SEC Info

Home

Search

My Interests

Help

Sign In

Please Sign In

  As Of               Filer                 Filing     As/For/On Docs:Pgs              Issuer               Agent

 3/30/00  Network Solutions Inc/DE          10-K405    12/31/99    6:392                                    Bowne of Dc 01/FA

Document/Exhibit                   Description                      Pages   Size 

 1: 10-K405     Form 10-K405 for Network Solutions,Inc.             HTML    790K 
 2: EX-23.1     Consent of Pricewaterhouse Coopers Llp                 1      5K 
 3: EX-27.1     Financial Data Schedule                                1      6K 
 4: EX-27.2     Restated Financial Data Schedule                       1      6K 
 5: EX-27.3     Restated Financial Data Schedule                       1      6K 
 6: EX-27.4     Restated Financial Data Schedule                       1      6K 

Table of Contents

UNITED STATES

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-22967

NETWORK SOLUTIONS, INC.

(703) 742-0400

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:

      Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at least the past 90 days.  YES  [X]  NO  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  [X]

      The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $13,101,928,875 on March 13, 2000 based on the last sale price as reported by the Nasdaq National Market System.

      As of March 13, 2000, the Registrant had 72,367,694 shares of Common Stock, $0.001 par value per share, issued and outstanding.

TABLE OF CONTENTS

Table of Contents

PART I

Item 1.  Business.

Overview

      We are a leading provider of web identity services worldwide. Our web identity offerings include domain name registration services, for which we are the global leader, and related value-added products and services. We are the exclusive registry and the leading registrar for second level domain names within the .com, .net .org and .edu top level domains. As the exclusive registry we maintain the definitive directory for .com, .net, .org and .edu web addresses and we are responsible for the infrastructure that propagates this information throughout the Internet. We also facilitate global registration of domain names in other existing top level domains, including country code top level domains. By registering Internet domain names, we enable businesses, other organizations and individuals to establish unique web identities from which to communicate and conduct e-commerce. We also provide Internet technology services that focus on network engineering, network and systems security and network management.

      On November 10, 1999, we, the Department of Commerce and the Internet Corporation for Assigned Names and Numbers, commonly known as ICANN, entered into a series of wide-ranging agreements relating to the domain name system. These agreements, which furthered the transition of the domain name system to a shared, or competitive, registration system in the .com, .net and .org top level domains, removed a substantial amount of uncertainty regarding administration of the domain name system and our role in that system going forward. Among other things, the agreements provide that multiple registrars may register second level domain names with us in our role as the exclusive registry. Under these agreements:

	•	We agreed to operate the registry in accordance with the provisions of the registry agreement and the consensus policies established by ICANN. The term of the registry agreement extends until November 2003 or, if ownership of our registry and registrar operations is separated by May 2001 in accordance with the agreement, until November  2007.
	•	We, as the registry, charge all registrars $6 per registration per year unless increased to cover higher costs under the circumstances described in the registry agreement.
	•	We became an ICANN-accredited registrar. The term of our registrar accreditation agreement extends until November 2004 with a right to renew indefinitely in accordance with the agreement.
	•	We, and all other registrars, are permitted to offer variable registration terms, up to 10 years, and have discretion on pricing of registration services. As a registrar, we currently charge $35 per registration per year for our basic domain name registration service.

      On December 21, 1999, our Board of Directors approved a 2-for-1 stock split of the shares of our Common Stock, that was effected in the form of a 100% stock dividend distributed on March 10, 2000 on shares of our Common Stock outstanding on February 25, 2000. Except as noted otherwise, all share or per share information in this Annual Report on Form 10-K has been adjusted to reflect the 2-for-1 stock split.

      On March 7, 2000, we entered into an Agreement and Plan of Merger with VeriSign, Inc., a Delaware corporation and leading provider of Internet trust services, and Nickel Acquisition Corporation, Inc., a Delaware corporation and wholly-owned first-tier subsidiary of VeriSign. Under the Agreement and Plan of Merger, VeriSign will issue 1.075 shares of VeriSign common stock for each share of our Common Stock. The transaction was approved by our Board of Directors and VeriSign’s Board of Directors and is contingent upon customary closing conditions, such as the

1

Table of Contents

      We were incorporated in Washington, D.C. in 1979 as Network Solutions Incorporated. We were acquired on March 10, 1995, by Science Applications International Corporation, or SAIC, an employee-owned research and engineering company that provides information technology and systems integration products and services to government and commercial customers. We were reincorporated as Network Solutions, Inc. in Delaware in November 1996. We completed our initial public offering of 3,795,000 shares on a pre-split basis of our Class A common stock, $.001 par value, on October 1, 1997. As of March 13, 2000, SAIC, through its wholly-owned subsidiary SAIC Venture Capital Corporation, owns approximately 23% of our Common Stock, $.001 par value. Our principal executive offices are located at 505 Huntmar Park Drive, Herndon, Virginia 20170-5139, our telephone number is (703) 742-0400 and our Common Stock is traded on the Nasdaq National Market under the ticker symbol NSOL. Our primary web sites are www.networksolutions.com and www.nsiregistry.net. The information on our web sites is not incorporated by reference into this annual report.

      We own or have rights to various copyrights, trademarks and trade names used in our business. These include Network Solutions, Inc.®, dot com mail™, dot com toolkit™, dot com directory™, dot com biz card™, dot com promotions™, dot com people™, dot com essentials™, ImageCafe™, and idNames™. This Form 10-K also includes trademarks, service marks and trade names of other companies.

Our Businesses

      We provide domain name registration services as the leading registrar and the exclusive registry for second level domain names within the .com, .net, .org and .edu top level domains and we provide Internet technology services.

Registration Services

      Registrar Services. Domain name registration services are our core business. Through our registrar services we register second level domain names in the .com, .net and .org top level domains, enabling registrants to establish a unique identity on the Internet. Our customers apply to register second level domain names either directly through our web sites and e-mail-based registration templates or indirectly through Internet access providers and others. Currently, we charge a two-year services fee of $70 for initial registrations and $35 per year for re-registrations for our basic registration service. We accept registrations and re-registrations in one-year increments up to ten years, provided that the unexpired term of any registration may not exceed ten years.

      Our customers can submit applications for the registration of second level domain names via e-mail through the Internet. We process the application and either register the requested domain name in the requested top level domain or reject the application. Upon registration or rejection, we notify the customer via e-mail. For domain names which are registered, we either require customers to pay through our online payment process or we invoice the customers and permit them to pay the registration services fee after the domain name is registered. We require pre-payment or some other reasonable assurance of payment at the time of registration. We perform internally our core proprietary automated registration process and associated security functions.

      We also offer a web-based domain name registration process through our new storefront web site. As part of our web-based registration process, we offer the option of registering a domain name

2

Table of Contents

      Through our idNames services, we have continued to expand our registration services to the country code top level domains. We provide search and registration services for domain names in country code top level domains around the world. With the idNames services, we make it easier for companies to protect their brands both globally and in local markets. In November 1999, we expanded our idNames services to meet the growing needs of large and Internet focused businesses worldwide. These services include a confidential domain name reservation service, a domain name modification assistance service and a multi-year domain name maintenance program in the .com, .net and .org top level domains and in many of the available country code top level domains. We intend to continue to introduce new idNames services to meet the needs of this market.

      We also provide value-added products and services through our web site, which serves as a one-stop shop for our customers at a very early point in the establishment of their web identities. We offer an expanding set of value-added products and services that can extend our relationship with our customers as we help them maximize the value of their web identities over time. We sold value-added products and services along with approximately 17% of our 1,600,000 net new registrations in the fourth quarter of 1999. These value-added products and services include:

	•	dot com directory, an Internet “find engine” which allows users to quickly locate, research and do business with companies that have registered domain names through us in the .com, .net and .org top level domains,
	•	ImageCafe, an automated tool which allows users to build web sites efficiently at an attractive price point,
	•	dot com biz card, a one page web site that can be used as a “virtual business card” to promote businesses on the Internet,
	•	dot com forwarding, a service that enables our customers to “point” or forward users from multiple domain names to one web site,
	•	RealNames, an Internet keyword service that offers companies, brand managers, and trademark owners a way to enhance their identities on the Internet,
	•	dot com mail, a portable, personalized e-mail service designed primarily for small businesses,
	•	dot com toolkit, a small business resource center that provides access to tools and services for setting up a web site and conducting business on the Internet, and
	•	dot com promotions, a service through which a domain name registrant can link to and subscribe to various services provided by Microsoft/ LinkExchange.

      Marketing and Distribution Relationships. We have relationships with many companies worldwide to promote our registrar services, penetrate new customer bases and integrate third party products and services.

	•	Strategic Programs with Internet Access Providers and Others. We have entered into wholesale agreements to provide enhanced services to certain Internet access providers, including Internet service providers, or ISPs, both in the United States and in other countries,

3

Table of Contents

		who register a significant number of second level domain names with us on behalf of their customers.

	•	Business Account Program. Our Business Account Program provides participants with the use of our convenient e-mail template registration and invoicing system. Participants receive referral fees for each paid domain name registration they provide to us and other benefits. As of March 13, 2000 we had over 1,000 members in our Business Account Program.

	•	Premier Program. Our Premier Domain Registration Service Program provides participating Internet access providers with personalized account management, customized billing and financial reports, private e-mail boxes and other customized features. As of March 13, 2000, we had entered into agreements with over 263 companies under the Premier Program which include agreements with approximately 98 companies located in the United States and 165 companies located in Canada, Australia, New Zealand and the European, South American and Asia-Pacific regions. These companies include: EarthLink Network, Deutsche Telekom, Hong Kong Telecom, Interland, Interliant (formerly Sage Networks) and Singapore Telecommunications.
	•	Alliance Program. The Alliance Program is available to members of the Premier Program who have participated in the program for a minimum of one year and who have registered a significant number of second level domain names with us. The Alliance Program is designed to enable us and our participating companies to provide reciprocal links and referrals to the other party’s distribution channels for each other’s complementary services. Through these relationships with EarthLink, Interliant and Interland, we seek to deliver our enhanced registration services and identify additional opportunities to expand our registrar services.

	•	Distribution Channel Marketing Agreements. We are developing co-marketing programs with retail channel partners designed to take advantage of their complementary marketing capabilities.

	•	Affiliate Program. Our Affiliate Program provides an easy way for small Internet access providers and other companies and individuals to establish a link to our enhanced domain name registration process, enabling them to earn additional revenue and add value for their web site visitors. The Affiliate Program is designed for participation by the thousands of Internet access providers, web hosting companies, and web site design companies that currently register their customers’ domain names through us, as well as other companies and individuals who could benefit from providing this service to their customers. As of March 13, 2000, we had over 41,000 members in our Affiliate Program.
	•	Domestic Agreements. In 1999, we entered into strategic agreements with Go2Net, IBM and Microsoft and expanded our agreement with RealNames (formerly Centraal Corporation) for the marketing and development of products and services to meet the future needs of the business marketplace.

	•	Our agreement with Go2Net provides members of Go2Net’s HyperMart and Virtual Avenue business hosting services with access to our domain name registration and dot com directory services. Go2Net is a network of branded, technology and community-driven web sites focused on personal finance, search and directory, commerce and business services, and games.
	•	Under our agreement with IBM, IBM provides a hypertext link to our domain name registration and dot com directory services from its HomePage Creator e-business

4

Table of Contents

		web site and we provide a hypertext link to the IBM HomePage Creator for e-business small business resource center from our dot com toolkit.

	•	Under the Microsoft/ LinkExchange agreement, we are promoting the Microsoft/ LinkExchange suite of marketing services designed to help small businesses increase their online traffic and sales through our dot com toolkit resource center and Microsoft is offering our domain name registration services through a service offering co-branded as SiteRegistration. This new offering is being promoted throughout the LinkExchange web site and on the LinkExchange BannerNetwork.

	•	Other Channel Agreements. Under our agreement with RealNames, we have executed agreements with 14 channel distributors that act as our sales representatives in marketing RealNames Internet Keyword subscriptions. The Internet Keyword service is a web navigation service that offers companies, brand managers and trademark owners a way to enhance their identities on the Internet and is complementary to our domain name registration services.
	•	International Agreements. We have also established additional international distribution channels through Orientation.com and Yupi.com.

	•	The agreement with Orientation.com provides a distribution channel for our domain name registration and dot com directory services through Orientation.com’s extensive network of multilingual portal sites with content that target specific regions and countries including Asia, Africa, Central/ Eastern Europe, Latin America/ Caribbean, the Middle East and Oceania.
	•	Our agreement with Yupi.com promotes our domain name registration services to Spanish speaking Internet users throughout Latin America.

      Advertising. In 1999, we expanded our advertising and marketing through various targeted print and on-line advertising campaigns. We also launched several major multi-piece direct mail, print and web site banner advertising campaigns announcing our new products and services.

      In November 1999, we extended our global marketing agreement with Yahoo! under which we purchased advertising to broadly promote our domain name registration services and other services on certain Yahoo! web sites during 2000. Under this agreement we are expanding our promotions for domain name registration services in the .com, .net and .org top level domains globally and expect to extend the reach of the Network Solutions’ brand to the global Internet community.

      In February 2000, we entered into an advertising agreement with Microsoft Corporation, through which we purchased advertising to broadly promote our domain name registration and other services on certain Microsoft websites. We run banner advertisements throughout Microsoft’s MSN site with MSN Link Exchange and bCentral small business portal. We are targeting certain MSN audiences and offer the tools and services we believe they need to establish a presence on the Web.

      Direct Sales. Our services are marketed and distributed directly through our web sites. We are continuing to target additional channel and distribution partners to offer our registration services electronically through existing web sites and through other direct channels, such as direct mail and telemarketing. Through our direct sales efforts we are seeking to expand the number of registrations in targeted customer segments both domestically and internationally. We are targeting customer segments such as small business users, individuals, holders of trademarks, service marks and product marks and event sponsors.

      Registry Services. We are the exclusive registry for the .com, .net and .org top level domains until at least November 2003. Our registry, the leading provider of Internet locator services, maintains the definitive directory for .com, .net, .org and .edu web addresses and is responsible for the infrastructure that propagates this information throughout the Internet. As the exclusive provider of registry services to .com, .net, and .org, we currently support 34 active ICANN accredited registrars

5

Table of Contents

      As of March 13, 2000, there were 33 ICANN-accredited registrars (in addition to us) submitting domain name registrations to us through the shared registration system. An additional 40 accredited registrars, as of such date, were testing in our pre-production environment and 36 other entities have received accreditation status. Once a registrar achieves its accreditation we enter into an agreement with such registrar and license our software development toolkit, protocol and application programmers interface to our system to each registrar to enable it to develop its front-end domain name registration systems. We receive a one-time $10,000 license fee from each registrar.

      We have made significant investments in our registry developing the shared registration system and building our system infrastructure. We have developed an operational test and evaluation environment for registrars to test their systems prior to going into a production environment. We have assigned one point of contact to each registrar to help resolve issues. We have a trained team of engineers on standby to address any operational issues that adversely impact the registrars. Finally, we have developed service level agreements with the registrars to provide high quality service that the registrars can count on.

      We have invested and are continuing to invest significant technical and financial resources in our registry infrastructure. Our shared registration system is custom-developed and proprietary. We intend to deploy new top level domain name servers in various locations worldwide under agreements with service level obligations to increase the robustness of the .com, .net and .org top level domain system. This will be a significant improvement to the current domain name server infrastructure, in which nine of the 13 existing top level domain name servers are operated by volunteer organizations with no contractual or legal obligations. Our deployment should also enhance reliability, speed and scalability.

      We are working to expand our registry business through the possible operation of additional registries and by potentially providing new domain name system functionality and offering additional trusted third party services for e-commerce.

      Competition in Registration Services. We currently face competition among registrars within a single top level domain like .com, and could in the future face competition among registrars within potential new top level domains. As of March 13, 2000, there were 110 ICANN-accredited registrars, including us, AT&T, Alabanza, America Online, CORE or “Internet Council of Registrars,” Deutsche Telekom, France Telecom Oleane, iDirections, Internet Domain Registars, interQ Incorporated, Melbourne IT, NameSecure.com, NetBenefit, PSINet, Register.com, Talk.com and Verio. As of March 13, 2000, our shared registration system was being used by 33 accredited registrars, in addition to ourselves, in the .com, .net and .org top level domains to register second level domain names. We also face competition from third level domain name providers such as Internet access providers and registrars of top level domains other than those top level domains for which we act as exclusive registry. Although we currently act as the exclusive registry for second level domain names within the .com, .net and .org top level domains, we face competition from registries of country code top level domains and could face competition from potential new top level domains. The introduction of potential new top-level domains is currently an issue of global significance. At its most recent meeting in Cairo, the ICANN Board requested the Names Council, a branch of the Domain Name Supporting Organization (DNSO) primarily responsible for the consensus-building process of

6

Table of Contents

      Future competition in domain name registration services could come from many different companies. Many of these companies have core capabilities to deliver registration services such as help desks, billing services and network management, along with strong name recognition and Internet industry experience. Examples of these types of companies include:

	•	domain name registration resellers,
	•	country code registries,
	•	Internet access providers, and
	•	major telecommunications firms.

Internet Technology Services

      We deliver Internet technology services to some of the world’s leading businesses that are utilizing Internet technologies for their internal enterprise networks, or intranets. Our engineers have extensive knowledge and experience in network engineering, network security and network management. By leveraging this knowledge and experience, we are able to provide solutions to clients’ complex network needs.

	•	Network Engineering. We offer a line of services to help develop and integrate enterprise network solutions in a manner tailored to individual clients’ needs. All of these services are focused on building a strong network foundation for the enterprise.
	•	Network and System Security. We provide a range of security consulting services to allow clients to protect their data and systems. We develop access and protection controls that permit internal and remote users to access computer systems, databases and applications on the network, while protecting against unauthorized access to information or misuse of systems.
	•	Network Management. We provide a range of services that allow clients to monitor, control and improve their network performance. We also provide planning and analysis to implement disaster recovery and contingencies for network system failures.

      During 1999, we provided Internet technology consulting services to more than 20 large companies. Our Internet technology services are generally provided to clients on a time and expense basis. We also perform some engagements on a fixed-price basis.

      Most of our Internet technology services customers are in the financial services industry. Bank of America, formerly NationsBanc, is currently our largest consulting services client, accounting for 51.4% of our Internet technology services net revenue and 2.6% of our total net revenue in the year ended December 31, 1999. NationsBanc originally contracted with us in 1993 and we currently provide network design and engineering services as well as a variety of project specific services under the contract.

      Competition in Internet Technology Services. Companies with Internet expertise are current or potential competitors to our Internet technology services. These companies include systems integrators and consulting firms, such as Andersen Consulting, IBM Global Services and Lucent NetCare. We also compete with certain companies that have developed products that automate the management of Internet protocol addresses and name maps throughout enterprise-wide intranets, and with companies with internally-developed systems integration efforts. A number of these competitors and potential competitors have longer operating histories and greater name recognition and significantly greater financial, technical, marketing, distribution and other resources than we do.

7

Table of Contents

Operations

      We have operating facilities to support our current registration operations and customer support needs as well as to provide expansion capability for future business. One facility houses our call center, a training center equipped for both computer and telephone training and a new computer room with expanded systems and telecommunications services. Another facility houses our registry systems and our primary computer room and telecommunications systems. In addition, we contract for a back-up facility to a third party’s secure facility in California to provide redundancy and enhanced reliability for our Internet root zone administration. It is our intention to develop a live redundant site for the registry during the first half of 2000.

      Our systems have periodically been subject to large numbers of speculative and repetitive e-mail domain name registration and modification requests from domain name speculators and other abusers. Such abuses of our systems have resulted in processing delays. We have taken, and are continuing to take, actions to combat these delays and abusive e-mails to minimize the impact of such system abuses.

      In the latter part of 1999, the operations infrastructure was significantly augmented to reflect the creation of the shared registration system implementing the terms of our agreements with ICANN and the Department of Commerce. Throughout 1999, new hardware configurations were added for the registration and billing databases to both the registrar and registry systems. Bandwith connections to multiple Internet service providers were increased threefold. State of the art storage technology was added to both systems. The overall systems management and monitoring was improved with the addition of a 24 hour, 7 day a week network operations center function. All of the infrastructure enhancements were integrated into an improved state-of-the-art network management system. Many legacy systems were upgraded to resolve potential year 2000 issues. All production systems were successfully remediated.

      In December 1999, our registrar system web servers were upgraded to provide a storefront ability and our on-line payment system was replaced. Additionally, our customer service technical support infrastructure was improved with the installation of new telephone equipment.

      The internal telecommunications infrastructure between our multiple locations was upgraded to support increasing business requirements in both the registry and registrar.

Ongoing Privatization of Internet Administration

      The cooperative agreement, which we entered into with the National Science Foundation in December 1992, provided that we would perform Internet domain name registration services for the top level domains .com, .net, .org, .edu and .gov . These registration services included the initial two-year domain name registration and annual re-registration, and throughout the registration term, maintenance of and unlimited modifications to individual domain name records and updates to the master file of domain names. The cooperative agreement became effective January 1, 1993. Effective September 9, 1998, the Department of Commerce took over the administration of the cooperative agreement from the National Science Foundation.

      With the onset of increased commercial growth of the Internet, the U.S. Government initiated an activity directed at increased privatization of the policy making and central administration of the Internet. Within the U.S. Government, leadership for the continued privatization of Internet administration is currently provided by the Department of Commerce. On June 10, 1998, the Department of Commerce published in the Federal Register a plan referred to as the Statement of Policy or White Paper, calling for increased competition and the formation of a corporation to assume certain responsibilities relating to the domain name system.

8

Table of Contents

      The process initiated by the Statement of Policy resulted in the entry by the U.S. Government into a Memorandum of Understanding, or MOU, with ICANN, a U.S. based private not-for-profit corporation with an international board of directors. The U.S. Government has recognized ICANN as the corporation described in amendment 11 to our December 1992 cooperative agreement, in the performance of ICANN’s obligations under the MOU, and until such time as the MOU is terminated.

      Currently, the technical structure of the Internet only permits one registry for each top level domain. A registrar acts as the interface between the registry and the end-user domain name registrants. Registrars submit to the registry certain limited information for each of their customers that has a second level domain name in a given top level domain. A registrar can provide value-added products and services in addition to its basic registration service. Numerous registrars are able to operate within each top level domain. We currently are the exclusive registry in the .com, .net and .org top level domains and the leading registrar in those domains.

      On November 10, 1999, a series of wide-ranging agreements were entered into which removed a substantial amount of uncertainty regarding the administration of the domain name system and our role in that system going forward. These agreements include the following:

	•	A registry agreement between us and ICANN under which we will continue to act as the exclusive registry for the .com, .net and .org top level domains for at least four years from that date,
	•	A revised registrar accreditation agreement between ICANN and all registrars registering names in the .com, .net and .org domains,
	•	A revised registrar license and agreement between us as registry and all registrars registering names in the .com, .net and .org domains using our proprietary shared registration system,
	•	An amendment to the cooperative agreement, and
	•	An amendment to the MOU.

      Under these agreements we have: (i) recognized ICANN as the not-for-profit corporation described in amendment 11 to the cooperative agreement, (ii) become an ICANN-accredited registrar and (iii) agreed to operate the registry in accordance with the provisions of the registry agreement and the consensus policies established by ICANN in accordance with the terms of that agreement. We will be an accredited registrar through November 9, 2004 with a right to renew indefinitely in accordance with the agreement.

      We recently implemented a system under which we will not accept the registration of a domain name as a registrar unless we have received a reasonable assurance of payment of the registration fee. We are entitled to establish our own prices for registrar services.

      We have implemented modifications to the shared registration system that enable a registrar to (a) accept registrations and re-registrations in one-year increments and (b) add one year to a registrant’s registration period upon transfer of a registration from one registrar to another. The unexpired term of any registration may not exceed ten years. We are contractually obligated to provide equivalent access to the shared registration system to all ICANN-accredited registrars and to ensure that the revenues and assets of the registry are not utilized to advantage our registrar to the detriment of other registrars. We have agreed to and implemented an organizational conflict of interest compliance plan that includes organizational, physical and procedural safeguards in connection with these obligations.

      The term of the registry agreement extends until November 9, 2003, except that in the event that we complete the legal separation of the ownership of our registry business from our registrar

9

Table of Contents

      ICANN is contractually obligated to the registry and to all accredited registrars to comply with specified procedural requirements governing the exercise of its authority. The agreements also explicitly define the subjects within the scope of ICANN’s authority with respect to both the registry and registrars. ICANN’s authority to set policy for the registry may be terminated if (a) ICANN breaches the registry agreement and fails to remedy that breach; (b) the Department of Commerce withdraws its recognition of ICANN; or (c) the Department of Commerce concludes that ICANN has not made sufficient progress towards entering into agreements with other registries and we are competitively disadvantaged. In the event ICANN’s authority is terminated, the Department of Commerce will assume the policy-setting function for registry services for the .com, .net and .org top level domains.

      We have agreed to pay annual fees to ICANN as set by ICANN at levels currently not to exceed $2 million for our registrar and $250,000 for our registry. We have agreed to provide to the Department of Commerce control over the content and use of the internic.net website, subject to transition arrangements set forth in the agreements.

      All accredited registrars are obligated to provide query-based access to registration data and are barred from placing conditions upon any legal use of that data, except to prohibit use of the data to enable the transmission of mass unsolicited commercial solicitations via e-mail (spam) or to enable high volume, automated electronic processes that apply to the registrar (or its systems). In addition, all accredited registrars are required to provide third-party bulk access to registration data (subject to the restrictions described above) for an annual fee not to exceed $10,000. This obligation would remain in effect until replaced by a different policy adopted by ICANN or a finding by the Department of Commerce that no individual or entity is able to exercise market power with respect to data used for development of third-party value added products and services.

      On October 24, 1999, ICANN adopted the Uniform Domain Name Dispute Resolution Policy, commonly known as the dispute policy, and accompanying rules of procedure required to be used by all accredited registrars in the .com, .net and .org top level domains. We implemented this policy on January 1, 2000. Registrars do not participate in the administration or conduct of any proceeding brought under the dispute policy. Each registrant agrees in its contract with a registrar to be bound

10

Table of Contents

      On November 29, 1999, the Anticybersquatting Consumer Protection Act was signed into law by the President, making it illegal under certain circumstances for persons to register domain names which conflict with personal names or trademarks. The remedies under this Act are forfeiture, cancellation, and transfer of the domain name registration to the trademark owner or the individual. Except in cases of bad faith, reckless disregard or willful failure to comply with a court order, the registry and registrar are not liable for injunctive or monetary relief as long as the registry and registrar comply with the procedural requirements of the statute.

Research and Development

      In 1997, our research and development expenses were $1,653,000 or 3.6% of net revenues. In 1998, our research and development expenses were $4,821,000 or 5.1% of net revenues. In 1999, our research and development expenses were $10,989,000 or 5.0% of net revenues. We expect that the level of research and development expenses will continue to increase in the near future in terms of absolute dollars as we invest in developing new service offerings.

Intellectual Property Rights

      Our principal intellectual property consists of, and our success is dependent upon, our proprietary software used in our registration service business and certain methodologies and technical expertise we use in both the design and implementation of our current and future registration services and Internet-based products and services businesses. We own our proprietary shared registration system through which competing registrars, including our registrar, submit .com, .net and .org second level domain name registrations. Some of the software and protocols we use in our registration services are in the public domain or are otherwise available to our competitors. We also have compiled a database of information relating to customers in our registration business. While a portion of this database is available to the public in the form of a directory service, we believe that we have certain ownership rights in this database and we intend to protect such rights. We have applied for several patents. However, we currently have no registered patents but our proprietary materials are protected by trade secret laws. We also own or have rights to various copyrights, trademarks and trade names in our business.

Employees

      As of March 13, 2000, we had approximately 888 full-time employees. None of our employees are covered by collective bargaining agreements. We believe that our relations with our employees are good.

Risk Factors

      IN ADDITION TO OTHER INFORMATION IN THIS FORM 10-K, THE FOLLOWING RISK FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING US AND OUR BUSINESS BECAUSE SUCH FACTORS CURRENTLY HAVE A SIGNIFICANT IMPACT OR MAY HAVE A SIGNIFICANT IMPACT ON OUR BUSINESS, OPERATING RESULTS OR FINANCIAL CONDITION. ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS

11

Table of Contents

Risks Related to the Proposed VeriSign Merger

We face risks relating to the proposed VeriSign merger

      On March 7, 2000, we executed a merger agreement to be acquired by VeriSign. Under the terms of the agreement, each outstanding share of Network Solutions Common Stock will be exchanged for 1.075 shares of VeriSign common stock. The announcement of the proposed merger may have a negative impact on our ability to sell our services and products, attract and retain employees and clients, and maintain strategic relationships with third parties. For example, our employees may experience uncertainty about their future role with VeriSign until VeriSign’s strategies with regard to us are announced or executed. The announcement may also have an adverse effect on our relationships with significant clients and strategic partners.

      If the merger is successfully completed, holders of Network Solutions’ Common Stock will become holders of VeriSign’s common stock. VeriSign’s business differs from our business, and VeriSign’s results of operations, as well as the price of VeriSign’s common stock, may be affected by factors different than those affecting our results of operations and the price of our Common Stock before the merger. For further information on VeriSign’s business and certain factors to consider in connection with the proposed merger and VeriSign’s business, please see VeriSign’s Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and VeriSign’s Rule 425 filings on March 7 and 8, 2000 — all of which may be accessed through the SEC’s EDGAR filings on their website at www.sec.gov.

      If the VeriSign merger is completed, our stockholders will receive a fixed number of shares of VeriSign common stock despite changes in the market value of our Common Stock or VeriSign’s common stock. The 1:1.075 ratio of our Common Stock to VeriSign common stock is a fixed number and will not be adjusted in the event of any increase or decrease in the price of VeriSign common stock or our Common Stock, except with respect to stock dividends, splits, etc., as specifically set forth in the merger agreement. The prices of VeriSign common stock and our Common Stock at the closing of the proposed merger may vary from their respective prices on the date the merger agreement was signed. These prices may vary because of the changes in the business, operations or prospects of VeriSign or Network Solutions, market assessments of the likelihood that the merger will be completed, the timing of the completion of the merger, the prospects of post-merger operations, regulatory considerations, general market and economic conditions as well as other factors.

Our failure to complete the proposed merger with VeriSign could adversely affect our stock price and future business and operations

      The merger is subject to the approval by both our shareholders and certain regulatory agencies and VeriSign’s shareholders must approve the issuance of Common Stock and amendments to VeriSign’s Certificate of Incorporation required to effect the merger. Accordingly, there can be no assurance that the merger will be successfully completed. In the event that the merger is not successfully completed, we may be subject to a number of material risks, including the following:

	•	We may be required to pay VeriSign a termination fee of $425 million for several reasons, including if prior to termination of our merger agreement we publicly announce another acquisition proposal (as defined in the agreement), and:

	—	Network Solutions or VeriSign terminates the merger agreement because the required approval of the merger by our stockholders was not obtained,
	—	if a triggering event (as defined in the agreement) shall have occurred, or

12

Table of Contents

	—	if VeriSign terminates the merger agreement due to a breach of any representation, warranty, covenant or agreement of ours in the agreement.

	•	The price of our Common Stock may decline to the extent that the current market price for our Common Stock reflects a market assumption that the proposed merger will be completed; and
	•	Costs related to the proposed merger, such as legal, accounting, and financial advisor fees, must be paid even if the merger is not completed.

We are dependent upon the successful integration of our proposed merger with VeriSign

      Achieving the anticipated benefits of the proposed acquisition of our company by VeriSign is dependent in part upon whether the integration of the two companies’ products, services and technologies, research and development activities, sales and marketing, and administrative organizations is accomplished in an efficient and effective manner. There can be no assurance that this will occur. Moreover, the integration process may temporarily divert management attention from our day-to-day business. Failure to successfully accomplish integration could have a material adverse effect on the business, financial condition or results of operations of the combined company.

Industry Risks

Increased competition could harm our domain name registration business

      The introduction of additional competition into the domain name registration business could harm our business. This includes, in particular, competition among registrars within a single top level domain, such as .com, .net or .org, and competition among registrars and registries of existing and potential new top level domains. We currently face competition in the domain name registration business from other registrars in the top level domains for which we act as registry, third level domain name providers such as Internet access providers and registrars and registries of top level domains other than those top level domains for which we act as registry. As of March 13, 2000, 33 accredited registrars (in addition to us) in the .com, .net and .org top level domains used our shared registration system to register domain names. ICANN has accredited 76 additional registrars as of that date. We expect these and additional accredited registrars to offer competing registration services in these top level domains in the near future.

      The accredited registrars include, among others, AT&T, Alabanza, America Online, CORE or Internet Council of Registrars, Deutsche Telekom, France Telecom Oleane, iDirections, interQ, Internet Domain Registrars, Melbourne IT, NameSecure.com, NetBenefit, PSINet, Register.com, Talk.com and Verio. For the quarter ended December 31, 1999, we registered 1,600,000 net new second level domain names and competing accredited registrars registered 890,000 second level domain names.

      The introduction of potential new top-level domains is currently an issue of global significance. At its most recent meeting in Cairo, the ICANN Board requested the Names Council, a branch of the Domain Name Supporting Organization (DNSO) primarily responsible for the consensus-building process of the DNSO, and its staff to prepare recommendations regarding the introduction of new generic top-level domains, indicating that the ICANN Board intends to act on these topics at its Yokohama meeting on July 15-16, 2000.

      Future competition in the domain name registration business as a registry or registrar could come from many different companies, including:

	•	domain name registration resellers,
	•	country code registries,

13

Table of Contents

	•	Internet access providers and
	•	major telecommunications firms.

      Many of these entities have core capabilities to deliver registry and/or registrar services, such as help desks, billing services and network management, along with strong name recognition and Internet industry experience. The recent agreements among ICANN, the Department of Commerce, us and other registrars permit flexibility in pricing for and term of registrations. Our revenue, therefore, could be reduced due to pricing pressures, bundled service offerings and variable terms resulting from increased competition. Some registrars and resellers in the .com, .net and .org top level domains are already charging lower prices for domain name registration services in those domains. In addition, other entities are bundling, and may in the future bundle, domain name registrations with other products or services at reduced rates or for free.

Issues arising from implementation of our agreements with ICANN and the Department of Commerce could harm our registration business

      The Department of Commerce has adopted a plan for a phased transition of the Department of Commerce’s responsibilities for the domain name system to ICANN by September 30, 2000. We face risks from this transition, including:

	•	ICANN could adopt or promote policies, procedures or programs that are unfavorable to our role in the registration of domain names or that are inconsistent with our current or future plans,
	•	The Department of Commerce or ICANN could terminate our agreements to be the registry and/or a registrar in the .com, .net and .org top level domains if they find that we are in violation of our agreements with them,
	•	If we do not separate ownership of our registry and registrar by May 2001 in accordance with the registry agreement, the term of the registry agreement will expire in November 2003 and we may not be chosen as the successor registry,
	•	The terms of the registrar accreditation contract could change, as a result of an ICANN-adopted policy, in a manner which is unfavorable to us,
	•	The Department of Commerce’s or ICANN’s interpretation of provisions of our agreements with either of them above could differ from ours,
	•	The Department of Commerce could revoke its recognition of ICANN, as a result of which the Department of Commerce would take the place of ICANN for purposes of the various agreements described above, and could take actions which are harmful to us,
	•	ICANN may approve new top level domains and we may not be selected to act as a registrar or registry with respect to those top level domains,
	•	The U.S. Government could refuse to transfer certain responsibilities for domain name system administration to ICANN due to security, stability or other reasons, resulting in fragmentation or other instability in domain name system administration, and
	•	Our registry business could face legal or other challenges resulting from the activities of other registrars.

14

Table of Contents

Challenges to ongoing privatization of Internet administration could harm our registration business

      Risks we face from challenges by third parties, including other domestic and foreign governmental authorities, to our role in the ongoing privatization of the Internet include:

	•	Legal, regulatory or other challenges, including challenges to the agreements governing our relationship with, or to the legal authority underlying the roles and actions of, the Department of Commerce, ICANN and/or us, could be brought,
	•	Congress has held two hearings in which various issues about the domain name system have been raised and Congress could take action which is unfavorable to us,
	•	Congress has issued a Conference Report directing the General Accounting Office to review the relationship between the Department of Commerce and ICANN and the adequacy of security arrangements under existing Department of Commerce cooperative agreements. An adverse report could cause Congress to take action which is unfavorable to us or to the stability of the domain name system,
	•	ICANN could fail to maintain legitimacy resulting in instability in domain name system administration, and
	•	Some foreign governments and governmental authorities have in the past disagreed with, and may in the future disagree with, the actions, policies or programs of ICANN, the U.S. Government and us relating to the domain name system. These foreign governments or governmental authorities may take actions or adopt policies or programs which are harmful to our business.

We depend on future growth of the Internet and Internet infrastructure

      Our future success substantially depends on the continued growth in the use of the Internet. If the use of and interest in the Internet does not continue to grow, our business would be harmed. Continued growth of the Internet could be slowed by:

	•	inadequate infrastructure,
	•	lack of availability of cost-effective, high speed systems and service,
	•	delays in developing or adopting new standards and protocols to handle increased levels of Internet activity or
	•	government regulation.

We rely on third parties who maintain and control root zone and top level domain zone servers

      We currently administer and operate only two of the 13 root zone servers and four top level domain zone servers. The others are administered and operated by independent operators on a volunteer basis. Because of the importance to the functioning of the Internet of these root zone servers and top level domain zone servers, our registration business could be harmed if these volunteer operators fail to properly maintain such servers or abandon such servers.

      Further, our registration business could be harmed if any of these volunteer operators fail to include or provide accessibility to the data that we maintain in the root zone servers and the top level domain zone servers that we control.

      In the event and to the extent that ICANN is authorized to set policy with regard to an authoritative root server system, as provided in the registry agreement, it is required to ensure that

15

Table of Contents

We rely on Internet service providers

      Our registration business could be harmed if a significant number of Internet service providers decided not to route Internet communications to or from domain names registered by us or if a significant number of Internet service providers decided to provide routing to a set of domain name servers which did not point to our top level domain zone servers.

Company Risks

Our near term success depends on the growth of our domain name registration business

      We may not be able to sustain the revenue growth we have experienced in recent periods. In addition, past revenue growth may not be indicative of future operating results. If we do not successfully maintain our current position as a leading provider of domain name registration services or develop or market additional value-added products and services, our business could be harmed.

      Our domain name registration services business generates over 90% of our revenue and is expected to continue to account for a very significant portion of our revenue in at least the near term. Our future success will depend largely on:

	•	the continued increase in domain name registrations,
	•	re-registration rates of our customers,
	•	our ability to maintain our current position as a leading registrar of domain names,
	•	the successful development, introduction and market acceptance of new services that address the demands of Internet users,
	•	our ability to provide robust domain name registration systems and
	•	our ability to provide a superior customer service infrastructure as a registry and registrar.

      The contractual requirement that we provide bulk access to customer data could hurt our ability to market and sell other value-added services in addition to domain name registration services.

System failure or interruption, security breaches or our failure to meet increasing demands on our systems could harm our business

      Any significant problem, including any security breach, with our systems or operations could result in lost revenue, customer dissatisfaction or lawsuits against us. A failure in the operation of our registration systems or other events could result in deletion of one or more domain names from the Internet for a period of time. A failure in the operation of our shared registration system could result in the inability of one or more other registrars to register and maintain domain names for a period of time. A failure in the operation or update of the master database that we maintain could result in deletion of one or more top level domains from the Internet and the discontinuation of second level domain names in those top level domains for a period of time. The inability of our registrar systems, including our back office billing and collections infrastructure, and telecommunications systems to meet the demands of the increasing number of domain name registration requests and corresponding customer e-mails and telephone calls, including speculative, otherwise abusive and repetitive e-mail domain name registration and modification requests, could result in substantial degradation in our customer support service and our ability to process, bill and collect registration requests in a timely manner.

16

Table of Contents

      We recently completed a physical separation of our registrar and registry computer systems and have run the operations of our new systems separately for only a limited time. Any data integrity, non-compatibility or other issues that may arise from this separation could materially harm our business.

      Our operations depend on our ability to maintain our computer and telecommunications equipment in effective working order and to reasonably protect our systems against interruption and potentially on such maintenance and protection by other registrars in the shared registration system. The root zone servers and top level domain zone servers that we operate are critical hardware to our operations. Interruptions could result from:

	•	fire, natural disaster, sabotage, power loss, telecommunications failure, human error or similar events,
	•	computer viruses, hackers or similar disruptive problems caused by employees, customers or other Internet users and
	•	systems strain caused by the growth of our customer base and our inability to sufficiently maintain or upgrade our systems.

We must attract, integrate, train and retain key personnel knowledgeable about our business

      We face intense competition for the limited supply of people qualified to work for us. Our future success depends on the continued service of key engineering, sales, marketing, executive and administrative personnel, and our ability to identify, attract, hire, integrate, train and retain such personnel. Competition for engineering, sales, marketing and executive personnel is intense, particularly in the technology and Internet sectors and in the regions where our facilities are located. We may be unable to retain existing personnel or attract, hire or retain additional qualified personnel. The loss of the services of any of our senior management team or other key employees or our failure to attract, integrate, train and retain additional key employees could harm our business.

We must effectively manage our marketing organization and establish and maintain distribution channels

      We will need to effectively manage our growing sales and marketing organization if we want to achieve future revenue growth. We may not be able to identify, attract and retain experienced sales and marketing personnel with relevant experience. Further, our sales and marketing organization may not be able to successfully compete against the significantly more extensive and well-funded sales and marketing operations of our current or potential competitors for registration or Internet technology services.

      Our ability to achieve future revenue growth will also depend on our ability to continue to establish direct sales channels and to develop multiple distribution channels. To do this we must maintain relationships with Internet access providers and other third parties.

We have a high level of uncollectible receivables

      Because of our high level of uncollectible receivables, we continually review our billing practices. Any modifications that we implement including prepayment or other reasonable assurance of payment for new registration orders could have unanticipated harmful consequences to our business. We have recently implemented a prepayment or reasonable assurance of payment terms billing practice as required by our agreements with ICANN. We believe we have experienced a high level of uncollectible receivables due to, among other factors, the large number of individuals and corporations that have registered multiple domain names with the apparent intention of transferring such names at a profit. Our experience has been that such speculative resellers have a greater tendency than other

17

Table of Contents

We are party to legal proceedings which could have a negative financial impact on us

      We are involved in a number of legal proceedings. We cannot reasonably estimate the potential impact of any of these proceedings. An adverse determination in any of these proceedings, however, could harm our business. Legal proceedings in which we are involved are expensive and divert the attention of our personnel. Please see “Item 3 — Legal Proceedings” on page 21 herein.

We may not be able to protect our intellectual property rights and proprietary information or we may be subject to claims of infringement of third party intellectual property rights

      We rely on a combination of nondisclosure and other contractual arrangements with the U.S. Government, our employees, and third parties, as well as copyright, privacy and trade secret laws, to protect and limit the distribution of our proprietary data, computer software, documentation, and processes used in conducting our domain name registration and other businesses. If we fail to adequately protect our intellectual property rights and proprietary information, or if we are subject to adverse results in litigation relating to our intellectual property rights and proprietary information, our business could be harmed. Any actions we take may not be adequate to protect our intellectual property rights and proprietary information. Other companies may develop competing technology that is similar or superior to our technology. Although we have no reason to believe that our domain name registration business activities infringe on the intellectual property rights of others, and we believe that we have all rights needed to conduct our business, it is possible that we could become subject to claims alleging infringement of third party intellectual property rights. Any of these claims could subject us to costly litigation, and any adverse final rulings on any of these claims could require us to pay damages, seek to develop alternative technology, and/or seek to acquire licenses to the intellectual property that is the subject of any alleged infringement, and any rulings not in our favor could harm our business.

      In addition, legal standards relating to the validity, enforceability, and scope of protection of intellectual property rights in Internet-related businesses are uncertain and still evolving. Because of the growth of the Internet and Internet related businesses, patent applications are continuously and simultaneously being filed in connection with Internet-related technology. There are a significant number of U. S. and foreign patents and patent applications in our areas of interest, and we believe that there has been, and is likely to continue to be, significant litigation in the industry regarding patent and other intellectual property rights.

Future acquisitions and investments could decrease operating income, cause operational problems or otherwise disrupt our business

      We evaluate potential acquisitions and investments on an ongoing basis for various reasons including, among others, diversification of our domain name registration services and Internet technology services businesses. Our acquisition and investment strategy poses many risks, including:

	•	we may not be able to compete successfully for available acquisition or investment candidates, complete future acquisitions and investments or accurately estimate the financial effect on our company of any businesses we acquire or investments we make,
	•	future acquisitions and investments may require us to spend significant cash amounts or may decrease our operating income,
	•	we may have trouble integrating the acquired business and retaining personnel,

18

Table of Contents

	•	acquisitions or investments may disrupt our business and distract our management from other responsibilities,

	•	to the extent that any of the companies which we acquire or in which we invest fail, our business could be harmed and
	•	we may not identify appropriate acquisition or investment targets.

We face increasing risks associated with our international business

      While substantially all of our operations, facilities, and personnel are located within the United States, our revenues from sources outside the United States have increased significantly and may continue to increase in the future. As a result, we are subject to the risks of conducting business internationally, including unexpected changes in regulatory requirements, competition from foreign companies, fluctuations in the U.S. dollar, tariffs and other barriers and restrictions and the burdens of complying with a variety of foreign laws. We do not know what the impact of such regulatory, geopolitical and other factors will be on our business in the future or if we will have to modify our business practices. In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the United States.

Our quarterly operating results may fluctuate; our future revenue and profitability are uncertain

      Our quarterly operating results may fluctuate significantly in the future due to a variety of factors, some of which are beyond our control. Factors that may affect our revenue include:

	•	variations in the number of requests for domain name registrations or demand for our services,
	•	successful competition by others,
	•	termination or completion of contracts in our Internet technology services business or failure to obtain additional contracts in that business and
	•	market acceptance of new service offerings.

In addition, we expect a significant increase in our operating expenses as we:

	•	increase our sales and marketing operations and activities and
	•	continue to update our systems and infrastructure.

      If the increase in our expenses is not followed by a corresponding increase in our revenue, our operating results will suffer. The fact that in the past our revenue has increased and we have been profitable on a quarterly and annual basis is not indicative of whether our revenue will increase or whether we will be profitable on a quarterly or annual basis in the future.

Investment Risks

Our stock price, like that of many Internet companies, is highly volatile

      The market price of our Common Stock has been and is likely to continue to be highly volatile and significantly affected by factors such as:

	•	general market and economic conditions and market conditions affecting technology and Internet stocks generally,
	•	actual or anticipated fluctuations in our quarterly or annual registrations or operating results,
	•	announcements of technological innovations, acquisitions or investments, developments in Internet governance or corporate actions such as stock splits, and
	•	industry conditions and trends.

      The stock market has experienced significant price and volume fluctuations that have particularly affected the market prices of the stocks of technology companies, especially Internet-related

19

Table of Contents

      The market price of our Common Stock also has been and is likely to continue to be significantly affected by expectations of analysts and investors. Reports and statements of analysts do not necessarily reflect our views. The fact that we have in the past met or exceeded analyst or investor expectations does not necessarily mean that we will do so in the future.

      In the past, securities class action lawsuits have often followed periods of volatility in the market price of a particular company’s securities. This type of litigation could result in substantial costs and a diversion of our management’s attention and resources.

Future issuances or sales of Common Stock could cause our stock price to decrease

      We may in the future issue shares of Common Stock in connection with acquisitions or other strategic investments. Also, SAIC Venture Capital Corporation, a wholly-owned subsidiary of SAIC, owns 16,300,000 shares of our Common Stock. A decision by us to issue shares of Common Stock or by SAIC Venture Capital Corporation or other stockholders to sell our Common Stock could depress the market price of the Common Stock.

SAIC may maintain significant influence over us

      SAIC Venture Capital Corporation, a wholly-owned subsidiary of SAIC, owns approximately 23% of our Common Stock and is our largest stockholder. Matters requiring approval by our stockholders, including the election of members of our Board of Directors, changes in the size and composition of the Board of Directors and a change in control, may need the approval of SAIC Venture Capital Corporation to be effected. SAIC Venture Capital Corporation has agreed to vote its shares in favor of the approval and adoption of the merger with VeriSign and against approval of any proposal made in opposition to or in competition with the consummation of the merger. We do not have an agreement with either SAIC or SAIC Venture Capital Corporation which restricts SAIC Venture Capital Corporation’s rights to distribute or sell its shares of our Common Stock.

Some of our directors may have conflicts of interest

      Some of our directors currently serve as directors, officers and employees of SAIC and other companies, including Stratton Sclavos, who serves as Chief Executive Officer of VeriSign, Inc. Therefore, there may be various conflicts of interest or conflicting duties for these individuals. Since our directors and officers may also own stock of those companies, there may be conflicts of interest when directors and officers are faced with decisions that could have different implications for us and those companies.

We rely on SAIC for corporate services and employee benefits

      We currently receive corporate services under an agreement with SAIC. If SAIC were to terminate these services, we might not be able to secure alternative sources for such services or such services might only be available to us at prices higher than those charged by SAIC.

20

Table of Contents

      Our employees are currently eligible to participate in some of SAIC’s employee benefit plans through the end of calendar year 2000. However, since SAIC now indirectly owns less than 50% of our Common Stock, we will have to establish certain employee benefit plans of our own which could result in incremental costs to us.

Our certificate of incorporation contains provisions relating to SAIC that may adversely affect us or our stockholders

      Our certificate of incorporation includes provisions relating to competition by SAIC with us, allocations of corporate opportunities, transactions with interested parties and intercompany agreements and provisions limiting the liability of certain people. It is unclear whether such provisions are enforceable under Delaware corporate law. Our certificate of incorporation provides that any person purchasing or acquiring an interest in shares of our capital stock shall be deemed to have consented to the provisions in the certificate of incorporation relating to competition with SAIC, conflicts of interest, corporate opportunities and intercompany agreements, and such consent may restrict such person’s ability to challenge transactions carried out in compliance with such provisions. The corporate charter of SAIC does not include similar provisions. Therefore, persons who are directors and/or officers of ours and who are also directors and/or officers of SAIC may choose to take action in reliance on such provisions rather than act in a manner that might be favorable to us but adverse to SAIC.

Item 2.  Properties.

      Our principal executive office is located in approximately 55,000 square feet of a facility in Herndon, Virginia, under a lease that expires in November 2002. We also lease additional facilities in Herndon, Virginia of 40,306 square feet expiring in July 2002 and 60,000 square feet expiring in March 2004. Additionally, our Internet Technology Services division has the following office locations: approximately 2,900 square feet in a facility in Charlotte, North Carolina, under a space usage arrangement with SAIC which expires in July 2002; approximately 3,700 square feet in a facility in Duluth, Georgia, under a month-to-month sublease; and approximately 5,000 square feet in a facility located in New York, New York which expires in December 2002. We believe that our current faciliti