance sheet concentration of credit
risks, such as foreign exchange contracts, options contracts or other foreign
hedging arrangements. Financial instruments that potentially expose Andover.Net
to concentrations of credit risk consist primarily of cash equivalents, accounts
receivable, accounts payable, notes payable and redeemable preferred stock.
Concentrated credit

                                      F-27
<PAGE>   183
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

risk with respect to accounts receivable is limited to certain customers to whom
Andover.Net makes substantial sales. Andover.Net performs periodic evaluations
of its customers and generally does not require collateral.

     The following table summarizes the number of customers that individually
comprise greater than 10% of total accounts receivable and total net revenue for
the periods presented:

<TABLE>
<CAPTION>
                                                                          THREE MONTHS ENDED
                                           YEARS ENDED SEPTEMBER 30,         DECEMBER 31,
                                           -------------------------     --------------------
                                           1997      1998      1999         1998         1999
                                           -----     -----     -----     -----------     ----
                                                                         (UNAUDITED)
<S>                                        <C>       <C>       <C>       <C>             <C>
Revenue --
  Customer A.............................    *        26%        *           16%          18%
  Customer B.............................    *        20%        *           21%           *
  Customer C.............................   21%       10%        *            *            *
  Customer D.............................    *         *         *            *            *
  Customer E.............................    *         *        17%           *            *
</TABLE>

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                                                     --------------------    DECEMBER 31,
                                                     1997    1998    1999        1999
                                                     ----    ----    ----    ------------
<S>                                                  <C>     <C>     <C>     <C>
Accounts Receivable --
  Customer A.......................................   17%     21%     13%         23%
  Customer B.......................................    *       *       *           *
  Customer C.......................................    *      35%      *           *
  Customer D.......................................   42%      *       *           *
  Customer E.......................................    *       *       *           *
</TABLE>

- ------------------------------
* Less than 10%

  (k) Net Loss Per Share

     Basic and diluted net loss per common share is computed using the weighted
average number of shares of common stock outstanding during the period.
Potentially dilutive shares outstanding have been excluded because their effect
would be antidilutive.

     Shares under option plans that were antidilutive for all periods presented
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                         YEARS ENDED          THREE MONTHS ENDED
                                                        SEPTEMBER 30,         DECEMBER 31, 1999
                                                    ---------------------    --------------------
                                                    1997    1998    1999        1998        1999
                                                    ----    ----    -----    -----------    -----
                                                                             (UNAUDITED)
<S>                                                 <C>     <C>     <C>      <C>            <C>
Shares under option plans excluded in computation
  of diluted earnings per share, due to
  antidilutive effects............................  638     723     1,328       1,005       1,694
                                                    ===     ===     =====       =====       =====
</TABLE>

  (l) Stock-Based Compensation for Employees

     Andover.Net has adopted Statement of Financial Accounting Standards (SFAS)
No. 123, Accounting for Stock-Based Compensation. SFAS No. 123 defines a
fair-value-based method of accounting for employee stock options and other
stock-based compensation. The compensation expense related to employee stock
based compensation arising from this method of accounting can be included in the
statements of operations or, alternatively, the pro forma net loss and loss per
share effect of the fair-value-

                                      F-28
<PAGE>   184
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based accounting can be disclosed in the notes to consolidated financial
statements. Andover.Net has elected the disclosure-only alternative (see Note
12b).

  (m) Comprehensive Income

     In June 1997, the Financial Accounting Standards Board (FASB) issued SFAS
No. 130, Reporting Comprehensive Income. Under SFAS No. 130, companies are
required to report comprehensive income as a measure of overall performance.
Comprehensive income includes all changes in equity during a period, except
those resulting from investments by owners and distributions to owners. For the
years ended September 30, 1997, 1998 and 1999 and for the three months ended
December 31, 1998 and 1999, Andover.Net's comprehensive loss is the same as its
reported net loss.

  (n) Fair Value of Financial Instruments

     Financial instruments consist principally of cash equivalents, accounts
receivable, accounts payable, notes payable and preferred stock. The estimated
fair value of these instruments approximates their carrying value.

  (o) Impairment of Long-Lived Assets

     Andover.Net applies SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. SFAS No. 121
requires Andover.Net to continually evaluate whether events or circumstances
have occurred that indicate that the estimated remaining useful life of
long-lived assets and certain identifiable intangibles and goodwill may warrant
revision or that the carrying value of these assets may be impaired. To compute
whether assets have been impaired, the estimated gross cash flows for the
estimated remaining useful life of the assets are compared to the carrying
value. To the extent that the gross cash flows are less than the carrying value,
the assets are written down to the estimated fair value of the asset.
Andover.Net does not believe that its long-lived assets have been impaired.

  (p) New Accounting Standards

     In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. In June 1999, the
FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, which
stated that SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000. SFAS No. 133 is not expected to have a material
impact on Andover.Net's consolidated financial statements.

     In March 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-1, Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use. SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The adoption of this statement did not have a
material impact on Andover.Net's consolidated financial position or consolidated
results of operations.

(3) INITIAL PUBLIC OFFERING

     On December 8, 1999, the Company completed its initial public offering (the
Offering) of 4,600,000 shares of its common stock, including 600,000 shares
issued in connection with the exercise of the underwriters' overallotment option
on the date of the Offering. The shares were offered to the public at a

                                      F-29
<PAGE>   185
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price of $18 per share. The proceeds to the Company from the offering, net of
offering expenses and the $1.17 per share underwriting discount, were
approximately $77,418,000. Concurrent with the Offering, all of the Series A
Redeemable Preferred Stock was redeemed for $4,874,000. At December 31, 1999,
$606,000 of the amounts due to the Series A stockholders was classified as
restricted cash, as such payments were not made until January 2000.
Additionally, all of the Series B Redeemable Convertible Preferred Stock was
converted into 3,017,134 shares of common stock on the date of the Offering.
This conversion resulted in an interest charge of $12,214,000 caused by the
beneficial conversion of the Series B preferred shares (see Note 10(c)). For
complete information regarding the Offering, see the Company's prospectus dated
December 8, 1999.

(4) ACQUISITIONS

  (a) Slashdot.org

     On June 28, 1999, Andover.Net entered in an asset purchase agreement (the
Purchase) to acquire the Web site www.slashdot.org, the assets required to run
the Web site and all trademarks from BlockStackers, Inc. (BlockStackers or, the
Seller). The Web site and related assets essentially made up the entire business
of BlockStackers. The Web site provides a forum among programmers to discuss
current issues regarding the Linux operating system.

     Andover.Net paid $1,500,000 in cash on June 28, 1999 for the assets
described above. The purchase agreement also contains additional cash payments
and common stock consideration contingent upon certain future events. Maximum
future cash payments are $3,500,000 payable over the next two years contingent
on two key employees' continued employment. Maximum future stock consideration
of $7,000,000 is payable over two years, as defined in the Purchase. The number
of shares paid is calculated based on the price per share offered in the public
offering and is contingent upon the continued employment of two key employees
and other performance milestones relating to the Web site.

     The acquisition has been accounted for under the purchase method of
accounting in accordance with Accounting Principles Board Opinion No. 16 (APB
16) Business Combinations and EITF 95-08, Accounting for Contingent
Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase
Business Combination. The purchase price of $1,500,000 was allocated to the
acquired assets based on the fair value of assets acquired, as determined by a
valuation performed by an independent appraiser. Of the purchase price, $242,000
was allocated to the covenant not to compete, $23,000 was allocated to
trademarks and $1,235,000 was allocated to goodwill. The goodwill can primarily
be attributed to the value of the work force acquired. Trademarks and goodwill
will be amortized over two years, which is their estimated useful life. The
covenant not to compete will be amortized over five years, which is the life of
the agreement. There was approximately $179,000 and $170,000 of amortization
expense recorded in the consolidated statements of operations for the year ended
September 30, 1999 and the three months ended December 31, 1999, respectively.
The future cash and stock payments, which are contingent solely on future
employment in the amount of $6,300,000, is being recognized as compensation
expense ratably over the term of the payments, as they are directly linked to
the continued employment of the two key employees. For the year ended September
31, 1999 and three months ended December 31, 1999, approximately $788,000 and
$1,035,000 was recognized respectively and presented as compensation expense
related to acquisitions in the accompanying consolidated statements of
operations. The contingent payments that are based on performance milestones
will be recognized as expense as those milestones are reached. Upon the closing
of the Offering, in accordance with the purchase agreement, 111,111 shares of
common stock were issued to the sellers.

                                      F-30
<PAGE>   186
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (b) Animation Factory

     Concurrently on June 28, 1999, Andover.Net acquired certain assets and
assumed certain liabilities related to the Web site Animation Factory from
Eclipse Digital Imaging, Inc. (Eclipse). Eclipse develops, markets and sells
computer animation via its Web site.

     The purchase price was $1,500,000 in cash for the net assets acquired, of
which $250,000 was paid on the closing of the acquisition and $1,250,000 will be
paid in 15 equal monthly installments beginning in October 1999. The future
payments have been discounted to their present value using an imputed interest
rate of prime (8% at June 28, 1999) plus 1%, for a present value of $1,151,000.
The discount will be amortized as interest expense over the term of the
payments. The purchase agreement also contains stock consideration of $600,000
payable over two years contingent upon continued employment of the two
principals of Eclipse and other milestones relating to the creation of new
animation images. Any stock consideration given, when the contingencies are
resolved, will be accounted for as compensation expense over the period earned,
as they are directly related to the continued employment and performance of
these two key employees. The number of shares paid is calculated based on the
price per share offered in the initial public offering.

     The acquisition has been accounted for under APB 16 and EITF 95-08 and the
purchase price of $1,421,000 was allocated to the acquired assets based on the
fair value of the assets acquired, as determined by a valuation performed by an
independent appraiser. Of the purchase price, $177,000 was allocated to the
covenant not to compete, $213,000 was allocated to the animation library,
$15,000 was allocated to trademarks and $1,017,000 was allocated to goodwill.
The animation library, the trademarks and the goodwill will be amortized over
two years, which is the estimated useful life. The covenant not to compete will
be amortized over five years, which is the life of the agreement. There was
approximately $174,000 and $161,000 of amortization expense for the year ended
September 30, 1999 and the three months ended December 31, 1999, respectively.
The future cash and stock payments, which are contingent solely on future
employment in the amount of $200,000, is being recognized as compensation
expense ratably over the term of the payments, as they are directly linked to
the continued employment of the two key employees. For the year ended September
31, 1999 and the three months ended December 31, 1999, approximately $25,000 and
$21,000 was recognized and presented as compensation expense related to
acquisitions in the accompanying consolidated income statements. The contingent
payments that are based on performance milestones will be recognized as expense
once those milestones are reached. Upon the closing of the offering, in
accordance with the purchase agreement, 11,111 shares of common stock were
issued.

  (c) Freshmeat

     In August 1999, Andover.Net purchased certain assets related to the Web
site Freshmeat. Andover.Net paid $367,000 of cash at the closing and has
guaranteed future payments aggregating $300,000 payable monthly through November
2000. The future payments have been discounted to their present value using an
imputed interest rate of prime (8% at August 6, 1999) plus 1%, for a present
value of $650,000. The discount will be amortized as interest expense over the
terms of the payments. Future stock consideration of $333,000 will be paid over
the term of a service contract with the selling stockholder.

     The acquisition has been accounted for under the purchase method of
accounting, in accordance with APB 16 and EITF 95-08. The purchase price of
$650,000 was allocated to the acquired assets based on the fair value of assets
acquired, as determined by a valuation performed by an independent appraiser. Of
the purchase price, $107,000 was allocated to the covenant not to compete,
$8,000 was allocated to trademarks and $535,000 was allocated to goodwill. The
goodwill can primarily be attributed to the value

                                      F-31
<PAGE>   187
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of the work force acquired. Trademarks and goodwill will be amortized over two
years, which is their estimated useful life. The covenant not to compete will be
amortized over five years, which is the life of the agreement. There was
approximately $52,000 and $73,000 of amortization expense recorded in the
statements of operations for the year ended September 30, 1999 and the three
months ended December 31, 1999. The future stock payments that are contingent
solely on the continuation of services from the selling stockholder are being
recognized as expense over the term of the payments in accordance with EITF
96-18, Accounting for Equity Instruments that Are Issued to Other, Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services. For
the three months ended December 31, 1999, approximately $146,000 was recognized
and presented as compensation expense related to acquisition in the accompanying
consolidated income statement. Upon the closing of the Offering, in accordance
with the purchase agreement, 6,172 shares of common stock were issued. To the
extent that there is any appreciation in the market value of the Company's
common stock, the compensation charges could be materially higher than as
disclosed.

  (d) ThinkGeek.com

     In October 1999, Andover.Net acquired all of the assets relating to the Web
site as ThinkGeek.com from ThinkGeek, LLC. ThinkGeek.com is an online retailer
of Linux/Open Source related gifts, books and paraphernalia. Consideration for
this transaction consisted of a $200,000 cash payment made at the closing and
$200,000 payable in eight equal quarterly contingent installments beginning in
January 2000. These quarterly payments are contingent on the continued
employment of the key employees of ThinkGeek.com and are not considered part of
the purchase price.

     The acquisition has been accounted for under the purchase method of
accounting, in accordance with APB 16 and EITF 95-08. The purchase price of
$200,000 was allocated to the acquired assets based on the fair value of assets
acquired, as determined by a valuation performed by an independent appraiser. Of
the purchase price, $20,000 was allocated to the covenant not to compete, $1,400
was allocated to trademarks and $178,600 was allocated to goodwill. The goodwill
can primarily be attributed to the value of the work force acquired. Trademarks
and goodwill will be amortized over two years, which is their estimated useful
life. The covenant not to compete will be amortized over five years, which is
the life of the agreement. There was approximately $16,000 of amortization
expense recorded in the consolidated statement of operations for the three
months ended December 31, 1999. The future cash payments of $200,000 are being
recognized as compensation expense ratably over the term of the payments, as
they are directly linked to the continued employment of four key employees. For
the three months ended December 31, 1999, approximately $17,000 was recognized
and presented as compensation expense related to acquisitions in the
accompanying consolidated income statement.

(5) ACCOUNTS RECEIVABLE

     Accounts receivable, which result primarily from advertising sales, are
presented net of an allowance for doubtful accounts. The activity in
Andover.Net's allowance for doubtful accounts for the years ended

                                      F-32
<PAGE>   188
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

September 30, 1997, 1998, 1999 and for the three months ended December 31, 1999
is presented in the following table:

<TABLE>
<CAPTION>
                                        BALANCE AT                                    BALANCE
                                        BEGINNING     CHARGED TO                      AT END
                                        OF PERIOD      EXPENSE      DEDUCTIONS(A)    OF PERIOD
                                        ----------    ----------    -------------    ---------
                                                            (IN THOUSANDS)
<S>                                     <C>           <C>           <C>              <C>
Year ended September 30, 1997.........     $ --          $ --           $ --           $ --
Year ended September 30, 1998.........       --            13             --             13
Year ended September 30, 1999.........       13            93              6            100
Three months ended December 31,             100            50             --            150
  1999................................
</TABLE>

- ------------------------------
(a) Represents amounts written off as uncollectable accounts receivable.

(6) ACCRUED EXPENSES

     Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                 SEPTEMBER 30,
                                                 --------------    DECEMBER 31,
                                                 1998     1999         1999
                                                 ----    ------    ------------
<S>                                              <C>     <C>       <C>
Accrued compensation...........................  $ --    $  841        $ 18
Accrued vendor commissions.....................    80        --          --
Other..........................................    79       726         479
                                                 ----    ------        ----
                                                 $159    $1,567        $497
                                                 ====    ======        ====
</TABLE>

(7) CONVERTIBLE NOTES PAYABLE TO STOCKHOLDERS

     On June 30, 1999, Andover.Net received proceeds of $2,090,000 from the
issuance of convertible notes payable (the Notes) in a private placement to
various investors, some of whom are Andover.Net stockholders and certain
outsiders. The Notes bore interest at the prime rate (8% at June 30, 1999) per
annum and were due on December 31, 1999. Upon the closing of the Series B
financing by Andover.Net in September 1999, these Notes converted into 120,214
shares of Series B Redeemable Convertible Preferred Stock issued under the new
capital structure of Andover.Net (see Note 10(c)). Upon the closing of the
Offering, the Series B Convertible Preferred Stock automatically converted into
603,931 shares of common stock.

     The original terms of the Notes provided for a formula-based conversion
price. Pursuant to the conversion terms, whereby the holders of the Notes were
guaranteed beneficial conversion features depending on the amount of time the
Notes were held before conversion, Andover.Net recorded an original discount of
$403,000, which represents the difference between the proceeds from the notes
payable and the value of the Series B preferred stock. This discount was
amortized as interest expense over 76 days, which is the period from issuance of
the Notes to the period in which the Series B Redeemable preferred stock
offering occurred. The Series B redeemable preferred stock offering occurred
during the year ended September 30, 1999. In addition, Andover.Net recognized an
additional interest expense of $12,124,000, which represents the beneficial
conversion feature of the 120,214 shares of Series B Redeemable Convertible
Preferred Stock into 603,931 shares of common stock (see Note 10(c)). This
expense is recognized in the consolidated statement of operations for the three
months ended December 31, 1999, as this is the period that the Offering closed.

(8) INCOME TAXES

     Andover.Net accounts for income taxes using the liability method, which
requires the recognition of the amount of current and deferred income taxes at
the date of the financial statements as a result of all

                                      F-33
<PAGE>   189
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

differences in the tax basis and financial statement carrying amounts of assets
and liabilities, as measured by enacted tax laws.

     No provision for federal or state income taxes has been recorded, as
Andover.Net has incurred net operating losses for all periods presented. As of
December 31, 1999, Andover.Net had net operating loss carryforwards for federal
and state income tax purposes of approximately $17,706,000 available to reduce
future federal and state income taxes, if any. These carryforwards expire at
various dates through 2019 and are subject to review and possible adjustment by
the Internal Revenue Service. Due to the uncertainty surrounding the realization
of the net deferred tax asset, Andover.Net has provided a full valuation
allowance against this amount.

     U.S. tax rules impose annual limitations on the use of net operating losses
following substantial changes, in ownership. Andover.Net has completed several
financings since its inception and has incurred an ownership change, as defined
by the U.S. tax rules. Andover.Net believes that this change in ownership will
not have a material impact on its ability to utilize its net operating loss
carryforwards.

     The approximate income tax effect of each type of temporary difference and
carryforward is as follows (in thousands):

<TABLE>
<CAPTION>
                                                    SEPTEMBER 30,
                                              -------------------------    DECEMBER 31,
                                              1997     1998      1999          1999
                                              -----    -----    -------    ------------
<S>                                           <C>      <C>      <C>        <C>
Net operating loss carryforwards............  $ 530    $ 674    $ 1,824      $ 7,130
Non-deductible expenses and reserves........     20       37        512          897
Valuation allowance.........................   (550)    (711)    (2,336)      (8,027)
                                              -----    -----    -------      -------
          Net deferred tax asset............  $  --    $  --    $    --      $    --
                                              =====    =====    =======      =======
</TABLE>

(9) COMMITMENTS AND CONTINGENCIES

  (a) Operating Leases

     Andover.Net leases its office facility and equipment under operating leases
that expire at various dates through April 30, 2004.

     Future minimum lease payments at December 31, 1999 are as follows (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
- -------------------------
<S>                                                           <C>
2000........................................................  $208
2001........................................................   205
2002........................................................   221
2003........................................................   229
2004........................................................    76
                                                              ----
                                                              $939
                                                              ====
</TABLE>

     Rent expense included in the accompanying consolidated statements of
operations was approximately $33,000, $20,000 and $122,000 for the years ended
September 30, 1997, 1998 and 1999, respectively, and $12,000 and $52,000 for the
three months ended December 31, 1998 and 1999, respectively.

  (b) Litigation

     Currently, Andover.Net is not a party to any litigation.

                                      F-34
<PAGE>   190
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) REDEEMABLE PREFERRED STOCK

     On December 8, 1999, all outstanding shares of Series A redeemable
preferred stock, as well as all accrued but unpaid dividends, were redeemed. All
amounts except $606,000 were paid in full during 1999 with the proceeds from the
Offering. (See Note 3). The remaining $606,000 has been classified as amounts
due to stockholders along with an equal amount as restricted cash in the
accompanying consolidated balance sheet as of December 31, 1999. This amount was
paid in full during January 2000.

     Redeemable preferred stock consisted of the following (in thousands):

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                                                       ----------------    DECEMBER 31,
                                                        1998      1999         1999
                                                       ------    ------    ------------
<S>                                                    <C>       <C>       <C>
Series A redeemable preferred stock (Series
  A) -- $13.50 redemption value plus accrued
  dividends; authorized -- 900 shares, issued and
  outstanding -- 165, 322 and no shares at September
  30, 1998 and 1999 and December 31, 1999,
  respectively (at redemption value).................  $2,228    $4,353      $ 4,800
Accrued dividends on Series A (see Dividends)........     134       447           74
                                                       ------    ------      -------
Subtotal.............................................  $2,362    $4,800      $ 4,874
                                                       ======    ======      =======
Redemption of Series A redeemable preferred stock and
  payment of accrued dividends.......................                         (4,874)
                                                                             -------
                                                                             $    --
                                                                             =======
</TABLE>

     Upon the Offering on December 8, 1999, all outstanding shares of Series B
redeemable convertible preferred stock along with related accrued dividends were
converted into 3,017,134 shares of common stock.

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,
                                                      -----------------    DECEMBER 31,
                                                       1998      1999          1999
                                                      ------    -------    ------------
<S>                                                   <C>       <C>        <C>
Series B redeemable convertible preferred stock
  (Series B) -- $21.03 redemption value plus accrued
  dividends; authorized -- 700 shares, issued and
  outstanding -- none and 601 and no shares at
  September 30, 1998 and 1999 and December 31, 1999,
  respectively (at redemption value)................  $   --    $12,628      $ 12,669
Accrued dividends on Series B (see Dividends).......      --         41           185
                                                      ------    -------      --------
Subtotal............................................  $   --    $12,669      $ 12,854
                                                      ======    =======      ========
Conversion of Series B redeemable preferred stock
  and accrued dividends to common stock.............                          (12,854)
                                                                             --------
                                                                             $     --
                                                                             ========
</TABLE>

  (a) Recapitalization

     In September 1999, Andover Advanced Technologies, Inc. was merged into its
wholly owned subsidiary, Andover.Net. There are 2,000,000 shares of Preferred
Stock authorized, of which 900,000 shares were designated as Series A redeemable
preferred stock, 700,000 shares were designated as Series B redeemable
convertible preferred stock and 400,000 shares remained undesignated.

                                      F-35
<PAGE>   191
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (b) Series A Redeemable Preferred Stock

     In connection with the recapitalization of Andover.Net in September 1999,
all the Series C redeemable preferred stock of AAT was converted to Series A
redeemable preferred stock of Andover.Net. This new Series A redeemable
preferred stock has all of the same rights, privileges and preferences of the
AAT Series C redeemable preferred stock. The following reflects that conversion
on a retroactive basis.

     During fiscal 1997, Andover.Net amended its bylaws to change its capital
structure and to authorize Series A redeemable preferred stock. Each stockholder
of AAT Series A convertible preferred stock and AAT Series B convertible
preferred stock received one share of Series A redeemable preferred stock and
one share of common stock in a recapitalization. The Series A redeemable
preferred stock has been stated at the redemption value of $13.50 plus accrued
dividends. An adjustment to accumulated deficit of approximately $122,000 is
reflected in the accompanying consolidated statements of stockholders' equity
(deficit) to account for the issuance of the Series A redeemable preferred stock
at redemption value.

     In fiscal 1997, Andover.Net sold an additional 80,001 shares of Series A
redeemable preferred stock at a price of $13.50 per share, less stock issuance
costs of approximately $41,000, for aggregate net proceeds of approximately
$1,039,000. During fiscal 1999, Andover.Net sold 157,438 shares of Series A
redeemable preferred stock, and 2,634,436 shares of common stock at a price of
$0.26 per share, less stock issuance costs of approximately $33,000, for
aggregate net proceeds of approximately $2,770,000.

     The Series A redeemable preferred stock (Series A Preferred Stock) holders
had the following rights, preferences and privileges:

     Voting Rights

     The Series A Preferred Stock does not entitle the holder to any voting
rights on any action taken by the stockholders of Andover.Net.

     Dividends

     Beginning January 1, 1998, the holders of Series A Preferred Stock are
entitled to receive cumulative dividends, which will accrue and will be due and
payable at an annual rate, or portion thereof for partial periods, in an amount
equal to the greater of (i) the applicable percentage, as defined, of
Andover.Net's pre-tax earnings or (ii) 8.0% of the original purchase price paid
for the number of shares of Series A Preferred Stock outstanding on the last day
of the applicable year. Dividends are not payable until approved by the Board of
Directors and do not accrue interest. As of December 8, 1999, the date of
redemption, approximately $655,000 of dividends had been accrued.

     Liquidation Preference

     In certain events, including liquidation, dissolution or winding up of
Andover.Net, the holders of Series A Preferred Stock are entitled to $13.50 per
share plus all accumulated and unpaid dividends due before any distribution may
be made to common stockholders. If the assets of Andover.Net shall be
insufficient to permit payment in full to the holders of preferred stock, then
the entire assets of Andover.Net that are available for distribution shall be
distributed ratably.

     Redemption

     At any time on or after June 2003, at the election of the holders of 70% of
the shares of Series A Preferred Stock, Andover.Net may be required to redeem
the Series A Preferred Stock at a redemption price in an amount equal to the
liquidation payment for the Series A Preferred Stock, which shall be paid in
cash.

                                      F-36
<PAGE>   192
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Andover.Net was required to redeem all shares of the Series A Preferred
Stock outstanding upon the closing of the Offering (see Note 3).

  (c) Series B Redeemable Convertible Preferred Stock

     On September 15, 1999, Andover.Net issued 600,568 shares of Series B
redeemable convertible preferred stock at $21.03 per share to private investors,
for total consideration of $12,224,000. This includes $10,100,000 of originally
issued shares and the conversion of $2,124,000 of principal and accrued interest
from the June 1999 convertible notes into 120,214 shares of Series B redeemable
convertible preferred stock, of which 19,195 shares were issued pursuant to a
beneficial conversion feature (see Note 7).

     The Series B redeemable convertible preferred stock (Series B Preferred
Stock) holders had the following rights, preferences and privileges:

     Voting Rights

     The Series B Preferred Stock entitles the holder to voting rights on all
actions taken by the stockholders of Andover.Net.

     Dividends

     Dividends accrue annually and are cumulative at a rate of 8% of the
original purchase price of $21.03 per share, on a per share basis. Dividends
must be paid before any other dividends can be declared or paid on any common
stock or Series A Redeemable Preferred Stock. As of December 8, 1999, the date
of the conversion, approximately $226,000 of dividends had been accrued.

     Liquidation Preference

     In certain events, including liquidation, dissolution or winding up of
Andover.Net, the holders of Series B Preferred Stock are entitled to $21.03 per
share plus all accumulated and unpaid dividends due before any distribution may
be made to common stockholders or Series A Redeemable Preferred Stockholders. If
the assets of Andover.Net shall be insufficient to permit payment in full to the
holders of preferred stock, then the entire assets of Andover.Net that are
available for distribution shall be distributed ratably.

     Conversion

     The Series B Preferred Stock was convertible at any time by the holders, at
the then applicable conversion rate, as adjusted from time to time. On December
8, 1999, all outstanding shares of Series B Preferred Stock were automatically
converted into 3,017,134 shares of common stock, resulting in an effective
purchase price of $4.05 per common share. The difference between the fair value
of Andover.Net's common stock on the date of issuance and the deemed effective
purchase price resulted in a beneficial conversion feature of $12,200,000, which
is presented as interest expense in the consolidated statement of operations for
the three months ended December 31, 1999. Of the $12,200,000 interest expense
charge, $10.1 million relates to the originally issued shares of Series B
Preferred Stock and $2.1 million relates to the converted notes payable (see
Note 7).

     Redemption

     At any time on or after September 2003, had Andover.Net not made its
qualified public offering of its common stock of at least $20,000,000, at the
election of the holders of the shares of Series B Preferred Stock, Andover.Net
could have been required to redeem the Series B Preferred Stock at a redemption
                                      F-37
<PAGE>   193
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

price in an amount equal to the liquidation payment for the Series A Preferred
Stock and would have been paid in cash.

     The following table summarizes the activity for the AAT Series A, AAT
Series B and Andover.Net Series A and Series B Preferred Stock (in thousands,
except for share data):
<TABLE>
<CAPTION>

                                              AAT                      AAT                  ANDOVER.NET
                                      SERIES A CONVERTIBLE     SERIES B CONVERTIBLE     SERIES A REDEEMABLE
                                        PREFERRED STOCK          PREFERRED STOCK          PREFERRED STOCK
                                     ----------------------   ----------------------   ----------------------
                                      NUMBER     REDEMPTION    NUMBER     REDEMPTION    NUMBER     REDEMPTION
                                     OF SHARES     VALUE      OF SHARES     VALUE      OF SHARES     VALUE
                                     ---------   ----------   ---------   ----------   ---------   ----------
<S>                                  <C>         <C>          <C>         <C>          <C>         <C>
Balance, September 30, 1996........    50,000      $ 500        27,500      $ 413            --     $    --
 Exercise of AAT Series B
   warrants........................        --         --         6,875        103            --          --
 Issuance AAT Series B convertible
   preferred stock.................        --         --           666         10            --          --
 Recapitalization of preferred
   stock...........................   (50,000)      (500)      (35,041)      (526)       85,041       1,148
 Issuance of Series A redeemable
   preferred stock.................        --         --            --         --        60,001         810
 Conversion of convertible
   promissory notes and issuance of
   Series A redeemable preferred
   stock and common stock..........        --         --            --         --        20,000         270
                                      -------      -----       -------      -----      --------     -------
Balance, September 30, 1997........        --         --            --         --       165,042       2,228
 Accrued dividends on Series A
   redeemable preferred Stock......        --         --            --         --            --         134
                                      -------      -----       -------      -----      --------     -------
Balance, September 30, 1998........        --         --            --         --       165,042       2,362
 Accrued dividends on Series A
   Redeemable preferred Stock......        --         --            --         --            --         313
 Issuance of Series A Redeemable
   preferred Stock.................        --         --            --         --       157,438       2,125
 Issuance of Series B Redeemable
   preferred Stock.................        --         --            --         --            --          --
 Accrued dividends on Series B
   Redeemable preferred stock......        --         --            --         --            --          --
                                      -------      -----       -------      -----      --------     -------
Balance, September 30, 1999........        --         --            --         --       322,480       4,800
 Accrued dividends on Series A
   Redeemable preferred stock......        --         --            --         --            --          74
 Accrued dividends on Series B
   Redeemable preferred stock......        --         --            --         --            --          --
 Redemption of Series A Redeemable
   preferred stock and dividends...        --         --            --         --      (322,480)     (4,874)
 Conversion of Series B Redeemable
   preferred stock and dividends...        --         --            --         --            --          --
                                      -------      -----       -------      -----      --------     -------
Balance, December 31, 1999.........        --      $  --            --      $  --            --     $    --
                                      =======      =====       =======      =====      ========     =======

<CAPTION>
                                          ANDOVER.NET
                                      SERIES B REDEEMABLE
                                          CONVERTIBLE
                                        PREFERRED STOCK
                                     ----------------------     TOTAL
                                      NUMBER     REDEMPTION   REDEMPTION
                                     OF SHARES     VALUE        VALUE
                                     ---------   ----------   ----------
<S>                                  <C>         <C>          <C>
Balance, September 30, 1996........      --       $     --     $    913
 Exercise of AAT Series B
   warrants........................      --             --          103
 Issuance AAT Series B convertible
   preferred stock.................      --             --           10
 Recapitalization of preferred
   stock...........................      --             --          122
 Issuance of Series A redeemable
   preferred stock.................      --             --          810
 Conversion of convertible
   promissory notes and issuance of
   Series A redeemable preferred
   stock and common stock..........      --             --          270
                                       ----       --------     --------
Balance, September 30, 1997........      --             --        2,228
 Accrued dividends on Series A
   redeemable preferred Stock......      --             --          134
                                       ----       --------     --------
Balance, September 30, 1998........      --             --        2,362
 Accrued dividends on Series A
   Redeemable preferred Stock......      --             --          313
 Issuance of Series A Redeemable
   preferred Stock.................      --             --        2,125
 Issuance of Series B Redeemable
   preferred Stock.................     601         12,628       12,628
 Accrued dividends on Series B
   Redeemable preferred stock......      --             41           41
                                       ----       --------     --------
Balance, September 30, 1999........     601         12,669       17,469
 Accrued dividends on Series A
   Redeemable preferred stock......      --             --           74
 Accrued dividends on Series B
   Redeemable preferred stock......      --            185          185
 Redemption of Series A Redeemable
   preferred stock and dividends...      --             --       (4,874)
 Conversion of Series B Redeemable
   preferred stock and dividends...    (601)       (12,854)     (12,854)
                                       ----       --------     --------
Balance, December 31, 1999.........      --       $     --     $     --
                                       ====       ========     ========
</TABLE>

(11) STOCKHOLDERS' EQUITY

  (a) Common Stock

     In November 1998, the board of directors authorized an additional 3,697,523
shares of Andover.Net's no par value common stock for an aggregate authorization
of 10,987,069 shares. The board of directors also authorized an additional
184,000 shares of preferred stock for an aggregate authorization of 409,000
shares.

     Also in November 1998, the board of directors approved an increase in the
number of authorized options under the Andover.Net 1995 Stock Option Plan to
1,507,142 options.

     In September 1999, the board of directors approved a 4-for-1 stock split of
Andover.Net's $0.01 par value common stock. In December 1999, the board of
directors approved a 5.0238 for 1 stock split of Andover.Net's $0.01 par value
common stock. All references to the number of shares in the accompanying
consolidated financial statements have been adjusted to reflect both stock
splits on a retroactive basis.

                                      F-38
<PAGE>   194
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  (b) Stock Warrants

     During the fiscal year 1996, Andover.Net issued warrants to the
stockholders of the previously issued Series B Redeemable Convertible preferred
stock. A total of 6,875 warrants were issued to purchase Series B Redeemable
Convertible preferred stock at an exercise price of $15.00 share. The value of
the warrants when issued was determined to be immaterial. The warrants were
exercised during fiscal 1997 for total proceeds of approximately $103,000.

  (c) Convertible Notes Payable to Stockholders

     In May 1997, Andover.Net issued convertible promissory notes (the Notes) to
certain stockholders in the sum of $100,000. The Notes were mandatorily
convertible upon the additional financing of $200,000 (the conversion
financing), which was completed during fiscal 1997. The Notes were converted
into shares identical to the shares sold in the conversion financing. The
investors received a total of 401,905 common shares and 20,000 Series C
Preferred shares in exchange for the notes and an additional $200,000 in cash.

(12) STOCK OPTION PLAN

  (a) 1995 Stock Option Plan

     On October 12, 1995, Andover.Net's board of directors (the Board) approved
the adoption of the 1995 Stock Option Plan (the 1995 Plan), as amended, which
provides for a maximum of 1,507,140 shares of common stock to be issued as
incentive stock option (ISOs) and nonqualified options. The options under the
1995 Plan may be granted to directors, officers, employees, consultants and
related corporations. ISOs may be granted at no less then fair market value
(FMV) on the date of grant, as determined by the Board (no less than 110% of FMV
on the date of grant for 10% or greater stockholders). Options under the 1995
Plan expire between five to 10 years from the date of grant. Vesting is
determined by the Board and can be fully exercisable on the date of grant or in
installments, as approved.

  (b) 1999 Stock Option Plan

     In August 1999, Andover.Net approved the adoption of the 1999 Stock Option
Plan (the 1999 Plan), which provides for a maximum of 1,736,225 shares of common
stock to be issued as ISOs and nonqualified options. The options under the 1999
Plan may be granted to directors, officers, employees, consultants and related
corporations. ISOs may be granted at no less than fair market value (FMV) on the
date of grant, as determined by the Board (no less than 110% of FMV on the date
of grant for 10% or greater stockholders). Options under the 1999 Plan expire no
more than 10 years from the date of grant. Vesting is determined by the Board
and can be fully exercisable on the date of grant or in installments, as
approved.

     Stock option activity for the years ended September 30, 1997, 1998 and 1999
and for the three months ended December 31, is as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
                                                                           WEIGHTED AVERAGE
                                            NUMBER      EXERCISE PRICE      EXERCISE PRICE
                                           OF SHARES       PER SHARE          PER SHARE
                                           ---------    ---------------    ----------------
<S>                                        <C>          <C>                <C>
Outstanding, September 30, 1996..........      196      $         0.025         $0.025
  Granted................................      482                0.025          0.025
  Exercised..............................      (15)               0.025          0.025
  Canceled...............................      (25)               0.025          0.025
                                             -----      ---------------
Outstanding, September 30, 1997..........      638                0.025          0.025
  Granted................................      165                0.025          0.025
  Exercised..............................      (24)               0.025          0.025
  Canceled...............................      (56)               0.025          0.025
                                             -----      ---------------
</TABLE>

                                      F-39
<PAGE>   195
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                           WEIGHTED AVERAGE
                                            NUMBER      EXERCISE PRICE      EXERCISE PRICE
                                           OF SHARES       PER SHARE          PER SHARE
                                           ---------    ---------------    ----------------
<S>                                        <C>          <C>                <C>
Outstanding, September 30, 1998..........      723                0.025          0.025
  Granted................................      873       0.025 -  1.066          0.201
  Exercised..............................     (227)               0.025          0.025
  Canceled...............................      (41)               1.066          1.066
                                             -----      ---------------
Outstanding, September 30, 1999..........    1,328       0.025 -  1.066          0.139
  Granted................................      375       7.080 - 18.000          13.18
  Exercised..............................       (6)      0.025 -  1.066          1.022
  Canceled...............................       (3)               0.025          0.025
                                             -----      ---------------
Outstanding, December 31, 1999...........    1,694      $0.025 - 18.000         $2.878
                                             =====      ===============
</TABLE>

     The following table summarizes information regarding Andover.Net's stock
options outstanding and exercisable to December 31, 1999:

<TABLE>
<CAPTION>
                                OPTIONS OUTSTANDING                     OPTIONS EXERCISABLE
                  -----------------------------------------------   ----------------------------
                              WEIGHTED AVERAGE
   RANGE OF        NUMBER        REMAINING       WEIGHTED AVERAGE    NUMBER     WEIGHTED AVERAGE
EXERCISE PRICES   OF SHARES   CONTRACTUAL LIFE    EXERCISE PRICE    OF SHARES    EXERCISE PRICE
- ---------------   ---------   ----------------   ----------------   ---------   ----------------
<S>               <C>         <C>                <C>                <C>         <C>
0.$025........        759           7.98             $ 0.025           742           $0.025
0.94-0.218...         259           9.67               0.139           187            0.122
0.261........         221           9.67               0.261            21            0.261
1.066........          80           9.67               1.066            17            1.066
7.080........          75           9.79               7.080            --               --
13.500.......         220           9.83              13.500            --               --
18.000.......          80           9.93              18.000            --               --
                    -----                                              ---
                    1,694                                              967
                    =====                                              ===
</TABLE>

     At December 31, 1999, approximately 1,193,000 options to purchase shares of
common stock were available for future grants under both plans.

     SFAS No. 123, Accounting for Stock-Based Compensation, requires the
measurement of the fair value of stock options to be included in the statements
of operations or disclosed in the notes to the financial statements. Andover.Net
has determined that it will continue to account for stock-based compensation for
employees under the Accounting Principles Board Opinion No. 25 and elect the
disclosure-only alternative under SFAS No. 123. Fair value of each option grant
is estimated on the date of grant using the Black-Scholes option pricing model
with the following assumptions:

<TABLE>
<CAPTION>
                                                                           THREE MONTHS ENDED
                                     YEARS ENDED SEPTEMBER 30,                DECEMBER 31,
                               -------------------------------------    ------------------------
                                  1997          1998         1999          1998          1999
                               -----------   ----------   ----------    -----------   ----------
                                                                        (UNAUDITED)
<S>                            <C>           <C>          <C>           <C>           <C>
Risk free interest rate......   6.18%-6.53%  5.62%-6.11%  4.45%-6.14%       4.45%     5.97%-6.19%
Expected dividend yield......           --           --           --          --              --
Expected lives (in years)....         5.00         5.00         5.00        5.00            5.00
Expected volatility..........           70%          70%          70%         70%            100%
Weighted average fair value
  per share of options
  granted....................        $1.48        $2.91        $6.95       $3.26           $9.11
Weighted average remaining
  contractual life of options
  outstanding (in years).....         6.12         8.25         8.96        9.92            9.89
</TABLE>

                                      F-40
<PAGE>   196
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     Had compensation expense for the options been determined consistent with
SFAS No. 123, Andover.Net's net loss and net loss per share would have been
affected as follows (in thousands):

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                              YEARS ENDED SEPTEMBER 30,        DECEMBER 31,
                                              -------------------------   ----------------------
                                               1997     1998     1999        1998         1999
                                              ------   ------   -------   -----------   --------
                                                                          (UNAUDITED)
<S>                                           <C>      <C>      <C>       <C>           <C>
Net loss applicable to common
  shareholders --
  As reported...............................  $ (705)  $ (608)  $(5,787)    $  (829)    $(15,980)
  Pro forma.................................  $ (884)  $ (902)  $(7,068)    $(1,410)    $(16,493)
Basic and diluted net loss per share
  applicable to common shareholders --
  As reported...............................  $(0.29)  $(0.12)  $ (0.78)    $ (0.14)    $  (1.61)
  Pro forma.................................  $(0.36)  $(0.18)  $ (0.95)    $ (0.24)    $  (1.66)
</TABLE>

     In connection with certain stock option grants during the year ended
September 30, 1999 and the three months ended December 31, 1999, Andover.Net
recorded deferred stock-based compensation of approximately $6,200,000 and
$279,000, respectively, in connection with stock option grants of approximately
914,000 and 75,000, which represents the aggregate difference between the
exercise price and the fair market value of the common stock, as determined for
accounting purposes. The deferred stock-based compensation will be recognized as
an expense over the vesting period of the underlying stock options. These
vesting periods range up to four years. Certain options contained provisions
that accelerated the vesting to 100% upon the initial public offering.
Additional compensation expense of approximately $800,000 relating to 260,459
options was recorded as compensation expense. The remaining deferred stock-
based compensation will be amortized over the remaining vesting period.
Andover.Net recorded compensation expense in total of approximately $1,000,000
and $1,200,000 for the year ended September 30, 1999 and the three months ended
December 31, 1999, respectively, related to deferred stock-based compensation.

(13) SEGMENT AND GEOGRAPHIC INFORMATION

     SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for reporting information regarding operating
segments in annual financial statements and requires selected information for
those segments to be presented in interim financial reports issued to
stockholders. SFAS No. 131 also establishes standards for related disclosures
about products and services and geographic areas. Operating segments are
identified as components of an enterprise about which separate discrete
financial information is available for evaluation by the chief operating
decision-maker, or decision-making group, in making decisions how to allocate
resources and assess performance. Andover.Net's chief decision-maker, as defined
under SFAS No. 131, is the Chief Executive Officer. At December 31, 1999,
Andover.Net views its operations and its business as principally two segments,
Internet publishing and product sales.

     Andover.Net's reportable segments are strategic business units that offer
different products and services. They are managed separately, based on the
fundamental differences in their operations. The Internet publishing segment
provides content for Andover/Net's network of Web sites. The Product segment
sells merchandise related to Linux and other computing themes. The accounting
policies of the segments are the same as those described in the summary of
significant accounting policies. Expenses are allocated to the reportable
segments. The Company has no intersegment sales and transfers, and does not
allocate assets to the operating segments.

                                      F-41
<PAGE>   197
                        ANDOVER.NET, INC. AND SUBSIDIARY

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The operating segments reported below are the segments for which separate
financial information is available and for which operating loss amounts are
evaluated regularly by senior management in deciding how to allocate resources
and in assessing performance.

<TABLE>
<CAPTION>
                                                               INTERNET
                                                              PUBLISHING    PRODUCT    CONSOLIDATED
                                                              ----------    -------    ------------
                                                                         (IN THOUSANDS)
<S>                                                           <C>           <C>        <C>
FOR THE THREE MONTHS ENDED DECEMBER 31, 1999
Net Revenues................................................   $  1,772      $ 285       $  2,057
Cost of revenues............................................        355        126            481
Research and development....................................        323         --            323
Depreciation and amortization...............................        259        179            438
Segment loss................................................    (15,741)      (239)       (15,980)
Total assets................................................     84,172        245         84,417
FOR THE YEAR ENDED SEPTEMBER 30, 1999
Net Revenues................................................   $  2,021      $ 100       $  2,121
Cost of revenues............................................        731          2            733
Research and development....................................        770         --            770
Depreciation and amortization...............................        265        167            432
Segment loss................................................     (5,631)      (156)        (5,787)
Total assets................................................     14,389         51         14,440
</TABLE>

(14) SUBSEQUENT EVENTS

  (a) Acquisition by VA Linux Systems

     On February 2, 2000, Andover.Net entered into a merger agreement (the
Transaction) with VA Linux Systems, Inc. (VA Linux), whereby VA Linux will
effectively acquire all common shares of Andover.Net. In connection with the
Transaction, each share of Andover.Net common stock will be exchanged for 0.425
of a share of VA Linux common stock, reduced by an aggregate of $60,000,000 in
cash payments to common stockholders of Andover.Net as provided for in the
transaction. The transaction is subject to approval by the stockholders of
Andover.Net and customary closing conditions.

  (b) Acquisition -- QuestionExchange.com

     On February 7, 2000, Andover.Net entered into a stock purchase agreement to
acquire all outstanding shares of QuestionExchange, Inc. for $12,500,000 in
Andover.Net common stock and cash. QuestionExchange provides a forum for
individuals who have questions regarding information technology to be connected
with individuals who can answer those questions.

     The purchase price consists of $8,170,000 to be paid in common stock and
cash upon the closing of the agreement. Additional cash payments of
approximately $1,750,000 will be paid over the next three years. Additionally,
there are contingent stock payments totaling $2,500,000 based on meeting certain
financial targets. Additional contingent payments of $80,000 will be payable
over two years contingent on the continued employment of certain sellers.

                                      F-42
<PAGE>   198

                        ANDOVER.NET, INC. AND SUBSIDIARY

                INTRODUCTION TO PRO FORMA FINANCIAL INFORMATION

     The following unaudited pro forma combined statements of operations for the
year ended September 30, 1999 give effect to the acquisitions by Andover.Net,
Inc. of Slashdot.org and Animation Factory as if each had occurred at the
beginning of the period presented. The unaudited pro forma combined statement of
operations does not include the effects of the Andover.Net, Inc. acquisition of
the assets related to Freshmeat as of August 6, 1999 or ThinkGeek.com as of
October 25, 1999, as Andover.Net, Inc. has determined that its effects are
immaterial. The unaudited pro forma combined statement of operations gives
effect to the issuance of the convertible notes payable and their subsequent
conversion into Series B Redeemable Convertible Preferred Stock, as these notes
were used to finance the acquisitions. These statements do not take into effect
the issuance of the Series B Redeemable Convertible Preferred Stock in September
1999.

     The unaudited pro forma combined statements of operations have been
prepared using the purchase method of accounting for the Acquisitions whereby
the total cost of each acquisition is allocated to the tangible and intangible
assets acquired and liabilities assumed based upon their respective fair values
at the effective dates of such acquisitions. Such allocations have been made
based upon currently available information and management's estimates. Final
allocations will be determined upon completion of the analysis of the assets
acquired and liabilities assumed.

     The unaudited pro forma combined statement of operations for the year ended
September 30, 1999 is based on the audited financial statements for the year
ended September 30, 1999 of Andover.Net, Inc. and the unaudited operating
results for the nine months ended June 30, 1999 of Slashdot.org and Animation
Factory. The unaudited financial statements reflect all adjustments, consisting
of normal recurring adjustments, which in the opinion of management are
necessary for a presentation of results for the respective periods in accordance
with the basis of presentation described in Note 2 of the notes to Andover.Net,
Inc.'s consolidated financial statements and similar statements found in the
other entities' financial statements.

     The unaudited pro forma combined statement of operations do not purport to
represent what the results of operations or financial position of Andover.Net,
Inc. would actually have been if any of the transactions had occurred on such
dates or to project the results of operations or financial positions of
Andover.Net, Inc. for any future date or period. The unaudited pro forma
combined statements of operations set forth below should be read in conjunction
with the respective consolidated financial statements and notes thereto of the
Andover.Net, Inc. included elsewhere in this prospectus, and management's
discussion and analysis of financial condition and results of operations.

                                      F-43
<PAGE>   199

                        ANDOVER.NET, INC. AND SUBSIDIARY

                   PRO FORMA COMBINED STATEMENT OF OPERATIONS
                     FOR THE YEAR ENDED SEPTEMBER 30, 1999

<TABLE>
<CAPTION>
                                                              HISTORICAL                            PRO FORMA
                                      ----------------------------------------------------------     COMBINED
                                                                      ANIMATION                      FOR THE
                                      ANDOVER.NET   SLASHDOT.ORG(A)    FACTORY    ADJUSTMENTS(E)   ACQUISITIONS
                                      -----------   ---------------   ---------   --------------   ------------
                                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                   <C>           <C>               <C>         <C>              <C>
Revenues:
  Advertising.......................    $ 2,021          $293           $ --         $    --         $  2,314
  Software product..................        100            --            215              --              315
                                        -------          ----           ----         -------         --------
          Total revenues............      2,121           293            215              --            2,629
Cost of Revenues:
  Editorial content and related.....        731           118             --              --              849
  Software product..................          2            --            155              --              157
                                        -------          ----           ----         -------         --------
          Total cost of revenues....        733           118            155              --            1,006
                                        -------          ----           ----         -------         --------
Gross profit........................      1,388           175             60              --            1,623
                                        -------          ----           ----         -------         --------
Operating expenses..................      6,443            55             68             994(b)
                                                                                       2,439(c)         9,999
                                        -------          ----           ----         -------         --------
Operating (loss) income.............     (5,055)          120             (8)         (3,433)          (8,376)
Interest (expense) income...........       (378)           --             --            (172)(e)
                                                                                      (2,124)(f)       (2,674)
Other (expense) income..............         --            --             23              --               23
                                        -------          ----           ----         -------         --------
(Loss) income before taxes..........     (5,433)          120             15          (5,729)         (11,027)
Income tax benefit..................         --            --             --              --               --
                                        -------          ----           ----         -------         --------
Net (loss) income...................    $(5,433)         $120           $ 15         $(5,729)        $(11,027)
                                        =======          ====           ====         =======         ========
Accretion on preferred stock........        354            --             --              --              354
Net (loss) income applicable to
  common shareholders...............    $(5,787)         $120           $ 15         $(5,729)        $(11,381)
                                        =======          ====           ====         =======         ========
Basic and diluted net loss per share
  applicable to common
  stockholders......................    $ (0.78)                                                     $  (1.51)
                                        =======                                                      ========
Basic and diluted weighted average
  shares outstanding................      7,419                                          145(d)         7,564
                                        =======                                      =======         ========
Other Operating Data:
  Depreciation and amortization.....    $   432          $ --           $ --         $    --         $    432
                                        =======          ====           ====         =======         ========
</TABLE>

- ------------------------------
(a) Includes the results of operations of the acquired businesses from the
    beginning of the period reporting through the respective dates of
    acquisition by Andover.Net (both entities on June 28, 1999).

                                      F-44
<PAGE>   200

(b) Reflects the amortization of goodwill and intangible assets associated with
    the acquisition of Slashdot.org and Animation Factory. The intangible assets
    and goodwill of Slashdot.org and Animation Factory are as follows:

<TABLE>
<CAPTION>
                                                          ANIMATION
ASSET                           LIFE      SLASHDOT.ORG     FACTORY      AMORTIZATION
- -----                          -------    ------------    ----------    ------------
<S>                            <C>        <C>             <C>           <C>
Covenant not to compete......  5 years     $  242,000     $  177,000      $ 63,000
Trademarks...................  2 years         23,000         15,000        14,000
Animation library............  2 years             --        213,000        80,000
Goodwill.....................  2 years      1,235,000      1,017,000       837,000
                                           ----------     ----------      --------
                                           $1,500,000     $1,422,000      $994,000
                                           ==========     ==========      ========
</TABLE>

(c) Reflects additional compensation payments required with the purchase
    agreements. These payments, which are solely contingent upon the continued
    employment of two key employees, are payable over two years and are
    comprised of $3,500,000 of cash and $3,000,000 in stock compensation.
    Andover.Net is recognizing this compensation expense ratably over the
    two-year period. The remaining contingent payments of $4,600,000 in stock
    compensation are not reflected, as they are contingent upon performance
    milestones. At this time, it is uncertain if or when these milestones will
    be met. Included in the pro forma adjustments is nine months of this
    compensation expense, as the Andover.Net results include three months of
    compensation charges. The nine-month compensation expense was computed by
    dividing the $3,500,000 cash contingent payments and the $3,000,000 stock
    contingent payments by the 24-month payment period and multiplying by nine
    months.

(d) Reflects weighted shares to be issued as compensation associated with the
    acquisitions of Slashdot.org and Animation Factory at an offering price of
    $18.00. These shares are to be issued within the first nine months after the
    offering.

(e) Reflects interest expense on debt used to finance the acquisitions
    calculated using an assumed interest rate of 8.35% per annum on the
    convertible notes payable.

(f) Reflects the additional charge recorded as interest expense for the
    beneficial conversion effect of the convertible notes payable. The charge
    was computed assuming the issuance of the convertible notes payable at the
    beginning of the period presented and the conversion at September 16, 1999,
    which is a period of 11.5 months. Therefore, the entire charge of $2,124,000
    is recognized.

                                      F-45
<PAGE>   201

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Stockholders of
TruSOLUTIONS, INC.:

     We have audited the accompanying balance sheets of TruSOLUTIONS, INC. (a
Delaware corporation) as of December 31, 1999 and March 31, 1999, and the
related statements of operations, stockholders' deficit and cash flows for the
nine-months ended December 31, 1999, and the year ended March 31, 1999. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of TruSOLUTIONS, INC. as of
December 31, 1999 and March 31, 1999, and the results of its operations and its
cash flows for the nine-months ended December 31, 1999, and the year ended March
31, 1999, in conformity with accounting principles generally accepted in the
United States.

                                          ARTHUR ANDERSEN LLP
San Diego, California
March 8, 2000

                                      F-46
<PAGE>   202

                               TRUSOLUTIONS, INC.

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              MARCH 31,     DECEMBER 31,
                                                                 1999           1999
                                                              ----------    ------------
<S>                                                           <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash......................................................  $   58,900     $  116,100
  Accounts receivable, net of allowance for doubtful
     accounts of approximately $31,000 and $20,000,
     respectively...........................................     334,100      1,930,800
  Inventory, net............................................     630,600      1,368,300
  Prepaids and other........................................       7,200         41,700
                                                              ----------     ----------
       Total current assets.................................   1,030,800      3,456,900
PROPERTY AND EQUIPMENT, NET.................................     138,300        378,600
OTHER ASSETS................................................       8,200          7,400
                                                              ----------     ----------
       Total assets.........................................  $1,177,300     $3,842,900
                                                              ==========     ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
  Accounts payable..........................................  $1,098,400     $1,483,000
  Accrued liabilities.......................................      94,360        394,160
  Customer deposits.........................................      93,900         29,700
  Notes payable to stockholder..............................     196,400        145,000
  Line of credit............................................          --      1,976,600
  Capital lease obligations, current portion................      26,000         19,200
                                                              ----------     ----------
       Total current liabilities............................   1,509,060      4,047,660
                                                              ----------     ----------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION...........      54,900        111,300
                                                              ----------     ----------
STOCKHOLDERS' DEFICIT:
  Common stock..............................................           1              1
  Additional paid-in capital................................       1,839          2,239
  Accumulated deficit.......................................    (388,500)      (318,300)
                                                              ----------     ----------
       Total stockholders' deficit..........................    (386,660)      (316,060)
                                                              ----------     ----------
       Total liabilities and stockholders' deficit..........  $1,177,300     $3,842,900
                                                              ==========     ==========
</TABLE>

  The accompanying notes to financial statements are an integral part of these
                                balance sheets.
                                      F-47
<PAGE>   203

                               TRUSOLUTIONS, INC.

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                              YEAR ENDED    NINE-MONTHS ENDED
                                                              MARCH 31,       DECEMBER 31,
                                                                 1999             1999
                                                              ----------    -----------------
<S>                                                           <C>           <C>
REVENUE.....................................................  $4,051,500       $11,484,500
COST OF REVENUE.............................................   3,652,500         9,270,300
                                                              ----------       -----------
     Gross profit...........................................     399,000         2,214,200
OPERATING EXPENSES:
  General and administrative................................     429,700         1,329,900
  Research and development..................................      87,000           283,300
  Sales and marketing.......................................      41,000           443,900
                                                              ----------       -----------
     Total operating expenses...............................     557,700         2,057,100
                                                              ----------       -----------
INCOME (LOSS) FROM OPERATIONS...............................    (158,700)          157,100
OTHER (INCOME) EXPENSE:
  Interest..................................................      48,100            78,900
  Other.....................................................      32,800             7,200
                                                              ----------       -----------
     Total other expense....................................      80,900            86,100
                                                              ----------       -----------
INCOME (LOSS) BEFORE INCOME TAXES...........................    (239,600)           71,000
                                                              ----------       -----------
INCOME TAX EXPENSE..........................................        (800)             (800)
     Net income (loss)......................................  $ (240,400)      $    70,200
                                                              ==========       ===========
Basic and diluted net income (loss) per share...............  $  (237.78)      $     65.79
Shares used in computing basic and diluted net income (loss)
  per
  share.....................................................       1,011             1,067
</TABLE>

  The accompanying notes to financial statements are an integral part of these
                                  statements.
                                      F-48
<PAGE>   204

                               TRUSOLUTIONS, INC.

                      STATEMENTS OF STOCKHOLDERS' DEFICIT
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

<TABLE>
<CAPTION>
                                                                        NON-VOTING
                                          VOTING COMMON STOCK          COMMON STOCK
                                               (NOTE 9)                  (NOTE 9)
                                        -----------------------   -----------------------   ADDITIONAL
                                          SHARES       $0.001       SHARES       $0.001      PAID-IN      RETAINED
                                        OUTSTANDING   PAR VALUE   OUTSTANDING   PAR VALUE    CAPITAL      EARNINGS       TOTAL
                                        -----------   ---------   -----------   ---------   ----------    ---------    ---------
<S>                                     <C>           <C>         <C>           <C>         <C>           <C>          <C>
BALANCES, for the year ended March 31,
  1998................................     1,000         $--          --           $--        $1,000      $(148,100)   $(147,100)
  ISSUANCE OF COMMON STOCK (Note
    10)...............................        --         --           42           --            840             --          840
  NET LOSS............................        --         --           --           --             --       (240,400)    (240,400)
                                           -----         --           --           --         ------      ---------    ---------
BALANCES, for the year ended March 31,
  1999................................     1,000         --           42           --          1,840       (388,500)    (386,660)
  ISSUANCE OF COMMON STOCK (Note
    10)...............................        --         --           45           --            900             --          900
  TERMINATION OF STOCK-OPTION
    AGREEMENT (Note 10)...............        --         --           --           --           (500)            --         (500)
  CHANGE IN PAR VALUE OF COMMON STOCK
    (Note 9)..........................        --          1           --           --             (1)            --           --
  NET INCOME..........................        --         --           --           --             --         70,200       70,200
                                           -----         --           --           --         ------      ---------    ---------
BALANCES, for the nine-months ended
  December 31, 1999...................     1,000         $1           87           $--        $2,239      $(318,300)   $(316,060)
                                           =====         ==           ==           ==         ======      =========    =========
</TABLE>

                                      F-49
<PAGE>   205

                               TRUSOLUTIONS, INC.

                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   YEAR            NINE-MONTHS
                                                                  ENDED               ENDED
                                                                MARCH 31,         DECEMBER 31,
                                                                   1999               1999
                                                              --------------    -----------------
<S>                                                           <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income (loss).........................................    $(240,400)         $    70,200
  Adjustments to reconcile net income (loss) to net cash
     (used for) provided by operating activities:
     Depreciation and amortization..........................       14,000               62,300
     Provision for bad debts................................       20,000               17,400
     Changes in assets and liabilities--
       Increase in accounts receivable......................     (207,400)          (1,614,100)
       Increase in inventory................................     (591,900)            (737,700)
       Increase in prepaids and other.......................       (6,800)             (34,500)
       Decrease (increase) in other assets..................       (8,200)                 800
       Increase in accounts payable.........................    1,001,000              384,600
       Increase in accrued liabilities......................       88,560              299,800
       (Decrease) increase in customer deposits.............       93,900              (64,200)
                                                                ---------          -----------
       Net cash provided by (used for) operating
          activities........................................      162,760           (1,615,400)
                                                                ---------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchase of property, plant and equipment.................      (22,300)            (213,400)
                                                                ---------          -----------
       Net cash used for investing activities...............      (22,300)            (213,400)
                                                                ---------          -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Payments on notes payable to stockholder..................      (92,000)             (51,400)
  Proceeds from line of credit..............................           --            2,458,300
  Payments on line of credit................................           --             (481,700)
  Payments on capital lease obligations.....................      (13,200)             (39,600)
  Proceeds from issuance of stock...........................          840                  900
  Payment on stock termination agreement....................           --                 (500)
                                                                ---------          -----------
       Net cash provided by (used for) financing
          activities........................................     (104,360)           1,886,000
                                                                ---------          -----------
NET INCREASE IN CASH........................................       36,100               57,200
CASH, BEGINNING OF PERIOD...................................       22,800               58,900
                                                                ---------          -----------
CASH, END OF PERIOD.........................................    $  58,900          $   116,100
                                                                =========          ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid for interest....................................    $  47,500          $    80,900
                                                                =========          ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
  Equipment and furniture and fixtures acquired through
     capital leases.........................................    $  94,100          $    89,200
                                                                =========          ===========
</TABLE>

  The accompanying notes to financial statements are an integral part of these
                                  statements.
                                      F-50
<PAGE>   206

                               TRUSOLUTIONS, INC.

                         NOTES TO FINANCIAL STATEMENTS
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

1. ORGANIZATION:

     TruSolutions, Inc. (the "Company") was incorporated in California on June
14, 1996. On December 21, 1999, TruSolutions, Inc., a California corporation,
was merged into TruSOLUTIONS, INC., a Delaware corporation. The Company operates
in one segment, designing and manufacturing high-performance rack-mounted
servers and computers for the internet/intranet, appliance, telecommunication
and military industries. The Company specializes in producing servers customized
to customer specifications using only standard components, such as Intel
motherboards. The Company focuses on four main customer types: OEM, appliances,
ISP/ASP Solutions and Data Centers. Most of the Company's current business is
focused on the OEM market, which is defined as a customer that is re-branding
the server. The Company's principal market is the United States.

     The Company is subject to the risks facing similar technology companies
including the ability to develop and bring to market products in time to meet
changing customer demands and competitive pressure, the ability to effectively
manage its inventory, dependence on a relatively small number of customers for a
significant amount of its revenues and competition for people/customers from
companies with greater resources.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

     The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Inventory

     Inventory is stated at the lower of cost or market, using the first-in
first-out (FIFO) method and is comprised of materials, direct labor and
applicable overhead. Provisions, when required, are made to reduce excess and
obsolete inventories to an estimated net realizable value. Due to competitive
pressures and technological innovation, it is possible that estimates of net
realizable value could change in the near term.

Property and Equipment

     Property and equipment are stated at cost, and equipment held under capital
leases is stated at the net present value of future minimum lease payments.
Depreciation and amortization are recorded using the straight-line method over
the estimated useful lives (three to seven years) of the assets. Leasehold
improvements are amortized over the shorter of the life of the lease or the
useful life of the related asset.

     The Company periodically evaluates the carrying value of its long-lived
assets and applies the provisions of Statement of Financial Accounting Standards
("SFAS") No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of. Under SFAS No. 121, long-lived assets and
certain identifiable assets to be held and used in operations are reviewed for
impairment whenever events or circumstances indicate that the carrying amount of
an asset may not be fully recoverable. An impairment loss is recognized if the
sum of the expected long-term, undiscounted cash flows is less than the carrying
amount of the long-lived assets being evaluated. Management believes the
carrying value of its long-lived assets does not exceed their estimated net
realizable value.

                                      F-51
<PAGE>   207
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

Revenue Recognition

     Product revenues from the sale of servers and other components generally
are recognized when the product is shipped and all risks of ownership have
passed to the customer. The Company provides an allowance for warranty costs.

Computation of Per Share Amounts

     Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with SFAS No. 128, "Earnings Per Share"
("SFAS No. 128") for all periods presented. Pursuant to Securities and Exchange
Commission Staff Accounting Bulletin No. 98, common stock and convertible
preferred stock issued or granted for nominal consideration prior to the
anticipated effective date of the initial public offering must be included in
the calculation of basic and diluted net income (loss) per common share as if
such stock had been outstanding for all periods presented. To date, the Company
has not had any issuances or grants for nominal consideration. In accordance
with SFAS No. 128, basic net income (loss) per common share has been calculated
using the weighted-average number of shares of common stock outstanding during
the period.

     The following table presents the calculation of basic and diluted net
income (loss) per share:

<TABLE>
<CAPTION>
                                                                           NINE-MONTHS
                                                              YEAR ENDED      ENDED
                                                              MARCH 31,    DECEMBER 31,
                                                                 1999          1999
                                                              ----------   ------------
<S>                                                           <C>          <C>
Net income (loss) attributable to common stockholders.......  $(240,400)     $70,200
                                                              ---------      -------
Basic and diluted:
  Weighted average shares of common stock outstanding.......      1,011        1,067
                                                              =========      =======
  Basic and diluted net income (loss) per share.............  $ (237.78)     $ 65.79
                                                              =========      =======
</TABLE>

Concentrations of Credit Risk and Significant Customers

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. In the
normal course of business, the Company provides credit to a number of companies
and performs ongoing credit evaluations of its customers. As of December 31,
1999, approximately 76 percent of gross accounts receivable was concentrated
with two customers. As of March 31, 1999, approximately 66 percent of gross
accounts receivable was concentrated with a single customer. Two customers
accounted for approximately 90 percent of net revenues in the nine-months ended
December 31, 1999. Two customers accounted for approximately 57 percent of the
Company's revenues for the year ended March 31, 1999.

Research and Development

     Research and development costs are expensed as incurred and consist
primarily of salaries, contract services and other direct expenses.

Income Taxes

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases.

                                      F-52
<PAGE>   208
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

     Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Valuation
allowances are established for net deferred tax assets when it is uncertain that
such tax assets will be realized.

New Accounting Pronouncements

     In April 1998, the Accounting Standards Executive Committee ("AcSEC")
issued Statement of Position ("SOP") No. 98-5, "Reporting on the Costs of
Start-Up Activities." This statement provides guidance on financial reporting of
start-up costs and organization costs and requires that such costs of start-up
activities be expensed as incurred. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998, with earlier application permitted. The
Company believes that the adoption of SOP 98-5 will have no significant impact
on the Company's financial statements, results of operations or related
disclosures thereto.

     SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses). This statement requires that an enterprise: (a)
classify items of other comprehensive income by their nature in a financial
statement; and (b) display the accumulated balance of other comprehensive income
separately from stockholders' (deficit)/equity in the equity section of a
statement of financial position. For the nine-months ended December 31, 1999 and
the year ended March 31, 1999, the Company did not have any elements of
comprehensive income, and therefore, there was no difference in the Company's
net income or loss and comprehensive income or loss.

     SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires reporting financial and descriptive information about its
reportable operating segments. SFAS No. 131 also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The adoption of SFAS No. 131 did not affect the results of the
Company's operations or financial position (see Note 1).

     In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This bulletin summarizes the SEC's view in applying generally
accepted accounting principles to revenue recognition in financial statements.
This bulletin is effective for calendar-year registrants for the quarter ending
June 30, 2000. Management has not yet determined the impact of SAB No. 101 on
the Company's operations.

                                      F-53
<PAGE>   209
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

3. INVENTORY

     Inventory includes the cost of raw materials, direct labor and
manufacturing overhead and consisted of the following at each period:

<TABLE>
<CAPTION>
                                                              MARCH 31,    DECEMBER 31,
                                                                1999           1999
                                                              ---------    ------------
<S>                                                           <C>          <C>
Raw materials...............................................  $381,500      $1,170,400
Work in process.............................................        --         182,400
Finished goods..............................................   279,100          80,500
                                                              --------      ----------
                                                               660,600       1,433,300
Less -- excess and obsolescence reserve.....................   (30,000)        (65,000)
                                                              --------      ----------
                                                              $630,600      $1,368,300
                                                              ========      ==========
</TABLE>

4. PROPERTY AND EQUIPMENT

     Property and equipment, including furniture and equipment held under
capital leases, consisted of the following at each period:

<TABLE>
<CAPTION>
                                                              MARCH 31,    DECEMBER 31,
                                                                1999           1999
                                                              ---------    ------------
<S>                                                           <C>          <C>
Leasehold improvements......................................  $ 13,300       $ 54,300
Computer equipment and software.............................    14,000        237,100
Machinery and equipment.....................................    59,100         71,100
Furniture and fixtures......................................    69,100         95,600
                                                              --------       --------
                                                               155,500        458,100
Less -- accumulated depreciation............................   (17,200)       (79,500)
                                                              --------       --------
Property and equipment, net.................................  $138,300       $378,600
                                                              ========       ========
</TABLE>

     The Company recognized approximately $62,300 and $14,000 in depreciation
and amortization expense for the nine-months ended December 31, 1999, and the
year ended March 31, 1999, respectively. The Company acquired equipment and
furniture and fixtures under capital leases in the amount of $94,100 and $89,200
for the nine-months ended December 31, 1999 and the year ended March 31, 1999,
respectively. Accumulated amortization on equipment and furniture and fixtures
under capital leases totaled $34,300 and $1,900 at December 31, 1999 and March
31, 1999, respectively.

5. LINE OF CREDIT

     On June 10, 1999, the Company entered into a $1.5 million revolving line of
credit agreement (the "Agreement") with IBM Global Finance ("IBM"). The
Agreement is collateralized by substantially all of the Company's assets,
specifically accounts receivable, inventory, equipment, fixtures, accounts,
contract rights, chattel paper, instruments, reserves, documents of title,
deposit accounts and general intangibles, including accessories/proceeds either
currently owned or acquired at a later date.

     Prior to December 31, 1999, the Company was negotiating an increase in its
available line of credit. On February 14, 2000, the Company obtained a waiver
for a temporary overline of $5.0 million. The Agreement also requires that the
Company maintain certain financial and non-financial covenants among other
terms. At December 31, 1999, the Company was not in compliance with certain
financial covenants under the Agreement. During December 1999 and February 2000,
IBM waived such violations and

                                      F-54
<PAGE>   210
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

modified such covenants. The next evaluation period is March 31, 2000. The
Company does not anticipate being in compliance with the modified covenants and
expects to obtain a waiver. In addition, terms of the Agreement provide that the
Company will notify IBM in writing prior to any change in its identity, name,
form of ownership or management. With the acquisition of the Company by VA Linux
(see Note 12), the Company is in the process of obtaining a consent from IBM
relating to the debt.

     The Company had $1,976,600 outstanding under the Agreement as of December
31, 1999, which was classified as current. Borrowings bear interest at 3 percent
above prime rate (8.25 percent at December 31, 1999). Principal and interest
payments are due monthly. Interest expense totaled approximately $51,800 at
December 31, 1999.

6. NOTES PAYABLE

     At inception of the Company, the Company entered into unsecured notes
payable agreements with its principal stockholders. As of December 31, 1999 and
March 31, 1999, the balance of this loan was $145,000 and $196,400,
respectively. Borrowings bear interest at 15 percent per annum, which is due and
payable monthly, and are renewable annually. Interest expense in the amount of
approximately $31,500 and $28,200 was paid to the Company's stockholders during
the nine-months ended December 31, 1999 and the year ended March 31, 1999,
respectively.

7. INCOME TAXES

     The Company accounts for income taxes pursuant to the provisions of SFAS
No. 109 whereby deferred tax assets and liabilities are determined based on the
differences in financial reporting and income tax bases of assets other than
non-deductible goodwill and liabilities, and the differences are measured using
the income tax rate in effect in the year of measurement.

     As of December 31, 1999, the Company had a net operating loss carryforward
("NOLC") for Federal and California state income tax purposes of approximately
$215,700 and $178,000, respectively. As of March 31, 1999, the Company's NOLC
for Federal and California state income tax purposes of approximately $263,600
and $244,300, respectively. The Internal Revenue Service Code contains
provisions which may limit the net operating losses and tax credit carryforward
to be used in any given year upon the occurrence of certain events, including a
significant change in ownership interest. The Federal and state NOLCs, which
expire beginning in 2013 and 2005, respectively, are available to offset future
taxable income subject to potential limitations. Such benefits will be used to
offset future tax expense as incurred.

     Reconciliation of the Federal statutory tax rate to the Company's effective
rate follows:

<TABLE>
<CAPTION>
                                                      YEAR ENDED        NINE MONTHS ENDED
                                                    MARCH 31, 1999      DECEMBER 31, 1999
                                                   -----------------    -----------------
<S>                                                <C>         <C>      <C>         <C>
Expected expense (benefit).......................  $(81,800)   (34.0)%  $ 23,900     34.0%
State expense (benefit), net.....................   (14,000)    (5.8)      4,100      5.8
Valuation allowance..............................   104,700     43.9     (19,200)   (27.3)
R&D credit, net..................................    (9,000)    (3.8)     (9,000)   (12.9)
CA MIC credit, net...............................      (400)    (0.2)       (400)    (0.6)
Other............................................     1,300      0.2       1,400      2.1
                                                   --------    -----    --------    -----
                                                   $    800      0.3%   $    800      1.1%
                                                   ========    =====    ========    =====
</TABLE>

                                      F-55
<PAGE>   211
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

     The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
                                                                              NINE-MONTHS
                                                                YEAR ENDED       ENDED
                                                                 MARCH 31,    DECEMBER 31,
                                                                   1999           1999
                                                                -----------   ------------
<S>                                                             <C>           <C>
Current:
  Federal...................................................       $ --           $ --
  State.....................................................        800            800
                                                                   ----           ----
                                                                    800            800
                                                                   ----           ----
Deferred:
  Federal...................................................         --             --
  State.....................................................         --             --
                                                                   ----           ----
                                                                     --             --
                                                                   ----           ----
     Total..................................................       $800           $800
                                                                   ====           ====
</TABLE>

     Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to significant portions of
deferred tax assets and liabilities at December 31, 1999, and March 31, 1999,
relate to the following:

<TABLE>
<CAPTION>
                                                                MARCH 31,   DECEMBER 31,
                                                                  1999          1999
                                                                ---------   ------------
<S>                                                             <C>         <C>
Allowance for doubtful accounts.............................    $  16,200    $  12,500
Section 263A adjustment.....................................        3,600        3,600
Accrued expenses............................................       35,300       40,600
Net operating loss carryforward.............................      103,900       83,700
Other.......................................................        9,700       19,200
                                                                ---------    ---------
Deferred tax assets.........................................      168,700      159,600
Valuation allowance.........................................     (160,700)    (141,500)
Depreciation................................................       (8,000)     (18,100)
                                                                ---------    ---------
Deferred tax assets.........................................    $      --    $      --
                                                                =========    =========
</TABLE>

 8. OPERATING AND CAPITAL LEASE COMMITMENTS

     The Company entered into a non-cancelable operating lease agreement,
effective March 1999, for its administration and operating facility with a lease
term of five years and no renewal options. This lease agreement expires February
4, 2004. This lease agreement provides for fixed rent increases of 3 percent per
year. Rent expense under this operating lease agreement was $69,300 and $7,800
as of the nine-months ended December 31, 1999, and the year ended March 31,
1999, respectively. Included in rent expense for the year ended March 31, 1999,
is an additional lease expense in the amount of $31,300 for its prior
administration and operating facility lease agreement.

                                      F-56
<PAGE>   212
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

     Future minimum lease payments under non-cancelable operating leases as of
December 31, 1999, are as follows:

<TABLE>
<S>                                                         <C>
NINE-MONTHS ENDED DECEMBER 31
  2000....................................................  $ 23,300
  2001....................................................    93,500
  2002....................................................    93,400
  2003....................................................    93,500
  2004....................................................    85,700
                                                            --------
                                                            $389,400
                                                            ========
</TABLE>

     Future minimum lease payments under non-cancelable capital leases as of
December 31, 1999, are as follows:

<TABLE>
<S>                                                         <C>
NINE-MONTHS ENDED DECEMBER 31
  2000....................................................  $ 18,000
  2001....................................................    72,000
  2002....................................................    58,600
  2003....................................................     5,600
                                                            --------
                                                             154,200
Amounts representing interest.............................   (23,700)
                                                            --------
Present value of net minimum payments.....................  $130,500
                                                            ========
</TABLE>

 9. COMMON STOCK

     On December 20, 1999, there was an amendment to the Company's Articles of
Incorporation in anticipation of the merger (Note 1), which specified total
authorized shares of 20,000 with 10,000 classified as voting (par value of
$.001) and 10,000 classified as non-voting (par value of $.001). As of December
31, 1999, the Company had 1,000 shares outstanding of voting common stock and 87
shares outstanding of non-voting common stock. As of March 31, 1999, the Company
had a total of 1,000,000 authorized shares of common stock, no par value, and
1,000 shares outstanding for voting common stock and 42 shares outstanding for
non-voting.

10. STOCK-BASED COMPENSATION

     On January 1, 1998, the Company granted a key employee the option to
purchase 250 non-voting shares at a purchase price of $20 per share, the
estimated fair value as determined by the Board of Directors. The 250 stock
options are exercisable in annual increments of between 42 and 60 shares per
year over a period of five years, beginning January 1, 1998, and ending December
31, 2002. Prior to December 31, 1998, the key employee purchased 42 shares,
which was the number of option shares available for purchase during the first
option period ended December 31, 1998. Prior to the end of the second option
period, the key employee purchased an additional 45 shares of stock. On December
13, 1999, this stock option agreement was terminated, and the key employee was
paid $500.

     SFAS No. 123, Accounting for Stock-Based Compensation, permits the use of
either a fair-value-based method or the method defined in Accounting Principles
Board ("APB") Opinion No. 25, Accounting for Stock Issued to Employees to
account for stock-based compensation arrangements. Companies that elect to
employ the valuation method provided in APB No. 25 are required to disclose the
pro forma net income (loss) that would have resulted from the use of the fair
value based method. The

                                      F-57
<PAGE>   213
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

Company has elected to continue to determine the value of stock-based
compensation arrangements under the provisions of APB No. 25, and accordingly,
it has included the pro forma disclosures required under SFAS No. 123 in the
financial statements.

     The option value is calculated using the Black-Scholes option-pricing
model. To calculate the expense or asset value, the Company uses either the fair
value of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable. The fair value of each option is
estimated on the date of grant using the minimum value method with the following
weighted-average assumptions: a risk-free interest rate of 6 percent and an
expected life of one year.

     A summary of non-qualified stock option activity is as follows:

<TABLE>
<CAPTION>
                                                                     OUTSTANDING OPTIONS
                                                                    ---------------------
                                                                                 WEIGHTED
                                                        SHARES                   AVERAGE
                                                       AVAILABLE    NUMBER OF    EXERCISE
                                                       FOR GRANT     SHARES       PRICE
                                                       ---------    ---------    --------
<S>                                                    <C>          <C>          <C>
Outstanding at March 31, 1998........................     208           42         $ --
  Granted............................................     (45)          45           --
  Exercised..........................................      --          (42)          20
  Cancelled..........................................      --           --           --
                                                         ----          ---
Outstanding at March 31, 1999........................     163           45           20
  Granted............................................      --           --           --
  Exercised..........................................      --          (45)         (20)
  Cancelled..........................................    (163)          --           --
                                                         ----          ---
Outstanding at December 31, 1999.....................      --           --           --
                                                         ====          ===
</TABLE>

<TABLE>
<CAPTION>
                OPTIONS OUTSTANDING
- ----------------------------------------------------      OPTIONS EXERCISABLE
                             WEIGHTED-                  ------------------------
               NUMBER         AVERAGE      WEIGHTED-      NUMBER       WEIGHTED-
RANGE OF    OUTSTANDING      REMAINING      AVERAGE     EXERCISABLE     AVERAGE
EXERCISE    AT MARCH 31,    CONTRACTUAL    EXERCISE      MARCH 31,     EXERCISE
 PRICE          1999           LIFE          PRICE         1999          PRICE
- --------    ------------    -----------    ---------    -----------    ---------
<S>         <C>             <C>            <C>          <C>            <C>
  $20            45          9 months         $20           45            $20
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                              YEAR ENDED
                                                              MARCH 31,
                                                                 1999
                                                              ----------
<S>                                                           <C>
Dividend yield..............................................      0.00
Expected life of options from vest date.....................    1 year
Expected stock volatility...................................      0.00
Risk-free interest rates....................................         6%
</TABLE>

     The weighted average fair value of options granted during fiscal 1999 was
$0.00.

     As of March 31, 1999, stock options for 45 shares of non-voting stock with
a weighted average price of $20.00 per share were exercisable for the option
period January 1 through December 31, 1999. As of December 31, 1999, no stock
options for non-voting stock were exercisable as the plan had been terminated.

                                      F-58
<PAGE>   214
                               TRUSOLUTIONS, INC.

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                 AS OF DECEMBER 31, 1999 AND MARCH 31, 1999 AND
 FOR THE NINE-MONTHS ENDED DECEMBER 31, 1999 AND THE YEAR ENDED MARCH 31, 1999

11. COMMITMENTS AND CONTINGENCIES

     The Company is subject to pending and threatened legal actions arising in
the ordinary course of business. Based upon consultation with legal counsel,
management does not believe that these matters will have a material effect on
the Company's financial position or results of operations.

12. SUBSEQUENT EVENT

     Subsequent to December 31, 1999, the Company entered into a Memorandum of
Understanding with VA Linux to be acquired. The terms of the agreement provide
for an asset purchase involving cash and stock.

                                      F-59
<PAGE>   215

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
NetAttach, Inc.:

     We have audited the accompanying balance sheet of NetAttach, Inc. (a
California corporation in the development stage) as of June 30, 1999, and the
related statements of operations, shareholders' deficit and cash flows for the
period from inception (July 6, 1998) to June 30, 1999. 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly,
in all material respects, the financial position of NetAttach, Inc. as of June
30, 1999, and the results of its operations and its cash flows for the period
from inception (July 6, 1998) to June 30, 1999, in conformity with accounting
principles generally accepted in the United States.

     The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the accompanying financial
statements, the Company is a development stage enterprise with no significant
operating results to date. These factors and those discussed in Note 1 to the
financial statements raise a substantial doubt about the ability of the Company
to continue as a going concern. Management's plans in regards to those matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

                                          ARTHUR ANDERSEN LLP

San Jose, California
February 24, 2000

                                      F-60
<PAGE>   216

                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                              JUNE 30, 1999    DECEMBER 31, 1999
                                                              -------------    -----------------
                                                                                  (UNAUDITED)
<S>                                                           <C>              <C>
ASSETS
Current Assets:
  Cash and cash equivalents.................................   $        80        $   295,703
  Accounts receivable, net of allowances of $ -0- and
     $1,784,
     respectively...........................................            --             47,216
  Inventories...............................................        81,221             25,977
  Other current assets......................................           391              5,161
                                                               -----------        -----------
       Total current assets.................................        81,692            374,057
Property And Equipment, net.................................        15,560             31,486
Other Assets................................................         2,500              2,500
                                                               -----------        -----------
       Total assets.........................................   $    99,752        $   408,043
                                                               ===========        ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Liabilities:
  Convertible notes.........................................   $   101,982        $        --
  Loan payable..............................................            --            250,000
  Accounts payable..........................................        17,760            216,345
  Accrued payroll...........................................       459,209            664,647
  Accrued liabilities.......................................        78,627            267,314
                                                               -----------        -----------
       Total liabilities....................................       657,578          1,398,306
                                                               -----------        -----------
Commitments And Contingencies (Note 6):
Shareholders' Deficit:
  Series A convertible preferred stock, $0.001 par value,
     aggregate liquidation preference of $557,757 and
     $950,000, respectively Authorized -- 2,000,000 shares
     Outstanding -- 557,757 and 950,000 shares,
     respectively...........................................           558                950
  Common stock, $0.001 par value Authorized -- 10,000,000
     shares Outstanding -- 2,040,415 and 2,043,852 shares,
     respectively...........................................         2,040              2,044
  Additional paid-in capital................................       570,925            992,172
  Deficit accumulated during the development stage..........    (1,131,349)        (1,985,429)
                                                               -----------        -----------
       Total shareholders' deficit..........................      (557,826)          (990,263)
                                                               -----------        -----------
       Total liabilities and shareholders' equity...........   $    99,752        $   408,043
                                                               ===========        ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      F-61
<PAGE>   217

                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                             PERIOD FROM                     PERIOD FROM
                                            PERIOD FROM       INCEPTION                       INCEPTION
                                             INCEPTION      (JULY 6, 1998)    SIX MONTHS    (JULY 6, 1998)
                                           (JULY 6, 1998)         TO            ENDED             TO
                                            TO JUNE 30,      DECEMBER 31,    DECEMBER 31,    DECEMBER 31,
                                                1999             1998            1999            1999
                                           --------------   --------------   ------------   --------------
                                                                             (UNAUDITED)     (UNAUDITED)
<S>                                        <C>              <C>              <C>            <C>
Revenues.................................   $    15,049       $  15,049       $ 290,626      $   305,675
Cost of Revenues.........................        30,379           7,443         306,180          336,559
                                            -----------       ---------       ---------      -----------
     Gross profit........................       (15,330)          7,606         (15,554)         (30,884)
Operating Expenses:
  Sales and marketing....................       202,043          49,880         211,082          413,125
  Research and development...............       379,490         168,577         252,771          632,261
  General and administrative.............       532,205         150,407         367,220          899,425
                                            -----------       ---------       ---------      -----------
     Total operating expenses............     1,113,738         368,864         831,073        1,944,811
                                            -----------       ---------       ---------      -----------
Loss from Operations.....................    (1,129,068)       (361,258)       (846,627)      (1,975,695)
Interest and Other Expense, Net..........        (2,281)         (2,894)         (7,453)          (9,734)
                                            -----------       ---------       ---------      -----------
Net Loss.................................   $(1,131,349)      $(364,152)      $(854,080)     $(1,985,429)
                                            ===========       =========       =========      ===========
Basic and diluted net loss per share.....   $     (1.35)      $   (0.64)      $   (0.72)
Shares used in computing basic and
  diluted net loss per share.............       836,980         565,712       1,186,185
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      F-62
<PAGE>   218

                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                      STATEMENTS OF SHAREHOLDERS' DEFICIT
       FOR THE PERIOD FROM INCEPTION (JULY 6, 1998) TO DECEMBER 31, 1999
<TABLE>
<CAPTION>
                                                  SERIES A CONVERTIBLE                                          DEFICIT
                                                    PREFERRED STOCK         COMMON STOCK      ADDITIONAL      ACCUMULATED
                                                  --------------------   ------------------    PAID-IN        DURING THE
                                TRANSACTION        SHARES      AMOUNT     SHARES     AMOUNT    CAPITAL     DEVELOPMENT STAGE
                            -------------------   ---------   --------   ---------   ------   ----------   -----------------
<S>                         <C>                   <C>         <C>        <C>         <C>      <C>          <C>
Balance at Inception
  (July 6, 1998)..........                              --      $ --            --   $  --     $     --       $        --
  Issuance of common stock
    to founders...........  8/21/98 -- 9/29/98          --        --     2,167,916   2,168       19,511                --
  Issuance of Series A
    convertible preferred
    stock for cash at $1
    per share, net of
    issuance costs of       9/30/98, 12/31/98,
    $4,920................   3/31/99 & 6/30/99     557,757       558            --      --      552,279                --
  Repurchase of common
    stock from founder at
    $0.01 per share.......        2/9/99                --        --      (130,626)   (131)      (1,175)               --
  Exercise of stock
    options for cash at
    $0.10 per share.......        5/7/99                --        --         3,125       3          310                --
  Net loss................                              --        --            --      --           --        (1,131,349)
                                                   -------      ----     ---------   ------    --------       -----------
Balance At June 30,
  1999....................                         557,757       558     2,040,415   2,040      570,925        (1,131,349)
  Issuance of Series A
    convertible preferred
    stock and common stock
    warrants for cash at
    $1 per share, net of
    issuance costs of $597
    (unaudited)...........       10/19/99          392,243       392            --      --      420,907                --
  Exercise of stock
    options for cash at
    $0.10 per share
    (unaudited)...........  12/15/99 & 12/29/99         --        --         3,437       4          340                --
  Net loss (unaudited)....                              --        --            --      --           --          (854,080)
                                                   -------      ----     ---------   ------    --------       -----------
Balance at December 31,
  1999 (unaudited)........                         950,000      $950     2,043,852   $2,044    $992,172       $(1,985,429)
                                                   =======      ====     =========   ======    ========       ===========

<CAPTION>

                                TOTAL
                            SHAREHOLDERS'
                               DEFICIT
                            -------------
<S>                         <C>
Balance at Inception
  (July 6, 1998)..........   $        --
  Issuance of common stock
    to founders...........        21,679
  Issuance of Series A
    convertible preferred
    stock for cash at $1
    per share, net of
    issuance costs of
    $4,920................       552,837
  Repurchase of common
    stock from founder at
    $0.01 per share.......        (1,306)
  Exercise of stock
    options for cash at
    $0.10 per share.......           313
  Net loss................    (1,131,349)
                             -----------
Balance At June 30,
  1999....................      (557,826)
  Issuance of Series A
    convertible preferred
    stock and common stock
    warrants for cash at
    $1 per share, net of
    issuance costs of $597
    (unaudited)...........       421,299
  Exercise of stock
    options for cash at
    $0.10 per share
    (unaudited)...........           344
  Net loss (unaudited)....      (854,080)
                             -----------
Balance at December 31,
  1999 (unaudited)........   $  (990,263)
                             ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      F-63
<PAGE>   219

                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                       PERIOD FROM         PERIOD FROM                             PERIOD FROM
                                                        INCEPTION           INCEPTION                               INCEPTION
                                                    (JULY 6, 1998) TO   (JULY 6, 1998) TO   SIX MONTHS ENDED    (JULY 6, 1998) TO
                                                      JUNE 30, 1999     DECEMBER 31, 1998   DECEMBER 31, 1999   DECEMBER 31, 1999
                                                    -----------------   -----------------   -----------------   -----------------
                                                                                                                   (UNAUDITED)
<S>                                                 <C>                 <C>                 <C>                 <C>
Cash Flows From Operating Activities:
  Net loss........................................     $(1,131,349)         $(364,152)          $(854,080)         $(1,985,429)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
    Depreciation and amortization.................           6,118              1,938               5,475               11,593
      Changes in assets and liabilities:
        Accounts receivable, net..................              --            (15,049)            (47,216)             (47,216)
        Inventories, net..........................         (81,221)           (71,042)             55,244              (25,977)
        Prepaid expenses and other assets.........          (2,891)            (3,483)             (4,770)              (7,661)
        Accounts payable..........................          17,760             58,125             198,585              216,345
        Accrued liabilities and other.............          78,627             67,765             188,687              267,314
        Accrued payroll...........................         459,209                 --             205,438              664,647
                                                       -----------          ---------           ---------          -----------
        Net cash used in operating activities.....        (653,747)          (325,898)           (252,637)            (906,384)
                                                       -----------          ---------           ---------          -----------
Cash Flows From Investing Activities:
  Purchase of property and equipment..............         (21,678)           (21,678)            (21,401)             (43,079)
                                                       -----------          ---------           ---------          -----------
        Net cash used in investing activities.....         (21,678)           (21,678)            (21,401)             (43,079)
                                                       -----------          ---------           ---------          -----------
Cash Flows From Financing Activities:
  Proceeds from convertible notes payable.........         602,980            461,120             225,000              827,980
  Proceeds from loan payable......................              --                 --             250,000              250,000
  Proceeds from issuance of convertible preferred
    stock, net....................................          51,839             49,000              94,317              146,156
  Proceeds from issuance of common stock..........          21,679             21,679                  --               21,679
  Repurchase of common stock......................          (1,306)                --                  --               (1,306)
  Proceeds from exercise of stock options.........             313                 --                 344                  657
                                                       -----------          ---------           ---------          -----------
        Net cash provided by financing
          activities..............................         675,505            531,799             569,661            1,245,166
                                                       -----------          ---------           ---------          -----------
Net Increase in Cash and Cash Equivalents.........              80            184,223             295,623              295,703
Cash and Cash Equivalents at Beginning of
  Period..........................................              --                 --                  80                   --
                                                       -----------          ---------           ---------          -----------
Cash and Cash Equivalents at End of Period........     $        80          $ 184,223           $ 295,703          $   295,703
                                                       ===========          =========           =========          ===========
Non-Cash Financing Activities:
  Conversion of convertible notes into Series A
    convertible preferred stock...................     $   500,998          $ 461,120           $ 326,982          $   827,980
                                                       ===========          =========           =========          ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                      F-64
<PAGE>   220

                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                         NOTES TO FINANCIAL STATEMENTS
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

1. ORGANIZATION:

     NetAttach, Inc. (the "Company") is a California company incorporated on
July 6, 1998 to provide a direct network attached storage ("NAS") solution to
the mainstream PC Server Market. NetAttach products are designed to meet the
increasing demand for high-speed, platform independent storage that can be
deployed easily across any enterprise, despite the use of multiple operating
systems.

     The Company's primary efforts through June 30, 1999 have consisted of
raising capital, funding the development of its product, establishing sales and
marketing channels and recruiting key personnel. The Company is in the
development stage and is subject to a number of risks associated with companies
at a similar stage of development including, but not limited to, competition
from larger, more established companies, dependence on new product
introductions, volatility of the industry, ability to obtain adequate funding to
support growth, dependence on key individuals and the ability to attract and
retain additional qualified personnel to manage the anticipated growth of the
Company.

     The Company is in the development stage, has not generated any significant
revenues to date and has no assurance of significant future revenues. The
Company has incurred a loss of approximately $1,131,000 for the period from
inception (July 6, 1998) to June 30, 1999 and has a loan payable that matures on
March 31, 2000. In October 1999, the Company completed the issuance of $392,243
of shares Series A convertible preferred stock by converting approximately
$329,000 of outstanding notes payable into equity and receipt of $63,243 in
cash. In order to achieve successful operations, the Company will require
additional capital to continue research and development, and sales and marketing
efforts. Management anticipates raising the additional capital necessary to fund
research and development and operations through the sale of additional equity
and debt financings, or through the sale of all or part of the Company. No
assurances can be given as to the timing or ultimate success of obtaining future
funding or locating a potential buyer. These factors raise substantial doubt
about the Company's ability to continue as a going concern. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.

2. SIGNIFICANT ACCOUNTING POLICIES:

Use of Estimates

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Unaudited Interim Financial Data

     The unaudited interim financial statements for the six months ended
December 31, 1998 and the period from inception (July 6, 1998) to December 31,
1999 have been prepared on the same basis as the audited financial statements
and, in the opinion of management, reflect all normal recurring adjustments
necessary to present fairly the financial information set forth therein, in
accordance with generally accepted accounting principles.

Cash and Cash Equivalents

     For purposes of the Statements of Cash Flows, the Company considers
investments with original maturities of three months or less to be cash
equivalents.

                                      F-65
<PAGE>   221
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

Property and Equipment

     Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of three years.

Stock-Based Compensation

     The Company accounts for its stock-based compensation under Accounting
Principles Board Opinion No. 25, under which minimal compensation cost has been
recognized in the accompanying statement of operations. Had compensation cost
been determined consistent with Statement of Financial Accounting Standards No.
123, the impact on the Company's net loss would not have been material.

Revenue Recognition

     Revenues from product sales are generally recognized when all of the
following conditions are met: the product has shipped, the Company has the right
to invoice the customer, collection of the receivable is probable and there are
no significant contingencies remaining. Provisions are made at the time of
revenue recognition for estimated warranty and return costs.

Computation of Per Share Amounts

     Basic net income (loss) per common share and diluted net income (loss) per
common share are presented in conformity with SFAS No. 128, "Earnings Per Share"
("SFAS No. 128") for all periods presented. In accordance with SFAS No. 128,
basic net income (loss) per common share has been calculated using the
weighted-average number of shares of common stock outstanding during the period,
less shares subject to repurchase.

     The following table presents the calculation of basic and diluted net
income (loss) per share:

<TABLE>
<CAPTION>
                                                             PERIOD FROM
                                                              INCEPTION        SIX MONTHS
                                                            (JULY 6, 1998)       ENDED
                                                             TO JUNE 30,      DECEMBER 31,
                                                                 1999             1999
                                                            --------------    ------------
<S>                                                         <C>               <C>
Net income (loss) attributable to common stockholders.....  $   (1,131,349)    $ (854,080)
                                                            --------------     ----------
Basic and diluted:
Weighted average shares of common stock outstanding.......       1,769,698      2,040,587
Less: Weighted average shares subject to repurchase.......        (932,718)      (854,402)
                                                            --------------     ----------
Shares used in computing basic and diluted net (loss) per
  share...................................................         836,980      1,186,185
                                                            --------------     ----------
Basic and diluted net (loss) per share....................  $        (1.35)    $    (0.72)
                                                            ==============     ==========
</TABLE>

     Options to purchase 213,000 and 134,563 shares of common stock as of June
30, 1999 and December 31, 1999, respectively have been excluded from the
calculation of diluted net loss per share due to their antidilutive effect.

Comprehensive Income

     In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
"Comprehensive Income" requires the inclusion of amounts which have been
previously excluded from net income and reflected instead in shareholders'

                                      F-66
<PAGE>   222
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

deficit. Comprehensive loss for the period from inception (July 6, 1998) to June
30, 1999 and the six months ended December 31, 1999 approximated net loss.

Segment Reporting

     In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information" ("SFAS No.
131"). SFAS No. 131 establishes standards for disclosures about operating
segments, products and services, geographic areas and major customers. The
Company is organized and operates as one operating segment, the provision of a
NAS solution to the PC server market. The Company markets its products in the
United States through its direct sales force. Revenues for each period ended
June 30, 1999 and for the six months ended December 31, 1999 were primarily
generated from sales to end users in the United States.

Recent Accounting Pronouncements

     In March 1998, the AICPA issued SOP No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" ("SOP No. 98-1"). SOP
No. 98-1 requires entities to capitalize certain costs related to internal-use
software once certain criteria have been met. SOP No. 98-1 was adopted by the
Company in fiscal 1999. The adoption of SOP No. 98-1 did not have a material
impact on the Company's financial position or results of operations.

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 establishes accounting and reporting standards requiring that every
derivative instrument be recorded in the balance sheet as either an asset or
liability measured at its fair value. SFAS No. 133, as recently amended, is
effective for fiscal years beginning after June 15, 2000. Management believes
the adoption of SFAS No. 133 will not have a material effect on the Company's
financial position or results of operations.

     In accordance with SFAS No. 86, "Accounting for the Cost of Computer
Software to be Sold, Leased, or Otherwise Marketed", development costs incurred
in the research and development of new software products are expensed as
incurred until technological feasibility in the form of a working model has been
established. To date, the Company's software development has been competed
concurrent with the establishment of technological feasibility and, accordingly,
all software development costs have been charged to research and development
expense in the accompanying statements of operations.

Concentration of Credit Risk and Significant Customers

     Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. The
Company provides credit, in the normal course of business, to a number of
companies. As of December 31, 1998 and June 30, 1999 100% of accounts receivable
was concentrated with one customer.

                                      F-67
<PAGE>   223
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

     The following customers accounted for more than 10% of total revenues:

<TABLE>
<CAPTION>
                                                         PERIOD FROM
                                    PERIOD FROM           INCEPTION          SIX MONTHS
                                     INCEPTION        (JULY 6, 1998) TO         ENDED
                                 (JULY 6, 1998) TO      DECEMBER 31,        DECEMBER 31,
                                   JUNE 30, 1999            1998                1999
                                 -----------------    -----------------    ---------------
                                                                  (UNAUDITED)
<S>                              <C>                  <C>                  <C>
A..............................         100%                 100%                29%
B..............................           *                    *                 35%
C..............................           *                    *                 13%
D..............................           *                    *                 12%
</TABLE>

- -------------------------
* Sales less than 10%

3. CONVERTIBLE NOTES:

     From inception through September 30, 1999, the Company issued convertible
notes to potential investors for the total amount of approximately $830,000.
These convertible notes bare interest of 8% per annum. These notes were
cancelable or convertible into Series A Convertible Preferred Stock at $1.00 per
share. As of June 30, 1999, the Company had issued approximately $603,000 of the
convertible notes, of which $501,000 had been converted into Series A
convertible preferred stock through June 30, 1999. As of December 31, 1999 all
of the outstanding notes had been converted into Series A convertible Preferred
Stock.

4. LOAN PAYABLE:

     On December 4, 1999, the Company entered into a loan agreement with VA
Linux Systems, Inc. promising to pay $500,000 (the "Maximum Amount"), at 10% per
annum, or such lesser principal amount as may be outstanding from time to time,
no later than March 31, 2000. The Company received amounts pursuant to this loan
agreement in two separate payments of $250,000 on December 8, 1999 and January
10, 2000, respectively.

5. INCOME TAXES:

     The Company accounts for income taxes pursuant to the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" ("SFAS No. 109"). SFAS No. 109 requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined using the current
applicable enacted tax rate and provisions of the enacted tax law. Due to the
Company's loss position there was no provision for income taxes in the period
ended June 30, 1999.

                                      F-68
<PAGE>   224
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

     Net deferred income tax assets consisted of the following as of:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                                1999
                                                              ---------
<S>                                                           <C>
Deferred income tax assets:
  Federal net operating loss carryforwards..................  $ 103,570
  State net operating loss carryforwards....................     18,058
  Tax credit carryforwards..................................     17,243
  Cumulative net temporary differences......................    221,448
                                                              ---------
                                                                360,319
Valuation allowance.........................................   (360,319)
                                                              ---------
Net deferred income tax asset...............................  $      --
                                                              =========
</TABLE>

     Federal and state net operating loss carryforwards at June 30, 1999, were
approximately $305,000 and $310,000, respectively. The net operating loss
carryforwards expire on various dates through the year 2019. The Internal
Revenue Service Code contains provisions which may limit the net operating
losses and tax credit carryforward to be used in any given year upon the
occurrence of certain events, including a significant change in ownership
interest. The Company believes sufficient uncertainty exists regarding the
realizability of the net operating loss carryforwards and other timing
differences at June 30, 1999. Accordingly, a valuation allowance has been
provided for the entire amount related thereto.

6. COMMITMENTS AND CONTINGENCIES:

     The Company pays rent on a monthly basis of approximately $2,000 per month.
Rent expense for the period ended June 30, 1999 and six months ended December
31, 1999 was approximately $19,000 and $12,000, respectively.

     In September 1999, the Company entered into an agreement with another
company to act as a selling agent. The agreement expires on August 31, 2001. The
agreement is automatically renewed annually thereafter unless terminated by
either party upon 90 days written notice to the other. Commissions are paid at
8% of the net invoice price on all commissionable products. Commissions not paid
within the agreed payment terms are subject to finance charges based on an
annual interest rate of 18% or 1.5% per month on the balance due. In addition to
commission payments, the Company also pays a monthly base line compensation
expense of $20,000 per month and $500 per month for a web-based reporting
service. Termination with the selling agent can also occur for reasons of
convenience, cause, insolvency and the sale of the Company.

     The Company is party to certain claims in the ordinary course of business.
While the outcome of these matters is not presently determinable, management
believes that they will not have a material adverse effect on the financial
position or results of operations for the Company.

7. CONVERTIBLE PREFERRED STOCK:

     As of June 30, 1999, the Company was authorized to issue 2,000,000 shares
of convertible preferred stock, of which all 2,000,000 shares had been
designated as Series A convertible preferred stock ("Series A"). Significant
rights, restrictions and preferences of the Series A shares are as follows:

     - The holders of each outstanding share of Series A are entitled to receive
       annual, non-cumulative dividends of $0.08 per share, when and as declared
       by the Board of Directors, in preference to any distribution to the
       holders of the common stock.

                                      F-69
<PAGE>   225
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

     - In the event of a liquidation, dissolution or winding-up of the affairs
       of the Company including a change in control, the holders of each Series
       A share shall be entitled to receive $1.00 per share, adjusted for any
       combinations or consolidations with respect to such shares and, in
       addition, an amount equal to all declared but unpaid dividends in
       preference to any distribution to the holders of the common stock. All
       remaining proceeds will be shared equally by the holders of the preferred
       and common stock on an as converted basis.

     - Each holder of Series A shares shall have voting rights equivalent to the
       number of common stock shares into which they are convertible.

     - Each share of Series A is convertible, at the option of the shareholder,
       into one share of common stock, subject to adjustments for certain
       dilutive events. Each share shall automatically convert prior to the
       closing of an underwritten public offering of the Company's common stock
       which meets certain conditions.

     In October 1999, the Company issued an additional 392,243 shares of Series
A as part of the conversion of approximately $329,000 of an outstanding notes
payable (Note 4).

8. 1999 STOCK OPTION PLAN:

     The Company established the 1999 Stock Option Plan ("the Plan") and
authorized a total of 700,000 shares of common stock for issuance thereunder.
Under the Plan, the Board of Directors may grant incentive and nonqualified
stock options to purchase shares of the Company's common stock to employees and
consultants of the Company. The exercise price per share for an option granted
to employees and consultants owning stock representing more than 10% of the
Company at the time of the grant cannot be less than 110% of the fair market
value. Incentive and nonqualified stock options granted to all other persons
shall be granted at a price no less than 100% and 85%, respectively, of the fair
market value. Options generally expire ten years after the date of grant. The
vesting of stock options is determined by the Board of Directors and may not
exceed five years. Generally, options vest over four years -- 0.0625% per
quarter.

     Option activity under the Plan was as follows:

<TABLE>
<CAPTION>
                                                                       OUTSTANDING OPTIONS
                                                                      ---------------------
                                                                                   WEIGHTED
                                                        SHARES                     AVERAGE
                                                     AVAILABLE FOR    NUMBER OF    EXERCISE
                                                         GRANT         SHARES       PRICE
                                                     -------------    ---------    --------
<S>                                                  <C>              <C>          <C>
Outstanding at inception
  Authorized.......................................     700,000             --      $  --
  Granted..........................................    (263,000)       263,000       0.10
  Exercised........................................          --         (3,125)      0.10
  Cancelled........................................      46,875        (46,875)      0.10
                                                       --------       --------
Outstanding at June 30, 1999.......................     483,875        213,000       0.10
  Granted (Unaudited)..............................     (25,000)        25,000       0.10
  Exercised (Unaudited)............................          --         (3,437)      0.10
  Cancelled (Unaudited)............................     100,000       (100,000)      0.10
                                                       --------       --------
Outstanding at December 31, 1999 (Unaudited).......     558,875        134,563       0.10
                                                       ========       ========
</TABLE>

                                      F-70
<PAGE>   226
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

<TABLE>
<CAPTION>
                     OPTIONS OUTSTANDING                               OPTIONS EXERCISABLE
- --------------------------------------------------------------   --------------------------------
RANGE OF      NUMBER       WEIGHTED AVERAGE                         NUMBER       WEIGHTED AVERAGE
EXERCISE  OUTSTANDING AT      REMAINING       WEIGHTED AVERAGE    EXERCISABLE        EXERCISE
 PRICES   JUNE 30, 1999    CONTRACTUAL LIFE    EXERCISE PRICE    JUNE 30, 1999        PRICE
- --------  --------------   ----------------   ----------------   -------------   ----------------
<S>       <C>              <C>                <C>                <C>             <C>
   $0.10     213,000             9.67              $0.10              --              $0.10
</TABLE>

     The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions:

<TABLE>
<CAPTION>
                                                                 PERIOD FROM
                                                                  INCEPTION
                                                              (JULY 6, 1998) TO
                                                                JUNE 30, 1999
                                                              -----------------
<S>                                                           <C>
Dividend yield..............................................  0%
Expected life of options from vest date.....................  4 years
Expected stock volatility...................................  0.01%
Risk-free interest rates....................................  5%
</TABLE>

     The weighted average fair value of options granted during fiscal 1999 was
$0.02.

9. COMMON STOCK:

     As of June 30, 1999, the Company has issued an aggregate of 2,040,415
shares of common stock to employees of the Company of which 1,112,578 are
subject to repurchase rights at the option of the Company at $0.01 per share.
The shares are repurchasable in the event of termination of employment, for any
or no reason. The vesting of stock is over four years -- 25% immediately and
0.0625% per quarter thereafter. These rights of repurchase will terminate on the
effective date of an initial public offering or the closing date of a sale of
assets or merger of the Company in which the shareholders receive securities of
a buyer whose shares are publicly traded.

Common Stock Reserved for Future Issuance

     As of December 31, 1999, the Company has reserved the following shares of
common stock for issuance in connection with:

<TABLE>
<S>                                                           <C>
Conversion of Series A preferred stock......................    950,000
1999 Stock Option Plan......................................    693,438
Conversion of Series A preferred stock warrants.............     50,000
Conversion of common stock warrants.........................    453,625
                                                              ---------
  Total.....................................................  2,147,063
                                                              =========
</TABLE>

10. WARRANTS:

     In March 29, 1999, the Company entered into a note payable arrangement with
a shareholder for $100,000. In October 1999, as part of the conversion of the
note payable, the Company issued 74,401 shares of Series A convertible preferred
stock, granted a warrant to purchase 74,401 shares of common stock at $0.25 per
share, and granted a warrant to purchase 61,382 shares of common stock at $0.12
per share. The fair market value of the warrants at the date of grant was not
material.

     In May 1999, in conjunction with a factoring agreement entered with a bank,
the Company granted a warrant to purchase 50,000 shares of Series A convertible
preferred stock at $1 per share. The warrant

                                      F-71
<PAGE>   227
                                NETATTACH, INC.
                          A DEVELOPMENT STAGE COMPANY

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
          (INFORMATION AS OF DECEMBER 31, 1998 AND 1999 IS UNAUDITED)

expires 4 years from the agreement date. The fair market value of the warrant at
the date of grant was not material. As of December 31, 1999, the Company has not
factored any of their receivables.

     The Company offered warrants to purchase common stock to investors who
purchased shares of Series A convertible preferred stock after June 30, 1999.
The warrants have an exercise price of $0.25 per share. The maximum number of
shares of common stock subject to each such warrant shall be equal to 100% of
the number of Series A convertible preferred stock purchased by such investor.
In October 1999, the Company issued 392,243 shares of Series A convertible
preferred stock; thus, warrants to purchase 392,243 shares of common stock were
granted. The 74,401 shares of common stock issued in connection with the note
payable conversion referred to above is included within the 392,243 shares.

11. SUBSEQUENT EVENT (UNAUDITED)

     Subsequent to December 31, 1999, the Company entered into a merger
agreement with VA Linux. The terms of the agreement provide for a purchase of
the Company in exchange for cash and VA Linux common stock.

                                      F-72
<PAGE>   228

                                                                      APPENDIX A

                              AMENDED AND RESTATED

                      AGREEMENT AND PLAN OF REORGANIZATION

                                    BETWEEN

                             VA LINUX SYSTEMS, INC.
                                      AND

                               ANDOVER.NET, INC.

                           DATED AS OF APRIL 26, 2000
<PAGE>   229

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>           <C>                                                           <C>
ARTICLE I     THE MERGER..................................................   A-1
     1.1      The Merger..................................................   A-1
     1.2      Effective Time; Closing.....................................   A-1
     1.3      Effect of the Merger........................................   A-2
     1.4      Certificate of Incorporation; Bylaws........................   A-2
     1.5      Directors and Officers......................................   A-2
     1.6      Effect on Capital Stock.....................................   A-2
     1.7      Surrender of Certificates...................................   A-3
     1.8      No Further Ownership Rights in Company Common Stock.........   A-4
     1.9      Lost, Stolen or Destroyed Certificates......................   A-4
     1.10     Tax Consequences............................................   A-4
     1.11     Taking of Necessary Action; Further Action..................   A-5
ARTICLE II    REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............   A-5
     2.1      Organization of the Company.................................   A-5
     2.2      Company Capital Structure...................................   A-6
     2.3      Obligations With Respect to Capital Stock...................   A-6
     2.4      Authority; Non-Contravention................................   A-7
     2.5      SEC Filings; Company Financial Statements; No Undisclosed      A-8
              Liabilities.................................................
     2.6      Absence of Certain Changes or Events........................   A-9
     2.7      Taxes.......................................................   A-9
     2.8      Title to Properties; Absence of Liens and Encumbrances......  A-11
     2.9      Intellectual Property.......................................  A-11
     2.10     Compliance; Permits; Restrictions...........................  A-13
     2.11     Litigation..................................................  A-14
     2.12     Brokers' and Finders' Fees..................................  A-14
     2.13     Transactions with Affiliates................................  A-14
     2.14     Employee Benefit Plans......................................  A-14
     2.15     Environmental Matters.......................................  A-17
     2.16     Year 2000 Compliance........................................  A-18
     2.17     Agreements, Contracts and Commitments.......................  A-18
     2.18     [RESERVED]..................................................  A-19
     2.19     Disclosure..................................................  A-19
     2.20     Board Approval..............................................  A-20
     2.21     Fairness Opinion............................................  A-20
     2.22     Restrictions on Business Activities.........................  A-20
     2.23     Insurance...................................................  A-20
     2.24     State Takeover Statutes.....................................  A-20
ARTICLE III   REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....  A-20
     3.1      Organization and Qualification; Subsidiaries................  A-20
     3.2      Certificate of Incorporation and Bylaws.....................  A-20
     3.3      Capitalization..............................................  A-21
     3.4      Authority; Non-Contravention................................  A-21
     3.5      SEC Filings; Parent Financial Statements....................  A-22
     3.6      Absence of Certain Changes or Events........................  A-22
     3.7      Tax.........................................................  A-23
     3.8      Compliance; Permits; Restrictions...........................  A-23
</TABLE>

                                       -i-
<PAGE>   230

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>           <C>                                                           <C>
     3.9      Litigation..................................................  A-23
     3.10     Agreements, Contracts and Commitments.......................  A-24
     3.11     Registration Statement; Proxy Statement.....................  A-24
     3.12     Board Approval..............................................  A-24
     3.13     Benefit Plans...............................................  A-24
ARTICLE IV    CONDUCT PRIOR TO THE EFFECTIVE TIME.........................  A-24
     4.1      Conduct of Business by the Company..........................  A-24
     4.2      Conduct of Business by Parent...............................  A-26
ARTICLE V     ADDITIONAL AGREEMENTS.......................................  A-26
     5.1      Prospectus/Proxy Statement; Registration Statement; Other     A-26
              Filings.....................................................
     5.2      Meeting of Company Stockholders.............................  A-27
     5.3      Registration Rights.........................................  A-29
     5.4      Confidentiality; Access to Information......................  A-29
     5.5      No Solicitation.............................................  A-29
     5.6      Public Disclosure...........................................  A-30
     5.7      Reasonable Efforts; Notification............................  A-30
     5.8      Third Party Consents........................................  A-31
     5.9      Stock Options and Employee Benefits.........................  A-31
     5.10     Form S-8....................................................  A-32
     5.11     Indemnification.............................................  A-32
     5.12     Invention Assignment Agreement..............................  A-33
     5.13     Nasdaq Listing..............................................  A-33
     5.14     Company Affiliate Agreement.................................  A-33
     5.15     Option Assumption Agreement.................................  A-33
     5.16     1999 Stock Option Plan......................................  A-33
ARTICLE VI    CONDITIONS TO THE MERGER....................................  A-33
     6.1      Conditions to Obligations of Each Party to Effect the         A-33
              Merger......................................................
     6.2      Additional Conditions to Obligations of the Company.........  A-34
     6.3      Additional Conditions to the Obligations of Parent and        A-34
              Merger Sub..................................................
ARTICLE VII   TERMINATION, AMENDMENT AND WAIVER...........................  A-35
     7.1      Termination.................................................  A-35
     7.2      Notice of Termination; Effect of Termination................  A-36
     7.3      Fees and Expenses...........................................  A-37
     7.4      Amendment...................................................  A-37
     7.5      Extension; Waiver...........................................  A-37
ARTICLE VIII  GENERAL PROVISIONS..........................................  A-38
     8.1      Non-Survival of Representations and Warranties..............  A-38
     8.2      Notices.....................................................  A-38
     8.3      Interpretation; Knowledge...................................  A-38
     8.4      Counterparts................................................  A-39
     8.5      Entire Agreement; Third Party Beneficiaries.................  A-39
     8.6      Severability................................................  A-39
     8.7      Other Remedies; Specific Performance........................  A-39
     8.8      Governing Law...............................................  A-40
     8.9      Rules of Construction.......................................  A-40
     8.10     Assignment..................................................  A-40
     8.11     WAIVER OF JURY TRIAL........................................  A-40
</TABLE>

                                      -ii-
<PAGE>   231

                               INDEX OF EXHIBITS

<TABLE>
<C>         <S>
 Exhibit A  Company Voting Agreement
 Exhibit B  List of Company Affiliates (not included)*
 Exhibit C  Affiliate Agreement
 Exhibit D  Form of Non-Competition/Non-Solicitation Agreement (not
            included)*
 Exhibit E  List of Key Employees (not included)*
 Exhibit F  Form of Employee Agreement (not included)*
 Exhibit G  Form of Contractor Agreement (not included)*
</TABLE>

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

* Registrant hereby agrees to furnish supplementally a copy of any omitted
  exhibit to the Securities and Exchange Commission upon request.
<PAGE>   232

           AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION

     This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is made and
entered into as of April 26, 2000, between VA Linux Systems, Inc., a Delaware
corporation ("PARENT") and Andover.Net, Inc., a Delaware corporation (the
"COMPANY") and hereby amends and restates the Agreement and Plan of
Reorganization among Parent, Atlanta Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company dated
February 2, 2000, as amended February 11, 2000 and February 25, 2000.

                                    RECITALS

     A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Parent,
Merger Sub and the Company intend to enter into a business combination
transaction.

     B. The Board of Directors of the Company (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of the Company and fair to, and in the best
interests of, the Company and its stockholders, (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) has determined to recommend that the stockholders of the Company adopt
and approve this Agreement and approve the Merger.

     C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and Company's respective willingness to enter into
this Agreement, certain stockholders of Company are entering into Voting
Agreements in substantially the form attached hereto as Exhibit A (the "COMPANY
VOTING AGREEMENTS").

     D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").

     E. As an inducement for Parent to enter into this Agreement, each of the
individuals set forth on Exhibit E hereof (the "KEY EMPLOYEES") shall execute
the form of Non-Competition/Non-Solicitation Agreement attached hereto as
Exhibit F.

     NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:

                                   ARTICLE I

                                   THE MERGER

     1.1  The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
the Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION".

     1.2  Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing with the Secretary of State of the State of
Delaware (or such later time as may be agreed in writing by the Company and
Parent and specified in the Certificate of Merger) being the "EFFECTIVE TIME")
as soon as practicable on or after the Closing Date (as herein defined). Unless
the context otherwise requires, the term "AGREEMENT" as used herein refers
collectively to this Agreement and Plan of Reorganization and the Certificate of
Merger. The closing of the Merger (the "CLOSING") shall take place at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a time
and

                                       A-1
<PAGE>   233

date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto agree
in writing (the "CLOSING DATE").

     1.3  Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.

     1.4  Certificate of Incorporation; Bylaws.

     (a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation of the Surviving
Corporation; provided, however, that at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so that the name of
the Surviving Corporation shall be "Andover.Net".

     (b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.

     1.5  Directors and Officers. The directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, until their
respective successors are duly appointed.

     1.6  Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any of the following
securities, the following shall occur:

          (a) Conversion of Company Common Stock. Each share of common stock,
     par value $0.01, of the Company ("COMPANY COMMON STOCK") issued and
     outstanding immediately prior to the Effective Time, other than any shares
     of the Company Common Stock to be canceled pursuant to Section 1.6(b), will
     be canceled and extinguished and automatically converted (subject to
     Section 1.6(e)) into the right to receive 0.425 of a share of Parent Common
     Stock (the "Exchange Ratio").

          (b) Cancellation of Parent-Owned Stock. Each share of Company Common
     Stock held by the Company or owned by Merger Sub, Parent or any direct or
     indirect wholly-owned subsidiary of the Company or of Parent immediately
     prior to the Effective Time shall be canceled and extinguished without any
     conversion thereof.

          (c) Stock Options; Employee Stock Purchase Plans. At the Effective
     Time, all options to purchase Company Common Stock then outstanding under
     the 1995 Stock Option Plan and the 1999 Stock Option Plan (the "COMPANY
     STOCK OPTION PLANS") shall be assumed by Parent in accordance with Section
     5.9 hereof.

          (d) Capital Stock of Merger Sub. Each share of Common Stock of Merger
     Sub (the "MERGER SUB COMMON STOCK") issued and outstanding immediately
     prior to the Effective Time shall be converted into one validly issued,
     fully paid and nonassessable share of Common Stock of the Surviving
     Corporation. Each certificate evidencing ownership of shares of Merger Sub
     Common Stock shall evidence ownership of such shares of capital stock of
     the Surviving Corporation.

          (e) Fractional Shares. No fraction of a share of Parent Common Stock
     will be issued by virtue of the Merger, but in lieu thereof each holder of
     shares of Company Common Stock who would otherwise be entitled to a
     fraction of a share of Parent Common Stock (after aggregating all
     fractional shares of Parent Common Stock that otherwise would be received
     by such holder) shall, upon

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     surrender of such holder's Certificate(s) (as defined in Section 1.7(c)),
     receive from Parent an amount of cash (rounded to the nearest whole cent),
     without interest, equal to the product of (i) such fraction, multiplied by
     (ii) the closing price of Parent Common Stock on the last full trading day
     prior to Closing as reported on the Nasdaq National Market System.

          (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
     adjusted to reflect appropriately the effect of any stock split, reverse
     stock split, stock dividend (including any dividend or distribution of
     securities convertible into Parent Common Stock or Company Common Stock),
     reorganization, recapitalization, reclassification or other like change
     with respect to Parent Common Stock or Company Common Stock occurring on or
     after the date hereof and prior to the Effective Time.

     1.7  Surrender of Certificates.

     (a) Exchange Agent. Parent shall select an institution reasonably
satisfactory to the Company to act as the exchange agent (the "EXCHANGE AGENT")
in the Merger.

     (b) Parent to Provide Cash and Common Stock. Within ten (10) business days
after the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, (i) the shares of Parent Common
Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of
Company Common Stock, (ii) cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.6(e) and (iii) any dividends or
distributions which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).

     (c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "CERTIFICATES") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares
pursuant to Section 1.6(e) and any dividends or other distributions pursuant to
Section 1.7(d), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) Form W-9 and (iii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock, cash in lieu of any fractional shares pursuant to Section 1.6(e) and any
dividends or other distributions pursuant to Section 1.7(d). Upon surrender of
Certificates for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of Parent Common
Stock which such holders have the right to receive pursuant to Section 1.6(e),
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(e) and any dividends or distributions payable
pursuant to Section 1.7(d), and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, outstanding Certificates will be deemed from
and after the Effective Time, for all corporate purposes, subject to Section
1.7(d) as to the payment of dividends, to evidence the ownership of the number
of full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6(e)
and any dividends or distributions payable pursuant to Section 1.7(d). No
interest will be paid or will accrue on the cash consideration payable upon the
surrender of any Certificate.

     (d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after February 2, 2000 with respect to Parent
Common Stock with a record date after the Effective Time will be paid to the
holders of any unsurrendered Certificates with respect to the shares of Parent
Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of

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Parent Common Stock issued in exchange therefor along with payment in lieu of
fractional shares pursuant to Section 1.6(e) hereof and the amount of any such
dividends or other distributions with a record date after the Effective Time
payable with respect to such whole shares of Parent Common Stock.

     (e) Transfers of Ownership. If certificates for shares of Parent Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it will be a condition of the
issuance thereof that the Certificates so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the persons requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of the certificates for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificates surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.

     (f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable Legal Requirement
(as defined in Section 2.2(c)). To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the person to whom such amounts would otherwise have been
paid.

     (g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.

     1.8  No Further Ownership Rights in Company Common Stock. All cash and
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof pursuant to Section 1.6(e) and 1.7(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If after the
Effective Time Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.

     1.9  Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(e) and any dividends or distributions payable pursuant to Section
1.7(d); provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may direct as
indemnity against any claim that may be made against Parent, the Company or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.

     1.10  Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations. Accordingly, both prior to and after the Closing Date,
each party's books and records shall be maintained and federal, state and local
income tax and returns and schedules thereto shall be filed in a manner
consistent with the Merger being qualified as a tax-free merger under Section
368(a) of the Code (unless a court of competent jurisdiction renders a
determination (as defined in Section 1313(a)(1) of the Code) that the Merger
does not qualify as such). Each party shall provide to each other such
information, reports, returns or schedules as may be reasonably required to
assist such party in accounting for reporting the Merger being so qualified.

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     1.11  Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action, so long
as such action is consistent with this Agreement.

                                   ARTICLE II

                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     As of February 2, 2000 and as of the Closing Date, the Company represents
and warrants to Parent and Merger Sub, subject to the exceptions specifically
disclosed in writing in the disclosure letter and referencing a specific
representation (except that disclosure in one part of the disclosure letter
shall be deemed to be disclosure with respect to all reasonably applicable
sections of the disclosure letter) supplied by the Company to Parent dated as of
February 2, 2000 and certified by a duly authorized officer of the Company (the
"COMPANY SCHEDULES"), as follows:

     2.1  Organization of the Company.

     (a) The Company has no subsidiaries, except for the corporations identified
in Part 2.1(a)(i) of the Company Schedules; and neither the Company nor any of
the other corporations identified in Part 2.1(a)(i) of the Company Schedules
owns any capital stock of, or any equity interest of any nature in, any other
entity, other than the entities identified in Part 2.1(a)(ii) of the Company
Schedules, except for passive investments in equity interests of public
companies as part of the cash management program of the Company. Except as
identified in Part 2.1(a)(ii) of the Company Schedules, neither the Company nor
any subsidiary thereof has agreed or is obligated to make, or is bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan or legally binding commitment or
undertaking of any nature, as in effect as of February 2, 2000 or as may
hereinafter be in effect ("CONTRACT") under which Contract it may become
obligated to make, any future investment in or capital contribution to any other
entity. Neither the Company nor any subsidiary thereof is or at any time, has
been a general partner of any general partnership, limited partnership or other
entity.

     (b) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all necessary power and authority: (i)
to conduct its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.

     (c) The Company and each of its subsidiaries is qualified to do business as
a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to so qualify would have a Material Adverse Effect (as defined
in Section 8.3) on the Company.

     (d) The Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company and
similar governing instruments of each of its subsidiaries, each as amended to
date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such instrument
is in full force and effect. The Company is not in violation of any of the
provisions of the Company Charter Documents. None of the Company's subsidiaries
is in violation of any provision of its Articles or Certificate of Incorporation
or Bylaws or other similar governing instruments, except for such violations as
are not material to the Company and its subsidiaries taken as a whole.

     (e) The Company has delivered or made available to Parent all proposed or
considered amendments to the Company Charter Documents.

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<PAGE>   237

     2.2  Company Capital Structure.

     (a) The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Company Common Stock, $0.01 par value, of which 15,734,119
shares have been issued and are outstanding as of February 2, 2000; and (ii)
1,000,000 shares of preferred stock, $0.01 par value, of which no shares are
outstanding as of February 2, 2000. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued, and are fully
paid and nonassessable. As of February 2, 2000, there are no shares of Company
Common Stock held in treasury by the Company. Upon consummation of the Merger,
(A) the shares of Parent Common Stock and cash issued in exchange for any shares
of Company Common Stock that are subject to a Contract pursuant to which the
Company has the right to repurchase, redeem or otherwise reacquire any shares of
Company Common Stock will, without any further act of Parent, the Company or any
other person, become subject to the restrictions, conditions and other
provisions contained in such Contract, and (B) Parent will automatically succeed
to and become entitled to exercise the Company's rights and remedies under any
such Contract. Except as set forth in Part 2.2(a) of the Company Schedules,
there are no shares of Company Common Stock immediately prior to the Effective
Time that are unvested or that are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company.

     (b) As of February 2, 2000: (i) 1,695,333 shares of Company Common Stock
are subject to issuance pursuant to outstanding options to purchase Company
Common Stock under the Company Stock Option Plans (excluding options granted
pursuant to Section 5.9(d)); and (ii) 960,155 shares of Company Common Stock are
reserved for future grant under the Company's 1999 Stock Option Plan. Stock
options granted by the Company pursuant to the Company Stock Option Plans are
referred to in this Agreement as "COMPANY OPTIONS". Part 2.2(b) of the Company
Schedules sets forth the following information with respect to each Company
Option outstanding as of February 2, 2000: (i) the name and address of the
optionee; (ii) the particular plan pursuant to which such Company Option was
granted; (iii) the number of shares of Company Common Stock subject to such
Company Option; (iv) the exercise price of such Company Option; (v) the date on
which such Company Option was granted; (vi) the applicable vesting schedule;
(vii) the date on which such Company Option expires; (viii) whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement, and indicates the extent of any such
acceleration; and (ix) whether or not such option was granted with the intention
to qualify as an "incentive stock option" within the meaning of Section 422 of
the Code (i) through (ix) collectively, "INFORMATION OPTION". The Company has
made available to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has granted stock options that are currently
outstanding and the form of all stock option agreements evidencing such options.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Part 2.2(b)(i) of the Company
Schedules, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Option as a result of the Merger. Each Company Option shall be assumed as set
forth in Section 5.9.

     (c) All outstanding shares of Company Common Stock, all outstanding Company
Options, and all outstanding shares of capital stock of each subsidiary of the
Company have been issued and granted in compliance with (i) all applicable
securities laws and, to the knowledge of the Company, other applicable Legal
Requirements (as defined below) and (ii) all requirements set forth in
applicable Contracts. For the purposes of this Agreement, "LEGAL REQUIREMENTS"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined below).

     2.3  Obligations With Respect to Capital Stock. Except as set forth in Part
2.3 of the Company Schedules and except for options under the Company Stock
Option Plans, there are no securities exchangeable or convertible into or
exercisable for any equity securities, partnership interests or similar

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ownership interests of any class of any Company equity security, issued,
reserved for issuance or outstanding. Except for securities the Company owns
free and clear of all claims and Encumbrances (as defined below), directly or
indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of certain subsidiaries of the
Company that are owned by certain nominee equity holders as required by the
applicable law of the jurisdiction of organization of such subsidiaries (which
shares or other interests do not materially affect the Company's control of such
subsidiaries), as of February 2, 2000, there are no securities exchangeable or
convertible into or exercisable for any class of equity security of any
subsidiary of the Company, issued, reserved for issuance or outstanding. For the
purposes of this Agreement "ENCUMBRANCES" means any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or, to the knowledge of the Company, any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset. Except as
set forth in Part 2.3 of the Company Schedules or as set forth in Section 2.2
hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company or any of its subsidiaries is a party or by which it is bound obligating
or permitting the Company or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of the
Company or any of its subsidiaries or obligating or permitting the Company or
any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. As of February 2, 2000, except as contemplated by this
Agreement and pursuant to that certain Third Amended and Restated Registration
Rights Agreement dated September 15, 1999 (the "COMPANY REGISTRATION RIGHTS
AGREEMENT"), there are no registration rights and there is, except for the
Company Voting Agreement, no voting trust, proxy, rights plan, antitakeover plan
or other agreement or understanding to which the Company is a party or by which
it or, to the knowledge of the Company, any of the stockholders of the Company
is bound with respect to any equity security of any class of the Company or with
respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. Stockholders of the Company
will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.

     2.4  Authority; Non-Contravention.

     (a) The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company, subject only to the
approval and adoption of this Agreement and the approval of the Merger by the
Company's stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of a majority of the outstanding shares of
the Company Common Stock is sufficient for the Company's stockholders to approve
and adopt this Agreement and approve the Merger. This Agreement has been duly
executed and delivered by the Company and, assuming due execution and delivery
by Parent and Merger Sub, constitutes a valid and binding obligations of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
(i) conflict with or violate the Company Charter Documents, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by the Company's stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective properties is bound, or (iii) result in
any material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or

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impair the Company's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material lien or
Encumbrance on any of the material properties or assets of the Company or any of
its subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective assets are bound. Part 2.4(a) of the Company Schedules lists all
consents, waivers and approvals under any of the Company's or any of its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, would result in a
material loss of benefits to the Company, Parent or the Surviving Corporation as
a result of the Merger.

     (b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by the Company in
connection with the execution and delivery of this Agreement or the consummation
of the Merger, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) approval of the
Prospectus/Proxy Statement (as defined in Section 2.19) and the Registration
Statement (as defined in Section 2.19) by the Securities and Exchange Commission
("SEC") in accordance with the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign and state securities (or related) laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the securities or antitrust laws of any foreign country, and (iv) to
the knowledge of the Company, such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to the Company or Parent or have a material adverse effect on the ability of the
parties hereto to consummate the Merger.

     2.5  SEC Filings; Company Financial Statements; No Undisclosed Liabilities.

     (a) The Company has filed all forms, reports and documents required to be
filed by the Company with the SEC since December 8, 1999 and has made available
to Parent such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that the Company may
file subsequent to February 2, 2000) are referred to herein as the "COMPANY SEC
REPORTS". As of their respective dates, the Company SEC Reports (including, but
not limited to, the Company's registration statement on form S-1 and the
prospectus included therein) (i) were prepared in accordance and complied in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Company SEC Reports and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.

     (b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (the "COMPANY
FINANCIALS"), including each Company SEC Reports filed after February 2, 2000
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of the Company and its subsidiaries as at the respective
dates thereof and the consolidated results of the Company's operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements may not contain footnotes and were or are subject to normal and
recurring year-end adjustments. The audited balance sheet of the Company as of
September 30, 1999 previously delivered to Parent by the Company

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and contained in the Company SEC Reports as of December 8, 1999 is hereinafter
referred to as the "COMPANY BALANCE SHEET."

     (c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.

     (d) The Company issued stock in an initial public offering pursuant to a
registration statement on Form S-1 (the "COMPANY S-1"), which was declared
effective on December 8, 1999 (the "EFFECTIVE DATE") and a prospectus (the
"COMPANY PROSPECTUS"), the final form of which was filed with the SEC on
December 8, 1999 pursuant to Rule 424(b) of the Securities Act. At the Effective
Date, the Company S-1 did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements not misleading.

     (e) Neither Company nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Company and its subsidiaries taken as a whole, except (i)
liabilities provided for in Company Balance Sheet or (ii) liabilities incurred
since September 30, 1999 in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company and its subsidiaries, taken as a whole.

     2.6  Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet there has not been: (i) any Material Adverse Effect on the
Company, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
the Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by the Company of any of the Company's capital
stock or any other securities of the Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock, (iv) except as set forth in Part 2.6 of the Company
Schedules, any granting by the Company or any of its subsidiaries of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by the Company or any of its subsidiaries of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, or (v) any granting by the Company or any of its subsidiaries of any
increase in severance or termination pay or (vi) any entry by the Company or any
of its subsidiaries into any currently effective employment, severance,
termination or indemnification agreement or any other agreement the benefits of
which are contingent or the terms of which are materially altered upon the
occurrence of a transaction involving the Company of the nature contemplated
hereby, (vii) entry by the Company or any of its subsidiaries into any licensing
or other agreement with regard to the acquisition or disposition of any material
Intellectual Property (as defined in Section 2.9) other than licenses in the
ordinary course of business consistent with past practice, (viii) any amendment
or consent with respect to any licensing agreement filed or required to be filed
by the Company with the SEC, (ix) any material change by the Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, (x) any revaluation by the Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business and consistent with past practice; or (xi) any changes in the vesting
schedules of outstanding Company Options.

     2.7  Taxes.

     (a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales,

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use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.

     (b) Tax Returns and Audits.

          (i) The Company and each of its subsidiaries have timely filed all
     federal, state, local and foreign returns, estimates, information
     statements and reports ("RETURNS") relating to Taxes required to be filed
     by the Company and each of its subsidiaries with any Tax authority. The
     Company and each of its subsidiaries have paid all Taxes shown to be due on
     such Returns.

          (ii) The Company and each of its subsidiaries as of the Effective Time
     will have withheld with respect to its employees all federal and state
     income taxes, Taxes pursuant to the Federal Insurance Contribution Act
     ("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and
     other Taxes required to be withheld.

          (iii) Neither the Company nor any of its subsidiaries has been
     delinquent in the payment of any Tax nor is there any Tax deficiency
     outstanding, proposed in writing (or otherwise, to the Company's knowledge,
     proposed) or assessed against the Company or any of its subsidiaries, nor
     has the Company or any of its subsidiaries executed any unexpired waiver of
     any statute of limitations on or extending the period for the assessment or
     collection of any Tax.

          (iv) No audit or other examination of any Return of the Company or any
     of its subsidiaries by any Tax authority is presently in progress, nor has
     the Company or any of its subsidiaries been notified in writing (or
     otherwise, to the Company's knowledge, notified) of any request for such an
     audit or other examination.

          (v) No adjustment relating to any Returns filed by the Company or any
     of its subsidiaries has been proposed in writing formally or informally by
     any Tax authority to the Company or any of its subsidiaries or any
     representative thereof.

          (vi) Neither the Company nor any of its subsidiaries has any liability
     for unpaid Taxes which has not been accrued for or reserved on the Company
     Balance Sheet, whether asserted or unasserted, contingent or otherwise,
     which is material to the Company, other than any liability for unpaid Taxes
     that may have accrued since the date of the Company Balance Sheet in
     connection with the operation of the business of the Company and its
     subsidiaries in the ordinary course.

          (vii) Except as set forth on Part 2.7(b) of the Company Schedules,
     there is no contract, agreement, plan or arrangement to which the Company
     is a party as of February 2, 2000, including but not limited to the
     provisions of this Agreement, covering any employee or former employee of
     the Company or any of its subsidiaries that, individually or collectively,
     could give rise to the payment of any amount that would not be deductible
     pursuant to Sections 280G, 404 or 162(m) of the Code.

          (viii) Neither the Company nor any of its subsidiaries has filed any
     consent agreement under Section 341(f) of the Code or agreed to have
     Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
     asset (as defined in Section 341(f)(4) of the Code) owned by the Company.

          (ix) Neither the Company nor any of its subsidiaries is party to or
     has any obligation under any tax-sharing, tax indemnity or tax allocation
     agreement or arrangement.

          (x) Except as may be required as a result of the Merger, the Company
     and its subsidiaries have not been and will not be required to include any
     adjustment in Taxable income for any Tax period (or portion thereof)
     pursuant to Section 481 or Section 263A of the Code or any comparable
     provision under state or foreign Tax laws as a result of transactions,
     events or accounting methods employed prior to the Closing.

          (xi) Part 2.7 of the Company Schedules lists (A) any foreign Tax
     holidays, (B) any intercompany transfer pricing agreements, or other
     arrangements that have been established by the

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     Company or any of its subsidiaries with any Tax authority and (C) any
     expatriate programs or policies affecting the Company or any of its
     subsidiaries.

          (xii) None of the Company or its subsidiaries (A) has been a member of
     an "affiliated group" filing a consolidated federal income tax return
     (other than a group the common parent of which was the Company) or (B) has
     any liability for the Taxes of any person (other than any of the Company
     and its subsidiaries) under Reg. Section 1.1502-6 (or any similar provision
     of state, local, or foreign law), as a transferee or successor, by
     contract, or otherwise.

          (xiii) Neither the Company nor any of its subsidiaries has constituted
     either a "distributing corporation" or a "controlled corporation" in a
     distribution of stock qualifying for tax-free treatment under Section 355
     of the Code (x) in the two years prior to February 2, 2000 or (y) in a
     distribution which could otherwise constitute part of a "plan" or "series
     of related transactions" (within the meaning of Section 355(e) of the Code)
     in conjunction with the Merger.

     2.8  Title to Properties; Absence of Liens and Encumbrances.

     (a) Part 2.8(a)(i) of the Company Schedules lists the real property
interests owned by the Company as of February 2, 2000. Part 2.8(a)(ii) of the
Company Schedules lists all real property leases to which the Company is a party
as of February 2, 2000 and each amendment thereto that is in effect as of
February 2, 2000. All such current leases are in full force and effect and are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) that
would give rise to a material claim. Other than the leaseholds created under the
real property leases identified in Part 2.8(a)(ii) of the Company Schedules, the
Company owns no interest in real property.

     (b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS"), except as reflected in
the Company Financials and except for liens for taxes not yet due and payable
and such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.

     2.9  Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:

     "INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, URLs, domain names,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all databases
and data collections and all rights therein throughout the world; (vii) all
moral and economic rights of authors and inventors, however denominated,
throughout the world; and (viii) any similar or equivalent rights to any of the
foregoing anywhere in the world.

     "COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, the Company and its subsidiaries.

     "REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered domain names and reserved domain names, (iv)
registered copyrights and applications for

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copyright registration; and (v) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.

     "COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or its
subsidiaries.

          (a) No Company Intellectual Property or product or service of the
     Company is subject to any proceeding or outstanding decree, order,
     judgment, agreement, or stipulation restricting in any manner the use,
     transfer, or licensing thereof by the Company, or which may affect the
     validity, use or enforceability of such Company Intellectual Property.

          (b) Part 2.9(b) of the Company Schedules is a complete and accurate
     list of all Company Registered Intellectual Property and specifies, where
     applicable, the jurisdictions in which each such item of Company Registered
     Intellectual Property has been issued or registered or in which an
     application for such issuance and registration has been filed, including
     the respective registration or application numbers. Each material item of
     Company Registered Intellectual Property is valid and subsisting, all
     necessary registration, maintenance and renewal fees currently due in
     connection with such Registered Intellectual Property have been made and
     all necessary documents, recordations and certificates in connection with
     such Registered Intellectual Property have been filed with the relevant
     patent, copyright, trademark or other authorities in the United States or
     foreign jurisdictions, as the case may be, for the purposes of maintaining
     such Registered Intellectual Property.

          (c) The Company owns and has good and exclusive title to, or has
     license to or otherwise has a right to use or exploit in the way it has
     been used as of February 2, 2000, each material item of Company
     Intellectual Property or other Intellectual Property used by the Company
     free and clear of any Encumbrance (excluding licenses and related
     restrictions granted in the ordinary course of business consistent with
     past practices); and the Company is the exclusive owner of all trademarks
     and trade names used in connection with the operation or conduct of the
     business of the Company, including the sale of any products or the
     provision of any services by the Company.

          (d) The Company owns exclusively, and has good title to, all
     copyrighted works that are Company products or which the Company otherwise
     expressly purports to own.

          (e) Neither the Company nor its subsidiaries have transferred
     ownership of, or granted any exclusive license with respect to, any
     Intellectual Property that is or was material to the Company Intellectual
     Property, to any third party.

          (f) To the extent that any material technology, software or
     Intellectual Property has been developed or created independently or
     jointly by a third party for Company or any of its subsidiaries or is
     incorporated into any of the Company Products, Company has a written
     agreement with such third party with respect thereto and Company thereby
     either (i) has obtained ownership of, and is the exclusive owner of, or
     (ii) has obtained a perpetual, non-terminable license (sufficient for the
     conduct of its business as currently conducted and as proposed to be
     conducted) to all such third party's Intellectual Property in such work,
     material or invention by operation of law or by valid assignment, to the
     fullest extent it is legally possible to do so. The Company Schedules list
     all material contracts, licenses and agreements to which the Company is a
     party (i) with respect to Company Intellectual Property licensed or
     transferred to any third party (other than end-user licenses in the
     ordinary course); or (ii) pursuant to which a third party has licensed or
     transferred any material Intellectual Property to the Company.

          (g) All material contracts, licenses and agreements relating to either
     (i) Company Intellectual Property or (ii) Intellectual Property of a third
     party licensed to Company or any of its subsidiaries, are in full force and
     effect. The consummation of the transactions contemplated by this Agreement
     will neither violate nor result in the breach, modification, cancellation,
     termination or suspension of such contracts, licenses and agreements. Each
     of Company and its subsidiaries is in material compliance with, and has not
     materially breached, any term of any such contracts, licenses and

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     agreements and, to the knowledge of Company, all other parties to such
     contracts, licenses and agreements are in compliance with, and have not
     materially breached, any term of, such contracts, licenses and agreements.
     Following the Closing Date, the Surviving Corporation will be permitted to
     exercise all of Company's rights under such contracts, licenses and
     agreements to the same extent Company and its subsidiaries would have been
     able to had the transactions contemplated by this Agreement not occurred
     and without the payment of any additional amounts or consideration other
     than ongoing fees, royalties or payments which Company would otherwise be
     required to pay. Neither this Agreement nor the transactions contemplated
     by this Agreement, including the assignment to Parent or Merger Sub by
     operation of law or otherwise of any contracts or agreements to which the
     Company is a party, will result in (i) either Parent's or the Merger Sub's
     granting to any third party any right to or with respect to any material
     Intellectual Property right owned by, or licensed to, either of them, (ii)
     either the Parent's or the Merger Sub's being bound by, or subject to, any
     non-compete or other material restriction on the operation or scope of
     their respective businesses, or (iii) either the Parent's or the Merger
     Sub's being obligated to pay any royalties or other material amounts to any
     third party in excess of those payable by Company prior to the Closing.

          (h) The operation of the business of the Company and its subsidiaries
     as such business currently is conducted, including the Company's design,
     development, marketing and sale of the products or services of the Company
     (including with respect to products currently under development) has not,
     does not and will not infringe or misappropriate the Intellectual Property
     of any third party or constitute unfair competition or trade practices
     under the laws of any jurisdiction.

          (i) The Company has received neither written, nor to the Company's
     knowledge, oral notice from any third party that the operation of the
     business of the Company or any act, product or service of the Company,
     infringes or misappropriates the Intellectual Property of any third party
     or constitutes unfair competition or trade practices under the laws of any
     jurisdiction.

          (j) To the knowledge of the Company, no person has infringed or
     misappropriated or is infringing or misappropriating any Company
     Intellectual Property.

          (k) The Company has taken reasonable steps to protect the Company's
     rights in the Company's confidential information and trade secrets that it
     wishes to protect or any trade secrets or confidential information of third
     parties provided to the Company, and, without limiting the foregoing, the
     Company has and enforces a policy requiring each employee and contractor to
     execute a proprietary information/confidentiality agreement in the form
     attached hereto as Exhibit F and, except as set forth on Part 2.9(l) of the
     Company Schedules, all current and former employees and contractors of the
     Company have executed such an agreement.

     2.10  Compliance; Permits; Restrictions.

     (a) Neither the Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which the Company or any of its subsidiaries or any of their
respective properties is bound, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective businesses or properties is bound, except for conflicts, violations
and defaults that (individually or in the aggregate) would not cause the Company
to lose any material benefit or incur any material liability. No investigation
or review by any Governmental Entity is pending or, to the Company's knowledge,
has been threatened in a writing delivered to the Company, against the Company
or any of its subsidiaries, nor, to the Company's knowledge, has any
Governmental Entity indicated an intention to conduct an investigation of the
Company or any of its subsidiaries. There is no material agreement, judgment,
injunction, order or decree binding upon the Company or any of its subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of its
subsidiaries or the conduct of business by the Company as currently conducted.

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     (b) The Company and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
Governmental Entities that are material to and required for the operation of the
business of the Company as currently conducted (collectively, the "COMPANY
PERMITS"). The Company and its subsidiaries are in compliance in all material
respects with the terms of the Company Permits, except where the failure to be
in compliance with the terms of the Company Permits would not be material to the
Company.

     2.11  Litigation. Except as disclosed in Part 2.11 of the Company
Schedules, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to the
Company. No Governmental Entity has at any time challenged or questioned in a
writing delivered to the Company the legal right of the Company to design,
manufacture, offer or sell any of its products or services in the present manner
or style thereof.

     Except as disclosed in Part 2.11 of the Company Schedules, the Company has
never been subject to an audit, compliance review, investigation or like
contract review by the GSA office of the Inspector General or other Governmental
Entity or agent thereof in connection with any government contract (a
"GOVERNMENT AUDIT"), to the Company's knowledge no Government Audit is
threatened, and in the event of such Government Audit, to the knowledge of the
Company, no basis exists for a finding of noncompliance with any material
provision of any government contract or a refund of any amounts paid or owed by
any Governmental Entity pursuant to such government contract. For each item
disclosed in the Company Schedule pursuant to this Section 2.11 a true and
complete copy of all correspondence and documentation with respect thereto has
been made available to Parent.

     2.12  Brokers' and Finders' Fees. Except for fees payable to W.R. Hambrecht
pursuant to an engagement letter dated January 20, 2000 a copy of which has been
provided to Parent, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.

     2.13  Transactions with Affiliates. Except as set forth in the Company SEC
Reports, since September 30, 1999, no event has occurred as of February 2, 2000
that would be required to be reported by the Company pursuant to Item 404 of
Regulation S-K promulgated by the SEC. Part 2.13 of the Company Schedules
identifies each person who is an "affiliate" (as that term is used in Rule 145
promulgated under the Securities Act) of the Company as of February 2, 2000.

     2.14  Employee Benefit Plans.

     (a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.14(a)(i) below (which definition shall apply only to this
Section 2.14), for purposes of this Agreement, the following terms shall have
the meanings set forth below:

          (i) "AFFILIATE" shall mean any other person or entity under common
     control with the Company within the meaning of Section 414(b), (c), (m) or
     (o) of the Code and the regulations issued thereunder;

          (ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
     practice, contract, agreement or other arrangement providing for
     compensation, severance, termination pay, performance awards, stock or
     stock-related awards, fringe benefits or other employee benefits or
     remuneration of any kind, whether written or unwritten or otherwise, funded
     or unfunded, including without limitation, each "employee benefit plan,"
     within the meaning of Section 3(3) of ERISA which is or has been
     maintained, contributed to, or required to be contributed to, by the
     Company or any Affiliate for the benefit of any Employee

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          (iii) "COBRA" shall mean the Consolidated Omnibus Budget
     Reconciliation Act of 1985, as amended

          (iv) "DOL" shall mean the Department of Labor;

          (v) "EMPLOYEE" shall mean any current, former, or retired employee,
     officer, or director of the Company or any Affiliate;

          (vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
     severance, consulting, relocation, repatriation, expatriation, visas, work
     permit or similar agreement or contract between the Company or any
     Affiliate and any Employee or consultant;

          (vii) "ERISA" shall mean the Employee Retirement Income Security Act
     of 1974, as amended;

          (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
     amended;

          (ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each Company Employee
     Plan that has been adopted or maintained by the Company, whether informally
     or formally, for the benefit of Employees outside the United States;

          (x) "IRS" shall mean the Internal Revenue Service;

          (xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
     below) which is a "multiemployer plan," as defined in Section 3(37) of
     ERISA;

          (xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and

          (xiii) "PENSION PLAN" shall mean each Company Employee Plan which is
     an "employee pension benefit plan," within the meaning of Section 3(2) of
     ERISA.

     (b) Schedule. Part 2.14(b) of the Company Schedules contain an accurate and
complete list of each Company Employee Plan and each material Employee
Agreement. The Company does not have any legally binding plan or commitment to
establish any new Company Employee Plan, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
material Employee Agreement, nor does it have any intention or commitment to do
any of the foregoing. Since December 31, 1999 the Company has hired five
employees and has indicated in written offer letters that an aggregate of 37,000
options would be granted to these employees (the "NEW OPTIONS"); none of the
vesting terms of the New Options shall accelerate as a result of the actions
contemplated by this Agreement.

     (c) Documents. The Company has provided or made available to Parent: (i)
correct and complete copies of all documents embodying each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan or related trust; (iv) if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee
Plan assets; (v) the most recent summary plan description together with the
summary of material modifications thereto, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and rulings relating to Company Employee
Plans and copies of all applications and correspondence to or from the IRS or
the DOL with respect to any Company Employee Plan; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (viii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability

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to the Company; (ix) all COBRA forms and related notices; and (x) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.

     (d) Employee Plan Compliance. Except as set forth in Part 2.14(d) of the
Company Schedules, (i) the Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination letter from the IRS with respect to each such Plan as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a
period of time under applicable Treasury regulations or IRS pronouncements in
which to apply for such a determination letter and make any amendments necessary
to obtain a favorable determination; (iii) no "prohibited transaction," within
the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of the Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, the Company or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through
4980 of the Code.

     (e) Pension Plans. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.

     (f) Multiemployer Plans. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.

     (g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable law, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.

     (h) Neither the Company nor any Affiliate has, prior to the Effective Time,
and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.

     (i) Effect of Transaction. Except as set forth on Part 2.14(i) of the
Company Schedules, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any former or current Employee or director.

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     (j) Employment Matters. The Company: (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending, or,
to the Company's knowledge, threatened claims or actions against the Company
under any worker's compensation policy or long-term disability policy. To the
Company's knowledge, no employee of the Company has violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
employee is bound due to such employee being employed by the Company and
disclosing to the Company or using trade secrets or proprietary information of
any other person or entity.

     (k) Labor. No work stoppage or labor strike against the Company is pending,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company. Neither the Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. The Company is not presently, nor
has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.

     (l) International Employee Plan. Each International Employee Plan has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason.

     (m) Restricted Stock. No shares of outstanding Company Common Stock are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with the Company.

     2.15  Environmental Matters.

     (a) Hazardous Material. Except as would not result in material liability to
the Company, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies,
(a "HAZARDOUS MATERIAL") are present, or as a result of the actions of the
Company or any of its subsidiaries or any affiliate of the Company, or, to the
Company's knowledge, as a result of any actions of any third party or otherwise,
in, on or under any property, including the land and the improvements, ground
water and surface water thereof, that the Company or any of its subsidiaries has
at any time owned, operated, occupied or leased.

     (b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the aggregate)
(i) neither the Company nor any of its subsidiaries

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has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, and (ii) neither the Company nor any of its
subsidiaries has disposed of, transported, sold, used, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of February 2, 2000 to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.

     (c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted.

     (d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to the
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against the Company or any of its subsidiaries in a writing delivered to the
Company concerning any Company Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company or any of its subsidiaries. The
Company is not aware of any fact or circumstance which could involve the Company
or any of its subsidiaries in any environmental litigation or impose upon the
Company any material environmental liability.

     2.16  Year 2000 Compliance. Except as disclosed in Part 2.16 of the Company
Schedules, the Company's products and internal systems have been designed to
ensure date and time entry recognition, calculations that accommodate same
century and multi-century formulas and date values, leap year recognition and
calculations, and date data interface values that reflect the century. The
Company's products and internal systems manage and manipulate data involving
dates and times, including single century formulas and multi-century formulas,
and do not cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates.

     2.17  Agreements, Contracts and Commitments. Except as otherwise set forth
in Part 2.14 or 2.17 of the Company Schedules, neither the Company nor any of
its subsidiaries is a party to or is bound by:

          (a) any employment or consulting agreement, contract or commitment
     greater than $100,000 with any officer, employee or member of the Company's
     Board of Directors, other than those that are terminable by the Company or
     any of its subsidiaries on no more than thirty (30) days' notice without
     liability or financial obligation, except to the extent general principles
     of wrongful termination law may limit the Company's or any of its
     subsidiaries' ability to terminate employees at will;

          (b) any agreement of indemnification or any guaranty other than any
     agreement of indemnification entered into in connection with the sale or
     license of software products in the ordinary course of business;

          (c) any agreement, contract or commitment containing any covenant
     limiting in any respect the right of the Company or any of its subsidiaries
     to engage in any line of business or to compete with any person or granting
     any exclusive distribution rights;

          (d) any agreement, contract or commitment currently in force relating
     to the disposition or acquisition by the Company or any of its subsidiaries
     after February 2, 2000 of a material amount of assets not in the ordinary
     course of business or pursuant to which the Company has any material
     ownership interest in any corporation, partnership, joint venture or other
     business enterprise other than the Company's subsidiaries;

          (e) any joint marketing or development agreement currently in force
     under which the Company or any of its subsidiaries have continuing material
     obligations to jointly market any product, technology or service and which
     may not be canceled without penalty upon notice of 90 days or less, or any
     material agreement pursuant to which the Company or any of its subsidiaries
     have continuing

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     material obligations to jointly develop any intellectual property that will
     not be owned, in whole or in part, by the Company or any of its
     subsidiaries and which may not be canceled without penalty upon notice of
     90 days or less;

          (f) any agreement, contract or commitment currently in force to
     provide source code to any third party for any product or technology that
     is material to the Company and its subsidiaries taken as a whole;

          (g) except as set forth on Part 2.2 of Company Schedules, any
     agreement or plan, including, without limitation, any stock option plan,
     stock appreciation right plan or stock purchase plan, any of the benefits
     of which will be increased, or the vesting of benefits of which will be
     accelerated, by the occurrence of any of the transactions contemplated by
     this Agreement or the value of any of the benefits of which will be
     calculated on the basis of any of the transactions contemplated by this
     Agreement;

          (h) any agreement, contract or commitment currently in force to sell
     or distribute any Company products, service or technology except agreements
     with distributors or sales representatives in the normal course of business
     cancelable without penalty upon notice of ninety (90) days or less and
     substantially in the form previously provided to Parent;

          (i) any mortgages, indentures, guarantees, loans or credit agreements,
     security agreements or other agreements or instruments relating to the
     borrowing of money or extension of credit;

          (j) any settlement agreement entered into within three (3) years prior
     to February 2, 2000; or

          (k) any other agreement, contract or commitment that has a value of
     $100,000 or more individually.

     Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), is in
breach, violation or default under, and neither the Company nor any of its
subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which the Company or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the Company Schedules or are required to be filed with any Company
SEC Report (any such agreement, contract or commitment, a "COMPANY CONTRACT") in
such a manner as would permit any other party to cancel or terminate any such
Company Contract, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or defaults, in the
aggregate).

     2.18  [RESERVED].

     2.19  Disclosure. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the
registration statement on Form S-4 (or similar successor form) to be filed with
the SEC by Parent in connection with the issuance of Parent Common Stock in the
Merger (the "REGISTRATION STATEMENT") will, at the time the Registration
Statement is filed with the SEC or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the
Prospectus/Proxy Statement to be filed with the SEC as part of the Registration
Statement (the "PROSPECTUS/PROXY STATEMENT"), will, at the time the
Prospectus/Proxy Statement is mailed to the stockholders of the Company, at the
time of the Company Stockholders' Meeting or as of the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no

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representation or warranty with respect to any information supplied by the
Parent which is contained in any of the foregoing documents.

     2.20  Board Approval. The Board of Directors of the Company has, as of
April 25, 2000, unanimously (i) determined that the Merger is fair to, and in
the best interests of the Company and its stockholders, (ii) approved and deemed
advisable, subject to stockholder approval, this Agreement and the transactions
contemplated hereby and (iii) determined to recommend that the stockholders of
the Company approve and adopt this Agreement and approve the Merger.

     2.21  Fairness Opinion. The Company's Board of Directors has received a
verbal opinion from W.R. Hambrecht, dated as of April 25, 2000, to the effect
that as of April 25, 2000, the Exchange Ratio is fair to the Company's
stockholders from a financial point of view and has delivered to Parent such
verbal opinion. The Company has a legally enforceable agreement with W.R.
Hambrecht to provide this opinion in writing to the Company within three (3)
days of April 25, 2000 and that such opinion shall be included in the
Prospectus/Proxy Statement.

     2.22  Restrictions on Business Activities. Except as set forth in Part 2.22
of the Company Schedule, there is no agreement, commitment, judgment,
injunction, order or decree binding upon the Company or to which the Company is
a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company, any
acquisition of property by the Company or the conduct of business by the Company
as currently conducted.

     2.23  Insurance. The Company maintains insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its subsidiaries
(collectively, the "INSURANCE POLICIES") which are of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Company and its subsidiaries. There is no material claim by the Company or any
of its subsidiaries pending under any of the material Insurance Policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds.

     2.24  State Takeover Statutes. No state takeover statute or similar statute
or regulation applies to or purports to apply to the Merger, this Agreement and
the Company Voting Agreements or the transactions contemplated by this Agreement
and the Company Voting Agreements.

                                  ARTICLE III

            REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     As of February 2, 2000 and as of the Closing Date, Parent and Merger Sub
represent and warrant to the Company, as follows:

     3.1  Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.

     3.2  Certificate of Incorporation and Bylaws. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws, (the "PARENT CHARTER DOCUMENTS") as

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amended to date. Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.

     3.3  Capitalization. The authorized capital stock of Parent consists of (i)
250,000,000 shares of Parent Common Stock, par value $0.001 per share, and (ii)
10,000,000 shares of Preferred Stock, par value $0.001 per share ("PARENT
PREFERRED STOCK"). At the close of business on January 31, 2000 (i) 41,385,986
shares of Parent Common Stock were issued and outstanding, (ii) 0 shares of
Parent Common Stock were held in treasury by Parent or by subsidiaries of
Parent, (iii) 1,000,000 shares of Parent Common Stock were reserved for future
issuance pursuant to Parent's employee stock purchase plan, and (iv) 8,144,826
shares of Parent Common Stock were reserved for issuance upon the exercise of
outstanding options ("PARENT OPTIONS") to purchase Parent Common Stock. As of
February 2, 2000, no shares of Parent Preferred Stock were issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.001 per share, all of which, as of February 2,
2000, are issued and outstanding. All of the outstanding shares of Parent's and
Merger Sub's respective capital stock have been duly authorized and validly
issued and are fully paid and nonassessable. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall, and the
shares of Parent Common Stock to be issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock (other than directors' qualifying shares) of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
owned by Parent or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Parent's voting rights,
charges or other encumbrances of any nature whatsoever.

     3.4  Authority; Non-Contravention.

     (a) Parent and Merger Sub have all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the filing of the
Certificate of Merger pursuant to Delaware Law. This Agreement has been duly
executed and delivered by Parent and Merger Sub, and upon due execution and
delivery by the Company, constitutes a valid and binding obligation of Parent
and Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, (i) conflict with Parent Charter Documents,
(ii) subject to compliance with the requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which Parent or any
of its subsidiaries or any of their respective properties are bound or affected,
or (iii) result in any material breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or impair Parent's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material
Encumbrance on any of the material properties or assets of Parent or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
assets are bound or affected.

     (b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity, is required to be obtained
or made by Parent in connection with the execution and delivery of this
Agreement or the consummation of the Merger, except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (ii)
the approval of the Registration Statement and the Prospectus/Proxy Statement in
accordance with the Securities Act and the Exchange

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Act, respectively, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign and state securities (or related) laws and the HSR Act, and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to Parent or have a material adverse
effect on the ability of the parties hereto to consummate the Merger.

     3.5  SEC Filings; Parent Financial Statements.

     (a) Parent has filed all forms, reports and documents required to be filed
by Parent with the SEC since December 9, 1999 and has made available to the
Company such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that Parent may file
subsequent to February 2, 2000) are referred to herein as the "PARENT SEC
REPORTS"). As of their respective dates, Parent SEC Reports (i) were prepared in
accordance and complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Reports and (ii)
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of Parent's subsidiaries is required
to file any forms, reports or other documents with the SEC.

     (b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Parent SEC Reports (the "PARENT
FINANCIALS"), including each Parent SEC Report filed after February 2, 2000
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of Parent's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring
year-end adjustments. The balance sheet of Parent dated October 29, 1999
contained in Parent's registration statement on Form S-1 dated December 9, 1999
is hereinafter referred to as (the "PARENT BALANCE SHEET").

     (c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.

     (d) Neither Parent nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole, except (i)
liabilities provided for in Parent's Balance Sheet or (ii) liabilities incurred
since October 29, 1999 in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of Parent
and its subsidiaries, taken as a whole.

     3.6  Absence of Certain Changes or Events. Since the date of Parent Balance
Sheet there has not been: (i) any Material Adverse Effect on Parent, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Parent's or any of its subsidiaries' capital
stock, (iv) any granting by Parent or any of its subsidiaries of any increase in
compensation or fringe benefits, except for normal

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increases of cash compensation in the ordinary course of business consistent
with past practice, or any payment by Parent or any of its subsidiaries of any
bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting by Parent or any of its subsidiaries of any
increase in severance or termination pay or any entry by Parent or any of its
subsidiaries into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Parent of the nature contemplated hereby, (v) entry by
Parent or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any material Intellectual Property
(as defined in Section 2.9) other than licenses in the ordinary course of
business consistent with past practice, (vi) any amendment or consent with
respect to any licensing agreement filed or required to be filed by Parent with
the SEC, (vii) any material change by Parent in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, or
(viii) any revaluation by Parent of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off notes
or accounts receivable other than in the ordinary course of business.

     3.7  Tax. Parent has timely filed all Tax Returns required to be filed by
it, has paid all Taxes shown thereon to be due, and has provided adequate
accruals in accordance with GAAP in its financial statements for any Taxes that
have not been paid. No audit of any Tax Return of Parent is being conducted by a
Tax authority. No extension of the statute of limitations on the assessment of
any Taxes has been granted by Parent and is currently in effect.

     3.8  Compliance; Permits; Restrictions.

     (a) Neither Parent nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for conflicts, violations and
defaults that (individually or in the aggregate) would not cause Parent to lose
any material benefit or incur any material liability. No investigation or review
by any Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity indicated
an intention to conduct an investigation of Parent or any of its subsidiaries.
There is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent or any of its subsidiaries, any acquisition of material property by
Parent or any of its subsidiaries or the conduct of business by Parent as
currently conducted.

     (b) Parent and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from Governmental
Entities that are material to and required for the operation of the business of
Parent as currently conducted (collectively, the "PARENT PERMITS"). Parent and
its subsidiaries are in compliance in all material respects with the terms of
Parent Permits, except where the failure to be in compliance with the terms of
Parent Permits would not be material to Parent.

     3.9  Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to
Parent. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Parent the legal right of Parent to design, manufacture,
offer or sell any of its products or services in the present manner or style
thereof. As of February 2, 2000, to the knowledge of Parent, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that

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would reasonably be expected to, cause or provide a bona fide basis for a
director or executive officer of Parent to seek indemnification from Parent.

     3.10  Agreements, Contracts and Commitments. As of February 2, 2000,
neither Parent nor any of its subsidiaries, nor to Parent's knowledge any other
party to a material Contract of Parent, is in breach, violation or default under
such Contract, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any material Contract of Parent in such a manner
as would permit any other party to cancel or terminate any such material
Contract of Parent, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or defaults, in the
aggregate).

     3.11  Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of Company,
at the time of the Company Stockholders' Meeting and as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated by the SEC thereunder. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.

     3.12  Board Approval. The Board of Directors of Parent has, as of February
2, 2000, approved the issuance of shares of Parent Common Stock and the payment
of an aggregate of in connection with the Merger.

     3.13  Benefit Plans. To the extent eligible, employees of the Company may
participate and/or receive options and stock under the Parent's 1998 Stock
Option Plan and 1998 Employee Stock Plan, pursuant to applicable laws.

                                   ARTICLE IV

                      CONDUCT PRIOR TO THE EFFECTIVE TIME

     4.1  Conduct of Business by the Company. During the period from February 2,
2000 and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in all material respects, in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due subject to good faith disputes over
such obligations, and use its commercially reasonable efforts consistent with
past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.

     In addition, except as permitted by the terms of this Agreement, and except
as provided in Article 4 of the Company Schedules, without the prior written
consent of Parent, during the period from February 2, 2000 and continuing until
the earlier of the termination of this Agreement pursuant to its

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terms or the Effective Time, the Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:

          (a) Except for the acceleration of the vesting of stock options
     pursuant to pre-existing contractual arrangement as set forth in Part
     2.2(b) of the Company Schedules, waive any stock repurchase rights,
     accelerate, amend or change the period of exercisability of options or
     restricted stock, or reprice options granted under any employee,
     consultant, director or other stock plans or authorize cash payments in
     exchange for any options granted under any of such plans;

          (b) Grant any severance or termination pay to any officer or employee
     except pursuant to written agreements outstanding, or policies existing, on
     February 2, 2000 and as previously disclosed in writing or made available
     to Parent, or adopt any new severance plan;

          (c) Transfer or license to any person or entity or otherwise extend,
     amend or modify in any material respect any rights to the Company
     Intellectual Property, or enter into grants to future patent rights, other
     than non-exclusive licenses in the ordinary course of business and
     consistent with past practice;

          (d) Declare, set aside or pay any dividends on or make any other
     distributions (whether in cash, stock, equity securities or property) in
     respect of any capital stock or split, combine or reclassify any capital
     stock or issue or authorize the issuance of any other securities in respect
     of, in lieu of or in substitution for any capital stock;

          (e) Purchase, redeem or otherwise acquire, directly or indirectly, any
     shares of capital stock of the Company or its subsidiaries, except
     repurchases of unvested shares at cost in connection with the termination
     of the employment relationship with any employee pursuant to stock option
     or purchase agreements in effect on January 20, 2000;

          (f) Issue, deliver, sell, authorize, pledge or otherwise encumber, any
     shares of capital stock or any securities convertible into shares of
     capital stock, or subscriptions, rights, warrants or options to acquire any
     shares of capital stock or any securities convertible into shares of
     capital stock, or enter into other agreements or commitments of any
     character obligating it to issue any such shares or convertible securities,
     other than (i) stock options pursuant to the Company Stock Option Plans
     granted to employees of the Company to purchase 1,200,000 shares (as
     appropriately adjusted for stock splits and the like) of Company Common
     Stock with strike prices equal to the fair market value of the Company
     Common Stock at the time of grant and otherwise with vesting schedules and
     other terms subject to Section 5; (ii) issuance of shares of the Company
     Common Stock in connection with the prior acquisitions of the Company, as
     set forth in Part 4.1 of the Company Schedules; and (iii) issuance of
     shares by the Company Common Stock pursuant to the exercise of stock
     options therefor outstanding as of January 20, 2000 or granted pursuant to
     the preceding clause (i);

          (g) Cause, permit or propose any amendments to its Certificate of
     Incorporation, Bylaws or other charter documents (or similar governing
     instruments of any of its subsidiaries) except to the extent required to
     comply with the Company's obligations hereunder, required by law or
     required by the rules and regulations of Nasdaq;

          (h) Except as set forth on Part 4.1 of the Company Schedules and
     except for the acquisition of Question Exchange, Inc. pursuant to the terms
     of a certain Agreement and Plan of Merger dated January 27, 2000, acquire
     or agree to acquire by merging or consolidating with, or by purchasing any
     equity interest in or a portion of the assets of, or by any other manner,
     any business or any corporation, partnership, association or other business
     organization or division thereof, or otherwise acquire or agree to acquire
     any assets which are material, individually or in the aggregate, to the
     business of the Company or enter into any material joint ventures,
     strategic partnerships or alliances;

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<PAGE>   257

          (i) Sell, lease, license, encumber or otherwise dispose of any
     properties or assets which are material, individually or in the aggregate,
     to the business of the Company, except sales of inventory and used
     equipment in the ordinary course of business consistent with past practice;

          (j) Incur any indebtedness for borrowed money or guarantee any such
     indebtedness of another person, issue or sell any debt securities or
     options, warrants, calls or other rights to acquire any debt securities of
     the Company, enter into any "keep well" or other agreement to maintain any
     financial statement condition or enter into any arrangement having the
     economic effect of any of the foregoing other than in connection with the
     financing of ordinary course trade payables consistent with past practice;

          (k) Adopt or amend any employee benefit plan or employee stock
     purchase or employee stock option plan, or enter into any employment
     contract or collective bargaining agreement (other than offer letters and
     letter agreements entered into in the ordinary course of business
     consistent with past practice with employees who are terminable "at will"),
     pay any special bonus or special remuneration to any director or employee,
     or increase the salaries or wage rates or fringe benefits (including rights
     to severance or indemnification) of its directors, officers, employees or
     consultants other than in the ordinary course of business, consistent with
     past practice, or change in any material respect any management policies or
     procedures;

          (l) Except for payments made in connection with the acquisition of
     Question Exchange, Inc., make any payments outside of the ordinary course
     of business consistent with past practices in excess of $50,000
     individually or in the aggregate;

          (m) Modify, amend or terminate any Company Contract or other material
     contract or agreement to which the Company or any subsidiary thereof is a
     party or waive, release or assign any material rights or claims thereunder;

          (n) Enter into any contracts, agreements, or obligations relating to
     the distribution, sale, license or marketing by third parties of the
     Company's products or products licensed by the Company other than in the
     ordinary course of business consistent with past practice;

          (o) Materially revalue any of its assets or, except as required by
     GAAP, make any change in accounting methods, principles or practices;

          (p) Take any action that could reasonably be expected to cause the
     Merger to fail to qualify as a "reorganization" under Section 368(a) of the
     Code; or

          (q) Agree in writing or otherwise to take any of the actions described
     in (a) through (p) above.

     4.2  Conduct of Business by Parent. During the period from February 2, 2000
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, except as permitted by the terms of this
Agreement and except as provided in Section 4.2 of the Parent Schedule, without
the prior written consent of Company, Parent shall not engage in any action that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code.

                                   ARTICLE V

                             ADDITIONAL AGREEMENTS

     5.1  Prospectus/Proxy Statement; Registration Statement; Other Filings. As
promptly as practicable after the execution of this Agreement, the Company and
Parent will prepare and file with the SEC, the Prospectus/Proxy Statement and
Parent will prepare and file with the SEC the Registration Statement in which
the Prospectus/Proxy Statement will be included as a prospectus. Each of Parent
and Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Proxy Statement/Prospectus and the Registration Statement, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and

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<PAGE>   258

auditors in the preparation of the Proxy Statement/Prospectus and the
Registration Statement. Each of the Company and Parent will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and the Company will cause the
Prospectus/Proxy Statement to be mailed to its stockholders at the earliest
practicable time after the Registration Statement is declared effective by the
SEC. As promptly as practicable after February 2, 2000, each of the Company and
Parent will prepare and file (i) with the United States Federal Trade Commission
(the "FTC") and the Antitrust Division of the United States Department of
Justice ("DOJ") Notification and Report Forms relating to the transactions
contemplated herein as required by the HSR Act, as well as comparable pre-merger
notification forms required by the merger notification or control laws and
regulations of any applicable jurisdiction, as agreed to by the parties (the
"ANTITRUST FILINGS") and (ii) any other filings required to be filed by it under
the Exchange Act, the Securities Act or any other Federal, state or foreign laws
relating to the Merger and the transactions contemplated by this Agreement (the
"OTHER FILINGS"). The Company and Parent each shall promptly supply the other
with any information which may be required in order to effectuate any filings
pursuant to this Section 5.1. Each of the Company and Parent will notify the
other promptly upon the receipt of any comments from the SEC or its staff or any
other government officials in connection with any filing made pursuant hereto
and of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Prospectus/Proxy
Statement or any Antitrust Filings or Other Filing or for additional information
and will supply the other with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Prospectus/Proxy Statement, the Merger or any Antitrust Filing or
Other Filing. Each of the Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Prospectus/Proxy Statement, the Registration Statement or any Antitrust Filing
or Other Filing, the Company or Parent, as the case may be, will promptly inform
the other of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, and/or mailing to stockholders of the Company
and/or Parent, such amendment or supplement.

     5.2  Meeting of Company Stockholders.

     (a) Promptly after February 2, 2000, the Company will take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene a meeting of the Company's stockholders to consider
adoption and approval of this Agreement and approval of the Merger (the "COMPANY
STOCKHOLDERS' MEETING") to be held as promptly as practicable, and in any event
(to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement. The Company will use
its commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its stockholders required by the rules of Nasdaq or Delaware Law
to obtain such approvals. Notwithstanding anything to the contrary contained in
this Agreement, with Parent's prior written consent, the Company may adjourn or
postpone the Company Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Prospectus/Proxy Statement is
provided to the Company's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which the Company Stockholders' Meeting
is originally scheduled (as set forth in the Prospectus/Proxy Statement) there
are insufficient shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the business of the
Company's Stockholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by the Company in connection with the Company
Stockholders' Meeting are solicited, in compliance with the Delaware Law, the
Company's Certificate of Incorporation and Bylaws, the rules of Nasdaq and all
other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in accordance with
this Section 5.2(a) shall not be

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<PAGE>   259

limited to or otherwise affected by the commencement, disclosure, announcement
or submission to the Company of any Acquisition Proposal (as defined below), or
by any withdrawal, amendment or modification of the recommendation of the Board
of Directors of the Company with respect to the Merger and/or this Agreement.

     (b) Subject to Section 5.2(c): (i) the Board of Directors of the Company
shall unanimously recommend that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company Stockholders'
Meeting; and (iii) neither the Board of Directors of the Company nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to Parent, the unanimous
recommendation of the Board of Directors of the Company that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.

     (c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer (as defined below)
is made to the Company and is not withdrawn, (ii) the Company shall have
provided written notice to Parent (a "NOTICE OF SUPERIOR OFFER") advising Parent
that the Company has received a Superior Offer, specifying the material terms
and conditions of such Superior Offer and identifying the person or entity
making such Superior Offer, (iii) Parent shall not have, within five (5)
business days of Parent's receipt of the Notice of Superior Proposal, made an
offer that the Company Board by a majority vote determines in its good faith
judgment (after consultation with a financial adviser of nationally recognized
reputation) to be at least as favorable to the Company's stockholders as such
Superior Proposal (it being agreed that the Company Board shall convene a
meeting to consider any such offer by Parent promptly following the receipt
thereof), (iv) the Board of Directors of the Company concludes in good faith,
after consultation with its outside counsel, that, in light of such Superior
Offer, the withholding, withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of the Company to
comply with its fiduciary obligations to the Company's stockholders under
applicable law and (v) neither the Company nor any of its representatives shall
have violated any of the restrictions set forth in Section 5.5 or this Section
5.2. The Company shall provide Parent with at least three business days prior
notice (or such lesser prior notice as provided to the members of the Company's
Board of Directors but in no event less than twenty-four hours) of any meeting
of the Company's Board of Directors at which the Company's Board of Directors is
reasonably expected to consider any Acquisition Transaction (as defined below).
Nothing contained in this Agreement shall limit the Company's obligation to hold
and convene the Company Stockholders' Meeting (regardless of whether the
unanimous recommendation of the Board of Directors of the Company shall have
been withdrawn, amended or modified). For purposes of this Agreement "SUPERIOR
OFFER" shall mean an unsolicited, bona fide written offer made by a third party
to consummate any of the following transactions: (i) a merger or consolidation
involving the Company pursuant to which the stockholders of the Company
immediately preceding such transaction hold none of the equity interest in the
surviving or resulting entity of such transaction or (ii) the acquisition by any
person or group (including by way of a tender offer or an exchange offer),
directly or indirectly, of ownership of 100% of the then outstanding shares of
capital stock of the Company, in each case on terms that the Board of Directors
of the Company determines, in its reasonable judgment (based on the written
advice of a financial adviser of nationally recognized reputation) to be more
favorable to the Company stockholders from a financial point of view than the
terms of the Merger; provided, however, that any such offer shall not be deemed
to be a "Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed.

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<PAGE>   260

     (d) Nothing contained in this Agreement shall prohibit the Company or its
Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act.

     5.3  Registration Rights. Parent shall use its best efforts to amend that
certain First Amended and Restated Registration Rights Agreement dated June 16,
1999 so that each Company Affiliate shall (a) receive registration rights for
Parent-initiated secondary public offerings of Parent Common Stock, such that in
the aggregate, the Company Affiliates shall receive the right to sell no less
than twenty percent (20%) of the selling stockholder component of the first
Parent-initiated secondary offering of Parent Common Stock and pari passu rights
on subsequent Parent-initiated secondary offering; and (b) be subject to a
market stand-off provision for the period from the date of filing such
Parent-initiated secondary offering through the ninetieth day following the
closing of such Parent-initiated secondary offering; provided, however that a
Company Affiliate which does not participate as a selling stockholder in such
Parent-initiated secondary offering shall only be subject to a market stand-off
provision for the period from the date of filing such Parent-initiated secondary
offering through the thirtieth day following the closing of such
Parent-initiated secondary offering. In addition, Parent shall not provide more
than 10 days' notice to any Company Affiliate prior to the filing of any
Parent-initiated secondary offering.

     5.4  Confidentiality; Access to Information.

     (a) The parties acknowledge that the Company and Parent have previously
executed a Confidentiality Agreement, dated as of January 14, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.

     (b) Access to Information. Each of the Company and Parent will afford the
other and the other's accountants, counsel and other representatives reasonable
access during normal business hours to the properties, books, records and
personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of product development
efforts, properties, results of operations and personnel, as such other party
may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.

     5.5  No Solicitation.

     (a) From and after February 2, 2000 until the Effective Time or termination
of this Agreement pursuant to Article VII, the Company and its subsidiaries will
not, nor will they authorize or permit any of their respective officers,
directors, affiliates or employees or any investment banker, attorney or other
advisor or representative retained by any of them to, directly or indirectly,
(i) solicit, initiate, knowingly encourage or induce the making, submission or
announcement of any Acquisition Proposal (as hereinafter defined), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person other than Parent any non-public information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any Acquisition
Proposal, except as to the existence of these provisions, (iv) subject to
Section 5.2(c) approve, endorse or recommend any Acquisition Proposal or (v)
enter into any letter of intent or similar document or any contract agreement or
commitment contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that after receipt of an unsolicited, written, bona fide
Acquisition Proposal that the Board of Directors of the Company reasonably
concludes may constitute a Superior Offer, the Company may submit to the party
making such Acquisition Proposal a written list of questions, the sole purpose
of which is to elicit clarifications as to the material terms of the Acquisition
Proposal so as to enable the Board of Directors of the Company to make a
determination whether such Acquisition Proposal is in fact a Superior Offer (it
being agreed that any correspondence with such party shall be limited to
questions and such questions shall be limited to the purpose of clarifying the
material terms of such Acquisition Proposal and shall not solicit or encourage
any new Acquisition Proposal or any change to the Acquisition Proposal, and it
being further agreed that the Company shall provide Parent with a copy of any
correspondence to be delivered

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pursuant to this Section 5.5(a) at least 24 hours prior to sending such
correspondence to any third party). The Company and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding two sentences by any officer, director
or employee of the Company or any of its subsidiaries or any investment banker,
attorney or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 5.5 by the Company.

     For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions
involving: (A) any purchase from the Company or acquisition by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 5% interest in the total outstanding
voting securities of the Company or any of its subsidiaries or any tender offer
or exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the
Company; (B) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 5% of the assets of the Company; or (C)
any liquidation or dissolution of the Company.

     (b) In addition to the obligations of the Company set forth in paragraph
(a) of this Section 5.5, the Company as promptly as practicable shall advise
Parent orally and in writing of any Acquisition Proposal or any request for
non-public information which the Company reasonably believes would lead to an
Acquisition Proposal or to any Acquisition Transaction, or any inquiry with
respect to or which the Company reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group making
any such request, Acquisition Proposal or inquiry. The Company will keep Parent
informed as promptly as practicable in all material respects of the status and
details (including material amendments or proposed material amendments) of any
such Acquisition Proposal, request or inquiry.

     5.6  Public Disclosure. Parent and the Company will consult with each
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or any Acquisition Proposal and will not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.

     5.7  Reasonable Efforts; Notification.

     (a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order

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entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, the Company
and its Board of Directors shall, if any state takeover statute or similar
statute or regulation is or becomes applicable to the Merger, this Agreement or
any of the transactions contemplated by this Agreement, use all reasonable
efforts to ensure that the Merger and the other transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, this Agreement and the transactions
contemplated hereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require Parent or the Company or any
subsidiary or affiliate thereof to agree to any divestiture by itself or any of
its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their businesses or to own or exercise control of such assets,
properties and stock.

     (b) The Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of the Company to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement, in each case, such that the conditions set forth in
Section 6.3(a) or 6.3(b) would not be satisfied, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.

     (c) Parent shall give prompt notice to the Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue or
inaccurate, or any failure of Parent or Merger Sub to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.2(a) or 6.2(b) would not be satisfied, provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.

     5.8  Third Party Consents. As soon as practicable following February 2,
2000, Parent and the Company will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.

     5.9  Stock Options and Employee Benefits.

     (a) At the Effective Time, each then outstanding Company Option, whether or
not exercisable at the Effective Time and regardless of the respective exercise
prices thereof, will be assumed by Parent. Each Company Option so assumed by
Parent under this Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Company Stock Option Plan (and
any applicable stock option agreement for such Company Option) immediately prior
to the Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each Company Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of whole
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded down to the nearest whole cent. Each assumed
Company Option shall be vested immediately following the Effective Time as to
the same percentage of the total number of shares subject thereto as it was
vested as of the Effective Time (taking into consideration the effect of the
Merger on the vesting of such assumed Company Options); provided

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<PAGE>   263

however, that the Company shall take all best efforts so that no Company Option
shall vest in excess of 50% of the unvested portion immediately prior to the
Effective Time as a result of the Merger.

     (b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 5.9 shall be applied consistent with such intent.

     (c) It is intended that prior to Closing, the Company shall place into
escrow with an escrow agent and form of escrow agreement reasonably acceptable
to Parent shares of Company Common Stock (the "ESCROW SHARES") which would have
been issued by the Company in connection with its prior acquisitions as set
forth on Part 4.1 of the Company Schedules. Upon Closing, such Escrow Shares
shall be converted into shares of Parent Common Stock in accordance with the
terms of this Agreement and be released from escrow in accordance with the terms
of the respective acquisition agreements.

     (d) Prior to the Effective Time, the Company shall grant stock options
pursuant to the Company 1999 Stock Option Plan to purchase an aggregate of
1,200,000 shares (as appropriately adjusted for stock splits and the like) of
Company Common Stock to such persons and in such amounts as to which Parent
shall have agreed, with strike prices equal to the fair market value of the
Company Common Stock at the time of grant, with no acceleration of vesting
triggered by this Merger, with 25% of the option vested 12 months from the date
of grant and 1/48 per month thereafter. These options shall only be granted to
employees of the Company and in such individual amounts as set forth on a
written schedule approved in writing by Parent prior to the granting of such
options ("OPTION SCHEDULE"); provided, however that no New Options shall be
included on the Option Schedule.

     (e) For purposes of determining eligibility to participate, vesting, and
accrual or entitlement to benefits where length of service is relevant under any
employee benefit plan or arrangement of Parent, the Surviving Corporation, or
any of their respective subsidiaries or affiliates, the employees, officers,
directors, and consultants of the Company as of the Effective Time ("AFFECTED
EMPLOYEES") shall receive service credit for service with the Company (and any
predecessors thereto) to the same extent that such service credit was granted
under the Company Employee Plans, subject to no duplication of benefits;
provided, however, that this paragraph shall not apply to any of Parent's equity
benefit plans.

     (f) Parent shall assume and honor, or shall cause the Surviving Corporation
to assume and honor, in accordance with their terms, all written employment,
retention, consulting, bonus, severance and termination plans and agreements
(including change in control provisions) of Affected Employees provided or made
available to Parent on or prior to the Effective Time.

     5.10  Form S-8. If available for use by Parent, Parent agrees to file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable after the Effective Time, and in no event later than 45 days after
the Effective Time and shall use its commercially reasonable efforts to have
such registration statement become effective and to maintain the effectiveness
of such registration statement for so long as such options remain outstanding.

     5.11  Indemnification.

     (a) From and after the Effective Time, Parent will, and will cause the
Surviving Corporation to fulfill and honor in all respects the obligations of
the Company pursuant to any indemnification agreements between the Company and
its directors and officers as of the Effective Time (the "INDEMNIFIED PARTIES").
The Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of the Company as in effect on February
2, 2000, which provisions will not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of the
Company, unless such modification is required by law.

                                      A-32
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     (b) For a period of three years after the Effective Time, Parent will cause
the Surviving Corporation to use its commercially reasonable efforts to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the current directors and officers of the Company; provided, however, that in no
event will Parent or the Surviving Corporation be required to expend in excess
of 150% of the annual premium currently paid by the Company for such coverage
(or such coverage as is available for such 150% of such annual premium).

     5.12  Invention Assignment Agreement. The Company shall use its best
efforts to have all employees and independent contractors execute, respectively,
that certain Employee Agreement attached hereto as Exhibit F and that certain
Contractor Agreement attached hereto as Exhibit G. The Company shall pay each
such employee and independent contractor one hundred (100) dollars
contemporaneously with such execution.

     5.13  Nasdaq Listing. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.

     5.14  Company Affiliate Agreement. Set forth on Exhibit B is a list of
those persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act (each a "COMPANY AFFILIATE"). The Company will provide Parent
with such information and documents as Parent reasonably requests for purposes
of reviewing such list. Contemporaneously herewith, the Company shall deliver or
cause to be delivered to Parent, from each Company Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit C (the
"COMPANY AFFILIATE AGREEMENT"), each of which will be in full force and effect
as of the Effective Time. Parent will be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by a
Company Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of the Company Affiliate Agreement.

     5.15  Option Assumption Agreement. The Company shall use its best efforts
to cause each holder of a Company Option to execute and deliver to Parent an
option assumption agreement in form delivered to the Company by Parent (the
"OPTION ASSUMPTION AGREEMENT").

     5.16  1999 Stock Option Plan. The Company shall include in the
Proxy/Prospectus a proposal for its stockholders to increase the number of
shares authorized under the Company's 1999 Stock Option Plan so that no less
than 1,200,000 shares of Company Common Stock are available for grant to the
individual employees on the Option Schedule, prior to the Closing (the "OPTION
INCREASE").

                                   ARTICLE VI

                            CONDITIONS TO THE MERGER

     6.1  Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:

          (a) Company Stockholder Approval. This Agreement shall have been
     approved and adopted, and the Merger shall have been duly approved, by the
     requisite vote under applicable law, by the stockholders of the Company.

          (b) Registration Statement Effective; Proxy Statement. The SEC shall
     have declared the Registration Statement effective. No stop order
     suspending the effectiveness of the Registration Statement or any part
     thereof shall have been issued and no proceeding for that purpose, and no
     similar proceeding in respect of the Prospectus/Proxy Statement, shall have
     been initiated or threatened in writing by the SEC.

                                      A-33
<PAGE>   265

          (c) No Order; HSR Act. No Governmental Entity shall have enacted,
     issued, promulgated, enforced or entered any statute, rule, regulation,
     executive order, decree, injunction or other order (whether temporary,
     preliminary or permanent) which is in effect and which has the effect of
     making the Merger illegal or otherwise prohibiting consummation of the
     Merger. All waiting periods, if any, under the HSR Act relating to the
     transactions contemplated hereby will have expired or terminated early and
     all material foreign antitrust approvals required to be obtained prior to
     the Merger in connection with the transactions contemplated hereby shall
     have been obtained.

          (d) Tax Opinions. Parent and the Company shall each have received
     written opinions from their respective tax counsel (Wilson Sonsini Goodrich
     & Rosati, Professional Corporation, and Hutchins, Wheeler and Dittmar, a
     Professional Corporation, respectively), in form and substance reasonably
     satisfactory to them, to the effect that the Merger will constitute a
     tax-free reorganization within the meaning of Section 368(a) of the Code
     and such opinions shall not have been withdrawn; provided, however, that if
     the counsel to either Parent or the Company does not render such opinion,
     this condition shall nonetheless be deemed to be satisfied with respect to
     such party if counsel to the other party renders such opinion to such
     party. The parties to this Agreement agree to make such reasonable
     representations as requested by such counsel for the purpose of rendering
     such opinions.

          (e) Nasdaq Listing. The shares of Parent Common Stock to be issued in
     the Merger shall have been authorized for listing on Nasdaq, subject to
     notice of issuance.

     6.2  Additional Conditions to Obligations of the Company. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:

          (a) Representations and Warranties. Each representation and warranty
     of Parent and Merger Sub contained in this Agreement (i) shall have been
     true and correct as of February 2, 2000 and (ii) shall be true and correct
     on and as of the Closing Date with the same force and effect as if made on
     the Closing Date except, (A) in each case, or in the aggregate, as does not
     constitute a Material Adverse Effect on Parent or Merger Sub; and (B) for
     those representations and warranties which address matters only as of a
     particular date (which representations shall have been true and correct
     (subject to the qualifications set forth in the preceding clause (A)) as of
     such particular date) (it being understood that, for purposes of
     determining the accuracy of such representations and warranties, (i) all
     "Material Adverse Effect" qualifications and other qualifications based on
     the word, "material" or other similar phrases contained in such
     representations and warranties shall be disregarded and (ii) any update of
     or modification to the Parent Schedules made or purported to have been made
     after the execution of this Agreement shall be disregarded). The Company
     shall have received a certificate with respect to the foregoing signed on
     behalf of Parent by an authorized officer of Parent.

          (b) Agreements and Covenants. Parent and Merger Sub shall have
     performed or complied in all material respects with all agreements and
     covenants required by this Agreement to be performed or complied with by
     them on or prior to the Closing Date, and the Company shall have received a
     certificate to such effect signed on behalf of Parent by an authorized
     officer of Parent.

          (c) Material Adverse Effect. No Material Adverse Effect with respect
     to Parent shall have occurred since February 2, 2000.

     6.3  Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:

          (a) Representations and Warranties. Each representation and warranty
     of the Company contained in this Agreement (i) shall have been true and
     correct as of February 2, 2000 and (ii) shall be true and correct on and as
     of the Closing Date with the same force and effect as if made on and as of
     the Closing Date except (A) in each case, or in the aggregate, as does not
     constitute a Material

                                      A-34
<PAGE>   266

     Adverse Effect on the Company; provided, however, such Material Adverse
     Effect qualification shall be inapplicable with respect to the
     representations and warranties contained in Sections 2.2(a) and (b), 2.3,
     2.20, 2.21 and 2.22, and (B) for those representations and warranties which
     address matters only as of a particular date (which representations shall
     have been true and correct (subject to the qualifications set forth in the
     preceding clause (A)) as of such particular date) (it being understood
     that, for purposes of determining the accuracy of such representations and
     warranties, (i) all "Material Adverse Effect" qualifications and other
     qualifications based on the word, "material" or other similar phrases
     contained in such representations and warranties shall be disregarded and
     (ii) any update of or modification to the Company Schedules made or
     purported to have been made after the execution of this Agreement shall be
     disregarded). Parent shall have received a certificate with respect to the
     foregoing signed on behalf of the Company by an authorized officer of the
     Company.

          (b) Agreements and Covenants. The Company shall have performed or
     complied in all material respects with all agreements and covenants
     required by this Agreement to be performed or complied with by it at or
     prior to the Closing Date, and Parent shall have received a certificate to
     such effect signed on behalf of the Company by the Chief Executive Officer
     and the Chief Financial Officer of the Company.

          (c) Material Adverse Effect. No Material Adverse Effect with respect
     to the Company and its subsidiaries shall have occurred since December 31,
     1999.

          (d) Consents. The Company shall have obtained all consents, waivers
     and approvals required in connection with the consummation of the
     transactions contemplated hereby in connection with the agreements,
     contracts, licenses or leases set forth on Schedule 6.3(e).

          (e) Registration Rights Agreement. The Company Registration Rights
     Agreement shall have been terminated and none of the shares of Company
     Common Stock shall have registration rights, except pursuant to contractual
     arrangements with Parent.

          (f) 1999 Stock Option Plan. The Option Increase shall have been duly
     approved by the requisite vote under applicable law by the stockholders of
     the Company.

                                  ARTICLE VII

                       TERMINATION, AMENDMENT AND WAIVER

     7.1  Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of the Company:

          (a) by mutual written consent duly authorized by the Boards of
     Directors of Parent and the Company;

          (b) by either the Company or Parent if the Merger shall not have been
     consummated by June 30, 2000 (the "END DATE") for any reason; provided,
     however, that the right to terminate this Agreement under this Section
     7.1(b) shall not be available to any party whose action or failure to act
     has been a principal cause of or resulted in the failure of the Merger to
     occur on or before such date and such action or failure to act constitutes
     a material breach of this Agreement;

          (c) by either the Company or Parent if a Governmental Entity shall
     have issued an order, decree or ruling or taken any other action, in any
     case having the effect of permanently restraining, enjoining or otherwise
     prohibiting the Merger, which order, decree, ruling or other action is
     final and nonappealable;

          (d) by either the Company or Parent if the required approval of the
     stockholders of the Company contemplated by this Agreement shall not have
     been obtained by reason of the failure to obtain the required vote at a
     meeting of the Company stockholders duly convened therefore or at any
     adjournment thereof; provided, however, that the right to terminate this
     Agreement under this

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<PAGE>   267

     Section 7.1(d) shall not be available to the Company where the failure to
     obtain the Company stockholder approval shall have been caused by (i) the
     action or failure to act of the Company and such action or failure to act
     constitutes a breach by the Company of this Agreement or (ii) a breach of
     the Company Voting Agreement by any party thereto other than Parent.

          (e) by Parent (at any time prior to the adoption and approval of this
     Agreement and the Merger by the required vote of the stockholders of the
     Company) if a Company Triggering Event (as defined below) shall have
     occurred;

          (f) by the Company, upon a breach of any representation, warranty,
     covenant or agreement on the part of Parent set forth in this Agreement, or
     if any representation or warranty of Parent shall have become untrue, in
     either case such that the conditions set forth in Section 6.2(a) or Section
     6.2(b) would not be satisfied as of the time of such breach or as of the
     time such representation or warranty shall have become untrue, provided
     that if such inaccuracy in Parent's representations and warranties or
     breach by Parent is curable by Parent through the exercise of its
     commercially reasonable efforts, then the Company may not terminate this
     Agreement under this Section 7.1(f) prior to End Date, provided Parent
     continues to exercise commercially reasonable efforts to cure such breach
     (it being understood that the Company may not terminate this Agreement
     pursuant to this paragraph (f) if it shall have materially breached this
     Agreement or if such breach by Parent is cured prior to the End Date);

          (g) by Parent, upon a breach of any representation, warranty, covenant
     or agreement on the part of the Company set forth in this Agreement, or if
     any representation or warranty of the Company shall have become untrue, in
     either case such that the conditions set forth in Section 6.3(a) or Section
     6.3(b) would not be satisfied as of the time of such breach or as of the
     time such representation or warranty shall have become untrue, provided,
     that if such inaccuracy in the Company's representations and warranties or
     breach by the Company is curable by the Company through the exercise of its
     commercially reasonable efforts, then Parent may not terminate this
     Agreement under this Section 7.1(g) prior to the End Date, provided the
     Company continues to exercise commercially reasonable efforts to cure such
     breach (it being understood that Parent may not terminate this Agreement
     pursuant to this paragraph (g) if it shall have materially breached this
     Agreement or if such breach by the Company is cured prior to the End Date);

          (h) by Parent, upon a breach of the provisions in Section 5.5 of this
     Agreement.

     For the purposes of this Agreement, a "COMPANY TRIGGERING EVENT" shall be
deemed to have occurred if: (i) the Board of Directors of the Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its unanimous recommendation in favor of,
the adoption and approval of the Agreement or the approval of the Merger; (ii)
the Company shall have failed to include in the Prospectus/Proxy Statement the
unanimous recommendation of the Board of Directors of the Company in favor of
the adoption and approval of the Agreement and the approval of the Merger; (iii)
the Board of Directors of the Company fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within ten (10) days after Parent requests in writing
that such recommendation be reaffirmed; (iv) the Board of Directors of the
Company or any committee thereof shall have approved or recommended any
Acquisition Proposal; or (v) a tender or exchange offer relating to securities
of the Company shall have been commenced by a Person unaffiliated with Parent
and the Company shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published sent or given, a statement
disclosing that the Company recommends rejection of such tender or exchange
offer.

     7.2  Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of a valid written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in Section
7.1, this Agreement shall be of no further force or effect, except (i) as set
forth in Section 5.4(a), this Section 7.2, Section 7.3 and Article 8 (general
provisions), each of which shall survive

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<PAGE>   268

the termination of this Agreement, and (ii) nothing herein shall relieve any
party from liability for any willful breach of this Agreement. No termination of
this Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.

     7.3  Fees and Expenses.

     (a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' and accountants fees
and expenses, incurred in relation to the printing and filing (with the SEC) of
the Prospectus/Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.

     (b) Company Payments. In the event that this Agreement is terminated by
Parent or the Company, as applicable, pursuant to Sections 7.1(b), (d) or (g),
the Company shall promptly, but in no event later than two days after the date
of such termination, pay Parent a fee equal to $30,000,000 in immediately
available funds (the "TERMINATION FEE"); provided, that in the case of
termination under Section 7.1(b) or 7.1(d), such payment shall be made only if
following February 2, 2000 and prior to the termination of this Agreement, a
third party has publicly announced an Acquisition Proposal and within 15 months
following the termination of this Agreement a Company Acquisition (as defined
below) is consummated or the Company enters into an agreement providing for a
Company Acquisition. The Company acknowledges that the agreements contained in
this Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter into
this Agreement; accordingly, if the Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b), and, in order to obtain such
payment, Parent makes a claim that results in a judgment against the Company for
the amounts set forth in this Section 7.3(b), the Company shall pay to Parent
its reasonable costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set forth in
this Section 7.3(b) at the prime rate of The Chase Manhattan Bank in effect on
the date such payment was required to be made. Payment of the fees described in
this Section 7.3(b) shall not be in lieu of damages incurred in the event of
breach of this Agreement. For the purposes of this Agreement "COMPANY
ACQUISITION" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement); (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of 50% of the aggregate fair market value of the
Company's business immediately prior to such sale or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of 50% of
the voting power of the then outstanding shares of capital stock of the Company.

     7.4  Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and the Company.

     7.5  Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.

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                                  ARTICLE VIII

                               GENERAL PROVISIONS

     8.1  Non-Survival of Representations and Warranties. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.

     8.2  Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):

     (a) if to Parent or Merger Sub, to:

         VA Linux Systems, Inc.
         1382 Bordeaux Drive
         Sunnyvale, California 94089
         Attention: Chief Financial Officer
         Telephone No.: (408) 542-8600
         Telecopy No.: (408) 745-9152

         with a copy to:

         Wilson Sonsini Goodrich & Rosati
         Professional Corporation
         650 Page Mill Road
         Palo Alto, California 94304-1050
         Attention: Judith M. O'Brien, Esq.
                    Bruce M. McNamara, Esq.
                    Bret M. DiMarco, Esq.
         Telephone No.: (650) 493-9300
         Telecopy No.: (650) 493-6811

     (b) if to the Company, to:

         Andover.Net, Inc.
         50 Nagog Park
         Acton, Massachusetts 01720
         Attention: Bruce A Twickler
         Telephone No.: (978) 635-5300
         Telecopy No.: (978) 635-5326

         with a copy to:

         Hutchins, Wheeler & Dittmar
         A Professional Corporation
         101 Federal Street
         Boston, Massachusetts 02110
         Attention: David P. Kreisler, Esq.
         Telephone No.: (617) 951-6600
         Telecopy No.: (617) 951-1295

     8.3  Interpretation; Knowledge.

     (a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated the words "INCLUDE,"
"INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be
followed by the words

                                      A-38
<PAGE>   270

"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"THE BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.

     (b) For purposes of this Agreement the term "KNOWLEDGE" means with respect
to a party hereto, with respect to any matter in question, that any of the Chief
Executive Officer, Chief Financial Officer, General Counsel or Controller of
such party, has actual knowledge of such matter.

     (c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition or
results of operations of such entity taken as a whole with its subsidiaries
provided however, that none of the following, in and of itself, shall be deemed
to have a Material Adverse Effect: (i) an event, violation, inaccuracy,
circumstance or other matter that results from conditions affecting the U.S.
economy in general; (ii) an event, violation, inaccuracy, circumstance or other
matter that results from the taking of any action expressly required by the
Agreement; (iii) a decline in Parent's Common Stock.

     (d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.

     8.4  Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

     8.5  Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.11.

     8.6  Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.

     8.7  Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.

                                      A-39
<PAGE>   271

     8.8  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

     8.9  Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.

     8.10  Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

     8.11  WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

     [remainder of page intentionally left blank; signature page follows
immediately hereafter]

                                      A-40
<PAGE>   272

                                 SIGNATURE PAGE

     IN WITNESS WHEREOF, VA Linux and Andover.Net have caused this Amendment to
be executed by their duly authorized representatives as of the day and year
first above written.

                                          VA LINUX SYSTEMS, INC.

                                          By: /s/ TODD B. SCHULL
                                          --------------------------------------
                                          Name: Todd B. Schull
                                          Title: Vice President, Finance and
                                             Chief Financial Officer

                                          ANDOVER.NET, INC.

                                          By: /s/ BRUCE A. TWICKLER
                                          --------------------------------------
                                          Name: Bruce A. Twickler
                                          Title: President and Chief Executive
                                                 Officer

             *** AMENDED AND RESTATED REORGANIZATION AGREEMENT ***

                                      A-41
<PAGE>   273

                                                                       EXHIBIT A

                                VOTING AGREEMENT

     THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
February 2, 2000 by and among VA Linux Systems, Inc., a Delaware corporation
("Parent"), Andover.Net, Inc., a Delaware corporation (the "Company"), and the
undersigned shareholder (the "Shareholder") of the Company.

                                    RECITALS

     A. Concurrently with the execution of this Agreement, Parent, Atlanta
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub") and, the Company have entered into an Agreement and Plan of
Reorganization dated as of February   , 2000 (the "Merger Agreement"), which
provides for the merger (the "Merger") of Sub with and into the Company.

     B. Pursuant to the Merger, all of the issued and outstanding shares of
capital stock of the Company will be converted into the right to receive the
consideration set forth in the Merger Agreement, all upon the terms and subject
to the conditions set forth therein.

     C. Shareholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the number
of shares of outstanding capital stock of the Company and other securities
convertible into, or exercisable or exchangeable for, shares of capital stock of
the Company, all as set forth on the signature page of this Agreement
(collectively, the "Shares").

     D. In consideration of the execution of the Merger Agreement by Parent,
Shareholder agrees to restrict the transfer or disposition of any of the Shares,
or any other shares of capital stock of the Company acquired by Shareholder
hereafter and prior to the Expiration Date (as defined in Section 1(a) hereof),
and hereby agrees to vote the Shares and any other such shares of capital stock
of the Company so as to facilitate the consummation of the Merger.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1. Agreement to Retain Shares.

     (a) Transfer and Encumbrance. Shareholder agrees, during the period
beginning on the date hereof and ending on the Expiration Date (as defined
below), not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber (collectively, "Transfer") any of the Shares or any New Shares (as
defined in Section 1(b) hereof), or to discuss, negotiate, or make any offer or
agreement relating thereto, other than to or with Parent, in each case without
the prior written consent of Parent. Shareholder acknowledges that the intent of
the foregoing sentence is to ensure that Parent retains the right under the
Proxy (as defined in Section 4 hereof) to vote the Shares and any New Shares in
accordance with the terms of the Proxy. As used herein, the term "Expiration
Date" shall mean the termination of the Merger Agreement in accordance with its
terms.

     (b) New Shares. Shareholder agrees that any shares of capital stock of the
Company that Shareholder purchases or with respect to which Shareholder
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Expiration Date, including, without limitation, shares issued or
issuable upon the conversion, exercise or exchange, as the case may be, of all
securities held by Shareholder which are convertible into, or exercisable or
exchangeable for, shares of capital stock of the Company ("New Shares"), shall
be subject to the terms and conditions of this Agreement to the same extent as
if they constituted Shares.

     2. Agreement to Vote Shares. Until the Expiration Date, at every meeting of
shareholders of the Company called with respect to any of the following, and at
every adjournment or postponement thereof, and on every action or approval by
written consent of shareholders of the Company with respect to any of the
following, Shareholder shall vote, to the extent not voted by the person(s)
appointed under the Proxy
                                      A-42
<PAGE>   274

(as defined in Section 3 hereof) the Shares and any New Shares (to the extent
any such New Shares may be voted):

          (i) in favor of approval of the Merger, the execution and delivery by
     the Company of the Merger Agreement and the adoption and approval of the
     terms thereof and in favor of each of the other actions contemplated by the
     Merger Agreement and the Proxy and any action required in furtherance
     thereof;

          (ii) against approval of any proposal made in opposition to, or in
     competition with, consummation of the Merger and the Merger Agreement;

          (iii) against any of the following actions (other than those actions
     that relate to the Merger and the transactions contemplated by the Merger
     Agreement): (A) any merger, consolidation, business combination, sale of
     assets, reorganization or recapitalization of the Company with any party;
     (B) any sale, lease or transfer of any significant part of the assets of
     the Company; (C) any reorganization, recapitalization, dissolution,
     liquidation or winding up of the Company; (D) any material change in the
     capitalization of the Company or the Company's corporate structure; or (E)
     any other action that is intended, or could reasonably be expected to,
     impede, interfere with, delay, postpone, discourage or adversely affect the
     Merger or any of the other transactions contemplated by the Merger
     Agreement with such powers, rights and obligations as are set forth in the
     Merger Agreement; and

          (iv) in favor of waiving any notice that may have been or may be
     required relating to any reorganization of the Company, any
     reclassification or recapitalization of the capital stock of the Company or
     any sale of assets, change of control, or acquisition of the Company by any
     other person, or any consolidation or merger of the Company with or into
     any other person.

     Prior to the Expiration Date, Shareholder shall not enter into any
agreement or understanding with any person to vote or give instructions in any
manner inconsistent with this Section 2.

     3. Irrevocable Proxy. Subject to the terms hereof relating to the
Expiration Date, concurrently with the execution of this Agreement, Shareholder
hereby is delivering to Parent an irrevocable proxy in the form attached hereto
as Exhibit A (the "Proxy"), which is irrevocable to the fullest extent permitted
by applicable law, covering the total number of Shares and New Shares of capital
stock of the Company beneficially owned (as such term is defined in Rule 13d-3
under the Exchange Act) by Shareholder as set forth therein.

     4. Representations, Warranties and Covenants of Shareholder. Shareholder
represents, warrants and covenants to Parent as follows:

          (i) Shareholder is the beneficial owner of the Shares, with full power
     to vote or direct the voting of the Shares for and on behalf of all
     beneficial owners of the Shares.

          (ii) Except as set forth in any restricted stock purchase agreement(s)
     by and between the Company and the Shareholder, copies of which have been
     provided or made available to Parent, as of the date hereof the Shares are,
     and at all times up until the Expiration Date the Shares will be, free and
     clear of any rights of first refusal, co-sale rights, security interests,
     liens, pledges, claims, options, charges or other encumbrances.

          (iii) Shareholder does not beneficially own any shares of capital
     stock of the Company other than the Shares.

          (iv) Shareholder has full power and authority to make, enter into and
     carry out the terms of this Agreement, the Proxy and that certain Company
     Affiliate Agreement by and between the Shareholder and Parent on even date
     herewith.

     5. Additional Documents. Shareholder and the Company hereby covenant and
agree to execute and deliver any additional documents reasonably necessary or
desirable to carry out the purpose and intent of this Agreement and the Merger.

                                      A-43
<PAGE>   275

     6. Consents and Waivers. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Shareholder is a party or pursuant to any rights
Shareholder may have.

     7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate if the Merger Agreement is terminated in accordance
with its terms.

     8. Legending of Shares. If so requested by Parent, Shareholder agrees that
the Shares and any New Shares shall bear a legend stating that they are subject
to this Agreement and to an irrevocable proxy. Subject to the terms of Section 1
hereof, Shareholder agrees that Shareholder will not Transfer the Shares or any
New Shares without first having the aforementioned legend affixed to the
certificates representing the Shares or any New Shares.

     9. Miscellaneous.

     (a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

     (b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by any of the
parties without the prior written consent of the other parties.

     (c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.

     (d) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing.

     (e) Specific Performance; Injunctive Relief. The parties acknowledge that
Parent will be irreparably harmed and that there will be no adequate remedy at
law for a violation of any of the covenants or agreements of Shareholder set
forth herein. Therefore, it is agreed that, in addition to any other remedies
that may be available to Parent upon any such violation, Parent shall have the
right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Parent at law or in equity.

     (f) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):

        If to Parent, to:

           VA Linux Systems, Inc.
           1382 Bordeaux Drive
           Sunnyvale, California 94089
           Attn: Chief Financial Officer
           Telephone No.: (408) 542-8600
           Facsimile No.: (408) 745-9152

                                      A-44
<PAGE>   276

        With a copy to:

           Wilson Sonsini Goodrich & Rosati, P.C.
           650 Page Mill Road
           Palo Alto, California 94304
           Attn: Bruce M. McNamara, Esq.
           Telephone No.: (650) 493-9300
           Facsimile No.: (650) 493-6811

        If to Shareholder:

           To the address for notice set forth on the signature page hereof.

        With a copy to:

           Hutchins, Wheeler & Dittmar
           A Professional Corporation
           101 Federal Street
           Boston, Massachusetts 02110
           Attn: David P. Kreisler, Esq.
           Telephone No.: (617) 951-6600
           Facsimile No.: (617) 951-1295

     (g) Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.

     (h) Attorneys' Fees and Expenses. If any action or other proceeding
relating to the enforcement of any provision of this Agreement is brought by
either party, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).

     (i) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.

     (j) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.

     (k) Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.

                  [Remainder of Page Intentionally Left Blank]

                                      A-45
<PAGE>   277

     IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.

VA LINUX SYSTEMS, INC.                      SHAREHOLDER:

By:____________________________________
Name:  Larry M. Augustin                    ------------------------------------
Title: President and Chief                  Signature
       Executive Officer
                                            ------------------------------------
                                            Print Name

ANDOVER.NET, INC.                           ------------------------------------

                                            ------------------------------------
By:____________________________________     Address
Name:  Bruce Twickler
Title: President and Chief
       Executive Officer

                                            Company Capital Stock:

                                            Common Stock:_______________________

                                            Company Options:____________________

                      [SIGNATURE PAGE TO VOTING AGREEMENT]
                                      A-46
<PAGE>   278

                                                                       EXHIBIT A
                               IRREVOCABLE PROXY

     The undersigned shareholder (the "Shareholder") of Atlanta, Inc., a
Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent
permitted by law) appoints Larry Augustin and Todd Schull, each officers of VA
Linux Systems, Inc., a Delaware corporation ("Parent"), and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares"), in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned shareholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy, along with the number(s) of the share certificate(s) which represent such
Shares. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by each undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).

     This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement dated as of February 2, 2000 by and among Parent, the Company and the
Shareholder (the "Voting Agreement"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization dated as of
February 2, 2000 (the "Merger Agreement"), by and among Parent, Atlanta
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub") and the Company. The Merger Agreement provides for the merger of
Sub with and into the Company in accordance with its terms (the "Merger") and
Shareholder is receiving a portion of the proceeds of the Merger. As used in
this Irrevocable Proxy, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement, or (ii) the
termination of the Merger Agreement in accordance with its terms.

     The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special, adjourned or postponed meeting of
shareholders of the Company and in every written consent in lieu of such
meeting:

          (i) in favor of approval of the Merger, the execution and delivery by
     the Company of the Merger Agreement and the adoption and approval of the
     terms thereof and in favor of each of the other actions contemplated by the
     Merger Agreement and any action required in furtherance thereof;

          (ii) against approval of any proposal made in opposition to, or in
     competition with, consummation of the Merger and the Merger Agreement;

          (iii) against any of the following actions (other than those actions
     that relate to the Merger and the transactions contemplated by the Merger
     Agreement): (A) any merger, consolidation, business combination, sale of
     assets, reorganization or recapitalization of the Company with any party,
     (B) any sale, lease or transfer of any significant part of the assets of
     the Company, (C) any reorganization, recapitalization, dissolution,
     liquidation or winding up of the Company, (D) any material change in the
     capitalization of the Company or the Company's corporate structure, or (E)
     any other action that is intended, or could reasonably be expected to,
     impede, interfere with, delay, postpone, discourage or adversely affect the
     Merger or any of the other transactions contemplated by the Merger
     Agreement;

          (iv) in favor of waiving any notice that may have been or may be
     required relating to any reorganization of the Company, any
     reclassification or recapitalization of the capital stock of the

                                      A-47
<PAGE>   279

     Company or any sale of assets, change of control, or acquisition of the
     Company by any other person, or any consolidation or merger of the Company
     with or into any other person.

     The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided in clauses (i), (ii), (iii) or (iv) above. The
Shareholder may vote the Shares on all other matters.

     Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.

[remainder of page intentionally left blank; signature page follows immediately
                                   hereafter]

                                      A-48
<PAGE>   280

     This Proxy shall terminate, and be of no further force and effect,
automatically upon the Expiration Date (as defined in the Voting Agreement).

Dated: February   ,2000

                                          --------------------------------------
                                          Signature

                                          --------------------------------------
                                          Print Name

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

                                          --------------------------------------
                                          Address

                                          Company Capital Stock:

                                          Common Stock:_________________________

                                          Company Options:______________________


                           [SIGNATURE PAGE TO PROXY]
                                      A-49
<PAGE>   281

                                                                       EXHIBIT C

                AMENDED AND RESTATED COMPANY AFFILIATE AGREEMENT

     THIS AMENDED AND RESTATED COMPANY AFFILIATE AGREEMENT (this "Agreement") is
made and entered into as of April   , 2000, among VA Linux Systems, Inc., a
Delaware corporation ("Parent"), and the undersigned stockholder who may be
deemed an affiliate ("Affiliate") of Andover.Net, Inc., a Delaware corporation
("Company") and hereby amends and restates the Company Affiliate Agreement among
Parent, Affiliate and Company dated February 2, 2000. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to them in the
Reorganization Agreement (as defined below).

                                    RECITALS

     A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company (the "Company Capital Stock") shall be
converted into the right to receive cash and Common Stock of Parent;

     B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
144 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission"); and

     C. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement.

     NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:

     1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Reorganization Agreement and has discussed the requirements of this Agreement
with Affiliate's professional advisors, who are qualified to advise Affiliate
with regard to such matters.

     2. Beneficial Ownership of Company Capital Stock. The Affiliate is the
beneficial owner of shares of and vested options to purchase Company Capital
Stock (the "Shares"). The Shares are not subject to any claim, lien, pledge,
charge, security interest or other encumbrance (other than restrictions under
the Securities Act (as defined below)) or to any rights of first refusal of any
kind. There are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Affiliate is party or by which
it is bound obligating the Affiliate to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
Shares or obligating the Affiliate to grant or enter into any such option,
warrant, call, right, commitment or agreement. The Affiliate has the sole right
to transfer such Shares. The Shares are not subject to preemptive rights created
by any agreement to which the Affiliate is party. All shares of Company Capital
Stock and common stock of Parent ("Parent Common Stock") acquired by Affiliate
in the Merger shall be subject to the provisions of this Agreement as if held by
Affiliate as of the date hereof (excluding Parent Common Stock acquired in the
open market).

     3. Compliance with Rule 145 and the Securities Act.

     (a) Affiliate has been advised that (x) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a registration statement on Form S-4, and the resale of such shares shall be
subject to restrictions set forth in Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), and (y) Affiliate may be deemed
to be an affiliate of the

                                      A-50
<PAGE>   282

Company. Affiliate accordingly agrees not to sell, transfer or otherwise dispose
of any Parent Common Stock issued to Affiliate in the Merger unless one of the
following conditions is met: (i) such sale, transfer or other disposition is
made in conformity with the requirements of Rule 145(d) promulgated under the
Securities Act; (ii) such sale, transfer or other disposition is made pursuant
to an effective registration statement under the Securities Act or an
appropriate exemption from registration; (iii) Affiliate delivers to Parent a
written opinion of counsel, reasonably acceptable to Parent in form and
substance, that such sale, transfer or other disposition is otherwise exempt
from registration under the Securities Act; or (iv) an authorized representative
of the Commission shall have rendered written advice to Affiliate to the effect
that the Commission would take no action, or that the staff of the Commission
would not recommend that the Commission take any action, with respect to the
proposed disposition if consummated.

     (b) Parent shall give stop transfer instructions to its transfer agent with
respect to any Parent Common Stock received by Affiliate pursuant to the Merger
and there shall be placed on the certificates representing such Common Stock, or
any substitutions therefor, a legend stating in substance:

     "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
     WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE
     145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION
     OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT
     SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED."

The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate shall be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.

     4. Rule 144/145 Reporting. Parent shall, for a period of two (2) years from
the date hereof, use commercially reasonable efforts to: (a) make and keep
public information available (as such terms are understood and defined in Rule
144 under the Securities Act) and (b) file with the Commission in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and (c) furnish to Affiliate promptly upon request a written statement as to its
compliance with reporting requirements of Rule 144.

     5. Market Stand-Off Agreement.

     (a) Initial Lock-Up Restriction. The undersigned hereby agrees that during
the period commencing on the date hereof and ending on the later of (i) the
closing of the Merger and (ii) June 8, 2000, the undersigned will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of Parent Common Stock or securities convertible into or exchangeable
or exercisable for any shares of Parent Common Stock, or publicly disclose the
intention to make any such offer, sale, pledge or disposal without the prior
written consent of Credit Suisse First Boston Corporation; provided, however,
that the restrictions set forth in the immediately prior sentence shall not
prohibit:

           (i) the undersigned from exercising an option, warrant or other
     convertible security into Parent Common Stock, where such exercise does not
     result in such security being held by any person or entity other than the
     undersigned;

           (ii) the undersigned, if an individual, from transferring any Parent
     Common Stock or rights to acquire Parent Common Stock either during his or
     her lifetime or on death by will or intestacy to his or her immediate
     family or to a trust the beneficiaries of which are exclusively the
     undersigned and/or a member or members of his or her immediate family where
     the person or entity receiving such transfer agrees to the same
     restrictions set forth in this Agreement; or

          (iii) transactions involving Parent Common Stock acquired by the
     undersigned in open market transactions following the consummation of the
     Merger.

                                      A-51
<PAGE>   283

     In furtherance of the foregoing, the Parent and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Parent Common Stock if such transfer would constitute a violation or breach of
this Agreement.

     (b) Ongoing Market Stand Off. Each Affiliate also agrees in connection with
a public offering of the Parent's securities that, upon request of the Parent or
the underwriters managing any underwritten offering of the Parent's securities,
the Affiliate shall not sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Parent (other
than those included in the registration and those that the Affiliate purchases
in the public market or from underwriters in any secondary or follow-on offering
by the Parent) without the prior written consent of the Parent or such
underwriters, as the case may be, which consent may be withheld in their sole
and absolute discretion, for such period of time beginning on the date of filing
of such registration through 30 days from the effective date of such
registration, provided that the officers, directors of the Parent who own
securities of the Company and holders of 5% or more of the Parent's outstanding
equity securities also agree to such restrictions; provided however, that the
restrictions imposed by this sentence shall not apply to the Affiliate in
connection with any follow-on or secondary public offering following the second
anniversary of the Parent's initial public offering. The Affiliate agrees it
shall enter into such underwriter's standard form of agreement with respect to
such restrictions in form satisfactory to the Parent and such underwriter. The
shares held by all constituent partners of any entity holding registration
rights with respect to the Parents Common Stock shall be bound by this standoff
agreement.

     In addition, each Affiliate also agrees that if it participates in a public
offering of the Parent's securities that the Affiliate shall not sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any securities of the Parent (other than those included in the registration
and those that the Affiliate purchases in the public market or from underwriters
in any secondary or follow-on offering by the Parent) without the prior written
consent of the Parent or such underwriters, as the case may be, which consent
may be withheld in their sole and absolute discretion, for such period of time
beginning on the date of filing of such registration through 90 days from the
effective date of such registration, provided that the officers, directors of
the Parent who own securities of the Company and holders of 5% or more of the
Parent's outstanding equity securities also agree to such restrictions; provided
however, that the restrictions imposed by this sentence shall not apply to the
Affiliate in connection with any follow-on or secondary public offering
following the second anniversary of the Parent's initial public offering.

     6. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event of the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.

     7. Miscellaneous.

     (a) Waiver; Severability. No waiver by any party hereto of any condition or
of any breach of any provision of this Agreement shall be effective unless in
writing and signed by each party hereto. In the event that any provision of this
Agreement, or the application of any such provision to any person, entity or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.

     (b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other party hereto.

                                      A-52
<PAGE>   284

     (c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.

     (d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that gives
each of such covenants a special, unique, and extraordinary value; and (iii) a
breach of any such covenants or any other provision of this Agreement shall
result in irreparable harm and damages to Parent and the Company which cannot be
adequately compensated by a monetary award. Accordingly, it is expressly agreed
that in addition to all other remedies available at law or in equity, Parent and
the Company shall be entitled to the immediate remedy of a temporary restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or provision
or to specifically enforce the provisions hereof.

     (e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of laws provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.

     (f) Entire Agreement. This Agreement, the Reorganization Agreement and the
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Parent relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
Affiliate and Parent relating to the subject matter hereof and thereof.

     (g) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.

     (h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.

     (i) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.

     (j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.

     (k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):

        If to Parent:

             VA Linux Systems, Inc.
             1382 Bordeaux Drive
             Sunnyvale, California 94089
             Attention: Chief Financial Officer
             Telephone: (408) 542-8600
             Facsimile: (408) 745-9152

                                      A-53
<PAGE>   285

        With a copy to:

             Wilson Sonsini Goodrich & Rosati, P.C.
             650 Page Mill Road
             Palo Alto, California 94304
             Attention: Bruce M. McNamara, Esq.
             Telephone: (650) 493-9300
             Facsimile: (650) 493-6811

        If to Affiliate:

             To the address for notice set forth
             on the signature page hereof.

     (l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

                                      A-54
<PAGE>   286

     IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.

<TABLE>
<S>                                              <C>
VA LINUX SYSTEMS, INC.                           AFFILIATE

By:                                              By:
    -----------------------------------------       ----------------------------------
Name:  Larry M. Augustin                         Affiliate's Address for Notice:
Title: President and Chief
       Executive Officer                         -------------------------------------

                                                 -------------------------------------
</TABLE>

                    [SIGNATURE PAGE TO AFFILIATE AGREEMENT]
                                      A-55
<PAGE>   287

                                                                      APPENDIX B

April 25, 2000

Board of Directors
Andover.Net, Inc.
50 Nagog Park
Acton, MA 01720

Gentlemen:

     Andover.Net, Inc., a Delaware corporation ("Company"), VA Linux Systems,
Inc., a Delaware corporation ("Parent"), and Atlanta Acquisition Corp., a
Delaware corporation and wholly-owned subsidiary of Parent ("Merger Sub"), are
parties to an Agreement and Plan of Reorganization dated February 2, 2000, as
amended (the "Agreement"), and such parties propose to enter into an Amended and
Restated Agreement and Plan of Reorganization (a draft of which has been
provided to us dated April 25, 2000) (the "Amended Agreement"), pursuant to
which Merger Sub will be merged with and into the Company, which will be the
surviving entity and which will become a wholly-owned subsidiary of the Parent
(the "Merger"). Pursuant to the Merger, as more fully described in the Amended
Agreement, we understand that each outstanding share of the common stock, $0.01
par value per share, of the Company ("Company Common Stock") will be converted
into the right to receive 0.425 of a share of Parent Common Stock. The terms and
conditions of the Merger are set forth in more detail in the Amended Agreement.

     You have asked for our opinion as investment bankers as to whether the
Consideration to be received by the stockholders of the Company pursuant to the
Merger is fair to such stockholders, from a financial point of view, as of the
date hereof.

     In conducting our investigation and analysis and in arriving at our opinion
herein, we have reviewed such information and taken into account such financial
and economic factors as we have deemed relevant under the circumstances. In that
connection, we have, among other things: reviewed certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company and the Parent furnished to us for purposes of our
analysis, as well as publicly available information, including but not limited
to the Company's and the Parent's recent filings with the Securities and
Exchange Commission and equity analyst research reports prepared by various
investment banking firms, reviewed the draft Amended Agreement in the form
presented to the Company's Board of Directors, compared the historical market
prices and trading activity of the Company's and the Parent's Common Stock with
those of certain other publicly traded companies we deemed relevant, compared
the financial position and operating results of the Company and the Parent with
those of other publicly traded companies we deemed relevant, and compared the
proposed financial terms of the Merger with the financial terms of certain other
transactions we deemed relevant. We have held discussions with members of the
Company's and the Parent's respective senior managements concerning the
Company's and the Parent's historical and current financial condition and
operating results, as well as the future prospects of the Company and the
Parent. We have also considered such other information, financial studies,
analysis and investigations and financial, economic and market criteria which we
deemed relevant for the preparation of this opinion.

     In connection with our review, we have not assumed any obligation
independently to verify the foregoing information and have relied on its being
accurate and complete in all material respects. With respect to the financial
forecasts for the Company and the Parent provided to us by their respective
managements, upon their advice and with your consent we have assumed for
purposes of our opinion that the forecasts have been reasonably prepared on
bases reflecting the best available estimates and judgments of their respective
managements at the time of preparation as to the future financial performance of
the Company and the Parent and that they provide a reasonable basis upon which
we can form our opinion. We have also assumed that there have been no material
changes in the Company's or the Parent's assets, financial condition, results of
operations, business or prospects since the respective dates of their last
financial statements made available to us. We have relied on advice of counsel
and independent

                                       B-1
<PAGE>   288

accountants to the Company as to all legal and financial reporting matters with
respect to the Company, the Merger and the Amended Agreement. We have assumed
that the Merger will be consummated in a manner that complies in all respects
with the applicable provisions of the Securities Act of 1933 (the "Securities
Act"), the Securities Exchange Act of 1934 and all other applicable federal and
state statutes, rules and regulations. In addition, we have not assumed
responsibility for reviewing any patent applications, technology license
agreements, individual credit files, etc. or making an independent evaluation,
appraisal or physical inspection of any of the assets or liabilities (contingent
or otherwise) of the Company or the Parent, nor have we been furnished with any
such appraisals. You have informed us, and we have assumed, that the Merger will
be recorded as a purchase under generally accepted accounting principles.
Finally, our opinion is based on financial, economic, monetary and market and
other conditions as in effect on, and the information made available to us as
of, the date hereof. Accordingly, although subsequent developments may affect
this opinion, we have not assumed any obligation to update, revise or reaffirm
this opinion.

     We have further assumed with your consent that the Merger will be
consummated in accordance with the terms described in the Amended Agreement,
without any further amendments thereto, and without waiver of any of the
conditions to its obligations thereunder.

     We have acted as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, including rendering this
opinion, a significant portion of which is contingent upon the consummation of
the Merger. In the ordinary course of our business, we actively trade the equity
securities of the Company and the Parent for our own account and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities. We have also acted as an underwriter in connection
with offerings of securities of the Company and performed various investment
banking services for the Company. Additionally, we own less than 0.3% of the
Parent through an affiliated company. The manager of WRH+Co's investment in
Parent did not participate in advising the Company with regards to the Merger
and played no role in the preparation or delivery of this Opinion.

     Based upon the foregoing and in reliance thereon, it is our opinion as
investment bankers that the Consideration to be received by the stockholders of
the Company pursuant to the Merger is fair to such stockholders, from a
financial point of view, as of the date hereof.

     We are not expressing an opinion regarding the price at which the Parent
Common Stock may trade at any future time. The Consideration to be received by
the stockholders of the Company pursuant to the Merger is based upon a fixed
exchange ratio and, accordingly, the market value of the Consideration may vary
significantly.

     This opinion is directed to the Board of Directors of the Company in its
consideration of the Merger and is not a recommendation to any stockholder as to
how such stockholder should vote with respect to the Merger. Further, this
opinion addresses only the financial fairness of the Consideration to be
received by stockholders of the Company and does not address the relative merits
of the Merger and any alternatives to the Merger, the Company's underlying
decision to proceed with or affect the Merger or any other aspect of the Merger.
This opinion may not be used or referred to by the Company, or quoted or
disclosed to any person in any manner, without our prior written consent, which
consent is hereby given to the inclusion of this opinion in any proxy statement
or prospectus or the Joint Proxy Statement/ Prospectus to be filed with the
Securities and Exchange Commission in connection with the Merger. In furnishing
this opinion, we do not admit that we are experts within the meaning of the term
"experts" as used in the Securities Act and the rules and regulations
promulgated thereunder, nor do we admit that this opinion constitutes a report
or valuation within the meaning of Section 11 of the Securities Act.

                                          Very truly yours,

                                          W.R. HAMBRECHT+CO LLC

                                       B-2
<PAGE>   289

                                                                      APPENDIX C

                             CERTIFICATE OF MERGER

                                    MERGING

                            ATLANTA ACQUISITION CORP

                                 WITH AND INTO

                               ANDOVER.NET, INC.
                            ------------------------

           PURSUANT TO SECTION 251 OF THE GENERAL CORPORATION LAW OF
                             THE STATE OF DELAWARE
                            ------------------------

     Andover.Net, Inc., ("Andover.Net") DOES HEREBY CERTIFY AS FOLLOWS:

     FIRST: Andover.Net and Atlanta Acquisition Corp ("Atlanta") are
corporations duly organized and existing under the laws of the State of
Delaware.

     SECOND: That an Agreement and Plan of Reorganization (the "Reorganization
Agreement"), dated as of February 2, 2000 and as amended to date, among VA Linux
Systems, Inc., a Delaware corporation, Andover.Net and Atlanta, setting forth
the terms and conditions of the merger of Atlanta with and into Andover.Net (the
"Merger"), has been approved, adopted, certified, executed and acknowledged by
each of the constituent corporations in accordance with the requirements of
Section 251 of the Delaware General Corporation Law.

     THIRD: That the name of the surviving corporation shall be Andover.Net,
Inc. (the "Surviving Corporation").

     FOURTH: The Certificate of Incorporation of the Surviving Corporation shall
be amended and restated in its entirety to read as set forth in Exhibit A
attached hereto.

     FIFTH: That an executed copy of the Reorganization Agreement is on file at
the principal place of business of the Surviving Corporation at the following
address:

                            50 Nagog Park
                            Acton, Massachusetts 01720

     SIXTH: That a copy of the Reorganization Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of any
constituent corporation.

     SEVENTH: That the Merger shall become effective on the date of filing this
Certificate of Merger with the Secretary of the State of Delaware.

     IN WITNESS WHEREOF, Andover.Net has caused this Certificate of Merger to be
executed in its corporate name as of                , 2000.

                                          ANDOVER.NET, INC.

                                          By:
                                            ------------------------------------
                                                     Bruce A. Twickler
                                                         President

                                       C-1
<PAGE>   290

                                   EXHIBIT A

                     RESTATED CERTIFICATE OF INCORPORATION
                                       OF
                               ANDOVER.NET, INC.

     FIRST. The name of the corporation is Andover.Net, Inc.

     SECOND. The address of the corporation's registered office in the State of
Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware
19801. The name of its registered agent at such address is The Corporation Trust
Company.

     THIRD. The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.

     FOURTH. The total number of shares which the corporation shall have
authority to issue is 1,000 shares of capital stock, and the par value of each
such share is $.001 per share.

     FIFTH. The Board of Directors of the corporation is expressly authorized to
adopt, amend or repeal the bylaws of the corporation, but the stockholders may
make additional bylaws and may alter or repeal any bylaw whether adopted by them
or otherwise.

     SIXTH. Elections of directors need not be by written ballot except and to
the extent provided in the bylaws of the corporation.

     SEVENTH. A director of the corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
limitation thereof is not permitted under the Delaware General Corporation Law
as the same exists or may hereafter be amended. Any repeal or modification of
this Article SEVENTH shall not adversely affect any right or protection of a
director of the corporation existing hereunder with respect to any act or
omission occurring prior to such repeal or modification.

     EIGHTH. The corporation shall indemnify its officers, directors, employees
and agents to the extent permitted by the Delaware General Corporation Law.

                                       C-2
<PAGE>   291

                                    PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS

     Section 145 of the Delaware General Corporation Law permits a corporation
to include in its charter documents, and in agreements between the corporation
and its directors and officers, provisions expanding the scope of
indemnification beyond that specifically provided by the current law.

     The Eighth Article of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.

     Article VI of the Registrant's Amended and Restated Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of the
Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.

     The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for in
the Registrant's Amended and Restated Bylaws, and intends to enter into
indemnification agreements with any new directors and executive officers in the
future.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                            DESCRIPTION
 -------                            -----------
<S>         <C>
 2.1        Amended and Restated Agreement and Plan of Reorganization
            between the Registrant, Atlanta Acquisition Corp. and
            Andover.Net, Inc.
 2.2        Form of Voting Agreement between the Registrant,
            Andover.Net, Inc. and certain shareholders of Andover.Net,
            Inc.
 2.3        Form of Affiliate Agreement between the Registrant and
            affiliates of Andover.Net, Inc.
 3.1*       Amended and Restated Certificate of Incorporation of the
            Registrant
 3.2*       Bylaws of the Registrant
 4.1*       Specimen Common Stock Certificate
 5.1**      Opinion of Wilson Sonsini Goodrich & Rosati, Professional
            Corporation
 8.1**      Tax Opinion of Hutchins Wheeler & Dittmar, A Professional
            Corporation
 8.2**      Tax Opinion of Wilson Sonsini Goodrich & Rosati,
            Professional Corporation
10.1*       Form of Indemnification Agreement between the Registrant and
            each of its directors and officers
10.2*       1998 Stock Plan and forms of agreement thereunder
10.3*       1999 Employee Stock Purchase Plan
10.4*       1999 Director Option Plan
10.5+*      Sublease between Registrant and Boca Global, Inc.
10.6*       First Amended and Restated Registration Rights Agreement
            between Registrant and certain holders of preferred stock
10.7*       Founder's Stock Repurchase Agreement
10.8+*      Manufacturing Agreement between the Registrant and Synnex
            Information Technologies, Inc.
10.9*       Loan and Security Agreement between Registrant and Comerica
            Bank-California
10.10+*     Master Subcontracted Maintenance Service Provider Agreement
            between Registrant and DecisionOne Corporation
10.11+*     VA Research Linux IA-64 Porting License Agreement between
            Registrant and Intel Corporation
</TABLE>

                                      II-1
<PAGE>   292

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                            DESCRIPTION
 -------                            -----------
<S>         <C>
10.12*      GNU General Public License, version 2
10.13*      Employment Letter between the Registrant and Daniel R. Shore
10.14*      Employment Letter between the Registrant and Gregg E. Zehr
10.15*      Employment Letter between the Registrant and Todd B. Schull
10.16+*     Master Lease Agreement between Boca Global, Inc. and
            Bordeaux Partners LLC
10.17*      Employment Letter between the Registrant and Robert Russo
</TABLE>

<TABLE>
<CAPTION>
10.18*      Consent by Linus Torvalds
<S>         <C>
10.19***    Agreement and Plan of Reorganization by and among
            Registrant, Little Brother Acquisition Corp. and
            TruSolutions, Inc.
10.20****   Agreement and Plan of Reorganization by and among
            Registrant, South Acquisition Corp. and NetAttach, Inc.
23.1.1      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.1.2      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.1.3      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.2**      Consent of Counsel (see Exhibit 5.1)
23.3*       Consent of IDC
23.4*       Consent of Gartner Group
23.5*       Consent of PC Data
24.1        Power of Attorney (see page II-4)
99.1        Proxy Card
</TABLE>

- -------------------------
   + Confidential treatment has been granted by the Commission as to certain
     portions of this exhibit. The omitted portions have been separately filed
     with the Commission.

   * Incorporated by reference to the corresponding exhibit on registrant's form
     S-1 and the amendments thereto (Commission registration no. 333-88687).

  ** To be filed by amendment.

 *** Incorporated by reference to exhibit 99.4 on registrant's form 8-K, filed
     with the Commission on April 12, 2000 (Commission file no. 000-28369).

**** Incorporated by reference to exhibit 99.5 on registrant's form 8-K, filed
     with the Commission on April 12, 2000 (Commission file no. 000-28369).

(b) FINANCIAL STATEMENT SCHEDULES

     Schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the financial statements or notes
thereto.

ITEM 22. UNDERTAKINGS

     (a)(1) The Registrant hereby undertakes as follows: that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.

     (2) The Registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (a)(1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Securities Act of 1933 and is
used in connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities

                                      II-2
<PAGE>   293

offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.

     (b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the provisions described in Item 20 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 of 1933 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 of 1933 and will be governed by the final adjudication of such
issue.

     (c) The Registrant hereby undertakes to respond to requests for information
that is incorporated by reference into the prospectus pursuant to Item 4, 10(b),
11, or 13 of this form, within one business day of receipt of such request, and
to send the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding to
the request.

     (d) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.

                                      II-3
<PAGE>   294

                                   SIGNATURES

     Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Sunnyvale,
State of California, on the 27th day of April, 2000.

                                          VA LINUX SYSTEMS, INC.

                                          By:     /s/ LARRY M. AUGUSTIN
                                            ------------------------------------
                                                     Larry M. Augustin,
                                               President and Chief Executive
                                                           Officer

                               POWER OF ATTORNEY

     KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Larry M. Augustin and Todd B. Schull and
each of them, his attorneys-in-fact, 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, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities 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 such 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 of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

<TABLE>
<CAPTION>
                      SIGNATURE                                      TITLE                    DATE
                      ---------                                      -----                    ----
<C>                                                      <C>                             <S>

                /s/ LARRY M. AUGUSTIN                    President and Chief Executive   April 27, 2000
- -----------------------------------------------------         Officer and Director
                  Larry M. Augustin                      (Principal Executive Officer)

                   /s/ TODD SCHULL                        Vice President, Finance and    April 27, 2000
- -----------------------------------------------------       Chief Financial Officer
                     Todd Schull                            (Principal Financial and
                                                              Accounting Officer)

                /s/ JEFFREY R. ALLEN                                Director             April 27, 2000
- -----------------------------------------------------
                  Jeffrey R. Allen

                   /s/ CAROL BARTZ                                  Director             April 27, 2000
- -----------------------------------------------------
                     Carol Bartz

                  /s/ DOUGLAS LEONE                                 Director             April 27, 2000
- -----------------------------------------------------
                    Douglas Leone

                 /s/ ERIC S. RAYMOND                                Director             April 27, 2000
- -----------------------------------------------------
                   Eric S. Raymond

                  /s/ CARL REDFIELD                                 Director             April 27, 2000
- -----------------------------------------------------
                    Carl Redfield
</TABLE>

                                      II-4
<PAGE>   295

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
 EXHIBIT
  NUMBER                            DESCRIPTION
 -------                            -----------
<S>         <C>
 2.1        Amended and Restated Agreement and Plan of Reorganization
            between the Registrant, Atlanta Acquisition Corp. and
            Andover.Net, Inc.
 2.2        Form of Voting Agreement between the Registrant,
            Andover.Net, Inc. and certain shareholders of Andover.Net,
            Inc.
 2.3        Form of Affiliate Agreement between the Registrant and
            affiliates of Andover.Net, Inc.
 3.1*       Amended and Restated Certificate of Incorporation of the
            Registrant
 3.2*       Bylaws of the Registrant
 4.1*       Specimen Common Stock Certificate
 5.1**      Opinion of Wilson Sonsini Goodrich & Rosati, Professional
            Corporation
 8.1**      Tax Opinion of Hutchins Wheeler & Dittmar, A Professional
            Corporation
 8.2**      Tax Opinion of Wilson Sonsini Goodrich & Rosati,
            Professional Corporation
10.1*       Form of Indemnification Agreement between the Registrant and
            each of its directors and officers
10.2*       1998 Stock Plan and forms of agreement thereunder
10.3*       1999 Employee Stock Purchase Plan
10.4*       1999 Director Option Plan
10.5+*      Sublease between Registrant and Boca Global, Inc.
10.6*       First Amended and Restated Registration Rights Agreement
            between Registrant and certain holders of preferred stock
10.7*       Founder's Stock Repurchase Agreement
10.8+*      Manufacturing Agreement between the Registrant and Synnex
            Information Technologies, Inc.
10.9*       Loan and Security Agreement between Registrant and Comerica
            Bank-California
10.10+*     Master Subcontracted Maintenance Service Provider Agreement
            between Registrant and DecisionOne Corporation
10.11+*     VA Research Linux IA-64 Porting License Agreement between
            Registrant and Intel Corporation
10.12*      GNU General Public License, version 2
10.13*      Employment Letter between the Registrant and Daniel R. Shore
10.14*      Employment Letter between the Registrant and Gregg E. Zehr
10.15*      Employment Letter between the Registrant and Todd B. Schull
10.16+*     Master Lease Agreement between Boca Global, Inc. and
            Bordeaux Partners LLC
10.17*      Employment Letter between the Registrant and Robert Russo
10.18*      Consent by Linus Torvalds
10.19***    Agreement and Plan of Reorganization by and among
            Registrant, Little Brother Acquisition Corp. and
            TruSolutions, Inc.
10.20****   Agreement and Plan of Reorganization by and among
            Registrant, South Acquisition Corp. and NetAttach, Inc.
23.1.1      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.1.2      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.1.3      Consent of Arthur Andersen LLP, Independent Public
            Accountants
23.2**      Consent of Counsel (see Exhibit 5.1)
23.3*       Consent of IDC
23.4*       Consent of Gartner Group
23.5*       Consent of PC Data
24.1        Power of Attorney (see page II-4)
99.1        Proxy Card
</TABLE>
<PAGE>   296

- -------------------------
   + Confidential treatment has been granted by the Commission as to certain
     portions of this exhibit. The omitted portions have been separately filed
     with the Commission.

   * Incorporated by reference to the corresponding exhibit on registrant's form
     S-1 and the amendments thereto (Commission registration no. 333-88687).

  ** To be filed by amendment.

 *** Incorporated by reference to exhibit 99.4 on registrant's form 8-K, filed
     with the Commission on April 12, 2000 (Commission file no. 000-28369).

**** Incorporated by reference to exhibit 99.5 on registrant's form 8-K, filed
     with the Commission on April 12, 2000 (Commission file no. 000-28369).

<PAGE>   1

                                                                     EXHIBIT 2.1

                              AMENDED AND RESTATED

                      AGREEMENT AND PLAN OF REORGANIZATION

                                    BETWEEN

                             VA LINUX SYSTEMS, INC.
                                      AND

                               ANDOVER.NET, INC.

                           DATED AS OF APRIL 26, 2000
<PAGE>   2

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>           <C>                                                           <C>
ARTICLE I     THE MERGER..................................................    1
     1.1      The Merger..................................................    1
     1.2      Effective Time; Closing.....................................    1
     1.3      Effect of the Merger........................................    2
     1.4      Certificate of Incorporation; Bylaws........................    2
     1.5      Directors and Officers......................................    2
     1.6      Effect on Capital Stock.....................................    2
     1.7      Surrender of Certificates...................................    3
     1.8      No Further Ownership Rights in Company Common Stock.........    4
     1.9      Lost, Stolen or Destroyed Certificates......................    4
     1.10     Tax Consequences............................................    4
     1.11     Taking of Necessary Action; Further Action..................    5
ARTICLE II    REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............    5
     2.1      Organization of the Company.................................    5
     2.2      Company Capital Structure...................................    6
     2.3      Obligations With Respect to Capital Stock...................    6
     2.4      Authority; Non-Contravention................................    7
     2.5      SEC Filings; Company Financial Statements; No Undisclosed       8
              Liabilities.................................................
     2.6      Absence of Certain Changes or Events........................    9
     2.7      Taxes.......................................................    9
     2.8      Title to Properties; Absence of Liens and Encumbrances......   11
     2.9      Intellectual Property.......................................   11
     2.10     Compliance; Permits; Restrictions...........................   13
     2.11     Litigation..................................................   14
     2.12     Brokers' and Finders' Fees..................................   14
     2.13     Transactions with Affiliates................................   14
     2.14     Employee Benefit Plans......................................   14
     2.15     Environmental Matters.......................................   17
     2.16     Year 2000 Compliance........................................   18
     2.17     Agreements, Contracts and Commitments.......................   18
     2.18     [RESERVED]..................................................   19
     2.19     Disclosure..................................................   19
     2.20     Board Approval..............................................   20
     2.21     Fairness Opinion............................................   20
     2.22     Restrictions on Business Activities.........................   20
     2.23     Insurance...................................................   20
     2.24     State Takeover Statutes.....................................   20
ARTICLE III   REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB.....   20
     3.1      Organization and Qualification; Subsidiaries................   20
     3.2      Certificate of Incorporation and Bylaws.....................   20
     3.3      Capitalization..............................................   21
     3.4      Authority; Non-Contravention................................   21
     3.5      SEC Filings; Parent Financial Statements....................   22
     3.6      Absence of Certain Changes or Events........................   22
     3.7      Tax.........................................................   23
     3.8      Compliance; Permits; Restrictions...........................   23
</TABLE>

                                       -i-
<PAGE>   3

<TABLE>
<CAPTION>
                                                                            PAGE
                                                                            ----
<S>           <C>                                                           <C>
     3.9      Litigation..................................................   23
     3.10     Agreements, Contracts and Commitments.......................   24
     3.11     Registration Statement; Proxy Statement.....................   24
     3.12     Board Approval..............................................   24
     3.13     Benefit Plans...............................................   24
ARTICLE IV    CONDUCT PRIOR TO THE EFFECTIVE TIME.........................   24
     4.1      Conduct of Business by the Company..........................   24
     4.2      Conduct of Business by Parent...............................   26
ARTICLE V     ADDITIONAL AGREEMENTS.......................................   26
     5.1      Prospectus/Proxy Statement; Registration Statement; Other      26
              Filings.....................................................
     5.2      Meeting of Company Stockholders.............................   27
     5.3      Registration Rights.........................................   29
     5.4      Confidentiality; Access to Information......................   29
     5.5      No Solicitation.............................................   29
     5.6      Public Disclosure...........................................   30
     5.7      Reasonable Efforts; Notification............................   30
     5.8      Third Party Consents........................................   31
     5.9      Stock Options and Employee Benefits.........................   31
     5.10     Form S-8....................................................   32
     5.11     Indemnification.............................................   32
     5.12     Invention Assignment Agreement..............................   33
     5.13     Nasdaq Listing..............................................   33
     5.14     Company Affiliate Agreement.................................   33
     5.15     Option Assumption Agreement.................................   33
     5.16     1999 Stock Option Plan......................................   33
ARTICLE VI    CONDITIONS TO THE MERGER....................................   33
     6.1      Conditions to Obligations of Each Party to Effect the          33
              Merger......................................................
     6.2      Additional Conditions to Obligations of the Company.........   34
     6.3      Additional Conditions to the Obligations of Parent and         34
              Merger Sub..................................................
ARTICLE VII   TERMINATION, AMENDMENT AND WAIVER...........................   35
     7.1      Termination.................................................   35
     7.2      Notice of Termination; Effect of Termination................   36
     7.3      Fees and Expenses...........................................   37
     7.4      Amendment...................................................   37
     7.5      Extension; Waiver...........................................   37
ARTICLE VIII  GENERAL PROVISIONS..........................................   38
     8.1      Non-Survival of Representations and Warranties..............   38
     8.2      Notices.....................................................   38
     8.3      Interpretation; Knowledge...................................   38
     8.4      Counterparts................................................   39
     8.5      Entire Agreement; Third Party Beneficiaries.................   39
     8.6      Severability................................................   39
     8.7      Other Remedies; Specific Performance........................   39
     8.8      Governing Law...............................................   40
     8.9      Rules of Construction.......................................   40
     8.10     Assignment..................................................   40
     8.11     WAIVER OF JURY TRIAL........................................   40
</TABLE>

                                      -ii-
<PAGE>   4

                               INDEX OF EXHIBITS

<TABLE>
<C>         <S>
 Exhibit A  Company Voting Agreement
 Exhibit B  List of Company Affiliates (not included)*
 Exhibit C  Affiliate Agreement
 Exhibit D  Form of Non-Competition/Non-Solicitation Agreement (not
            included)*
 Exhibit E  List of Key Employees (not included)*
 Exhibit F  Form of Employee Agreement (not included)*
 Exhibit G  Form of Contractor Agreement (not included)*
</TABLE>

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

* Registrant hereby agrees to furnish supplementally a copy of any omitted
  exhibit to the Securities and Exchange Commission upon request.
<PAGE>   5

           AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION

     This AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION is made and
entered into as of April 26, 2000, between VA Linux Systems, Inc., a Delaware
corporation ("PARENT") and Andover.Net, Inc., a Delaware corporation (the
"COMPANY") and hereby amends and restates the Agreement and Plan of
Reorganization among Parent, Atlanta Acquisition Corp., a Delaware corporation
and a wholly-owned subsidiary of Parent ("MERGER SUB"), and the Company dated
February 2, 2000, as amended February 11, 2000 and February 25, 2000.

                                    RECITALS

     A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Delaware General Corporation Law ("DELAWARE LAW"), Parent,
Merger Sub and the Company intend to enter into a business combination
transaction.

     B. The Board of Directors of the Company (i) has determined that the Merger
(as defined in Section 1.1) is consistent with and in furtherance of the
long-term business strategy of the Company and fair to, and in the best
interests of, the Company and its stockholders, (ii) has approved this
Agreement, the Merger and the other transactions contemplated by this Agreement
and (iii) has determined to recommend that the stockholders of the Company adopt
and approve this Agreement and approve the Merger.

     C. Concurrently with the execution of this Agreement, and as a condition
and inducement to Parent's and Company's respective willingness to enter into
this Agreement, certain stockholders of Company are entering into Voting
Agreements in substantially the form attached hereto as Exhibit A (the "COMPANY
VOTING AGREEMENTS").

     D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").

     E. As an inducement for Parent to enter into this Agreement, each of the
individuals set forth on Exhibit E hereof (the "KEY EMPLOYEES") shall execute
the form of Non-Competition/Non-Solicitation Agreement attached hereto as
Exhibit F.

     NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:

                                   ARTICLE I

                                   THE MERGER

     1.1  The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of Delaware Law, Merger Sub shall be merged with and into
the Company (the "MERGER"), the separate corporate existence of Merger Sub shall
cease and the Company shall continue as the surviving corporation. The Company
as the surviving corporation after the Merger is hereinafter sometimes referred
to as the "SURVIVING CORPORATION".

     1.2  Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware Law (the "CERTIFICATE OF
MERGER") (the time of such filing with the Secretary of State of the State of
Delaware (or such later time as may be agreed in writing by the Company and
Parent and specified in the Certificate of Merger) being the "EFFECTIVE TIME")
as soon as practicable on or after the Closing Date (as herein defined). Unless
the context otherwise requires, the term "AGREEMENT" as used herein refers
collectively to this Agreement and Plan of Reorganization and the Certificate of
Merger. The closing of the Merger (the "CLOSING") shall take place at the
offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, at a time
and
                                        1
<PAGE>   6

date to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto agree
in writing (the "CLOSING DATE").

     1.3  Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.

     1.4  Certificate of Incorporation; Bylaws.

     (a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Certificate of Incorporation of the Surviving
Corporation; provided, however, that at the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so that the name of
the Surviving Corporation shall be "Andover.Net".

     (b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.

     1.5  Directors and Officers. The directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, until their respective successors are duly elected or appointed and
qualified. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation, until their
respective successors are duly appointed.

     1.6  Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of Merger Sub, the Company or the holders of any of the following
securities, the following shall occur:

          (a) Conversion of Company Common Stock. Each share of common stock,
     par value $0.01, of the Company ("COMPANY COMMON STOCK") issued and
     outstanding immediately prior to the Effective Time, other than any shares
     of the Company Common Stock to be canceled pursuant to Section 1.6(b), will
     be canceled and extinguished and automatically converted (subject to
     Section 1.6(e)) into the right to receive 0.425 of a share of Parent Common
     Stock (the "Exchange Ratio").

          (b) Cancellation of Parent-Owned Stock. Each share of Company Common
     Stock held by the Company or owned by Merger Sub, Parent or any direct or
     indirect wholly-owned subsidiary of the Company or of Parent immediately
     prior to the Effective Time shall be canceled and extinguished without any
     conversion thereof.

          (c) Stock Options; Employee Stock Purchase Plans. At the Effective
     Time, all options to purchase Company Common Stock then outstanding under
     the 1995 Stock Option Plan and the 1999 Stock Option Plan (the "COMPANY
     STOCK OPTION PLANS") shall be assumed by Parent in accordance with Section
     5.9 hereof.

          (d) Capital Stock of Merger Sub. Each share of Common Stock of Merger
     Sub (the "MERGER SUB COMMON STOCK") issued and outstanding immediately
     prior to the Effective Time shall be converted into one validly issued,
     fully paid and nonassessable share of Common Stock of the Surviving
     Corporation. Each certificate evidencing ownership of shares of Merger Sub
     Common Stock shall evidence ownership of such shares of capital stock of
     the Surviving Corporation.

          (e) Fractional Shares. No fraction of a share of Parent Common Stock
     will be issued by virtue of the Merger, but in lieu thereof each holder of
     shares of Company Common Stock who would otherwise be entitled to a
     fraction of a share of Parent Common Stock (after aggregating all
     fractional shares of Parent Common Stock that otherwise would be received
     by such holder) shall, upon
                                        2
<PAGE>   7

     surrender of such holder's Certificate(s) (as defined in Section 1.7(c)),
     receive from Parent an amount of cash (rounded to the nearest whole cent),
     without interest, equal to the product of (i) such fraction, multiplied by
     (ii) the closing price of Parent Common Stock on the last full trading day
     prior to Closing as reported on the Nasdaq National Market System.

          (f) Adjustments to Exchange Ratio. The Exchange Ratio shall be
     adjusted to reflect appropriately the effect of any stock split, reverse
     stock split, stock dividend (including any dividend or distribution of
     securities convertible into Parent Common Stock or Company Common Stock),
     reorganization, recapitalization, reclassification or other like change
     with respect to Parent Common Stock or Company Common Stock occurring on or
     after the date hereof and prior to the Effective Time.

     1.7  Surrender of Certificates.

     (a) Exchange Agent. Parent shall select an institution reasonably
satisfactory to the Company to act as the exchange agent (the "EXCHANGE AGENT")
in the Merger.

     (b) Parent to Provide Cash and Common Stock. Within ten (10) business days
after the Effective Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, (i) the shares of Parent Common
Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of
Company Common Stock, (ii) cash in an amount sufficient for payment in lieu of
fractional shares pursuant to Section 1.6(e) and (iii) any dividends or
distributions which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).

     (c) Exchange Procedures. Promptly after the Effective Time, Parent shall
cause the Exchange Agent to mail to each holder of record (as of the Effective
Time) of a certificate or certificates (the "CERTIFICATES") which immediately
prior to the Effective Time represented outstanding shares of Company Common
Stock whose shares were converted into the right to receive shares of Parent
Common Stock pursuant to Section 1.6, cash in lieu of any fractional shares
pursuant to Section 1.6(e) and any dividends or other distributions pursuant to
Section 1.7(d), (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) Form W-9 and (iii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock, cash in lieu of any fractional shares pursuant to Section 1.6(e) and any
dividends or other distributions pursuant to Section 1.7(d). Upon surrender of
Certificates for cancellation to the Exchange Agent or to such other agent or
agents as may be appointed by Parent, together with such letter of transmittal,
duly completed and validly executed in accordance with the instructions thereto,
the holders of such Certificates shall be entitled to receive in exchange
therefor certificates representing the number of whole shares of Parent Common
Stock which such holders have the right to receive pursuant to Section 1.6(e),
payment in lieu of fractional shares which such holders have the right to
receive pursuant to Section 1.6(e) and any dividends or distributions payable
pursuant to Section 1.7(d), and the Certificates so surrendered shall forthwith
be canceled. Until so surrendered, outstanding Certificates will be deemed from
and after the Effective Time, for all corporate purposes, subject to Section
1.7(d) as to the payment of dividends, to evidence the ownership of the number
of full shares of Parent Common Stock into which such shares of Company Common
Stock shall have been so converted and the right to receive an amount in cash in
lieu of the issuance of any fractional shares in accordance with Section 1.6(e)
and any dividends or distributions payable pursuant to Section 1.7(d). No
interest will be paid or will accrue on the cash consideration payable upon the
surrender of any Certificate.

     (d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions declared or made after February 2, 2000 with respect to Parent
Common Stock with a record date after the Effective Time will be paid to the
holders of any unsurrendered Certificates with respect to the shares of Parent
Common Stock represented thereby until the holders of record of such
Certificates shall surrender such Certificates. Subject to applicable law,
following surrender of any such Certificates, the Exchange Agent shall deliver
to the record holders thereof, without interest, certificates representing whole
shares of
                                        3
<PAGE>   8

Parent Common Stock issued in exchange therefor along with payment in lieu of
fractional shares pursuant to Section 1.6(e) hereof and the amount of any such
dividends or other distributions with a record date after the Effective Time
payable with respect to such whole shares of Parent Common Stock.

     (e) Transfers of Ownership. If certificates for shares of Parent Common
Stock are to be issued in a name other than that in which the Certificates
surrendered in exchange therefor are registered, it will be a condition of the
issuance thereof that the Certificates so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the persons requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of the certificates for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificates surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.

     (f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as may be required
to be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable Legal Requirement
(as defined in Section 2.2(c)). To the extent such amounts are so deducted or
withheld, such amounts shall be treated for all purposes under this Agreement as
having been paid to the person to whom such amounts would otherwise have been
paid.

     (g) No Liability. Notwithstanding anything to the contrary in this Section
1.7, neither the Exchange Agent, Parent, the Surviving Corporation nor any party
hereto shall be liable to a holder of shares of Parent Common Stock or Company
Common Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.

     1.8  No Further Ownership Rights in Company Common Stock. All cash and
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof pursuant to Section 1.6(e) and 1.7(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If after the
Effective Time Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.

     1.9  Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(e) and any dividends or distributions payable pursuant to Section
1.7(d); provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may direct as
indemnity against any claim that may be made against Parent, the Company or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.

     1.10  Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. The parties hereto adopt this Agreement as a "plan of reorganization"
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Income Tax Regulations. Accordingly, both prior to and after the Closing Date,
each party's books and records shall be maintained and federal, state and local
income tax and returns and schedules thereto shall be filed in a manner
consistent with the Merger being qualified as a tax-free merger under Section
368(a) of the Code (unless a court of competent jurisdiction renders a
determination (as defined in Section 1313(a)(1) of the Code) that the Merger
does not qualify as such). Each party shall provide to each other such
information, reports, returns or schedules as may be reasonably required to
assist such party in accounting for reporting the Merger being so qualified.
                                        4
<PAGE>   9

     1.11  Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub will take all such lawful and necessary action, so long
as such action is consistent with this Agreement.

                                   ARTICLE II

                 REPRESENTATIONS AND WARRANTIES OF THE COMPANY

     As of February 2, 2000 and as of the Closing Date, the Company represents
and warrants to Parent and Merger Sub, subject to the exceptions specifically
disclosed in writing in the disclosure letter and referencing a specific
representation (except that disclosure in one part of the disclosure letter
shall be deemed to be disclosure with respect to all reasonably applicable
sections of the disclosure letter) supplied by the Company to Parent dated as of
February 2, 2000 and certified by a duly authorized officer of the Company (the
"COMPANY SCHEDULES"), as follows:

     2.1  Organization of the Company.

     (a) The Company has no subsidiaries, except for the corporations identified
in Part 2.1(a)(i) of the Company Schedules; and neither the Company nor any of
the other corporations identified in Part 2.1(a)(i) of the Company Schedules
owns any capital stock of, or any equity interest of any nature in, any other
entity, other than the entities identified in Part 2.1(a)(ii) of the Company
Schedules, except for passive investments in equity interests of public
companies as part of the cash management program of the Company. Except as
identified in Part 2.1(a)(ii) of the Company Schedules, neither the Company nor
any subsidiary thereof has agreed or is obligated to make, or is bound by any
written, oral or other agreement, contract, subcontract, lease, binding
understanding, instrument, note, option, warranty, purchase order, license,
sublicense, insurance policy, benefit plan or legally binding commitment or
undertaking of any nature, as in effect as of February 2, 2000 or as may
hereinafter be in effect ("CONTRACT") under which Contract it may become
obligated to make, any future investment in or capital contribution to any other
entity. Neither the Company nor any subsidiary thereof is or at any time, has
been a general partner of any general partnership, limited partnership or other
entity.

     (b) The Company and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all necessary power and authority: (i)
to conduct its business in the manner in which its business is currently being
conducted; (ii) to own and use its assets in the manner in which its assets are
currently owned and used; and (iii) to perform its obligations under all
Contracts by which it is bound.

     (c) The Company and each of its subsidiaries is qualified to do business as
a foreign corporation, and is in good standing, under the laws of all
jurisdictions where the nature of its business requires such qualification and
where the failure to so qualify would have a Material Adverse Effect (as defined
in Section 8.3) on the Company.

     (d) The Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation and Bylaws of the Company and
similar governing instruments of each of its subsidiaries, each as amended to
date (collectively, the "COMPANY CHARTER DOCUMENTS"), and each such instrument
is in full force and effect. The Company is not in violation of any of the
provisions of the Company Charter Documents. None of the Company's subsidiaries
is in violation of any provision of its Articles or Certificate of Incorporation
or Bylaws or other similar governing instruments, except for such violations as
are not material to the Company and its subsidiaries taken as a whole.

     (e) The Company has delivered or made available to Parent all proposed or
considered amendments to the Company Charter Documents.
                                        5
<PAGE>   10

     2.2  Company Capital Structure.

     (a) The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Company Common Stock, $0.01 par value, of which 15,734,119
shares have been issued and are outstanding as of February 2, 2000; and (ii)
1,000,000 shares of preferred stock, $0.01 par value, of which no shares are
outstanding as of February 2, 2000. All of the outstanding shares of capital
stock of the Company have been duly authorized and validly issued, and are fully
paid and nonassessable. As of February 2, 2000, there are no shares of Company
Common Stock held in treasury by the Company. Upon consummation of the Merger,
(A) the shares of Parent Common Stock and cash issued in exchange for any shares
of Company Common Stock that are subject to a Contract pursuant to which the
Company has the right to repurchase, redeem or otherwise reacquire any shares of
Company Common Stock will, without any further act of Parent, the Company or any
other person, become subject to the restrictions, conditions and other
provisions contained in such Contract, and (B) Parent will automatically succeed
to and become entitled to exercise the Company's rights and remedies under any
such Contract. Except as set forth in Part 2.2(a) of the Company Schedules,
there are no shares of Company Common Stock immediately prior to the Effective
Time that are unvested or that are subject to a repurchase option, risk of
forfeiture or other condition under any applicable restricted stock purchase
agreement or other agreement with the Company.

     (b) As of February 2, 2000: (i) 1,695,333 shares of Company Common Stock
are subject to issuance pursuant to outstanding options to purchase Company
Common Stock under the Company Stock Option Plans (excluding options granted
pursuant to Section 5.9(d)); and (ii) 960,155 shares of Company Common Stock are
reserved for future grant under the Company's 1999 Stock Option Plan. Stock
options granted by the Company pursuant to the Company Stock Option Plans are
referred to in this Agreement as "COMPANY OPTIONS". Part 2.2(b) of the Company
Schedules sets forth the following information with respect to each Company
Option outstanding as of February 2, 2000: (i) the name and address of the
optionee; (ii) the particular plan pursuant to which such Company Option was
granted; (iii) the number of shares of Company Common Stock subject to such
Company Option; (iv) the exercise price of such Company Option; (v) the date on
which such Company Option was granted; (vi) the applicable vesting schedule;
(vii) the date on which such Company Option expires; (viii) whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement, and indicates the extent of any such
acceleration; and (ix) whether or not such option was granted with the intention
to qualify as an "incentive stock option" within the meaning of Section 422 of
the Code (i) through (ix) collectively, "INFORMATION OPTION". The Company has
made available to Parent accurate and complete copies of all stock option plans
pursuant to which the Company has granted stock options that are currently
outstanding and the form of all stock option agreements evidencing such options.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. Except as set forth in Part 2.2(b)(i) of the Company
Schedules, there are no commitments or agreements of any character to which the
Company is bound obligating the Company to accelerate the vesting of any Company
Option as a result of the Merger. Each Company Option shall be assumed as set
forth in Section 5.9.

     (c) All outstanding shares of Company Common Stock, all outstanding Company
Options, and all outstanding shares of capital stock of each subsidiary of the
Company have been issued and granted in compliance with (i) all applicable
securities laws and, to the knowledge of the Company, other applicable Legal
Requirements (as defined below) and (ii) all requirements set forth in
applicable Contracts. For the purposes of this Agreement, "LEGAL REQUIREMENTS"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined below).

     2.3  Obligations With Respect to Capital Stock. Except as set forth in Part
2.3 of the Company Schedules and except for options under the Company Stock
Option Plans, there are no securities exchangeable or convertible into or
exercisable for any equity securities, partnership interests or similar
                                        6
<PAGE>   11

ownership interests of any class of any Company equity security, issued,
reserved for issuance or outstanding. Except for securities the Company owns
free and clear of all claims and Encumbrances (as defined below), directly or
indirectly through one or more subsidiaries, and except for shares of capital
stock or other similar ownership interests of certain subsidiaries of the
Company that are owned by certain nominee equity holders as required by the
applicable law of the jurisdiction of organization of such subsidiaries (which
shares or other interests do not materially affect the Company's control of such
subsidiaries), as of February 2, 2000, there are no securities exchangeable or
convertible into or exercisable for any class of equity security of any
subsidiary of the Company, issued, reserved for issuance or outstanding. For the
purposes of this Agreement "ENCUMBRANCES" means any lien, pledge, hypothecation,
charge, mortgage, security interest, encumbrance, claim, infringement,
interference, option, right of first refusal, preemptive right, community
property interest or, to the knowledge of the Company, any restriction on the
voting of any security, any restriction on the transfer of any security or other
asset, any restriction on the receipt of any income derived from any asset, any
restriction on the use of any asset and any restriction on the possession,
exercise or transfer of any other attribute of ownership of any asset. Except as
set forth in Part 2.3 of the Company Schedules or as set forth in Section 2.2
hereof, there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which the
Company or any of its subsidiaries is a party or by which it is bound obligating
or permitting the Company or any of its subsidiaries to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of the
Company or any of its subsidiaries or obligating or permitting the Company or
any of its subsidiaries to grant, extend, accelerate the vesting of or enter
into any such subscription, option, warrant, equity security, call, right,
commitment or agreement. As of February 2, 2000, except as contemplated by this
Agreement and pursuant to that certain Third Amended and Restated Registration
Rights Agreement dated September 15, 1999 (the "COMPANY REGISTRATION RIGHTS
AGREEMENT"), there are no registration rights and there is, except for the
Company Voting Agreement, no voting trust, proxy, rights plan, antitakeover plan
or other agreement or understanding to which the Company is a party or by which
it or, to the knowledge of the Company, any of the stockholders of the Company
is bound with respect to any equity security of any class of the Company or with
respect to any equity security, partnership interest or similar ownership
interest of any class of any of its subsidiaries. Stockholders of the Company
will not be entitled to dissenters' rights under applicable state law in
connection with the Merger.

     2.4  Authority; Non-Contravention.

     (a) The Company has all requisite corporate power and authority to enter
into this Agreement and to consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company, subject only to the
approval and adoption of this Agreement and the approval of the Merger by the
Company's stockholders and the filing of the Certificate of Merger pursuant to
Delaware Law. A vote of the holders of a majority of the outstanding shares of
the Company Common Stock is sufficient for the Company's stockholders to approve
and adopt this Agreement and approve the Merger. This Agreement has been duly
executed and delivered by the Company and, assuming due execution and delivery
by Parent and Merger Sub, constitutes a valid and binding obligations of the
Company, enforceable against the Company in accordance with its terms, except as
enforceability may be limited by bankruptcy and other similar laws and general
principles of equity. The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
(i) conflict with or violate the Company Charter Documents, (ii) subject to
obtaining the approval and adoption of this Agreement and the approval of the
Merger by the Company's stockholders as contemplated in Section 5.2 and
compliance with the requirements set forth in Section 2.4(b) below, conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or any of its subsidiaries or by which the Company or any of its
subsidiaries or any of their respective properties is bound, or (iii) result in
any material breach of or constitute a material default (or an event that with
notice or lapse of time or both would become a material default) under, or
                                        7
<PAGE>   12

impair the Company's rights or alter the rights or obligations of any third
party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material lien or
Encumbrance on any of the material properties or assets of the Company or any of
its subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective assets are bound. Part 2.4(a) of the Company Schedules lists all
consents, waivers and approvals under any of the Company's or any of its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby,
which, if individually or in the aggregate not obtained, would result in a
material loss of benefits to the Company, Parent or the Surviving Corporation as
a result of the Merger.

     (b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required to be obtained or made by the Company in
connection with the execution and delivery of this Agreement or the consummation
of the Merger, except for (i) the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware, (ii) approval of the
Prospectus/Proxy Statement (as defined in Section 2.19) and the Registration
Statement (as defined in Section 2.19) by the Securities and Exchange Commission
("SEC") in accordance with the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign and state securities (or related) laws and the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), and the securities or antitrust laws of any foreign country, and (iv) to
the knowledge of the Company, such other consents, authorizations, filings,
approvals and registrations which if not obtained or made would not be material
to the Company or Parent or have a material adverse effect on the ability of the
parties hereto to consummate the Merger.

     2.5  SEC Filings; Company Financial Statements; No Undisclosed Liabilities.

     (a) The Company has filed all forms, reports and documents required to be
filed by the Company with the SEC since December 8, 1999 and has made available
to Parent such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that the Company may
file subsequent to February 2, 2000) are referred to herein as the "COMPANY SEC
REPORTS". As of their respective dates, the Company SEC Reports (including, but
not limited to, the Company's registration statement on form S-1 and the
prospectus included therein) (i) were prepared in accordance and complied in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the SEC thereunder
applicable to such Company SEC Reports and (ii) did not at the time they were
filed contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of the Company's subsidiaries is required to file any
forms, reports or other documents with the SEC.

     (b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in the Company SEC Reports (the "COMPANY
FINANCIALS"), including each Company SEC Reports filed after February 2, 2000
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of the Company and its subsidiaries as at the respective
dates thereof and the consolidated results of the Company's operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements may not contain footnotes and were or are subject to normal and
recurring year-end adjustments. The audited balance sheet of the Company as of
September 30, 1999 previously delivered to Parent by the Company
                                        8
<PAGE>   13

and contained in the Company SEC Reports as of December 8, 1999 is hereinafter
referred to as the "COMPANY BALANCE SHEET."

     (c) The Company has heretofore furnished to Parent a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by the Company with the SEC pursuant
to the Securities Act or the Exchange Act.

     (d) The Company issued stock in an initial public offering pursuant to a
registration statement on Form S-1 (the "COMPANY S-1"), which was declared
effective on December 8, 1999 (the "EFFECTIVE DATE") and a prospectus (the
"COMPANY PROSPECTUS"), the final form of which was filed with the SEC on
December 8, 1999 pursuant to Rule 424(b) of the Securities Act. At the Effective
Date, the Company S-1 did not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements not misleading.

     (e) Neither Company nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Company and its subsidiaries taken as a whole, except (i)
liabilities provided for in Company Balance Sheet or (ii) liabilities incurred
since September 30, 1999 in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company and its subsidiaries, taken as a whole.

     2.6  Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet there has not been: (i) any Material Adverse Effect on the
Company, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
the Company's or any of its subsidiaries' capital stock, or any purchase,
redemption or other acquisition by the Company of any of the Company's capital
stock or any other securities of the Company or its subsidiaries or any options,
warrants, calls or rights to acquire any such shares or other securities except
for repurchases from employees following their termination pursuant to the terms
of their pre-existing stock option or purchase agreements, (iii) any split,
combination or reclassification of any of the Company's or any of its
subsidiaries' capital stock, (iv) except as set forth in Part 2.6 of the Company
Schedules, any granting by the Company or any of its subsidiaries of any
increase in compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by the Company or any of its subsidiaries of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, or (v) any granting by the Company or any of its subsidiaries of any
increase in severance or termination pay or (vi) any entry by the Company or any
of its subsidiaries into any currently effective employment, severance,
termination or indemnification agreement or any other agreement the benefits of
which are contingent or the terms of which are materially altered upon the
occurrence of a transaction involving the Company of the nature contemplated
hereby, (vii) entry by the Company or any of its subsidiaries into any licensing
or other agreement with regard to the acquisition or disposition of any material
Intellectual Property (as defined in Section 2.9) other than licenses in the
ordinary course of business consistent with past practice, (viii) any amendment
or consent with respect to any licensing agreement filed or required to be filed
by the Company with the SEC, (ix) any material change by the Company in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, (x) any revaluation by the Company of any of its assets,
including, without limitation, writing down the value of capitalized inventory
or writing off notes or accounts receivable other than in the ordinary course of
business and consistent with past practice; or (xi) any changes in the vesting
schedules of outstanding Company Options.

     2.7  Taxes.

     (a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales,
                                        9
<PAGE>   14

use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.

     (b) Tax Returns and Audits.

          (i) The Company and each of its subsidiaries have timely filed all
     federal, state, local and foreign returns, estimates, information
     statements and reports ("RETURNS") relating to Taxes required to be filed
     by the Company and each of its subsidiaries with any Tax authority. The
     Company and each of its subsidiaries have paid all Taxes shown to be due on
     such Returns.

          (ii) The Company and each of its subsidiaries as of the Effective Time
     will have withheld with respect to its employees all federal and state
     income taxes, Taxes pursuant to the Federal Insurance Contribution Act
     ("FICA"), Taxes pursuant to the Federal Unemployment Tax Act ("FUTA") and
     other Taxes required to be withheld.

          (iii) Neither the Company nor any of its subsidiaries has been
     delinquent in the payment of any Tax nor is there any Tax deficiency
     outstanding, proposed in writing (or otherwise, to the Company's knowledge,
     proposed) or assessed against the Company or any of its subsidiaries, nor
     has the Company or any of its subsidiaries executed any unexpired waiver of
     any statute of limitations on or extending the period for the assessment or
     collection of any Tax.

          (iv) No audit or other examination of any Return of the Company or any
     of its subsidiaries by any Tax authority is presently in progress, nor has
     the Company or any of its subsidiaries been notified in writing (or
     otherwise, to the Company's knowledge, notified) of any request for such an
     audit or other examination.

          (v) No adjustment relating to any Returns filed by the Company or any
     of its subsidiaries has been proposed in writing formally or informally by
     any Tax authority to the Company or any of its subsidiaries or any
     representative thereof.

          (vi) Neither the Company nor any of its subsidiaries has any liability
     for unpaid Taxes which has not been accrued for or reserved on the Company
     Balance Sheet, whether asserted or unasserted, contingent or otherwise,
     which is material to the Company, other than any liability for unpaid Taxes
     that may have accrued since the date of the Company Balance Sheet in
     connection with the operation of the business of the Company and its
     subsidiaries in the ordinary course.

          (vii) Except as set forth on Part 2.7(b) of the Company Schedules,
     there is no contract, agreement, plan or arrangement to which the Company
     is a party as of February 2, 2000, including but not limited to the
     provisions of this Agreement, covering any employee or former employee of
     the Company or any of its subsidiaries that, individually or collectively,
     could give rise to the payment of any amount that would not be deductible
     pursuant to Sections 280G, 404 or 162(m) of the Code.

          (viii) Neither the Company nor any of its subsidiaries has filed any
     consent agreement under Section 341(f) of the Code or agreed to have
     Section 341(f)(2) of the Code apply to any disposition of a subsection (f)
     asset (as defined in Section 341(f)(4) of the Code) owned by the Company.

          (ix) Neither the Company nor any of its subsidiaries is party to or
     has any obligation under any tax-sharing, tax indemnity or tax allocation
     agreement or arrangement.

          (x) Except as may be required as a result of the Merger, the Company
     and its subsidiaries have not been and will not be required to include any
     adjustment in Taxable income for any Tax period (or portion thereof)
     pursuant to Section 481 or Section 263A of the Code or any comparable
     provision under state or foreign Tax laws as a result of transactions,
     events or accounting methods employed prior to the Closing.

          (xi) Part 2.7 of the Company Schedules lists (A) any foreign Tax
     holidays, (B) any intercompany transfer pricing agreements, or other
     arrangements that have been established by the
                                       10
<PAGE>   15

     Company or any of its subsidiaries with any Tax authority and (C) any
     expatriate programs or policies affecting the Company or any of its
     subsidiaries.

          (xii) None of the Company or its subsidiaries (A) has been a member of
     an "affiliated group" filing a consolidated federal income tax return
     (other than a group the common parent of which was the Company) or (B) has
     any liability for the Taxes of any person (other than any of the Company
     and its subsidiaries) under Reg. Section 1.1502-6 (or any similar provision
     of state, local, or foreign law), as a transferee or successor, by
     contract, or otherwise.

          (xiii) Neither the Company nor any of its subsidiaries has constituted
     either a "distributing corporation" or a "controlled corporation" in a
     distribution of stock qualifying for tax-free treatment under Section 355
     of the Code (x) in the two years prior to February 2, 2000 or (y) in a
     distribution which could otherwise constitute part of a "plan" or "series
     of related transactions" (within the meaning of Section 355(e) of the Code)
     in conjunction with the Merger.

     2.8  Title to Properties; Absence of Liens and Encumbrances.

     (a) Part 2.8(a)(i) of the Company Schedules lists the real property
interests owned by the Company as of February 2, 2000. Part 2.8(a)(ii) of the
Company Schedules lists all real property leases to which the Company is a party
as of February 2, 2000 and each amendment thereto that is in effect as of
February 2, 2000. All such current leases are in full force and effect and are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) that
would give rise to a material claim. Other than the leaseholds created under the
real property leases identified in Part 2.8(a)(ii) of the Company Schedules, the
Company owns no interest in real property.

     (b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS"), except as reflected in
the Company Financials and except for liens for taxes not yet due and payable
and such Liens or other imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.

     2.9  Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:

     "INTELLECTUAL PROPERTY" shall mean any or all of the following and all
rights in, arising out of, or associated therewith: (i) all United States,
international and foreign patents and applications therefor and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyrights registrations
and applications therefor, and all other rights corresponding thereto throughout
the world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, URLs, domain names,
common law trademarks and service marks, trademark and service mark
registrations and applications therefor throughout the world; (vi) all databases
and data collections and all rights therein throughout the world; (vii) all
moral and economic rights of authors and inventors, however denominated,
throughout the world; and (viii) any similar or equivalent rights to any of the
foregoing anywhere in the world.

     "COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, the Company and its subsidiaries.

     "REGISTERED INTELLECTUAL PROPERTY" means all United States, international
and foreign: (i) patents and patent applications (including provisional
applications); (ii) registered trademarks, applications to register trademarks,
intent-to-use applications, or other registrations or applications related to
trademarks; (iii) registered domain names and reserved domain names, (iv)
registered copyrights and applications for
                                       11
<PAGE>   16

copyright registration; and (v) any other Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued, filed with, or recorded by any state, government or other public legal
authority.

     "COMPANY REGISTERED INTELLECTUAL PROPERTY" means all of the Registered
Intellectual Property owned by, or filed in the name of, the Company or its
subsidiaries.

          (a) No Company Intellectual Property or product or service of the
     Company is subject to any proceeding or outstanding decree, order,
     judgment, agreement, or stipulation restricting in any manner the use,
     transfer, or licensing thereof by the Company, or which may affect the
     validity, use or enforceability of such Company Intellectual Property.

          (b) Part 2.9(b) of the Company Schedules is a complete and accurate
     list of all Company Registered Intellectual Property and specifies, where
     applicable, the jurisdictions in which each such item of Company Registered
     Intellectual Property has been issued or registered or in which an
     application for such issuance and registration has been filed, including
     the respective registration or application numbers. Each material item of
     Company Registered Intellectual Property is valid and subsisting, all
     necessary registration, maintenance and renewal fees currently due in
     connection with such Registered Intellectual Property have been made and
     all necessary documents, recordations and certificates in connection with
     such Registered Intellectual Property have been filed with the relevant
     patent, copyright, trademark or other authorities in the United States or
     foreign jurisdictions, as the case may be, for the purposes of maintaining
     such Registered Intellectual Property.

          (c) The Company owns and has good and exclusive title to, or has
     license to or otherwise has a right to use or exploit in the way it has
     been used as of February 2, 2000, each material item of Company
     Intellectual Property or other Intellectual Property used by the Company
     free and clear of any Encumbrance (excluding licenses and related
     restrictions granted in the ordinary course of business consistent with
     past practices); and the Company is the exclusive owner of all trademarks
     and trade names used in connection with the operation or conduct of the
     business of the Company, including the sale of any products or the
     provision of any services by the Company.

          (d) The Company owns exclusively, and has good title to, all
     copyrighted works that are Company products or which the Company otherwise
     expressly purports to own.

          (e) Neither the Company nor its subsidiaries have transferred
     ownership of, or granted any exclusive license with respect to, any
     Intellectual Property that is or was material to the Company Intellectual
     Property, to any third party.

          (f) To the extent that any material technology, software or
     Intellectual Property has been developed or created independently or
     jointly by a third party for Company or any of its subsidiaries or is
     incorporated into any of the Company Products, Company has a written
     agreement with such third party with respect thereto and Company thereby
     either (i) has obtained ownership of, and is the exclusive owner of, or
     (ii) has obtained a perpetual, non-terminable license (sufficient for the
     conduct of its business as currently conducted and as proposed to be
     conducted) to all such third party's Intellectual Property in such work,
     material or invention by operation of law or by valid assignment, to the
     fullest extent it is legally possible to do so. The Company Schedules list
     all material contracts, licenses and agreements to which the Company is a
     party (i) with respect to Company Intellectual Property licensed or
     transferred to any third party (other than end-user licenses in the
     ordinary course); or (ii) pursuant to which a third party has licensed or
     transferred any material Intellectual Property to the Company.

          (g) All material contracts, licenses and agreements relating to either
     (i) Company Intellectual Property or (ii) Intellectual Property of a third
     party licensed to Company or any of its subsidiaries, are in full force and
     effect. The consummation of the transactions contemplated by this Agreement
     will neither violate nor result in the breach, modification, cancellation,
     termination or suspension of such contracts, licenses and agreements. Each
     of Company and its subsidiaries is in material compliance with, and has not
     materially breached, any term of any such contracts, licenses and
                                       12
<PAGE>   17

     agreements and, to the knowledge of Company, all other parties to such
     contracts, licenses and agreements are in compliance with, and have not
     materially breached, any term of, such contracts, licenses and agreements.
     Following the Closing Date, the Surviving Corporation will be permitted to
     exercise all of Company's rights under such contracts, licenses and
     agreements to the same extent Company and its subsidiaries would have been
     able to had the transactions contemplated by this Agreement not occurred
     and without the payment of any additional amounts or consideration other
     than ongoing fees, royalties or payments which Company would otherwise be
     required to pay. Neither this Agreement nor the transactions contemplated
     by this Agreement, including the assignment to Parent or Merger Sub by
     operation of law or otherwise of any contracts or agreements to which the
     Company is a party, will result in (i) either Parent's or the Merger Sub's
     granting to any third party any right to or with respect to any material
     Intellectual Property right owned by, or licensed to, either of them, (ii)
     either the Parent's or the Merger Sub's being bound by, or subject to, any
     non-compete or other material restriction on the operation or scope of
     their respective businesses, or (iii) either the Parent's or the Merger
     Sub's being obligated to pay any royalties or other material amounts to any
     third party in excess of those payable by Company prior to the Closing.

          (h) The operation of the business of the Company and its subsidiaries
     as such business currently is conducted, including the Company's design,
     development, marketing and sale of the products or services of the Company
     (including with respect to products currently under development) has not,
     does not and will not infringe or misappropriate the Intellectual Property
     of any third party or constitute unfair competition or trade practices
     under the laws of any jurisdiction.

          (i) The Company has received neither written, nor to the Company's
     knowledge, oral notice from any third party that the operation of the
     business of the Company or any act, product or service of the Company,
     infringes or misappropriates the Intellectual Property of any third party
     or constitutes unfair competition or trade practices under the laws of any
     jurisdiction.

          (j) To the knowledge of the Company, no person has infringed or
     misappropriated or is infringing or misappropriating any Company
     Intellectual Property.

          (k) The Company has taken reasonable steps to protect the Company's
     rights in the Company's confidential information and trade secrets that it
     wishes to protect or any trade secrets or confidential information of third
     parties provided to the Company, and, without limiting the foregoing, the
     Company has and enforces a policy requiring each employee and contractor to
     execute a proprietary information/confidentiality agreement in the form
     attached hereto as Exhibit F and, except as set forth on Part 2.9(l) of the
     Company Schedules, all current and former employees and contractors of the
     Company have executed such an agreement.

     2.10  Compliance; Permits; Restrictions.

     (a) Neither the Company nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to the Company or any of its
subsidiaries or by which the Company or any of its subsidiaries or any of their
respective properties is bound, or (ii) any material note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective businesses or properties is bound, except for conflicts, violations
and defaults that (individually or in the aggregate) would not cause the Company
to lose any material benefit or incur any material liability. No investigation
or review by any Governmental Entity is pending or, to the Company's knowledge,
has been threatened in a writing delivered to the Company, against the Company
or any of its subsidiaries, nor, to the Company's knowledge, has any
Governmental Entity indicated an intention to conduct an investigation of the
Company or any of its subsidiaries. There is no material agreement, judgment,
injunction, order or decree binding upon the Company or any of its subsidiaries
which has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of the Company or any of its
subsidiaries, any acquisition of material property by the Company or any of its
subsidiaries or the conduct of business by the Company as currently conducted.
                                       13
<PAGE>   18

     (b) The Company and its subsidiaries hold, to the extent legally required,
all permits, licenses, variances, exemptions, orders and approvals from
Governmental Entities that are material to and required for the operation of the
business of the Company as currently conducted (collectively, the "COMPANY
PERMITS"). The Company and its subsidiaries are in compliance in all material
respects with the terms of the Company Permits, except where the failure to be
in compliance with the terms of the Company Permits would not be material to the
Company.

     2.11  Litigation. Except as disclosed in Part 2.11 of the Company
Schedules, there are no claims, suits, actions or proceedings pending or, to the
knowledge of the Company, threatened against, relating to or affecting the
Company or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to the
Company. No Governmental Entity has at any time challenged or questioned in a
writing delivered to the Company the legal right of the Company to design,
manufacture, offer or sell any of its products or services in the present manner
or style thereof.

     Except as disclosed in Part 2.11 of the Company Schedules, the Company has
never been subject to an audit, compliance review, investigation or like
contract review by the GSA office of the Inspector General or other Governmental
Entity or agent thereof in connection with any government contract (a
"GOVERNMENT AUDIT"), to the Company's knowledge no Government Audit is
threatened, and in the event of such Government Audit, to the knowledge of the
Company, no basis exists for a finding of noncompliance with any material
provision of any government contract or a refund of any amounts paid or owed by
any Governmental Entity pursuant to such government contract. For each item
disclosed in the Company Schedule pursuant to this Section 2.11 a true and
complete copy of all correspondence and documentation with respect thereto has
been made available to Parent.

     2.12  Brokers' and Finders' Fees. Except for fees payable to W.R. Hambrecht
pursuant to an engagement letter dated January 20, 2000 a copy of which has been
provided to Parent, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.

     2.13  Transactions with Affiliates. Except as set forth in the Company SEC
Reports, since September 30, 1999, no event has occurred as of February 2, 2000
that would be required to be reported by the Company pursuant to Item 404 of
Regulation S-K promulgated by the SEC. Part 2.13 of the Company Schedules
identifies each person who is an "affiliate" (as that term is used in Rule 145
promulgated under the Securities Act) of the Company as of February 2, 2000.

     2.14  Employee Benefit Plans.

     (a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.14(a)(i) below (which definition shall apply only to this
Section 2.14), for purposes of this Agreement, the following terms shall have
the meanings set forth below:

          (i) "AFFILIATE" shall mean any other person or entity under common
     control with the Company within the meaning of Section 414(b), (c), (m) or
     (o) of the Code and the regulations issued thereunder;

          (ii) "COMPANY EMPLOYEE PLAN" shall mean any plan, program, policy,
     practice, contract, agreement or other arrangement providing for
     compensation, severance, termination pay, performance awards, stock or
     stock-related awards, fringe benefits or other employee benefits or
     remuneration of any kind, whether written or unwritten or otherwise, funded
     or unfunded, including without limitation, each "employee benefit plan,"
     within the meaning of Section 3(3) of ERISA which is or has been
     maintained, contributed to, or required to be contributed to, by the
     Company or any Affiliate for the benefit of any Employee
                                       14
<PAGE>   19

          (iii) "COBRA" shall mean the Consolidated Omnibus Budget
     Reconciliation Act of 1985, as amended

          (iv) "DOL" shall mean the Department of Labor;

          (v) "EMPLOYEE" shall mean any current, former, or retired employee,
     officer, or director of the Company or any Affiliate;

          (vi) "EMPLOYEE AGREEMENT" shall mean each management, employment,
     severance, consulting, relocation, repatriation, expatriation, visas, work
     permit or similar agreement or contract between the Company or any
     Affiliate and any Employee or consultant;

          (vii) "ERISA" shall mean the Employee Retirement Income Security Act
     of 1974, as amended;

          (viii) "FMLA" shall mean the Family Medical Leave Act of 1993, as
     amended;

          (ix) "INTERNATIONAL EMPLOYEE PLAN" shall mean each Company Employee
     Plan that has been adopted or maintained by the Company, whether informally
     or formally, for the benefit of Employees outside the United States;

          (x) "IRS" shall mean the Internal Revenue Service;

          (xi) "MULTIEMPLOYER PLAN" shall mean any "Pension Plan" (as defined
     below) which is a "multiemployer plan," as defined in Section 3(37) of
     ERISA;

          (xii) "PBGC" shall mean the Pension Benefit Guaranty Corporation; and

          (xiii) "PENSION PLAN" shall mean each Company Employee Plan which is
     an "employee pension benefit plan," within the meaning of Section 3(2) of
     ERISA.

     (b) Schedule. Part 2.14(b) of the Company Schedules contain an accurate and
complete list of each Company Employee Plan and each material Employee
Agreement. The Company does not have any legally binding plan or commitment to
establish any new Company Employee Plan, to modify any Company Employee Plan or
Employee Agreement (except to the extent required by law or to conform any such
Company Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any Company Employee Plan or
material Employee Agreement, nor does it have any intention or commitment to do
any of the foregoing. Since December 31, 1999 the Company has hired five
employees and has indicated in written offer letters that an aggregate of 37,000
options would be granted to these employees (the "NEW OPTIONS"); none of the
vesting terms of the New Options shall accelerate as a result of the actions
contemplated by this Agreement.

     (c) Documents. The Company has provided or made available to Parent: (i)
correct and complete copies of all documents embodying each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three (3) most recent
annual reports (Form Series 5500 and all schedules and financial statements
attached thereto), if any, required under ERISA or the Code in connection with
each Company Employee Plan or related trust; (iv) if the Company Employee Plan
is funded, the most recent annual and periodic accounting of Company Employee
Plan assets; (v) the most recent summary plan description together with the
summary of material modifications thereto, if any, required under ERISA with
respect to each Company Employee Plan; (vi) all IRS determination, opinion,
notification and advisory letters, and rulings relating to Company Employee
Plans and copies of all applications and correspondence to or from the IRS or
the DOL with respect to any Company Employee Plan; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (viii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
                                       15
<PAGE>   20

to the Company; (ix) all COBRA forms and related notices; and (x) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.

     (d) Employee Plan Compliance. Except as set forth in Part 2.14(d) of the
Company Schedules, (i) the Company has performed in all material respects all
obligations required to be performed by it under, is not in default or violation
of, and has no knowledge of any default or violation by any other party to each
Company Employee Plan, and each Company Employee Plan has been established and
maintained in all material respects in accordance with its terms and in
compliance with all applicable laws, statutes, orders, rules and regulations,
including but not limited to ERISA or the Code; (ii) each Company Employee Plan
intended to qualify under Section 401(a) of the Code and each trust intended to
qualify under Section 501(a) of the Code has either received a favorable
determination letter from the IRS with respect to each such Plan as to its
qualified status under the Code, including all amendments to the Code effected
by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a
period of time under applicable Treasury regulations or IRS pronouncements in
which to apply for such a determination letter and make any amendments necessary
to obtain a favorable determination; (iii) no "prohibited transaction," within
the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and
not otherwise exempt under Section 408 of ERISA, has occurred with respect to
any Company Employee Plan; (iv) there are no actions, suits or claims pending,
or, to the knowledge of the Company, threatened or reasonably anticipated (other
than routine claims for benefits) against any Company Employee Plan or against
the assets of any Company Employee Plan; (v) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to Parent, the Company or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (vi) there are no audits, inquiries or proceedings
pending or, to the knowledge of the Company or any Affiliates, threatened by the
IRS or DOL with respect to any Company Employee Plan; and (vii) neither the
Company nor any Affiliate is subject to any penalty or tax with respect to any
Company Employee Plan under Section 402(i) of ERISA or Sections 4975 through
4980 of the Code.

     (e) Pension Plans. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code.

     (f) Multiemployer Plans. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.

     (g) No Post-Employment Obligations. No Company Employee Plan provides, or
has any liability to provide, retiree life insurance, retiree health or other
retiree employee welfare benefits to any person for any reason, except as may be
required by COBRA or other applicable law, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) or any other person
that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.

     (h) Neither the Company nor any Affiliate has, prior to the Effective Time,
and in any material respect, violated any of the health care continuation
requirements of COBRA, the requirements of FMLA or any similar provisions of
state law applicable to its Employees.

     (i) Effect of Transaction. Except as set forth on Part 2.14(i) of the
Company Schedules, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any former or current Employee or director.

                                       16
<PAGE>   21

     (j) Employment Matters. The Company: (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any material payment to any trust or
other fund or to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice). There are no pending, or,
to the Company's knowledge, threatened claims or actions against the Company
under any worker's compensation policy or long-term disability policy. To the
Company's knowledge, no employee of the Company has violated any employment
contract, nondisclosure agreement or noncompetition agreement by which such
employee is bound due to such employee being employed by the Company and
disclosing to the Company or using trade secrets or proprietary information of
any other person or entity.

     (k) Labor. No work stoppage or labor strike against the Company is pending,
threatened or reasonably anticipated. The Company does not know of any
activities or proceedings of any labor union to organize any Employees. There
are no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of the Company, threatened or reasonably anticipated relating to any
labor, safety or discrimination matters involving any Employee, including,
without limitation, charges of unfair labor practices or discrimination
complaints, which, if adversely determined, would, individually or in the
aggregate, result in any material liability to the Company. Neither the Company
nor any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act. The Company is not presently, nor
has it been in the past, a party to, or bound by, any collective bargaining
agreement or union contract with respect to Employees and no collective
bargaining agreement is being negotiated by the Company.

     (l) International Employee Plan. Each International Employee Plan has been
established, maintained and administered in material compliance with its terms
and conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason.

     (m) Restricted Stock. No shares of outstanding Company Common Stock are
unvested or are subject to a repurchase option, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
agreement with the Company.

     2.15  Environmental Matters.

     (a) Hazardous Material. Except as would not result in material liability to
the Company, no underground storage tanks and no amount of any substance that
has been designated by any Governmental Entity or by applicable federal, state
or local law to be radioactive, toxic, hazardous or otherwise a danger to health
or the environment, including, without limitation, PCBs, asbestos, petroleum,
urea-formaldehyde and all substances listed as hazardous substances pursuant to
the Comprehensive Environmental Response, Compensation, and Liability Act of
1980, as amended, or defined as a hazardous waste pursuant to the United States
Resource Conservation and Recovery Act of 1976, as amended, and the regulations
promulgated pursuant to said laws, but excluding office and janitorial supplies,
(a "HAZARDOUS MATERIAL") are present, or as a result of the actions of the
Company or any of its subsidiaries or any affiliate of the Company, or, to the
Company's knowledge, as a result of any actions of any third party or otherwise,
in, on or under any property, including the land and the improvements, ground
water and surface water thereof, that the Company or any of its subsidiaries has
at any time owned, operated, occupied or leased.

     (b) Hazardous Materials Activities. Except as would not result in a
material liability to the Company (in any individual case or in the aggregate)
(i) neither the Company nor any of its subsidiaries
                                       17
<PAGE>   22

has transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in effect
on or before the Closing Date, and (ii) neither the Company nor any of its
subsidiaries has disposed of, transported, sold, used, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of February 2, 2000 to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.

     (c) Permits. The Company and its subsidiaries currently hold all
environmental approvals, permits, licenses, clearances and consents (the
"COMPANY ENVIRONMENTAL PERMITS") necessary for the conduct of the Company's and
its subsidiaries' Hazardous Material Activities and other businesses of the
Company and its subsidiaries as such activities and businesses are currently
being conducted.

     (d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ or injunction is pending, and to the
Company's knowledge, no action, proceeding, revocation proceeding, amendment
procedure, writ or injunction has been threatened by any Governmental Entity
against the Company or any of its subsidiaries in a writing delivered to the
Company concerning any Company Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company or any of its subsidiaries. The
Company is not aware of any fact or circumstance which could involve the Company
or any of its subsidiaries in any environmental litigation or impose upon the
Company any material environmental liability.

     2.16  Year 2000 Compliance. Except as disclosed in Part 2.16 of the Company
Schedules, the Company's products and internal systems have been designed to
ensure date and time entry recognition, calculations that accommodate same
century and multi-century formulas and date values, leap year recognition and
calculations, and date data interface values that reflect the century. The
Company's products and internal systems manage and manipulate data involving
dates and times, including single century formulas and multi-century formulas,
and do not cause an abnormal ending scenario within the application or generate
incorrect values or invalid results involving such dates.

     2.17  Agreements, Contracts and Commitments. Except as otherwise set forth
in Part 2.14 or 2.17 of the Company Schedules, neither the Company nor any of
its subsidiaries is a party to or is bound by:

          (a) any employment or consulting agreement, contract or commitment
     greater than $100,000 with any officer, employee or member of the Company's
     Board of Directors, other than those that are terminable by the Company or
     any of its subsidiaries on no more than thirty (30) days' notice without
     liability or financial obligation, except to the extent general principles
     of wrongful termination law may limit the Company's or any of its
     subsidiaries' ability to terminate employees at will;

          (b) any agreement of indemnification or any guaranty other than any
     agreement of indemnification entered into in connection with the sale or
     license of software products in the ordinary course of business;

          (c) any agreement, contract or commitment containing any covenant
     limiting in any respect the right of the Company or any of its subsidiaries
     to engage in any line of business or to compete with any person or granting
     any exclusive distribution rights;

          (d) any agreement, contract or commitment currently in force relating
     to the disposition or acquisition by the Company or any of its subsidiaries
     after February 2, 2000 of a material amount of assets not in the ordinary
     course of business or pursuant to which the Company has any material
     ownership interest in any corporation, partnership, joint venture or other
     business enterprise other than the Company's subsidiaries;

          (e) any joint marketing or development agreement currently in force
     under which the Company or any of its subsidiaries have continuing material
     obligations to jointly market any product, technology or service and which
     may not be canceled without penalty upon notice of 90 days or less, or any
     material agreement pursuant to which the Company or any of its subsidiaries
     have continuing
                                       18
<PAGE>   23

     material obligations to jointly develop any intellectual property that will
     not be owned, in whole or in part, by the Company or any of its
     subsidiaries and which may not be canceled without penalty upon notice of
     90 days or less;

          (f) any agreement, contract or commitment currently in force to
     provide source code to any third party for any product or technology that
     is material to the Company and its subsidiaries taken as a whole;

          (g) except as set forth on Part 2.2 of Company Schedules, any
     agreement or plan, including, without limitation, any stock option plan,
     stock appreciation right plan or stock purchase plan, any of the benefits
     of which will be increased, or the vesting of benefits of which will be
     accelerated, by the occurrence of any of the transactions contemplated by
     this Agreement or the value of any of the benefits of which will be
     calculated on the basis of any of the transactions contemplated by this
     Agreement;

          (h) any agreement, contract or commitment currently in force to sell
     or distribute any Company products, service or technology except agreements
     with distributors or sales representatives in the normal course of business
     cancelable without penalty upon notice of ninety (90) days or less and
     substantially in the form previously provided to Parent;

          (i) any mortgages, indentures, guarantees, loans or credit agreements,
     security agreements or other agreements or instruments relating to the
     borrowing of money or extension of credit;

          (j) any settlement agreement entered into within three (3) years prior
     to February 2, 2000; or

          (k) any other agreement, contract or commitment that has a value of
     $100,000 or more individually.

     Neither the Company nor any of its subsidiaries, nor to the Company's
knowledge any other party to a Company Contract (as defined below), is in
breach, violation or default under, and neither the Company nor any of its
subsidiaries has received written notice that it has breached, violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which the Company or any of its
subsidiaries is a party or by which it is bound that are required to be
disclosed in the Company Schedules or are required to be filed with any Company
SEC Report (any such agreement, contract or commitment, a "COMPANY CONTRACT") in
such a manner as would permit any other party to cancel or terminate any such
Company Contract, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or defaults, in the
aggregate).

     2.18  [RESERVED].

     2.19  Disclosure. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the
registration statement on Form S-4 (or similar successor form) to be filed with
the SEC by Parent in connection with the issuance of Parent Common Stock in the
Merger (the "REGISTRATION STATEMENT") will, at the time the Registration
Statement is filed with the SEC or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they are
made, not misleading. None of the information supplied or to be supplied by or
on behalf of the Company for inclusion or incorporation by reference in the
Prospectus/Proxy Statement to be filed with the SEC as part of the Registration
Statement (the "PROSPECTUS/PROXY STATEMENT"), will, at the time the
Prospectus/Proxy Statement is mailed to the stockholders of the Company, at the
time of the Company Stockholders' Meeting or as of the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. The Prospectus/Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations promulgated by the SEC thereunder. Notwithstanding the foregoing,
the Company makes no
                                       19
<PAGE>   24

representation or warranty with respect to any information supplied by the
Parent which is contained in any of the foregoing documents.

     2.20  Board Approval. The Board of Directors of the Company has, as of
April 25, 2000, unanimously (i) determined that the Merger is fair to, and in
the best interests of the Company and its stockholders, (ii) approved and deemed
advisable, subject to stockholder approval, this Agreement and the transactions
contemplated hereby and (iii) determined to recommend that the stockholders of
the Company approve and adopt this Agreement and approve the Merger.

     2.21  Fairness Opinion. The Company's Board of Directors has received a
verbal opinion from W.R. Hambrecht, dated as of April 25, 2000, to the effect
that as of April 25, 2000, the Exchange Ratio is fair to the Company's
stockholders from a financial point of view and has delivered to Parent such
verbal opinion. The Company has a legally enforceable agreement with W.R.
Hambrecht to provide this opinion in writing to the Company within three (3)
days of April 25, 2000 and that such opinion shall be included in the
Prospectus/Proxy Statement.

     2.22  Restrictions on Business Activities. Except as set forth in Part 2.22
of the Company Schedule, there is no agreement, commitment, judgment,
injunction, order or decree binding upon the Company or to which the Company is
a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of the Company, any
acquisition of property by the Company or the conduct of business by the Company
as currently conducted.

     2.23  Insurance. The Company maintains insurance policies and fidelity
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company and its subsidiaries
(collectively, the "INSURANCE POLICIES") which are of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Company and its subsidiaries. There is no material claim by the Company or any
of its subsidiaries pending under any of the material Insurance Policies as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds.

     2.24  State Takeover Statutes. No state takeover statute or similar statute
or regulation applies to or purports to apply to the Merger, this Agreement and
the Company Voting Agreements or the transactions contemplated by this Agreement
and the Company Voting Agreements.

                                  ARTICLE III

            REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB

     As of February 2, 2000 and as of the Closing Date, Parent and Merger Sub
represent and warrant to the Company, as follows:

     3.1  Organization and Qualification; Subsidiaries. Each of Parent and its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted, except
where the failure to do so would not, individually or in the aggregate, have a
Material Adverse Effect on Parent. Each of Parent and its subsidiaries is in
possession of all Approvals necessary to own, lease and operate the properties
it purports to own, operate or lease and to carry on its business as it is now
being conducted, except where the failure to have such Approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Parent. Each
of Parent and its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of the properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect on
Parent.

     3.2  Certificate of Incorporation and Bylaws. Parent has previously
furnished to Company complete and correct copies of its Certificate of
Incorporation and Bylaws, (the "PARENT CHARTER DOCUMENTS") as
                                       20
<PAGE>   25

amended to date. Such Parent Charter Documents and equivalent organizational
documents of each of its subsidiaries are in full force and effect. Parent is
not in violation of any of the provisions of the Parent Charter Documents, and
no subsidiary of Parent is in violation of any of its equivalent organizational
documents.

     3.3  Capitalization. The authorized capital stock of Parent consists of (i)
250,000,000 shares of Parent Common Stock, par value $0.001 per share, and (ii)
10,000,000 shares of Preferred Stock, par value $0.001 per share ("PARENT
PREFERRED STOCK"). At the close of business on January 31, 2000 (i) 41,385,986
shares of Parent Common Stock were issued and outstanding, (ii) 0 shares of
Parent Common Stock were held in treasury by Parent or by subsidiaries of
Parent, (iii) 1,000,000 shares of Parent Common Stock were reserved for future
issuance pursuant to Parent's employee stock purchase plan, and (iv) 8,144,826
shares of Parent Common Stock were reserved for issuance upon the exercise of
outstanding options ("PARENT OPTIONS") to purchase Parent Common Stock. As of
February 2, 2000, no shares of Parent Preferred Stock were issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of common stock, par value $0.001 per share, all of which, as of February 2,
2000, are issued and outstanding. All of the outstanding shares of Parent's and
Merger Sub's respective capital stock have been duly authorized and validly
issued and are fully paid and nonassessable. All shares of Parent Common Stock
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, shall, and the
shares of Parent Common Stock to be issued pursuant to the Merger will be, duly
authorized, validly issued, fully paid and nonassessable. All of the outstanding
shares of capital stock (other than directors' qualifying shares) of each of
Parent's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and all such shares (other than directors' qualifying shares) are
owned by Parent or another subsidiary free and clear of all security interests,
liens, claims, pledges, agreements, limitations in Parent's voting rights,
charges or other encumbrances of any nature whatsoever.

     3.4  Authority; Non-Contravention.

     (a) Parent and Merger Sub have all requisite corporate power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent, subject only to the filing of the
Certificate of Merger pursuant to Delaware Law. This Agreement has been duly
executed and delivered by Parent and Merger Sub, and upon due execution and
delivery by the Company, constitutes a valid and binding obligation of Parent
and Merger Sub, enforceable against Parent and Merger Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy and other similar
laws and general principles of equity. The execution and delivery of this
Agreement by Parent and Merger Sub do not, and the performance of this Agreement
by Parent and Merger Sub will not, (i) conflict with Parent Charter Documents,
(ii) subject to compliance with the requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or any of its subsidiaries or by which Parent or any
of its subsidiaries or any of their respective properties are bound or affected,
or (iii) result in any material breach of or constitute a material default (or
an event that with notice or lapse of time or both would become a material
default) under, or impair Parent's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a material
Encumbrance on any of the material properties or assets of Parent or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise, concession, or other
instrument or obligation to which Parent or any of its subsidiaries is a party
or by which Parent or any of its subsidiaries or its or any of their respective
assets are bound or affected.

     (b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity, is required to be obtained
or made by Parent in connection with the execution and delivery of this
Agreement or the consummation of the Merger, except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware (ii)
the approval of the Registration Statement and the Prospectus/Proxy Statement in
accordance with the Securities Act and the Exchange
                                       21
<PAGE>   26

Act, respectively, (iii) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal, foreign and state securities (or related) laws and the HSR Act, and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to Parent or have a material adverse
effect on the ability of the parties hereto to consummate the Merger.

     3.5  SEC Filings; Parent Financial Statements.

     (a) Parent has filed all forms, reports and documents required to be filed
by Parent with the SEC since December 9, 1999 and has made available to the
Company such forms, reports and documents in the form filed with the SEC. All
such required forms, reports and documents (including those that Parent may file
subsequent to February 2, 2000) are referred to herein as the "PARENT SEC
REPORTS"). As of their respective dates, Parent SEC Reports (i) were prepared in
accordance and complied in all material respects with the requirements of the
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Reports and (ii)
did not at the time they were filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading. None of Parent's subsidiaries is required
to file any forms, reports or other documents with the SEC.

     (b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in Parent SEC Reports (the "PARENT
FINANCIALS"), including each Parent SEC Report filed after February 2, 2000
until the Closing, (i) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (ii) was
prepared in accordance with United States generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q under the Exchange Act) and (iii) fairly presented the consolidated
financial position of Parent and its subsidiaries as at the respective dates
thereof and the consolidated results of Parent's operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring
year-end adjustments. The balance sheet of Parent dated October 29, 1999
contained in Parent's registration statement on Form S-1 dated December 9, 1999
is hereinafter referred to as (the "PARENT BALANCE SHEET").

     (c) Parent has heretofore furnished to the Company a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
SEC but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by Parent with the SEC pursuant to
the Securities Act or the Exchange Act.

     (d) Neither Parent nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of Parent and its subsidiaries taken as a whole, except (i)
liabilities provided for in Parent's Balance Sheet or (ii) liabilities incurred
since October 29, 1999 in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of Parent
and its subsidiaries, taken as a whole.

     3.6  Absence of Certain Changes or Events. Since the date of Parent Balance
Sheet there has not been: (i) any Material Adverse Effect on Parent, (ii) any
declaration, setting aside or payment of any dividend on, or other distribution
(whether in cash, stock or property) in respect of, any of Parent's or any of
its subsidiaries' capital stock, or any purchase, redemption or other
acquisition by Parent of any of Parent's capital stock or any other securities
of Parent or its subsidiaries or any options, warrants, calls or rights to
acquire any such shares or other securities except for repurchases from
employees following their termination pursuant to the terms of their
pre-existing stock option or purchase agreements, (iii) any split, combination
or reclassification of any of Parent's or any of its subsidiaries' capital
stock, (iv) any granting by Parent or any of its subsidiaries of any increase in
compensation or fringe benefits, except for normal
                                       22
<PAGE>   27

increases of cash compensation in the ordinary course of business consistent
with past practice, or any payment by Parent or any of its subsidiaries of any
bonus, except for bonuses made in the ordinary course of business consistent
with past practice, or any granting by Parent or any of its subsidiaries of any
increase in severance or termination pay or any entry by Parent or any of its
subsidiaries into any currently effective employment, severance, termination or
indemnification agreement or any agreement the benefits of which are contingent
or the terms of which are materially altered upon the occurrence of a
transaction involving Parent of the nature contemplated hereby, (v) entry by
Parent or any of its subsidiaries into any licensing or other agreement with
regard to the acquisition or disposition of any material Intellectual Property
(as defined in Section 2.9) other than licenses in the ordinary course of
business consistent with past practice, (vi) any amendment or consent with
respect to any licensing agreement filed or required to be filed by Parent with
the SEC, (vii) any material change by Parent in its accounting methods,
principles or practices, except as required by concurrent changes in GAAP, or
(viii) any revaluation by Parent of any of its assets, including, without
limitation, writing down the value of capitalized inventory or writing off notes
or accounts receivable other than in the ordinary course of business.

     3.7  Tax. Parent has timely filed all Tax Returns required to be filed by
it, has paid all Taxes shown thereon to be due, and has provided adequate
accruals in accordance with GAAP in its financial statements for any Taxes that
have not been paid. No audit of any Tax Return of Parent is being conducted by a
Tax authority. No extension of the statute of limitations on the assessment of
any Taxes has been granted by Parent and is currently in effect.

     3.8  Compliance; Permits; Restrictions.

     (a) Neither Parent nor any of its subsidiaries is, in any material respect,
in conflict with, or in default or in violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Parent or any of its
subsidiaries or by which Parent or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or any of its subsidiaries is a
party or by which Parent or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for conflicts, violations and
defaults that (individually or in the aggregate) would not cause Parent to lose
any material benefit or incur any material liability. No investigation or review
by any Governmental Entity is pending or, to Parent's knowledge, has been
threatened in a writing delivered to Parent against Parent or any of its
subsidiaries, nor, to Parent's knowledge, has any Governmental Entity indicated
an intention to conduct an investigation of Parent or any of its subsidiaries.
There is no material agreement, judgment, injunction, order or decree binding
upon Parent or any of its subsidiaries which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent or any of its subsidiaries, any acquisition of material property by
Parent or any of its subsidiaries or the conduct of business by Parent as
currently conducted.

     (b) Parent and its subsidiaries hold, to the extent legally required, all
permits, licenses, variances, exemptions, orders and approvals from Governmental
Entities that are material to and required for the operation of the business of
Parent as currently conducted (collectively, the "PARENT PERMITS"). Parent and
its subsidiaries are in compliance in all material respects with the terms of
Parent Permits, except where the failure to be in compliance with the terms of
Parent Permits would not be material to Parent.

     3.9  Litigation. There are no claims, suits, actions or proceedings pending
or, to the knowledge of Parent, threatened against, relating to or affecting
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to be material to
Parent. No Governmental Entity has at any time challenged or questioned in a
writing delivered to Parent the legal right of Parent to design, manufacture,
offer or sell any of its products or services in the present manner or style
thereof. As of February 2, 2000, to the knowledge of Parent, no event has
occurred, and no claim, dispute or other condition or circumstance exists, that
will, or that

                                       23
<PAGE>   28

would reasonably be expected to, cause or provide a bona fide basis for a
director or executive officer of Parent to seek indemnification from Parent.

     3.10  Agreements, Contracts and Commitments. As of February 2, 2000,
neither Parent nor any of its subsidiaries, nor to Parent's knowledge any other
party to a material Contract of Parent, is in breach, violation or default under
such Contract, and neither Parent nor any of its subsidiaries has received
written notice that it has breached, violated or defaulted under, any of the
material terms or conditions of any material Contract of Parent in such a manner
as would permit any other party to cancel or terminate any such material
Contract of Parent, or would permit any other party to seek material damages or
other remedies (for any or all of such breaches, violations or defaults, in the
aggregate).

     3.11  Registration Statement; Proxy Statement. None of the information
supplied or to be supplied by Parent for inclusion or incorporation by reference
in (i) the Registration Statement will, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; and (ii) the Proxy
Statement/Prospectus will, at the dates mailed to the stockholders of Company,
at the time of the Company Stockholders' Meeting and as of the Effective Time,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Registration Statement will comply as to form in all material
respects with the provisions of the Securities Act and the rules and regulations
promulgated by the SEC thereunder. Notwithstanding the foregoing, Parent makes
no representation or warranty with respect to any information supplied by the
Company which is contained in any of the foregoing documents.

     3.12  Board Approval. The Board of Directors of Parent has, as of February
2, 2000, approved the issuance of shares of Parent Common Stock and the payment
of an aggregate of in connection with the Merger.

     3.13  Benefit Plans. To the extent eligible, employees of the Company may
participate and/or receive options and stock under the Parent's 1998 Stock
Option Plan and 1998 Employee Stock Plan, pursuant to applicable laws.

                                   ARTICLE IV

                      CONDUCT PRIOR TO THE EFFECTIVE TIME

     4.1  Conduct of Business by the Company. During the period from February 2,
2000 and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, the Company and each of its
subsidiaries shall, except to the extent that Parent shall otherwise consent in
writing, carry on its business, in all material respects, in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted
and in compliance with all applicable laws and regulations, pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, pay or
perform other material obligations when due subject to good faith disputes over
such obligations, and use its commercially reasonable efforts consistent with
past practices and policies to (i) preserve intact its present business
organization, (ii) keep available the services of its present officers and
employees and (iii) preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others with which it has business
dealings.

     In addition, except as permitted by the terms of this Agreement, and except
as provided in Article 4 of the Company Schedules, without the prior written
consent of Parent, during the period from February 2, 2000 and continuing until
the earlier of the termination of this Agreement pursuant to its

                                       24
<PAGE>   29

terms or the Effective Time, the Company shall not do any of the following and
shall not permit its subsidiaries to do any of the following:

          (a) Except for the acceleration of the vesting of stock options
     pursuant to pre-existing contractual arrangement as set forth in Part
     2.2(b) of the Company Schedules, waive any stock repurchase rights,
     accelerate, amend or change the period of exercisability of options or
     restricted stock, or reprice options granted under any employee,
     consultant, director or other stock plans or authorize cash payments in
     exchange for any options granted under any of such plans;

          (b) Grant any severance or termination pay to any officer or employee
     except pursuant to written agreements outstanding, or policies existing, on
     February 2, 2000 and as previously disclosed in writing or made available
     to Parent, or adopt any new severance plan;

          (c) Transfer or license to any person or entity or otherwise extend,
     amend or modify in any material respect any rights to the Company
     Intellectual Property, or enter into grants to future patent rights, other
     than non-exclusive licenses in the ordinary course of business and
     consistent with past practice;

          (d) Declare, set aside or pay any dividends on or make any other
     distributions (whether in cash, stock, equity securities or property) in
     respect of any capital stock or split, combine or reclassify any capital
     stock or issue or authorize the issuance of any other securities in respect
     of, in lieu of or in substitution for any capital stock;

          (e) Purchase, redeem or otherwise acquire, directly or indirectly, any
     shares of capital stock of the Company or its subsidiaries, except
     repurchases of unvested shares at cost in connection with the termination
     of the employment relationship with any employee pursuant to stock option
     or purchase agreements in effect on January 20, 2000;

          (f) Issue, deliver, sell, authorize, pledge or otherwise encumber, any
     shares of capital stock or any securities convertible into shares of
     capital stock, or subscriptions, rights, warrants or options to acquire any
     shares of capital stock or any securities convertible into shares of
     capital stock, or enter into other agreements or commitments of any
     character obligating it to issue any such shares or convertible securities,
     other than (i) stock options pursuant to the Company Stock Option Plans
     granted to employees of the Company to purchase 1,200,000 shares (as
     appropriately adjusted for stock splits and the like) of Company Common
     Stock with strike prices equal to the fair market value of the Company
     Common Stock at the time of grant and otherwise with vesting schedules and
     other terms subject to Section 5; (ii) issuance of shares of the Company
     Common Stock in connection with the prior acquisitions of the Company, as
     set forth in Part 4.1 of the Company Schedules; and (iii) issuance of
     shares by the Company Common Stock pursuant to the exercise of stock
     options therefor outstanding as of January 20, 2000 or granted pursuant to
     the preceding clause (i);

          (g) Cause, permit or propose any amendments to its Certificate of
     Incorporation, Bylaws or other charter documents (or similar governing
     instruments of any of its subsidiaries) except to the extent required to
     comply with the Company's obligations hereunder, required by law or
     required by the rules and regulations of Nasdaq;

          (h) Except as set forth on Part 4.1 of the Company Schedules and
     except for the acquisition of Question Exchange, Inc. pursuant to the terms
     of a certain Agreement and Plan of Merger dated January 27, 2000, acquire
     or agree to acquire by merging or consolidating with, or by purchasing any
     equity interest in or a portion of the assets of, or by any other manner,
     any business or any corporation, partnership, association or other business
     organization or division thereof, or otherwise acquire or agree to acquire
     any assets which are material, individually or in the aggregate, to the
     business of the Company or enter into any material joint ventures,
     strategic partnerships or alliances;

                                       25
<PAGE>   30

          (i) Sell, lease, license, encumber or otherwise dispose of any
     properties or assets which are material, individually or in the aggregate,
     to the business of the Company, except sales of inventory and used
     equipment in the ordinary course of business consistent with past practice;

          (j) Incur any indebtedness for borrowed money or guarantee any such
     indebtedness of another person, issue or sell any debt securities or
     options, warrants, calls or other rights to acquire any debt securities of
     the Company, enter into any "keep well" or other agreement to maintain any
     financial statement condition or enter into any arrangement having the
     economic effect of any of the foregoing other than in connection with the
     financing of ordinary course trade payables consistent with past practice;

          (k) Adopt or amend any employee benefit plan or employee stock
     purchase or employee stock option plan, or enter into any employment
     contract or collective bargaining agreement (other than offer letters and
     letter agreements entered into in the ordinary course of business
     consistent with past practice with employees who are terminable "at will"),
     pay any special bonus or special remuneration to any director or employee,
     or increase the salaries or wage rates or fringe benefits (including rights
     to severance or indemnification) of its directors, officers, employees or
     consultants other than in the ordinary course of business, consistent with
     past practice, or change in any material respect any management policies or
     procedures;

          (l) Except for payments made in connection with the acquisition of
     Question Exchange, Inc., make any payments outside of the ordinary course
     of business consistent with past practices in excess of $50,000
     individually or in the aggregate;

          (m) Modify, amend or terminate any Company Contract or other material
     contract or agreement to which the Company or any subsidiary thereof is a
     party or waive, release or assign any material rights or claims thereunder;

          (n) Enter into any contracts, agreements, or obligations relating to
     the distribution, sale, license or marketing by third parties of the
     Company's products or products licensed by the Company other than in the
     ordinary course of business consistent with past practice;

          (o) Materially revalue any of its assets or, except as required by
     GAAP, make any change in accounting methods, principles or practices;

          (p) Take any action that could reasonably be expected to cause the
     Merger to fail to qualify as a "reorganization" under Section 368(a) of the
     Code; or

          (q) Agree in writing or otherwise to take any of the actions described
     in (a) through (p) above.

     4.2  Conduct of Business by Parent. During the period from February 2, 2000
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, except as permitted by the terms of this
Agreement and except as provided in Section 4.2 of the Parent Schedule, without
the prior written consent of Company, Parent shall not engage in any action that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" under Section 368(a) of the Code.

                                   ARTICLE V

                             ADDITIONAL AGREEMENTS

     5.1  Prospectus/Proxy Statement; Registration Statement; Other Filings. As
promptly as practicable after the execution of this Agreement, the Company and
Parent will prepare and file with the SEC, the Prospectus/Proxy Statement and
Parent will prepare and file with the SEC the Registration Statement in which
the Prospectus/Proxy Statement will be included as a prospectus. Each of Parent
and Company shall provide promptly to the other such information concerning its
business and financial statements and affairs as, in the reasonable judgment of
the providing party or its counsel, may be required or appropriate for inclusion
in the Proxy Statement/Prospectus and the Registration Statement, or in any
amendments or supplements thereto, and to cause its counsel and auditors to
cooperate with the other's counsel and
                                       26
<PAGE>   31

auditors in the preparation of the Proxy Statement/Prospectus and the
Registration Statement. Each of the Company and Parent will respond to any
comments of the SEC, will use its respective commercially reasonable efforts to
have the Registration Statement declared effective under the Securities Act as
promptly as practicable after such filing and the Company will cause the
Prospectus/Proxy Statement to be mailed to its stockholders at the earliest
practicable time after the Registration Statement is declared effective by the
SEC. As promptly as practicable after February 2, 2000, each of the Company and
Parent will prepare and file (i) with the United States Federal Trade Commission
(the "FTC") and the Antitrust Division of the United States Department of
Justice ("DOJ") Notification and Report Forms relating to the transactions
contemplated herein as required by the HSR Act, as well as comparable pre-merger
notification forms required by the merger notification or control laws and
regulations of any applicable jurisdiction, as agreed to by the parties (the
"ANTITRUST FILINGS") and (ii) any other filings required to be filed by it under
the Exchange Act, the Securities Act or any other Federal, state or foreign laws
relating to the Merger and the transactions contemplated by this Agreement (the
"OTHER FILINGS"). The Company and Parent each shall promptly supply the other
with any information which may be required in order to effectuate any filings
pursuant to this Section 5.1. Each of the Company and Parent will notify the
other promptly upon the receipt of any comments from the SEC or its staff or any
other government officials in connection with any filing made pursuant hereto
and of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Prospectus/Proxy
Statement or any Antitrust Filings or Other Filing or for additional information
and will supply the other with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Prospectus/Proxy Statement, the Merger or any Antitrust Filing or
Other Filing. Each of the Company and Parent will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under this
Section 5.1 to comply in all material respects with all applicable requirements
of law and the rules and regulations promulgated thereunder. Whenever any event
occurs which is required to be set forth in an amendment or supplement to the
Prospectus/Proxy Statement, the Registration Statement or any Antitrust Filing
or Other Filing, the Company or Parent, as the case may be, will promptly inform
the other of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, and/or mailing to stockholders of the Company
and/or Parent, such amendment or supplement.

     5.2  Meeting of Company Stockholders.

     (a) Promptly after February 2, 2000, the Company will take all action
necessary in accordance with Delaware Law and its Certificate of Incorporation
and Bylaws to convene a meeting of the Company's stockholders to consider
adoption and approval of this Agreement and approval of the Merger (the "COMPANY
STOCKHOLDERS' MEETING") to be held as promptly as practicable, and in any event
(to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement. The Company will use
its commercially reasonable efforts to solicit from its stockholders proxies in
favor of the adoption and approval of this Agreement and the approval of the
Merger and will take all other action necessary or advisable to secure the vote
or consent of its stockholders required by the rules of Nasdaq or Delaware Law
to obtain such approvals. Notwithstanding anything to the contrary contained in
this Agreement, with Parent's prior written consent, the Company may adjourn or
postpone the Company Stockholders' Meeting to the extent necessary to ensure
that any necessary supplement or amendment to the Prospectus/Proxy Statement is
provided to the Company's stockholders in advance of a vote on the Merger and
this Agreement or, if as of the time for which the Company Stockholders' Meeting
is originally scheduled (as set forth in the Prospectus/Proxy Statement) there
are insufficient shares of Company Common Stock represented (either in person or
by proxy) to constitute a quorum necessary to conduct the business of the
Company's Stockholders' Meeting. The Company shall ensure that the Company
Stockholders' Meeting is called, noticed, convened, held and conducted, and that
all proxies solicited by the Company in connection with the Company
Stockholders' Meeting are solicited, in compliance with the Delaware Law, the
Company's Certificate of Incorporation and Bylaws, the rules of Nasdaq and all
other applicable legal requirements. The Company's obligation to call, give
notice of, convene and hold the Company Stockholders' Meeting in accordance with
this Section 5.2(a) shall not be
                                       27
<PAGE>   32

limited to or otherwise affected by the commencement, disclosure, announcement
or submission to the Company of any Acquisition Proposal (as defined below), or
by any withdrawal, amendment or modification of the recommendation of the Board
of Directors of the Company with respect to the Merger and/or this Agreement.

     (b) Subject to Section 5.2(c): (i) the Board of Directors of the Company
shall unanimously recommend that the Company's stockholders vote in favor of and
adopt and approve this Agreement and approve the Merger at the Company
Stockholders' Meeting; (ii) the Prospectus/Proxy Statement shall include a
statement to the effect that the Board of Directors of the Company has
unanimously recommended that the Company's stockholders vote in favor of and
adopt and approve this Agreement and the Merger at the Company Stockholders'
Meeting; and (iii) neither the Board of Directors of the Company nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to Parent, the unanimous
recommendation of the Board of Directors of the Company that the Company's
stockholders vote in favor of and adopt and approve this Agreement and the
Merger. For purposes of this Agreement, said recommendation of the Board of
Directors shall be deemed to have been modified in a manner adverse to Parent if
said recommendation shall no longer be unanimous.

     (c) Nothing in this Agreement shall prevent the Board of Directors of the
Company from withholding, withdrawing, amending or modifying its unanimous
recommendation in favor of the Merger if (i) a Superior Offer (as defined below)
is made to the Company and is not withdrawn, (ii) the Company shall have
provided written notice to Parent (a "NOTICE OF SUPERIOR OFFER") advising Parent
that the Company has received a Superior Offer, specifying the material terms
and conditions of such Superior Offer and identifying the person or entity
making such Superior Offer, (iii) Parent shall not have, within five (5)
business days of Parent's receipt of the Notice of Superior Proposal, made an
offer that the Company Board by a majority vote determines in its good faith
judgment (after consultation with a financial adviser of nationally recognized
reputation) to be at least as favorable to the Company's stockholders as such
Superior Proposal (it being agreed that the Company Board shall convene a
meeting to consider any such offer by Parent promptly following the receipt
thereof), (iv) the Board of Directors of the Company concludes in good faith,
after consultation with its outside counsel, that, in light of such Superior
Offer, the withholding, withdrawal, amendment or modification of such
recommendation is required in order for the Board of Directors of the Company to
comply with its fiduciary obligations to the Company's stockholders under
applicable law and (v) neither the Company nor any of its representatives shall
have violated any of the restrictions set forth in Section 5.5 or this Section
5.2. The Company shall provide Parent with at least three business days prior
notice (or such lesser prior notice as provided to the members of the Company's
Board of Directors but in no event less than twenty-four hours) of any meeting
of the Company's Board of Directors at which the Company's Board of Directors is
reasonably expected to consider any Acquisition Transaction (as defined below).
Nothing contained in this Agreement shall limit the Company's obligation to hold
and convene the Company Stockholders' Meeting (regardless of whether the
unanimous recommendation of the Board of Directors of the Company shall have
been withdrawn, amended or modified). For purposes of this Agreement "SUPERIOR
OFFER" shall mean an unsolicited, bona fide written offer made by a third party
to consummate any of the following transactions: (i) a merger or consolidation
involving the Company pursuant to which the stockholders of the Company
immediately preceding such transaction hold none of the equity interest in the
surviving or resulting entity of such transaction or (ii) the acquisition by any
person or group (including by way of a tender offer or an exchange offer),
directly or indirectly, of ownership of 100% of the then outstanding shares of
capital stock of the Company, in each case on terms that the Board of Directors
of the Company determines, in its reasonable judgment (based on the written
advice of a financial adviser of nationally recognized reputation) to be more
favorable to the Company stockholders from a financial point of view than the
terms of the Merger; provided, however, that any such offer shall not be deemed
to be a "Superior Offer" if any financing required to consummate the transaction
contemplated by such offer is not committed.

                                       28
<PAGE>   33

     (d) Nothing contained in this Agreement shall prohibit the Company or its
Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rules 14d-9 and 14e-2(a) promulgated under the Exchange Act.

     5.3  Registration Rights. Parent shall use its best efforts to amend that
certain First Amended and Restated Registration Rights Agreement dated June 16,
1999 so that each Company Affiliate shall (a) receive registration rights for
Parent-initiated secondary public offerings of Parent Common Stock, such that in
the aggregate, the Company Affiliates shall receive the right to sell no less
than twenty percent (20%) of the selling stockholder component of the first
Parent-initiated secondary offering of Parent Common Stock and pari passu rights
on subsequent Parent-initiated secondary offering; and (b) be subject to a
market stand-off provision for the period from the date of filing such
Parent-initiated secondary offering through the ninetieth day following the
closing of such Parent-initiated secondary offering; provided, however that a
Company Affiliate which does not participate as a selling stockholder in such
Parent-initiated secondary offering shall only be subject to a market stand-off
provision for the period from the date of filing such Parent-initiated secondary
offering through the thirtieth day following the closing of such
Parent-initiated secondary offering. In addition, Parent shall not provide more
than 10 days' notice to any Company Affiliate prior to the filing of any
Parent-initiated secondary offering.

     5.4  Confidentiality; Access to Information.

     (a) The parties acknowledge that the Company and Parent have previously
executed a Confidentiality Agreement, dated as of January 14, 2000 (the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.

     (b) Access to Information. Each of the Company and Parent will afford the
other and the other's accountants, counsel and other representatives reasonable
access during normal business hours to the properties, books, records and
personnel during the period prior to the Effective Time to obtain all
information concerning its business, including the status of product development
efforts, properties, results of operations and personnel, as such other party
may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.4 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.

     5.5  No Solicitation.

     (a) From and after February 2, 2000 until the Effective Time or termination
of this Agreement pursuant to Article VII, the Company and its subsidiaries will
not, nor will they authorize or permit any of their respective officers,
directors, affiliates or employees or any investment banker, attorney or other
advisor or representative retained by any of them to, directly or indirectly,
(i) solicit, initiate, knowingly encourage or induce the making, submission or
announcement of any Acquisition Proposal (as hereinafter defined), (ii)
participate in any discussions or negotiations regarding, or furnish to any
person other than Parent any non-public information with respect to, or take any
other action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Acquisition Proposal,
(iii) engage in discussions with any person with respect to any Acquisition
Proposal, except as to the existence of these provisions, (iv) subject to
Section 5.2(c) approve, endorse or recommend any Acquisition Proposal or (v)
enter into any letter of intent or similar document or any contract agreement or
commitment contemplating or otherwise relating to any Acquisition Transaction;
provided, however, that after receipt of an unsolicited, written, bona fide
Acquisition Proposal that the Board of Directors of the Company reasonably
concludes may constitute a Superior Offer, the Company may submit to the party
making such Acquisition Proposal a written list of questions, the sole purpose
of which is to elicit clarifications as to the material terms of the Acquisition
Proposal so as to enable the Board of Directors of the Company to make a
determination whether such Acquisition Proposal is in fact a Superior Offer (it
being agreed that any correspondence with such party shall be limited to
questions and such questions shall be limited to the purpose of clarifying the
material terms of such Acquisition Proposal and shall not solicit or encourage
any new Acquisition Proposal or any change to the Acquisition Proposal, and it
being further agreed that the Company shall provide Parent with a copy of any
correspondence to be delivered
                                       29
<PAGE>   34

pursuant to this Section 5.5(a) at least 24 hours prior to sending such
correspondence to any third party). The Company and its subsidiaries will
immediately cease any and all existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Acquisition Proposal.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding two sentences by any officer, director
or employee of the Company or any of its subsidiaries or any investment banker,
attorney or other advisor or representative of the Company or any of its
subsidiaries shall be deemed to be a breach of this Section 5.5 by the Company.

     For purposes of this Agreement, "ACQUISITION PROPOSAL" shall mean any offer
or proposal (other than an offer or proposal by Parent) relating to any
Acquisition Transaction. For purposes of this Agreement, "ACQUISITION
TRANSACTION" shall mean any transaction or series of related transactions
involving: (A) any purchase from the Company or acquisition by any person or
"group" (as defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of more than a 5% interest in the total outstanding
voting securities of the Company or any of its subsidiaries or any tender offer
or exchange offer that if consummated would result in any person or "group" (as
defined under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 5% or more of the total outstanding voting
securities of the Company or any of its subsidiaries or any merger,
consolidation, business combination or similar transaction involving the
Company; (B) any sale, lease (other than in the ordinary course of business),
exchange, transfer, license (other than in the ordinary course of business),
acquisition or disposition of more than 5% of the assets of the Company; or (C)
any liquidation or dissolution of the Company.

     (b) In addition to the obligations of the Company set forth in paragraph
(a) of this Section 5.5, the Company as promptly as practicable shall advise
Parent orally and in writing of any Acquisition Proposal or any request for
non-public information which the Company reasonably believes would lead to an
Acquisition Proposal or to any Acquisition Transaction, or any inquiry with
respect to or which the Company reasonably should believe would lead to any
Acquisition Proposal, the material terms and conditions of such request,
Acquisition Proposal or inquiry, and the identity of the person or group making
any such request, Acquisition Proposal or inquiry. The Company will keep Parent
informed as promptly as practicable in all material respects of the status and
details (including material amendments or proposed material amendments) of any
such Acquisition Proposal, request or inquiry.

     5.6  Public Disclosure. Parent and the Company will consult with each
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or any Acquisition Proposal and will not issue any such press release or make
any such public statement prior to such consultation, except as may be required
by law or any listing agreement with a national securities exchange. The parties
have agreed to the text of the joint press release announcing the signing of
this Agreement.

     5.7  Reasonable Efforts; Notification.

     (a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including using reasonable efforts to accomplish the following: (i)
the taking of all reasonable acts necessary to cause the conditions precedent
set forth in Article VI to be satisfied, (ii) the obtaining of all necessary
actions or nonactions, waivers, consents, approvals, orders and authorizations
from Governmental Entities and the making of all necessary registrations,
declarations and filings (including registrations, declarations and filings with
Governmental Entities, if any) and the taking of all reasonable steps as may be
necessary to avoid any suit, claim, action, investigation or proceeding by any
Governmental Entity, (iii) the obtaining of all necessary consents, approvals or
waivers from third parties, (iv) the defending of any suits, claims, actions,
investigations or proceedings, whether judicial or administrative, challenging
this Agreement or the consummation of the transactions contemplated hereby,
including seeking to have any stay or temporary restraining order
                                       30
<PAGE>   35

entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments necessary to consummate
the transactions contemplated by, and to fully carry out the purposes of, this
Agreement. In connection with and without limiting the foregoing, the Company
and its Board of Directors shall, if any state takeover statute or similar
statute or regulation is or becomes applicable to the Merger, this Agreement or
any of the transactions contemplated by this Agreement, use all reasonable
efforts to ensure that the Merger and the other transactions contemplated by
this Agreement may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise to minimize the effect of such
statute or regulation on the Merger, this Agreement and the transactions
contemplated hereby. Notwithstanding anything herein to the contrary, nothing in
this Agreement shall be deemed to require Parent or the Company or any
subsidiary or affiliate thereof to agree to any divestiture by itself or any of
its affiliates of shares of capital stock or of any business, assets or
property, or the imposition of any material limitation on the ability of any of
them to conduct their businesses or to own or exercise control of such assets,
properties and stock.

     (b) The Company shall give prompt notice to Parent of any representation or
warranty made by it contained in this Agreement becoming untrue or inaccurate,
or any failure of the Company to comply with or satisfy in any material respect
any covenant, condition or agreement to be complied with or satisfied by it
under this Agreement, in each case, such that the conditions set forth in
Section 6.3(a) or 6.3(b) would not be satisfied, provided, however, that no such
notification shall affect the representations, warranties, covenants or
agreements of the parties or the conditions to the obligations of the parties
under this Agreement.

     (c) Parent shall give prompt notice to the Company of any representation or
warranty made by it or Merger Sub contained in this Agreement becoming untrue or
inaccurate, or any failure of Parent or Merger Sub to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with or
satisfied by it under this Agreement, in each case, such that the conditions set
forth in Section 6.2(a) or 6.2(b) would not be satisfied, provided, however,
that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.

     5.8  Third Party Consents. As soon as practicable following February 2,
2000, Parent and the Company will each use its commercially reasonable efforts
to obtain any consents, waivers and approvals under any of its or its
subsidiaries' respective agreements, contracts, licenses or leases required to
be obtained in connection with the consummation of the transactions contemplated
hereby.

     5.9  Stock Options and Employee Benefits.

     (a) At the Effective Time, each then outstanding Company Option, whether or
not exercisable at the Effective Time and regardless of the respective exercise
prices thereof, will be assumed by Parent. Each Company Option so assumed by
Parent under this Agreement will continue to have, and be subject to, the same
terms and conditions set forth in the applicable Company Stock Option Plan (and
any applicable stock option agreement for such Company Option) immediately prior
to the Effective Time (including, without limitation, any repurchase rights or
vesting provisions), except that (i) each Company Option will be exercisable (or
will become exercisable in accordance with its terms) for that number of whole
shares of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company Option
immediately prior to the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of Parent Common Stock and
(ii) the per share exercise price for the shares of Parent Common Stock issuable
upon exercise of such assumed Company Option will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock at
which such Company Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded down to the nearest whole cent. Each assumed
Company Option shall be vested immediately following the Effective Time as to
the same percentage of the total number of shares subject thereto as it was
vested as of the Effective Time (taking into consideration the effect of the
Merger on the vesting of such assumed Company Options); provided

                                       31
<PAGE>   36

however, that the Company shall take all best efforts so that no Company Option
shall vest in excess of 50% of the unvested portion immediately prior to the
Effective Time as a result of the Merger.

     (b) It is intended that Company Options assumed by Parent shall qualify
following the Effective Time as incentive stock options as defined in Section
422 of the Code to the extent Company Options qualified as incentive stock
options immediately prior to the Effective Time and the provisions of this
Section 5.9 shall be applied consistent with such intent.

     (c) It is intended that prior to Closing, the Company shall place into
escrow with an escrow agent and form of escrow agreement reasonably acceptable
to Parent shares of Company Common Stock (the "ESCROW SHARES") which would have
been issued by the Company in connection with its prior acquisitions as set
forth on Part 4.1 of the Company Schedules. Upon Closing, such Escrow Shares
shall be converted into shares of Parent Common Stock in accordance with the
terms of this Agreement and be released from escrow in accordance with the terms
of the respective acquisition agreements.

     (d) Prior to the Effective Time, the Company shall grant stock options
pursuant to the Company 1999 Stock Option Plan to purchase an aggregate of
1,200,000 shares (as appropriately adjusted for stock splits and the like) of
Company Common Stock to such persons and in such amounts as to which Parent
shall have agreed, with strike prices equal to the fair market value of the
Company Common Stock at the time of grant, with no acceleration of vesting
triggered by this Merger, with 25% of the option vested 12 months from the date
of grant and 1/48 per month thereafter. These options shall only be granted to
employees of the Company and in such individual amounts as set forth on a
written schedule approved in writing by Parent prior to the granting of such
options ("OPTION SCHEDULE"); provided, however that no New Options shall be
included on the Option Schedule.

     (e) For purposes of determining eligibility to participate, vesting, and
accrual or entitlement to benefits where length of service is relevant under any
employee benefit plan or arrangement of Parent, the Surviving Corporation, or
any of their respective subsidiaries or affiliates, the employees, officers,
directors, and consultants of the Company as of the Effective Time ("AFFECTED
EMPLOYEES") shall receive service credit for service with the Company (and any
predecessors thereto) to the same extent that such service credit was granted
under the Company Employee Plans, subject to no duplication of benefits;
provided, however, that this paragraph shall not apply to any of Parent's equity
benefit plans.

     (f) Parent shall assume and honor, or shall cause the Surviving Corporation
to assume and honor, in accordance with their terms, all written employment,
retention, consulting, bonus, severance and termination plans and agreements
(including change in control provisions) of Affected Employees provided or made
available to Parent on or prior to the Effective Time.

     5.10  Form S-8. If available for use by Parent, Parent agrees to file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Stock Options as soon as is reasonably
practicable after the Effective Time, and in no event later than 45 days after
the Effective Time and shall use its commercially reasonable efforts to have
such registration statement become effective and to maintain the effectiveness
of such registration statement for so long as such options remain outstanding.

     5.11  Indemnification.

     (a) From and after the Effective Time, Parent will, and will cause the
Surviving Corporation to fulfill and honor in all respects the obligations of
the Company pursuant to any indemnification agreements between the Company and
its directors and officers as of the Effective Time (the "INDEMNIFIED PARTIES").
The Certificate of Incorporation and Bylaws of the Surviving Corporation will
contain provisions with respect to exculpation and indemnification that are at
least as favorable to the Indemnified Parties as those contained in the
Certificate of Incorporation and Bylaws of the Company as in effect on February
2, 2000, which provisions will not be amended, repealed or otherwise modified
for a period of six years from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of the
Company, unless such modification is required by law.
                                       32
<PAGE>   37

     (b) For a period of three years after the Effective Time, Parent will cause
the Surviving Corporation to use its commercially reasonable efforts to maintain
in effect, if available, directors' and officers' liability insurance covering
those persons who are currently covered by the Company's directors' and
officers' liability insurance policy on terms comparable to those applicable to
the current directors and officers of the Company; provided, however, that in no
event will Parent or the Surviving Corporation be required to expend in excess
of 150% of the annual premium currently paid by the Company for such coverage
(or such coverage as is available for such 150% of such annual premium).

     5.12  Invention Assignment Agreement. The Company shall use its best
efforts to have all employees and independent contractors execute, respectively,
that certain Employee Agreement attached hereto as Exhibit F and that certain
Contractor Agreement attached hereto as Exhibit G. The Company shall pay each
such employee and independent contractor one hundred (100) dollars
contemporaneously with such execution.

     5.13  Nasdaq Listing. Parent agrees to authorize for listing on Nasdaq the
shares of Parent Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.

     5.14  Company Affiliate Agreement. Set forth on Exhibit B is a list of
those persons who may be deemed to be, in the Company's reasonable judgment,
affiliates of the Company within the meaning of Rule 145 promulgated under the
Securities Act (each a "COMPANY AFFILIATE"). The Company will provide Parent
with such information and documents as Parent reasonably requests for purposes
of reviewing such list. Contemporaneously herewith, the Company shall deliver or
cause to be delivered to Parent, from each Company Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit C (the
"COMPANY AFFILIATE AGREEMENT"), each of which will be in full force and effect
as of the Effective Time. Parent will be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by a
Company Affiliate pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of the Company Affiliate Agreement.

     5.15  Option Assumption Agreement. The Company shall use its best efforts
to cause each holder of a Company Option to execute and deliver to Parent an
option assumption agreement in form delivered to the Company by Parent (the
"OPTION ASSUMPTION AGREEMENT").

     5.16  1999 Stock Option Plan. The Company shall include in the
Proxy/Prospectus a proposal for its stockholders to increase the number of
shares authorized under the Company's 1999 Stock Option Plan so that no less
than 1,200,000 shares of Company Common Stock are available for grant to the
individual employees on the Option Schedule, prior to the Closing (the "OPTION
INCREASE").

                                   ARTICLE VI

                            CONDITIONS TO THE MERGER

     6.1  Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:

          (a) Company Stockholder Approval. This Agreement shall have been
     approved and adopted, and the Merger shall have been duly approved, by the
     requisite vote under applicable law, by the stockholders of the Company.

          (b) Registration Statement Effective; Proxy Statement. The SEC shall
     have declared the Registration Statement effective. No stop order
     suspending the effectiveness of the Registration Statement or any part
     thereof shall have been issued and no proceeding for that purpose, and no
     similar proceeding in respect of the Prospectus/Proxy Statement, shall have
     been initiated or threatened in writing by the SEC.
                                       33
<PAGE>   38

          (c) No Order; HSR Act. No Governmental Entity shall have enacted,
     issued, promulgated, enforced or entered any statute, rule, regulation,
     executive order, decree, injunction or other order (whether temporary,
     preliminary or permanent) which is in effect and which has the effect of
     making the Merger illegal or otherwise prohibiting consummation of the
     Merger. All waiting periods, if any, under the HSR Act relating to the
     transactions contemplated hereby will have expired or terminated early and
     all material foreign antitrust approvals required to be obtained prior to
     the Merger in connection with the transactions contemplated hereby shall
     have been obtained.

          (d) Tax Opinions. Parent and the Company shall each have received
     written opinions from their respective tax counsel (Wilson Sonsini Goodrich
     & Rosati, Professional Corporation, and Hutchins, Wheeler and Dittmar, a
     Professional Corporation, respectively), in form and substance reasonably
     satisfactory to them, to the effect that the Merger will constitute a
     tax-free reorganization within the meaning of Section 368(a) of the Code
     and such opinions shall not have been withdrawn; provided, however, that if
     the counsel to either Parent or the Company does not render such opinion,
     this condition shall nonetheless be deemed to be satisfied with respect to
     such party if counsel to the other party renders such opinion to such
     party. The parties to this Agreement agree to make such reasonable
     representations as requested by such counsel for the purpose of rendering
     such opinions.

          (e) Nasdaq Listing. The shares of Parent Common Stock to be issued in
     the Merger shall have been authorized for listing on Nasdaq, subject to
     notice of issuance.

     6.2  Additional Conditions to Obligations of the Company. The obligation of
the Company to consummate and effect the Merger shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:

          (a) Representations and Warranties. Each representation and warranty
     of Parent and Merger Sub contained in this Agreement (i) shall have been
     true and correct as of February 2, 2000 and (ii) shall be true and correct
     on and as of the Closing Date with the same force and effect as if made on
     the Closing Date except, (A) in each case, or in the aggregate, as does not
     constitute a Material Adverse Effect on Parent or Merger Sub; and (B) for
     those representations and warranties which address matters only as of a
     particular date (which representations shall have been true and correct
     (subject to the qualifications set forth in the preceding clause (A)) as of
     such particular date) (it being understood that, for purposes of
     determining the accuracy of such representations and warranties, (i) all
     "Material Adverse Effect" qualifications and other qualifications based on
     the word, "material" or other similar phrases contained in such
     representations and warranties shall be disregarded and (ii) any update of
     or modification to the Parent Schedules made or purported to have been made
     after the execution of this Agreement shall be disregarded). The Company
     shall have received a certificate with respect to the foregoing signed on
     behalf of Parent by an authorized officer of Parent.

          (b) Agreements and Covenants. Parent and Merger Sub shall have
     performed or complied in all material respects with all agreements and
     covenants required by this Agreement to be performed or complied with by
     them on or prior to the Closing Date, and the Company shall have received a
     certificate to such effect signed on behalf of Parent by an authorized
     officer of Parent.

          (c) Material Adverse Effect. No Material Adverse Effect with respect
     to Parent shall have occurred since February 2, 2000.

     6.3  Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect the Merger shall
be subject to the satisfaction at or prior to the Closing Date of each of the
following conditions, any of which may be waived, in writing, exclusively by
Parent:

          (a) Representations and Warranties. Each representation and warranty
     of the Company contained in this Agreement (i) shall have been true and
     correct as of February 2, 2000 and (ii) shall be true and correct on and as
     of the Closing Date with the same force and effect as if made on and as of
     the Closing Date except (A) in each case, or in the aggregate, as does not
     constitute a Material
                                       34
<PAGE>   39

     Adverse Effect on the Company; provided, however, such Material Adverse
     Effect qualification shall be inapplicable with respect to the
     representations and warranties contained in Sections 2.2(a) and (b), 2.3,
     2.20, 2.21 and 2.22, and (B) for those representations and warranties which
     address matters only as of a particular date (which representations shall
     have been true and correct (subject to the qualifications set forth in the
     preceding clause (A)) as of such particular date) (it being understood
     that, for purposes of determining the accuracy of such representations and
     warranties, (i) all "Material Adverse Effect" qualifications and other
     qualifications based on the word, "material" or other similar phrases
     contained in such representations and warranties shall be disregarded and
     (ii) any update of or modification to the Company Schedules made or
     purported to have been made after the execution of this Agreement shall be
     disregarded). Parent shall have received a certificate with respect to the
     foregoing signed on behalf of the Company by an authorized officer of the
     Company.

          (b) Agreements and Covenants. The Company shall have performed or
     complied in all material respects with all agreements and covenants
     required by this Agreement to be performed or complied with by it at or
     prior to the Closing Date, and Parent shall have received a certificate to
     such effect signed on behalf of the Company by the Chief Executive Officer
     and the Chief Financial Officer of the Company.

          (c) Material Adverse Effect. No Material Adverse Effect with respect
     to the Company and its subsidiaries shall have occurred since December 31,
     1999.

          (d) Consents. The Company shall have obtained all consents, waivers
     and approvals required in connection with the consummation of the
     transactions contemplated hereby in connection with the agreements,
     contracts, licenses or leases set forth on Schedule 6.3(e).

          (e) Registration Rights Agreement. The Company Registration Rights
     Agreement shall have been terminated and none of the shares of Company
     Common Stock shall have registration rights, except pursuant to contractual
     arrangements with Parent.

          (f) 1999 Stock Option Plan. The Option Increase shall have been duly
     approved by the requisite vote under applicable law by the stockholders of
     the Company.

                                  ARTICLE VII

                       TERMINATION, AMENDMENT AND WAIVER

     7.1  Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after the requisite approvals of the
stockholders of the Company:

          (a) by mutual written consent duly authorized by the Boards of
     Directors of Parent and the Company;

          (b) by either the Company or Parent if the Merger shall not have been
     consummated by June 30, 2000 (the "END DATE") for any reason; provided,
     however, that the right to terminate this Agreement under this Section
     7.1(b) shall not be available to any party whose action or failure to act
     has been a principal cause of or resulted in the failure of the Merger to
     occur on or before such date and such action or failure to act constitutes
     a material breach of this Agreement;

          (c) by either the Company or Parent if a Governmental Entity shall
     have issued an order, decree or ruling or taken any other action, in any
     case having the effect of permanently restraining, enjoining or otherwise
     prohibiting the Merger, which order, decree, ruling or other action is
     final and nonappealable;

          (d) by either the Company or Parent if the required approval of the
     stockholders of the Company contemplated by this Agreement shall not have
     been obtained by reason of the failure to obtain the required vote at a
     meeting of the Company stockholders duly convened therefore or at any
     adjournment thereof; provided, however, that the right to terminate this
     Agreement under this
                                       35
<PAGE>   40

     Section 7.1(d) shall not be available to the Company where the failure to
     obtain the Company stockholder approval shall have been caused by (i) the
     action or failure to act of the Company and such action or failure to act
     constitutes a breach by the Company of this Agreement or (ii) a breach of
     the Company Voting Agreement by any party thereto other than Parent.

          (e) by Parent (at any time prior to the adoption and approval of this
     Agreement and the Merger by the required vote of the stockholders of the
     Company) if a Company Triggering Event (as defined below) shall have
     occurred;

          (f) by the Company, upon a breach of any representation, warranty,
     covenant or agreement on the part of Parent set forth in this Agreement, or
     if any representation or warranty of Parent shall have become untrue, in
     either case such that the conditions set forth in Section 6.2(a) or Section
     6.2(b) would not be satisfied as of the time of such breach or as of the
     time such representation or warranty shall have become untrue, provided
     that if such inaccuracy in Parent's representations and warranties or
     breach by Parent is curable by Parent through the exercise of its
     commercially reasonable efforts, then the Company may not terminate this
     Agreement under this Section 7.1(f) prior to End Date, provided Parent
     continues to exercise commercially reasonable efforts to cure such breach
     (it being understood that the Company may not terminate this Agreement
     pursuant to this paragraph (f) if it shall have materially breached this
     Agreement or if such breach by Parent is cured prior to the End Date);

          (g) by Parent, upon a breach of any representation, warranty, covenant
     or agreement on the part of the Company set forth in this Agreement, or if
     any representation or warranty of the Company shall have become untrue, in
     either case such that the conditions set forth in Section 6.3(a) or Section
     6.3(b) would not be satisfied as of the time of such breach or as of the
     time such representation or warranty shall have become untrue, provided,
     that if such inaccuracy in the Company's representations and warranties or
     breach by the Company is curable by the Company through the exercise of its
     commercially reasonable efforts, then Parent may not terminate this
     Agreement under this Section 7.1(g) prior to the End Date, provided the
     Company continues to exercise commercially reasonable efforts to cure such
     breach (it being understood that Parent may not terminate this Agreement
     pursuant to this paragraph (g) if it shall have materially breached this
     Agreement or if such breach by the Company is cured prior to the End Date);

          (h) by Parent, upon a breach of the provisions in Section 5.5 of this
     Agreement.

     For the purposes of this Agreement, a "COMPANY TRIGGERING EVENT" shall be
deemed to have occurred if: (i) the Board of Directors of the Company or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Parent its unanimous recommendation in favor of,
the adoption and approval of the Agreement or the approval of the Merger; (ii)
the Company shall have failed to include in the Prospectus/Proxy Statement the
unanimous recommendation of the Board of Directors of the Company in favor of
the adoption and approval of the Agreement and the approval of the Merger; (iii)
the Board of Directors of the Company fails to reaffirm its unanimous
recommendation in favor of the adoption and approval of the Agreement and the
approval of the Merger within ten (10) days after Parent requests in writing
that such recommendation be reaffirmed; (iv) the Board of Directors of the
Company or any committee thereof shall have approved or recommended any
Acquisition Proposal; or (v) a tender or exchange offer relating to securities
of the Company shall have been commenced by a Person unaffiliated with Parent
and the Company shall not have sent to its securityholders pursuant to Rule
14e-2 promulgated under the Securities Act, within ten (10) business days after
such tender or exchange offer is first published sent or given, a statement
disclosing that the Company recommends rejection of such tender or exchange
offer.

     7.2  Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 7.1 above will be effective immediately upon the
delivery of a valid written notice of the terminating party to the other parties
hereto. In the event of the termination of this Agreement as provided in Section
7.1, this Agreement shall be of no further force or effect, except (i) as set
forth in Section 5.4(a), this Section 7.2, Section 7.3 and Article 8 (general
provisions), each of which shall survive
                                       36
<PAGE>   41

the termination of this Agreement, and (ii) nothing herein shall relieve any
party from liability for any willful breach of this Agreement. No termination of
this Agreement shall affect the obligations of the parties contained in the
Confidentiality Agreement, all of which obligations shall survive termination of
this Agreement in accordance with their terms.

     7.3  Fees and Expenses.

     (a) General. Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses whether or not the
Merger is consummated; provided, however, that Parent and the Company shall
share equally all fees and expenses, other than attorneys' and accountants fees
and expenses, incurred in relation to the printing and filing (with the SEC) of
the Prospectus/Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.

     (b) Company Payments. In the event that this Agreement is terminated by
Parent or the Company, as applicable, pursuant to Sections 7.1(b), (d) or (g),
the Company shall promptly, but in no event later than two days after the date
of such termination, pay Parent a fee equal to $30,000,000 in immediately
available funds (the "TERMINATION FEE"); provided, that in the case of
termination under Section 7.1(b) or 7.1(d), such payment shall be made only if
following February 2, 2000 and prior to the termination of this Agreement, a
third party has publicly announced an Acquisition Proposal and within 15 months
following the termination of this Agreement a Company Acquisition (as defined
below) is consummated or the Company enters into an agreement providing for a
Company Acquisition. The Company acknowledges that the agreements contained in
this Section 7.3(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Parent would not enter into
this Agreement; accordingly, if the Company fails to pay in a timely manner the
amounts due pursuant to this Section 7.3(b), and, in order to obtain such
payment, Parent makes a claim that results in a judgment against the Company for
the amounts set forth in this Section 7.3(b), the Company shall pay to Parent
its reasonable costs and expenses (including attorneys' fees and expenses) in
connection with such suit, together with interest on the amounts set forth in
this Section 7.3(b) at the prime rate of The Chase Manhattan Bank in effect on
the date such payment was required to be made. Payment of the fees described in
this Section 7.3(b) shall not be in lieu of damages incurred in the event of
breach of this Agreement. For the purposes of this Agreement "COMPANY
ACQUISITION" shall mean any of the following transactions (other than the
transactions contemplated by this Agreement); (i) a merger, consolidation,
business combination, recapitalization, liquidation, dissolution or similar
transaction involving the Company pursuant to which the stockholders of the
Company immediately preceding such transaction hold less than 50% of the
aggregate equity interests in the surviving or resulting entity of such
transaction, (ii) a sale or other disposition by the Company of assets
representing in excess of 50% of the aggregate fair market value of the
Company's business immediately prior to such sale or (iii) the acquisition by
any person or group (including by way of a tender offer or an exchange offer or
issuance by the Company), directly or indirectly, of beneficial ownership or a
right to acquire beneficial ownership of shares representing in excess of 50% of
the voting power of the then outstanding shares of capital stock of the Company.

     7.4  Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of Parent and the Company.

     7.5  Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under this
Agreement shall not constitute a waiver of such right.

                                       37
<PAGE>   42

                                  ARTICLE VIII

                               GENERAL PROVISIONS

     8.1  Non-Survival of Representations and Warranties. The representations
and warranties of the Company, Parent and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.

     8.2  Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):

     (a) if to Parent or Merger Sub, to:

         VA Linux Systems, Inc.
         1382 Bordeaux Drive
         Sunnyvale, California 94089
         Attention: Chief Financial Officer
         Telephone No.: (408) 542-8600
         Telecopy No.: (408) 745-9152

         with a copy to:

         Wilson Sonsini Goodrich & Rosati
         Professional Corporation
         650 Page Mill Road
         Palo Alto, California 94304-1050
         Attention: Judith M. O'Brien, Esq.
                    Bruce M. McNamara, Esq.
                    Bret M. DiMarco, Esq.
         Telephone No.: (650) 493-9300
         Telecopy No.: (650) 493-6811

     (b) if to the Company, to:

         Andover.Net, Inc.
         50 Nagog Park
         Acton, Massachusetts 01720
         Attention: Bruce A Twickler
         Telephone No.: (978) 635-5300
         Telecopy No.: (978) 635-5326

         with a copy to:

         Hutchins, Wheeler & Dittmar
         A Professional Corporation
         101 Federal Street
         Boston, Massachusetts 02110
         Attention: David P. Kreisler, Esq.
         Telephone No.: (617) 951-6600
         Telecopy No.: (617) 951-1295

     8.3  Interpretation; Knowledge.

     (a) When a reference is made in this Agreement to Exhibits, such reference
shall be to an Exhibit to this Agreement unless otherwise indicated. When a
reference is made in this Agreement to Sections, such reference shall be to a
Section of this Agreement unless otherwise indicated the words "INCLUDE,"
"INCLUDES" and "INCLUDING" when used herein shall be deemed in each case to be
followed by the words
                                       38
<PAGE>   43

"without limitation." The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. When reference is made herein to
"THE BUSINESS OF" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference to
the subsidiaries of an entity shall be deemed to include all direct and indirect
subsidiaries of such entity.

     (b) For purposes of this Agreement the term "KNOWLEDGE" means with respect
to a party hereto, with respect to any matter in question, that any of the Chief
Executive Officer, Chief Financial Officer, General Counsel or Controller of
such party, has actual knowledge of such matter.

     (c) For purposes of this Agreement, the term "MATERIAL ADVERSE EFFECT"when
used in connection with an entity means any change, event, violation,
inaccuracy, circumstance or effect that is materially adverse to the business,
assets (including intangible assets), capitalization, financial condition or
results of operations of such entity taken as a whole with its subsidiaries
provided however, that none of the following, in and of itself, shall be deemed
to have a Material Adverse Effect: (i) an event, violation, inaccuracy,
circumstance or other matter that results from conditions affecting the U.S.
economy in general; (ii) an event, violation, inaccuracy, circumstance or other
matter that results from the taking of any action expressly required by the
Agreement; (iii) a decline in Parent's Common Stock.

     (d) For purposes of this Agreement, the term "PERSON" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.

     8.4  Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.

     8.5  Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Company Schedules and the
Parent Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder, except as specifically provided in
Section 5.11.

     8.6  Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.

     8.7  Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.

                                       39
<PAGE>   44

     8.8  Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.

     8.9  Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.

     8.10  Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

     8.11  WAIVER OF JURY TRIAL. EACH OF PARENT, THE COMPANY AND MERGER SUB
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF PARENT, THE COMPANY OR MERGER SUB
IN THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT HEREOF.

     [remainder of page intentionally left blank; signature page follows
immediately hereafter]

                                       40
<PAGE>   45

                                 SIGNATURE PAGE

     IN WITNESS WHEREOF, VA Linux and Andover.Net have caused this Amendment to
be executed by their duly authorized representatives as of the day and year
first above written.

                                          VA LINUX SYSTEMS, INC.

                                          By: /s/ TODD B. SCHULL
                                          --------------------------------------
                                          Name: Todd B. Schull
                                          Title: Vice President, Finance and
                                             Chief Financial Officer

                                          ANDOVER.NET, INC.

                                          By: /s/ BRUCE A. TWICKLER
                                          --------------------------------------
                                          Name: Bruce A. Twickler
                                          Title: President and Chief Executive
                                                 Officer

             *** AMENDED AND RESTATED REORGANIZATION AGREEMENT ***
                                       41

<PAGE>   1

                                                                     EXHIBIT 2.2

                                VOTING AGREEMENT

     THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
February 2, 2000 by and among VA Linux Systems, Inc., a Delaware corporation
("Parent"), Andover.Net, Inc., a Delaware corporation (the "Company"), and the
undersigned shareholder (the "Shareholder") of the Company.

                                    RECITALS

     A. Concurrently with the execution of this Agreement, Parent, Atlanta
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub") and, the Company have entered into an Agreement and Plan of
Reorganization dated as of February   , 2000 (the "Merger Agreement"), which
provides for the merger (the "Merger") of Sub with and into the Company.

     B. Pursuant to the Merger, all of the issued and outstanding shares of
capital stock of the Company will be converted into the right to receive the
consideration set forth in the Merger Agreement, all upon the terms and subject
to the conditions set forth therein.

     C. Shareholder is the beneficial owner (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) of the number
of shares of outstanding capital stock of the Company and other securities
convertible into, or exercisable or exchangeable for, shares of capital stock of
the Company, all as set forth on the signature page of this Agreement
(collectively, the "Shares").

     D. In consideration of the execution of the Merger Agreement by Parent,
Shareholder agrees to restrict the transfer or disposition of any of the Shares,
or any other shares of capital stock of the Company acquired by Shareholder
hereafter and prior to the Expiration Date (as defined in Section 1(a) hereof),
and hereby agrees to vote the Shares and any other such shares of capital stock
of the Company so as to facilitate the consummation of the Merger.

     NOW, THEREFORE, the parties hereto hereby agree as follows:

     1. Agreement to Retain Shares.

     (a) Transfer and Encumbrance. Shareholder agrees, during the period
beginning on the date hereof and ending on the Expiration Date (as defined
below), not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber (collectively, "Transfer") any of the Shares or any New Shares (as
defined in Section 1(b) hereof), or to discuss, negotiate, or make any offer or
agreement relating thereto, other than to or with Parent, in each case without
the prior written consent of Parent. Shareholder acknowledges that the intent of
the foregoing sentence is to ensure that Parent retains the right under the
Proxy (as defined in Section 4 hereof) to vote the Shares and any New Shares in
accordance with the terms of the Proxy. As used herein, the term "Expiration
Date" shall mean the termination of the Merger Agreement in accordance with its
terms.

     (b) New Shares. Shareholder agrees that any shares of capital stock of the
Company that Shareholder purchases or with respect to which Shareholder
otherwise acquires beneficial ownership after the date of this Agreement and
prior to the Expiration Date, including, without limitation, shares issued or
issuable upon the conversion, exercise or exchange, as the case may be, of all
securities held by Shareholder which are convertible into, or exercisable or
exchangeable for, shares of capital stock of the Company ("New Shares"), shall
be subject to the terms and conditions of this Agreement to the same extent as
if they constituted Shares.

     2. Agreement to Vote Shares. Until the Expiration Date, at every meeting of
shareholders of the Company called with respect to any of the following, and at
every adjournment or postponement thereof, and on every action or approval by
written consent of shareholders of the Company with respect to any of the
following, Shareholder shall vote, to the extent not voted by the person(s)
appointed under the Proxy
                                        1
<PAGE>   2

(as defined in Section 3 hereof) the Shares and any New Shares (to the extent
any such New Shares may be voted):

          (i) in favor of approval of the Merger, the execution and delivery by
     the Company of the Merger Agreement and the adoption and approval of the
     terms thereof and in favor of each of the other actions contemplated by the
     Merger Agreement and the Proxy and any action required in furtherance
     thereof;

          (ii) against approval of any proposal made in opposition to, or in
     competition with, consummation of the Merger and the Merger Agreement;

          (iii) against any of the following actions (other than those actions
     that relate to the Merger and the transactions contemplated by the Merger
     Agreement): (A) any merger, consolidation, business combination, sale of
     assets, reorganization or recapitalization of the Company with any party;
     (B) any sale, lease or transfer of any significant part of the assets of
     the Company; (C) any reorganization, recapitalization, dissolution,
     liquidation or winding up of the Company; (D) any material change in the
     capitalization of the Company or the Company's corporate structure; or (E)
     any other action that is intended, or could reasonably be expected to,
     impede, interfere with, delay, postpone, discourage or adversely affect the
     Merger or any of the other transactions contemplated by the Merger
     Agreement with such powers, rights and obligations as are set forth in the
     Merger Agreement; and

          (iv) in favor of waiving any notice that may have been or may be
     required relating to any reorganization of the Company, any
     reclassification or recapitalization of the capital stock of the Company or
     any sale of assets, change of control, or acquisition of the Company by any
     other person, or any consolidation or merger of the Company with or into
     any other person.

     Prior to the Expiration Date, Shareholder shall not enter into any
agreement or understanding with any person to vote or give instructions in any
manner inconsistent with this Section 2.

     3. Irrevocable Proxy. Subject to the terms hereof relating to the
Expiration Date, concurrently with the execution of this Agreement, Shareholder
hereby is delivering to Parent an irrevocable proxy in the form attached hereto
as Exhibit A (the "Proxy"), which is irrevocable to the fullest extent permitted
by applicable law, covering the total number of Shares and New Shares of capital
stock of the Company beneficially owned (as such term is defined in Rule 13d-3
under the Exchange Act) by Shareholder as set forth therein.

     4. Representations, Warranties and Covenants of Shareholder. Shareholder
represents, warrants and covenants to Parent as follows:

          (i) Shareholder is the beneficial owner of the Shares, with full power
     to vote or direct the voting of the Shares for and on behalf of all
     beneficial owners of the Shares.

          (ii) Except as set forth in any restricted stock purchase agreement(s)
     by and between the Company and the Shareholder, copies of which have been
     provided or made available to Parent, as of the date hereof the Shares are,
     and at all times up until the Expiration Date the Shares will be, free and
     clear of any rights of first refusal, co-sale rights, security interests,
     liens, pledges, claims, options, charges or other encumbrances.

          (iii) Shareholder does not beneficially own any shares of capital
     stock of the Company other than the Shares.

          (iv) Shareholder has full power and authority to make, enter into and
     carry out the terms of this Agreement, the Proxy and that certain Company
     Affiliate Agreement by and between the Shareholder and Parent on even date
     herewith.

     5. Additional Documents. Shareholder and the Company hereby covenant and
agree to execute and deliver any additional documents reasonably necessary or
desirable to carry out the purpose and intent of this Agreement and the Merger.
                                        2
<PAGE>   3

     6. Consents and Waivers. Shareholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Merger under the terms
of any agreement to which Shareholder is a party or pursuant to any rights
Shareholder may have.

     7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate if the Merger Agreement is terminated in accordance
with its terms.

     8. Legending of Shares. If so requested by Parent, Shareholder agrees that
the Shares and any New Shares shall bear a legend stating that they are subject
to this Agreement and to an irrevocable proxy. Subject to the terms of Section 1
hereof, Shareholder agrees that Shareholder will not Transfer the Shares or any
New Shares without first having the aforementioned legend affixed to the
certificates representing the Shares or any New Shares.

     9. Miscellaneous.

     (a) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.

     (b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by any of the
parties without the prior written consent of the other parties.

     (c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.

     (d) Waiver. No waiver by any party hereto of any condition or of any breach
of any provision of this Agreement shall be effective unless in writing.

     (e) Specific Performance; Injunctive Relief. The parties acknowledge that
Parent will be irreparably harmed and that there will be no adequate remedy at
law for a violation of any of the covenants or agreements of Shareholder set
forth herein. Therefore, it is agreed that, in addition to any other remedies
that may be available to Parent upon any such violation, Parent shall have the
right to enforce such covenants and agreements by specific performance,
injunctive relief or by any other means available to Parent at law or in equity.

     (f) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):

        If to Parent, to:

           VA Linux Systems, Inc.
           1382 Bordeaux Drive
           Sunnyvale, California 94089
           Attn: Chief Financial Officer
           Telephone No.: (408) 542-8600
           Facsimile No.: (408) 745-9152

                                        3
<PAGE>   4

        With a copy to:

           Wilson Sonsini Goodrich & Rosati, P.C.
           650 Page Mill Road
           Palo Alto, California 94304
           Attn: Bruce M. McNamara, Esq.
           Telephone No.: (650) 493-9300
           Facsimile No.: (650) 493-6811

        If to Shareholder:

           To the address for notice set forth on the signature page hereof.

        With a copy to:

           Hutchins, Wheeler & Dittmar
           A Professional Corporation
           101 Federal Street
           Boston, Massachusetts 02110
           Attn: David P. Kreisler, Esq.
           Telephone No.: (617) 951-6600
           Facsimile No.: (617) 951-1295

     (g) Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware, without giving
effect to any choice or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.

     (h) Attorneys' Fees and Expenses. If any action or other proceeding
relating to the enforcement of any provision of this Agreement is brought by
either party, the prevailing party shall be entitled to recover reasonable
attorneys' fees, costs and disbursements (in addition to any other relief to
which the prevailing party may be entitled).

     (i) Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.

     (j) Counterparts. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.

     (k) Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.

                  [Remainder of Page Intentionally Left Blank]

                                        4
<PAGE>   5

     IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
date first above written.

VA LINUX SYSTEMS, INC.                      SHAREHOLDER:

By:
- -------------------------------------------------
                                            ------------------------------------
Name: Larry M. Augustin                     Signature
Title: President and Chief Executive Officer
                                            ------------------------------------
                                            Print Name

ANDOVER.NET, INC.                           ------------------------------------

                                            ------------------------------------
By:
- -------------------------------------------------
                                            Address
Name: Bruce Twickler
Title: President and Chief Executive Officer

                                            Company Capital Stock:

                                            Common Stock:
  ------------------------------------------------------------------------------

                                            Company Options:
     ---------------------------------------------------------------------------

                      [SIGNATURE PAGE TO VOTING AGREEMENT]
                                        5
<PAGE>   6

                                                                       EXHIBIT A
                               IRREVOCABLE PROXY

     The undersigned shareholder (the "Shareholder") of Atlanta, Inc., a
Delaware corporation (the "Company"), hereby irrevocably (to the fullest extent
permitted by law) appoints Larry Augustin and Todd Schull, each officers of VA
Linux Systems, Inc., a Delaware corporation ("Parent"), and each of them, as the
sole and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the full extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of the Company that now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of the Company issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares"), in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned shareholder of
the Company as of the date of this Proxy are listed on the final page of this
Proxy, along with the number(s) of the share certificate(s) which represent such
Shares. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by each undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).

     This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Voting
Agreement dated as of February 2, 2000 by and among Parent, the Company and the
Shareholder (the "Voting Agreement"), and is granted in consideration of Parent
entering into that certain Agreement and Plan of Reorganization dated as of
February 2, 2000 (the "Merger Agreement"), by and among Parent, Atlanta
Acquisition Corporation, a Delaware corporation and a wholly owned subsidiary of
Parent ("Sub") and the Company. The Merger Agreement provides for the merger of
Sub with and into the Company in accordance with its terms (the "Merger") and
Shareholder is receiving a portion of the proceeds of the Merger. As used in
this Irrevocable Proxy, the term "Expiration Date" shall mean the earlier to
occur of (i) such date and time as the Merger shall become effective in
accordance with the terms and provisions of the Merger Agreement, or (ii) the
termination of the Merger Agreement in accordance with its terms.

     The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents) at every annual, special, adjourned or postponed meeting of
shareholders of the Company and in every written consent in lieu of such
meeting:

          (i) in favor of approval of the Merger, the execution and delivery by
     the Company of the Merger Agreement and the adoption and approval of the
     terms thereof and in favor of each of the other actions contemplated by the
     Merger Agreement and any action required in furtherance thereof;

          (ii) against approval of any proposal made in opposition to, or in
     competition with, consummation of the Merger and the Merger Agreement;

          (iii) against any of the following actions (other than those actions
     that relate to the Merger and the transactions contemplated by the Merger
     Agreement): (A) any merger, consolidation, business combination, sale of
     assets, reorganization or recapitalization of the Company with any party,
     (B) any sale, lease or transfer of any significant part of the assets of
     the Company, (C) any reorganization, recapitalization, dissolution,
     liquidation or winding up of the Company, (D) any material change in the
     capitalization of the Company or the Company's corporate structure, or (E)
     any other action that is intended, or could reasonably be expected to,
     impede, interfere with, delay, postpone, discourage or adversely affect the
     Merger or any of the other transactions contemplated by the Merger
     Agreement;

          (iv) in favor of waiving any notice that may have been or may be
     required relating to any reorganization of the Company, any
     reclassification or recapitalization of the capital stock of the

                                        6
<PAGE>   7

     Company or any sale of assets, change of control, or acquisition of the
     Company by any other person, or any consolidation or merger of the Company
     with or into any other person.

     The attorneys and proxies named above may not exercise this Proxy on any
other matter except as provided in clauses (i), (ii), (iii) or (iv) above. The
Shareholder may vote the Shares on all other matters.

     Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.

[remainder of page intentionally left blank; signature page follows immediately
                                   hereafter]

                                        7
<PAGE>   8

     This Proxy shall terminate, and be of no further force and effect,
automatically upon the Expiration Date (as defined in the Voting Agreement).

Dated: February   ,2000

                                          --------------------------------------
                                          Signature

                                          --------------------------------------
                                          Print Name

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

                                          --------------------------------------
                                          Address

                                          Company Capital Stock:

                                          Common Stock:
                                          --------------------------------------

                                          Company Options:
                                                    ----------------------------

                           [SIGNATURE PAGE TO PROXY]
                                        8

<PAGE>   1

                                                                     EXHIBIT 2.3

                AMENDED AND RESTATED COMPANY AFFILIATE AGREEMENT

     THIS AMENDED AND RESTATED COMPANY AFFILIATE AGREEMENT (this "Agreement") is
made and entered into as of April   , 2000, among VA Linux Systems, Inc., a
Delaware corporation ("Parent"), and the undersigned stockholder who may be
deemed an affiliate ("Affiliate") of Andover.Net, Inc., a Delaware corporation
("Company") and hereby amends and restates the Company Affiliate Agreement among
Parent, Affiliate and Company dated February 2, 2000. Capitalized terms used but
not otherwise defined herein shall have the meanings ascribed to them in the
Reorganization Agreement (as defined below).

                                    RECITALS

     A. The Company, Merger Sub (as defined below) and Parent have entered into
an Agreement and Plan of Reorganization (the "Reorganization Agreement") which
provides for the merger (the "Merger") of a wholly-owned subsidiary of Parent
("Merger Sub") with and into the Company. Pursuant to the Merger, all
outstanding capital stock of the Company (the "Company Capital Stock") shall be
converted into the right to receive cash and Common Stock of Parent;

     B. Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of the Company, as the term "affiliate" is used for purposes of Rule
144 of the Rules and Regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "Commission"); and

     C. The execution and delivery of this Agreement by Affiliate is a material
inducement to Parent to enter into the Reorganization Agreement.

     NOW, THEREFORE, intending to be legally bound, the parties hereto agree as
follows:

     1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
that the representations, warranties and covenants by Affiliate set forth herein
shall be relied upon by Parent, the Company and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Reorganization Agreement and has discussed the requirements of this Agreement
with Affiliate's professional advisors, who are qualified to advise Affiliate
with regard to such matters.

     2. Beneficial Ownership of Company Capital Stock. The Affiliate is the
beneficial owner of shares of and vested options to purchase Company Capital
Stock (the "Shares"). The Shares are not subject to any claim, lien, pledge,
charge, security interest or other encumbrance (other than restrictions under
the Securities Act (as defined below)) or to any rights of first refusal of any
kind. There are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Affiliate is party or by which
it is bound obligating the Affiliate to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
Shares or obligating the Affiliate to grant or enter into any such option,
warrant, call, right, commitment or agreement. The Affiliate has the sole right
to transfer such Shares. The Shares are not subject to preemptive rights created
by any agreement to which the Affiliate is party. All shares of Company Capital
Stock and common stock of Parent ("Parent Common Stock") acquired by Affiliate
in the Merger shall be subject to the provisions of this Agreement as if held by
Affiliate as of the date hereof (excluding Parent Common Stock acquired in the
open market).

     3. Compliance with Rule 145 and the Securities Act.

     (a) Affiliate has been advised that (x) the issuance of shares of Parent
Common Stock in connection with the Merger is expected to be effected pursuant
to a registration statement on Form S-4, and the resale of such shares shall be
subject to restrictions set forth in Rule 145 promulgated under the Securities
Act of 1933, as amended (the "Securities Act"), and (y) Affiliate may be deemed
to be an affiliate of the
                                        1
<PAGE>   2

Company. Affiliate accordingly agrees not to sell, transfer or otherwise dispose
of any Parent Common Stock issued to Affiliate in the Merger unless one of the
following conditions is met: (i) such sale, transfer or other disposition is
made in conformity with the requirements of Rule 145(d) promulgated under the
Securities Act; (ii) such sale, transfer or other disposition is made pursuant
to an effective registration statement under the Securities Act or an
appropriate exemption from registration; (iii) Affiliate delivers to Parent a
written opinion of counsel, reasonably acceptable to Parent in form and
substance, that such sale, transfer or other disposition is otherwise exempt
from registration under the Securities Act; or (iv) an authorized representative
of the Commission shall have rendered written advice to Affiliate to the effect
that the Commission would take no action, or that the staff of the Commission
would not recommend that the Commission take any action, with respect to the
proposed disposition if consummated.

     (b) Parent shall give stop transfer instructions to its transfer agent with
respect to any Parent Common Stock received by Affiliate pursuant to the Merger
and there shall be placed on the certificates representing such Common Stock, or
any substitutions therefor, a legend stating in substance:

     "THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION TO
     WHICH RULE 145 APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY WITH RULE
     145(d) OR PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
     SECURITIES ACT OF 1933, AS AMENDED, OR IN ACCORDANCE WITH A WRITTEN OPINION
     OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN FORM AND SUBSTANCE, THAT
     SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
     AS AMENDED."

The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and Parent shall so instruct its transfer
agent, if Affiliate delivers to Parent (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate shall be issued in the name of the transferee), or (ii)
an opinion of counsel, in form and substance reasonably satisfactory to Parent,
to the effect that public sale of the shares by the holder thereof is no longer
subject to Rule 145.

     4. Rule 144/145 Reporting. Parent shall, for a period of two (2) years from
the date hereof, use commercially reasonable efforts to: (a) make and keep
public information available (as such terms are understood and defined in Rule
144 under the Securities Act) and (b) file with the Commission in a timely
manner all reports and other documents required of Parent under the Securities
Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and (c) furnish to Affiliate promptly upon request a written statement as to its
compliance with reporting requirements of Rule 144.

     5. Market Stand-Off Agreement.

     (a) Initial Lock-Up Restriction. The undersigned hereby agrees that during
the period commencing on the date hereof and ending on the later of (i) the
closing of the Merger and (ii) June 8, 2000, the undersigned will not offer,
sell, contract to sell, pledge or otherwise dispose of, directly or indirectly,
any shares of Parent Common Stock or securities convertible into or exchangeable
or exercisable for any shares of Parent Common Stock, or publicly disclose the
intention to make any such offer, sale, pledge or disposal without the prior
written consent of Credit Suisse First Boston Corporation; provided, however,
that the restrictions set forth in the immediately prior sentence shall not
prohibit:

           (i) the undersigned from exercising an option, warrant or other
     convertible security into Parent Common Stock, where such exercise does not
     result in such security being held by any person or entity other than the
     undersigned;

           (ii) the undersigned, if an individual, from transferring any Parent
     Common Stock or rights to acquire Parent Common Stock either during his or
     her lifetime or on death by will or intestacy to his or her immediate
     family or to a trust the beneficiaries of which are exclusively the
     undersigned and/or a member or members of his or her immediate family where
     the person or entity receiving such transfer agrees to the same
     restrictions set forth in this Agreement; or

          (iii) transactions involving Parent Common Stock acquired by the
     undersigned in open market transactions following the consummation of the
     Merger.

                                        2
<PAGE>   3

     In furtherance of the foregoing, the Parent and its transfer agent and
registrar are hereby authorized to decline to make any transfer of shares of
Parent Common Stock if such transfer would constitute a violation or breach of
this Agreement.

     (b) Ongoing Market Stand Off. Each Affiliate also agrees in connection with
a public offering of the Parent's securities that, upon request of the Parent or
the underwriters managing any underwritten offering of the Parent's securities,
the Affiliate shall not sell, make any short sale of, loan, grant any option for
the purchase of, or otherwise dispose of any securities of the Parent (other
than those included in the registration and those that the Affiliate purchases
in the public market or from underwriters in any secondary or follow-on offering
by the Parent) without the prior written consent of the Parent or such
underwriters, as the case may be, which consent may be withheld in their sole
and absolute discretion, for such period of time beginning on the date of filing
of such registration through 30 days from the effective date of such
registration, provided that the officers, directors of the Parent who own
securities of the Company and holders of 5% or more of the Parent's outstanding
equity securities also agree to such restrictions; provided however, that the
restrictions imposed by this sentence shall not apply to the Affiliate in
connection with any follow-on or secondary public offering following the second
anniversary of the Parent's initial public offering. The Affiliate agrees it
shall enter into such underwriter's standard form of agreement with respect to
such restrictions in form satisfactory to the Parent and such underwriter. The
shares held by all constituent partners of any entity holding registration
rights with respect to the Parents Common Stock shall be bound by this standoff
agreement.

     In addition, each Affiliate also agrees that if it participates in a public
offering of the Parent's securities that the Affiliate shall not sell, make any
short sale of, loan, grant any option for the purchase of, or otherwise dispose
of any securities of the Parent (other than those included in the registration
and those that the Affiliate purchases in the public market or from underwriters
in any secondary or follow-on offering by the Parent) without the prior written
consent of the Parent or such underwriters, as the case may be, which consent
may be withheld in their sole and absolute discretion, for such period of time
beginning on the date of filing of such registration through 90 days from the
effective date of such registration, provided that the officers, directors of
the Parent who own securities of the Company and holders of 5% or more of the
Parent's outstanding equity securities also agree to such restrictions; provided
however, that the restrictions imposed by this sentence shall not apply to the
Affiliate in connection with any follow-on or secondary public offering
following the second anniversary of the Parent's initial public offering.

     6. Termination. This Agreement shall be terminated and shall be of no
further force and effect in the event of the termination of the Reorganization
Agreement pursuant to Article VIII of the Reorganization Agreement.

     7. Miscellaneous.

     (a) Waiver; Severability. No waiver by any party hereto of any condition or
of any breach of any provision of this Agreement shall be effective unless in
writing and signed by each party hereto. In the event that any provision of this
Agreement, or the application of any such provision to any person, entity or set
of circumstances, shall be determined to be invalid, unlawful, void or
unenforceable to any extent, the remainder of this Agreement, and the
application of such provision to persons, entities or circumstances other than
those as to which it is determined to be invalid, unlawful, void or
unenforceable, shall not be impaired or otherwise affected and shall continue to
be valid and enforceable to the fullest extent permitted by law.

     (b) Binding Effect and Assignment. This Agreement and all of the provisions
hereof shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but, except as otherwise
specifically provided herein, neither this Agreement nor any of the rights,
interests or obligations of the parties hereto may be assigned by either of the
parties without prior written consent of the other party hereto.

                                        3
<PAGE>   4

     (c) Amendments and Modification. This Agreement may not be modified,
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.

     (d) Injunctive Relief. Each of the parties acknowledge that (i) the
covenants and the restrictions contained in this Agreement are necessary,
fundamental, and required for the protection of Parent and the Company and to
preserve for Parent the benefits of the Merger; (ii) such covenants relate to
matters which are of a special, unique, and extraordinary character that gives
each of such covenants a special, unique, and extraordinary value; and (iii) a
breach of any such covenants or any other provision of this Agreement shall
result in irreparable harm and damages to Parent and the Company which cannot be
adequately compensated by a monetary award. Accordingly, it is expressly agreed
that in addition to all other remedies available at law or in equity, Parent and
the Company shall be entitled to the immediate remedy of a temporary restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any such covenant or provision
or to specifically enforce the provisions hereof.

     (e) Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State of
Delaware without giving effect to any choice or conflict of laws provision or
rule (whether of the State of Delaware or any other jurisdiction) that would
cause the application of the laws of any jurisdiction other than the State of
Delaware.

     (f) Entire Agreement. This Agreement, the Reorganization Agreement and the
other agreements referred to in the Reorganization Agreement set forth the
entire understanding of Affiliate and Parent relating to the subject matter
hereof and thereof and supersede all prior agreements and understandings between
Affiliate and Parent relating to the subject matter hereof and thereof.

     (g) Attorneys' Fees. In the event of any legal actions or proceeding to
enforce or interpret the provisions hereof, the prevailing party shall be
entitled to reasonable attorneys' fees, whether or not the proceeding results in
a final judgment.

     (h) Further Assurances. Affiliate shall execute and/or cause to be
delivered to Parent such instruments and other documents and shall take such
other actions as Parent may reasonably request to effectuate the intent and
purposes of this Agreement.

     (i) Third Party Reliance. Counsel to and independent auditors for Parent
and the Company shall be entitled to rely upon this Affiliate Agreement.

     (j) Survival. The representations, warranties, covenants and other
provisions contained in this Agreement shall survive the Merger.

     (k) Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (or at such other address for a party as shall
be specified by like notice):

        If to Parent:

             VA Linux Systems, Inc.
             1382 Bordeaux Drive
             Sunnyvale, California 94089
             Attention: Chief Financial Officer
             Telephone: (408) 542-8600
             Facsimile: (408) 745-9152

                                        4
<PAGE>   5

        With a copy to:

             Wilson Sonsini Goodrich & Rosati, P.C.
             650 Page Mill Road
             Palo Alto, California 94304
             Attention: Bruce M. McNamara, Esq.
             Telephone: (650) 493-9300
             Facsimile: (650) 493-6811

        If to Affiliate:

             To the address for notice set forth
             on the signature page hereof.

     (l) Counterparts. This Agreement shall be executed in one or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.

                                        5
<PAGE>   6

     IN WITNESS WHEREOF, the parties have caused this Affiliate Agreement to be
duly executed on the day and year first above written.

<TABLE>
<S>                                              <C>
VA LINUX SYSTEMS, INC.                           AFFILIATE

By:                                              By:
    -----------------------------------------    -----------------------------------------
Name: Larry M. Augustin                          Affiliate's Address for Notice:
Title: President and Chief Executive Officer     ---------------------------------------------
                                                 ---------------------------------------------
                                                 ---------------------------------------------
</TABLE>

                    [SIGNATURE PAGE TO AFFILIATE AGREEMENT]
                                        6

<PAGE>   1


                                                                  EXHIBIT 23.1.1


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
registration statement of our report dated September 30, 1999 (except with
respect to the matters referred to in Note 10, as to which the date is November
29, 1999) for VA Linux Systems, Inc., and our report dated February 24, 2000 for
NetAttach, Inc. included herein and to all references to our Firm included in
this S-4 registration statement.


                                                             Arthur Andersen LLP


San Jose, California
April 25, 2000

<PAGE>   1

                                                                  EXHIBIT 23.1.2


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use in this
registration statement of our report dated January 25, 2000 (except with respect
to the matters referred to in Note 14(a) and (b), as to which the date is
February 7, 2000) for Andover.Net, Inc., included herein and to all references
to our Firm included in this S-4 registration statement.

                                                             Arthur Andersen LLP


Boston, Massachusetts
April 26, 2000

<PAGE>   1


                                                                  EXHIBIT 23.1.3


                   CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our report
dated March 8, 2000 for TruSOLUTIONS, INC. (and to all references to our Firm)
included in this S-4 registration statement.

                                                             Arthur Andersen LLP


San Diego, California
April 23, 2000

<PAGE>   1

                                                                    EXHIBIT 99.1

                                  DETACH HERE

                                     PROXY

                               ANDOVER.NET, INC.

                    PROXY FOR SPECIAL MEETING OF SHAREHOLDERS

          THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

     The undersigned stockholder of Andover.Net, Inc. a Delaware corporation,
hereby acknowledges receipt of the Notice of Special Meeting of Stockholders and
Proxy Statement, each dated May __, 2000, and hereby appoints Bruce A. Twickler
and Peter A. Phelps, and each of them, proxies and attorneys-in-fact, with full
power to each of substitution and resubstitution, on behalf and in the name of
the undersigned, to represent the undersigned at the special meeting of
stockholders of Andover.Net to be held on ___________, ___________, 2000, at
10:00 a.m., local time, at Hutchins, Wheeler & Dittmar, 1101 Federal Street,
Boston, Massachusetts, and at any and all continuation(s) or adjournment(s)
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote, if then and there personally present, on the matters set forth
on the reverse side.

     Both of such attorneys or substitutes as shall be present and shall act at
said meeting or any and all continuation(s) and adjournment(s) thereof (or if
only one shall be present and acting, then that one) and shall have and may
exercise all the powers of said attorneys-in-fact hereunder.

THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED FOR ADOPTION OF THE AMENDED AND RESTATED AGREEMENT AND PLAN OF
REORGANIZATION, DATED AS OF APRIL 26, 2000, AS AMENDED TO DATE, BY AND AMONG VA
LINUX SYSTEMS, ATLANTA ACQUISITION CORP. AND ANDOVER.NET AND THE CERTIFICATE OF
MERGER TO BE FILED TO EFFECT THE MERGER, APPROVAL OF THE MERGER OF ANDOVER.NET
AND ATLANTA ACQUISITION CORP. AND ADOPTION OF THE AMENDMENT TO THE 1999 STOCK
OPTION PLAN AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTER(S) AS MAY
<PAGE>   2
PROPERLY COME BEFORE THE MEETING.

                   CONTINUED AND TO BE SIGNED ON REVERSE SIDE

- -----------                                                          -----------
SEE REVERSE                                                          SEE REVERSE
   SIDE                                                                 SIDE
- -----------                                                          -----------

ANDOVER.NET, INC.
50 NAGOG PARK
ACTON, MA 01720

                                  DETACH HERE

[X]  PLEASE MARK
     VOTES AS IN
     THIS EXAMPLE                                 FOR       AGAINST      ABSTAIN

1.   Proposal to adopt the Amended and Restated   [ ]         [ ]          [ ]
     Agreement and Plan of Reorganization, dated
     as of April 26, 2000, as amended to date,
     by and among VA Linux, Inc., Atlanta
     Acquisition Corp. and Andover.Net, Inc. and
     the Certificate of Merger to be filed to
     effect the merger.

                                                  FOR       AGAINST      ABSTAIN

2.   Proposal to merge Andover.Net with and into  [ ]         [ ]          [ ]
     Atlanta Acquisition Corp., a wholly-owned
     subsidiary of VA Linux.

                                                  FOR       AGAINST      ABSTAIN

3.   Proposal to adopt the amendment to the       [ ]         [ ]          [ ]
     Andover.Net 1999 Stock Option Plan to
     increase the number of shares of
     Andover.Net common stock reserved for
     issuance under the plan from 1,736,225
     to 3,136,225.


     In their discretion, the proxies are authorized to vote upon such other
     matter(s) which may properly come before the meeting or any and all
     continuation(s) or adjournment(s) thereof.

          MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
          This proxy should be marked, dated and signed by the stockholder(s)
          exactly as his or her name appears hereon, and returned promptly in
          the enclosed envelope. Persons signing in a fiduciary capacity should
          so indicate. If a corporation, please sign in full corporate name by
          an authorized officer. If a partnership, please sign in partnership
          name by an authorized person. If shares are held by joint tenants or
          as community property, both should sign.

Date:_______________                    Signature:_____________________________

Date:_______________                    Signature:_____________________________





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