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Rule 424(b)(2) Registration Statement
No. 333-55853
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PROSPECTUS
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VERITAS SOFTWARE CORPORATION
8,158,300 SHARES OF COMMON STOCK
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This Prospectus relates to certain shares (the "Shares") of Common Stock, $0.001
par value of the Company ("Common Stock") of VERITAS Software Corporation (the
"Company") under the Securities Act of 1933, as amended (the "Securities Act"),
held by certain persons named in the Prospectus. The Company will not receive
any of the proceeds from the sale of the Shares.
In January 1997, VERITAS Software Corporation, a Delaware corporation ("VERITAS
Delaware"), and VERITAS Software Corporation, a California corporation ("VERITAS
California"), entered into an Agreement and Plan of Reorganization with
OpenVision Technologies, Inc., a Delaware corporation ("OpenVision"). This
agreement provided for the merger (the "Merger") of a wholly-owned subsidiary of
VERITAS Delaware with and into OpenVision and the merger (the "Reincorporation")
of another wholly-owned subsidiary of VERITAS Delaware with and into VERITAS
California, thereby resulting in VERITAS California and OpenVision becoming
wholly-owned subsidiaries of VERITAS Delaware. The Merger and the
Reincorporation became effective on April 25, 1997. All of the Shares were
issued by the Company to Warburg, Pincus Investors, L.P. ("Warburg") in
connection with the Merger. The shares of Common Stock offered by Warburg, any
limited partners of Warburg that may receive Shares upon a partnership
distribution from Warburg or their respective transferees, pledgees, donees or
other successors in interest (collectively, the "Selling Stockholders") hereby
represent approximately 17.4 percent of the Company's Common Stock outstanding
as of April 30, 1998. See "Selling Stockholders" for information with respect to
the Shares held by the Selling Stockholders.
All of the shares of Common Stock offered hereby are being sold by the Selling
Stockholders named herein under "Selling Stockholders." Such shares are being
offered on a continuous basis pursuant to Rule 415 under the Securities Act. No
underwriting discounts, commissions or expenses are payable or applicable in
connection with the sale of such shares by the Selling Stockholders. The Common
Stock of the Company is quoted on the Nasdaq National Market under the symbol
"VRTS." The Shares offered hereby will be sold from time to time at then
prevailing market prices, at prices relating to market prices or at negotiated
prices. On June 4, 1998, the closing price of the Common Stock on the Nasdaq
National Market was $35.75 per share.
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THE COMMON STOCK OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 6.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS JUNE 9, 1998.
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TABLE OF CONTENTS
Available Information......................................3
Documents Incorporated by Reference........................4
Summary....................................................5
The Company................................................5
Risk Factors...............................................7
Ratio of Earnings to Fixed Charges.........................17
Use of Proceeds............................................17
Dividend Policy............................................17
Description of Capital Stock...............................18
Selling Stockholders.......................................20
Plan of Distribution.......................................24
Legal Matters..............................................25
Experts....................................................25
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy and information statements, and other
information with the Shares and Exchange Commission (the "Commission"). Such
reports, proxy and information statements, and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, as well as the regional offices of the Commission located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and Seven World Trade Center, Suite 1300, New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a World Wide Web site that contains reports,
proxy and information statements, and other information that are filed through
the Commission's Electronic Data Gathering, Analysis and Retrieval system. This
Web site can be accessed at http://www.sec.gov. The Company's Common Stock is
quoted on the Nasdaq National Market and reports, proxy statements and other
information concerning the Company also may be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto, certain parts of
which are omitted in accordance with the rules and regulations of the
Commission, or further information with respect to the Company and the Common
Stock, reference is made to the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or other document are not necessarily complete and, in each
instance, reference is made to the copy of such contract or document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference. Copies of the Registration Statement, including
all exhibits thereto, may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission described above.
The Company hereby undertakes to provide without charge to each person
to whom a copy of this Prospectus is delivered, upon written or oral request of
any such person, a copy of any and all of the information that has been or may
be incorporated by reference in this Prospectus, other than exhibits to such
documents. Requests for such copies should be directed to Kenneth E. Lonchar,
VERITAS Software Corporation, 1600 Plymouth Street, Mountain View, CA 94043,
Phone: (650) 335-8000.
No person is authorized in connection with any offering made hereby to
give any information or to make any representation not contained or incorporated
by reference in this Prospectus, and any information or representation not
contained or incorporated herein must not be relied upon as having been
authorized by the Company or any Selling Stockholder. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy by any person
in any jurisdiction in which it is unlawful for such person to make such an
offer or solicitation. Neither the delivery of this Prospectus at any time nor
any sale made hereunder shall, under any circumstances, imply that the
information herein is correct as of any date subsequent to the dates as of which
information is given in this Prospectus.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission are
incorporated herein by reference into this Prospectus:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
(2) Amendment No. 1 to the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1998.
(4) The description of the Company's capital stock contained in the
Company's Registration Statement on Form 8-B filed on May 12, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act following the date of this Prospectus and prior to
the termination of the offering contemplated hereby shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for the purposes of this Prospectus and the Registration Statement of which it
is a part to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus and the Registration Statement of which
it is a part.
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, included or
incorporated by reference in this Prospectus.
THE COMPANY
VERITAS is the leading independent supplier of enterprise data storage
management solutions, providing advanced storage management software for open
system environments. The Company's products provide performance improvement and
reliability enhancement features that are critical for many commercial
applications. These products enable protection against data loss and file
corruption, rapid recovery after disk or system failure, the ability to process
large files efficiently and the ability to manage and back-up large networks of
systems without interrupting users. In addition, the Company's products provide
an automated failover between computer systems organized in clusters sharing
disk resources. The Company's highly scalable products can be used
independently, and certain products can be combined to provide interoperable
client/server storage management solutions. The Company's products offer
centralized administration with a high degree of automation, enabling customers
to manage complex, distributed environments cost-effectively by increasing
system administrator productivity and system availability. The Company also
provides a comprehensive range of services to assist customers in planning and
implementing storage management solutions. The Company markets its products and
associated services to original equipment manufacturer ("OEM") and end-user
customers through a combination of direct and indirect sales channels
(resellers, value-added resellers ("VARs"), hardware distributors, application
software vendors and systems integrators). The Company's OEM customers include
Digital Equipment Corporation ("DEC"), Hewlett-Packard Company ("HP"), Sun
Microsystems, Inc. ("Sun Microsystems"), Microsoft Corporation ("Microsoft"),
Sequent Computer Systems, Inc. and Compaq Computer Corporation. The Company's
end-user customers include AT&T Corporation, Bank of America, BMW, Boeing
Company, British Telecommunications plc, Chrysler Corporation and Motorola, Inc.
In January 1997, VERITAS Delaware, and VERITAS California, entered into
an Agreement and Plan of Reorganization with OpenVision, a publicly-held company
that provided storage management applications and services for client/server
computing environments. This agreement provided for the Merger of a wholly-owned
subsidiary of VERITAS Delaware with and into OpenVision and the Reincorporation
of another wholly-owned subsidiary of VERITAS Delaware with and into VERITAS
California, thereby resulting in VERITAS California and OpenVision becoming
wholly-owned subsidiaries of VERITAS Delaware. The Merger and the
Reincorporation became effective on April 25, 1997. Approximately 14.7 million
shares of Common Stock were issued in the Merger, and the Company has reserved
approximately 2.1 million shares of Common Stock for issuance pursuant to the
assumption of outstanding options, warrants and rights to purchase OpenVision
Common Stock. As used in this Prospectus, unless otherwise indicated, "VERITAS"
and "the Company" refer to VERITAS Delaware together with its subsidiaries.
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RISK FACTORS
This Prospectus contains or incorporates by reference forward-looking
statements that involve risks and uncertainties. The statements contained or
incorporated by reference in this Prospectus that are not purely historical are
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including
without limitation statements regarding the Company's expectations, beliefs,
intentions or strategies regarding the future. All forward-looking statements
included in this document are based on information available to the Company on
the date hereof, and all forward-looking statements in documents incorporated by
reference are based on information available to the Company as of the date of
such documents. The Company assumes no obligation to update any such
forward-looking statements. There are certain important factors that could cause
actual results to differ materially from those projected in the forward-looking
statements, including those set forth in the following risk factors and
elsewhere in this Prospectus. In evaluating the Company's business, prospective
investors should consider carefully the following factors in addition to the
other information set forth in this Prospectus.
Management of Growth; Dependence on Key Personnel. The Company increased
significantly in size as a result of the Merger, has continued to grow since
that time and expects to continue to experience periods of significant growth in
the future. The Company's agreements with key OEMs such as Sun Microsystems, HP
and Microsoft require the hiring of additional engineering, sales and support
personnel, and the commitment of significant staffing to the performance of the
Company's obligations under such agreements. Such growth is likely to strain the
Company's management control systems and resources (including decision support,
accounting, e-mail and management information systems). With future growth, the
Company will be required to continue to improve its financial and management
controls, reporting systems and procedures on a timely basis, to expand, train
and manage its employee work force and to secure additional facilities when and
if needed. There can be no assurance that the Company will be able to manage
such growth effectively. Any failure to do so could have a material adverse
effect on its business, operating results and financial condition. Competition
for qualified sales, technical and other personnel is intense, and there can be
no assurance that the Company will be able to attract, assimilate or retain
additional highly qualified employees in the future. If the Company is unable to
hire and retain such personnel, particularly those in key positions, its
business, operating results and financial condition would be materially and
adversely affected. The Company's future success also depends in significant
part upon the continued service of its key technical, sales and senior
management personnel. The loss of the services of one or more of these key
employees could have a material adverse effect on its business, operating
results and financial condition. Additions of new personnel and departures of
existing personnel, particularly in key positions, can be disruptive and can
result in departures of other existing personnel, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
New Distribution Channels. A significant portion of the Company's net
revenues are derived from user license fees received from computer OEMs that
incorporate the Company's storage management software products into their
operating systems. The Company has no control over the shipping dates or volumes
of systems shipped by its OEM customers, and there can be no assurance that any
OEMs will ship operating systems incorporating the Company's products in the
future. Furthermore, the Company's license agreements with its OEM customers
generally do not require the OEMs to recommend or offer the Company's products
exclusively, have no minimum sales requirements and may be terminated by the
OEMs without cause.
To enhance the worldwide marketing and distribution of its products, the
Company has established strategic relationships with hardware manufacturers
including Hewlett-Packard and Sun Microsystems, operating system vendors
including Microsoft, and disk and tape subsystem vendors including Exabyte. The
Company seeks to leverage its strategic relationships with these and other OEM
customers to seed the market with its products and to encourage OEMs and other
resellers to sell add-on VERITAS products to small and medium-sized accounts and
to departments within large organizations. The Company's strategic relationships
with HP, Sun Microsystems and Microsoft reflect a strategy for OEM product
distribution involving the bundling by OEMs of certain functional subsets or
"lite" versions of the Company's products with OEM computer systems, cooperative
direct selling of full versions of such products by the Company and the OEMs,
and the direct sale by the Company of added value products to the OEM installed
base of customers. There can be no assurance that the Company will be able to
deliver its products to such OEMs in a timely manner despite the dedication of
significant engineering and other
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resources to the development of such products. Any such failure could result in
the Company having expended significant resources with little or no return on
its investment, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can further be no
assurance that this distribution strategy will achieve the desired propagation
of the Company's technology in the market place, or result in sufficient
revenues to the OEMs to induce OEMs to actively market the Company's products to
their customers, which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the simultaneous sales efforts of such OEMs and the Company will not create
certain channel conflicts. Furthermore, failure of the Company to timely develop
and achieve market acceptance of new products for sale to the OEM installed
customer base could lead to a significant loss of potential revenue to the
Company.
In August 1996, the Company entered into a Development and License
Agreement with Microsoft pursuant to which the Company agreed to develop a
functional subset of the VERITAS Volume Manager product to be ported to and
embedded in the Windows NT operating system ("Windows NT"). In connection with
the Company's agreement with Microsoft, there can be no assurance that Microsoft
will use the Company's products in any future version of Windows NT, nor that
the Company will realize any expected benefits even if such products are used in
any future version of Windows NT. If the Company's products are not available in
a timely fashion, if Microsoft does not use these products in Windows NT, or if
the Company does not receive any benefits for the use of its products in Windows
NT, the Company's business, operating results and financial condition could be
materially adversely affected. If the release by Microsoft of Windows NT 5.0 is
significantly delayed, and/or the rate of adoption of Windows NT 5.0 by users is
slow, the Company will not be in a position to market add-on products to the
Windows NT installed customer base, thereby resulting in possible delays in, or
loss of, revenue to the Company. Moreover, the Company would have lost certain
opportunities as a result of the diversion of resources to this project. Under
this agreement, Microsoft is also permitted to develop enhancements to and
derivative products from the Company's products that are embedded in certain
Windows NT releases, and would retain ownership of any such enhancements or
derivative products. There can be no assurance that Microsoft will not develop
any such enhancements or derivative products and, as a result, compete with the
Company in this area. See "-- Uncertainty in Porting Products to New Operating
Systems and Expansion into Windows NT Market."
In recent years, the Company has made significant investments in the
establishment of other distribution channels. Efforts by the Company in this
area include: (i) the introduction of shrink wrap packages of certain VERITAS
storage management software products for multiple platforms; (ii) the
distribution of end-user products for the Sun Microsystems' Solaris operating
system; (iii) the acquisition of Tidalwave Technologies, Inc. ("Tidalwave") in
April 1995, as a result of which the Company began distributing the VERITAS
FirstWatch end-user products; and (iv) the Merger with OpenVision which provided
an established and significant direct sales channel to the Company.
As a result of the Merger, the Company's direct sales force is marketing
and selling the Company's products in competition with indirect sellers of its
products, such as OEMs and resellers, which could adversely affect the Company's
relations with such indirect sellers and result in such sellers being less
willing to market the Company's products aggressively. There can be no assurance
that such sales and marketing efforts by the Company's direct sales force will
not result in a decline in indirect sales as a result of actual or potential
competition between the Company's direct sales force and such indirect sellers,
or that such efforts will not have a material adverse effect on the Company's
business, operating results and financial condition. In addition, any such
decline in indirect sales may require the Company to accelerate investments for
expansion into alternative distribution channels, and no assurance can be given
that the Company will have sufficient resources to devote to such other
channels.
Fluctuating Operating Results. The Company's operating results have
fluctuated in the past, and may fluctuate significantly in the future depending
on a number of factors. Factors that have resulted in fluctuations in operating
results include: (i) the timing and level of sales by the Company's OEM
licensees of computer systems incorporating the Company's storage management
products; (ii) a significant increase in dependence upon non-OEM distribution
channels, which tend to be more unpredictable than OEM channels; (iii) timing of
lump sum payments for source code license fees; (iv) achievement of porting
milestones; and (v) financial expenses for
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investment in new products and distribution channels, including the hiring of
additional sales and marketing personnel and outlay of promotional expenses.
In addition to the factors described above, factors that may contribute
to future fluctuations in quarterly operating results include, but are not
limited to: (i) development and introduction of new operating systems that
require additional development efforts; (ii) introduction or enhancement of
products by the Company or its competitors; (iii) changes in pricing policies of
the Company or its competitors; (vi) increased competition; (v) technological
changes in computer systems and environments; (vi) the ability of the Company to
develop, introduce and market new products in a timely manner; (vii) quality
control of products sold; (viii) market readiness to deploy storage management
products for distributed computing environments; (ix) market acceptance of new
products and product enhancements; (x) customer order deferrals in anticipation
of new products and product enhancements; (xi) the Company's success in
expanding its sales and marketing programs; (xii) personnel changes; (xiii)
foreign currency exchange rates; (xiv) mix of products sold; (xv) acquisition
costs; (xvi) the size and timing of orders; (xvii) seasonality of revenue; and
(xviii) general economic conditions.
The Company's operating results are highly sensitive to the timing of
larger orders. Orders typically range from a few thousand dollars to several
hundred thousand dollars. Revenue is difficult to forecast because the
client/server systems management software market is an emerging market that is
highly fragmented and subject to rapid change. The sale of the Company's
products also typically involves a significant technical evaluation and
commitment of capital and other resources, with the delays frequently associated
with customers' internal procedures, including delays to approve large capital
expenditures, to engineer deployment of new technologies within their networks,
and to test and accept new technologies that affect key operations. For these
and other reasons, the sales cycle associated with the Company's products is
typically lengthy, generally lasting three to nine months, is subject to a
number of significant risks, including customers' budgetary constraints and
internal acceptance reviews, that are beyond the Company's control, and varies
substantially from transaction to transaction. Because of the lengthy sales
cycle and the large size of certain transactions, if orders forecasted for a
specific transaction for a particular quarter are not realized in that quarter,
the Company's operating results for that quarter could be materially adversely
affected.
The Company's future revenue will be difficult to predict, and the
Company has, in the past, failed to achieve its revenue expectations for certain
periods. Because the Company generally ships software products within a short
period after receipt of an order, it typically does not have a material backlog
of unfilled orders, and revenue in any quarter is substantially dependent on
orders booked and shipped in that quarter. In addition, the Company typically
recognizes a significant portion of its direct sales license revenue in the last
two weeks of a quarter. The Company's expense levels are based, in part, on its
expectations as to future revenue and to a large extent are fixed in the short
term. The Company will not be able to adjust expenses in the short term to
compensate for any unexpected revenue shortfall. Accordingly, any significant
shortfall of revenue in relation to the Company's expectations or any material
delay of customer orders would have an immediate adverse effect on its business,
operating results and financial condition. As a result of all of the foregoing
factors, the Company believes that period-to-period comparisons of the Company's
results of operations are not and will not necessarily be meaningful and should
not be relied upon as any indication of future performance. Furthermore, it is
possible that in future quarters the Company's operating results may not meet or
exceed the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock would be materially adversely affected.
Increasing Product Concentration; Dependence on Growth of Storage
Management Software Market. A substantial majority of the Company's revenues
have been, and in future periods will be, derived from storage management
products. Storage management products accounted for 89%, 79% and 74% of the
Company's license revenue in 1997, 1996 and 1995, respectively. The Company
expects that storage management products will continue to account for a
substantial majority of the Company's revenues in future periods as a result of
its strategic decision to devote greater financial and other resources to
selling, servicing and supporting its storage management products. The
allocation of greater levels of sales, service and support resources to such
products could adversely affect the Company's ability to continue enhancing and
supporting its other product lines. Any failure by the Company to enhance and
support its other product lines could result in adverse customer reactions and
the loss of an existing revenue base, and could have a material adverse effect
on the Company's business, operating results and financial condition.
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The Company's future financial performance will depend in large part on
continued growth in the number of companies adopting storage management
solutions for their client/server computing environments. There can be no
assurance that the market for storage management software and services will
continue to grow. If the storage management software and services market fails
to grow or grows more slowly than the Company currently anticipates, or in the
event of a decline in unit price or demand for the Company's storage management
products, as a result of competition, technological change or other factors, the
Company's business, operating results and financial condition would be
materially and adversely affected. The Company's financial performance may, in
the future, experience substantial fluctuations as a consequence of such
industry patterns, general economic conditions affecting the timing of orders,
and other factors affecting capital spending. There can be no assurance that
such factors will not have a material adverse effect on the Company's business,
operating results and financial condition.
Inability to Integrate Current and Future Products and Technologies.
Following the Merger, the Company commenced integration of selected products and
technologies to enhance storage management functionality and the integration of
products throughout its entire product line through the availability of common
services. The Company's success is dependent in significant part on the
Company's ability to integrate its products as planned and the resultant
products achieving market acceptance by end users, resellers and OEMs. No
assurance can be given that the Company will successfully integrate its products
as planned. If the Company is unable to develop and introduce new integrated
products and technologies, or enhancements to existing products, in a timely
manner, its business, operating results and financial condition would be
materially and adversely affected.
Uncertainty in Porting Products to New Operating Systems and Expansion
into Windows NT Market. Certain of the Company's products operate primarily on
certain versions of the UNIX operating system. Product development activities
are being directed towards developing new products for the UNIX operating
system, developing enhancements to the Company's current products and porting
new products and enhancements to other versions of the UNIX operating system.
The Company has also made and intends to continue to make substantial
investments in porting its products to new operating systems, including Windows
NT, and the Company's future success will depend on its ability to successfully
accomplish such ports. In addition, the Company's Windows NT product development
efforts may be dependent on product development funding received from third
parties. If such funding is delayed or not ultimately received, the Company's
Windows NT development efforts could be delayed, which could adversely affect
the Company's business, operating results and financial condition.
The process of porting existing products and product enhancements to,
and developing new products for, new operating systems requires a substantial
capital investment, the devotion of substantial employee resources and the
cooperation of the owners of the operating systems to which the products are
being ported or developed. For example, the added focus on porting and
development work for the Windows NT market has required, and will require, the
Company to hire additional personnel with expertise in the Windows NT
environment and to devote its engineering resources to these projects. The
diversion of engineering personnel to this area may cause delays in other
product development efforts of the Company. Furthermore, operating system owners
have no obligation to assist in these porting or development efforts, and may
instead choose to enter into agreements with other third-party software
developers or internally develop their own products. In particular, the failure
to receive a source code license to certain portions of the operating system,
either from the operating system owner or a licensee thereof, would prevent the
Company from porting its products to or developing products for such operating
system. There can be no assurance that the Company's current or future porting
efforts will be successful or, even if successful, that the operating system to
which the Company elects to port, or for which it elects to develop products,
will achieve or maintain market acceptance. The failure of the Company to port
its products to new operating systems or to select those operating systems that
achieve and maintain market acceptance could have a material adverse effect on
the Company's business, operating results and financial condition.
The Company's agreement with Microsoft requires the Company to develop a
functional subset of the VERITAS Volume Manager product to be ported to and
embedded in Windows NT. The agreement also requires the Company to develop a
disk management graphical user interface designed specifically for Windows NT.
Microsoft is obligated to fund a significant portion of the development expenses
for this product. The Company is currently recognizing revenue under the
development contract with Microsoft on a percentage of completion basis
consistent with its policy for revenue recognition for other similar agreements.
The payment terms in the Microsoft agreement do not directly correlate to the
timing of development efforts and therefore revenue of $2.2 million has
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been recognized in advance of payment as of December 31, 1997. The failure of
the Company to complete the product in sufficient time for inclusion in Windows
NT 5.0 may result in a significant delay of the product being embedded in
Windows NT, and could ultimately result in Microsoft electing to omit the
Company's product from Windows NT altogether, which could have a material
adverse effect on the Company's business, operating results and financial
condition. In addition, the Microsoft relationship will require the Company's
marketing and sales departments to deal in higher volume markets and will
require the Company to service the growing needs of the Windows NT channel and
customer base. The Company's experience in these higher volume markets is
limited. See "-- New Distribution Channels."
Intense Competition. The markets in which the Company competes are
intensely competitive and rapidly changing. The Company's principal competition
in the storage management market consists of internal development groups of
current and prospective OEM customers, which have the resources and capability
to develop their own storage management solutions. Among the OEMs which have
included storage management capabilities in their operating systems are Sun
Microsystems for its Solaris system, DEC for its Digital UNIX system, HP for its
HP-UX system and Microsoft for Windows NT. The Company also encounters
competition from other third party software vendors and hardware companies
offering products that incorporate certain of the features provided by the
Company's products, and from disk controller and disk subsystem manufacturers
which have included or may include similar features.
As a result of the Merger and the associated higher visibility of the
Company in certain markets, the Company faces new competitors and new
competitive factors. In particular, the Company's new competitors include: (i)
hardware and software vendors that offer a management platform or framework to
support vendor-created and third-party systems management applications; (ii)
vendors that provide systems management software for the mainframe environment
who are migrating their products to the client/server environment; (iii) vendors
that provide "point" products that address specific problems and offer specific
functionality; and (iv) vendors that provide integrated and interoperable
solutions. Specific companies that the Company has encountered or expects to
encounter as competitors include the Cheyenne division of Computer Associates
International, Inc. ("Computer Associates"), EMC Corporation, the ADSTAR
Distributed Storage Manager division of International Business Machines
Corporation ("IBM") and Legato Systems, Inc. Many such competitors have
substantially greater financial, technical, sales, marketing and other
resources, as well as greater name recognition and a larger installed customer
base, than the Company. The Company expects that the market for storage
management software, which historically has been large and fragmented, will
become more consolidated with larger companies being better positioned to
compete in such an environment in the long term. As the open systems management
software market develops, a number of companies with greater resources than the
Company could attempt to increase their presence in this market by acquiring or
forming strategic alliances with competitors or business partners of the
Company. For example, in 1996, IBM purchased Tivoli Systems, Inc. ("Tivoli") and
Computer Associates purchased Cheyenne Software, Inc. ("Cheyenne"); both Tivoli
and Cheyenne are competitors of the Company.
The Company's success will depend significantly on its ability to adapt
to these competing forces, to develop more advanced products more rapidly and
less expensively than its competitors, and to educate potential customers as to
the benefits of licensing the Company's products rather than developing their
own products. The Company's future and existing competitors could introduce
products with superior features, scalability and functionality at lower prices
than the Company's products and could also bundle existing or new products with
other more established products in order to compete with the Company. In
addition, because there are relatively low barriers to entry for the software
market, the Company expects additional competition from other established and
emerging companies. Increased competition is likely to result in price
reductions, reduced gross margins and loss of market share, any of which could
materially and adversely affect the Company's business, operating results and
financial condition. There can be no assurance that the Company will be able to
compete successfully against current and future competitors, and the failure to
do so would result in the Company's business, operating results and financial
condition being materially and adversely affected.
Rapid Technological Change and Requirement for Frequent Product
Transitions. The market for the Company's products is intensely competitive,
highly fragmented and characterized by rapid technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies, the emergence of new
industry standards or changes in customer
10
<PAGE> 11
requirements could render the Company's existing products obsolete and
unmarketable. As a result, the Company's success depends upon its ability to
continue to enhance existing products, respond to changing customer requirements
and develop and introduce in a timely manner new products that achieve market
acceptance and keep pace with technological developments and emerging industry
standards. Customer requirements include, but are not limited to, product
operability and support across distributed and changing heterogeneous hardware
platforms, operating systems, relational databases and networks. For example, as
the Company's customers start to utilize Windows NT or other emerging operating
platforms, it will become necessary for the Company to enhance its products to
operate on such platforms in order to meet these customers' requirements. There
can be no assurance that the Company's products will achieve market acceptance
or will adequately address the changing needs of the marketplace or that the
Company will be successful in developing and marketing enhancements to its
existing products, or new products incorporating new technology, on a timely
basis. The Company has in the past experienced delays in product development,
and there can be no assurance that the Company will not experience further
delays in connection with its current product development or future development
activities. There can be no assurance that the Company will have the resources
necessary to perform its obligations under its development agreements in a
timely and efficient manner or that its development efforts will be successful.
If the Company is unable to develop and introduce new products or enhancements
to existing products in a timely manner in response to changing market
conditions or customer requirements, the Company's business, operating results
and financial condition will be materially and adversely affected. Because the
Company has limited resources, it must restrict its product development efforts
to a relatively small number of products and operating systems. There can be no
assurance that these efforts will be successful or, even if successful, that any
resulting product or operating system will achieve market acceptance.
Significant Leverage; Debt Service. In connection with the sale of
certain promissory notes on October 1, 1997 (the "Notes"), the Company incurred
$100 million aggregate principal amount of indebtedness which resulted in a
ratio of long-term debt to total capitalization at December 31, 1997 of
approximately 49.2%. As a result of this additional indebtedness, the Company's
principal and interest payment obligations will increase substantially. The
degree to which the Company will be leveraged could materially and adversely
affect the Company's ability to obtain financing for working capital,
acquisitions or other purposes and could make it more vulnerable to industry
downturns and competitive pressures. The Company's ability to meet its debt
service obligations will be dependent upon the Company's future performance,
which will be subject to financial, business and other factors affecting the
operations of the Company, many of which are beyond its control.
The Company will require substantial amounts of cash to fund scheduled
payments of principal and interest on its indebtedness, including the Notes,
future capital expenditures and any increased working capital requirements. If
the Company is unable to meet its cash requirements out of cash flow from
operations, there can be no assurance that it will be able to obtain alternative
financing. In the absence of such financing, the Company's ability to respond to
changing business and economic conditions, to make future acquisitions, to
absorb adverse operating results or to fund capital expenditures or increased
working capital requirements may be adversely affected. If the Company does not
generate sufficient increases in cash flow from operations to repay the Notes at
maturity, it could attempt to refinance the Notes; however, no assurance can be
given that such a refinancing would be available on terms acceptable to the
Company, if at all. Any failure by the Company to satisfy its obligations with
respect to the Notes at maturity (with respect to payments of principal) or
prior thereto (with respect to payments of interest or required repurchases)
would constitute a default under the Notes and could cause a default under
agreements governing other indebtedness, if any, of the Company.
Dependence on Proprietary Technology; Risks of Infringement. The
Company's success depends upon its proprietary technology. The Company relies on
a combination of copyright, trademark and trade secret laws, confidentiality
procedures and licensing arrangements to establish and protect its proprietary
rights. The Company presently has no patents although it has filed several
patent applications. As part of its confidentiality procedures, the Company
generally enters into non-disclosure agreements with its employees, distributors
and corporate partners, and license agreements with respect to its software,
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use the
Company's products or technology without authorization, or to develop similar
technology independently. Policing unauthorized use of the Company's products is
difficult and although the Company is unable to determine the extent to which
piracy of its software products exists, software piracy can be expected to be a
persistent problem. In
11
<PAGE> 12
selling its products, the Company relies in part on "shrink wrap" licenses that
are not signed by licensees and, therefore, may be unenforceable under the laws
of certain jurisdictions. In addition, effective protection of intellectual
property rights is unavailable or limited in certain foreign countries. There
can be no assurance that the Company's protection of its proprietary rights,
including any patent that may be issued, will be adequate or that the Company's
competitors will not independently develop similar technology, duplicate the
Company's products or design around any patents issued to the Company or its
other intellectual property rights.
The Company is not aware that any of its products infringe the
proprietary rights of third parties. There can be no assurance, however, that
third parties will not claim such infringement by the Company with respect to
current or future products. The Company expects that software product developers
will increasingly be subject to such claims as the number of products and
competitors in the Company's industry segment grows and the functionality of
products in the industry segment overlaps. Any such claims, with or without
merit, could result in costly litigation that could absorb significant
management time, which could have a material adverse effect on the Company's
business, operating results and financial condition. Such claims might require
the Company to enter into royalty or license agreements. Such royalty or license
agreements, if required, may not be available on terms acceptable to the Company
or at all, which could have a material adverse effect upon the Company's
business, operating results and financial condition.
Year 2000 Compliance. The Company is aware of the issues associated with
the programming code in existing computer systems as the millennium ("Year
2000") approaches. The Year 2000 problem is pervasive and complex as virtually
every computer operation will be affected in some way by the rollover of the two
digit year value to 00. Systems that do not properly recognize date sensitive
information when the year changes to 2000 could generate erroneous data or cause
a system to fail. Significant uncertainty exists in the software industry
concerning the potential effects associated with such compliance. The Company
believes that all of its existing products will be Year 2000 compliant by the
end of fiscal 1998 and new products are being designed to be Year 2000
complaint. Although products have undergone, or will undergo, the Company's
normal quality testing procedures, there can, however, be no assurance that the
Company's products will contain all necessary date code changes. Any failure of
the Company's products to perform, including system malfunctions due to the
onset of the calendar year 2000, could result in claims against the Company,
which could have a material adverse effect on the Company's business, financial
condition or results of operations. Moreover, the Company's customers could
choose to convert to other calendar year 2000 compliant products or to develop
their own products in order to avoid such malfunctions, which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also currently in the process of evaluating its
information technology infrastructure for Year 2000 compliance. In the event
that any of the Company's significant suppliers or customers does not
successfully and timely achieve Year 2000 compliance, the Company's business or
operations could be adversely affected. This could result in system failures or
generation of erroneous information and could cause significant disruption to
business activities. The Company is reviewing what actions are required to make
all software systems used internally Year 2000 compliant as well as actions
needed to mitigate vulnerability to problems with suppliers and other third
parties' systems. Such actions include a review of vendor contracts and formal
communication with suppliers to request certification that products are Year
2000 compliant. The Company is assessing the extent of the necessary
modifications to its computer software, and management does not anticipate that
the Company will incur significant operating expenses or be required to invest
heavily in computer system improvements to be Year 2000 compliant. There can be
no assurance that such measures will alleviate the Year 2000 problems which
could have a material adverse effect upon the Company's business, operating
results and financial condition.
Risk of Software Defects; Product Liability. Software products as
complex as those to be offered by the Company frequently contain errors or
defects, especially when first introduced or when new versions or enhancements
are released. Despite product testing, the Company has in the past released
products with defects, discovered software errors in certain of its new products
after introduction and experienced delayed or lost revenue during the period
required to correct these errors. The Company has regularly introduced, and the
Company intends to continue to introduce, new products and enhancements to
existing products. Despite testing by the Company and by current and potential
customers, there can be no assurance that defects and errors will not be found
in existing products or in new products, versions or enhancements after
commencement of commercial shipments. Any such defects and errors could result
in adverse customer reactions, negative publicity regarding the Company and its
12
<PAGE> 13
products, harm to the Company's reputation, loss of or delay in market
acceptance or require expensive product changes, any of which could have a
material adverse effect upon the Company's business, operating results and
financial condition. Further, the Company could be subject to liability claims
(for which it carries insurance, although such insurance may not be sufficient
to fully protect the Company against losses relating to such claims) that could
have a material adverse effect on the Company's business, operating results and
financial condition.
The Company derives an increasing amount of revenue from products
licenses pursuant to "shrink wrap" licenses that are not signed by licensees
and, therefore, may be unenforceable under the laws of certain jurisdictions.
The Company's products will be generally used to manage data critical to
organizations, and, as a result, the sale and support of products by the Company
may entail the risk of product liability claims. Although the Company maintains
errors and omissions product liability insurance, such insurance may not
adequately compensate the Company for losses relating to such claims and a
successful liability claim brought against the Company could have a material
adverse effect upon the Company's business, operating results and financial
condition.
Risks Associated With International Operations. International revenue
(from sales outside the United States and Canada) accounted for 19%, 28% and 23%
of the Company's total revenues in 1997, 1996 and 1995, respectively. The
Company believes that its future success depends upon continued expansion of its
international operations. The Company currently has sales and service offices in
the United States, Canada, Japan, the United Kingdom, Germany, France, Sweden
and the Netherlands and has a product development group in India. The Company
also has resellers in North America, Europe, Asia Pacific, South America and the
Middle East. International expansion may require the Company to establish
additional foreign offices, hire additional personnel and recruit additional
international resellers. This may require significant management attention and
financial resources and could adversely affect the Company's operating margins.
To the extent the Company is unable to effect these additions efficiently and in
a timely manner, its growth, if any, in international sales will be limited, and
its business, operating results and financial condition could be materially and
adversely affected. There can be no assurance that the Company will be able to
maintain or increase international market demand for its products.
As of December 31, 1997, the Company had 35 engineers employed by its
Indian subsidiary located in Pune, India, who perform certain product
development work. These international operations subject the Company to a number
of risks inherent in developing products outside of the United States, including
the potential loss of developed technology, imposition of governmental controls,
export license requirements, restrictions on the export of critical technology,
political and economic instability, trade restrictions, difficulties in managing
international operations and lower levels of intellectual property protection.
Furthermore, if the Company were required to discontinue its product development
efforts in India, it would incur significantly higher operating expenses as a
result of having to perform such development work in the United States.
From time to time, the Company may engage in exchange rate hedging
activities. Such activities have been insignificant to date. There can be no
assurance that any hedging techniques implemented by the Company will be
successful.
The Company's international business also involves a number of
additional risks, including lack of acceptance of localized products, cultural
differences in the conduct of business, longer accounts receivable payment
cycles, greater difficulty in accounts receivable collection, seasonality due to
the slow-down in European business activity during the Company's third fiscal
quarter, unexpected changes in regulatory requirements and royalty and
withholding taxes that restrict the repatriation of earnings, tariffs and other
trade barriers, and the burden of complying with a wide variety of foreign laws.
The Company's international sales are generated primarily through its
international sales subsidiaries and are denominated in local currency, creating
a risk of foreign currency translation gains and losses. To the extent profit is
generated or losses are incurred in foreign countries, the Company's effective
income tax rate may be materially and adversely affected. In some markets,
localization of the Company's products is essential to achieve market
penetration. The Company may incur substantial costs and experience delays in
localizing its products, and there can be no assurance that any localized
product will ever generate significant revenue. There can be no assurance that
any of the factors described herein will not have a material adverse effect on
the Company's future international sales and operations and, consequently, its
business, operating results and financial condition.
13
<PAGE> 14
Past and Future Acquisitions. The Company has made several acquisitions
in the past, including the Merger with OpenVision. Acquisitions of companies,
divisions of companies or products entail numerous risks, including difficulty
in successfully integrating and assimilating acquired operations, diversion of
management's attention and loss of key employees of acquired companies.
Difficulties can arise with respect to the integration of product offerings and
employees of acquired companies, including conflicts that may arise with respect
to distribution strategies, coordination of geographically separated
organizations, differences in corporate culture and integration of personnel
with disparate business backgrounds. The integration and assimilation process
can cause an interruption of, or a loss of momentum in, the activities of the
Company's business. Failure to accomplish the effective integration of the
Company's operations with those of an acquired company could adversely affect
the revenues and operating results of the Company. In the past three years, the
Company has made three acquisitions and one divestiture of a product line; the
Company may make additional acquisitions or effect additional divestitures in
the future. Products acquired by the Company in the past have required
significant additional development, such as restructuring software code to
support larger scale environments, porting products to additional operating
system platforms, regression testing and improving network and device support,
before they could be marketed and some failed to generate any revenue for the
Company. No assurance can be given that the Company will not incur similar
problems in future acquisitions. Any such problems could have a material adverse
effect on the Company's business, operating results and financial condition. In
addition, future acquisitions by the Company may result in dilutive issuances of
equity securities, the incurrence of additional debt, large one-time write-offs
and the creation of goodwill or other intangible assets that could result in
amortization expense. These factors could have a material adverse effect on the
Company's business, operating results and financial condition.
Volatility of Common Stock Price. The market price for the Company's
Common Stock is highly volatile. The trading price of the Company's Common Stock
could be subject to wide fluctuations in response to quarterly variations in
operating and financial results, announcements of technological innovations, new
products, acquisitions or dispositions, new customer relationships or new
strategic relationships by the Company or its competitors, changes in prices of
the Company's or its competitors' products and services, changes in product mix,
or changes in revenue and revenue growth rates for the Company. Statements or
changes in opinions, ratings, or earnings estimates made by brokerage firms or
industry analysts relating to the markets in which the Company does business, or
relating to the Company specifically, have resulted, and could in the future
result, in an immediate and adverse effect on the market price of the Company's
Common Stock. In addition, the stock market has from time to time experienced
extreme price and volume fluctuations which have particularly affected the
market price for the securities of many high-technology companies and that often
have been unrelated or disproportionate to the operating performance of these
companies. These fluctuations, as well as general economic, market and political
conditions such as recessions or military conflicts, may adversely affect the
market price of the Company's Common Stock.
14
<PAGE> 15
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION> Three Months
Year Ended December 31, Ended March 31,
1993 1994 1995 1996 1997 1998
-------- -------- -------- -------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges -- -- 2.3x 10.1x 13.1x 7.9x
</TABLE>
The ratio of earnings to fixed charges is computed by dividing income (loss)
before taxes plus fixed charges by fixed charges. Fixed charges consist of
combined interest expense (including interest expense from capital leases) and
the estimated portion of combined rental expense deemed by the Company to be
representative of the interest factor of rental payments under operating leases.
Earnings were not sufficient to cover fixed charges for the years ended December
31, 1994 and December 31, 1993 by approximately $15.1 million and $41.6 million,
respectively.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Stockholders.
DIVIDEND POLICY
The Company has never paid any cash dividends on its stock and
anticipates that, for the foreseeable future, it will continue to retain any
earnings for use in the operation of its business and does not intend to pay
dividends.
15
<PAGE> 16
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 75,000,000
shares of Common Stock, par value $0.001 per share, and 10,000,000 shares of
Preferred Stock.
COMMON STOCK
Subject to preferences that may apply to any Preferred Stock outstanding
at the time, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times and in
such amounts as the Board of Directors may from time to time determine. Each
stockholder is entitled to one vote for each share of Common Stock held on all
matters submitted to a vote of stockholders. Cumulative voting for the election
of directors is not provided for in the Certificate of Incorporation, which
means that the holders of a majority of the shares voted can elect all of the
directors then standing for election. The Common Stock is not entitled to
preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding at
that time after payment of liquidation preferences, if any, on any outstanding
Preferred Stock and payment of other claims of creditors.
PREFERRED STOCK
The Board of Directors is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of additional shares of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the powers, preferences and
rights of the shares of each wholly unissued series and any qualifications,
limitations or restrictions thereon, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by the stockholders. The
Board of Directors may authorize the issuance of Preferred Stock with voting or
conversion rights that could adversely affect the voting power of other rights
of the holders of Common Stock. Thus, the issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no current plan to issue any shares of Preferred Stock.
DELAWARE'S ANTI-TAKEOVER LAW
The Company is subject to the provisions of Section 203 (the
"Anti-Takeover Law") of the Delaware General Corporation Law (the "DGCL") which
regulates corporate takeovers. The Anti-Takeover Law prevents certain Delaware
corporations, including those whose securities are listed on Nasdaq, from
engaging, under certain circumstances, in a "business combination" (which
includes a merger or sale of more than 10% of the corporation's assets) with any
"interested stockholder" (a stockholder who owns 15% or more of the
corporation's outstanding voting stock) for three years following the date that
such stockholder became an "interested stockholder." A Delaware corporation may
"opt out" of the Anti-Takeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders' amendment approved by at
least a majority of the outstanding voting shares. The Company has not "opted
out" of the provisions of the Anti-Takeover Law.
REGISTRATION RIGHTS
Warburg which beneficially owns approximately 8,158,300 shares of Common
Stock, or approximately 17.4% of the total outstanding shares of Common Stock as
of April 30, 1998 (after adjusting for a three-for-two stock split effected in
the form of a stock dividend in May 1998), has certain "demand" rights to cause
the Company to register under the Securities Act the sale of shares of the
Company's Common Stock received by Warburg in connection with the Merger having
an aggregate offering price (before deduction of underwriting discounts and
commissions) of at least $5.0 million, subject to certain restrictions. The
Company is required to effect up to two such "demand" registrations. The Company
has the right to delay any such registration for up to 60 days under certain
circumstances. The offering described in this Prospectus represents a demand
registration by Warburg.
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<PAGE> 17
In addition, Warburg has certain "piggyback" registration rights. If the
Company proposes to register any of its securities under the Securities Act,
other than a registration in connection with, among other things, the offering
of debt securities by the Company, the Company's employee benefit plans or a
merger or reorganization transaction, Warburg may require the Company to include
all or a portion of its shares in such registration, subject to the right of the
managing underwriter, if any, to limit the number of shares to be included by
Warburg in such registration to not less than 35% of the total number of shares
desired to be included in such registration.
The registration rights of Warburg will expire at such time as all
shares of Common Stock received by Warburg in the Merger may be resold in a
three month period by Warburg pursuant to Rule 144 promulgated under the
Securities Act.
All expenses incurred in connection with the above registrations (other
than the underwriters' and brokers' discounts and commissions and the fees of
counsel for Warburg) will be borne by the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is ChaseMellon
Shareholder Services LLC.
LISTING
The Common Stock is quoted on the Nasdaq National Market under the
trading symbol "VRTS."
17
<PAGE> 18
SELLING STOCKHOLDERS
The Shares offered hereby were originally issued by the Company to
Warburg in the Merger pursuant to a registration statement on Form S-4
(Registration No. 333-23859). The Selling Stockholders (which term includes
their transferees, pledgees, donees or their successors) may from time to time
offer and sell pursuant to this Prospectus any or all of the Shares.
The following table sets forth information with respect to the Selling
Stockholders with respect to the Shares that may be offered pursuant to this
Prospectus. Such information has been obtained from the Selling Stockholders.
Because each of the Selling Stockholders may offer all or some portion of the
Shares set forth opposite their respective names below pursuant to this
Prospectus, no estimate can be given as to the amount of the Shares that will be
held by the Selling Stockholders upon termination of any such sales. Because
each of the Selling Stockholders may acquire or dispose of shares of the
Company's Common Stock (other than the Shares covered hereby) in transactions
exempt from registration under the Securities Act, no estimate can be given as
to the number of shares of the Company's Common Stock beneficially owned after
the offering. Except as provided below, none of the Selling Stockholders has, or
within the past three years has had, any position, office or other material
relationship with the Company or any of its predecessors or affiliates.
In connection with the Merger, Warburg entered into a Registration
Rights Agreement and a Nomination Agreement with the Company. The terms of the
Registration Rights Agreement grant Warburg certain rights to register the
shares of the Company's Common Stock that Warburg received in the acquisition.
The terms of the Nomination Agreement obligate the Company, in connection with
each shareholder solicitation for the election of the Company's Board of
Directors, to nominate two candidates for the Company's Board of Directors (one
of which must not be a partner or employee of Warburg) while Warburg holds more
than 15% of the outstanding Common Stock of the Company and to nominate one
candidate for the Company's Board of Directors while Warburg holds more than 5%,
but not more than 15%, of the outstanding Common Stock of the Company.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
---------------------------- Shares Being -----------------------
Name(1) Number(2) Percent(3) Offered(4) Number Percent(3)
- ------- ---------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Warburg, Pincus Investors, L.P. 8,158,300 17.4% 8,158,300 -- --
Warburg, Pincus & Co. 1,631,225 3.5 1,631,225 -- --
Leeway & Co. 735,200 1.6 735,200 -- --
The Chase Manhattan Bank, N.A., as 735,200 1.6 735,200 -- --
Directed Trustee for the IBM Retirement
Plan Trust
Kingsway PT Limited Partnership, 735,200 1.6 735,200 -- --
Kingsway One PT Corporation, its
General Partner
New York State Common Retirement Fund 735,200 1.6 735,200 -- --
Mellon Bank N.A. as Trustee of the Bell 367,600 * 367,600 -- --
Atlantic Master Trust
California Public Employees' Retirement 367,600 * 367,600 -- --
System
California State Teachers' Retirement 367,600 * 367,600 -- --
System
General Reinsurance Corp. 220,560 * 220,560 -- --
</TABLE>
18
<PAGE> 19
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
---------------------------- Shares Being -----------------------
Name(1) Number(2) Percent(3) Offered(4) Number Percent(3)
- ------- ---------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Ameritech Pension Trust by State Street 183,800 * 183,800 -- --
Bank and Trust Company as Trustee
Bankers Trust Company as Trustee for 183,800 * 183,800 -- --
the GTE Service Corp. Plan for
Employees Pension
Shell Pension Trust 183,800 * 183,800 -- --
The Sumitomo Trust and Banking Company, 183,800 * 183,800 -- --
Limited
Virginia Retirement System 147,040 * 147,040 -- --
US Venture Pte. Ltd. 110,280 * 110,280 -- --
PNC Venture Corp. 98,149 * 98,149 -- --
Phemus Corporation 91,900 * 91,900 -- --
Chase Manhattan Trust Company of 91,900 * 91,900 -- --
California, N.A. Trustee of Ronald
Family Trust C
The Andrew W. Mellon Foundation 73,520 * 73,520 -- --
E.M. Warburg, Pincus & Co., LLC 73,520 * 73,520 -- --
Assur-Investissements 55,140 * 55,140 -- --
The Trustees of the Cheyne Walk Trust 55,140 * 55,140 -- --
The Johns Hopkins University 55,140 * 55,140 -- --
Howard Hughes Medical Institute 55,140 * 55,140 -- --
Suprapart AG 45,950 * 45,950 -- --
Mellon Bank, N.A. as Master Trustee for 36,760 * 36,760 -- --
the Alcoa Master Trust
Chemical Investments, Inc. 36,760 * 36,760 -- --
Grumman Corporation Pension Trust 36,760 * 36,760 -- --
Boston Safe Deposit and Trust Company, 36,760 * 36,760 -- --
solely in its capacity as Trustee for
Raytheon Company Master (as directed by
Raytheon Company)
United States Steel & Carnegie Pension 36,760 * 36,760 -- --
Fund
</TABLE>
19
<PAGE> 20
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Owned After Offering
---------------------------- Shares Being -----------------------
Name(1) Number(2) Percent(3) Offered(4) Number Percent(3)
- ------- ---------- ---------- ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Wells Fargo & Company 36,760 * 36,760 -- --
Other Selling Stockholders (36 persons 354,336 * 354,336 -- --
or entities, each holding less than
30,000 shares, or 0.06%, of the
Company's Common Stock)
</TABLE>
- --------------------
* Less than 1%.
(1) The address of each Selling Shareholder listed on the table is: c/o
Warburg, Pincus Investors, L.P., 466 Lexington Avenue, New York, New
York 10017.
(2) As of April 30, 1998. Reflects information included in Schedules 13D and
13G that have been filed with the Commission by certain Selling
Stockholders and information provided by Warburg.
(3) Based on 46,852,218 outstanding as of April 30, 1998 (as adjusted for a
three-for-two stock split effected in the form of a stock dividend in
May 1998).
(4) For each Selling Stockholder other than Warburg, represents the Selling
Stockholder's beneficial ownership interests in the Shares by virtue of
such person's ownership interest in Warburg.
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PLAN OF DISTRIBUTION
The Company will not receive any of the proceeds of the sale of the
Shares offered hereby. The Shares may be sold directly by the Selling
Stockholders (which term includes their transferees, pledgees, donees or their
successors) from time to time. Alternatively, the Selling Stockholders may from
time to time offer the Shares through brokers, dealers or agents who may receive
compensation in the form of discounts, concessions or commissions from the
Selling Stockholders and/or the purchasers of the Shares for whom they may act
as agent. The Selling Stockholders and any such brokers, dealers or agents who
participate in the distribution of the Shares may be deemed to be
"underwriters," and any profits on the sale of the Shares by them and any
discounts, commissions or concessions received by any such brokers, dealers or
agents might be deemed to be underwriting discounts and commissions under the
Securities Act. To the extent the Selling Stockholders may be deemed to be
underwriters, the Selling Stockholders may be subject to certain statutory
liabilities of, including, but not limited to, Sections 11, 12 and 17 of the
Securities Act and Rule 10b-5 under the Exchange Act.
Warburg currently owns all of the Shares offered pursuant to this
Prospectus. From time to time, Warburg may decide to distribute a portion or all
of the Shares to the other Selling Stockholders in connection with a partnership
distribution. Warburg and/or such other Selling Stockholders may use this
Prospectus to offer the Shares.
The Shares offered hereby may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
Shares may be sold by one or more of the following methods, without limitation:
(a) a block trade in which the broker or dealer so engaged will attempt to sell
the Shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction; (b) purchases by a broker or dealer as
principal and resale by such broker or dealer for its account pursuant to this
Prospectus; (c) ordinary brokerage transactions and transactions in which the
broker solicits purchasers; (d) an exchange distribution in accordance with the
rules of such exchange; (e) face-to-face transactions between sellers and
purchasers without a broker-dealer; (f) through the writing of options; and (g)
other. At any time a particular offer of the Shares is made, a revised
Prospectus or Prospectus Supplement, if required, will be distributed which will
set forth the aggregate amount and type of Shares being offered and the terms of
the offering, including the name or names of any underwriters, dealers or
agents, any discounts, commissions, concessions and other items constituting
compensation from the Selling Stockholders and any discounts, commissions or
concessions allowed or reallowed or paid to dealers. Such Prospectus Supplement
and, if necessary, a post-effective amendment to the Registration Statement of
which this Prospectus is a part, will be filed with the Commission to reflect
the disclosure of additional information with respect to the distribution of the
Shares. In addition, the Shares covered by this Prospectus may be sold in
private transactions or under Rule 144 rather than pursuant to this Prospectus.
To the knowledge of the Company, there are currently no plans,
arrangements or understandings between any Selling Stockholders and any broker,
dealer, agent or underwriter regarding the sale of the Shares by the Selling
Stockholders. There is no assurance that any Selling Stockholder will sell any
or all of the Shares offered by it hereunder or that any such Selling
Stockholder will not transfer, devise or gift such Shares by other means not
described herein.
The Selling Stockholders and any other person participating in such
distribution will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M which may limit the timing of purchases and sales of any of the Shares by the
Selling Stockholders and any other such person. Furthermore, Regulation M of the
Exchange Act may restrict the ability of any person engaged in the distribution
of the Shares to engage in market-making activities with respect to the
particular Shares being distributed for a period of up to five business days
prior to the commencement of such distribution. All of the foregoing may affect
the marketability of the Shares and the ability of any person or entity to
engage in market-making activities with respect to the Shares.
Pursuant to the Registration Rights Agreement entered into in connection
with the offer and sale of the Notes by the Company, each of the Company and the
Selling Stockholders will be indemnified by the other against
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certain liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
The Company has agreed to pay substantially all of the expenses
incidental to the registration, offering and sale of the Shares to the public
other than commissions, fees and discounts of underwriters, brokers, dealers and
agents.
The Company has agreed to use its best efforts to keep the Registration
Statement, of which this Prospectus constitutes a part, effective until the
earlier of (i) the date on which the Selling Shareholders can sell all the
Shares pursuant to Rule 144 of the Security Act or (ii) when all of the Shares
offered hereby have been resold. There can be no assurance that any of the
Selling Stockholders will sell any or all of the shares of Common Stock offered
hereby.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby will
be passed upon for the Company by Fenwick & West LLP, Two Palo Alto Square,
Suite 800, Palo Alto, California 94306.
EXPERTS
The consolidated financial statements and schedule of VERITAS Software
Corporation appearing in the Company's Annual Report (Form 10-K) for the year
ended December 31, 1997 have been audited by Ernst & Young LLP, independent
auditors, as set forth in their report included therein and incorporated herein
by reference. Such consolidated financial statements and schedule are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
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VERITAS SOFTWARE CORPORATION
8,158,300 Shares of
Common Stock
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PROSPECTUS
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