ILLUMINET HOLDINGS INC, S-1, 2000-07-17

ILLUMINET HOLDINGS INC
S-1, 2000-07-17
TELEPHONE COMMUNICATIONS (NO RADIOTELEPHONE)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 17, 2000
REGISTRATION NO. -
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------

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

ILLUMINET HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

<TABLE>
<S> <C> <C>
DELAWARE 4813 36-4042177
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NO.)
</TABLE>

P.O. BOX 2909
4501 INTELCO LOOP, S.E.
LACEY, WASHINGTON 98503
(360) 493-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

ROGER H. MOORE
PRESIDENT AND CHIEF EXECUTIVE OFFICER
ILLUMINET HOLDINGS, INC.
P.O. BOX 2909
4501 INTELCO LOOP, S.E.
LACEY, WASHINGTON 98503
(360) 493-6000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE OF
AGENT FOR SERVICE)

COPIES TO:

<TABLE>
<S> <C>
JAMES M. ASH JAMES S. SCOTT, SR.
BLACKWELL SANDERS PEPER MARTIN LLP SHEARMAN & STERLING
TWO PERSHING SQUARE 599 LEXINGTON AVENUE
2300 MAIN STREET, SUITE 1000 NEW YORK, NEW YORK 10022
KANSAS CITY, MISSOURI 64108 (212) 848-4000
(816) 983-8000
</TABLE>

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

CALCULATION OF REGISTRATION FEE

<TABLE>
<S> <C> <C>
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(2) REGISTRATION FEE
------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $.01 per share(1)................... $209,717,937 $55,366
------------------------------------------------------------------------------------------------------------------------
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</TABLE>

(1) Includes rights to purchase Series B Preference Stock associated with the
Common Stock.

(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(o).

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2

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

PROSPECTUS (Subject to Completion)
Issued July 17, 2000

4,192,262 Shares

[LOGO]
COMMON STOCK
------------------------

ILLUMINET HOLDINGS, INC. IS OFFERING 400,000 SHARES OF ITS COMMON STOCK AND THE
SELLING STOCKHOLDERS ARE OFFERING 3,792,262 SHARES.
------------------------

OUR COMMON STOCK IS LISTED ON THE NASDAQ NATIONAL MARKET UNDER THE SYMBOL
"ILUM." ON JULY 13, 2000, THE REPORTED LAST SALE PRICE OF OUR COMMON STOCK ON
THE NASDAQ NATIONAL MARKET WAS $43.50 A SHARE.
------------------------

INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
------------------------

PRICE $ A SHARE
------------------------

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

Illuminet has granted the underwriters the right to purchase up to an additional
628,839 shares of common stock to cover over-allotments.

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

Morgan Stanley & Co. Incorporated expects to deliver the shares to purchasers on
, 2000.
------------------------

MORGAN STANLEY DEAN WITTER
BEAR, STEARNS & CO. INC.
DONALDSON, LUFKIN & JENRETTE
ROBERTSON STEPHENS

, 2000
<PAGE> 3

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.............................. 4
Risk Factors......................... 11
Use of Proceeds...................... 18
Price Range of Common Stock and
Dividend Policy.................... 18
Capitalization....................... 19
Dilution............................. 20
Selected Supplemental Consolidated
Financial and Other Data........... 21
Selected Historical Consolidated
Financial and Other Data........... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 25
</TABLE>

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business............................. 34
Management........................... 48
Principal and Selling Stockholders... 56
Description of Capital Stock......... 58
United States Federal Tax
Consequences to Non-U.S.
Holders of Common Stock............ 61
Underwriters......................... 64
Legal Matters........................ 65
Experts.............................. 66
Index to Consolidated Financial
Statements......................... F-1
</TABLE>

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

In this prospectus, "we," "us" or "Illuminet" refers to Illuminet Holdings,
Inc., together with its predecessors and subsidiaries, including National
Telemanagement Corporation, unless the context requires otherwise.

Illuminet is our registered service mark and SmartPay is our registered
trademark. All other brand names and trademarks in this prospectus are the
property of their respective owners.

Our principal executive offices are located at 4501 Intelco Loop, S.E.,
Lacey, Washington 98503 and our telephone number is (360) 493-6000. Our website
address is http://www.illuminet.com. The information on our website is not a
part of this prospectus.
<PAGE> 4

FORWARD-LOOKING STATEMENTS

We have made forward-looking statements in this document, including in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," based on our management's beliefs and assumptions
and on information currently available to our management. Forward-looking
statements include information concerning our possible or expected future
results of operations, business strategies, financing plans, competitive
position, potential growth opportunities and the effects of competition.
Forward-looking statements include all statements that are not historical facts
and usually can be identified by the use of forward-looking terms such as the
words "believes," "expects," "anticipates," "intends," "plans," "estimates" or
similar expressions.

Forward-looking statements involve risks, uncertainties and assumptions.
Actual results may differ materially from those expressed in these
forward-looking statements. You should not put undue reliance on any
forward-looking statements. We do not have any intention or obligation to update
forward-looking statements after we distribute this prospectus.

You should understand that many important factors could cause our results
to differ materially from those expressed in forward-looking statements. This
prospectus identifies the material factors, including those identified in the
section, "Risk Factors," that we believe could cause our actual results to
differ, including our competitive environment, economic and other conditions in
the markets in which we operate, changes in or developments under laws,
regulations, licensing requirements or telecommunications standards and cyclical
and seasonal fluctuations in our operating results. However, the results
referred to in these forward-looking statements could also be adversely affected
by other factors that are not discussed in this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any of these materials at the
SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549.
You may obtain information on the operation of the Public Reference Room by
calling the SEC at 1-800-SEC-0330. We file information electronically with the
SEC. The SEC maintains an Internet site that contains reports, proxy and
information statements and other information regarding issuers that file
electronically with the SEC. The address of the SEC's Internet site is
http://www.sec.gov. The information available on the Internet is not a part of
this prospectus.

This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the exhibits which are on file with the SEC for a more complete
understanding of the document or subject matter involved.

3
<PAGE> 5

SUMMARY

This summary highlights some of the information in this prospectus and
summarizes the material terms of this offering. It is not complete and may not
contain all of the information that you should consider before deciding to
purchase our common stock. You should read the entire prospectus carefully,
including the "Risk Factors" and the financial statements and the notes to those
statements. Unless otherwise noted, this prospectus (1) reflects the retroactive
restatement of our accounts to reflect our transaction with National
Telemanagement Corporation ("NTC"), which was accounted for as a pooling of
interests, and (2) assumes the underwriters do not exercise their over-allotment
option.

ILLUMINET

OUR COMPANY

We operate the largest unaffiliated Signaling System 7 ("SS7") network in
the United States and are a leading provider of complementary intelligent
network and SS7 services to telecommunications carriers. Connection to our
network gives carriers access to the system of signaling networks of nearly the
entire U.S. public-switched telecommunications infrastructure through a single
source. Our SS7 network also provides us with an established platform from which
we can provide other value-added services.

SS7 is the industry standard used by almost every switched telephone
network operator in the United States and Canada to identify available network
routes and designate the circuits to be used for each individual telephone call.
SS7 networks also provide access to intelligent network services, such as caller
identification, calling card validation and other specialized database access
functions, all of which are performed in the seconds it takes to complete a
call. SS7 networks are specialized packet-switched data networks that provide
these control functions and services in parallel with separate voice networks.

We have been a provider of telecommunications database services since 1981
and of critical SS7 network services since 1990. In 1999, we generated revenues
of $116.7 million, operating income of $21.8 million and net income of $13.6
million.

NETWORKS & SERVICES

Through our networks, we provide:

- SS7 connectivity, switching and transport;

- intelligent network services, including local number portability and
support for roaming between wireless carriers and various specialized
database services; and

- prepaid wireless account management and access to wireless roaming for
unregistered wireless users.

We also provide:

- clearinghouse services to facilitate payment among telecommunications
carriers; and

- network usage software applications.

Our SS7 network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and the largest U.S. telecommunications carriers
through leased lines. Our SS7 network serves over 700 network services
customers, including incumbent local exchange carriers, competitive local
exchange carriers, long distance companies, wireless telecommunications
providers and Internet service providers.
4
<PAGE> 6

OUR COMPETITIVE STRENGTHS

Our competitive strengths include:

- SINGLE SOURCE ACCESS TO SS7 NETWORK AND INTELLIGENT NETWORK SERVICES. We
provide our customers connectivity to the signaling networks of nearly
the entire U.S. public-switched telecommunications infrastructure and an
array of network-enabled services through a single source. We believe
most of our customers choose not to build in-house SS7 networks due to
the significant capital and technical expertise required to install and
manage necessary SS7 connections with the largest U.S. telecommunications
carriers.

- ESTABLISHED CUSTOMER RELATIONSHIPS BASED ON INDEPENDENCE AND
NEUTRALITY. As the largest non-carrier affiliated SS7 network provider,
we have fostered business relationships with AT&T, MCI WorldCom, Sprint,
all of the regional Bell operating companies, many major competitive
local exchange carriers and a significant number of wireless operators,
independent telephone companies and interexchange carriers. We believe
that our independence and neutrality significantly enhance our
attractiveness as a provider of outsourced SS7 services. In addition, our
established relationships provide us with the opportunity to sell
additional services to a broad base of customers.

- PROVEN BUSINESS MODEL WITH STABLE AND RECURRING REVENUE STREAMS. Our
networks provide us with a profitable base of recurring service revenue.
We believe this recurring revenue stream gives us greater clarity as to
our projected financial performance and future capital needs and
significantly enhances our planning processes. We also believe that the
costs incurred by a carrier in moving to a competitor's SS7 network are
relatively high, further strengthening the stability of our revenue base.

- ABILITY TO LEVERAGE OUR EXISTING SS7 NETWORK PLATFORM TO OFFER NEW AND
INNOVATIVE SERVICES. Our SS7 network design is advanced and flexible,
which enables us to rapidly add services to our existing offerings with
limited service disruptions or additional costs. We have added and expect
to continue to add new services which we believe will complement the
services we currently provide to existing customers, and therefore
increase revenues per customer, as well as help us add new customers.

- ABILITY TO LEVERAGE OUR PLANNED OSS MEDIATION PLATFORM TO PROVIDE
ADDITIONAL SERVICES. We believe our planned OSS mediation platform, which
will use our SS7 network and established interfaces with multiple
carriers to facilitate communication among their back office or
operational support systems ("OSS"), will enable us to provide additional
services to existing customers and to attract new customers. Because of
the complexity of establishing intercarrier interfaces, we believe there
is a growing need for outsourced OSS mediation and that we are well
equipped to provide these services.

OUR GROWTH STRATEGY

Our growth strategy consists of the following key elements:

- BROADEN OUR CUSTOMER BASE BY TARGETING EMERGING CARRIERS. We intend to
continue to aggressively grow our customer base by targeting new
telecommunications carriers as they enter the market. These carriers
include competitive local exchange carriers, integrated communications
providers, wireless carriers and Internet service providers.
5
<PAGE> 7

- PROVIDE NEW SERVICES TO HELP DIFFERENTIATE OUR CUSTOMERS FROM THEIR
COMPETITORS. We intend to continue to deliver new and enhanced services
and applications that will enable our customers to broaden their service
offerings and thus improve their market position.

- GENERATE ADDITIONAL REVENUE THROUGH OUR SS7 NETWORK USAGE MEASUREMENT
CAPABILITIES. We believe that the traffic and usage data we capture from
our network SS7 can be used to enhance the billing and network management
capabilities of our customers. We are developing services that will
enable our customers to use this information to more efficiently operate
their networks and develop targeted marketing plans.

- DEVELOP AND MARKET OSS MEDIATION SERVICES. We are developing an OSS
mediation service to meet the growing demand for interface between
carriers to execute complex transactions. We intend to initially focus on
existing customers before expanding to new customers. We believe that our
mediation service will be more attractive to carriers than the
alternative of developing their own interfaces with other carriers.

OUR INDUSTRY

Key industry trends that are expanding our business opportunities include:

- DEREGULATION. Deregulation has opened telecommunications markets to many
new service providers, many of which use our SS7 services. In addition,
deregulation has opened specific service opportunities to competition,
such as the provision of toll-free number database services, line
information database services and local number portability.

- GROWING NEED FOR VALUE ADDED SERVICES. Increased competition in the
telecommunications industry is forcing carriers to differentiate
themselves by providing advanced, value-added services, such as personal
toll-free numbers, caller identification and real time billing
validation. Providing many of these services requires SS7 connectivity
and simultaneous database access through an SS7 network. Most U.S.
independent local exchange carriers and a significant number of
competitive local exchange carriers use us to provide these types of
services.

- GROWING NEED FOR INTER-CARRIER MEDIATION SERVICES. Competitive local
exchange carriers must establish interfaces with several other carriers
to provide services to their customers. Establishing an interface with
another carrier can be difficult and time consuming. We believe that
because these interfaces are not standardized a significant burden is put
on competitive local exchange carriers to establish these interfaces. As
a result, we believe that there is a growing need for mediation services
to assist in the establishment of these interfaces.
6
<PAGE> 8

RECENT DEVELOPMENTS

On June 30, 2000, we acquired NTC through a merger of NTC with one of our
subsidiaries. NTC is a developer and provider of advanced applications for the
wireless communications industry, including prepaid wireless account management
and services for wireless users that do not have service contracts, who we refer
to as "unregistered users." We offer unregistered users the ability to roam on
wireless carriers' networks, a service we refer to as "unregistered wireless
roaming service." NTC's account management and services enable wireless network
providers to offer a wide variety of features intended to control costs and
manage usage, including roaming management, multiple rate plans, call blocking,
account history and calling pattern monitoring. NTC's services also allow
wireless providers to instantly calculate a customer's account balance, while
providing for automatic debiting and replenishment of customer accounts.

For the year ended December 31, 1999, NTC reported net revenues of $16.1
million and net income of $630,000. Between December 31, 1998 and December 31,
1999, NTC's net revenues increased 56%, and for the quarters ended March 31,
1999 and March 31, 2000, its net revenues increased 52%. In connection with the
merger, we issued 1,888,944 shares of common stock and options to purchase up to
80,297 shares of common stock to NTC stockholders and employees. The transaction
has been accounted for as a pooling of interests, and accordingly, our accounts
have been retroactively restated to reflect the merger.
7
<PAGE> 9

THE OFFERING

Common stock offered by:

Illuminet................... 400,000 shares

Selling stockholders........ 3,792,262 shares

Total.................. 4,192,262 shares

Common stock to be outstanding
after this offering(1)........... 32,150,480 shares

Over-allotment option............ 628,839 shares

Use of proceeds.................. We intend to use the net proceeds we
receive:
- to fund potential acquisitions;
- to develop new and improved services;
- to maintain and expand our network; and
- for general corporate purposes.

We cannot specify with certainty all of the
particular uses for the net proceeds. We
will not receive any proceeds from the sale
of shares of common stock by the selling
stockholders. See "Use of Proceeds."

Dividend policy.................. We have never declared or paid any
dividends on our common stock. We do not
anticipate paying any cash dividends in the
foreseeable future. Any future
determination to pay cash dividends will be
at the discretion of our board of
directors.

Nasdaq National Market Symbol.... ILUM
------------------------
(1) Includes shares issued in our transaction with NTC, as shown under
"Capitalization." The number of shares of our common stock that will be
outstanding after the offering does not take into account 3,298,904 shares
of our common stock issuable upon exercise of outstanding options, which
have a weighted average exercise price of $4.25 a share, as of March 31,
2000.
8
<PAGE> 10

SUMMARY SUPPLEMENTAL CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the following summary supplemental consolidated financial data
for the years ended December 31, 1997, 1998 and 1999 from our consolidated
supplemental financial statements, which have been audited by Ernst & Young LLP,
independent auditors. We derived the summary supplemental consolidated financial
data as of and for the three months ended March 31, 1999 and 2000 from our
unaudited supplemental consolidated financial statements, which, in our opinion,
reflect all adjustments (consisting of only normal and recurring accruals)
necessary to present fairly our financial position and results of operations for
those periods. Other financial data and other data are unaudited.

Interim results do not necessarily indicate the results that you may expect
for any other interim period or for the full year. You should read this summary
information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our supplemental consolidated
financial statements and the notes to those financial statements that are
included in the back of this prospectus.

You should read the following information with the data in the table on the
next page:

- Our summary supplemental consolidated financial and other data provided
below is derived from the supplemental consolidated financial statements
included in this prospectus, which reflects our transaction with NTC,
which was accounted for as a pooling of interests. Our supplemental
financial statements will become our historical financial statements
after the financial statements covering the date of our transaction with
NTC are issued.

- The 1997 income tax benefit reflects the benefits of net operating loss
carryforwards of $2.4 million. In addition, the 1997 income tax benefit
includes a benefit of $0.9 million attributable to the reversal of
substantially all of the remaining previously recorded deferred tax
valuation allowance due to improved operating results.

- Earnings per share-basic is based on net income available to common
stockholders divided by the weighted average number of common shares
outstanding. Earnings per share-diluted includes the dilutive effect of
outstanding convertible securities, warrants, debentures and common stock
options.

- Long-term obligations, less current portion includes: (1) obligations
under capital leases, less current portion, and (2) long-term debt, less
current portion.

- Capital expenditures includes purchases and capital leases of property
and equipment.

- Customers is the number of entities that received a bill from us during
the relevant period, including, in some cases, subsidiaries of
consolidated groups and individual locations of a single company.

- Signaling points represents the number of connections to our SS7 network.
These points may be either individual switches or connections to other
companies' signaling transfer points with networks attached to them.

- The pro forma supplemental balance sheet data as of March 31, 2000
reflects the impact of the conversion of convertible redeemable preferred
stock into common stock in connection with our transaction with NTC.

- The pro forma as adjusted supplemental balance sheet data as of March 31,
2000 reflects the receipt of our estimated net proceeds from this
offering.
9
<PAGE> 11

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF INCOME DATA:
Revenues:
Network services.............. $ 52,829 $ 70,577 $ 109,317 $ 23,315 $ 32,944
Clearinghouse services........ 6,723 6,232 5,851 1,539 1,315
Network usage software
applications............... 3,468 5,406 1,532 231 270
----------- ----------- ----------- ----------- -----------
Total revenues............. 63,020 82,215 116,700 25,085 34,529
Expenses:
Carrier costs................. 17,893 25,506 28,004 6,945 6,512
Operating..................... 18,857 23,288 36,623 7,539 9,164
Selling, general and
administrative............. 10,382 12,882 16,656 3,702 4,888
Depreciation and
amortization............... 7,622 10,131 13,610 2,751 3,643
----------- ----------- ----------- ----------- -----------
Total expenses............. 54,754 71,807 94,893 20,937 24,207
----------- ----------- ----------- ----------- -----------
Operating income................ 8,266 10,408 21,807 4,148 10,322
Interest and other income,
net........................... 501 767 2,020 278 1,800
Interest expense................ (1,770) (1,966) (2,060) (484) (371)
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 6,997 9,209 21,767 3,942 11,751
Income tax provision
(benefit)..................... (676) 3,826 8,132 1,492 4,468
----------- ----------- ----------- ----------- -----------
Net income...................... $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283
=========== =========== =========== =========== ===========
SUPPLEMENTAL PER SHARE DATA:
Earnings per share -- basic..... $ .33 $ .22 $ .52 $ .10 $ .23
Earnings per share -- diluted... $ .30 $ .19 $ .45 $ .08 $ .21
Weighted average common
shares -- basic............... 23,073,310 23,027,833 24,630,095 22,716,671 31,114,235
Weighted average common
shares -- diluted............. 27,477,934 27,798,781 29,246,941 27,841,831 33,512,649
SUPPLEMENTAL OTHER FINANCIAL
DATA:
Capital expenditures............ $ 12,639 $ 19,678 $ 17,346 $ 2,626 $ 2,780
SUPPLEMENTAL OTHER DATA:
Customers....................... 417 544 735 584 766
Signaling points................ 533 686 765 706 770
</TABLE>

<TABLE>
<CAPTION>
AS OF MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
<S> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED BALANCE SHEET DATA:
Cash, cash equivalents, and securities available for sale... $107,870 $107,870 $123,900
Property and equipment, net................................. 50,381 50,381 50,381
Total assets................................................ 200,638 200,638 216,668
Long-term obligations, less current portion................. 14,163 14,163 14,163
Convertible Redeemable Preferred Stock...................... 4,273 -- --
Stockholders' equity........................................ $142,883 $147,156 $163,186
</TABLE>

10
<PAGE> 12

RISK FACTORS

You should carefully consider the risks described below before making an
investment in our common stock. The risks described below are not the only ones
facing our company. Additional risks and uncertainties not presently known to us
or that we currently believe to be immaterial may also impair our business
operations. If any of the following risks occurs, our business, financial
condition or operating results could be materially adversely affected. In such
case, the trading price of our common stock could decline and you may lose all
or part of your investment.

SYSTEM FAILURES, DELAYS AND OTHER PROBLEMS COULD HARM OUR REPUTATION AND
BUSINESS, CAUSE US TO LOSE CUSTOMERS AND EXPOSE US TO CUSTOMER LIABILITY.

Our success depends on our ability to provide reliable services. Our
operations could be interrupted by any damage to or failure of:

- our network;

- our connections to third parties; and

- our computer hardware or software or our customers' or suppliers'
computer hardware or software.

Our systems and operations are also vulnerable to damage or interruption
from:

- power loss, transmission cable cuts and other telecommunications
failures;

- fires, earthquakes, floods and other natural disasters;

- computer viruses or software defects;

- physical or electronic break-ins, sabotage, intentional acts of vandalism
and similar events; and

- errors by our employees or third-party service providers.

Any such damage or failure or the occurrence of any of these events could
disrupt the operation of our network and the provision of our services and
result in the loss of current and potential customers.

From time to time, we experience outages of our services. For example, on
two occasions, once in 1997 and once in 1998, flaws in third-party software
caused network outages that disrupted the ability of our customers to connect
through our network to other parts of the U.S. telecommunications system. As a
result of these outages, some of our customers reduced their usage of our
network. More recently, in June of this year, several of our customers in the
Northeast region of the United States experienced a similar disruption when a
road maintenance crew cut a carrier's fiber cable bundle that contained multiple
links servicing our two pairs of signal transfer points to our SS7 network in
that region. Because several of these links were routed by the carrier through
the severed cable bundle, the redundant design of our network did not prevent a
service interruption. Our emergency response procedures were immediately
activated. To date, no customers have indicated that this outage will affect
their continued relationship with us, although they may do so in the future. At
other times we have experienced minor, customer specific outages which have not
had a material adverse impact on our customer relations.

Our contracts with customers generally contain provisions designed to limit
our exposure to potential product liability claims. These provisions include
disclaimers of warranties and limitations on liability for special,
consequential and incidental damages. In addition, our agreements generally
limit the amounts recoverable for damages to the amounts paid by the customer to
us for the product or service giving rise to the damages. However, a court or
arbitrator may not enforce these contractual limitations on liability, and we
may be subject to claims based on errors in our software or mistakes in
performing our services. Any of those claims, including any relating to damages
to our customers' internal systems, whether or not successful, could harm our
business by increasing our costs and distracting our management.

11
<PAGE> 13

OUR RELIANCE ON THIRD PARTY COMMUNICATIONS INFRASTRUCTURE, HARDWARE AND
SOFTWARE EXPOSES US TO A VARIETY OF RISKS WE CANNOT CONTROL.

Our success will depend on our network infrastructure, including the
capacity leased from telecommunications suppliers. We rely on AT&T, MCI
WorldCom, Sprint and other telecommunications providers for leased long-haul and
local loop transmission capacity. These companies provide the dedicated links
that connect our network components to each other and to our customers.

Our business also depends upon the capacity, reliability and security of
the infrastructure owned by third parties that is used to connect telephone
calls. Specifically, we currently lease capacity from regional partners on seven
of the 11 mated pairs of SS7 signal transfer points that comprise our network.
We have no control over the operation, quality or maintenance of a significant
portion of that infrastructure and whether or not those third parties will
upgrade or improve their equipment.

We depend on these companies to maintain the operational integrity of our
connections. If one or more of these companies is unable or unwilling to supply
or expand its levels of service to us in the future, our operations could be
severely interrupted. In addition, rapid changes in the telecommunications
industry have led to the merging of many companies. These mergers may cause the
availability, pricing and quality of the services we use to vary and could cause
the length of time it takes to deliver the services that we use to increase
significantly.

We rely on links, equipment and software provided to us from our vendors,
the most important of which are gateway equipment and software from Tekelec and
Agilent Technologies, Inc. (f/k/a Hewlett-Packard). We cannot assure you that we
will be able to continue to purchase equipment from these vendors on acceptable
terms, if at all. If we are unable to maintain current purchasing terms or
ensure product availability with these vendors, we may lose customers and
experience an increase in costs in seeking alternative suppliers of products and
services.

THE COSTS AND DIFFICULTIES OF ACQUIRING AND INTEGRATING COMPLEMENTARY
BUSINESSES AND TECHNOLOGIES COULD IMPEDE OUR FUTURE GROWTH AND ADVERSELY
AFFECT OUR COMPETITIVENESS.

We may make investments in complementary companies, technologies or other
assets, exposing us to several risks, including:

- greater than expected costs and management time and effort involved in
identifying, completing and integrating acquisitions;

- potential disruption of our ongoing business and difficulty in
maintaining our standards, controls, information systems and procedures;

- entering into markets and acquiring technologies in areas in which we
have little experience;

- acquiring intellectual property which may be subject to various
challenges from others in the telecommunications industry;

- the inability to successfully integrate the services, products and
personnel of any acquisition into our operations;

- a need to incur debt, which may reduce our cash available for operations
and other uses, or issue equity securities, which may dilute the
ownership interests of existing stockholders; and

- realizing little, if any, return on our investment.

12
<PAGE> 14

OUR BUSINESS DEPENDS ON THE ACCEPTANCE OF OUR SS7 NETWORK AND THE
TELECOMMUNICATIONS MARKET'S CONTINUING USE OF SS7 TECHNOLOGY.

Our future growth depends on the commercial success and reliability of our
SS7 network. Our SS7 network is a vital component of our intelligent network
services, which have been an increasing source of revenue for us. Our business
will suffer if our target customers do not use our SS7 network. Our future
financial performance will also depend on the successful development,
introduction and customer acceptance of new and enhanced SS7-based or delivered
products and services. We are not certain that our target customers will choose
our particular SS7 network solution or continue to use our SS7 network. In the
future, we may not be successful in marketing our SS7 network or any new or
enhanced products or services.

WE MAY HAVE DIFFICULTY ATTRACTING AND RETAINING EMPLOYEES WITH THE
REQUISITE SKILLS TO EXECUTE OUR GROWTH PLANS.

Our success depends, in part, on the continued service of our existing
management and technical personnel. If a significant number of those individuals
are unable or unwilling to continue in their present positions, we will have
difficulty in maintaining and enhancing our networks and services. This may
adversely affect our operating results and growth prospects.

In addition, we have experienced, and we expect to continue to experience,
difficulty in hiring and retaining highly skilled employees. Specifically, we
centralize a large portion of our technical operations in geographic areas in
which competition for technical talent is intense, due to the existence of
competing employers seeking employees with similar sets of skills. Our continued
success depends on our ability to attract, retain and motivate highly skilled
employees, particularly engineering and technical personnel. Failure to do so
may adversely affect our ability to expand our network and enhance our products
and services.

IF WE DO NOT ADAPT TO RAPID TECHNOLOGICAL CHANGE IN THE TELECOMMUNICATIONS
INDUSTRY, WE COULD LOSE CUSTOMERS OR MARKET SHARE.

Our industry is characterized by rapid technological change and frequent
new product and service announcements. Significant technological changes could
make our technology obsolete. We must adapt to our rapidly changing market by
continually improving the responsiveness, reliability and features of our
network and by developing new network features, services and applications to
meet changing customer needs. We cannot assure you that we will be able to adapt
to these challenges or respond successfully or in a cost-effective way to
adequately meet them. Our failure to do so would adversely affect our ability to
compete and retain customers or market share.

We sell our products and services primarily to traditional
telecommunications companies. Many emerging companies are providing convergent
Internet protocol-based telecommunications services. Our future revenues and
profits will depend, in part, on our ability to provide products and services to
these Internet protocol-based telephony providers.

THE MARKET FOR SS7 NETWORK SERVICES AND RELATED PRODUCTS IS INTENSELY
COMPETITIVE AND MANY OF OUR COMPETITORS HAVE SIGNIFICANT ADVANTAGES THAT
COULD ADVERSELY AFFECT OUR BUSINESS.

We compete in markets that are intensely competitive and rapidly changing.
Increased competition could result in fewer customer orders, reduced gross
margins and loss of market share, any of which could harm our business. We face
competition from large, well-funded regional providers of SS7 network services
and related products, such as regional Bell operating companies, GTE and
Southern New England Telephone, a unit of SBC Communications. Our prepaid
wireless account management and unregistered user services face competition from
Boston Communications Group, Priority Call, Subscriber Computing and Brite
Voice. We are aware of major Internet service providers, software

13
<PAGE> 15

developers and smaller entrepreneurial companies that are focusing significant
resources on developing and marketing products and services that will compete
with us. We anticipate continued growth of competition in the telecommunications
industry and the entrance of new competitors into our business. We expect that
competition will increase in the near term and that our primary long-term
competitors may not yet have entered the market. Many of our current and
potential competitors have significantly more employees and greater financial,
technical, marketing and other resources than we do. Our competitors may be able
to respond more quickly to new or emerging technologies and changes in customer
requirements than we can. Also, many of our current and potential competitors
have greater name recognition and more extensive customer bases that they can
use to their advantage.

OUR ACQUISITION OF NTC, OUR ONLY ACQUISITION TO DATE, MAY NOT RESULT IN THE
BENEFITS WE EXPECT AND MAY ADVERSELY AFFECT OUR BUSINESS IF WE DO NOT
SUCCESSFULLY INTEGRATE NTC.

On June 30, 2000, we acquired NTC which is our only acquisition to date. We
cannot guarantee that we will realize the benefits, strategic objectives,
operating advantages, new product and service enhancements or cost savings that
we expect. The integration of two businesses requires substantial management
time and other resources, and the combined entity is not always more successful
than the businesses would have been if they had remained independent. For
example, we could find it difficult to combine the management teams and
operations of the two businesses. In addition, the efforts we expend to
integrate the two businesses may detract from the day-to-day operation of our
core business which could have an adverse impact on our financial condition.

OUR FAILURE TO ACHIEVE OR SUSTAIN MARKET ACCEPTANCE AT DESIRED PRICING
LEVELS COULD IMPACT OUR ABILITY TO MAINTAIN PROFITABILITY OR POSITIVE CASH
FLOW.

Competition and industry consolidation could result in significant pricing
pressure. This pricing pressure could cause large reductions in the selling
price of our services. For example, our competitors may provide customers with
reduced communications costs for Internet access or private network services,
reducing the overall cost of solutions and significantly increasing pricing
pressures on us. We may not be able to offset the effects of any price
reductions by increasing the number of our customers, generating higher revenues
from enhanced services or reducing our costs. We believe that the business of
providing network connectivity and related network services will likely see
increased consolidation in the future. Consolidation could decrease selling
prices and increase competition in these industries, which could erode our
market share, revenues and operating margins.

THE INABILITY OF OUR CUSTOMERS TO SUCCESSFULLY IMPLEMENT OUR SERVICES WITH
THEIR EXISTING SYSTEMS COULD ADVERSELY AFFECT OUR BUSINESS.

Significant technical challenges exist in our business because many of our
customers:

- purchase and implement SS7 network services in phases;

- deploy SS7 connectivity across a variety of telecommunication switches
and routes; and

- integrate our SS7 network with a number of legacy systems, third-party
software applications and engineering tools.

Customer implementation currently requires participation by our order
management and our engineering and operations groups, each of which has limited
resources. Some customers may also require us to develop costly customized
features or capabilities, which increase our costs and consume a
disproportionate share of our limited customer service and support resources.
Also, we typically charge a one-time flat rate fee for initially connecting a
customer to our SS7 network and a monthly recurring flat rate fee after the
connection is established. If new or existing customers have difficulty
deploying our products or require significant amounts of our engineering service
support, we may experience reduced

14
<PAGE> 16

operating margins. Our customers' ability to deploy our network services to
their own customers and integrate them successfully within their systems depends
on our customers' capabilities and the complexity involved. Difficulty in
deploying those services could reduce our operating margins due to increased
customer support and could cause potential delays in recognizing revenue until
the services are implemented.

CAPACITY LIMITS ON OUR TECHNOLOGY AND NETWORK HARDWARE AND SOFTWARE MAY BE
DIFFICULT TO PROJECT AND WE MAY NOT BE ABLE TO EXPAND AND UPGRADE OUR
SYSTEMS TO MEET INCREASED USE.

As traffic from our customers through our network increases, we will need
to expand and upgrade our technology and network hardware and software. We may
not be able to accurately project the rate of increase in usage on our network.
In addition, we may not be able to expand and upgrade, in a timely manner, our
systems and network hardware and software capabilities to accommodate increased
traffic on our network. If we do not appropriately expand and upgrade our
systems and network hardware and software, we may lose customers and revenues.

WE MAY NEED ADDITIONAL CAPITAL IN THE FUTURE AND IT MAY NOT BE AVAILABLE ON
ACCEPTABLE TERMS.

We may require more capital in the future to:

- fund our operations;

- finance investments in equipment and corporate infrastructure needed to
maintain and expand our network;

- enhance and expand the range of services we offer; and

- respond to competitive pressures and potential strategic opportunities,
such as investments, acquisitions and international expansion.

We cannot assure you that additional financing will be available on terms
favorable to us, or at all. The terms of available financing may place limits on
our financial and operating flexibility. If adequate funds are not available on
acceptable terms, we may be forced to reduce our operations or abandon expansion
opportunities. Moreover, even if we are able to continue our operations, the
failure to obtain additional financing could reduce our competitiveness as our
competitors may provide better maintained networks or offer an expanded range of
services. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."

REGULATIONS AFFECTING OUR CUSTOMERS AND FUTURE REGULATIONS TO WHICH WE MAY
BE SUBJECT MAY ADVERSELY AFFECT OUR BUSINESS.

Although we are not subject to telecommunications industry regulations, the
business of our customers is subject to regulation that indirectly affects our
business. The U.S. telecommunications industry has been subject to continuing
deregulation since 1984, when AT&T was required to divest ownership of the Bell
telephone system. We cannot predict when, or upon what terms and conditions,
further regulation or deregulation might occur or the effect of regulation or
deregulation on our business. Several services that we offer may be indirectly
affected by regulations imposed upon potential users of those services, which
may increase our costs of operations. In addition, future services we may
provide could be subject to direct regulation. See "Business -- Regulation."

FLUCTUATIONS IN OUR QUARTERLY OPERATING RESULTS MAY NEGATIVELY IMPACT AND
CAUSE VOLATILITY IN OUR STOCK PRICE.

Our revenues and operating results may vary significantly from quarter to
quarter due to a number of factors. In future quarters, our operating results
may be below the expectations of analysts and investors

15
<PAGE> 17

and, as a result, the price of our common stock may fall or become volatile.
Factors that could cause quarterly fluctuations include:

- seasonal fluctuations in consumer use of telecommunications services;

- varying rates at which telecommunications companies, telephony resellers
and Internet service providers use our services;

- loss of customers through industry consolidation, or customer decisions
to deploy in-house technology;

- the timing and execution of individual contracts, particularly large
contracts;

- significant lead times before a product or service begins generating
revenues;

- volatile economic conditions specific to the telecommunications industry;
and

- an inability to collect our accounts receivable.

WE USE A STRATEGIC RELATIONSHIP TO IMPLEMENT AND SELL OUR NETWORK USAGE
SOFTWARE APPLICATIONS. WE COULD LOSE REVENUES OR INCUR SIGNIFICANT COSTS TO
RETAIN REVENUES IF THIS RELATIONSHIP IS TERMINATED.

We have a non-exclusive agreement with Agilent to sell our network usage
software applications. The agreement may be terminated with limited notice by
either party without cause or penalty. In the past, we have received significant
revenues under this agreement. There is no guarantee that Agilent will continue
to market our network usage software applications. If this relationship is
terminated or materially changes, we would be required to devote substantial new
resources to the distribution, sales and marketing, implementation and support
of our network usage software applications and our efforts may not be as
effective as those of Agilent.

THERE IS A LIMITED MARKET FOR OUR EXISTING NETWORK USAGE SOFTWARE
APPLICATIONS.

We derive only a small portion of our revenues from sales and maintenance
of our network usage software applications. Current users of these software
products include most of the regional Bell operating companies, as well as other
large telecommunications carriers. With initial market sales essentially
completed, our ability to derive additional revenue from our network usage
software applications is limited, unless we can develop new derivative products.

WE PAY COMMISSIONS TO WIRELESS CARRIERS FOR EACH AMERICAN ROAMING NETWORK
SERVICE CALL THAT USES CARRIERS' NETWORKS REGARDLESS OF WHETHER WE ARE ABLE
TO COLLECT REVENUE FOR THAT CALL.

Our American Roaming Network service uses the networks of wireless carriers
to complete calls for unregistered users, and we pay those carriers a fee for
calls completed over their networks. We generally bill unregistered users for
these calls through their local exchange carrier, and the local exchange carrier
in turn remits the amounts collected for these calls to us. If the local
exchange carriers do not collect these amounts from a customer, we do not
receive revenue for calls made by that customer but are nonetheless obligated to
pay a fee to the wireless carrier for that customer's calls. Local exchange
carriers have generally failed to collect fees on about 10% of the calls billed
through local exchange carriers.

16
<PAGE> 18

OUR CERTIFICATE OF INCORPORATION, BYLAWS, STOCKHOLDER RIGHTS PLAN AND
DELAWARE LAW CONTAIN PROVISIONS THAT COULD DISCOURAGE A TAKEOVER.

Provisions of our certificate of incorporation and bylaws and Delaware law
may discourage, delay or prevent a merger or acquisition that a stockholder may
consider favorable. See "Description of Capital Stock." These provisions of our
certificate of incorporation and bylaws:

- establish a classified board of directors, of which only a portion of the
total number of directors will be elected at each annual meeting;

- authorize the board to issue preferred stock with substantial voting
rights; and

- prohibit cumulative voting in the election of directors.

In addition, we have a stockholder rights plan that could significantly
discourage, delay or prevent a merger or acquisition. The rights become
exercisable if a person or group acquires or makes a tender offer for more than
20% of our outstanding common stock. If any of those events occurs, each right
entitles the holder (other than the acquiror) to purchase for $150 our common
stock or, in some instances, stock of the acquiring entity, that would be worth
$300. The rights expire on November 20, 2008, unless we redeem them earlier.

We have also chosen to be subject to Section 203 of the Delaware General
Corporation Law, which prevents a stockholder of more than 15% of a company's
voting stock from entering into certain business combinations with that company.

OUR COMMON STOCK PRICE MAY BE VOLATILE.

In recent years, the market for stock in technology, telecommunications and
computer companies has been highly volatile. Since our initial public offering
in October 1999, our stock price has been at a low of $25.50 and a high of
$94.00 per share. The price of our common stock may be volatile and may continue
to fluctuate due to factors such as:

- actual or anticipated fluctuations in quarterly and annual results;

- announcements of technological innovations;

- introduction of new services;

- mergers and strategic alliances in the telecommunications industry;

- changes in government regulation; and

- shifts in investor preference among investment choices and industries.

FUTURE SALES BY EXISTING STOCKHOLDERS COULD CAUSE THE PRICE OF COMMON STOCK
TO DECLINE.

Sales of a large number of shares of our common stock in the public market
could adversely affect the price for our common stock and impair our ability to
raise capital. The selling stockholders in this offering, who after the offering
will hold 761,870 shares in the aggregate, and our officers and directors and
certain other stockholders who hold 5,480,835 shares in the aggregate have
agreed not to sell their shares for a period of 90 days after the date of this
prospectus without the prior written consent of Morgan Stanley & Co.
Incorporated on behalf of the underwriters. The 1,888,944 shares of common stock
issued in the NTC merger are subject to certain registration rights which allow
for registration of at least 50% of the shares in late October, 2000, with the
remainder eligible for registration one year from then. The remainder of our
shares are freely tradeable without restriction or further registration under
federal securities laws.

17
<PAGE> 19

USE OF PROCEEDS

The net proceeds we will receive from the offering will be approximately
$16 million (based on an assumed share price of $43.50), or $42.0 million, if
the underwriters exercise their over-allotment option in full, after deducting
estimated offering expenses of $500,000 and underwriting discounts and
commissions payable by us. We will not receive any of the proceeds from the sale
of shares of our common stock by the selling stockholders.

We intend to use the net proceeds we will receive from the offering to fund
potential acquisitions, to develop new and improved services, to maintain and
expand our network and for general corporate purposes. As of the date of this
prospectus, we cannot specify with certainty all of the particular uses for the
net proceeds we will have after completion of the offering. The actual amounts
we spend will vary significantly depending on a number of factors, including
future revenue growth, if any, capital expenditures, the amount of cash
generated by our operations and other factors, many of which are beyond our
control. Accordingly, our management will have broad discretion in the
application of the net proceeds.

Pending the uses described above, we intend to invest the net proceeds in
direct or guaranteed obligations of the United States, interest-bearing or
investment-grade instruments or certificates of deposit.

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

Our common stock is listed on The Nasdaq National Market under the trading
symbol "ILUM." The following table lists on a per share basis for the periods
indicated the high and low sale prices from October 7, 1999 through July 13,
2000 as reported by The Nasdaq National Market. This table reflects inter-dealer
prices, without retail mark-up, mark-down or commission.

<TABLE>
<CAPTION>
PRICE RANGE
----------------
HIGH LOW
------ ------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Fourth Quarter (beginning October 7, 1999)................ $62.13 $25.50
YEAR ENDING DECEMBER 31, 2000
First Quarter............................................. $94.00 $43.00
Second Quarter............................................ $58.50 $30.63
Third Quarter (through July 13, 2000)..................... $52.38 $41.50
</TABLE>

On July 13, 2000, the reported last sale price for our common stock as
reported on The Nasdaq National Market was $43.50 per share. As of June 30,
2000, there were 233 stockholders of record, excluding shares held in street
name by various brokerage firms. We estimate that there are approximately 7,600
beneficial owners of our common stock.

We currently intend to retain future earnings, if any, to finance
operations and expand our business. We have never declared or paid any dividends
on our common stock. We do not anticipate paying any cash dividends in the
foreseeable future. Any future determination to pay cash dividends will be at
the discretion of our board of directors. The declaration and payment of
dividends will depend upon our financial condition, operating results,
contractual restrictions, capital requirements, business prospects and other
factors our board of directors deems relevant. The terms of our secured loan
facilities restrict our ability to declare and pay dividends without the consent
of our lender, unless we meet minimum net worth and cash margin tests.

18
<PAGE> 20

CAPITALIZATION

The following table sets forth our cash, cash equivalents and securities
available for sale, current portion of long-term debt and capitalization as of
March 31, 2000. We present this unaudited information:

- on an actual basis including 1,252,699 shares of our common stock issued
in exchange for shares of NTC common stock outstanding as of March 31,
2000.

- on a pro forma basis after giving effect to: (1) the automatic conversion
of our Class A common stock in April 2000 into 25,376,536 shares of
common stock; (2) the issuance of 131,450 shares of our common stock in
exchange for all the outstanding redeemable preferred stock of NTC in
connection with our transaction with NTC; (3) the issuance of 414,096
shares of our common stock resulting from the exercise of NTC common
stock warrants in connection with our transaction with NTC; and (4) the
issuance of 90,699 shares of our common stock resulting from the exercise
of NTC common stock options after March 31, 2000; and

- on a pro forma as adjusted basis to reflect the receipt of our estimated
net proceeds from this offering.

You should read the capitalization table together with the sections of this
prospectus entitled "Selected Supplemental Consolidated Financial and Other
Data," "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our supplemental consolidated financial statements and notes
to those financial statements that are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash, cash equivalents and available for sale
securities............................................. $107,870 $107,870 $123,900
======== ======== ========
Current portion of long-term debt and capital lease
obligations............................................ $ 3,606 $ 3,606 $ 3,606
======== ======== ========
Long-term debt and capital lease obligations, less
current portion........................................ $ 14,163 $ 14,163 $ 14,163
-------- -------- --------
Convertible Redeemable Preferred Stock................... $ 4,273 $ -- $ --
Stockholders' equity:
Common Stock, par value $.01 per share, 150,000,000
shares authorized and 5,737,699 outstanding actual,
31,750,480 outstanding pro forma, and 32,150,480
outstanding pro forma as adjusted................... 57 318 322
Class A Common Stock, par value $.01 per share,
7,200,000 authorized and 6,344,134 outstanding
actual, none outstanding pro forma or pro forma as
adjusted............................................ 63 -- --
Common Stock Warrants.................................. 1,521 -- --
Additional paid-in capital............................. 105,554 111,150 127,176
Deferred stock-based compensation...................... (3,593) (3,593) (3,593)
Retained earnings...................................... 39,281 39,281 39,281
-------- -------- --------
Total stockholders' equity............................. 142,883 147,156 163,186
-------- -------- --------
Total capitalization................................ $161,319 $161,319 $177,349
======== ======== ========
</TABLE>

19
<PAGE> 21

DILUTION

As of March 31, 2000, our pro forma net tangible book value was $146.8
million, or $4.62 per share of common stock, after giving affect to; (1) the
automatic conversion of our Class A common stock in April 2000 into 25,376,536
shares of common stock; (2) the issuance of 131,450 shares of our common stock
in exchange for all the outstanding redeemable preferred stock of NTC in
connection with our transaction with NTC; (3) the issuance of 414,096 shares of
our common stock resulting from the exercise of NTC common stock warrants in
connection with our transaction with NTC; and (4) the issuance of 90,699 shares
of our common stock resulting from the exercise of NTC common stock options
after March 31, 2000. Pro forma net tangible book value per share represents the
amount of our total tangible assets reduced by the amount of our total
liabilities, divided by the pro forma number of shares of common stock
outstanding. As of March 31, 2000, our pro forma net tangible book value, as
further adjusted for the sale of 400,000 shares in the offering at the assumed
public offering price of $43.50 per share, and after deducting the underwriting
discounts and commissions and other estimated expenses, would have been
approximately $5.06 per share of common stock. This represents an immediate
increase of $0.44 per share to existing stockholders and an immediate dilution
of $38.44 per share to new investors. The following table illustrates this per
share dilution:

<TABLE>
<S> <C> <C>
Assumed public offering price per share..................... $43.50
Pro forma net tangible book value per share as of March 31,
2000...................................................... $4.62
Increase in pro forma net tangible book value per share
attributable to purchasers in this offering............... 0.44
-----
Pro forma net tangible book value per share after this
offering.................................................. 5.06
------
Dilution per share to new investors......................... $38.44
======
</TABLE>

The following table summarizes, as of March 31, 2000, after giving effect
to the pro forma adjustments referred to above, the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by the existing stockholders and by the investors
purchasing shares of common stock in this offering (before deducting the
underwriting discounts and commissions and other estimated expenses):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 31,750,480 98.8% $112,932,550 86.6% $ 3.56
New investors.................. 400,000 1.2 17,400,000 13.4 43.50
---------- ----- ------------ -----
Total................ 32,150,480 100.0% $130,332,550 100.0%
========== ===== ============ =====
</TABLE>

The table above assumes no exercise of stock options outstanding as of
March 31, 2000. As of March 31, 2000, there were options to purchase a total of
3,298,904 shares of common stock at a weighted average exercise price of $4.25
per share. To the extent that any of these options are exercised, you will be
diluted further.

20
<PAGE> 22

SELECTED SUPPLEMENTAL CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the following selected supplemental consolidated financial data
as of December 31, 1998 and 1999 and for the years ended December 31, 1997, 1998
and 1999 from our supplemental consolidated financial statements, which have
been audited by Ernst & Young LLP, independent auditors. We derived the selected
supplemental consolidated financial data as of December 31, 1995, 1996, 1997 and
March 31, 1999 and 2000 and for the years ended December 31, 1995 and 1996 and
the three months ended March 31, 1999 and 2000 from our unaudited supplemental
consolidated financial statements, which, in our opinion, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly our financial position and results of operations for those
periods. Other data are unaudited.

Interim results do not necessarily indicate the results that you may expect
for any other interim period or for the full year. You should read this selected
financial information in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our supplemental
consolidated financial statements and the notes to those financial statements
that are included in the back of this prospectus.

You should read the following information with the data in the table on the
next page:

- Our selected supplemental consolidated financial information and other
data provided below is derived from our supplemental consolidated
financial statements, which reflects our transaction with NTC, which was
accounted for as a pooling of interests. Our supplemental financial
statements will become our historical financial statements after the
financial statements covering the date of our transaction with NTC are
issued.

- In February 1996, we merged with Independent Telecommunications Network,
Inc. We accounted for the merger as a purchase business combination.
Accordingly, the operating results of Independent Telecommunications
Network, Inc., including carrier costs, are only included in our
operating results since the merger.

- The 1996 income tax provision and the 1997 income tax benefit reflect the
benefits of using net operating loss carryforwards of $1.0 million and
$2.4 million, respectively. In addition, the 1997 income tax benefit
includes a benefit of $.9 million attributable to the reversal of
substantially all of the remaining previously recorded deferred tax
valuation allowance due to improved operating results.

- Long-term obligations, less current portion includes (1) obligations
under capital leases, less current portion, and (2) long-term debt, less
current portion.

- All NTC expenses for 1995 and 1996 are included in operating expenses and
not allocated among line items. The accounting records for these years
did not allocate expenses among line items.

- Earnings (loss) per share-basic is based on net income available to
common stockholders divided by the weighted average number of common
shares outstanding. Earnings (loss) per share-diluted includes the
dilutive effect of outstanding convertible securities, warrants,
debentures and common stock options.

- Capital expenditures includes purchases and capital leases of property
and equipment.

21
<PAGE> 23

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SUPPLEMENTAL CONSOLIDATED
STATEMENT OF INCOME DATA:
Revenues:
Network services.......... $ 9,414 $ 30,692 $ 52,829 $ 70,577 $ 109,317 $ 23,315 $ 32,944
Clearinghouse services.... 7,049 7,896 6,723 6,232 5,851 1,539 1,315
Network usage software
applications............ 1,123 558 3,468 5,406 1,532 231 270
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.......... 17,586 39,146 63,020 82,215 116,700 25,085 34,529
Expenses:
Carrier costs............. -- 9,358 17,893 25,506 28,004 6,945 6,512
Operating................. 10,047 13,093 18,857 23,288 36,623 7,539 9,164
Selling, general and
administrative.......... 6,764 7,774 10,382 12,882 16,656 3,702 4,888
Depreciation and
amortization............ 2,846 5,714 7,622 10,131 13,610 2,751 3,643
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses.......... 19,657 35,939 54,754 71,807 94,893 20,937 24,207
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)..... (2,071) 3,207 8,266 10,408 21,807 4,148 10,322
Interest and other income,
net....................... 601 1,248 501 767 2,020 278 1,800
Interest expense............ (616) (1,432) (1,770) (1,966) (2,060) (484) (371)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes..................... (2,086) 3,023 6,997 9,209 21,767 3,942 11,751
Income tax provision
(benefit)................. (707) 112 (676) 3,826 8,132 1,492 4,468
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)........... $ (1,379) $ 2,911 $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283
=========== =========== =========== =========== =========== =========== ===========
SUPPLEMENTAL PER SHARE DATA:
Earnings (loss) per share --
basic..................... $ (.08) $ .13 $ .33 $ .22 $ .52 $ .10 $ .23
Earnings (loss) per share --
diluted................... $ (.08) $ .13 $ .30 $ .19 $ .45 $ .08 $ .21
Weighted average common
shares -- basic........... 16,860,298 21,901,919 23,073,310 23,027,833 24,630,095 22,716,671 31,114,235
Weighted average common
shares -- diluted......... 16,860,298 25,810,687 27,477,934 27,798,781 29,246,941 27,841,831 33,512,649
SUPPLEMENTAL OTHER FINANCIAL
DATA:
Capital expenditures........ $ 2,394 $ 8,073 $ 12,639 $ 19,678 $ 17,346 $ 2,626 $ 2,780
SUPPLEMENTAL OTHER DATA:
Customers................... -- 311 417 544 735 584 766
Signaling points............ -- 388 533 686 765 706 770
SUPPLEMENTAL CONSOLIDATED
BALANCE SHEET DATA (AT END
OF PERIOD):
Cash, cash equivalents and
securities available for
sale...................... $ 7,313 $ 12,622 $ 11,412 $ 13,589 $ 103,961 $ 14,321 $ 107,870
Property and equipment,
net....................... 14,253 33,246 37,364 46,783 51,095 46,754 50,381
Total assets................ 44,481 75,637 84,947 98,471 197,130 98,099 200,638
Long-term obligations, less
current portion........... 7,932 21,437 18,945 21,519 16,579 20,232 14,163
Convertible Redeemable
Preferred Stock........... -- -- -- 3,243 4,071 3,783 4,273
Stockholders' equity........ $ 12,550 $ 21,748 $ 30,058 $ 34,935 $ 135,516 $ 36,580 $ 142,883
</TABLE>

22
<PAGE> 24

SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA

We derived the following selected historical consolidated financial data as
of and for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 from our
consolidated financial statements, which have been audited by Ernst & Young LLP,
independent auditors. We derived the selected historical consolidated financial
data as of and for the three months ended March 31, 1999 and 2000 from our
unaudited consolidated financial statements, which, in our opinion, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly our financial position and results of operations for those
periods. Other data are unaudited.

Interim results do not necessarily indicate the results that you may expect
for any other interim period or for the full year. You should read this summary
information in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and our consolidated financial
statements and the notes to those financial statements that are included in the
back of this prospectus.

You should read the following information with the data in the table on the
next page:

- The following selected historical consolidated financial and other data
does not include the impact of our transaction with NTC on June 30, 2000.

- Long-term obligations, less current portion includes (1) obligations
under capital leases, less current portion, and (2) long-term debt, less
current portion.

- Capital expenditures includes purchases and capital leases of property
and equipment.

23
<PAGE> 25

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AND OTHER DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT
OF INCOME DATA:
Revenues:
Network services...... $ 8,932 $ 29,434 $ 44,117 $ 60,274 $ 93,211 $ 19,833 $ 27,657
Clearinghouse
services............ 7,049 7,896 6,723 6,232 5,851 1,539 1,315
Network usage software
applications........ 1,123 558 3,468 5,406 1,532 231 270
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues...... 17,104 37,888 54,308 71,912 100,594 21,603 29,242
Expenses:
Carrier costs......... -- 9,358 15,313 22,983 26,091 6,519 5,950
Operating............. 9,547 11,139 14,979 19,768 28,868 5,743 7,033
Selling, general and
administrative...... 6,764 7,774 8,873 10,287 13,492 2,894 3,499
Depreciation and
amortization........ 2,846 5,714 7,354 9,372 11,966 2,498 2,986
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total expenses...... 19,157 33,985 46,519 62,410 80,417 17,654 19,468
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income
(loss)................ (2,053) 3,903 7,789 9,502 20,177 3,949 9,774
Interest income......... 271 475 732 834 2,105 206 1,791
Interest expense........ (440) (1,313) (1,540) (1,580) (1,611) (396) (227)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes.......... (2,222) 3,065 6,981 8,756 20,671 3,759 11,338
Income tax provision
(benefit)............. (707) 112 (676) 3,463 7,666 1,428 4,308
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)....... $ (1,515) $ 2,953 $ 7,657 $ 5,293 $ 13,005 $ 2,331 $ 7,030
=========== =========== =========== =========== =========== =========== ===========
PER SHARE DATA:
Earnings (loss) per
share -- basic........ $ (.10) $ .15 $ .36 $ .25 $ .56 $ .10 $ .24
Earnings (loss) per
share -- diluted...... $ (.10) $ .14 $ .32 $ .22 $ .48 $ .09 $ .22
Weighted average common
shares -- basic....... 14,916,060 19,980,368 21,182,036 21,425,540 23,377,396 21,463,972 29,861,536
Weighted average common
shares -- diluted..... 14,916,060 23,889,136 25,586,660 25,989,440 27,456,760 26,097,456 31,692,546
OTHER FINANCIAL DATA:
Capital expenditures.... $ 1,579 $ 6,727 $ 10,121 $ 17,870 $ 12,771 $ 2,088 $ 1,949
OTHER DATA:
Customers............... -- 311 417 544 735 584 766
Signaling points........ -- 388 553 686 765 706 770
CONSOLIDATED BALANCE
SHEET DATA (AT END OF
PERIOD):
Cash, cash equivalents
and securities
available for sale.... $ 6,992 $ 12,515 $ 11,167 $ 11,967 $ 102,641 $ 13,522 $ 107,397
Property and equipment,
net................... 12,794 31,377 34,715 43,747 45,129 43,481 44,234
Total assets............ 39,398 70,822 78,026 89,450 183,657 90,529 188,464
Long-term obligations,
less current
portion............... 7,638 21,060 18,014 20,742 11,025 19,568 10,187
Stockholders' equity.... $ 12,419 $ 21,760 $ 30,226 $ 36,192 $ 136,966 $ 38,618 $ 144,282
</TABLE>

24
<PAGE> 26

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

You should read the following discussion and analysis of our financial
condition and the results of our operations together with our supplemental
consolidated financial statements and the notes to those financial statements
included elsewhere in this prospectus. The following discussion reflects the
retroactive restatement of our accounts to reflect our transaction with NTC,
which was accounted for as a pooling of interests. Except where noted, this
restatement did not materially affect our historical financial condition and
results of operations as it relates to our management's discussion and analysis.

OVERVIEW

Our SS7 network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and all of the largest U.S. telecommunications
carriers through leased lines. Our SS7 network serves more than 700 network
services customers, including incumbent local exchange carriers, competitive
local exchange carriers, long distance companies, wireless telecommunications
providers and Internet service providers.

RECENT DEVELOPMENTS

On June 30, 2000, we completed our transaction with NTC. NTC is a developer
and provider of advanced applications for the wireless communications industry,
including prepaid wireless account management and unregistered wireless roaming
services. NTC's account management and services enable wireless network
providers to offer a wide variety of features intended to control costs and
manage usage, including roaming management, multiple rate plans, call blocking,
account history and calling pattern monitoring. These services also allow
wireless providers to instantly calculate a customer's account balance, while
providing for automatic debiting and replenishment of customer accounts.

For the year ended December 31, 1999, NTC reported net revenues of $16.1
million and net income of $630,000. Between December 31, 1998 and December 31,
1999, NTC's net revenues increased 56%, and for the quarters ended March 31,
1999 and March 31, 2000, its net revenues increased 52%. In connection with the
merger, we issued 1,888,944 million shares of common stock and options to
purchase up to 80,297 shares of common stock to NTC stockholders and employees.
The transaction has been accounted for as a pooling of interests.

PRODUCTS AND SERVICES

Our products and services can be grouped into three general categories:

- network services, which includes (1) SS7 connectivity, switching and the
transport of messages used to route calls and query databases, (2)
intelligent network services, such as database access, including local
number portability and support for roaming between carriers, and (3)
prepaid wireless account management and unregistered wireless roaming
services;

25
<PAGE> 27

- clearinghouse services that facilitate payments among telecommunications
carriers; and

- network usage software applications.

Our SS7 network connectivity, switching and transport services provide
telecommunications carriers access to the signaling networks of nearly the
entire U.S. public-switched telecommunications infrastructure through a single
source. Once connected, customers use our SS7 network to route and complete
voice and data transmissions and access related and complementary services and
applications available from us or from third-party vendors. Once a customer is
connected to our SS7 network, we continue to provide support services to
maintain and upgrade its connection on a 24 hour a day, seven day a week basis.

Intelligent network services encompass a number of database query
functions, including caller identification, toll-free calling, calling card
validation, local number portability and seamless wireless roaming. Each of
these services uses our SS7 network to access databases, some maintained by us
and others maintained by third parties.

Prepaid wireless account management and unregistered wireless roaming
services include providing a prepaid wireless billing service that charges and
replenishes the customer's personal prepaid account and services that provide
access to roaming for unregistered users.

Our clearinghouse services include serving as a distribution and collection
point for billing information and payment collection for services provided by
one carrier to customers billed by another. For example, we receive a monthly
report from a long distance carrier detailing the long distance calls made by
the customers of another carrier. We prepare statements to each billing carrier
of its customers' usage, which the billing carrier then uses to bill its
customers. The billing carrier remits the payments received from its customers
to us. We aggregate these payments and remit them to the long distance carrier,
net of our servicing fee.

Network usage software applications are commercial applications derived
primarily from software we developed to create billing data for the use of our
SS7 network and services. This software is licensed to carriers and allows them
to create billing data to bill another carrier for use of their signaling
network or their underlying public-switched telecommunications network.

REVENUES

Our revenues primarily come from the sale of network services, including
SS7 connectivity, switching and transport, the provision of intelligent network
services, and the provision of prepaid wireless account management and
unregistered roaming services. To a much lesser extent, we derive revenues from
our clearinghouse services and network usage software applications.

Customers generally are charged for connections to our SS7 network on a
monthly "per link" basis. If we provision the network facilities that provide
their connections to our network, they pay us for establishing the initial
connections that link them to our network and pay a separate monthly fee to
maintain those links. We generally price these connectivity links on a cost-plus
basis based on our facility lease costs. In addition, customers are charged for
network switching (the transmission of signaling traffic throughout the network)
based on the number of switches to which they signal.

Our intelligent network services are delivered through our SS7 network and
a substantial majority of our customers purchase both SS7 network connections
and intelligent network services. Our intelligent network services fall into two
general categories: database administration and database query services. In
addition to paying monthly fees for SS7 connectivity, our customers pay a
per-use or per-query fee for database services. For example, we price local
number portability service order administration on a per-ported number basis,
and obtain volume-based revenue for accessing the local number portability
database on a per-query basis.

26
<PAGE> 28

Our prepaid wireless account management services revenues are based on
either a per minute basis, where we make a percentage of every minute paid for
and used, or on a percentage of monthly access fees regardless of usage. The
unregistered wireless roaming service revenue is based on the number of
completed calls times a rate per call plus a per minute rate for call duration,
net of carrier charges.

Clearinghouse services are provided on a per message billed basis. Our
revenues vary based on the number of messages provided to us by
telecommunications companies and other message providers for aggregation and
distribution by us to the carrier who will bill to and collect from its
customers. Clearinghouse services are relatively mature, are showing a decline
in the number of messages processed, and are experiencing competitive pricing
pressures.

Revenues from network usage software applications are derived from licenses
of our software products and continuing software maintenance fees. These
products have a long sales cycle, with each individual license normally
contributing significant revenue to the product line. Therefore, these revenues
may change significantly from period to period. However, new sales opportunities
for these products in their current form are limited, as many of the customers
in the top tier market, consisting primarily of regional Bell operating
companies, have already licensed our product.

The table below indicates the portion of our revenues attributable to
network services, clearinghouse services and network usage software applications
in 1997, 1998, and 1999, and in the first three months of 1999 and 2000,
together with the percentage change in revenues.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------- ----------------------------
1997 1998 % CHANGE 1999 % CHANGE 1999 2000 % CHANGE
------- ------- -------- -------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Network services...... $52,829 $70,577 34% $109,317 55% $23,315 $32,944 41%
Clearinghouse
services............ 6,723 6,232 (7) 5,851 (6) 1,539 1,315 (15)
Network usage software
applications........ 3,468 5,406 56 1,532 (72) 231 270 17
------- ------- -------- ------- -------
$63,020 $82,215 30% $116,700 42% $25,085 $34,529 38%
======= ======= ======== ======= =======
</TABLE>

EXPENSES

Our costs and expenses, which we do not attribute directly to individual
product lines, consist generally of the following:

- Carrier costs, which include recurring payments to telecommunications
carriers for leased lines and signal transfer point ports. These lines
and ports provide connections (1) between our customers and our network,
(2) among our own network locations and (3) between our network and
nearly all other SS7 networks in the United States. Cost of links and
ports to our customers is variable, relating directly to the number of
links and ports we provide to our customers. Cost of links and ports
among our own network locations and to other SS7 networks is primarily
fixed. We generally lease lines and ports under tariffs with volume
discounts;

- Operating expenses, which include the cost of providing network services,
clearinghouse services and network usage software applications. Such
costs primarily include personnel costs and hardware and software
maintenance costs to monitor and maintain our network 24 hours a day,
seven days a week, maintain and operate our databases, process our
clearinghouse messages, and develop and maintain our network usage
software applications;

- Selling, general and administrative, which consist primarily of
executive, sales and marketing and administrative personnel and
professional services expense; and

27
<PAGE> 29

- Depreciation and amortization, which relate primarily to our installed
network equipment, our computer hardware and software, our corporate
facilities and our network usage software applications.

The table below indicates our expenses for 1997, 1998, and 1999, and in the
first three months of 1999 and 2000, together with the percentage change in
expenses.

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------------- ----------------------------
1997 1998 % CHANGE 1999 % CHANGE 1999 2000 % CHANGE
------- ------- -------- ------- -------- ------- ------- --------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Carrier costs.......... $17,893 $25,506 43% $28,004 10% $ 6,945 $ 6,512 (6)%
Operating.............. 18,857 23,288 23 36,623 57 7,539 9,164 22
Selling, general and
administrative....... 10,382 12,882 24 16,656 29 3,702 4,888 32
Depreciation and
amortization......... 7,622 10,131 33 13,610 34 2,751 3,643 32
------- ------- ------- ------- -------
$54,754 $71,807 31% $94,893 32% $20,937 $24,207 16%
======= ======= ======= ======= =======
</TABLE>

RESULTS OF OPERATIONS

The table below indicates the results of our operations expressed as a
percentage of total revenues. The historical results are not necessarily
indicative of results to be expected for any future period.

<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
-------------------- ------------
1997 1998 1999 1999 2000
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Network services.................................. 84% 86% 94% 93% 95%
Clearinghouse services............................ 11 8 5 6 4
Network usage software applications............... 5 6 1 1 1
--- --- --- --- ---
Total revenues................................. 100% 100% 100% 100% 100%
Expenses:
Carrier costs..................................... 28 31 24 28 19
Operating......................................... 30 28 31 30 26
Selling, general and administrative............... 17 16 14 15 14
Depreciation and amortization..................... 12 12 12 11 11
--- --- --- --- ---
Total expenses................................. 87 87 81 84 70
--- --- --- --- ---
Operating income.................................... 13 13 19 16 30
Interest and other income........................... 1 1 2 1 5
Interest expense.................................... (3) (3) (2) (1) (1)
--- --- --- --- ---
Income before income taxes.......................... 11 11 19 16 34
Income tax provision (benefit)...................... (1) 4 7 6 13
--- --- --- --- ---
Net income.......................................... 12% 7% 12% 10% 21%
=== === === === ===
</TABLE>

28
<PAGE> 30

THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THE THREE MONTHS ENDED MARCH 31,
1999

REVENUES

Network services. Network services revenues, comprised of revenues from
network connectivity, which includes message switching and transport,
intelligent network services, and prepaid wireless and unregistered roaming
services, increased by $9.6 million, or 41%, to $32.9 million for the three
months ended March 31, 2000 ("the first quarter of 2000") from $23.3 million for
the three months ended March 31, 1999 ("the first quarter of 1999"). These
increases were due to increased customer connections and signaling across our
network, substantial growth in queries processed in the line information, caller
identification or calling name delivery and toll-free databases, increased
market penetration by our calling name delivery customers, growth in the amount
of toll-free numbers, the continued nationwide rollout of local number
portability, and increases in the subscriber base for prepaid wireless account
management services and unregistered wireless roaming services.

Network connectivity revenues increased by $3.7 million, or 34%, to $14.4
million in the first quarter of 2000 from $10.7 million in the first quarter of
1999. Intelligent network services revenues increased by $4.2 million, or 45%,
to $13.3 million in the first quarter of 2000 from $9.1 million in the first
quarter of 1999. These increases reflect the overall growth in our customer base
and higher caller information services volume as we obtained access to
additional caller information maintained in third-party databases. The remainder
of these increases was due to continued growth in local number portability
volume, offset by competitive pricing pressures for database access. Prepaid
wireless account management services and unregistered wireless roaming services
revenues increased by $1.7 million, or 52%, to $5.2 million in the first quarter
of 2000 from $3.5 million in the first quarter of 1999, reflecting increases in
carrier customers, market coverage, and subscriber base.

Clearinghouse services. Clearinghouse services revenues decreased by $0.2
million, or 15%, to $1.3 million in the first quarter of 2000 from $1.5 million
in the first quarter of 1999 due to a continued decline in the number of
messages processed. Although the clearinghouse industry continues to experience
some residual negative impact from interexchange carriers switching the
preferred carrier information on a customer's account without the customer's
knowledge or approval, and unexpected charges being billed on a customer's
account, we do not expect this to have a material impact on our revenues in the
future.

Network usage software applications. Network usage software applications
revenues were comparable in the first quarter of 2000 and the first quarter of
1999. Revenues in both periods were comprised of maintenance fees.

EXPENSES

Carrier costs. Carrier costs decreased by $0.4 million, or 6%, to $6.5
million in the first quarter of 2000 from $6.9 million in the first quarter of
1999. Carrier costs decreased as network capacity has been leveraged to support
increasing revenues, and network growth has allowed for the realization of
volume discounts.

Operating. Operating expenses increased by $1.7 million, or 22%, to $9.2
million in the first quarter of 2000 from $7.5 million in the first quarter of
1999. These increases resulted mainly from higher personnel expenses related to
an expansion of the customer support, operations and engineering functions,
increased maintenance costs for new network and systems hardware and software,
and database access costs related to toll-free calling revenues.

Selling, general and administrative. Selling, general and administrative
expenses increased by $1.2 million, or 32%, to $4.9 million in the first quarter
of 2000 from $3.7 million in the first quarter of 1999. These increases were
primarily due to increased incentive compensation expenses and costs associated
with being a public company, including annual report publication and increased
professional services expenses.

29
<PAGE> 31

Depreciation and amortization. Depreciation and amortization expenses
increased by $0.8 million, or 32%, to $3.6 million in the first quarter of 2000
from $2.8 million in the first quarter of 1999. These increases reflect the
significant investment made in the last two years for network monitoring and
data collection hardware and software, database applications, and signal
transfer point switches.

Interest and other income, net. Interest and other income, net increased by
$1.5 million to $1.8 million in the first quarter of 2000 from $0.3 million in
the first quarter of 1999. The increase reflects increased interest income
generated by the investment of $78.3 million of net proceeds from our
mid-October 1999 initial public offering and earnings from higher cash balances
generated from operations beginning in mid-1999.

Interest expense. Interest expense decreased by $0.1 million, or 23%, to
$0.4 million in the first quarter of 2000 from $0.5 million in the first quarter
of 1999. The decrease reflects savings from the conversion of the redeemable
subordinated debentures in October 1999, partially offset by increased interest
expense from capital leases completed in mid-1999.

Income taxes. Income tax expense increased by $3.0 million, or 199%, to
$4.5 million in the first quarter of 2000, from $1.5 million in the first
quarter of 1999, due to increased income, reflecting effective tax rates of
38.0%, and 37.8%, in 2000 and 1999, respectively.

YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

REVENUES

Network services. Network services revenues, comprised of revenues from
network connectivity, which includes message switching and transport,
intelligent network services, and prepaid wireless and unregistered user
services, increased by $38.7 million, or 55%, to $109.3 million for the year
ended December 31, 1999 ("1999"), from $70.6 million for the year ended December
31, 1998 ("1998"), and by $17.8 million, or 34%, to $70.6 million in 1998 from
$52.8 million for the year ended December 31, 1997 ("1997"). These increases
were due to increased customer connections and signaling across our network,
substantial growth in queries processed in the line information, caller
identification or calling name delivery and toll-free databases, increased
market penetration by our calling name delivery customers, growth in the amount
of toll-free numbers, the rollout of local number portability, and increases in
the subscriber base for prepaid wireless account management services and
unregistered wireless roaming services.

Network connectivity revenues increased by $14.4 million, or 41%, to $49.8
million in 1999 from $35.4 million in 1998, and by $9.8 million, or 38%, to
$35.4 million in 1998 from $25.6 million in 1997. Intelligent network services
revenues increased by $18.5 million, or 74%, to $43.4 million in 1999 from $24.9
million in 1998, and by $6.4 million, or 35%, to $24.9 million in 1998 from
$18.5 million in 1997. These increases reflect the overall growth in our
customer base and higher caller information services volume as we obtained
access to additional caller information maintained in third-party databases. The
remainder of these increases was due to continued growth in local number
portability volume, offset by competitive pricing pressures for database access.
Prepaid wireless account management services and unregistered wireless roaming
services revenues increased by $5.8 million, or 56%, to $16.1 million in 1999
from $10.3 million in 1998, and by $1.6 million, or 18%, to $10.3 million in
1998 from $8.7 million in 1997, reflecting increases in carrier customers,
market coverage, and subscriber base.

Clearinghouse services. Clearinghouse services revenues decreased by $0.3
million, or 6%, to $5.9 million in 1999 from $6.2 million in 1998, and by $0.5
million, or 7%, to $6.2 million in 1998 from $6.7 million in 1997. These
decreases over the three periods were caused by a continued decline in the
number of messages processed and competitive pricing pressures.

Network usage software applications. Network usage software applications
revenues decreased by $3.9 million, or 72%, to $1.5 million in 1999 from $5.4
million in 1998, and increased by $1.9 million, or

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56%, to $5.4 million in 1998 from $3.5 million in 1997. Software maintenance
revenues were $1.0 million, $0.8 million, and $0 in 1999, 1998, and 1997,
respectively. The remainder of the variance was caused by software licensing
fees. New sales opportunities for these products in their current form are
limited, as many of the customers in the top tier market, consisting primarily
of regional Bell operating companies, have already licensed our product.
Therefore, revenues may vary significantly from period to period, depending on
the mix of license and maintenance fees in any given period.

EXPENSES

Carrier costs. Carrier costs increased by $2.5 million, or 10%, to $28.0
million in 1999 from $25.5 million in 1998, and by $7.6 million, or 43%, to
$25.5 million in 1998 from $17.9 million in 1997. These increases were due to
the growth in leased network connectivity and link and local access and
transport area access charges incurred to support increased customer use of our
network. Local access and transport area access charges increased significantly
through the end of 1998 due to our decision to build links directly into local
access and transport areas instead of relying on third-party intermediaries.
While the cost of building direct links exceeds that of our prior arrangements,
the reliability of our network is enhanced as we gain increased link control and
monitoring capabilities. Over the reported periods, carrier costs have decreased
as a percentage of revenue as network capacity has been leveraged to support
increasing revenues, and network growth has allowed for the realization of
volume discounts.

Operating. Operating expenses increased by $13.3 million, or 57%, to $36.6
million in 1999 from $23.3 million in 1998, and by $4.4 million, or 23%, to
$23.3 million in 1998 from $18.9 million in 1997. These increases resulted
mainly from higher personnel expenses related to an expansion of the customer
support, operations and engineering functions and increased maintenance costs
for new network and systems hardware and software. Additionally, we recorded
losses of $2.9 million and $1.0 million in 1999 and 1998, respectively, for a
loss on a clearinghouse services contract. We have entered into a new contract
with this customer and recently completed an agreement to settle items in
dispute under the prior contract. As part of that settlement all claims under
that contract were waived. Also in 1999, we recorded a $1.5 million impairment
loss of the full amount of a 1995 preferred stock equity investment in a
start-up company that was previously recorded at cost. The recognition of this
loss was coincident with significant liquidity concerns of the investee, and the
investee's decision to discontinue its historical primary operations and related
uncertainties resulting from a change in the investee's business strategy and
direction.

Selling, general and administrative. Selling, general and administrative
expenses increased by $3.8 million, or 29%, to $16.7 million in 1999 from $12.9
million in 1998, and by $2.5 million, or 24%, to $12.9 million in 1998 from
$10.4 million in 1997. These increases were primarily due to the addition of
personnel necessary to support the overall growth of our business, especially in
the areas of customer care and sales.

Depreciation and amortization. Depreciation and amortization expenses
increased by $3.5 million, or 34%, to $13.6 million in 1999 from $10.1 million
in 1998, and by $2.5 million, or 33%, to $10.1 million in 1998 from $7.6 million
in 1997. These increases reflect the significant investment made in the last two
years for network monitoring and data collection hardware and software, database
applications, and signal transfer point switches. Included in depreciation and
amortization are asset write downs totaling $0.7 million in both 1999 and 1998.
The 1999 write down related to asset obsolescence, and the 1998 write down
related to our early retirement and replacement of two signal transfer points as
part of our network reliability upgrade.

Interest and other income, net. Interest and other income, net increased by
$1.2 million, or 163%, to $2.0 million in 1999 from $0.8 million in 1998, and by
$0.3 million, or 53%, to $0.8 million in 1998 from $0.5 million in 1997. The
1999 change reflects increased interest income generated by the

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investment of $78.3 million of net proceeds from our mid-October 1999 initial
public offering and earnings from higher cash balances generated from operations
beginning in mid-1999.

Interest expense. Interest expense increased by $0.1 million, or 5%, to
$2.1 million in 1999 from $2.0 million in 1998, and by $0.2 million, or 11%, to
$2.0 million in 1998 from $1.8 million in 1997. The components of interest
expense changed during the years and reflect increased interest expense from
capital leases completed in late 1998 and mid-1999, offset by the reduction in
interest expense from the conversion of the redeemable subordinated debentures
in October 1999.

Income taxes. Income tax expense increased by $4.3 million, or 113%, to
$8.1 million, an effective tax rate of 37.4%, in 1999 from $3.8 million, an
effective tax rate of 41.5%, in 1998, and by $4.5 million, to $3.8 million in
1998 from a tax benefit of $0.7 million in 1997, an effective tax benefit rate
of (9.7)%. In 1999, the increases were caused by our increase in income, an
increased deferred tax asset valuation reserve of $0.6 million, offset by
one-time credits of $0.8 million. The increase in the effective rate in 1998 is
partially due to state income taxes. The 1997 provision reflects benefits of
$3.2 million comprised primarily of $2.4 million due to the utilization of net
operating loss carryforwards and $0.9 million due to the reversal of
substantially all of a previously recorded deferred tax valuation allowance as a
result of improved operating results. The 1997 provision also reflects federal
alternative minimum taxes that could not be completely offset by tax loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have relied on a combination of cash generated from
operations, commercial borrowings, vendor financing and the issuance of equity
securities to fund our operations and capital needs. Currently, our operating
activities generate positive cash flows. We anticipate continued high levels of
investment in our infrastructure over the next several years to manage increased
network volumes, to enhance customer support systems and to continue to improve
network and service reliability. Additionally, we anticipate continued
investments in the development and acquisition of new services and products
related to our network, database and clearinghouse services in order to address
changing markets and customer needs.

Our working capital (current assets in excess of current liabilities) was
$114.0 million at March 31, 2000. Our cash and cash equivalent balances included
$7.4 million required as working capital to service our clearinghouse services
customers. Clearinghouse funds are received and disbursed on a monthly basis.
The growth in working capital of $6.1 million from $107.9 million at December
31, 1999, reflects increased cash balances for clearinghouse customers as well
as increases in available-for-sale securities and accounts receivable, decreases
in accounts payable and due to customers, offset by an increase in income taxes
payable.

Our property and equipment acquisitions were $2.8 million in the first
quarter ended March 31, 2000, and $17.3 million for the year ended December 31,
1999. Expenditures for property and equipment were primarily for network
equipment to expand capacity and enhance reliability, including network
monitoring equipment and local number portability service-related assets. We
anticipate capital expenditures of approximately $23.1 million for the last nine
months of 2000. These investments will support new product introductions such as
mediation services where we have chosen a platform, are in the process of
developing the offering, and expect to launch service in August. Transaction
costs for the NTC merger are estimated to be approximately $3.5 million.

At March 31, 2000, we had a secured line of credit expiring August 15, 2001
with Rural Telephone Finance Cooperative ("RTFC") that permits us, subject to
certain conditions, to borrow up to $7.3 million, not to exceed 80% of accounts
receivable. There were no borrowings against this line of credit at that date.
Additionally, at March 31, 2000, we had $3.8 million of unused loan facilities
established or committed with RTFC, expiring in the years 2000 and 2001.
Long-term secured notes payable to RTFC were $6.8 million at March 31, 2000,
with various maturity dates ranging from August

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2000 to March 2015. On June 22, 2000, we entered into an agreement with Bank of
America to provide a $10 million unsecured line of credit and $15 million
unsecured capital expenditure facility. The line of credit has a three year
term, with a one year extension available at the end of the second year. The
capital expenditure facility has a five year term. The RTFC will continue to
provide the mortgage financing for our headquarters facility, but has released
the lien on our other assets. The mortgage will be secured by a first trust deed
on our building and land located in Lacey, Washington. As a result of the new
agreement with Bank of America, the line of credit and unused loan facilities
with RTFC have been canceled.

At March 31, 2000, we also had a $10.0 million variable rate credit
agreement with Frost National Bank, comprised of a $4.0 million working capital
line and a $6.0 million capital expenditure line. This facility was paid off in
connection with the closing of the NTC merger.

We believe that our existing cash balances, funds generated from our
operations, and borrowings available under our existing credit agreements will
be sufficient to meet our anticipated capital expenditure and working capital
needs for the foreseeable future. However, acquisitions of complementary
businesses or technologies may require significant capital beyond our current
expectations, which would require us to issue additional equity securities
and/or incur additional long-term debt.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our market risks relate primarily to changes in interest rates. We are
exposed to this risk in two specific ways. First, we have debt outstanding. Our
secured notes payable to RTFC, which were $6.8 million at March 31, 2000 and
$7.5 million at December 31, 1999, have a variable interest rate, which exposed
our earnings and cash flows to changes in interest rates. The rate of these
secured notes is based on the lender's cost of funds. We also have a $10.0
million unsecured line of credit and a $15.0 million unsecured capital
expenditure facility with Bank of America with a variable interest rate based on
LIBOR. If market interest rates were to increase immediately and uniformly by
10% from levels at March 31, 2000, our net income and cash flows would decrease
by an immaterial amount. We paid off the loan from Frost National Bank in
connection with the closing of the NTC merger.

The second component of interest rate risk involves the short-term
investment of excess cash. Such risk affects fair values, earnings and cash
flows. Excess cash is primarily invested in overnight repurchase agreements
backed by U.S. government securities. These are considered to be cash
equivalents and are shown that way on our balance sheet. We had securities
available-for-sale of $80.8 million at March 31, 2000 and $79.7 million at
December 31, 1999, which represent the investment of our initial public offering
net proceeds. Available-for-sale securities are primarily comprised of
commercial paper, and have provided earnings of $1.0 million in 1999, or
approximately $4.0 million on an annualized basis.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for our year ending December
31, 2001. We anticipate that the adoption of this new accounting standard will
not have a material impact on our consolidated financial statements, but we
continue to evaluate that impact. In December 1999, the Securities and Exchange
Commission issued Staff Accounting Bulletin Number 101 ("SAB 101"), "Revenue
Recognition in Financial Statements". This summarized certain areas of the
staff's views in applying generally accepted accounting principles as it applies
to revenue recognition. We believe that our revenue recognition principles
comply with SAB 101. We will continue to evaluate interpretations of SAB 101.

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BUSINESS

OVERVIEW

We operate the largest unaffiliated SS7 network in the United States and
are a leading provider of complementary intelligent network and SS7 services to
telecommunications carriers. Connection to our network gives carriers access to
the system of signaling networks of nearly the entire U.S. public-switched
telecommunications infrastructure through a single source. Our SS7 network also
provides us with an established platform from which we can provide other
value-added services. The provision of SS7 network services is our primary focus
and we are not affiliated with any telecommunications carrier.

Through our networks, we provide:

- SS7 connectivity, switching and transport;

- intelligent network services, including local number portability and
support for roaming between wireless carriers and various specialized
database services; and

- prepaid wireless account management and unregistered wireless roaming
services.

Also, we serve the telecommunications industry with:

- clearinghouse services to facilitate payment among telecommunications
carriers; and

- network usage software applications.

Our SS7 network is composed of specialized SS7 switches, sophisticated
computers and databases strategically located across the country. These elements
interconnect our customers and the largest U.S. telecommunications carriers
through leased lines. Our network serves over 700 network services customers,
including incumbent local exchange carriers, competitive local exchange
carriers, long distance companies, wireless telecommunications providers and
Internet service providers.

Our SS7 network today consists of 11 mated pairs of SS7 signal transfer
points, which are specialized switches that manage SS7 signaling, and into which
our customers connect via leased lines. We own four pairs and lease capacity on
seven pairs of SS7 signal transfer points from regional partners. The
combination of these regional partner signaling transfer points with our own
provides us with one of the most extensive inter-carrier SS7 networks in the
United States.

Our wireless account management network has over 200 locations at our
customers' mobile telephone switching offices in over 800 markets in the United
States. In locations where we do not have equipment servicing a mobile telephone
switching office, we utilize remote switching units to link to our network.

OUR COMPETITIVE STRENGTHS

Our competitive strengths include:

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and technical expertise required to install and manage necessary SS7
connections with the largest U.S. telecommunications carriers.

- ESTABLISHED CUSTOMER RELATIONSHIPS BASED ON INDEPENDENCE AND
NEUTRALITY. As the largest non-carrier affiliated SS7 network provider,
we have fostered business relationships with AT&T, MCI WorldCom, Sprint,
all of the regional Bell operating companies, many major competitive
local exchange carriers and a significant number of wireless operators,
independent telephone companies and interexchange carriers. Our customers
consider the subscriber information we manage for them to be
confidential, and we believe that our independence and neutrality
significantly enhance our attractiveness as a provider of outsourced SS7
services. In addition, our established relationships provide us with the
opportunity to sell additional services to a broad base of customers
while limiting our dependence on any single customer. We believe that the
need for such broad relationships poses a significant barrier to entry
for other potential SS7 service providers.

- ABILITY TO LEVERAGE OUR EXISTING SS7 NETWORK PLATFORM TO OFFER NEW AND
INNOVATIVE SERVICES. Our SS7 network is advanced and flexible, which
enables us to rapidly add services to our existing offerings with limited
service disruptions or additional costs. We have added and expect to
continue to add new services which we believe will complement the
services we currently provide to existing customers, and therefore
increase revenues per customer, as well as help us to add new customers.

- ABILITY TO LEVERAGE OUR PLANNED OSS MEDIATION PLATFORM TO PROVIDE
ADDITIONAL SERVICES. We believe our planned OSS mediation platform, which
will use our SS7 network and established interfaces with multiple
carriers to facilitate communication among their back office or
operational support systems, will enable us to provide additional
services to existing customers and to attract new customers. Because of
the complexity of establishing intercarrier interfaces, we believe there
is a growing need for outsourced OSS mediation and that we are well
equipped to provide these services.

- POSITIONED TO BE THE SS7 SERVICE PROVIDER OF CHOICE TO INTERNET
PROTOCOL-BASED CARRIERS. As one of the largest providers of outsourced
SS7 and intelligent network services in the United States, we are
strategically positioned to provide those services to emerging Internet
protocol-based carriers who must access existing public-switched
telecommunications networks to serve their rapidly growing customer
bases. Emerging packet-based carriers need access to the signaling-based
services that are used by traditional circuit-based telecommunications
providers. By working with manufacturers, such as Cisco and Lucent, to
certify the operation of their equipment with our network, we have
positioned ourselves to provide these signaling-based services to these
new communications providers. Our SS7 expertise also allows us to offer
services to Internet service providers who choose to use SS7-based
signaling to offer more efficient and cost-effective service to their
customers.

OUR GROWTH STRATEGY

Our growth strategy consists of the following key elements:

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wireless carriers and Internet service providers. We expect continued
growth in the number of telecommunications providers entering the market.
We believe we will be the SS7 service provider of choice to these
emerging entrants who are unlikely to risk outsourcing their critical SS7
services to one of their competitors.

- PROVIDE NEW SERVICES TO HELP DIFFERENTIATE OUR CUSTOMERS FROM THEIR
COMPETITORS. The competitive nature of the telecommunications industry
requires providers to offer enhanced services to maintain existing or
attract new customers. Many of these enhanced services are implemented
through the SS7-based intelligent network. We intend to continue to
deliver new and enhanced services and applications that will enable our
customers to broaden their service offerings and thus improve their
market position.

- GENERATE ADDITIONAL REVENUE THROUGH OUR SS7 NETWORK USAGE MEASUREMENT
CAPABILITIES. We will seek to use our proprietary network usage software
applications and related expertise to develop services to monitor usage
of customers' networks and capture usage pattern data. The hardware and
software investments we have made to capture data elements contained in
SS7 signaling messages give us the ability to gather valuable information
about telephone calls facilitated by our network. In many cases, we can
obtain more information about calling patterns and interactions with
other networks from our SS7 network than any single carrier can on its
own. We are developing services that will enable our customers to use
this information to more efficiently operate their networks and develop
targeted marketing plans.

- BECOME THE PREFERRED PROVIDER OF SS7-BASED SERVICES TO EMERGING INTERNET
PROTOCOL-BASED CARRIERS. We believe that providing carrier-class
intelligent network capabilities is one of the biggest challenges facing
emerging Internet protocol-based carriers. We have worked with hardware
providers, including Cisco and Lucent, to certify new SS7-related
equipment for emerging Internet protocol-based carriers. Our core
competencies of database management and signaling-based communications
position us well to offer services similar to our existing offerings in
an Internet protocol-based network. As one of our initial steps in
developing services for these Internet protocol-based network providers,
we offer signaling capabilities to Internet service providers that help
them to improve service quality by reducing congestion on their networks
while lowering their costs. We intend to pursue additional opportunities
to provide intelligent network capabilities using emerging Internet
protocol-based technologies.

- STRENGTHEN OUR MARKET PRESENCE THROUGH SELECT ACQUISITIONS. We will
actively seek to acquire companies that possess complementary service
offerings. Companies that have developed signaling-based services or
services that can be improved or delivered more economically through the
use of our SS7 network can provide us incremental revenues and net
income. Through select acquisitions, we believe we can combine new,
complementary services with our existing product line and extensive
network, to increase our market reach and broaden our service portfolio.

OUR HISTORY

We were formed as U.S. Intelco and began operations in 1981. Our original
mission was to maintain the independent telephone company customer records for
AT&T. Throughout the 1980s, we expanded our service portfolio with the addition
of clearinghouse and revenue administration services for telecommunications
carriers.

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In the late 1980's the industry began to transition to SS7 technology. We
capitalized on this shift to SS7 in 1989 by forming a subsidiary to develop and
maintain an SS7 network for independent telephone companies that needed SS7
capabilities but lacked the expertise or resources to develop their own network.
We continued to develop services that use SS7 technology, including outsourced
maintenance of a line information database for calling card validation, billing
validation and third-party collect call validation.

THE TELECOMMUNICATIONS INDUSTRY

Historically, telecommunications carriers operated in a highly regulated
environment with little or no competition. Recently, governments worldwide have
begun to deregulate the telecommunications industry in order to reduce costs and
improve service. Deregulation has encouraged the emergence of many new
telecommunications carriers and increased competition. New entrants to the
global telecommunications landscape include:

- competitive long distance and local exchange carriers;

- competitors to government post, telephone and telegraph companies outside
the United States;

- wireless carriers;

- resellers, such as calling card providers; and

- Internet service providers.

Deregulation has also opened specific service opportunities to competition,
such as the provision of toll-free number database services, line information
database services and local number portability.

Increased competition in the telecommunications industry is forcing
carriers to differentiate themselves by providing advanced, value-added
services. Examples of these services include personal toll-free numbers, prepaid
calling cards, caller identification, real time billing validation, customized
routing and billing and voice messaging. Carriers in a growing number of markets
are also being required to provide local number portability, which enables a
customer to change local telephone service providers without changing its
telephone number. Providing these services requires SS7 connectivity and
simultaneous database access through an SS7 network.

Telecommunications networks have also significantly increased in complexity
in order to accommodate the functionality requirements of these value-added
services, such as local number portability, which was mandated in 1996 by the
FCC to be implemented beginning in 1999 for wireline carriers and in 2002 for
wireless carriers. These intelligent networks allow for various functions to be
distributed flexibly throughout the network. For example, intelligent network
functions enable carriers to deploy advanced services on computer systems
separate from the switching systems that connect their customers. The computer
system is accessed through the SS7 network, reducing cost and increasing quality
of customer service.

The growth of intelligent networks, coupled with a significant increase in
demand for telecommunications and Internet-related data services, has resulted
in corresponding demand for telecommunications infrastructure and advanced
networking technologies. Telecommunications carriers must provide the very
highest quality and reliability of service to remain competitive.

Competitive local exchange carriers must establish interfaces with several
other carriers to provide services to their customers. Establishing an interface
with another carrier can be difficult and time consuming. We believe that there
is a growing need for mediation services to assist in the establishment of these
interfaces.

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PRODUCTS AND SERVICES

As illustrated in the diagram below, we provide our customers with various
products and services. The majority of our products and services are directly
related to our SS7 network, as either part of the connectivity, switching and
transport function of the SS7 network or as intelligent network services
delivered over our SS7 network or our wireless account management network. In
addition, we provide clearinghouse services and license specially designed
software for measuring network usage.

[PRODUCTS DIAGRAM]

NETWORK SERVICES -- CONNECTIVITY, SWITCHING AND TRANSPORT

Our network services provide carriers with:

- connectivity to SS7 networks throughout the United States via access to
our network at any of 11 signal transfer point mated pairs located
throughout the country;

- the ability to deliver a full range of services, via SS7 connectivity, to
the incumbent local exchange carriers who serve 230 of the 237 local
access and transport areas and major independent local exchange carrier
regions in the United States; and

- the opportunity to save time and resources on establishing and
maintaining SS7 links. We provide complete engineering, installation,
testing and activation of all links to our network and work closely with
carriers to ensure configurations meet their specific requirements.

SS7 Connectivity, Switching and Transport. These are all component parts of
our basic SS7 trunk signaling service. Trunk signaling reduces post-dial delay,
allowing call connection almost as soon as dialing is completed. This enables
carriers to deploy a full range of intelligent network services more quickly and
cost effectively. By using our trunk signaling service, carriers simplify SS7
link provisioning by outsourcing this to us and can:

- increase trunk efficiency through faster call completion and disconnect;

- reach all local, interexchange and wireless carriers' networks through
our access to hundreds of carriers;

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- enhance network reliability by having us monitor the performance of their
SS7 connections 24 hours a day, seven days a week;

- facilitate custom local area signaling services, such as caller
identification; and

- lower access costs for local delivery of interexchange and wireless
calls.

Database Access Messaging. We provide the SS7 functions that enable
carriers to find and interact with network databases and conduct the database
queries that are essential for many advanced services. Combined with
connectivity to our SS7 network, we provide access to the database information
that enables carriers to deliver a full range of custom local area signaling
services to their customers.

Seamless Roaming. In 1993, the Cellular Telecommunications Industry
Association endorsed us, for a period of five years, as the nationwide provider
of IS-41 signaling in support of seamless roaming. We remain a nationwide
provider of seamless roaming support using the IS-41 signaling protocol. IS-41
allows carriers to provide support for roamers visiting their service area, and
for their customers when they roam outside their service area. It enables number
validation inside and outside carriers' service areas by accessing our SS7
network. All U.S. wireless carriers providing subscribers with automatic call
delivery and autonomous registration while roaming use IS-41 or the recently
introduced GSM-MAP protocol, which we also support.

NETWORK SERVICES -- INTELLIGENT NETWORK SERVICES

Intelligent network services encompass a number of database query
functions, the most significant of which are local number portability, line
information database access and transport, toll-free database access and
transport and caller identification or calling name delivery access and
transport. Each of these services uses our SS7 network to access our databases
and others maintained by third parties.

Local Number Portability. In 1996, the FCC mandated that incumbent local
exchange carriers implement wireline number portability in all major U.S.
markets beginning in 1999. Local number portability allows a telephone
subscriber to switch local service providers while keeping the same telephone
number. It substantially complicates the process of completing an ordinary
telephone call, since the destination telephone number in an area where local
number portability has been implemented no longer bears any direct relationship
to its actual physical location on the network. In order to complete a call to a
telephone number in an area where local number portability has been implemented,
a carrier must conduct a simultaneous database query to route the call
correctly. We manage interactions with number portability databases and provide
database queries on a call-by-call basis, thereby allowing carriers to deploy
local number portability without the high cost of building their own
infrastructure.

Wireless carriers have not been required to port telephone numbers between
carriers until November 2002. Today they are responsible for routing ported
telephone numbers when completing calls to ported areas. Our local number
portability solution provides wireless carriers with this routing information
today.

Our local number portability services include:

- service order administration, which gives carriers online access to
manage portability information, send that information to the appropriate
national Number Portability Administration Center and retrieve
information about what actions other service providers may have taken;

- a local service management system that is the hardware and software
database platform necessary to manage customer call routing information;

- data access to the appropriate local number portability service control
point for the information necessary to complete a call; and

- wireless number portability.

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We believe our local number portability services are highly competitive
because we provide integrated, turnkey management of sophisticated and
time-consuming local number portability databases, a single interface to all of
the seven Number Portability Administration Centers in the United States and 24
hour a day, seven day a week technical support.

Line Information Database Access and Transport. Line information databases
are developed and maintained by telecommunications carriers to store information
about their subscribers necessary to provide enhanced services such as
validating telephone numbers and billing information. For example, when a caller
tries to bill a call with a calling card, the local carrier where the call is
initiated sends a query over the SS7 network. The SS7 network then determines
the appropriate database to validate the card number, routes the information to
the switch that analyzes the response and determines how to treat the call.

Through our SS7 network, we offer high-speed access to all of the line
information databases in the United States for seamless, nationwide access to
subscriber information. We also manage and operate our own database of over 23
million line information records. Our SS7 network and database access allow
carriers to deliver, in fractions of a second, seamless access to subscriber
information through our access agreements with all databases in the country, for
purposes such as validating calling card, collect and third party billed calls.

Key features of our line information database services include:

- fraud protection features, such as usage monitoring, auto-deactivation,
lost and stolen card service and domestic restrictions to fight
international calling card fraud; and

- high capacity and reliability, fully meeting industry standards for call
processing throughput, storage volume capacity, fault tolerance and
redundancy.

Toll-Free Database Access and Transport. Our SS7 network provides access to
all toll-free numbers in the country for call routing. When a caller dials a
toll-free number from one of our customers' areas, our customer launches a query
over our SS7 network. Our network routes the query to a national toll-free
database, retrieves information and identifies the appropriate carrier and other
routing information as necessary. Our network returns the response to our
customer for call routing.

Calling Name Delivery Access and Transport. Caller identification or
calling name delivery service has become an increasingly popular value-added
offering for telephone subscribers. Most local exchange carriers provide a
caller identification service that displays a caller's telephone number. The
originating caller's telephone number is part of the SS7 signaling message that
sets up a telephone call; however, providing the caller's name requires the
ability to obtain the name that matches that telephone number from a line
information database. We develop and offer calling name database access,
allowing carriers to query many regional Bell operating companies and major
independent telephone carriers and reduce the "name not available" messages that
customers receive. We also manage and operate a database for storage of
incumbent local exchange carrier, competitive local exchange carrier and
wireless calling name records.

Key components and features of our calling name database include:

- a high capacity calling name database that consistently meets applicable
industry standards for queries per second and data storage volumes;

- a city/state database in addition to our main calling name database. If a
caller's name is not accessible, a carrier can deliver the caller's city
and state location, giving subscribers a better indication of who is
calling and reducing "name not available" messages; and

- automatic dual updating of our calling name database and our line
information database.

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Other Services. We also provide other intelligent network services to our
customers. For example, in addition to network access, we provide a centralized
database of IS-41 messages that enables a wireless carrier to manage and monitor
its roaming activities more efficiently while also providing protection against
the illegal use of cellular phone identification numbers in more than one phone.

OSS Mediation Services. We are developing an OSS mediation service to
enable our customers to overcome the significant complexities of ordering local
service elements from other carriers, such as directory services, emergency 911
service and other local connections. We believe that this mediation service will
simplify and manage the interfacing of operational support systems such as
provisioning and element management among carriers that are our customers. The
mediation platform we are developing will enable us to provide additional
services to our existing customers and to attract new customers. In order to
establish an efficient and competitive entry point in this market we plan to
phase in the implementation of this service with a number of our existing
customers. We will initially focus on local service request transactions, such
as pre-ordering and ordering the elements required for provisioning basic
telephone service for a carrier's new customers.

We believe that our mediation services will be more attractive to
competitive local exchange carriers than the alternative of developing multiple
interfaces with other carriers on their own. Negotiating and implementing an
interface with another carrier can be difficult and time consuming, as a
competitive local exchange carrier may need to establish an interface with
several other carriers. Although there are industry efforts to standardize
carrier interfaces, they vary substantially from each other and place a
significant burden on competitive local exchange carriers seeking to establish
these interfaces. We believe our mediation services will reduce the costs and
complexities of interconnection between carriers.

In order to complement the OSS mediation service we are developing, we
recently announced an alliance with Quintessent(TM) Communications, Inc. to
introduce the first full-service interconnection software and services package
to deliver outsourced OSS mediation and e-commerce functionality. We believe
Quintessent is a leader in developing software that makes efficient
inter-carrier trading networks possible and that Quintessent's Tele.Commerce(TM)
solution will allow us to provide a more complete OSS mediation service for
carriers.

NETWORK SERVICES -- PREPAID WIRELESS ACCOUNT MANAGEMENT AND UNREGISTERED
WIRELESS ROAMING SERVICES

SmartPay. SmartPay is a network-based prepaid wireless account management
service offered to wireless carriers for their subscribers. SmartPay is unlike
most prepaid services currently offered because it employs an "account card"
instead of a debit card. This account card allows providers to automatically
debit a customer's account and to calculate how much a customer has used on his
account. It also allows the customer to automatically replenish his account. The
account card is a permanent account. Therefore, it reduces fraud and retail
inventory risks associated with the management of traditional prepaid cards and
establishes a relationship between the carrier and the wireless user. With
SmartPay, wireless carriers can offer customers flexible rate plans, features
and enhancements, which are comparable with postpaid plans, while eliminating
credit risk and bad debt expense. SmartPay enables:

- replenishment over the phone using a credit card or bank debit card;

- real-time replenishment at over 4,000 retail outlets in the United
States;

- replenishment outside a carrier's home market;

- flexible replenishment amounts; and

- a complete record of all cash transactions and details of calls including
roaming and long distance charges via the Internet.

Due to the ease of replenishment and the ability to allow wireless carriers
to offer popular and economical "bundled minutes" plans on a prepaid basis, we
believe that SmartPay can increase customer

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<PAGE> 43

retention in comparison to prepaid debit cards. Furthermore, wireless carriers
using SmartPay can provide a larger roaming presence for their prepaid customers
and establish their own roaming rates in conjunction with their "home" marketing
initiatives. SmartPay utilizes our wireless account management network.

American Roaming Network Services. Our American Roaming Network services
provide wireless carriers with a solution for handling calls originated from
wireless phones with unregistered users. We designed this service so that
unregistered users can debit their personal prepaid account while roaming or use
an alternative payment method such as a credit card for calls without live
operator intervention. This significantly reduces call set-up time, resulting in
higher call completion rates. The American Roaming Network service provides an
appealing source of additional revenue to wireless carriers from calls that
could not otherwise be completed by unregistered users. Our American Roaming
Network services utilize our wireless account management network.

CLEARINGHOUSE SERVICES

Our clearinghouse services include serving as a distribution and collection
point for billing information and payment collection for services provided by
one carrier to customers billed by another. For example, we receive a monthly
report from a carrier that provides long distance services detailing the long
distance calls made by the customers of another carrier. We prepare statements
to each billing carrier of the customers' usage, which the billing carrier then
uses to bill its customers. The billing carrier remits the payments received
from its customers to us. We aggregate these payments and remit them to the
carrier providing the long distance service, net of our servicing fee.

With our clearinghouse services, carriers can:

- bill and collect messages in a simple consolidated invoice that other
providers may otherwise bill separately to the local carrier's customers;

- bill and collect operator-assisted and calling card calls made through
MCI WorldCom, Sprint and other interexchange carriers; and

- bill and collect direct dialed long distance calls for selected
interexchange carriers.

NETWORK USAGE SOFTWARE APPLICATIONS

Our network usage software was developed as a commercial derivative of
software originally developed to measure and monitor the usage of our own SS7
network. Using our AMAT7 software, in conjunction with equipment provided by
Agilent, SS7 network operators can measure network usage to allow them to bill
other carriers for the use of their SS7 network. Our CDR7 software captures call
record detail directly from SS7 signaling links and provides this information in
a format that allows for billing to, and verification of invoices received from,
other carriers.

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<PAGE> 44

OUR NETWORKS

OUR SS7 NETWORK

The following diagram illustrates the relationship of the basic components
of the SS7 network:

SS7 NETWORK DIAGRAM

[ILLUMINET GRAPHICS]

A telephone call involves two types of information: the call content
(voice, computer data or video) and the signaling information about the call
(such as the party initiating the call and the number being called). This
signaling information is required to connect, manage and bill for the call.
Therefore, modern telecommunication networks not only must convey information
between points, but also must identify the best routes for connections, control
the allocation of resources used to transfer the information and keep
transaction records for billing and measurement purposes.

The call transmission portion of the U.S. public-switched
telecommunications network uses voice switches located in the offices of local
and long distance service providers. These switches gather traffic from homes
and businesses over local loops and direct it over trunks through the mesh of
different carriers' networks across the country and around the world. Finally,
the traffic is passed onto a local loop for termination at the distant end.

The SS7 network directs calls through carriers' networks and provides
advanced functions such as completing toll-free calls, identifying calling party
name and tracking telephone numbers transferred between local telephone
companies, also known as local number portability. SS7 is a standardized set of
protocols and architecture that has been implemented by telecommunications
carriers worldwide beginning in the mid-1980s. SS7 uses packet-switching
technology and transmits signaling messages on

43
<PAGE> 45

data circuits that are independent of the callcircuits it controls. Because SS7
messages travel on discrete circuits, SS7 is often referred to as "out-of-band"
signaling. SS7 networks are designed to be reliable, flexible and scalable and
have high capacity, enabling telecommunications carriers to provide new services
quickly and to enhance the network bandwidth used for trunk connections.

Whenever a call originates in a phone network with intelligent network
services, a message signal unit is generated by the originating switch and sent
to the proper destination switch over the SS7 network. All signaling used for
establishing a call, disconnecting a call, database query and response and SS7
network management is carried by these message signal units. As the message
signal unit is routed by the signaling system, the appropriate switches in the
local and, if necessary, long distance telephone networks reserve the circuits
needed to complete the telephone call. Finally, the message signal unit reaches
the destination switch and the destination switch processes the dialed number
stored in the message signal unit to connect the call to the dialed party.

The SS7 network consists of three basic network and software components:

Service Switching Points: "SS7-enabled voice switches." Service switching
points are carriers' voice switches (for example, a Lucent 5ESS switch) that use
SS7 technology. In addition to originating, terminating and switching calls,
service switching points exchange messages with other service switching points,
signal transfer points and service control points throughout the network.

Signal Transfer Points: "data switches for SS7 traffic." Signal transfer
points are packet switches that provide access to the SS7 network and route SS7
messages among service switching points and service control points. These are
the traffic controllers of the SS7 network. Signal transfer points typically
consist of highly reliable computers running special software.

Service Control Points: "intelligent SS7 databases." Service control points
are computers that house databases containing customer and network information.
This information is used by the SS7 network for call routing, billing and
intelligent network database services.

Our SS7 network consists of 11 mated pairs of signal transfer points
strategically located across the United States. We own four pairs of signal
transfer points and currently lease capacity on seven pairs of signal transfer
points owned by our regional partners. We are currently in the process of
installing one additional mated pair of signal transfer points and are planning
to install another additional mated pair within the next 12 months. In June
2000, we disconnected our link to a leased pair of signal transfer points. We
expect to replace this pair with one that we will own.

Our leases generally have renewable two year terms. If a signal transfer
point lease is terminated, we may continue to use the capacity for up to one
year until we are able to move our affected customers to another signal transfer
point.

Our SS7 network is connected to 230 of the nation's 237 local access and
transport areas and major independent local exchange carrier regions, either
through a direct connection to the local access and transport areas or through a
gateway switch belonging to the regional Bell operating company. We have over
400 dedicated connections to local access and transport areas. As of March 31,
2000, we provided signaling for approximately 18,988 trunk groups providing
customers with local access and transport areas access.

We connect our customers to our nationwide SS7 network through links to our
signal transfer points. As of March 31, 2000, we had approximately 1,996 access
links in service.

In addition to signal transfer points and associated equipment, we maintain
a network operations center in Overland Park, Kansas. We also maintain our
intelligent network services databases, related computers and storage devices in
our headquarters building in Lacey, Washington and in our regional signal
transfer point offices in Mattoon, Illinois and Rock Hill, South Carolina.

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<PAGE> 46

OUR WIRELESS ACCOUNT MANAGEMENT NETWORK

We have hardware installed in over 200 locations at our customers' mobile
telephone switching offices serving over 800 markets in the United States. In
locations where we do not have equipment servicing a mobile telephone switching
office, we utilize the public switched telephone network to transport the call
to our switching center in Dallas.

Our wireless account management network consists of a switching matrix, a
database server and interactive voice response units utilizing the Windows
NT(TM) operating system. These network components are connected via both a local
and a wide area network for credit validation/approval, pre-validated roaming
inquiries, account replenishment activities and customer service
interconnection. We internally developed all call management and product
services software used by our network.

Dedicated circuits conduct communication and signaling between the mobile
telephone switching offices and our on-site equipment. This equipment can accept
dual tone multi-frequency, SS7 or IP signaling protocols. It also serves as the
platform for our SmartPay wireless account management services and our American
Roaming Network services for unregistered users.

SALES AND MARKETING

Our sales force is made up of 22 direct salespeople and two telemarketers.
Eleven of these salespeople are located in our Overland Park office, five in
Dallas, with six regional account managers located strategically throughout the
United States. In addition to our direct sales force, we maintain a customer
care center with 12 customer service representatives in our Lacey office to
handle customer requests and updates.

Our marketing and sales division identifies customer needs for network
services and promotes our large, reliable network, our competitively priced
services and our neutrality in dealing with carriers. The number and complexity
of our products and services increase the required training and specialization
of our sales force and support staff.

We believe strong account management is our key to a successful sales
effort. We use a consultative sales approach, working with carriers to establish
and maintain relationships that identify and serve customer needs proactively.
We also pursue opportunities to develop custom solutions to meet large customer
requirements.

We provide incentives for our direct sales staff to further develop their
consultative relationship with our customers by offering bonuses in addition to
salary and commissions. These bonuses are based on a number of factors,
including customer satisfaction, customer retention and new business
development.

We retain an independent consulting company annually to gauge our customer
satisfaction. This consulting company, in conjunction with our review team,
identifies recent successes and plans improvements for the next year. The
results of these surveys show a high level of customer satisfaction.

CUSTOMERS

Our customer base is diversified across the many different types of
facility-based and reseller carriers in the United States. Our top ten customers
accounted for approximately 47% of our revenues for the year ended December 31,
1999, and no customer represented more than 12% of our revenues in that year. As
of March 31, 2000, in addition to 330 independent telephone companies, our
customer base includes 82 wireless carriers, 227 competitive local exchange
carriers and 88 interexchange carriers, 10 ISP customers and 29 other customers.
In 1999, we earned approximately 12% of our revenues from AT&T and its
affiliates, with no single affiliate contributing more than 7% to our total
revenues. In the first quarter of 2000, AT&T and its affiliates represented
approximately 11% of our total revenues, with

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<PAGE> 47

no single affiliate representing more than 7%. Each of our products and services
serves multiple customer types as described below:

- Network Services-Connectivity, Switching and Transport: The customer
focus for these services includes long distance carriers, operator
service providers, independent telephone companies, competitive local
exchange carriers, Internet protocol-based carriers, and wireless
carriers. Our signaling services customers include AT&T, MCI WorldCom,
BellAtlantic Mobile, U.S. Cellular and Winstar.

- Network Services-Intelligent Network Services: The customer focus for
these products includes long distance carriers, operator service
providers, regional Bell operating companies, independent telephone
companies, competitive local exchange carriers, Internet protocol-based
carriers, and wireless carriers. Our intelligent network services
customers include Frontier, Alltel, BellSouth, AT&T and MCI WorldCom.

- Prepaid Wireless Account Management and Other Advanced Wireless
Applications: Our wireless customers include the wireless business of
Alltel, United States Cellular and CenturyTel.

- Clearinghouse Services: The customer focus for these services includes
long distance carriers, operator service providers, regional Bell
operating companies, independent telephone companies and competitive
local exchange carriers. Our clearinghouse services customers include
AT&T, MCI WorldCom and ZeroPlus Dialing, Inc.

- Network Usage Software Applications: The user focus for these products
includes regional Bell operating companies and other large carriers.
Users of our network usage software applications include SBC, US West,
and BellSouth.

COMPETITION

The market for SS7 network access and related services is relatively new,
but intensely competitive. It is subject to rapid technological change, evolving
industry standards and regulatory developments. We expect competition to
increase in the future. We compete with a number of U.S. and international
companies that vary in size and in the scope and breadth of the products and
services they offer. Our competitors for SS7 network access and intelligent
network services include subsidiaries of AT&T, MCI WorldCom, Southern New
England Telephone, Sprint, GTE and regional Bell operating companies, as well as
other companies. Many of our competitors are small business units of very large
companies, that currently do not actively market their SS7 networks or services.
It is possible that new competitors or alliances among competitors could emerge
and rapidly acquire significant market share. As a result, those competitors may
be able to more quickly develop or adapt to new or emerging technologies and
changes in customer requirements, or devote greater resources to the
development, promotion and sale of their products. Increased competition is
likely to result in price reductions, reduced margins and loss of market share.
We compete with Boston Communications Group, Priority Call, Subscriber Computing
and to a lesser extent Brite Voice in the provision of prepaid wireless account
management services. Our primary competitor for our unregistered user services
is Boston Communications Group. We currently compete with only one other
significant company, National Exchange Carrier Association -- Independent NECA
Services, with respect to our clearinghouse services. INET, Inc. is our main
competitor for network usage software applications.

We believe that our ability to compete successfully depends on numerous
factors, both within and outside our control, including:

- our responsiveness to telecommunications service providers' needs;

- our ability to support existing and new industry standards;

- the development of technical innovations;

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<PAGE> 48

- our response to regulatory changes; and

- the quality, reliability and security of our products and services.

We cannot assure you that we will be able to compete successfully against
current or future competitors or that competitive pressures that we face will
not materially adversely affect our business, financial condition and operating
results.

REGULATION

We are not subject to the direct regulation of the FCC or any state utility
regulatory commission. Some of our customers, however, may be subject to federal
or state regulation that could have an indirect effect on our business. Because
we do not provide voice-grade or data services that are deemed to be common
carrier telecommunications services, we do not anticipate that our services will
be subject to regulation by the FCC or state public utility commissions.
However, future regulation of lines of business we may enter could directly
affect our business or indirectly affect our business through its impact on our
customers. Alternatively, any future change in laws or regulations could subject
us to direct regulation by the FCC or any other federal or state agency.

EMPLOYEES

As of March 31, 2000, we had 411 employees, of whom 254 were engaged in
operations, 89 were engaged in sales and marketing, and 68 were engaged in
administrative and other business support functions. We believe our relationship
with our employees is good. We have no collective bargaining agreements and no
unionized employees.

Our success depends, in part, upon our ability to continue to attract,
motivate and retain additional highly qualified employees, particularly
employees with SS7 knowledge and experience. The process of locating employees
with the skills and attributes necessary to implement our strategy is lengthy.
The loss of any existing key employees or the inability to attract, motivate and
retain additional qualified employees could affect our ability to expand our
network and enhance our products and services. See "Risk Factors -- We may have
difficulty attracting and retaining employees with the requisite skill to
execute our growth plans."

FACILITIES

Our headquarters and a portion of our operations center are located in
Lacey, Washington, where we own our facility. The building, approximately 13.5
acres of land on which the building is constructed, and some of our computer
hardware and software are financed by Rural Telephone Finance Cooperative. RTFC
has a first priority lien on our building and land in Lacey.

We also lease office space, constructed to suit our specifications, in
Overland Park, Kansas, where, in addition to sales and administrative functions,
we have our network surveillance and control center that operates 24 hours a
day, seven days a week. The lease expires January 1, 2006, subject to an option
in 2004 to extend the lease for an additional five years. We lease space for our
prepaid wireless account management and other advanced wireless services in
Dallas, Texas. This lease expires in April 2007. We sublease space for our
signal transfer point facilities at Mattoon, Illinois. The sublease expires on
July 31, 2001. We lease space for our signal transfer point facilities at Rock
Hill, South Carolina. The lease expires April 30, 2001.

LEGAL PROCEEDINGS

We are a party to various legal proceedings arising in the ordinary course
of business. We do not believe that the claims in these proceedings,
individually or combined, will have a material adverse effect on our business,
financial condition or operating results.

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MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The persons currently serving as directors and executive officers of
Illuminet Holdings, Inc. and their ages are listed below. Roger H. Moore,
President and Chief Executive Officer, is the only director employed by
Illuminet.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Roger W. Moore............... 58 President, Chief Executive Officer and Class I Director
F. Terry Kremian............. 53 Executive Vice President and Chief Operating Officer
Daniel E. Weiss.............. 52 Chief Financial Officer, Secretary and Treasurer
Bruce E. Johnson............. 52 Vice President -- Operations and Engineering
David J. Nicol............... 54 Vice President -- Product Management and Development
George F. Lebus.............. 41 President, NTC
Richard A. Lumpkin........... 65 Chairman of the Board and Class III Director
Gregory J. Wilkinson......... 50 Vice Chairman of the Board and Class III Director
Theodore D. Berns............ 50 Class III Director
Eugene L. Cole............... 64 Class II Director
James W. Strand.............. 53 Class II Director
</TABLE>

Mr. Moore has been President and Chief Executive Officer since December
1995 and a member of the Board of Directors since July 1998. Prior to that, Mr.
Moore served as vice president of major accounts of Northern Telecom from 1994
to 1995. He was president of Northern Telecom Japan from 1991 to 1994, and from
1989 to 1991, he was vice president of Northern Telecom's Western Region. Mr.
Moore held other senior positions with Northern Telecom since joining that
company in 1985. Prior to joining Northern Telecom, Mr. Moore was the president
of AT&T Canada from 1982 to 1985. He has over 30 years of experience in the
telecommunications and business systems industry. Mr. Moore is a director of Tut
Systems, Inc. and The Center for Telecommunications Management at the University
of Southern California.

Mr. Kremian has been Executive Vice President and Chief Operating Officer
since September 1998. Prior to that, Mr. Kremian was Vice President -- Marketing
and Sales from November 1997. He joined Illuminet from MCI where he was employed
since 1982, most recently as director of Carrier Sales, National Accounts.

Mr. Weiss has been Chief Financial Officer since February 1996 and
Secretary and Treasurer since April 1996. Mr. Weiss also serves as the Vice
President -- Finance for Illuminet, Inc. as well as its Secretary and Treasurer.
Prior to that, Mr. Weiss served as Vice President -- Finance, Treasurer and
Assistant Treasurer for Illuminet Holdings, Inc.'s predecessor companies since
1979.

Mr. Johnson has been Vice President -- Operations and Engineering since
February 1996. Prior to that, he served as Independent Telecommunications
Network's vice president -- operations and engineering from 1992 to 1996. Prior
to joining Independent Telecommunications Network, Mr. Johnson was responsible
for implementing NYNEX Corporation's SS7 network. While at NYNEX, Mr. Johnson
was responsible for deploying one of the first industry intelligent networks and
played an active role in providing SS7 performance data to the FCC for its
toll-free database mandate.

Mr. Nicol has been Vice President -- Product Management and Development
since February 1996. Prior to that, he served as Independent Telecommunications
Network's vice president, planning and administration since 1994. All of his
30-year career has been in technology industry sectors, the last 15 directly in
telecommunications, including six years at Sprint in various officer positions.

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<PAGE> 50

Mr. Lebus became President of NTC upon consummation of the merger on June
30, 2000. Mr. Lebus served as Chairman of the Board and Chief Executive Officer
of NTC since June 1995. He previously served as President and Chief Operating
Officer of NTC's subsidiary, U.S. Osiris Corporation from 1990 to June 1995.
Active in the industry since 1985, Mr. Lebus has served on a variety of industry
advisory boards. Prior to 1985, Mr. Lebus was involved in both communications
apparatus manufacturing and the oil services industry.

Mr. Lumpkin has been a director since January 1989 and currently serves as
Chairman of the Board of Directors and Chairman of the Executive Committee.
Since 1957, Mr. Lumpkin has been employed by Consolidated Communication Inc. and
its affiliates. In September 1997, Consolidated was merged into McLeodUSA
Incorporated and Mr. Lumpkin became vice chairman and a director of McLeodUSA.
He remains chairman, president and chief executive officer of Illinois
Consolidated Telephone Company, a local exchange carrier located in Mattoon,
Illinois. Mr. Lumpkin is currently a director of First Mid-Illinois Bancshares
and First Mid-Illinois Bank and Trust in Mattoon, Illinois, and Ameren
Corporation, a public utility in St. Louis, Missouri. Mr. Lumpkin is also a
former director and past president of the Illinois Telephone Association and
United States Telephone Association.

Mr. Wilkinson has been a director since February 1986 and currently serves
as Vice Chairman of the Board of Directors and Chairman of the Audit/Finance
Committee. Mr. Wilkinson has been associated with Telephone & Data Systems,
Inc., a communications holding company in various capacities since 1972. Since
November 1999, he has held the position of vice president and corporate
secretary for TDS and all major subsidiaries. From 1992 to November 1999, he was
vice president and controller of TDS.

Mr. Berns has been a director since October 1991. From 1996 until his
retirement in January 1999, Mr. Berns served as chief executive officer of
Integra Telecom, a competitive local exchange carrier located in Portland,
Oregon. From 1993 to 1995, Mr. Berns served as director, president and chief
executive officer of AdVal Communications, Inc., a provider of value-added
facsimile services located in Vancouver, Washington. From 1986 to 1993, Mr.
Berns was employed by Pacific Telecom, Inc., a telecommunications holding
company located in Vancouver, Washington. Mr. Berns held several positions with
Pacific Telecom, including vice president, secretary and president/chief
operating officer. In addition, Mr. Berns is a former director of the United
States Telephone Association.

Mr. Cole has been a director since 1981. Mr. Cole worked at Canby Telephone
Association, Canby, Oregon, where in 1968, he was named general manager and in
1986 became president. From 1998 to present, Mr. Cole has been president of US
Telecom West, a telecommunications company located in Canby, Oregon. From 1986
until 1994, and again from 1995 to 1998, Mr. Cole served as president of CTA
Service Corp., a non-regulated telecommunications service provider located in
Canby, Oregon, and North Willamette Telecom, a cable company located in Canby,
Oregon.

Mr. Strand has been a director since May 1992. From 1990 to July 1999, Mr.
Strand was president of the Diversified Operations division of and a director of
Aliant Communications, Inc., a telecommunications company located in Lincoln,
Nebraska. Since July 1999, Mr. Strand has been the Nebraska/ Kansas/Iowa market
area president for AllTel Corporation, a telecommunications and computer
services company headquartered in Little Rock, Arkansas. Mr. Strand served on
the board of directors of the Cellular Telecommunications Industry Association
and its executive committee from 1995 to 1999.

THE BOARD OF DIRECTORS

Our board of directors currently consists of six directors and we have two
vacancies. Our certificate of incorporation provides for a classified board of
directors consisting of three classes. Each class must consist, as nearly as
possible, of one-third of the number of directors constituting the entire board.
There

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<PAGE> 51

is currently one director in Class I, two directors in Class II and three
directors in Class III. The terms of the current directors terminate on the date
of the annual meeting of stockholders in the following years:

- Class I, 2003;

- Class II, 2001; and

- Class III, 2002.

At each annual meeting of stockholders, successors to the class of
directors whose term expires at that annual meeting will be elected for a
three-year term and until their respective successors are elected and qualified.
Under our certificate of incorporation, a director may only be removed for cause
by the affirmative vote of the holders of 80% of the outstanding shares of
capital stock entitled to vote in the election of directors.

The Board has four standing committees: Executive, Personnel,
Audit/Finance and Nominating. The Executive Committee oversees Board governance,
and the committee's members are Messrs. Lumpkin, Wilkinson, and Moore. The
Personnel Committee establishes policies for compensation and the reimbursement
of expenses to Board members for services on the Board and its committees and
also establishes policies regarding the compensation and benefit plans for
executive officers and other key employees, and the committee's members are
Messrs. Strand, Berns and Cole. The Audit/Finance Committee appoints and
communicates with independent auditors of the Company, reviews the Company's
accounting practices, internal accounting controls and financial results and
reviews and recommends major financial decisions of the Company, and the
committee's members are Messrs. Wilkinson and Berns. The Nominating Committee
selects nominees for election as directors and recommends directors to serve as
Chairman and Vice Chairman of the Board and the committee's members are Messrs.
Lumpkin and Wilkinson.

OUTSIDE DIRECTOR COMPENSATION

Each outside director receives a retainer of $1,000 per month, except for
the Chairman of the Board, who receives a retainer of $1,250 per month.
Additionally, each director receives an annual grant of $15,000 worth of options
to acquire Common Stock ("Annual Options"). Annual Options have an exercise
price equal to the closing price of Common Stock on the date of grant and vest
ratably in monthly increments from the grant date through the month of the next
annual meeting and expire ten years after the date of grant. The number of
Annual Options is determined by dividing $15,000 by 1/3 of the closing stock
price of the Common Stock on the date of grant. Each outside director also
receives a fee of $1,000 per board meeting and $500 per Committee meeting
attended in person, not to exceed $1,500 per day, and $200 per teleconferenced
meeting, except for the Chairman of the Board, who receives $1,250 per Board
meeting and $500 per Committee meeting attended in person, not to exceed $1,750
per day. All directors are reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors and meetings of
committees of the Board of Directors. Payment of monthly fees is made in the
form of cash or options to acquire Common Stock ("Retainer Options"), at the
election of the outside director. The Retainer Options have an exercise price
equal to the closing price of Common Stock on the date of grant and vest ratably
in monthly increments from the grant date through the month of the next annual
meeting and expire ten years after the date of grant. If a director elects to
receive Retainer Options, he must do so prior to the grant in question and the
option exercise price is set by the Board of Directors at that time. To
determine the number of shares subject to a Retainer Option, the annual amount
of retainer fees is divided by 1/3 of the closing stock price of the Common
Stock on the date of grant.

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EXECUTIVE COMPENSATION

The following table sets forth information for the years ended December 31,
1997, 1998 and 1999 regarding the compensation received by our chief executive
officer and each of our four other most highly compensated executive officers
whose salaries and bonuses for such year were in excess of $100,000 on an
annualized basis (we refer to these individuals as the named executive
officers).

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
--------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Roger H. Moore...................... 1999 $256,000 $128,000 200 $63,532(1)
President and Chief 1998 229,774 120,000 -- 33,938(2)
Executive Officer 1997 225,000 112,500 1,040,000 48,993(3)
F. Terry Kremian.................... 1999 175,008 83,129 88,200 45,946(4)
Executive Vice President 1998 160,008 42,881 40,000 7,250(5)
and Chief Operating Officer 1997(6) 20,915 25,000 80,000 --
Daniel E. Weiss..................... 1999 132,300 50,274 52,200 30,992(7)
Chief Financial Officer, 1998 126,000 31,828 44,000 17,270(8)
Secretary and Treasurer 1997 112,824 42,196 80,000 19,367(9)
Bruce E. Johnson.................... 1999 148,728 55,624 48,200 35,499(10)
Vice President -- 1998 143,004 36,123 32,000 20,308(11)
Operations and Engineering 1997 131,700 47,412 80,000 23,231(12)
David J. Nicol...................... 1999 150,156 56,158 48,200 35,869(13)
Vice President -- Product 1998 143,004 36,123 44,000 20,308(14)
Management and Development 1997 132,036 47,533 80,000 23,300(15)
</TABLE>

-------------------------
(1) Represents $1,572 in 401(k) matching contributions and $25,126 in
profit-sharing contributions made to our profit-sharing plan, and $36,834
in compensation for 401(k) matching contributions and profit sharing
contributions due to Mr. Moore in excess of amounts allowable under the
Internal Revenue Code.

(2) Represents $7,316 in 401(k) matching contributions and $14,821 in
profit-sharing contributions made to our profit-sharing plan, and $11,801
in compensation for 401(k) matching contributions and profit sharing
contributions due to Mr. Moore in excess of amounts allowable under the
Internal Revenue Code.

(3) Represents $8,000 in 401(k) matching contributions and $21,024 in
profit-sharing contributions made to our profit-sharing plan, and $19,969
in compensation for 401(k) matching contributions and profit sharing
contributions due to Mr. Moore in excess of amounts allowable under the
Internal Revenue Code.

(4) Represents $2,717 in 401(k) matching contributions and $25,126 in
profit-sharing contributions made to our profit-sharing plan, and $18,103
in compensation for 401(k) matching contributions and profit sharing
contributions due to Mr. Kremian in excess of amounts allowable under the
Internal Revenue Code.

(5) Represents $7,250 in 401(k) matching contributions.

(6) Mr. Kremian was hired effective November 10, 1997.

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<PAGE> 53

(7) Represents $7,765 in 401(k) matching contributions and $20,059 in
profit-sharing contributions made to our profit-sharing plan, and $3,168 in
compensation for 401(k) matching contributions due to Mr. Weiss in excess
of amounts allowable under the Internal Revenue Code.

(8) Represents $6,300 in 401(k) matching contributions and $10,970 in
profit-sharing contributions.

(9) Represents $5,641 in 401(k) matching contributions and $13,726 in
profit-sharing contributions.

(10) Represents $5,368 in 401(k) matching contributions and $23,064 in
profit-sharing contributions made to our profit-sharing plan, and $7,067 in
compensation for 401(k) matching contributions due to Mr. Johnson in excess
of amounts allowable under the Internal Revenue Code.

(11) Represents $7,150 in 401(k) matching contributions and $13,158 in
profit-sharing contributions.

(12) Represents $6,585 in 401(k) matching contributions and $16,646 in
profit-sharing contributions.

(13) Represents $5,159 in 401(k) matching contributions and $23,325 in
profit-sharing contributions made to our profit-sharing plan, and $7,385 in
compensation for 401(k) matching contributions due to Mr. Nicol in excess
of amounts allowable under the Internal Revenue Code.

(14) Represents $7,150 in 401(k) matching contributions and $13,158 in
profit-sharing contributions.

(15) Represents $6,602 in 401(k) matching contributions and $16,698 in
profit-sharing contributions.

STOCK OPTIONS AWARDED IN 1999

The following table lists options granted during 1999 to the named
executive officers. All of the options were awarded under the 1997 Equity
Incentive Plan. Options are exercisable ratably over four years and expire ten
years from the date of grant. We computed potential realizable values by first
multiplying the number of shares of common stock subject to a given option by
the option exercise price to determine the initial aggregate stock value. We
then assumed that the initial aggregate stock value compounds at an annual 5% or
10% rate shown in the table for the entire ten-year term of the option to
determine the final aggregate stock value. Finally, we subtracted from the final
aggregate stock value the initial aggregate stock value to determine the
potential realizable value. The 5% and 10% assumed annual rates of stock
appreciation are mandated by the rules of the SEC and do not reflect our
estimate or projection of future stock price growth. Actual gains, if any, on
stock option exercises depend upon the actual future price of common stock and
the continued employment of the option holders throughout the vesting period.
Accordingly, the potential realizable values listed in this table may not be
achieved.

OPTION GRANTS IN 1999

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE
PERCENT OF AT ASSUMED ANNUAL RATES OF
TOTAL OPTIONS STOCK PRICE APPRECIATION FOR
NUMBER OF SHARES GRANTED TO EXERCISE OPTION TERM
UNDERLYING EMPLOYEES PRICE EXPIRATION -----------------------------
NAME OPTIONS IN 1999 ($/SHARE) DATE 5% 10%
---- ---------------- ------------- --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Moore......... 200 0.03% $19.00 10/7/2009 $ 2,390 $ 6,056
F. Terry Kremian....... 88,000 12.47 8.00 8/20/2009 1,374,470 2,605,615
200 0.03 19.00 10/7/2009 2,390 6,056
Daniel E. Weiss........ 52,000 7.37 8.00 8/20/2009 812,186 1,539,682
200 0.03 19.00 10/7/2009 2,390 6,056
Bruce E. Johnson....... 48,000 6.80 8.00 8/20/2009 749,711 1,421,245
200 0.03 19.00 10/7/2009 2,390 6,056
David J. Nicol......... 48,000 6.80 8.00 8/20/2009 749,711 1,421,245
200 0.03 19.00 10/7/2009 2,390 6,056
</TABLE>

52
<PAGE> 54

AGGREGATE OPTION EXERCISES DURING 1999 AND OPTION VALUES ON DECEMBER 31, 1999

The following table provides information on option exercises in 1999 by the
named executive officers and the value of those officers' unexercised options as
of December 31, 1999. For purposes of this table, "exercise" means an employee's
acquisition of shares of common stock pursuant to stock option grants,
"exercisable" means options to purchase shares of common stock that are subject
to exercise and "unexercisable" means all other options to purchase shares of
common stock.

To calculate value of unexercised in-the-money options at fiscal year end,
we used the market value of the underlying stock as of December 31, 1999 of
$55.00 per share minus the per share exercise price, multiplied by the number of
shares issuable upon exercise.

AGGREGATED OPTION EXERCISES IN
1999 AND 1999 YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN THE MONEY OPTIONS AT
ACQUIRED OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END
ON VALUE --------------------------- ---------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Roger H. Moore................ -- -- 832,000 208,200 $43,798,560 $10,956,840
F. Terry Kremian.............. -- -- 50,000 158,200 2,620,200 7,779,800
Daniel E. Weiss............... -- -- 50,600 125,200 2,649,900 6,240,260
Bruce E. Johnson.............. -- -- 48,000 112,200 2,518,560 5,594,880
David J. Nicol................ -- -- 51,000 121,200 2,671,020 6,052,260
</TABLE>

BENEFIT PLANS

1997 EQUITY INCENTIVE PLAN

We adopted the 1997 Equity Incentive Plan on October 29, 1997. A committee,
which is appointed by the board of directors, consisting of at least two
nonemployee board members, administers the plan. Our plan sets aside 13% of our
common stock as may be outstanding from time to time for issuance as stock
awards. If stock awards granted under the plan expire, are canceled or lapse for
any reason (with the exception of the termination of a Tandem SAR upon exercise
of the related option, or the termination of a related option upon exercise of
the corresponding Tandem SAR) shares subject to such awards again become
available for issuance under the plan. As of March 31, 2000, options to acquire
up to 2,258,904 shares are outstanding under the plan. Roger Moore has been
granted options to purchase 1,040,000 shares, which options were not issued
under the plan.

The committee may grant incentive stock options that qualify under Section
422 of the Internal Revenue Code to our employees or employees of our
subsidiary. The committee may grant nonstatutory stock options, stock
appreciation rights, restricted stock, performance units or performance shares
to an employee, consultant or nonemployee board member of Illuminet, Inc. or its
affiliate. In addition, if we acquire property or stock from an unrelated
corporation, the committee may grant options to former employees of such
corporation in substitution for options granted to them by the corporation. Only
nonqualified stock options have been granted under the plan.

The exercise price of nonqualified stock options may be less than the fair
market value of stock at the time of grant. The exercise price of an incentive
stock option must be equal to at least 100% of the fair market value of the
stock on the grant date. The committee may grant a substitute option with an
exercise price equal to less than 100% of the fair market value of the shares on
the grant date. Prior to the time our stock traded publicly, the board of
directors determined the estimated fair market value of the common stock.

53
<PAGE> 55

The maximum option term is ten years. However, generally an option
terminates three months after the option holder's service terminates. If such
termination is due to the option holder's disability, the exercise period
generally is extended to twelve months beyond the termination.

The committee may provide for exercise periods of any length in individual
option grants. Nonqualified stock options that are granted to employees are
generally exercisable ratably over four years. Nonqualified stock options that
are granted to nonemployee board members are generally exercisable on grant. The
committee, in its sole discretion, may accelerate the exercisability of the
option. The aggregate fair market value, determined at the grant date, of
incentive stock option shares that are exercisable for the first time during a
calendar year may not exceed $100,000.

The committee may not grant an incentive stock option to any person who, at
the time of the grant, owns (or is deemed to own) stock possessing more than 10%
of the total combined power of Illuminet, Inc. or any subsidiary of Illuminet,
unless the exercise price is at least 110% of the fair market value of a share
on the grant date.

The committee, subject to certain limitations, will determine the terms and
conditions, including the exercise price, of stock appreciation rights granted
under the plan. During the period in which the restricted stock is subject to
restrictions, the restricted stockholders will generally have full voting rights
with respect to the stock they hold.

Transactions resulting in a change to our corporate structure, such as a
merger, reorganization, consolidation, stock dividend or stock split, may change
the class and number of shares subject to the plan and to outstanding awards. In
that event, the committee administering the plan will appropriately adjust the
plan as to the class and maximum number of shares subject to the plan. The
committee will also adjust the outstanding awards as to the class, number of
shares and price per share subject to such awards.

Upon a change in control of our company, all awards will generally become
immediately exercisable, unless the committee declares that the event does not
constitute a change in control for purposes of qualifying for
pooling-of-interests accounting. If there is a sale of substantially all of the
assets of, or a merger involving, Illuminet, the committee may require the
surviving entity to either assume or replace outstanding awards under the plan.
Otherwise, the awards will fully vest and become immediately exercisable for a
period of fifteen days.

The plan will continue indefinitely unless terminated earlier by the board
of directors. However, incentive stock options may not be granted after October
29, 2007.

PROFIT SHARING/401(K) TRUST RETIREMENT PLAN AND STOCK PURCHASE PLAN

We have qualified profit sharing/401(k) trust retirement plans covering all
employees, subject to eligibility requirements. We provide matching
contributions to the plans' trusts on a portion of employee contributions to the
plans and may, at the discretion of the board of directors, provide a
discretionary contribution. For 1997, 1998 and 1999, the contribution expense
was approximately, $1.2 million, $1.1 million and $2.0 million, respectively.

We also adopted a stock purchase plan on October 4, 1999, which was
approved by our stockholders on May 5, 2000. Any employee who meets certain
service requirements is eligible to participate in the plan and can purchase our
common stock for an amount equal to 85% of the lower of the initial public
offering price or the closing price of the common stock on the last day of each
six month period that the plan is in effect. We have reserved 700,000 shares for
issuance under this plan. The plan will terminate in two years.

54
<PAGE> 56

EMPLOYMENT AGREEMENTS

We have employment agreements with Messrs. Nicol and Johnson that renew
annually on their anniversary date and may be terminated by either party on 90
days' notice prior to the end of an annual term. We may terminate for cause at
any time. The agreements provide for initial annual base compensation of
$110,000 and $108,000, respectively. The annual base compensation has been
subsequently adjusted by the board of directors to $150,156 for Mr. Nicol and
$148,728 for Mr. Johnson for the year ended December 31, 1999. The agreements
provide for the opportunity to earn bonuses under established incentive plans.
In addition, Mr. Johnson's agreement provides for an annual bonus, the amount of
which must be approved by the board of directors. Each agreement provides that,
if the executive officer is terminated by us for other than cause, the executive
officer will be entitled to receive a severance payment in a lump sum amount
equal to 12 months of the executive officer's then base compensation. Effective
June 30, 2000, we will have a two year employment agreement with Mr. Lebus that
renews annually unless terminated on 90 days notice. We may terminate Mr. Lebus
for cause at any time. The agreement provides for a base salary of $215,000,
which may be adjusted annually. Mr. Lebus is entitled to participate in
established incentives plans and is entitled to the same severance pay as
Messrs. Nicol and Johnson. Mr. Moore and Mr. Kremian each have severance
agreements with us. A letter employment agreement with Mr. Moore provides that
if he is terminated without cause or he elects to resign as a result of a
subsequent change of control, he receives a lump sum severance payment equal to
his then annual base salary. A letter employment agreement with Mr. Kremian
provides for an initial base salary of $145,000 and for an annual bonus based
under an incentive plan. The annual base compensation for Mr. Kremian has been
subsequently adjusted by the board of directors to $175,008 for the year ended
December 31, 1999.

55
<PAGE> 57

PRINCIPAL AND SELLING STOCKHOLDERS

The following table lists information with respect to the beneficial
ownership of our common stock as of July 6, 2000:

- each person known by us to beneficially own more than five percent of our
outstanding common stock;

- each of our directors;

- the named executive officers;

- all of our executive officers and directors as a group; and

- the selling stockholders.

Unless otherwise indicated, the person or persons named have sole voting
and investment power and that person's address is c/o Illuminet, 4501 Intelco
Loop, S.E., Lacey, Washington 98503. In determining the number and percentage of
shares beneficially owned by each person, shares that may be acquired by that
person under options exercisable within 60 days of July 6, 2000 are deemed
beneficially owned by that person and are deemed outstanding for purposes of
determining the total number of outstanding shares for that person and are not
deemed outstanding for that purpose for all other stockholders.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
---------------------- SHARES SOLD IN --------------------
NAME AND ADDRESS NUMBER PERCENT OFFERING NUMBER PERCENT
---------------- ---------- -------- -------------- --------- -------
<S> <C> <C> <C> <C> <C>
Spectrum Equity Investors II, L.P.... 2,000,000 6.3% 2,000,000 -- --
333 Middlefield Rd.
Suite 200
Menlo Park, CA 94025
ALLTEL Investments, Inc.............. 973,044 3.1% 500,000 473,044 1.5%
One Allied Drive
Little Rock, AR 72202
Rock Hill Telephone Company.......... 577,652 1.8% 288,826 288,826 *
330 East Black Street
P.O. Box 470
Rock Hill, SC 29731
TXU Communications, Inc.............. 1,003,436 3.2% 1,003,436 -- --
300 S. St. Paul
Suite 08032
Dallas, TX 75201
Telephone & Data Systems, Inc........ 2,486,224 7.8% -- 2,486,224 7.7%
Suite 4000
30 N. LaSalle St.
Chicago, IL 60602
CenturyTel, Inc...................... 1,884,916 5.9% -- 1,884,916 5.9%
P.O. Box 4065
100 Century Park Drive
Monroe, LA 71211-4065
Theodore D. Berns(1)................. 66,020 * -- 66,020 *
Eugene L. Cole(2).................... 53,060 * -- 53,060 *
Richard A. Lumpkin(3)................ 1,115,165 3.5% -- 1,115,165 3.5%
James W. Strand(4)................... 58,455 * -- 58,455 *
Gregory J. Wilkinson(5).............. 2,536,751 8.0% -- 2,536,751 7.9%
Roger H. Moore(6).................... 832,648 2.6% -- 832,648 2.5%
Daniel E. Weiss(7)................... 75,198 * -- 75,198 *
F. Terry Kremian(8).................. 83,283 * -- 83,283 *
David J. Nicol(9).................... 79,502 * -- 79,502 *
Bruce E. Johnson(10)................. 89,451 * -- 89,451 *
George F. Lebus...................... 491,302 1.5% -- 491,302 1.5%
Executive officers and directors as a
group (11 persons)................. 5,480,835 17.1% -- 5,480,835 16.9%
</TABLE>

56
<PAGE> 58

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

(1) Includes 49,552 shares issuable under options exercisable within 60 days
after June 30, 2000.

(2) Includes 49,766 shares issuable under options exercisable within 60 days
after June 30, 2000.

(3) As a director of McLeodUSA, Mr. Lumpkin may be deemed the beneficial owner
of the 667,976 shares of common stock owned by Consolidated Communications,
a wholly owned subsidiary of McLeodUSA. As a voting member of SKL
Investment Group, LLC, Mr. Lumpkin may be deemed the beneficial owner of
437,584 shares of common stock owned by SKL. The figures in the table for
Mr. Lumpkin also include 9,605 shares issuable under options exercisable
within 60 days after June 30, 2000.

(4) Includes 48,183 shares issuable under options exercisable within 60 days
after June 30, 2000.

(5) As an executive officer of Telephone & Data Systems, Inc., Mr. Wilkinson
may be deemed the beneficial owner of the 2,486,224 shares of common stock
beneficially owned by TDS. The figures in the table for Mr. Wilkinson also
include 50,327 shares issuable under options exercisable within 60 days
after June 30, 2000.

(6) Includes 832,000 shares issuable under options exercisable within 60 days
after June 30, 2000.

(7) Includes 74,600 shares issuable under options exercisable within 60 days
after June 30, 2000.

(8) Includes 82,000 shares issuable under options exercisable within 60 days
after June 30, 2000.

(9) Includes 74,000 shares issuable under options exercisable within 60 days
after June 30, 2000.

(10) Includes 68,000 shares issuable under options exercisable within 60 days
after June 30, 2000.

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<PAGE> 59

DESCRIPTION OF CAPITAL STOCK

The following summary of the terms and provisions of our capital stock is
not complete. Accordingly, you should also refer to our certificate of
incorporation and our stockholder rights plan, which have been filed as exhibits
to the registration statement of which this prospectus is a part.

GENERAL

Our authorized capital stock consists of 150,000,000 shares of common
stock, $.01 par value per share, of which 31,835,303 are issued and outstanding
as of June 30, 2000; and 100,000 shares of preferred stock, $.01 par value per
share, of which 7,000 shares have been designated as Series B preferred stock.
No shares of preferred stock are currently outstanding.

COMMON STOCK

The holders of outstanding common stock are entitled to receive dividends
out of assets legally available at the time and in amounts that the board of
directors may from time to time determine. Each stockholder is entitled to one
vote for each share of common stock held by it submitted to a vote of
stockholders. Our certificate of incorporation does not allow cumulative voting
for the election of directors, which means that the holders of a majority of the
shares voted can elect all the directors then standing for election. Holders of
at least a majority of the shares entitled to vote can determine the outcome of
questions presented to stockholders. However, approval of any of the following
events requires the vote of the holders of at least two-thirds of the shares
entitled to vote on these matters:

- our merger, consolidation or share exchange with another corporation;

- a transfer of all or substantially all of our assets outside of the
ordinary course of business;

- our voluntary dissolution; or

- an amendment, alteration, change or repeal of any provision of our
certificate of incorporation.

The common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. If the liquidation, dissolution or winding-up of
Illuminet were to occur, the holders of shares of common stock would be entitled
to share ratably in the distribution of all of our assets remaining available
for distribution after satisfaction of all of our liabilities and the payment of
the liquidation preference of any outstanding preferred stock. Each outstanding
share of common stock is fully paid and non-assessable. Shares of common stock
include rights to purchase shares of our Series B preference stock (or common
stock, as may be determined by the board of directors) in connection with our
stockholders rights plan, as described below.

SERIES B PREFERENCE STOCK

Although no shares are currently outstanding, our Series B participating
cumulative preference stock is entitled to one vote per each one one-thousandth
(1/1000) share and votes together as a class with common stock on matters that
holders of common stock are generally entitled to vote except where otherwise
required by law. These shares were authorized in connection with the
establishment of our stockholders rights plan. The Series B preference stock
ranks superior to common stock upon the liquidation of Illuminet and each one
one-thousandth of a share of Series B preference stock is entitled to receive an
amount equivalent to the amount to be distributed per whole share of common
stock in the event of a liquidation, dissolution or winding up of Illuminet. The
shares of Series B preference stock are entitled to cumulative quarterly
dividends at $.01 per quarter and have the right to elect a director to the
board of directors if we fail to pay dividends for six consecutive quarters.

58
<PAGE> 60

ANTI-TAKEOVER PROVISIONS

DELAWARE LAW

We are subject to the provisions of Section 203 of the Delaware General
Corporation Law regulating corporate takeovers. Section 203 prevents a Delaware
corporation, including those that are listed on the Nasdaq National Market, from
engaging, under certain circumstances, in a "business combination," which
includes a merger or sale of more than 10% of the corporation's assets, with any
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder. An interested
stockholder is a stockholder who owns 15% or more of the corporation's
outstanding voting stock, as well as affiliates and associates of that person.
This is the case unless:

- the transaction that resulted in the stockholder's becoming an interested
stockholder was approved by the board of directors prior to the date the
interested stockholder attained that status;

- upon completion of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction began, excluding those shares owned by (1) persons who
are directors and also officers and (2) employee stock compensation plans
in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered
in a tender or exchange offer; or

- on or after the date the interested stockholder attained that status, the
business combination is approved by the board of directors and authorized
at an annual or special meeting of stockholders by the affirmative vote
of at least two-thirds of the outstanding voting stock that is not owned
by the interested stockholder.

A Delaware corporation may "opt out" of Section 203 with an express
provision in its original certificate of incorporation or an express
stockholders' amendment approved by at least a majority of the outstanding
voting shares. We have not "opted out" of the provisions of the Section 203.
This statute could prohibit or delay mergers or other takeover or
change-in-control attempts with respect to Illuminet and, accordingly, may
discourage attempts to acquire us.

CHARTER AND BYLAW PROVISIONS

Our certificate of incorporation and bylaws include a number of provisions
that may have the effect of deterring or impeding hostile takeovers or
changes-in-control or management. These provisions include:

- our board of directors is classified into three classes of directors
nearly equal in size with staggered three year terms;

- the board of directors has the authority to issue one or more series of
preferred stock; and

- stockholders do not have cumulative voting rights.

These provisions may have the effect of delaying or preventing a
change-in-control. Our certificate of incorporation and bylaws provide that we
will indemnify officers and directors against losses that they may incur in
investigations and legal proceedings resulting from their services to us, which
may include services related to takeover defense measures. Such provisions may
have the effect of preventing changes in the management of Illuminet.

STOCKHOLDER RIGHTS PLAN

We have a stockholder rights plan that would significantly discourage,
delay or prevent a merger or acquisition. The stockholder rights plan authorizes
the issuance of one right for each share of common

59
<PAGE> 61

stock outstanding on November 20, 1998 or that becomes outstanding after that
date. Each right represents the right to purchase shares of our Series B
preference stock. The rights become exercisable if a person or group acquires or
makes a tender offer for more than 20% of our outstanding common stock. Upon the
occurrence of such an event, each right entitles the holder (other than the
acquiror) to purchase for $150 our common stock (or, as may be specified by our
board of directors, our Series B preference stock) or, in some instances, stock
of the acquiring entity, that would be worth $300. In certain instances, the
board of directors may also elect to exchange the rights for shares of common
stock. The rights expire on November 20, 2008, unless we redeem them earlier,
prior to their becoming exercisable, in our sole discretion.

Until they are exercisable the rights transfer only with the common stock.
The shares to be issued and the number of rights are subject to adjustment by
the board of directors in certain instances.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for our common stock is Computershare
Trust Company Inc.

60
<PAGE> 62

UNITED STATES FEDERAL TAX CONSEQUENCES
TO NON-U.S. HOLDERS OF COMMON STOCK

GENERAL

The following is a general discussion of the material United States federal
income and estate tax consequences of the ownership and disposition of our
common stock that may be relevant to you if you are a non-U.S. holder under U.S.
federal income tax laws. A non-U.S. holder is a beneficial owner of our common
stock that is, for U.S. federal income tax purposes:

- a nonresident alien individual;

- a foreign corporation;

- a foreign estate or trust; or

- a foreign partnership.

This discussion does not address all aspects of U.S. federal income and
estate taxation that may be relevant to you in light of your particular
circumstance. It also does not address any foreign, state or local tax
consequences. Furthermore, this discussion is based on provisions of the
Internal Revenue Code, Treasury regulations and administrative and judicial
interpretations as of the date hereof. All of these are subject to change,
possibly with retroactive effect, or different interpretations. If you are
considering buying our common stock, you should consult your own tax advisor
about current and possible future tax consequences of holding and disposing of
our common stock in your particular situation.

DISTRIBUTIONS

As noted elsewhere in this prospectus, we do not intend to pay dividends.
If we change this policy and declare dividends on our common stock, any such
dividends paid to a non-U.S. holder may be subject to withholding. If the
dividends are not effectively connected with a U.S. trade or business of the
non-U.S. holder or, if a tax treaty applies, are not attributable to a U.S.
permanent establishment or fixed base of the non-U.S. holder, any dividends
will, to the extent paid out of earnings and profits, be subject to U.S.
withholding tax. The withholding tax will be imposed at a 30 percent rate or, if
a tax treaty applies, a lower rate specified by the treaty. To receive a reduced
treaty rate, a non-U.S. holder must furnish to us or our paying agent a duly
completed Form 1001 or Form W-8BEN, or substitute form, certifying to its
qualification for such rate.

Dividends that are effectively connected with the conduct of a trade or
business within the United States of a non-U.S. holder and, if a tax treaty
applies, are attributable to a U.S. permanent establishment or fixed base of the
non-U.S. holder, are exempt from U.S. federal withholding tax. To qualify for
such exemption, the non-U.S. holder must furnish to us or our paying agent a
duly completed Form 4224 or Form W-8ECI, or substitute form, certifying its
qualification for the exemption. However, dividends exempt from U.S. withholding
because they are effectively connected or they are attributable to a U.S.
permanent establishment or fixed base are subject to U.S. federal income tax on
a net income basis at the regular graduated U.S. federal income tax rates. Under
certain circumstances, a foreign corporation whose dividends are so effectively
connected is entitled to a dividend received deduction equal to 70 or 80 percent
of the amount of the dividend. Any such effectively connected dividends received
by a foreign corporation may, under some circumstances, be subject to an
additional branch profits tax at a 30 percent rate or a lower rate specified by
an applicable income tax treaty.

Under current U.S. Treasury regulations, dividends paid before January 1,
2001 to an address outside the United States are presumed to be paid to a
resident of the country of address for purposes of the withholding discussed
above and for purposes of determining the applicability of a tax treaty rate.
However, U.S. Treasury regulations applicable to dividends paid after December
31, 2000 eliminate this presumption, subject to various transition rules.

61
<PAGE> 63

For dividends paid after December 31, 2000, a non-U.S. holder generally
will be subject to U.S. backup withholding tax at a 31 percent rate under the
backup withholding rules described below, rather than at a 30 percent rate or a
reduced rate under an income tax treaty, as described above, unless the non-U.S.
holder complies with certain Internal Revenue Service certification procedures
or, in the case of payments made outside the U.S. with respect to an offshore
account, certain IRS documentary evidence procedures. Further, to claim the
benefit of a reduced rate of withholding under a tax treaty for dividends paid
after December 31, 2000, a non-U.S. holder must comply with certain modified IRS
certification requirements. Special rules also apply to dividend payments made
after December 31, 2000 to foreign intermediaries, United States or foreign
wholly owned entities that are disregarded for U.S. federal income tax purposes
and entities that are treated as fiscally transparent in the U.S., the
applicable income tax treaty jurisdiction, or both. You should consult your own
tax advisor concerning the effect, if any, of the rules affecting post-December
31, 2000 dividends on your possible investment in our common stock.

A non-U.S. holder may obtain a refund of any excess amounts withheld by
filing an appropriate claim for refund along with the required information with
the IRS.

GAIN ON DISPOSITION OF COMMON STOCK

A non-U.S. holder generally will not be subject to U.S. federal income tax
with respect to gain recognized on a sale or other disposition of our common
stock unless one of the following applies:

- The gain is effectively connected with a trade or business of the
non-U.S. holder in the U.S. and, if a tax treaty applies, the gain is
attributable to a U.S. permanent establishment or fixed base maintained
by the non-U.S. holder. In this case, the non-U.S. holder will, unless an
applicable treaty provides otherwise, be taxed on its net gain derived
from the sale at regular graduated U.S. federal income tax rates. If the
non-U.S. holder is a foreign corporation, it may be subject to an
additional branch profits tax equal to 30 percent of its effectively
connected earnings and profits within the meaning of the Internal Revenue
Code for the taxable year, as adjusted for certain items, unless it
qualifies for a lower rate under an applicable income tax treaty and duly
demonstrates such qualification.

- The non-U.S. holder is an individual, holds our common stock as a capital
asset, is present in the U.S. for 183 or more days in the taxable year of
the disposition, and certain other conditions are met. In this case, the
non-U.S. holder will be subject to a flat 30-percent tax on the gain
derived from the sale, which may be offset by certain U.S. capital
losses.

- We are or have been a U.S. real property holding corporation for U.S.
federal income tax purposes at any time during the shorter of the
five-year period ending on the date of the disposition or the period
during which the non-U.S. holder held our common stock. We believe that
we never have been and are not currently a U.S. real property holding
corporation for U.S. federal income tax purposes. Although we consider it
unlikely based on our current business plans and operations, we may
become a U.S. real property holding corporation in the future. Even if we
were to become a U.S. real property holding corporation, any gain
realized by a non-U.S. holder would not be subject to U.S. federal income
tax as described in this paragraph if our common stock were considered to
be "regularly traded on an established securities market" and the non-
U.S. holder did not own, actually or constructively, at any time during
the shorter of the periods described above, more than five percent of our
common stock.

FEDERAL ESTATE TAX

Common stock owned or treated as owned by an individual non-U.S. holder at
the time of death, or common stock as to which the non-U.S. holder made certain
lifetime transfers, will be included in such

62
<PAGE> 64

holder's gross estate for U.S. federal estate tax purposes, unless an applicable
estate tax treaty provides otherwise.

INFORMATION REPORTING AND BACKUP WITHHOLDING TAX

Under U.S. Treasury regulations, we must report annually to the IRS and to
each non-U.S. holder the amount of dividends paid to such holder and the tax
withheld with respect to such dividends. These information reporting
requirements apply even if withholding was not required because the dividends
were effectively connected dividends or withholding was reduced by an applicable
income tax treaty. Under an applicable tax treaty, information may also be made
available to the tax authorities in the country in which the non-U.S. holder
resides.

United States federal backup withholding generally is a withholding tax
imposed at the rate of 31 percent on certain payments to persons that fail to
furnish certain required information. Backup withholding generally will not
apply to dividends paid before January 1, 2001, to non-U.S. holders. See the
discussion under "-- Distributions" above for rules regarding reporting
requirements to avoid backup withholding on dividends paid after December 31,
2000.

As a general matter, information reporting and backup withholding will not
apply to a payment by or through a foreign office of a foreign broker of the
proceeds of a sale of our common stock effected outside the U.S. However,
information reporting requirements, but not backup withholding, will apply to a
payment by or through a foreign office of a broker of the proceeds of a sale of
our common stock effected outside the U.S. if that broker:

- is a U.S. person for U.S. federal income tax purposes.

- is a foreign person that derives 50 percent or more of its gross income
for certain periods from the conduct of a trade or business in the U.S.,

- is a controlled foreign corporation as defined in the Internal Revenue
Code, or

- is a foreign partnership with certain U.S. connections for payments made
after December 31, 2000.

Information reporting requirements will not apply in the above cases if the
broker has documentary evidence in its records that the holder is a non-U.S.
holder and certain conditions are met or the holder otherwise establishes an
exemption.

Payment by or through a U.S. office of a broker of the proceeds of a sale
of our common stock is subject to both backup withholding and information
reporting unless the holder certifies to the payor as to its status as a
non-U.S. holder on a duly completed Form W-8BEN, or substitute form, under
penalties of perjury or otherwise establishes an exemption.

Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, any amounts withheld under the backup
withholding rules will be refunded or allowed as a credit against the holder's
U.S. federal income tax liability, if any, provided the required information or
appropriate claim for refund is filed with the IRS.

The foregoing discussion is a summary of certain U.S. federal income and
estate tax consequences of the ownership, sale or other disposition of our
common stock by non-U.S. holders. You are urged to consult your own tax advisor
with respect to the particular tax consequences to you of ownership and
disposition of our common stock, including the effect of any state, local,
foreign or other tax laws.

63
<PAGE> 65

UNDERWRITERS

Under the terms and subject to the conditions contained in an underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, Bear, Stearns & Co. Inc., FleetBoston
Robertson Stephens Inc. and Donaldson, Lufkin & Jenrette Securities Corporation
are acting as representatives, have severally agreed to purchase, and we and the
selling stockholders have agreed to sell to them, severally, the number of
shares of common stock indicated below:

<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated...........................
Bear, Stearns & Co. Inc.....................................
Donaldson, Lufkin & Jenrette Securities Corporation.........
FleetBoston Robertson Stephens Inc. ........................
---------
Total............................................. 4,192,262
=========
</TABLE>

The underwriters are offering the shares of common stock subject to their
acceptance of the shares from us and the selling stockholders and subject to
prior sale. The underwriting agreement provides that the obligations of the
several underwriters to pay for and accept delivery of the shares of common
stock offered by this prospectus are subject to the approval of certain legal
matters by their counsel and to certain other conditions. The underwriters are
obligated to take and pay for all of the shares of common stock offered by this
prospectus if any such shares are taken. However, the underwriters are not
required to take or pay for the shares covered by the underwriters'
over-allotment option described below.

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

We have granted to the underwriters an option, exercisable for 30 days from
the date of this prospectus, to purchase up to an aggregate of 628,839
additional shares of common stock at the public offering price listed on the
cover page of this prospectus, less underwriting discounts and commissions. The
underwriters may exercise this option solely for the purpose of covering
over-allotments, if any, made in connection with the offering of the shares of
common stock offered by this prospectus. To the extent this option is exercised,
each underwriter will become obligated, subject to specified conditions, to
purchase approximately the same percentage of additional shares of common stock
as the number set forth next to the underwriter's name in the preceding table
bears to the total number of shares of common stock listed next to the names of
all underwriters in the preceding table. If the underwriters exercise their
option in full, the total price to the public would be $ , the total
underwriters' discounts and commissions would be $ total proceeds to us
would be $ and total proceeds to the selling stockholders would be
$ .

The underwriters have informed us that they do not intend to make sales to
discretionary accounts that exceed five percent of the total number of shares of
common stock offered by them.

Each of the selling stockholders and Illuminet, its directors and executive
officers and certain other of its stockholders have agreed that, without the
prior written consent of Morgan Stanley & Co.

64
<PAGE> 66

Incorporated on behalf of the underwriters, it will not, during the period
ending 90 days after the date of this prospectus:

- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option,
right or warrant, to purchase, lend, or otherwise transfer or dispose of,
directly or indirectly, any shares of common stock or any securities
convertible into or exercisable or exchangeable for common stock; or

- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock, whether any transaction described above is to be settled by
delivery of shares of common stock or other securities, in cash or
otherwise.

The restrictions described in the previous paragraph do not apply to:

- the sale of shares to the underwriters; and

- transactions relating to shares of common stock or other securities
acquired in open market or other transactions after the completion of the
offering of the shares.

In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the common stock. Specifically, the underwriters may sell more shares
than they are obligated to purchase under the underwriting agreement, creating a
short position. A short sale is "covered" if the short position is no greater
than the number of shares available for purchase by the underwriters under the
over-allotment option. The underwriters can close out a covered short sale by
exercising the over-allotment option or purchasing shares in the open market. In
determining the source of shares to close out a covered short sale, the
underwriters will consider, among other things, the open market price of shares
compared to the price available under the over-allotment option. The
underwriters may also sell shares in excess of the over-allotment option,
creating a naked short position. The underwriters must close out any naked short
position by purchasing shares in the open market. A naked short position is more
likely to be created if the underwriters are concerned that there may be
downward pressure on the price of the common stock in the open market after
pricing that could adversely affect investors who purchase in the offering. In
addition, to stabilize the price of the common stock, the underwriters may bid
for, and purchase, shares of common stock in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the common stock in the offering, if the syndicate
repurchases previously distributed common stock to cover syndicate short
positions or to stabilize the price of the common stock. Any of these activities
may stabilize or maintain the market price of the common stock above independent
market levels. The underwriters are not required to engage in these activities,
and may end any of these activities at any time.

Illuminet, the selling stockholders and the underwriters have agreed to
indemnify each other against a variety of liabilities, including liabilities
under the Securities Act.

We have agreed to pay the printing, legal, accounting and other expenses
relating to the offering, which we estimate to be $500,000.

LEGAL MATTERS

Certain legal matters relating to this offering will be passed upon for the
selling stockholders by Husch & Eppenberger LLC, St. Louis, Missouri. Certain
legal matters relating to this offering will be passed upon for Illuminet by
Blackwell Sanders Peper Martin LLP, Kansas City, Missouri. Certain legal matters
relating to this offering will be passed upon for the underwriters by Shearman &
Sterling, New York, New York. A partner at Blackwell Sanders owns 9,746 shares
of our common stock.

65
<PAGE> 67

EXPERTS

The consolidated financial statements and schedule of Illuminet Holdings,
Inc. at December 31, 1998 and 1999, and for each of the three years in the
period ended December 31, 1999, appearing in this prospectus and registration
statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their reports thereon appearing elsewhere herein, and are included in
reliance upon such reports given on the authority of such firm as experts in
accounting and auditing.

The supplemental consolidated financial statements and supplemental
schedule of Illuminet Holdings, Inc. at December 31, 1998 and 1999, and for each
of the three years in the period ended December 31, 1999, appearing in this
prospectus and registration statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein which, is based in part on the reports of PricewaterhouseCoopers LLP,
independent accountants relative to the 1998 and 1999 financial statements and
Barry Morgan & Company P.C., independent auditor relative to the 1997 financial
statements of National Telemanagement Corporation (not presented separately
herein). The supplemental consolidated financial statements and supplemental
schedule referred to above are included in reliance upon such reports given on
the authority of such firms as experts in accounting and auditing.

66
<PAGE> 68

ILLUMINET HOLDINGS, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS OF ILLUMINET
HOLDINGS, INC.
(restated to give retroactive effect to a merger accounted
for as a pooling of interests)
Report of Ernst & Young LLP, Independent Auditors........... F-2
Report of PricewaterhouseCoopers LLP, Independent
Accountants............................................... F-3
Report of Barry Morgan & Company, P.C., Independent
Auditors.................................................. F-4
Supplemental Consolidated Balance Sheets as of December 31,
1998 and 1999 and March 31, 2000.......................... F-5
Supplemental Consolidated Statements of Income for the years
ended December 31, 1997, 1998 and 1999 and for the three
months ended March 31, 1999 and 2000...................... F-6
Supplemental Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1997, 1998 and 1999 and
for the three months ended March 31, 2000................. F-7
Supplemental Consolidated Statements of Cash Flows for the
years ended December 31, 1997, 1998 and 1999 and for the
three months ended March 31, 1999 and 2000................ F-8
Notes to Supplemental Consolidated Financial Statements..... F-9
CONSOLIDATED FINANCIAL STATEMENTS OF ILLUMINET HOLDINGS,
INC.
Report of Ernst & Young LLP, Independent Auditors........... F-27
Consolidated Balance Sheets as of December 31, 1998 and 1999
and March 31, 2000........................................ F-28
Consolidated Statements of Income for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000............................. F-29
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1997, 1998 and 1999 and for the
three months ended March 31, 2000......................... F-30
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1998 and 1999 and for the three months
ended March 31, 1999 and 2000............................. F-31
Notes to Consolidated Financial Statements.................. F-32
</TABLE>

F-1
<PAGE> 69

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders
Illuminet Holdings, Inc.

We have audited the accompanying supplemental consolidated balance sheets
of Illuminet Holdings, Inc. (Illuminet) (formed as a result of the merger of
Illuminet and National Telemanagement Corporation (NTC)) as of December 31, 1998
and 1999, and the related supplemental consolidated statements of income,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. The supplemental consolidated financial statements give
retroactive effect to the merger of Illuminet and NTC on June 30, 2000, which
has been accounted for using the pooling of interests method as described in the
notes to the supplemental consolidated financial statements. These supplemental
financial statements are the responsibility of the management of Illuminet. Our
responsibility is to express an opinion on these supplemental financial
statements based on our audits. We did not audit the financial statements of
NTC, whose statements reflect total assets constituting 9% for 1998 and 7% for
1999 of the related supplemental consolidated financial statement totals and
which reflect net income constituting approximately .2%, 2% and 5% of the
related supplemental consolidated financial statement totals for each of the
three years in the period ended December 31, 1999, respectively. Those
statements were audited by other auditors, whose reports have been furnished to
us, and in our opinion, in so far as it relates to data included for NTC is
based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
supplemental consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Illuminet as of
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years ended December 31, 1999 after giving
retroactive effect to the merger with NTC, as described in the notes to the
supplemental consolidated financial statements, in conformity with accounting
principles generally accepted in the United States.

Seattle, Washington ERNST & YOUNG LLP
June 30, 2000

F-2
<PAGE> 70

REPORT OF PRICEWATERHOUSECOOPERS LLP, INDEPENDENT ACCOUNTANTS

The Board of Directors
National Telemanagement Corporation and Subsidiary

In our opinion, the consolidated balance sheets of National Telemanagement
Corporation and Subsidiary, and the related consolidated statements of
operations, stockholders' equity and cash flows, present fairly, in all material
respects, the consolidated financial position of National Telemanagement
Corporation and Subsidiary at December 31, 1999 and 1998 and the consolidated
results of their operations and their cash flows for the years then ended (not
presented separately herein), in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of the Company's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of the
consolidated financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.

As discussed in Note 2 to the consolidated financial statements, the
Company adopted provisions of Statement of Position 98-5, Reporting on the Costs
of Start-Up Activities, in 1998.

PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
March 17, 2000

F-3
<PAGE> 71

REPORT OF BARRY MORGAN & COMPANY, P.C., INDEPENDENT AUDITORS

The Board of Directors
National Telemanagement Corporation

We have audited the consolidated statement of operations, stockholders'
equity and cash flows of National Telemanagement Corporation and Subsidiary for
the year ended December 31, 1997 (not presented separately herein). These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for the opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations of National Telemanagement
Corporation and Subsidiary and its cash flows for the year ended December 31,
1997, in conformity with generally accepted accounting principles.

BARRY MORGAN & COMPANY, P.C.
Dallas, Texas
March 12, 1998

F-4
<PAGE> 72

ILLUMINET HOLDINGS, INC.

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

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $13,589 $ 24,223 $ 27,054
Available-for-sale securities........................... -- 79,738 80,816
Accounts receivable, less allowance for doubtful
accounts of $1,885 ($1,339 in 1998 and $2,253 in
1999)................................................ 30,650 35,942 35,905
Deferred income taxes................................... 2,369 1,783 1,783
Prepaid expenses and other.............................. 1,384 2,039 2,648
------- -------- --------
Total current assets................................. 47,992 143,725 148,206
Property and equipment, net............................... 46,783 51,095 50,381
Computer software product costs, less accumulated
amortization of $2,486 ($1,784 in 1998 and $2,345 in
1999)................................................... 1,075 513 373
Other assets.............................................. 2,621 1,797 1,678
------- -------- --------
Total assets......................................... $98,471 $197,130 $200,638
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses............. $ 9,700 $ 13,644 $ 10,263
Due to customers........................................ 16,622 16,133 15,849
Lines of credit......................................... 1,655 -- --
Income taxes payable.................................... 1,209 1,988 4,485
Current portion of obligations under capital leases..... 2,390 2,653 2,651
Current portion of long-term debt....................... 3,458 1,430 955
------- -------- --------
Total current liabilities............................ 35,034 35,848 34,203
------- -------- --------
Deferred income taxes..................................... 3,740 5,116 5,116
Obligations under capital leases, less current portion.... 5,475 5,101 4,437
Long-term debt, less current portion...................... 16,044 11,478 9,726
Convertible Redeemable Preferred Stock.................... 3,243 4,071 4,273
Stockholders' equity:
Preferred Stock, par value $.01 per share, authorized
100,000 shares, 4,416 shares designated as Series A,
none outstanding (2,408 in 1998, none in 1999) and
7,000 shares designated as Series B, none
outstanding.......................................... -- -- --
Common Stock, par value $.01 per share, authorized
150,000,000 shares, issued and outstanding, 5,737,699
(1,252,699 in 1998, 5,737,699 in 1999)............... 12 57 57
Class A Common Stock, par value $.01 per share,
authorized 7,200,000 shares, issued and outstanding,
6,344,134 (5,365,605 in 1998, 6,344,134 in 1999)..... 54 63 63
Common Stock Warrants................................... 1,521 1,521 1,521
Additional paid-in capital.............................. 14,345 105,560 105,554
Deferred stock-based compensation....................... (394) (3,885) (3,593)
Retained earnings....................................... 19,397 32,200 39,281
------- -------- --------
Total stockholders' equity........................... 34,935 135,516 142,883
------- -------- --------
Total liabilities and stockholders' equity........... $98,471 $197,130 $200,638
======= ======== ========
</TABLE>

See accompanying notes.

F-5
<PAGE> 73

ILLUMINET HOLDINGS, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Network services.......... $ 52,829 $ 70,577 $ 109,317 $ 23,315 $ 32,944
Clearinghouse services.... 6,723 6,232 5,851 1,539 1,315
Network usage software
applications........... 3,468 5,406 1,532 231 270
----------- ----------- ----------- ----------- -----------
Total revenues......... 63,020 82,215 116,700 25,085 34,529
Expenses:
Carrier costs............. 17,893 25,506 28,004 6,945 6,512
Operating................. 18,857 23,288 36,623 7,539 9,164
Selling, general, and
administrative......... 10,382 12,882 16,656 3,702 4,888
Depreciation and
amortization........... 7,622 10,131 13,610 2,751 3,643
----------- ----------- ----------- ----------- -----------
Total expenses......... 54,754 71,807 94,893 20,937 24,207
----------- ----------- ----------- ----------- -----------
Operating income............ 8,266 10,408 21,807 4,148 10,322
Interest and other income,
net....................... 501 767 2,020 278 1,800
Interest expense............ (1,770) (1,966) (2,060) (484) (371)
----------- ----------- ----------- ----------- -----------
Income before income
taxes..................... 6,997 9,209 21,767 3,942 11,751
Income tax (benefit)
provision................. (676) 3,826 8,132 1,492 4,468
----------- ----------- ----------- ----------- -----------
Net income.................. $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283
=========== =========== =========== =========== ===========
Earnings per
share -- basic............ $ 0.33 $ 0.22 $ 0.52 $ 0.10 $ 0.23
=========== =========== =========== =========== ===========
Earnings per
share -- diluted.......... $ 0.30 $ 0.19 $ 0.45 $ 0.08 $ 0.21
=========== =========== =========== =========== ===========
Weighted-average common
shares -- basic........... 23,073,310 23,027,833 24,630,095 22,716,671 31,114,235
=========== =========== =========== =========== ===========
Weighted-average common
shares -- diluted......... 27,477,934 27,798,781 29,246,941 27,841,831 33,512,649
=========== =========== =========== =========== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE> 74

ILLUMINET HOLDINGS, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A SERIES A
COMMON STOCK TREASURY STOCK COMMON STOCK PREFERRED STOCK COMMON
------------------ ------------------ ------------------ --------------- STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT WARRANTS
--------- ------ -------- ------- --------- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..... 2,045,508 $20 (137,621) $ (206) 5,262,354 $53 2,637 $-- $ --
Conversion of Series A
Preferred Stock............. -- -- -- -- 15,832 -- (186) -- --
Conversion of convertible
redeemable subordinated
debentures.................. -- -- -- -- 66,194 -- -- -- --
Class A Common Stock issued
under former stock incentive
plan........................ -- -- -- -- 14,240 -- -- -- --
Class A Common Stock
repurchases................. -- -- -- -- (11,539) -- -- -- --
Treasury Stock repurchases.... -- -- (46,253) (172) -- -- -- -- --
Deferred stock-based
compensation................ -- -- -- -- -- -- -- -- --
Stock-based compensation
expense..................... -- -- -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- -- -- --
--------- --- -------- ------- --------- --- ------ -- ------
Balance at December 31, 1997... 2,045,508 20 (183,874) (378) 5,347,081 53 2,451 -- --
Conversion of Series A
Preferred Stock............. -- -- -- -- 3,660 (43) -- --
Conversion of convertible
redeemable subordinated
debentures.................. -- -- -- -- 14,764 1 -- -- --
Deferred stock-based
compensation................ -- -- -- -- -- -- -- -- --
Stock-based compensation
expense..................... -- -- -- -- -- -- -- -- --
Stock options exercised....... -- -- -- -- 100 -- -- -- --
Issuance of Common Stock
Warrants.................... -- -- -- -- -- -- -- -- 1,521
Purchase of Treasury Stock.... -- -- (608,935) (2,297) -- -- -- -- --
Retirement of Treasury
Stock....................... (792,809) (8) 792,809 2,675 -- -- -- -- --
Dividends and accretion of
Convertible Redeemable
Preferred Stock............. -- -- -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- -- -- --
--------- --- -------- ------- --------- --- ------ -- ------
Balance at December 31, 1998... 1,252,699 12 -- -- 5,365,605 54 2,408 -- 1,521
Conversion of Series A
Preferred Stock............. -- -- -- -- 204,941 2 (2,408) -- --
Conversion of convertible
redeemable subordinated
debentures.................. -- -- -- -- 760,838 7 -- -- --
Deferred stock-based
compensation................ -- -- -- -- -- -- -- -- --
Stock-based compensation
expense..................... -- -- -- -- -- -- -- -- --
Stock options exercised....... -- -- -- -- 12,750 -- -- -- --
Issuance of Common Stock...... 4,485,000 45 -- -- -- -- -- -- --
Dividends and accretion of
Convertible Redeemable
Preferred Stock............. -- -- -- -- -- -- -- -- --
Net income.................... -- -- -- -- -- -- -- -- --
--------- --- -------- ------- --------- --- ------ -- ------
Balance at December 31, 1999... 5,737,699 57 -- -- 6,344,134 63 -- -- 1,521
Deferred stock-based
compensation (unaudited).... -- -- -- -- -- -- -- -- --
Stock-based compensation
expense (unaudited)......... -- -- -- -- -- -- -- -- --
Dividends and accretion of
Convertible Redeemable
Preferred Stock
(unaudited)................. -- -- -- -- -- -- -- -- --
Net income (unaudited)........ -- -- -- -- -- -- -- -- --
--------- --- -------- ------- --------- --- ------ -- ------
Balance at March 31, 2000
(unaudited)................... 5,737,699 $57 -- $ -- 6,344,134 $63 -- $-- $1,521
========= === ======== ======= ========= === ====== == ======

ADDITIONAL DEFERRED TOTAL
PAID-IN STOCK-BASED RETAINED STOCKHOLDERS'
CAPITAL COMPENSATION EARNINGS EQUITY
---------- ------------ -------- -------------
<S> <C> <C> <C> <C>
Balance at January 1, 1997..... $ 12,331 $ -- $ 9,551 $ 21,749
Conversion of Series A
Preferred Stock............. -- -- -- --
Conversion of convertible
redeemable subordinated
debentures.................. 735 -- -- 735
Class A Common Stock issued
under former stock incentive
plan........................ 41 -- -- 41
Class A Common Stock
repurchases................. -- -- (136) (136)
Treasury Stock repurchases.... -- -- -- (172)
Deferred stock-based
compensation................ 509 (509) -- --
Stock-based compensation
expense..................... -- 169 -- 169
Net income.................... -- -- 7,673 7,673
-------- ------- ------- --------
Balance at December 31, 1997... 13,616 (340) 17,088 30,059
Conversion of Series A
Preferred Stock............. -- -- -- --
Conversion of convertible
redeemable subordinated
debentures.................. 164 -- -- 165
Deferred stock-based
compensation................ 561 (561) -- --
Stock-based compensation
expense..................... -- 507 -- 507
Stock options exercised....... 1 -- -- 1
Issuance of Common Stock
Warrants.................... -- -- -- 1,521
Purchase of Treasury Stock.... -- -- -- (2,297)
Retirement of Treasury
Stock....................... 3 -- (2,670) --
Dividends and accretion of
Convertible Redeemable
Preferred Stock............. -- -- (404) (404)
Net income.................... -- -- 5,383 5,383
-------- ------- ------- --------
Balance at December 31, 1998... 14,345 (394) 19,397 34,935
Conversion of Series A
Preferred Stock............. -- -- (2) --
Conversion of convertible
redeemable subordinated
debentures.................. 8,347 -- (2) 8,352
Deferred stock-based
compensation................ 4,185 (4,185) -- --
Stock-based compensation
expense..................... -- 694 -- 694
Stock options exercised....... 394 -- -- 394
Issuance of Common Stock...... 78,289 -- -- 78,334
Dividends and accretion of
Convertible Redeemable
Preferred Stock............. -- -- (828) (828)
Net income.................... -- -- 13,635 13,635
-------- ------- ------- --------
Balance at December 31, 1999... 105,560 (3,885) 32,200 135,516
Deferred stock-based
compensation (unaudited).... (6) 6 -- --
Stock-based compensation
expense (unaudited)......... -- 286 -- 286
Dividends and accretion of
Convertible Redeemable
Preferred Stock
(unaudited)................. -- -- (202) (202)
Net income (unaudited)........ -- -- 7,283 7,283
-------- ------- ------- --------
Balance at March 31, 2000
(unaudited)................... $105,554 $(3,593) $39,281 $142,883
======== ======= ======= ========
</TABLE>

See accompanying notes.

F-7
<PAGE> 75

ILLUMINET HOLDINGS, INC.

SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ -----------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization....................... 7,622 10,131 13,610 2,751 3,643
Impairment on investment............................ -- -- 1,461 -- --
Stock-based compensation expense.................... 169 507 694 85 286
Deferred income taxes............................... (869) 2,137 1,962 1,383 --
Change in:
Accounts receivable............................... (2,880) (3,500) (5,225) (1,582) 1
Trade accounts payable............................ 2,749 (1,488) 3,909 (1,508) (3,381)
Due to customers.................................. (2,306) (309) (489) 1,380 (284)
Income taxes payable.............................. 2 1,145 779 (1,210) 2,497
Other............................................. (383) 896 (1,297) 768 (464)
-------- -------- -------- ------- -------
Net cash provided by operating activities....... 11,777 14,902 29,039 4,517 9,581
-------- -------- -------- ------- -------
INVESTING ACTIVITIES:
Purchases of investments.............................. -- -- (79,738) -- (1,078)
Capital purchases..................................... (11,715) (11,950) (14,816) (2,626) (2,780)
-------- -------- -------- ------- -------
Net cash used in investing activities................. (11,715) (11,950) (94,554) (2,626) (3,858)
-------- -------- -------- ------- -------
FINANCING ACTIVITIES:
Repayment of borrowings on line of credit............. (221) (420) (1,655) (345) (1,615)
Purchase of Treasury Stock............................ (172) (2,297) -- -- --
Class A Common Stock repurchases...................... (136) -- (4) -- --
Proceeds from issuance of Convertible Redeemable
Preferred Stock and Common Stock Warrants........... -- 4,361 -- -- --
Proceeds from issuance of notes payable and long-term
debt................................................ 17,820 1,768 8,951 -- 62
Proceeds from issuance of Class A Common Stock........ -- 1 394 10 --
Proceeds from issuance of Common Stock................ -- -- 78,334 -- --
Principal payments on notes payable, long-term debt
and capital leases.................................. (18,563) (4,188) (9,871) (826) (1,339)
-------- -------- -------- ------- -------
Net cash (used in) provided by financing activities... (1,272) (775) 76,149 (1,161) (2,892)
-------- -------- -------- ------- -------
Net (decrease) increase in cash and cash
equivalents......................................... (1,210) 2,177 10,634 730 2,831
Cash and cash equivalents at beginning of period...... 12,622 11,412 13,589 13,589 24,223
-------- -------- -------- ------- -------
Cash and cash equivalents at end of period............ $ 11,412 $ 13,589 $ 24,223 $14,319 $27,054
======== ======== ======== ======= =======
SUPPLEMENTAL CASH FLOW DISCLOSURE:
Income taxes paid..................................... $ 226 $ 342 $ 5,153 $ 1,051 $ 1,972
======== ======== ======== ======= =======
Interest paid......................................... $ 2,633 $ 2,460 $ 2,177 $ 455 $ 394
======== ======== ======== ======= =======
Capital acquisitions financed through capital
leases.............................................. $ 924 $ 7,728 $ 2,530 $ -- $ --
======== ======== ======== ======= =======
Debentures and Series A Convertible Preferred Stock
converted into Class A Common Stock................. $ 735 $ 165 $ 8,356 $ -- $ --
======== ======== ======== ======= =======
Dividends and accretion on Convertible Redeemable
Preferred
Stock............................................... $ -- $ 404 $ 828 $ 207 $ 202
======== ======== ======== ======= =======
</TABLE>

See accompanying notes.

F-8
<PAGE> 76

ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS

1. ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Illuminet Holdings, Inc. and its wholly-owned subsidiaries Illuminet, Inc.
and National Telemanagement Corporation (collectively referred to as "the
Company") are engaged in the business of developing, managing and marketing a
Signaling System 7 ("SS7") network and related products and services based on
SS7 technology to the entire telecommunications marketplace. SS7 is a
telecommunications industry-standard system of protocols and procedures that is
used to control telephone communications and provide routing information in
association with vertical calling features, such as calling card validation,
advanced intelligent network services, local number portability, wireless
services, toll-free number database access, and caller identification.
Additionally, Illuminet provides advanced database services,
billing-and-collection services, calling card services, and network usage
software applications to a range of telephone companies as well as interexchange
carriers, operator service providers and other telecommunications companies and
providers of telecommunications services.

Illuminet has its corporate headquarters and a portion of its operations
located in Lacey, Washington; a network control center and related operations
located in Overland Park, Kansas; and additional SS7 Signal Transfer Points
located in Rock Hill, South Carolina; Mattoon, Illinois; Las Vegas, Nevada;
Akron, Pennsylvania, and Waynesboro, Virginia.

Illuminet Holdings, Inc. (formerly USTN Holdings, Inc. through May 1997)
and Illuminet, Inc. (formerly USTN Services, Inc. through May 1997) were
incorporated in the State of Delaware on August 2, 1995.

BASIS OF SUPPLEMENTAL FINANCIAL STATEMENT PRESENTATION AND PRINCIPLES OF
CONSOLIDATION

The supplemental consolidated financial statements include the financial
statements of Illuminet Holdings, Inc. and its subsidiaries. All significant
intercompany balances and transactions have been eliminated in consolidation.

On June 30, 2000, pursuant to a Merger Agreement dated June 12, 2000 among
Illuminet Holdings, Inc. and National Telemanagement Corporation ("NTC"),
Illuminet Holdings, Inc. acquired all of the outstanding capital of NTC. NTC,
which has its entire operations in Dallas, Texas, develops, markets, and
provides a variety of telecommunications services including prepaid wireless
account management and unregistered wireless roaming services to the wireless
telephone industry. These services are provided to telecommunications carriers
throughout North America and the Caribbean.

The Company issued 1,888,944 shares of common stock in exchange for all
outstanding preferred stock and common stock of NTC and assumed all outstanding
options in connection with the acquisition of NTC, resulting in the issuance of
options to purchase up to 80,297 shares of common stock. Prior to the merger,
all NTC common stock purchase warrants were exercised. This transaction has been
accounted for as a pooling-of-interests.

These supplemental consolidated financial statements have been prepared to
reflect the restatement of all periods presented to include the accounts of NTC.
The historical results of the pooled entities reflect each of their actual
operating cost structures and, as a result, do not necessarily reflect the cost
structure of the newly combined entity. These supplemental consolidated
financial statements will become the historical financial statements of the
Company after the financial statements covering the date of consummation of the
merger are issued.

F-9
<PAGE> 77
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
Revenues, net income and total assets for separate and combined companies
are as follows (in thousands):

<TABLE>
<CAPTION>
NATIONAL
ILLUMINET TELEMANAGEMENT
HOLDINGS, INC. CORPORATION COMBINED
-------------- -------------- --------
<S> <C> <C> <C>
Year ended December 31, 1997
Revenue.............................. $ 54,308 $ 8,712 $ 63,020
Net income........................... 7,657 16 7,673
Year ended December 31, 1998
Revenue.............................. 71,912 10,303 82,215
Net income........................... 5,293 90 5,383
Year ended December 31, 1999
Revenue.............................. 100,594 16,106 116,700
Net income........................... 13,005 630 13,635
Three months ended March 31, 1999
Revenue.............................. 21,603 3,482 25,085
Net income........................... 2,331 119 2,450
Three months ended March 31, 2000
Revenue.............................. 29,242 5,287 34,529
Net income........................... 7,030 253 7,283
Total assets
December 31, 1998.................... 89,450 9,021 98,471
December 31, 1999.................... 183,657 13,473 197,130
March 31, 2000....................... 188,464 12,174 200,638
</TABLE>

UNAUDITED INTERIM FINANCIAL INFORMATION

The supplemental consolidated financial information as of March 31, 2000
and for the three months ended March 31, 1999 and 2000 is unaudited, but
includes all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of the financial
position at such dates and the operations and cash flows for the periods then
ended. Operating results for the period ended March 31, 2000 are not necessarily
indicative of results that may be expected for the entire year.

CASH EQUIVALENTS

The Company considers all highly liquid investments of operating cash,
defined as funds generated from ongoing business operations, with original
maturities of three months or less at purchase to be cash equivalents. Cash
equivalents consist of money market funds and commercial paper that are stated
at cost, which approximates fair value. At December 31, 1998 and 1999, such
investments included $11.3 million, and $20.3 million, respectively, invested in
a money market fund consisting of direct obligations of the U.S. Treasury and
repurchase agreements collateralized by such obligations of the U.S. Treasury.
At December 31, 1998, direct commercial paper investments totaled $2.0 million.
At December 31, 1999, investments in a fund collateralized by commercial paper
investments totaled $3.1 million.

F-10
<PAGE> 78
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES

The Company considers the investment of the proceeds and related interest
earnings from its initial public offering to be available-for-sale securities.
Investments classified as available-for-sale securities are reported at fair
value with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as accumulated other
comprehensive income. At December 31, 1999, such investments included, at market
value, $69.7 million invested in commercial paper with an average of 59 days to
maturity and $10.0 million invested in demand notes. There were not any gross
unrealized holding gains or losses at December 31, 1998 and 1999 and March 31,
2000.

ACCOUNTS RECEIVABLE AND CONCENTRATIONS OF CREDIT RISK

One of the Company's services involves providing a clearinghouse function
for toll collected by telephone companies on behalf of other telecommunications
service providers. At December 31, 1998 and 1999, accounts receivable included
$11.5 million and $9.0 million, respectively, of such toll amounts due from
telephone companies. Related amounts due to customers included $12.4 million and
$11.8 million, respectively, for amounts owed to such service providers.
Accounts receivable from these companies are uncollateralized; however,
uncollected amounts may be offset against amounts otherwise due to service
providers.

Concentration of credit risk with respect to trade receivables is limited
due to the diversity of the customer base and geographic dispersion, and is
evidenced by a history of minimal customer account write-offs.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives for property and equipment are as follows:

<TABLE>
<S> <C>
Corporate headquarters building........................... 31.5 years
Network assets............................................ 5 to 10 years
Office equipment and systems.............................. 5 to 20 years
Furniture and fixtures.................................... 5 to 15 years
Computer equipment and software........................... 3 to 5 years
Leasehold improvements.................................... 5 years
</TABLE>

When depreciable assets are retired or otherwise disposed of, the related
costs and accumulated depreciation are removed from the respective accounts, and
any gains or losses on disposition are recognized in income.

Property and equipment and liabilities under capital leases are recorded at
the lower of the fair value of the asset or the present value of the minimum
lease payments. Interest rates on capitalized leases are imputed based on the
lower of Illuminet's incremental borrowing rate at the inception of each lease
or the lessor's implicit rate of return. Depreciation on the leased assets is
included in depreciation expense, and is provided using the straight-line method
over the estimated useful lives of the assets.

F-11
<PAGE> 79
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED SOFTWARE

Computer software product costs represent capitalized costs incurred for
development of software products after the technological feasibility of the
product is established. Costs incurred prior to that date are expensed. The
annual amortization, which was $0.6 million for each of the years ended December
31, 1997, 1998, and 1999, is determined on a product-by-product basis as the
greater of the amount computed using (a) the ratio that current gross revenues
for a product bear to the total of current and anticipated future gross revenues
for that product, or (b) the straight-line method over the remaining estimated
economic life of the product. Amortization starts when the product is available
for general release to customers.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets consist of intangible assets and certain capital assets.
An impairment is considered to have occurred when the carrying value of the
asset is considered not to be recoverable. The carrying value of these assets is
regularly reviewed to verify that they are valued properly. When there are
adverse changes in facts and circumstances that suggest that the value has been
impaired, an assessment is made of future cash flows and the carrying value of
the related assets will be reduced appropriately to their fair value based on
current market values. When market values are not available, the fair value will
be determined based on other valuation techniques such as estimated future cash
flows.

REVENUE RECOGNITION

The Company recognizes revenue as the related services are performed.
Network services revenues are comprised of network connectivity revenues and
intelligent network service revenues. Network connectivity revenues are derived
from establishing and maintaining connection to the Company's SS7 network and
trunk signaling services. Revenues from network connectivity consist primarily
of monthly recurring fees, and trunk signaling services revenues are charged
monthly based on the number of switches to which a customer signals. The initial
connection fee and related costs are deferred and recognized over the term of
the arrangement. Intelligent network services, which include calling card
validation, local number portability, wireless services, toll-free database
access, and caller identification are derived primarily from database
administration and database query services and are charged on a per-use or
per-query basis. Prepaid wireless account management services and unregistered
wireless roaming services are based on the net revenue retained by the Company
and recognized in the period in which such calls are processed by the Company on
a per-minute or per-call basis.

Clearinghouse services revenues are derived primarily from serving as a
distribution and collection point for billing information and payment collection
for services provided by one carrier to customers billed by another.
Clearinghouse revenues are earned based on the number of messages processed.

Network usage software applications revenues are comprised of sales of
software and software maintenance services. Revenues on sales of software are
recognized when an arrangement exists, the price is fixed and determinable, the
related amounts are collectible, and the software has been delivered and all
customer acceptance requirements, if any, have been met. Revenues on software
maintenance are recognized on a monthly basis over the term of the maintenance
arrangement.

In 1999, the Company earned approximately 12% of its revenues from AT&T and
its affiliates with no single affiliate contributing more than 7% of total
revenue.

F-12
<PAGE> 80
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION

The Company has elected to apply the disclosure-only provisions of the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Accordingly, Illuminet accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Compensation expense for
stock options is measured as the excess, if any, of the fair value of Common
Stock and Class A Common Stock at the measurement date over the stock option
exercise price. Statement 123 requires companies that continue to follow APB 25
to provide pro forma disclosure of the impact of applying the fair value method
of Statement 123 (refer to Note 8).

INCOME TAXES

The Company provides for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. A valuation allowance against deferred tax assets is
recorded if, based on the weight of available evidence, it is more likely than
not that some of or all of the deferred tax assets will not be realized.

EARNINGS PER SHARE

The computation of earnings per share-basic is based on net income
available to common shareholders and the weighted-average number of outstanding
common shares, including Class A Common Stock. The computation of earnings per
share-diluted includes the dilutive effect, if any, of outstanding Series A
Preferred Stock, Convertible Redeemable Preferred Stock, and convertible
debentures calculated using the as if converted method, and Common Stock
options, Class A Common Stock options and Common Stock Warrants calculated using
the treasury stock method. Effective with Illuminet's initial public offering on
October 7, 1999, all existing common stock available to common shareholders of
Illuminet outstanding immediately prior to the initial public offering was
renamed to Class A Common Stock. Each share of Class A Common Stock
automatically converted into four shares of Common Stock on April 5, 2000. All
share and per share amounts have been restated to reflect the conversion of the
Class A Common Stock into Common Stock at the beginning of each period
presented.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.

SEGMENT INFORMATION

F-13
<PAGE> 81
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. ACCOUNTING POLICIES (CONTINUED)
the reporting by public business enterprises of financial and descriptive
information about reportable operating segments in annual financial statements
and interim financial reports issued to stockholders. Illuminet primarily
provides services to companies in the telecommunications industry that are
located throughout the United States and considers all of its operations as one
segment because expenses support multiple products and services. Revenues are
reported separately for network services, clearinghouse services and network
usage software applications. No segment information is provided to the chief
operating decision maker for expenses, operating income, total assets,
depreciation, or capital purchases.

RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
establishes standards for the recognition, measurement, and reporting of
derivatives and hedging activities and is effective for Illuminet's year ending
December 31, 2000. Illuminet anticipates that the adoption of this new
accounting standard will not have a material impact on Illuminet's consolidated
financial statements, but continues to evaluate that impact.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101, "Revenue Recognition in Financial Statements"
("SAB 101"). This summarized certain areas of the staff's views in applying
generally accepted accounting principles as it applies to revenue recognition.
Illuminet believes that its revenue recognition principles comply with SAB 101,
but will continue to evaluate interpretations of SAB 101.

2. DISCONTINUED LINE OF BUSINESS

In 1998, the Company made the decision to begin the process of selling one
of its business lines. Because of the immateriality of the impact, this business
line is not presented as discontinued operations, but is included in Interest
and other income, net in the accompanying statements of income. Revenues for
this business line were $7.5 million, $4.0 million, and $0.4 million for the
years ended December 31, 1997, 1998, and 1999, respectively. On March 1, 1999,
the Company entered into an agreement to sell a substantial portion of the
assets related to the business line. The net loss of these operations were
$81,000 in 1997, $66,000 in 1998, and a net gain of $12,000 in 1999.

3. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------- MARCH 31,
1998 1999 2000
------- -------- ---------
<S> <C> <C> <C>
Land............................................ $ 912 $ 912 $ 912
Building and leasehold improvements............. 7,233 7,660 7,745
Equipment and furniture......................... 3,688 4,380 4,511
Network assets.................................. 55,751 68,171 68,972
Computer hardware and software.................. 21,272 25,081 26,842
------- -------- --------
88,856 106,204 108,982
Less: accumulated depreciation.................. 42,073 55,109 58,601
------- -------- --------
Property and equipment, net..................... $46,783 $ 51,095 $ 50,381
======= ======== ========
</TABLE>

F-14
<PAGE> 82
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. LEASES

In 1998 and 1999, the Company entered into various capital lease
obligations expiring in 2002 and 2003 for network assets. The majority of the
capital lease agreements allow Illuminet to purchase, for a nominal value, the
assets at the end of the lease term. Property and equipment held under capital
leases follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1998 1999
------ -------
<S> <C> <C>
Network assets....................................... $9,367 $11,275
Less: accumulated amortization....................... 1,569 3,296
------ -------
Total property and equipment held under capital
leases............................................. $7,798 $ 7,979
====== =======
</TABLE>

The Company has entered into non-cancelable operating leases for its
various facilities, other than its Lacey headquarters site. The most significant
lease covers its Overland Park facility. The Company entered into a five-year
lease, beginning August 1998 for a new Overland Park facility that was
constructed to suit the Company's specifications. Effective January 1, 1999, the
lease was amended to a seven-year term with an option at five years to extend
the term for an additional five years. Prior to August 1998, the Company was
located in a different Overland Park facility under a lease that expired in
August 1998. During 1997, 1998 and 1999, rent expense was $0.6 million, $0.7
million and $0.8 million, respectively.

Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments for the years ending
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000........................................................ $3,206 $ 891
2001........................................................ 3,027 837
2002........................................................ 2,105 578
2003........................................................ 402 440
2004........................................................ -- 440
Thereafter.................................................. -- 440
------ ------
Total minimum lease payments................................ 8,740 $3,626
======
Less: amount representing interest (at 8.12%)............... 986
------
Present value of net minimum lease payments................. 7,754
Less: current portion of obligations under capital leases... 2,653
------
Obligations under capital leases, less current portion...... $5,101
======
</TABLE>

5. LINE OF CREDIT

In 1998, the Company had a $10 million line of credit which bore interest
at prime plus 2% and was collateralized by certain accounts receivable. At
December 31, 1998, the Company had outstanding debt of $1.7 million under this
line. In June 1999, the Company paid all outstanding principal and accrued
interest amounts and terminated the line of credit.

F-15
<PAGE> 83
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- ---------
<S> <C> <C> <C>
Various secured notes payable to Rural Telephone Finance
Cooperative ("RTFC") with variable interest rates,
(6.15% at December 31, 1998, 7.00% at December 31, 1999
and 7.50% at March 31, 2000) payable in quarterly
installments, including interest, each maturing at
various dates ranging from August 2000 to March 2015... $10,591 $ 7,458 $ 6,784
Convertible redeemable subordinated debentures
("Debentures") converted and repaid in 1999............ 7,474 -- --
Debentures, deferred interest payable.................... 989 -- --
Secured notes payable bearing interest at 15%............ 448 -- --
Borrowings under $10 million credit agreement............ -- 5,450 3,897
------- ------- -------
19,502 12,908 10,681
Less: current portion.................................... 3,458 1,430 955
------- ------- -------
Total long-term debt..................................... $16,044 $11,478 $ 9,726
======= ======= =======
</TABLE>

In connection with a call for redemption, the Company converted, on October
4, 1999, almost all outstanding Debentures with approximately $8.4 million in
principal and accrued interest and issued 760,838 shares of Class A Common Stock
to debentureholders who elected to convert. A remaining amount of $0.1 million
was paid for redemption of the principal and accrued interest that was not
converted to Class A Common Stock.

Additional borrowings available under the various note agreements with RTFC
aggregated $3.8 million at December 31, 1998 and 1999. All of the RTFC notes
have variable interest rates that are based on RTFC's short-term funding costs.
In accordance with the terms of the loan agreements, the Company purchased
lender-issued, non-interest-bearing subordinated capital certificates based on a
percentage of the gross loan amount. Such certificates are amortized against the
loan principal balance over the terms of the respective loans. Certificates
purchased, net of amortization, totaled $1.1 million and $1.0 million at
December 31, 1998 and 1999, respectively, are carried at cost, and are included
in prepaid expenses and in other long-term assets. The loan agreements contain
certain covenants, the most restrictive of which requires the Company to
maintain certain cash flow-to-debt service ratios.

All RTFC loans are currently secured by a first-priority lien in the case
of the dissolution of the Company on substantially all of the Company's assets,
revenues and property, excluding cash collected and held on behalf of others in
the normal course of providing the Company's services. Cash and cash equivalents
not subject to the lien were $3.3 million and $4.9 million at December 31, 1998,
and 1999, respectively.

The Company entered into a secured line of credit agreement with RTFC that
permits the Company to borrow up to $7.3 million, not to exceed 80% of eligible
accounts receivable, for a term of five years. The line of credit bears interest
at the lesser of the prime rate plus 1.5% or RTFC's monthly borrowing rate
(7.70% at December 31, 1999), and contains certain covenants, the most
restrictive of which requires the Company to maintain a zero balance in the line
of credit for at least five consecutive

F-16
<PAGE> 84
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. LONG-TERM DEBT (CONTINUED)
business days every 360 days after the initial advance. There were no borrowings
outstanding against the line of credit at December 31, 1998 and 1999.

The terms of the secured loan facilities restrict the ability to declare
and pay dividends without the consent of RTFC, unless the Company meets minimum
net worth and cash margin tests.

The Company had entered into certain secured notes payable agreements at an
interest rate of 15%. These notes were collateralized by specific pieces of
equipment and their related revenue, and had terms of three years. The
outstanding balance on the notes at December 31, 1998 was $0.8 million. In June
1999, the Company extinguished this debt.

In June 1999, the Company entered into a $10 million credit agreement with
Frost National Bank. This facility is comprised of a $4 million working capital
line and a $6 million capital expenditure line. Borrowings bear interest at
variable interest rates based on LIBOR or the prime rate ranging from 7.7% to
9.5% at December 31, 1999. The agreement requires quarterly interest-only
payments beginning July 1, 1999. As of May 31, 2000, the amount outstanding
under the capital expenditure note was converted to a term loan with quarterly
payments based on a 36-month amortization rate. The final maturity date for all
amounts is June 30, 2001. The credit facility is collateralized by certain
assets of the Company and is guaranteed by NTC's chief executive officer. In
conjunction with this debt, the Company must maintain certain affirmative,
negative and financial covenants. The loan was paid in full in June 2000.

The carrying value of the Company's long-term debt approximates fair value.

Maturities of the long-term debt for the years ending December 31 are
scheduled as follows (in thousands):

On June 22, 2000, the Company entered into an agreement with Bank of
America to provide a line of credit and capital expenditure loan facilities. The
line of credit is a $10.0 million, unsecured loan with a three year term, with a
one year extension available at the end of the second year. The capital
expenditure facility is a $15.0 million, unsecured loan with a five year term.
The loans bear interest at the lesser of the bank's prime lending rate or LIBOR
plus 1.375% to 1.75%, depending on Illuminet's trailing twelve month earnings
before interest, taxes, depreciation and amortization ("EBITDA"), and contain
certain covenants.

In connection with the line of credit agreement with Bank of America, the
available borrowings under a line of credit and notes agreements with RTFC were
cancelled and the liens held on the Company's assets under the RTFC note
agreements were released. The borrowings outstanding under the RTFC note
agreements will be secured by a first trust deed on the Company's building and
land located in Lacey, Washington.

F-17
<PAGE> 85
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY

The Company is authorized to issue up to 157,300,000 shares of capital
stock consisting of (i) 150,000,000 shares of Common Stock, par value $.01 per
share, (ii) 7,200,000 shares of Class A Common Stock, par value $.01 per share,
and (iii) 100,000 shares of Illuminet Holdings, Inc. Preferred Stock, par value
$.01 per share.

INITIAL PUBLIC OFFERING

On October 14, 1999, the Company completed an initial public offering of
4,485,000 shares of its Common Stock and received approximately $78.3 million in
cash, net of underwriter discounts, commissions and other offering costs.

CLASS A COMMON STOCK

Immediately prior to the initial public offering, all existing common stock
of the Company was renamed to Class A Common Stock. Each share of Class A Common
Stock was automatically converted into four shares of Common Stock on April 5,
2000. If the Class A Common Stock were converted at December 31, 1999, an
additional 25,376,536 shares of Common Stock would have been outstanding. Other
than the conversion feature, terms of Class A Common Stock are identical to
those of the Common Stock on an as if converted basis.

SERIES A PREFERRED STOCK

As approved by stockholders on June 21, 1999, all outstanding Series A
Preferred Stock of the Company automatically converted into an aggregate total
of 204,941 shares of Class A Common Stock at the time of the initial public
offering.

SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK

Series B Participating Cumulative Preference Stock ("Series B Stock") is
entitled to one vote per each one one-thousandth (" 1/1000") share, and votes
together as a class with Common Stock on matters on which holders of Common
Stock are generally entitled to vote. Although the Series B Stock ranks superior
to Common Stock, upon liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, other than requiring payment of accrued and
unpaid dividends before the payout to holders of Common Stock, the only
liquidation right of the Series B Stock is that each 1/1000 of a share of Series
B Stock is entitled to receive an amount equivalent to the amount to be
distributed per whole share of Common Stock. Series B Stock has similar rights
and preferences to dividends. Series B Stock was authorized in connection with
the establishment of the Company's Shareholder Rights Plan. No such shares were
outstanding at December 31, 1999.

CONVERTIBLE REDEEMABLE PREFERRED STOCK AND COMMON STOCK WARRANTS

In June 1998, the Company sold 450,000 shares of Convertible Redeemable
Preferred Stock for $4.5 million plus 414,096 Common Stock Warrants for $1,000.
The Convertible Redeemable Preferred Stock has various rights and preferences,
including cumulative dividend rights of $1.20 per share accrued annually,
payable upon redemption of the Preferred Stock. Each warrant entitles the holder
to one share of Common Stock of the Company at an exercise price of $0.006 per
warrant.

F-18
<PAGE> 86
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. STOCKHOLDERS' EQUITY (CONTINUED)
The estimated fair value of the warrants of $1.5 million was based on the
application of the Black-Scholes option pricing model which incorporates current
stock price, expected stock price volatility, expected interest rates, and the
expected holding period of the warrants.

In connection with the merger discussed in Note 1, each warrant was
exercised prior to the completion of the merger and the related Common Stock of
NTC was exchanged for Common Stock of Illuminet. In addition, each share of
Convertible Redeemable Preferred Stock was exchanged for Common Stock of
Illuminet based on the liquidation value of the Convertible Redeemable Preferred
Stock, including cumulative unpaid dividends and a prepayment premium.

DIVIDENDS

Payments of dividends are restricted under the Company's long-term debt
arrangements with approval of RTFC required unless the Company's ratio of equity
to total assets exceeds 40%. No dividends have been declared to date.

SHAREHOLDER RIGHTS PLAN

On November 19, 1998, the Company's Board of Directors adopted a
Shareholder Rights Plan and declared a dividend, issued on November 20, 1998, of
one right for each outstanding share of Common Stock ("Right"). Each Right
represents the right to purchase shares of our Series B Stock. The Rights become
exercisable if a person or group acquires more than 20% of the outstanding
shares of Common Stock or makes a tender offer for more than 20% of the
outstanding shares of Common Stock. Upon the occurrence of such an event, each
Right entitles the holder (other than the acquiror) to purchase for $150 the
economic equivalent of shares of Common Stock, or in certain circumstances,
stock of the acquiring entity, worth twice as much. The Rights expire on
December 20, 2008 unless earlier redeemed by the Company, and are redeemable
prior to becoming exercisable at $0.01 per Right.

8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS

STOCK OPTION PLANS

The Company established the 1997 Equity Incentive Plan under which 13% of
outstanding shares of Common Stock are reserved from time to time for issuance
pursuant to non-qualified and incentive stock options and stock appreciation
rights that may be granted. Only non-qualified stock options have been granted
under the plan. Employee non-qualified stock options, primarily granted to key
employees, are generally exercisable ratably over three to four years and expire
ten years from the date of grant except that options expire 60 days after
termination of employment. Outside Director non-qualified stock options are
generally exercisable on grant, or within twelve months of grant, and expire ten
years from the date of grant. Prior to the initial public offering, the Board of
Directors determined the estimated fair value of Class A Common Stock as the
stock was not publicly traded and a readily ascertainable market value was not
available.

On December 15, 1998, NTC provided option holders the opportunity to have
their five-year term, $10.86 exercise price options exchanged for new options
equal to two-thirds of the exchanged options, with an exercise price equal to
the then estimated fair value of $3.80 and a term of ten years. Holders of
117,858 options elected to participate in the exchange.

F-19
<PAGE> 87
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
Additional information regarding options granted and outstanding is
summarized as follows. This information includes the effect of Class A Common
Stock options on an as if converted basis:

<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
--------- ---------
<S> <C> <C>
Outstanding January 1, 1997................................. 111,487 $10.86
Granted at exercise price less than fair value of Common
Stock on grant date.................................... 926,016 2.20
---------
Outstanding December 31, 1997 (287,820 exercisable at $2.43
weighted-average exercise price).......................... 1,037,503 3.13
Granted at exercise price less than fair value of Common
Stock on grant date.................................... 1,170,044 2.34
Granted at exercise price equal to fair value of Common
Stock on grant date.................................... 595,043 5.54
Exchanged................................................. (117,858) 10.86
Reissued.................................................. 78,572 3.77
Exercised................................................. (400) 2.20
Forfeited................................................. (94,927) 5.62
---------
Outstanding December 31, 1998 (1,243,475 exercisable at
$2.41 weighted-average exercise price).................... 2,667,977 2.90
Granted at exercise price less than fair value of Common
Stock on grant date.................................... 701,190 7.47
Granted at exercise price equal to fair value of Common
Stock on grant date.................................... 91,901 16.70
Exercised................................................. (51,000) 2.20
Forfeited................................................. (2,548) 3.77
---------
Outstanding December 31, 1999 (1,785,646 exercisable at
$2.72 weighted-average exercise price).................... 3,407,520 $ 4.23
========= ======
</TABLE>

Outstanding and exercisable stock options by price range as of December 31,
1999 is as follows:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- -----------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
--------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.20 - $ 3.80 2,095,092 7.95 $ 2.35 1,550,501 $ 2.34
4.18 - 4.55 551,260 8.15 4.24 204,760 4.30
8.00 - 13.05 698,045 8.92 8.49 30,062 10.86
19.00 - 48.44 63,123 9.77 19.07 323 33.38
--------- ---------
$ 2.20 - $48.44 3,407,520 8.22 $ 4.23 1,785,646 $ 2.72
========= ==== ====== ========= ======
</TABLE>

F-20
<PAGE> 88
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
STOCK COMPENSATION

For the years ended December 31, 1997, 1998 and 1999, deferred stock-based
compensation for the stock options granted was $0.5 million, $0.6 million and
$4.2 million, respectively, and $0.2 million, $0.5 million and $0.7 million,
respectively, was recognized as stock-based compensation expense. Deferred
stock-based compensation is amortized under the multiple option method.

EMPLOYEE STOCK PURCHASE PLAN

Effective October 7, 1999, the Company adopted an Employee Stock Purchase
Plan ("ESPP") for which the last purchase date is October 6, 2001. Eligible
employees may contribute up to 15% of cash compensation toward the semi-annual
purchase of Common Stock. Under the terms of the plan, 700,000 shares of
authorized Common Stock were reserved for purchase at 85% of the fair market
value price at the beginning of the six-month offering period at which an
eligible employee enrolled, or the end of each six-month offering period,
whichever is lower. In no case, can the fair market value price at the beginning
of any six-month offering period be less than $16.15. Through December 31, 1999,
no stock was purchased under this plan, and eligible employees have contributed
$0.2 million toward the first purchase on April 6, 2000.

PRO FORMA INFORMATION

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if the Company had
accounted for its stock options under the fair value method of that Statement
and includes the effect of Class A Common Stock options on an as if converted
basis. The weighted-average grant date fair value of these options was estimated
at the date of grant using the Minimum Value Option Pricing Model for all
options granted before the initial public offering and the Black-Scholes Option
Pricing Model for all options granted after the initial public offering with the
following weighted-average assumptions:

<TABLE>
<CAPTION>
JANUARY 1, OCTOBER 7,
YEAR ENDED DECEMBER 31, 1999 TO 1999 TO
----------------------- OCTOBER 6, DECEMBER 31,
1997 1998 1999 1999
---------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Risk-free interest rate................... 5.1 - 5.9% 5.1 - 5.4% 5.7 - 6.4% 6.1 - 6.4%
Dividend yield............................ 0% 0% 0% 0%
Expected volatility....................... 0% 0% 0% 70%
Estimated option life in years............ 8.5 - 10.0 8.5 - 10.0 9.1 - 10.0 7.0 - 10.0
Weighted-average grant date value for
options granted at exercise price less
than fair value of Common Stock on grant
date.................................... $1.40 $2.04 $9.10 --
Weighted-average grant date value for
options granted at exercise price equal
to fair value of Common Stock on grant
date.................................... -- $1.54 $5.40 $13.63
</TABLE>

F-21
<PAGE> 89
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
December 31 are summarized as follows (in thousands, except per share amounts)
and includes the effect of Class A Common Stock options on an as if converted
basis.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Net income -- as reported........................... $7,673 $5,383 $13,635
Net income -- pro forma............................. $7,496 $4,877 $12,617
Earnings per share -- diluted -- as reported........ $ 0.30 $ 0.19 $ 0.45
Earnings per share -- diluted -- pro forma.......... $ 0.29 $ 0.18 $ 0.41
</TABLE>

9. EMPLOYEE BENEFIT PLANS

The Company has qualified profit sharing/401(k) trust retirement plans
covering all employees subject to certain eligibility requirements. The Company
provides matching contributions to the plans' trusts on a portion of employee
contributions to the plans, and also may, at the discretion of the Board of
Directors, provide a discretionary contribution. For 1997, 1998 and 1999,
contribution expense was approximately $1.2 million, $1.1 million, and $2.0
million, respectively.

10. INCOME TAXES

Components of the income tax provision (benefit) are summarized as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 193 $1,501 $6,079
State.............................................. -- 188 91
Deferred:
Federal............................................ (821) 2,015 2,092
State.............................................. (48) 122 (130)
----- ------ ------
Total income tax provision (benefit)................. $(676) $3,826 $8,132
===== ====== ======
</TABLE>

The reconciliations of the income tax provision (benefit) calculated using
the U.S. federal statutory rates to the recorded income tax provision (benefit)
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.................. $ 2,378 $3,131 $7,689
State income taxes, net of federal tax benefit...... -- 205 (26)
Utilization of net operating loss carryforward...... (2,373) (10) --
Alternative minimum tax............................. 193 -- --
Additional (reversal of) valuation allowance........ (869) -- 565
Other............................................... (5) 500 (96)
------- ------ ------
Income tax provision (benefit)...................... $ (676) $3,826 $8,132
======= ====== ======
</TABLE>

F-22
<PAGE> 90
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INCOME TAXES (CONTINUED)
The Company provides for deferred taxes based on the differences between
the bases of assets and liabilities for financial reporting purposes and income
tax purposes, calculated using enacted tax rates that will be in effect when the
differences are expected to reverse. At December 31, 1998 and 1999, such
differences primarily related to the use of accelerated depreciation and
amortization for tax purposes, accruals for certain expenses that are not
currently deductible for tax purposes until paid, the tax basis of certain
investments that have been written off for financial statement purposes and
software development costs that were capitalized for financial statement
purposes. Differences at December 31, 1998 also included net operating loss
carryforwards and tax credit carryforwards that were fully utilized in 1999.

During the year ended December 31, 1997, the valuation allowance decreased
$3.1 million primarily through utilization of net operating loss carryforwards
and the reversal of substantially all of the previously recorded deferred tax
valuation allowance due to improved anticipated operating results. At December
31, 1998, the Company had a valuation allowance related to tax benefits
associated with capital losses recorded for financial statement purposes but not
yet realized for tax purposes, and tax credit carryforwards of $1.4 million.
During 1999, the Company recorded an additional valuation allowance related to
the write down of a preferred stock equity investment based on a change in the
investee's business strategy and direction and fully utilized all federal net
operating loss carryforwards and tax credit carryforwards.

The components of the deferred tax assets are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,454 $ 251
Tax credit carryforwards.................................. 1,368 --
Allowance for doubtful accounts........................... 490 889
Contract loss provision................................... 151 760
Deferred stock-based compensation......................... 413 656
Loss on impairment........................................ -- 555
Other nondeductible accruals.............................. 1,064 827
Valuation allowance....................................... (180) (745)
------- -------
Net deferred tax assets..................................... 4,760 3,193
Deferred tax liabilities:
Excess tax over book depreciation and amortization........ (6,117) (6,512)
Other..................................................... (14) (14)
------- -------
Total deferred tax liabilities.............................. (6,131) (6,526)
------- -------
Deferred tax liabilities, net............................... $(1,371) $(3,333)
======= =======
</TABLE>

F-23
<PAGE> 91
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EARNINGS PER SHARE

The following table sets forth the computation of earnings per share-basic
and diluted (in thousands, except share and per share amounts) and includes the
effect of Class A Common Stock on an as if converted basis:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income.................... $ 7,673 $ 5,383 $ 13,635 $ 2,450 $ 7,283
Accretion of redemption value
and cumulative dividends of
Convertible Redeemable
Preferred Stock............ -- (404) (828) (207) (202)
----------- ----------- ----------- ----------- -----------
Income available to common
stockholders(A)............ 7,673 4,979 12,807 2,243 7,081
Effect of dilutive
securities -- debenture
interest, net of tax....... 498 427 291 99 --
----------- ----------- ----------- ----------- -----------
Numerator for earnings per
share -- diluted -- net
income after assumed
conversions(B)............. $ 8,171 $ 5,406 $ 13,098 $ 2,342 $ 7,081
=========== =========== =========== =========== ===========
Denominator:
Denominator for earnings per
share -- basic -- weighted-
average common shares(C)... 23,073,310 23,027,833 24,630,095 22,716,671 31,114,235
Weighted-average effect of
dilutive securities:
Stock options.............. -- 549,308 1,258,042 792,804 1,984,318
Stock warrants............. -- 207,048 414,096 414,096 414,096
Debentures................. 3,528,292 3,187,456 2,331,484 3,098,384 --
Series A Stock............. 876,332 827,136 613,224 819,876 --
Convertible Redeemable
Preferred Stock.......... -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Dilutive potential common
shares..................... 4,404,624 4,770,948 4,616,846 5,125,160 2,398,414
----------- ----------- ----------- ----------- -----------
Denominator for earnings per
share -- diluted -- adjusted
weighted-average shares and
assumed conversions(D)........ 27,477,934 27,798,781 29,246,941 27,841,831 33,512,649
=========== =========== =========== =========== ===========
Earnings per
share -- basic(A)/(C)......... $ 0.33 $ 0.22 $ 0.52 $ 0.10 $ 0.23
=========== =========== =========== =========== ===========
Earnings per share --
diluted(B)/(D)................ $ 0.30 $ 0.19 $ 0.45 $ 0.08 $ 0.21
=========== =========== =========== =========== ===========
</TABLE>

See Notes 6, 7, and 8 for additional information regarding the Debentures,
Series A Stock, Convertible Redeemable Preferred Stock, stock warrants and stock
options.

F-24
<PAGE> 92
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. EARNINGS PER SHARE (CONTINUED)
Stock options to purchase 70,802 and 1,072 weighted-average shares of
Common Stock were outstanding during 1997 and 1998, respectively, and
Convertible Redeemable Preferred Stock convertible into approximately 100,000
shares of Common Stock at December 31, 1999, but were not included in the
computation of diluted earnings per share because of their anti-dilutive effect.

INCOME AVAILABLE TO COMMON STOCKHOLDERS

In addition to dividends, the Company must accrete the Convertible
Redeemable Preferred Stock from its recorded value at issuance to its redemption
value. The accretion is being recognized over the period from the date of
issuance to the redemption date based on the effective interest method. Related
amounts include (in thousands):

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ------------
1997 1998 1999 1999 2000
----- ----- ----- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Accretion of redemption value..................... $-- $134 $288 $ 72 $ 67
Cumulative dividends.............................. -- 270 540 135 135
--- ---- ---- ---- ----
$-- $404 $828 $207 $202
=== ==== ==== ==== ====
</TABLE>

12. LEGAL PROCEEDINGS

The Company is party to various legal proceedings arising in the ordinary
course of business. Management does not believe that those claims, individually
or combined, will have a material adverse effect on our business, financial
condition or operating results.

13. RELATED PARTY TRANSACTIONS

The Company is party to a contract with the subsidiary of one of its
corporate stockholders that supplies the Company with transmission facilities in
the form of private leased lines. Such lines are leased from the corporate
stockholder at rates comparable to third-party service providers. Payments
pursuant to this contract totaled $1.6 million, $1.7 million, and $2.1 million
for the years ended December 31, 1997, 1998, and 1999, respectively.

Included in accounts receivable at December 31, 1998 is $0.2 million (none
in 1999), due for services and reimbursable expenses from a customer in which
the Company has a preferred stock equity investment currently representing 13%
of the voting rights of the customer. Revenues earned from the customer were
$0.5 million, $0.8 million, and $0.4 million for the years ended December 31,
1997, 1998, and 1999, respectively. Included in 1999 operating expenses is a
$1.5 million impairment loss of the full amount of a 1995 investment in this
start-up company that was previously recorded at cost. The recognition of this
loss was coincident with significant liquidity concerns of the investee, and the
investee's decision to discontinue its historical primary operations and related
uncertainties resulting from a change in the investee's business strategy and
direction.

NTC had retained legal counsel who also served as a member of the former
board of directors of NTC during part of 1998 and 1999. The attorney was an
officer of NTC and served as general counsel for

F-25
<PAGE> 93
ILLUMINET HOLDINGS, INC.

NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. RELATED PARTY TRANSACTIONS (CONTINUED)
all matters affecting NTC. Legal fees incurred by NTC during 1998 and 1999 for
the attorney were $40,000 and $47,000, respectively.

In addition, NTC utilized employee recruiting services from a recruiting
firm owned by a member of the former board of directors of NTC. Finder's fees
incurred during 1998 and 1999 for the recruiting firm were $23,000 and $49,000,
respectively, with outstanding balances of $26,000 and $0 at December 31, 1998
and 1999, respectively.

14. QUARTERLY RESULTS (UNAUDITED)

The following quarterly financial data has been prepared from the Company's
supplemental financial records without audit, and in the opinion of management,
reflect all adjustments (consisting of only normal and recurring accruals)
necessary to present fairly the Company's results of operations for those
periods when considered in conjunction with the audited supplemental
consolidated financial statements and the notes to those financial statements.
Earnings per share-basic and earnings-per share diluted include the effect of
Class A Common Stock on an as if converted basis. Quarterly information may not
total the annual amounts in some instances because of rounding.

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues............................... $ 17,035 $ 18,951 $ 21,301 $ 24,928
Operating income....................... 1,813 2,545 2,767 3,283
Income before income taxes............. 1,576 2,205 2,388 3,040
Net income............................. $ 905 $ 1,312 $ 1,442 $ 1,724
Earnings per share -- basic............ $ 0.04 $ 0.06 $ 0.05 $ 0.07
Earnings per share -- diluted.......... $ 0.04 $ 0.05 $ 0.04 $ 0.06
Weighted-average common
shares -- basic...................... 23,238,670 23,215,570 22,851,736 22,804,146
Weighted-average common
shares -- diluted.................... 27,487,558 27,824,826 27,786,795 27,691,401
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
----------- ----------- ------------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................... $ 25,085 $ 27,217 $ 30,837 $ 33,561 $ 34,529
Operating income........... 4,148 4,115 6,195 7,349 10,322
Income before income
taxes.................... 3,942 3,760 5,812 8,253 11,751
Net income................. $ 2,450 $ 2,337 $ 3,629 $ 5,219 $ 7,283
Earnings per
share -- basic........... $ 0.10 $ 0.10 $ 0.15 $ 0.17 $ 0.23
Earnings per
share -- diluted......... $ 0.08 $ 0.09 $ 0.13 $ 0.15 $ 0.21
Weighted-average common
shares -- basic.......... 22,716,671 22,719,619 22,726,139 30,295,595 31,114,235
Weighted-average common
shares -- diluted........ 27,841,831 27,935,313 28,414,306 32,789,900 33,512,649
</TABLE>

F-26
<PAGE> 94

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

Board of Directors and Stockholders
Illuminet Holdings, Inc.

We have audited the accompanying consolidated balance sheets of Illuminet
Holdings, Inc. ("Illuminet") as of December 31, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of Illuminet's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Illuminet as of
December 31, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31, 1999
in conformity with accounting principles generally accepted in the United
States.

Seattle, Washington ERNST & YOUNG LLP
January 20, 2000

F-27
<PAGE> 95

ILLUMINET HOLDINGS, INC.

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

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1998 1999 2000
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $11,967 $ 22,903 $ 26,581
Available-for-sale securities..................... -- 79,738 80,816
Accounts receivable, less allowance for doubtful
accounts of $1,352 ($1,133 in 1998, $1,944 in
1999).......................................... 27,155 30,916 31,663
Deferred income taxes............................. 2,101 1,485 1,485
Prepaid expenses and other........................ 784 1,458 1,924
------- -------- --------
Total current assets........................... 42,007 136,500 142,469
Property and equipment, net......................... 43,747 45,129 44,234
Computer software product costs, less accumulated
amortization of $2,486 ($1,784 in 1998, $2,345 in
1999)............................................. 1,075 513 373
Other assets........................................ 2,621 1,515 1,388
------- -------- --------
Total assets................................... $89,450 $183,657 $188,464
======= ======== ========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Trade accounts payable and accrued expenses....... $ 6,314 $ 9,099 $ 5,552
Due to customers.................................. 16,622 16,133 15,849
Income taxes payable.............................. 987 1,723 4,308
Current portion of obligations under capital
leases......................................... 1,706 2,428 2,478
Current portion of long-term debt................. 3,458 1,430 955
------- -------- --------
Total current liabilities...................... 29,087 30,813 29,142
------- -------- --------
Deferred income taxes............................... 3,429 4,853 4,853
Obligations under capital leases, less current
portion........................................... 5,146 4,997 4,358
Long-term debt, less current portion................ 15,596 6,028 5,829
Stockholders' equity:
Preferred Stock, par value $.01 per share,
authorized 100,000 shares, 4,416 shares
designated as Series A, none outstanding (2,408
in 1998, none in 1999) and 7,000 shares
designated as Series B, none outstanding....... -- -- --
Common Stock, par value $.01 per share, authorized
150,000,000 shares, issued and outstanding
4,485,000 (none in 1998, 4,485,000 in 1999).... -- 45 45
Class A Common Stock, par value $.01 per share,
authorized 7,200,000 shares, issued and
outstanding 6,344,134 (5,365,605 in 1998,
6,344,134 in 1999)............................. 54 63 63
Additional paid-in capital........................ 12,712 103,865 103,859
Deferred stock-based compensation................. (394) (3,828) (3,536)
Retained earnings................................. 23,820 36,821 43,851
------- -------- --------
Total stockholders' equity..................... 36,192 136,966 144,282
------- -------- --------
Total liabilities and stockholders' equity..... $89,450 $183,657 $188,464
======= ======== ========
</TABLE>

F-28
<PAGE> 96

ILLUMINET HOLDINGS, INC.

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

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Network services.............. $ 44,117 $ 60,274 $ 93,211 $ 19,833 $ 27,657
Clearinghouse services........ 6,723 6,232 5,851 1,539 1,315
Network usage software
applications............... 3,468 5,406 1,532 231 270
----------- ----------- ----------- ----------- -----------
Total revenues............. 54,308 71,912 100,594 21,603 29,242
Expenses:
Carrier costs................. 15,313 22,983 26,091 6,519 5,950
Operating..................... 14,979 19,768 28,868 5,743 7,033
Selling, general, and
administrative............. 8,873 10,287 13,492 2,894 3,499
Depreciation and
amortization............... 7,354 9,372 11,966 2,498 2,986
----------- ----------- ----------- ----------- -----------
Total expenses............. 46,519 62,410 80,417 17,654 19,468
----------- ----------- ----------- ----------- -----------
Operating income................ 7,789 9,502 20,177 3,949 9,774
Interest income................. 732 834 2,105 206 1,791
Interest expense................ (1,540) (1,580) (1,611) (396) (227)
----------- ----------- ----------- ----------- -----------
Income before income taxes...... 6,981 8,756 20,671 3,759 11,338
Income tax (benefit)
provision..................... (676) 3,463 7,666 1,428 4,308
----------- ----------- ----------- ----------- -----------
Net income...................... $ 7,657 $ 5,293 $ 13,005 $ 2,331 $ 7,030
=========== =========== =========== =========== ===========
Earnings per share -- basic..... $ 0.36 $ 0.25 $ 0.56 $ 0.10 $ 0.24
=========== =========== =========== =========== ===========
Earnings per share -- diluted... $ 0.32 $ 0.22 $ 0.48 $ 0.09 $ 0.22
=========== =========== =========== =========== ===========
Weighted-average common
shares -- basic............... 21,182,036 21,425,540 23,377,396 21,463,972 29,861,536
=========== =========== =========== =========== ===========
Weighted-average common
shares -- diluted............. 25,586,660 25,989,440 27,456,760 26,097,456 31,692,546
=========== =========== =========== =========== ===========
</TABLE>

F-29
<PAGE> 97

ILLUMINET HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A SERIES A
COMMON STOCK COMMON STOCK PREFERRED STOCK ADDITIONAL
------------------ ------------------- --------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ------ ---------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997..................... -- $-- 5,262,354 $53 2,637 $-- $ 10,701
Conversion of Series A Preferred Stock....... -- -- 15,832 -- (186) -- --
Conversion of convertible redeemable
subordinated debentures.................... -- -- 66,194 -- -- -- 735
Common Stock issued under former stock
incentive plan............................. -- -- 14,240 -- -- -- 41
Common Stock repurchases..................... -- -- (11,539) -- -- -- --
Deferred stock-based compensation............ -- -- -- -- -- -- 509
Stock-based compensation expense............. -- -- -- -- -- -- --
Net income................................... -- -- -- -- -- -- --
--------- --- ---------- --- ------ -- --------
Balance at December 31, 1997................... -- -- 5,347,081 53 2,451 -- 11,986
Conversion of Series A Preferred Stock....... -- -- 3,660 -- (43) -- --
Conversion of convertible redeemable
subordinated debentures.................... -- -- 14,764 1 -- -- 164
Deferred stock-based compensation............ -- -- -- -- -- -- 561
Stock-based compensation expense............. -- -- -- -- -- -- --
Stock options exercised...................... -- -- 100 -- -- -- 1
Net income................................... -- -- -- -- -- -- --
--------- --- ---------- --- ------ -- --------
Balance at December 31, 1998................... -- -- 5,365,605 54 2,408 -- 12,712
Conversion of Series A Preferred Stock....... -- -- 204,941 2 (2,408) -- --
Conversion of convertible redeemable
subordinated debentures.................... -- -- 760,838 7 -- -- 8,347
Deferred stock-based compensation............ -- -- -- -- -- -- 4,123
Stock-based compensation expense............. -- -- -- -- -- -- --
Stock options exercised...................... -- -- 12,750 -- -- -- 394
Issuance of Common Stock..................... 4,485,000 45 -- -- -- -- 78,289
Net income................................... -- -- -- -- -- -- --
--------- --- ---------- --- ------ -- --------
Balance at December 31, 1999................... 4,485,000 45 6,344,134 63 -- -- 103,865
Deferred stock-based compensation
(unaudited)................................ -- -- -- -- -- -- (6)
Stock-based compensation expense
(unaudited)................................ -- -- -- -- -- -- --
Net income (unaudited)....................... -- -- -- -- -- -- --
--------- --- ---------- --- ------ -- --------
Balance at March 31, 2000 (unaudited).......... 4,485,000 $45 6,344,134 $63 -- $-- $103,859
========= === ========== === ====== == ========

DEFERRED TOTAL
STOCK-BASED RETAINED STOCKHOLDERS'
COMPENSATION EARNINGS EQUITY
------------ -------- -------------
<S> <C> <C> <C>
Balance at January 1, 1997..................... $ -- $11,006 $ 21,760
Conversion of Series A Preferred Stock....... -- -- --
Conversion of convertible redeemable
subordinated debentures.................... -- -- 735
Common Stock issued under former stock
incentive plan............................. -- -- 41
Common Stock repurchases..................... -- (136) (136)
Deferred stock-based compensation............ (509) -- --
Stock-based compensation expense............. 169 -- 169
Net income................................... -- 7,657 7,657
------- ------- --------
Balance at December 31, 1997................... (340) 18,527 30,226
Conversion of Series A Preferred Stock....... -- -- --
Conversion of convertible redeemable
subordinated debentures.................... -- -- 165
Deferred stock-based compensation............ (561) -- --
Stock-based compensation expense............. 507 -- 507
Stock options exercised...................... -- -- 1
Net income................................... -- 5,293 5,293
------- ------- --------
Balance at December 31, 1998................... (394) 23,820 36,192
Conversion of Series A Preferred Stock....... -- (2) --
Conversion of convertible redeemable
subordinated debentures.................... -- (2) 8,352
Deferred stock-based compensation............ (4,123) -- --
Stock-based compensation expense............. 689 -- 689
Stock options exercised...................... -- -- 394
Issuance of Common Stock..................... -- -- 78,334
Net income................................... -- 13,005 13,005
------- ------- --------
Balance at December 31, 1999................... (3,828) 36,821 136,966
Deferred stock-based compensation
(unaudited)................................ 6 -- --
Stock-based compensation expense
(unaudited)................................ 286 -- 286
Net income (unaudited)....................... -- 7,030 7,030
------- ------- --------
Balance at March 31, 2000 (unaudited).......... $(3,536) $43,851 $144,282
======= ======= ========
</TABLE>

F-30
<PAGE> 98

ILLUMINET HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------- ------------------
1997 1998 1999 1999 2000
-------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income.................................... $ 7,657 $ 5,293 $ 13,005 $ 2,331 $ 7,030
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization............... 7,354 9,372 11,966 2,498 2,986
Impairment on investment.................... -- -- 1,461 -- --
Stock-based compensation expense............ 169 507 689 85 286
Deferred income taxes....................... (870) 2,198 2,040 1,429 --
Change in:
Accounts receivable....................... (2,238) (3,337) (3,761) (1,313) (747)
Trade accounts payable.................... 1,260 (1,424) 2,927 (1,315) (3,547)
Due to customers.......................... (2,306) (309) (489) 1,380 (284)
Income taxes payable...................... (48) 923 736 (909) 2,585
Other..................................... (234) (42) (1,145) (139) (341)
-------- -------- -------- ------- -------
Net cash provided by operating
activities........................... 10,744 13,181 27,429 4,047 7,968
-------- -------- -------- ------- -------
Investing activities:
Purchases of investments...................... -- -- (79,738) -- (1,078)
Capital purchases............................. (10,121) (10,380) (10,241) (2,088) (1,949)
-------- -------- -------- ------- -------
Net cash used in investing activities....... (10,121) (10,380) (89,979) (2,088) (3,027)
-------- -------- -------- ------- -------
Financing activities:
Purchase of subordinated capital certificates
related to notes payable.................... -- (68) -- -- --
Proceeds from issuance of notes payable....... -- 1,368 -- -- --
Proceeds from issuance of Class A Common
Stock....................................... -- 1 394 10 --
Proceeds from issuance of Common Stock........ -- -- 78,334 -- --
Principal payments on notes payable and
capital leases.............................. (1,835) (3,302) (5,238) (414) (1,263)
Class A Common Stock repurchases.............. (136) -- (4) -- --
-------- -------- -------- ------- -------
Net cash (used in) provided by financing
activities................................ (1,971) (2,001) 73,486 (404) (1,263)
-------- -------- -------- ------- -------
Net (decrease) increase in cash and cash
equivalents............................... (1,348) 800 10,936 1,555 3,678
Cash and cash equivalents at:
Beginning of period........................... 12,515 11,167 11,967 11,967 22,903
-------- -------- -------- ------- -------
End of period................................. $ 11,167 $ 11,967 $ 22,903 $13,522 $26,581
======== ======== ======== ======= =======
Supplemental cash flow disclosure:
Income taxes paid............................. $ 226 $ 342 $ 4,676 $ 909 $ 1,723
======== ======== ======== ======= =======
Interest paid................................. $ 1,944 $ 1,859 $ 1,860 $ 361 $ 283
======== ======== ======== ======= =======
Capital acquisitions financed through capital
leases...................................... $ -- $ 7,490 $ 2,530 $ -- $ --
======== ======== ======== ======= =======
Debentures and Series A Preferred Stock
converted into Class A Common Stock......... $ 735 $ 165 $ 8,356 $ -- $ --
======== ======== ======== ======= =======
</TABLE>

F-31
<PAGE> 99

ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Illuminet Holdings, Inc. and its wholly-owned subsidiary Illuminet, Inc.
(collectively referred to as "Illuminet") are engaged in the business of
developing, managing and marketing a Signaling System 7 ("SS7") network and
related products and services based on SS7 technology to the entire
telecommunications marketplace. SS7 is a telecommunications industry-standard
system of protocols and procedures that is used to control telephone
communications and provide routing information in association with vertical
calling features, such as calling card validation, advanced intelligent network
services, local number portability, wireless services, toll-free number database
access, and caller identification. Additionally, Illuminet provides advanced
database services, billing-and-collection services, calling card services, and
network usage software applications to a range of telephone companies as well as
interexchange carriers, operator service providers and other telecommunications
companies and providers of telecommunications services.

BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the financial statements of
Illuminet Holdings, Inc. and its subsidiary. All significant intercompany
balances and transactions have been eliminated in consolidation.

UNAUDITED INTERIM FINANCIAL INFORMATION

The financial information as of March 31, 2000 and for the three months
ended March 31, 1999 and 2000 is unaudited, but includes all adjustments,
consisting only of normal recurring adjustments, that Illuminet considers
necessary for a fair presentation of the financial position at those dates and
of the operations and cash flows for the periods then ended. Operating results
for the three months ended March 31, 2000 are not necessarily indicative of
results that may be expected for the entire year.

CASH EQUIVALENTS

Illuminet considers all highly liquid investments of operating cash,
defined as funds generated from ongoing business operations, with original
maturities of three months or less at purchase to be cash equivalents. Cash
equivalents consist of money market funds and commercial paper that are stated
at cost, which approximates fair value. At December 31, 1998 and 1999, such
investments included $11.0 million, and $19.8 million, respectively, invested in
a money market fund consisting of direct obligations of the U.S. Treasury and
repurchase agreements collateralized by such obligations of the U.S. Treasury.
At December 31, 1998, direct commercial paper investments totaled $2.0 million.
At December 31, 1999, investments in a fund collateralized by commercial paper
investments totaled $3.1 million.

F-32
<PAGE> 100
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
AVAILABLE-FOR-SALE SECURITIES

Illuminet considers the investment of the proceeds and related interest
earnings from its initial public offering to be available-for-sale securities.
Investments classified as available-for-sale securities are reported at fair
value with unrealized gains and losses excluded from earnings and recorded net
of deferred taxes directly to stockholders' equity as accumulated other
comprehensive income. At December 31, 1999, such investments included, at market
value, $69.7 million invested in commercial paper with an average of 59 days to
maturity and $10.0 million invested in demand notes. There were not any gross
unrealized holding gains or losses at December 31, 1998 and 1999.

ACCOUNTS RECEIVABLE

One of Illuminet's services involves providing a clearinghouse function for
toll collected by telephone companies on behalf of other telecommunications
service providers. At December 31, 1998 and 1999, accounts receivable included
$11.5 million and $9.0 million, respectively, of such toll amounts due from
telephone companies. Related amounts due to customers included $12.4 million and
$11.8 million, respectively, for amounts owed to such service providers.
Accounts receivable from these companies are uncollateralized; however,
uncollected amounts may be offset against amounts otherwise due to service
providers.

PROPERTY AND EQUIPMENT

<TABLE>
<S> <C>
Corporate headquarters building............................. 31.5 years
Network assets.............................................. 5 to 10 years
Office equipment and systems................................ 5 to 20 years
Furniture and fixtures...................................... 5 to 15 years
Computer equipment and software............................. 3 to 5 years
Leasehold improvements...................................... 5 years
</TABLE>

Property and equipment and liabilities under capital leases are recorded at
the lower of the fair value of the asset or the present value of the minimum
lease payments. Interest rates on capitalized leases are imputed based on the
lower of Illuminet's incremental borrowing rate at the inception of each lease
or the lessor's implicit rate of return. Depreciation on the leased assets are
included in depreciation expense, and is provided using the straight-line method
over the estimated useful lives of the assets.

CAPITALIZED SOFTWARE

F-33
<PAGE> 101
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
computed using (a) the ratio that current gross revenues for a product bear to
the total of current and anticipated future gross revenues for that product, or
(b) the straight-line method over the remaining estimated economic life of the
product. Amortization starts when the product is available for general release
to customers.

IMPAIRMENT OF LONG-LIVED ASSETS

Long-lived assets consist of intangible assets and certain capital assets.
An impairment is considered to have occurred when the carrying value of the
asset is considered not to be recoverable. The carrying value of these assets is
regularly reviewed to verify that they are valued properly. When there are
adverse changes in facts and circumstances suggest that the value has been
impaired, an assessment is made of future cash flows and the carrying value of
the related assets will be reduced appropriately to their fair value based on
current market values. When market values are not available, the fair value will
be determined based on other valuation techniques such as estimated discounted
future cash flows.

REVENUE RECOGNITION

Illuminet recognizes revenue as the related services are performed. Network
services revenues are comprised of network connectivity revenues and intelligent
network service revenues. Network connectivity revenues are derived from
establishing and maintaining connection to Illuminet's SS7 network and trunk
signaling services. Revenues from network connectivity consist primarily of
monthly recurring fees, and trunk signaling services revenues are charged
monthly based on the number of switches to which a customer signals. The initial
connection fee and related costs are deferred and recognized over the term of
the arrangement. Intelligent network services, which include calling card
validation, local number portability, wireless services, toll-free database
access, and caller identification are derived primarily from database
administration and database query services and are charged on a per-use or
per-query basis.

In 1999, Illuminet earned approximately 13% of its revenues from AT&T and
its affiliates with no single affiliate contributing more than 8% of total
revenue.

STOCK-BASED COMPENSATION

Illuminet has elected to apply the disclosure-only provisions of the
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("Statement 123").
Accordingly, Illuminet accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Compensation expense for
stock options is measured as the excess, if any, of the fair value of Common
Stock and Class A Common Stock at the measurement date over the stock option
exercise price. Statement 123 requires companies that continue to follow

F-34
<PAGE> 102
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
APB 25 to provide pro forma disclosure of the impact of applying the fair value
method of Statement 123 (refer to Note 6).

INCOME TAXES

Illuminet provides for income taxes under the liability method, whereby
deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse.

EARNINGS PER SHARE

The computation of earnings per share-basic is based on net income and the
weighted-average number of outstanding common shares, including Class A Common
Stock. The computation of earnings per share-diluted includes the dilutive
effect of outstanding preferred stock, convertible debentures calculated using
the as if converted method, and Common Stock options and Class A Common Stock
options calculated using the treasury stock method. Effective with Illuminet's
initial public offering on October 7, 1999, all existing common stock
outstanding immediately prior to the initial public offering was renamed to
Class A Common Stock. Each share of Class A Common Stock will automatically
convert into four shares of Common Stock on April 5, 2000. All share and per
share amounts have been restated to reflect the conversion of the Class A Common
Stock into Common Stock at the beginning of each period presented.

USE OF ESTIMATES

RECLASSIFICATIONS

Certain reclassifications to the 1997 and 1998 financial statements have
been made to conform to the 1999 presentation.

SEGMENT INFORMATION

In June 1997, FASB issued Statement of Financial Accounting Standards No.
131, "Disclosure About Segments of an Enterprise and Related Information"
("Statement 131"), effective for financial statements for fiscal years beginning
after December 15, 1997. Statement 131 establishes standards for the reporting
by public business enterprises of financial and descriptive information about
reportable operating segments in annual financial statements and interim
financial reports issued to shareholders. Illuminet primarily provides services
to companies in the telecommunications industry that are located throughout the
United States and considers all of its operations as one segment because
expenses support multiple products and services. Revenues are reported
separately for network services, clearinghouse services and network usage
software applications. No segment information is provided to the chief operating
decision maker for expenses, operating income, total assets, depreciation, or
capital purchases.

F-35
<PAGE> 103
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENTLY ISSUED ACCOUNTING STANDARDS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities," which establishes standards for the recognition,
measurement, and reporting of derivatives and hedging activities and is
effective for Illuminet's year ending December 31, 2000. Illuminet anticipates
that the adoption of this new accounting standard will not have a material
impact on Illuminet's consolidated financial statements, but continues to
evaluate that impact.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin Number 101 ("SAB 101"), "Revenue Recognition in Financial
Statements". This summarized certain areas of the staff's views in applying
generally accepted accounting principles as it applies to revenue recognition.
Illuminet believes that its revenue recognition principles comply with SAB 101,
but will continue to evaluate interpretations of SAB 101.

NOTE 2. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1998 1999 2000
------- ------- ---------
<S> <C> <C> <C>
Land............................................. $ 912 $ 912 $ 912
Building and leasehold improvements.............. 7,156 7,543 7,629
Equipment and furniture.......................... 3,435 4,040 4,138
Network assets................................... 51,799 59,972 60,007
Computer hardware and software................... 21,231 24,839 26,568
------- ------- -------
84,533 97,306 99,254
Less: accumulated depreciation................... 40,786 52,177 55,020
------- ------- -------
Property and equipment, net...................... $43,747 $45,129 $44,234
======= ======= =======
</TABLE>

NOTE 3. LEASES

In 1998 and 1999, Illuminet entered into various capital lease obligations
expiring in 2002 and 2003 for network assets. The lease agreements allow
Illuminet to purchase, for a nominal value, the assets at the end of the lease
term. Property and equipment held under capital leases follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1998 1999 2000
------ ------- ---------
<S> <C> <C> <C>
Network assets.................................... $7,490 $10,020 $10,020
Less: accumulated amortization.................... 645 2,465 2,997
------ ------- -------
Total property and equipment held under capital
leases.......................................... $6,845 $ 7,555 $ 7,023
====== ======= =======
</TABLE>

Illuminet has entered into non-cancelable operating leases for its various
facilities, other than its Lacey headquarters site. The most significant lease
covers its Overland Park facility. Illuminet entered into a five-year lease,
beginning August 1998 for a new Overland Park facility that was constructed to
suit Illuminet's specifications. Effective January 1, 1999, the lease was
amended to a seven-year term with an option at five years to extend the term for
an additional five years. Prior to August 1998, Illuminet was

F-36
<PAGE> 104
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. LEASES (CONTINUED)
located in a different Overland Park facility under a lease that expired in
August 1998. During 1997, 1998 and 1999, rent expense was $0.4 million, $0.5
million, and $0.6 million, respectively.

Future minimum lease payments under noncancelable operating leases and the
present value of future minimum capital lease payments for the years ending
December 31 are as follows (in thousands):

<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
2000........................................................ $2,942 $ 604
2001........................................................ 2,942 545
2002........................................................ 2,072 465
2003........................................................ 402 440
2004........................................................ -- 440
Thereafter.................................................. -- 440
------ ------
Total minimum lease payments.............................. 8,358 $2,934
======
Less: amount representing interest (at 8.12%)............... 933
------
Present value of net minimum lease payments................. 7,425
Less: current portion of obligations under capital leases... 2,428
------
Obligations under capital leases, less current portion...... $4,997
======
</TABLE>

NOTE 4. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1998 1999 2000
------- ------ ---------
<S> <C> <C> <C>
Various secured notes payable to Rural Telephone Finance
Cooperative ("RTFC") with variable interest rates (6.15%
at December 31, 1998, 7.00% at December 31, 1999, 7.50%
at March 31, 2000) payable in quarterly installments,
including interest, each maturing at various dates
ranging from August 2000 to March 2015.................. $10,591 $7,458 $6,784
Convertible redeemable subordinated debentures
("Debentures") converted and repaid in 1999............. 7,474 -- --
Debentures, deferred interest payable..................... 989 -- --
------- ------ ------
19,054 7,458 6,784
Less: current portion..................................... 3,458 1,430 955
------- ------ ------
Total long-term debt...................................... $15,596 $6,028 $5,829
======= ====== ======
</TABLE>

In connection with a call for redemption, Illuminet converted, on October
4, 1999, almost all outstanding Debentures with approximately $8.4 million in
principal and accrued interest and issued 760,838 shares of Class A Common Stock
to debenture holders who elected to convert. A remaining amount of $0.1 million
was paid for redemption of the principal and accrued interest that was not
converted to Class A Common Stock.

F-37
<PAGE> 105
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. LONG-TERM DEBT (CONTINUED)
Additional borrowings available under the various note agreements with RTFC
aggregated $3.8 million at December 31, 1998 and 1999. All of the RTFC notes
have variable interest rates that are based on RTFC's short-term funding costs.
In accordance with the terms of the loan agreements, Illuminet purchased
lender-issued, non-interest-bearing subordinated capital certificates based on a
percentage of the gross loan amount. Such certificates are amortized against the
loan principal balance over the terms of the respective loans. Certificates
purchased, net of amortization, totaled $1.1 million and $1.0 million at
December 31, 1998 and 1999, respectively, are carried at cost, and are included
in prepaid expenses and in other long-term assets. The loan agreements contain
certain covenants, the most restrictive of which requires Illuminet to maintain
certain cash flow-to-debt service ratios.

All RTFC loans are currently secured by a first-priority lien in the case
of the dissolution of Illuminet on substantially all of Illuminet's assets,
revenues and property, excluding cash collected and held on behalf of others in
the normal course of providing Illuminet's services. Cash and cash equivalents
not subject to the lien were $3.3 million and $4.9 million at December 31, 1998,
and 1999, respectively.

Illuminet entered into a secured line of credit agreement with RTFC that
permits Illuminet to borrow up to $7.3 million, not to exceed 80% of eligible
accounts receivable, for a term of five years. The line of credit bears interest
at the lesser of the prime rate plus 1.5% or RTFC's monthly borrowing rate
(7.70% at December 31, 1999), and contains certain covenants, the most
restrictive of which requires Illuminet to maintain a zero balance in the line
of credit for at least five consecutive business days every 360 days after the
initial advance. There were no borrowings outstanding against the line of credit
at December 31, 1998 and 1999.

The terms of the secured loan facilities restrict the ability to declare
and pay dividends without the consent of RTFC, unless Illuminet meets minimum
net worth and cash margin tests.

The carrying value of Illuminet's long-term debt approximates fair value.

Maturities of the long-term debt for the years ending December 31 are
scheduled as follows (in thousands):

On June 22, 2000, the Company entered into an agreement with Bank of
America to provide a line of credit and capital expenditure loan facilities. The
line of credit is a $10.0 million, unsecured loan with a three year term, with a
one year extension available at the end of the second year. The capital
expenditure facility is a $15.0 million, unsecured loan with a five year term.
The loans bear interest at the lesser of the bank's prime lending rate or LIBOR
plus 1.375% to 1.75%, depending on Illuminet's trailing twelve month earnings
before interest, tax, depreciation and amortization ("EBITDA"), and contain
certain covenants.

F-38
<PAGE> 106
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 4. LONG-TERM DEBT (CONTINUED)
In connection with the line of credit agreement with Bank of America, the
available borrowings under a line of credit and notes agreements with RTFC were
cancelled and the liens held on the Company's assets under the RTFC note
agreements were released. The borrowings outstanding under the RTFC note
agreements will be secured by a first trust deed on the Company's building and
land located in Lacey, Washington.

NOTE 5. STOCKHOLDERS' EQUITY

Effective October 7, 1999, Illuminet Holdings, Inc. is authorized to issue
up to 157,300,000 shares of capital stock consisting of (i) 150,000,000 shares
of Common Stock, par value $.01 per share, (ii) 7,200,000 shares of Class A
Common Stock, par value $.01 per share, and (iii) 100,000 shares of Illuminet
Holdings, Inc. Preferred Stock, par value $.01 per share. Each share of Common
Stock is entitled to one vote. Prior to the pending April 5, 2000 conversion,
each share of Class A Common Stock is entitled to four votes. The accompanying
financial statements have been retroactively adjusted to reflect the changes to
amounts of authorized shares.

INITIAL PUBLIC OFFERING

On October 14, 1999, Illuminet completed an initial public offering of
4,485,000 shares of its Common Stock and received approximately $78.3 million in
cash, net of underwriter discounts, commissions and other offering costs.

CLASS A COMMON STOCK

Immediately prior to the initial public offering, all existing Common Stock
was renamed to Class A Common Stock. Each share of Class A Common Stock will
automatically convert into four shares of Common Stock on April 5, 2000. If the
Class A Common Stock were converted at December 31, 1999, an additional
25,376,536 shares of Common Stock would have been outstanding. Other than the
conversion feature, terms of Class A Common Stock are identical to those of the
Common Stock on an as if converted basis.

SERIES A PREFERRED STOCK

As approved by stockholders on June 21, 1999, all outstanding Series A
Preferred Stock automatically converted into an aggregate total of 204,941
shares of Class A Common Stock at the time of the initial public offering.

SERIES B PARTICIPATING CUMULATIVE PREFERENCE STOCK

Series B Participating Cumulative Preference Stock ("Series B Stock") is
entitled to one vote per each one one-thousandth ("1/1000") share, and votes
together as a class with Common Stock and Class A Common Stock on matters on
which holders of Common Stock and Class A Common Stock are generally entitled to
vote. Although the Series B Stock ranks superior to Common Stock and Class A
Common Stock, upon liquidation, dissolution or winding up of Illuminet, whether
voluntary or involuntary, other than requiring payment of accrued and unpaid
dividends before the payout to holders of Common Stock and Class A Common Stock,
the only liquidation right of the Series B Stock is that each 1/1000 of a share
of Series B Stock is entitled to receive an amount equivalent to the amount to
be distributed per whole share of Common Stock and Class A Common Stock. Series
B Stock was

F-39
<PAGE> 107
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 5. STOCKHOLDERS' EQUITY (CONTINUED)
authorized in connection with the establishment of Illuminet's Shareholder
Rights Plan. No such shares were outstanding at December 31, 1999.

DIVIDENDS

Payments of dividends are restricted under Illuminet's long-term debt
arrangements with approval of RTFC required unless Illuminet's ratio of equity
to total assets exceeds 40%. Dividends on Series B Stock are payable as follows:
(1) should Illuminet declare and pay a dividend on Common Stock or Class A
Common Stock, each 1/1000 share of Series B Stock is entitled to receive the
same dividend amount paid on one whole share of Class A Common Stock, (2) $0.01
per whole share of Series B Stock offset by any payments made as a result of a
Class A Common Stock dividend. No dividends have been declared to date.

SHAREHOLDER RIGHTS PLAN

On November 19, 1998, Illuminet's Board of Directors adopted a Shareholder
Rights Plan and declared a dividend, issued on November 20, 1998, of one right
for each outstanding share of Common Stock ("Right"). Each Right represents the
right to purchase shares of our Series B Stock. The Rights become exercisable if
a person or group acquires more than 20% of the outstanding shares of Common
Stock or makes a tender offer for more than 20% of the outstanding shares of
Common Stock. Upon the occurrence of such an event, each Right entitles the
holder (other than the acquiror) to purchase for $150 the economic equivalent of
shares of Common Stock, or in certain circumstances, stock of the acquiring
entity, worth twice as much. The Rights expire on December 20, 2008 unless
earlier redeemed by Illuminet, and are redeemable prior to becoming exercisable
at $0.01 per Right.

NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS

STOCK OPTION PLAN

Illuminet established the 1997 Equity Incentive Plan under which 13% of
outstanding shares of Common Stock are reserved from time to time (3,804,941 at
December 31, 1999 and March 31, 2000) for issuance pursuant to non-qualified and
incentive stock options and stock appreciation rights that may be granted. Only
non-qualified stock options have been granted under the plan. Employee
non-qualified stock options, primarily granted to key employees, are generally
exercisable ratably over four years and expire ten years from the date of grant
except that options expire 60 days after termination of employment. Outside
Director non-qualified stock options are generally exercisable on grant, or
within twelve months of grant, and expire ten years from the date of grant.
Prior to the initial public offering, the Board of Directors determined the
estimated fair value of Class A Common Stock as the stock was not publicly
traded and a readily ascertainable market value was not available.

F-40
<PAGE> 108
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
Additional information regarding options granted and outstanding is
summarized as follows. This information includes the effect of Class A Common
Stock options on an as if converted basis:

<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OF AVERAGE
OPTIONS EXERCISE PRICE
--------- --------------
<S> <C> <C>
Outstanding January 1, 1997............................ -- $ --
Granted at exercise price less than fair value of
Common Stock on grant date........................ 926,016 2.20
---------
Outstanding December 31, 1997 (280,016 exercisable at
$2.20 weighted-average exercise price)............... 926,016 2.20
Granted at exercise price less than fair value of
Common Stock on grant date........................ 1,170,044 2.34
Granted at exercise price equal to fair value of
Common Stock on grant date........................ 474,000 4.18
Exercised............................................ (400) 2.20
Forfeited............................................ (57,500) 2.20
---------
Outstanding December 31, 1998 (1,188,660 exercisable at
$2.28 weighted-average exercise price)............... 2,512,160 2.63
Granted at exercise price less than fair value of
Common Stock on grant date........................ 686,060 7.55
Granted at exercise price equal to fair value of
Common Stock on grant date........................ 87,123 17.41
Exercised............................................ (51,000) 2.20
---------
Outstanding December 31, 1999 (1,699,243 exercisable at
$2.54 weighted-average exercise price)............... 3,234,343 $4.08
========= =====
</TABLE>

Outstanding and exercisable stock options by price range as of December 31,
1999 is as follows:

<TABLE>
<CAPTION>
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICE
----------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 2.20 - $ 2.36 1,999,160 7.90 $ 2.28 1,494,160 $ 2.29
$ 4.18 - $ 4.55 551,260 8.15 $ 4.24 204,760 $ 4.30
$ 8.00 - $13.05 620,800 9.64 $ 8.20 -- --
$19.00 - $48.44 63,123 9.77 $19.07 323 $33.38
--------- ---------
$ 2.20 - $48.44 3,234,343 8.31 $ 4.08 1,699,243 $ 2.54
========= ==== ====== ========= ======
</TABLE>

For the years ended December 31, 1997, 1998 and 1999, deferred stock-based
compensation for the stock options granted was $0.5 million, $0.6 million, and
$4.1 million, respectively, and $0.2 million, $0.5 million, and $0.7 million,
respectively, was recognized as stock-based compensation expense.

F-41
<PAGE> 109
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN

Effective October 7, 1999, Illuminet adopted an Employee Stock Purchase
Plan ("ESPP") for which the last purchase date is October 6, 2001. Eligible
employees may contribute up to 15% of cash compensation toward the semi-annual
purchase of Common Stock. Under the terms of the plan, 700,000 shares of
authorized Common Stock were reserved for purchase at 85% of the fair market
value price at the beginning of the six-month offering period at which an
eligible employee enrolled, or the end of each six-month offering period,
whichever is lower. In no case, can the fair market value price at the beginning
of any six-month offering period be less than $16.15. Through December 31, 1999,
no stock was purchased under this plan, and eligible employees have contributed
$0.2 million toward the first purchase on April 6, 2000.

Pro forma information regarding net income and earnings per share is
required by Statement 123, and has been determined as if Illuminet had accounted
for its stock options under the fair value method of that Statement and includes
the effect of Class A Common Stock options on an as if converted basis. The
weighted-average grant date fair value of these options was estimated at the
date of grant using the Minimum Value Option Pricing Model for all options
granted before the initial public offering and the Black-Scholes Option Pricing
Model for all options granted after the initial public offering with the
following weighted-average assumptions:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, JANUARY 1, 1999 OCTOBER 7, 1999
------------------------- TO OCTOBER 6, TO DECEMBER 31,
1997 1998 1999 1999
----------- ----------- --------------- ----------------
<S> <C> <C> <C> <C>
Risk-free interest rate............. 5.9% 5.4% 5.7% 6.1%
Dividend yield...................... 0% 0% 0% 0%
Expected volatility................. 0% 0% 0% 70%
Estimated option life............... 8.54 years 8.47 years 9.07 years 6.99 years
Weighted-average grant date value
for options granted at exercise
price less than fair value of
Common Stock on grant date........ $1.40 $2.04 $9.10 --
Weighted-average grant date value
for options granted at exercise
price equal to fair value of
Common Stock on grant date........ -- $1.54 $5.40 $13.63
</TABLE>

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period; accordingly,
the pro forma impact of stock options granted may not be indicative of the pro
forma impact in future years. Illuminet's pro forma information are summarized
as follows (in thousands, except per share amounts) and includes the effect of
Class A Common Stock options on an as if converted basis.

F-42
<PAGE> 110
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. STOCK OPTION AND EMPLOYEE STOCK PURCHASE PLANS (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------ ------ -------
<S> <C> <C> <C>
Net income -- as reported........................... $7,657 $5,293 $13,005
====== ====== =======
Net income -- pro forma............................. $7,485 $4,796 $12,002
====== ====== =======
Earnings per share -- diluted -- as reported........ $ 0.32 $ 0.22 $ 0.48
====== ====== =======
Earnings per share -- diluted -- pro forma.......... $ 0.31 $ 0.20 $ 0.44
====== ====== =======
</TABLE>

NOTE 7. EMPLOYEE BENEFIT PLANS

Illuminet has qualified profit sharing/401(k) trust retirement plans
covering all employees subject to certain eligibility requirements. Illuminet
provides matching contributions to the plans' trusts on a portion of employee
contributions to the plans, and also may, at the discretion of the Board of
Directors, provide a discretionary contribution. For 1997, 1998 and 1999,
contribution expense was approximately $1.2 million, $1.1 million, and $2.0
million, respectively.

NOTE 8. INCOME TAXES

Components of the income tax provision (benefit) are summarized as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1997 1998 1999
----- ------ ------
<S> <C> <C> <C>
Current:
Federal............................................ $ 193 $1,077 $5,535
State.............................................. -- 188 91
Deferred:
Federal............................................ (821) 2,076 2,170
State.............................................. (48) 122 (130)
----- ------ ------
Total income tax provision (benefit)................. $(676) $3,463 $7,666
===== ====== ======
</TABLE>

The reconciliations of the income tax provision (benefit) calculated using
the U.S. federal statutory rates to the recorded income tax provision (benefit)
are summarized as follows (in thousands):

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1998 1999
------- ------ ------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate.................. $ 2,373 $2,977 $7,316
State income taxes, net of federal tax benefit...... -- 205 (26)
Utilization of net operating loss carryforward...... (2,373) -- --
Alternative minimum tax............................. 193 -- --
Additional (reversal of) valuation allowance........ (869) -- 565
Other............................................... -- 281 (189)
------- ------ ------
Income tax provision (benefit)...................... $ (676) $3,463 $7,666
======= ====== ======
</TABLE>

Illuminet provides for deferred taxes based on the differences between the
bases of assets and liabilities for financial reporting purposes and income tax
purposes, calculated using enacted tax rates that will be in effect when the
differences are expected to reverse. At December 31, 1998 and 1999, such

F-43
<PAGE> 111
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. INCOME TAXES (CONTINUED)
differences primarily related to the use of accelerated depreciation and
amortization for tax purposes, accruals for certain expenses that are not
currently deductible for tax purposes until paid, the tax basis of certain
investments that have been written off for financial statement purposes and
software development costs that were capitalized for financial statement
purposes. December 31, 1998 also included net operating loss carryforwards and
tax credit carryforwards that were fully utilized in 1999.

During the year ended December 31, 1997, the valuation allowance decreased
$3.1 million primarily through utilization of net operating loss carryforwards
and the reversal of substantially all of the previously recorded deferred tax
valuation allowance due to improved anticipated operating results. At December
31, 1998, Illuminet had a valuation allowance related to tax benefits associated
with capital losses recorded for financial statement purposes but not yet
realized for tax purposes, and tax credit carryforwards of $1.4 million. During
1999, Illuminet recorded an additional valuation allowance related to the write
down of a preferred stock equity investment based on a change in the investee's
business strategy and direction and fully utilized all federal net operating
loss carryforwards and tax credit carryforwards.

The components of the deferred tax assets are summarized as follows (in
thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,454 $ 251
Tax credit carryforwards.................................. 1,368 --
Allowance for doubtful accounts........................... 408 739
Contract loss provision................................... 151 760
Deferred stock-based compensation......................... 227 508
Loss on impairment........................................ -- 555
Other non-deductible accruals............................. 1,059 824
Valuation allowance....................................... (180) (745)
------- -------
Net deferred tax assets..................................... 4,487 2,892
------- -------
Deferred tax liabilities:
Excess tax over book depreciation and amortization........ (5,801) (6,246)
Other..................................................... (14) (14)
------- -------
Total deferred tax liabilities.............................. (5,815) (6,260)
------- -------
Deferred tax liabilities, net............................... $(1,328) $(3,368)
======= =======
</TABLE>

NOTE 9. EARNINGS PER SHARE

The following table sets forth the computation of earnings per share-basic
and diluted (in thousands, except share and per share amounts) and includes the
effect of Class A Common Stock on an as if

F-44
<PAGE> 112
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 9. EARNINGS PER SHARE (CONTINUED)
converted basis. On April 5, 2000, 6,344,134 shares of Class A Common Stock were
automatically converted into 25,376,536 shares of Common Stock:

<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Numerator:
Numerator for earnings per share --
basic -- net income.............. $ 7,657 $ 5,293 $ 13,005 $ 2,331 $ 7,030
Effect of dilutive securities --
Debenture interest, net of tax... 498 427 291 99 --
----------- ----------- ----------- ----------- -----------
Numerator for earnings per share --
diluted -- net income after assumed
conversions........................ $ 8,155 $ 5,720 $ 13,296 $ 2,430 $ 7,030
=========== =========== =========== =========== ===========
Denominator:
Denominator for earnings per
share --
basic -- weighted-average
shares........................... 21,182,036 21,425,540 23,377,396 21,463,972 29,861,536
Weighted-average effect of dilutive
securities:
Stock options.................... -- 549,308 1,134,656 715,224 1,831,010
Debentures....................... 3,528,292 3,187,456 2,331,484 3,098,384 --
Series A Stock................... 876,332 827,136 613,224 819,876 --
----------- ----------- ----------- ----------- -----------
Dilutive potential common shares... 4,404,624 4,563,900 4,079,364 4,633,484 1,831,010
----------- ----------- ----------- ----------- -----------
Denominator for earnings per
share -- diluted -- adjusted
weighted-average shares and
assumed conversions.............. 25,586,660 25,989,440 27,456,760 26,097,456 31,692,546
=========== =========== =========== =========== ===========
Earnings per share -- basic.......... $ 0.36 $ 0.25 $ 0.56 $ 0.10 $ 0.24
=========== =========== =========== =========== ===========
Earnings per share -- diluted........ $ 0.32 $ 0.22 $ 0.48 $ 0.09 $ 0.22
=========== =========== =========== =========== ===========
</TABLE>

See notes 4, 5 and 6 for additional information regarding the Debentures,
Series A Stock and stock options.

Stock options to purchase 70,802 and 1,072 weighted-average shares of
Common Stock were outstanding during 1997 and 1998, respectively, but were not
included in the computation of diluted earnings per share because of their
anti-dilutive effect.

NOTE 10. LEGAL PROCEEDINGS

Illuminet is party to various legal proceedings arising in the ordinary
course of business. Management does not believe that those claims, individually
or combined, will have a material adverse effect on our business, financial
condition or operating results.

NOTE 11. RELATED PARTY TRANSACTIONS

Illuminet is party to a contract with the subsidiary of one of its
corporate stockholders that supplies Illuminet with transmission facilities in
the form of private leased lines. Such lines are leased from the corporate
stockholder at rates comparable to third-party service providers. Payments
pursuant to this

F-45
<PAGE> 113
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. RELATED PARTY TRANSACTIONS (CONTINUED)
contract totaled $1.6 million, $1.7 million, and $2.1 million for the years
ended December 31, 1997, 1998, and 1999, respectively.

Included in accounts receivable at December 31, 1998 is $0.2 million (none
in 1999), due for services and reimbursable expenses from a customer in which
Illuminet has a preferred stock equity investment currently representing 13% of
the voting rights of the customer. Revenues earned from the customer were $0.5
million, $0.8 million, and $0.4 million for the years ended December 31, 1997,
1998, and 1999, respectively. Included in 1999 operating expenses is a $1.5
million impairment loss of the full amount of a 1995 investment in this start-up
company that was previously recorded at cost. The recognition of this loss was
coincident with significant liquidity concerns of the investee, and the
investee's decision to discontinue its historical primary operations and related
uncertainties resulting from a change in the investee's business strategy and
direction.

NOTE 12. QUARTERLY RESULTS (UNAUDITED)

The following quarterly financial data has been prepared from Illuminet's
financial records without audit, and in the opinion of management, reflect all
adjustments (consisting of only normal and recurring accruals) necessary to
present fairly Illuminet's results of operations for those periods when
considered in conjunction with our audited consolidated financial statements and
the notes to those financial statements included in this report. Earnings per
share-basic and earnings-per share diluted include the effect of Class A Common
Stock on an as if converted basis. Quarterly information may not total the
annual amounts in some instances because of rounding.

<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1998 1998 1998 1998
----------- ----------- ------------- ------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Revenues......................... $ 15,073 $ 16,513 $ 18,735 $ 21,591
Operating income................. 1,699 2,264 2,409 3,130
Income before income taxes....... 1,636 2,103 2,142 2,875
Net income....................... $ 1,047 $ 1,304 $ 1,295 $ 1,647
Earnings per share -- basic...... $ 0.05 $ 0.06 $ 0.06 $ 0.08
Earnings per share -- diluted.... $ 0.05 $ 0.05 $ 0.05 $ 0.07
Weighted average common shares --
basic.......................... 21,388,324 21,388,324 21,462,020 21,462,284
Weighted average common shares --
diluted........................ 25,637,212 25,997,580 25,982,984 25,935,444
</TABLE>

F-46
<PAGE> 114
ILLUMINET HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. QUARTERLY RESULTS (UNAUDITED) (CONTINUED)

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31,
1999 1999 1999 1999 2000
----------- ----------- ------------- ------------ -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenues................... $ 21,603 $ 23,513 $ 26,769 $ 28,709 $ 29,242
Operating income........... 3,949 3,637 5,875 6,716 9,774
Income before income
taxes.................... 3,759 3,435 5,674 7,803 11,338
Net income................. $ 2,331 $ 2,129 $ 3,518 $ 5,027 $ 7,030
Earnings per
share -- basic........... $ 0.10 $ 0.10 $ 0.16 $ 0.17 $ 0.24
Earnings per
share -- diluted......... $ 0.09 $ 0.09 $ 0.14 $ 0.16 $ 0.22
Weighted average common
shares -- basic.......... 21,463,972 21,466,920 21,473,440 29,042,896 29,861,536
Weighted average common
shares -- diluted........ 26,097,456 26,143,140 26,606,200 30,973,828 31,692,546
</TABLE>

NOTE 13. MERGER WITH NATIONAL TELEMANAGEMENT CORPORATION

On June 30, 2000, pursuant to a Merger Agreement dated June 12, 2000 among
Illuminet Holdings, Inc. and National Telemanagement Corporation ("NTC"),
Illuminet Holdings, Inc. acquired all of the outstanding capital of NTC. NTC,
which has its entire operations in Dallas, Texas, develops, markets and provides
a variety of telecommunications services including prepaid account management
services and unregistered wireless roaming services to the wireless telephone
industry. These services are provided to telecommunication carriers throughout
North America and the Caribbean.

The Company issued 1,888,944 shares of common stock in exchange for all
outstanding preferred stock and common stock of NTC and assumed all outstanding
options in connection with the acquisition of NTC resulting in the issuance of
options to purchase up to 80,297 shares of common stock. This transaction has
been accounted for as a pooling-of-interests.

F-47
<PAGE> 115

[LOGO]
<PAGE> 116

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by us in connection with the
sale of common stock being registered. All amounts are estimates.

<TABLE>
<S> <C>
SEC registration fee........................................ $ 55,366
NASD filing fee............................................. 21,472
Nasdaq National Market Listing Fee.......................... 10,288
Blue sky fees............................................... 5,000
Printing and engraving expenses............................. 150,000
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 120,000
Miscellaneous fees and expenses............................. 37,874
--------
Total............................................. $500,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

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

As permitted by the DGCL, our Certificate of Incorporation includes a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability (1) for
any breach of the director's duty of loyalty to us or our stockholders; (2) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (3) under Section 174 of the DGCL regarding unlawful
dividends and stock purchases; or (4) for any transaction from which the
director derived an improper personal benefit.

As permitted by the DGCL, our Certificate of Incorporation and/or our
Bylaws provide that (1) we are required to indemnify our directors and officers
to the fullest extent permitted by the DGCL, subject to certain very limited
expectations; (2) we are permitted to indemnify our other employees to the
extent that we indemnify our officers and directors, unless otherwise required
by law, our Certificate of Incorporation, our Bylaws or agreements; (3) we are
required to advance expenses, as incurred, to our directors and officers in
connection with a legal proceeding to the fullest extent permitted by the DGCL,
subject to certain very limited exceptions; and (4) the rights conferred in our
Bylaws are not exclusive.

We carry insurance that insures our officers and directors against
liability they may incur for actions they take in their capacity as officers and
directors, including liability related to alleged violations of federal or state
securities laws.

Reference is made to the Underwriting Agreement contained in Exhibit 1.1
hereto, which contains provisions indemnifying our officers and directors
against certain liabilities including liabilities arising under the Securities
Act.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

During the three years preceding the filing of this registration statement,
Illuminet has not sold its securities without registration under the Securities
Act of 1933, except as described below.

II-1
<PAGE> 117

The board of directors of the registrant adopted the 1997 Equity Incentive
Plan on October 29, 1997. As of June 30, 2000, options to acquire up to
2,446,283 shares of common stock were outstanding under the plan. On November
23, 1998, Mr. Daniel E. Weiss, Vice President -- Finance, Chief Financial
Officer, Secretary and Treasurer of the registrant, exercised an option to
purchase 400 shares of the registrant's common stock for an aggregate
consideration of $880. On February 25, 1999, Mr. Peter Wiederspan, an employee
of the registrant, exercised an option to purchase 4,500 shares of the
registrant's common stock for an aggregate consideration of $9,900. On September
16, 1999 and March 17, 2000, Mr. Raymond Donnelly, a former employee of the
registrant exercised options to purchase 40,000 and 32,000 shares, respectively,
of the registrant's common stock for aggregate consideration of $88,000 and
$133,760, respectively.

In addition, in January 1997, the registrant issued a total of 14, 240
shares of its common stock to members of its board of directors who had also
been directors of the registrant's predecessor companies, U.S. Intelco Holdings,
Inc. and Independent Telecommunications Network, Inc., in consideration for
their services as directors.

Finally, the terms of Illuminet's debentures and Series A preferred stock
permit the conversion of each of these securities into common stock. Illuminet
issued 13,956, 82,026, and 18,424 shares of common stock during 1996, 1997 and
1998, respectively. On October 4, 1999, Illuminet issued 760,524 shares of
common stock upon the conversion of certain debentures. Since these were
exchange transactions, the debentureholders and holders of Series A preferred
stock were not required to pay additional consideration for the conversions. On
April 5, 2000, 4,366,730 shares of Class A common stock were automatically
converted into 21,466,920 shares of common stock. Since this was an exchange
transaction, the Class A stockholders were not required to pay additional
consideration for the conversion.

The issuances of securities described above were deemed to be exempt from
registration under the Securities Act in reliance on Section 4(2) or Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation or, in the case of the immediately
preceding paragraph, Section 3(a)(9) as exchange transactions. The recipients of
securities under Rule 701 transactions represented their intention to acquire
the securities for investment only and not with a view to or for sale in
connection with any distribution thereof and appropriate legends were affixed to
the share certificates and other instruments issued in such transactions. All
recipients either received adequate information about the registrant or had
access, through employment or other relationships, to such information.

On June 30, 2000, we issued 1,888,944 shares of common stock in connection
with the merger with National Telemanagement Corporation. The issuance was
deemed exempt from registration under the Securities Act in reliance on Rule 506
of Regulation D. The recipients of securities under this Rule 506 transaction
represented their intention to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates and other instruments
issued in this transaction. All recipients either received adequate information
about the registrant or had access through employment or other relationships, to
such information.

No underwriters were involved in the sale of the foregoing securities.

II-2
<PAGE> 118

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) EXHIBITS.

See the exhibit index for the exhibits filed with this registration
statement:

(b) FINANCIAL STATEMENT SCHEDULES.

Report of Ernst & Young LLP, Independent Auditors, on Financial Statement
Schedule and Schedule II -- Valuation and Qualifying Accounts, and Report of
Ernst & Young LLP, Independent Auditors, on Supplemental Financial Statement
Schedule and Supplemental Schedule II -- Valuation and Qualifying Accounts. All
other schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the combined financial statements
or notes thereto.

ITEM 17. UNDERTAKINGS

The undersigned Registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement, certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.

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

The undersigned Registrant hereby undertakes that:

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

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

II-3
<PAGE> 119

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lacey,
State of Washington, on July 14, 2000.

ILLUMINET HOLDINGS, INC.

By: /s/ ROGER H. MOORE
------------------------------------
Name: Roger H. Moore
Title: President and Chief Executive
Officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints Roger H. Moore, and Daniel E.
Weiss, and each of them, acting individually, as his true and lawful
attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him, in any an all capacities, to sign any and all
amendments to this registration statement (including post-effective amendments
or any abbreviated registration statement and any amendments thereto filed
pursuant to Rule 462(b) increasing the number of securities for which
registration is sought) and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and with full power
of each to act alone, full power and authority to do and perform each and every
act and thing requisite and necessary to be done in connection therewith, as
fully for all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or his or
their substitute or substitutes, may lawfully do, or cause to be done by virtue
hereof.

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

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ THEODORE D. BERNS Director July 14, 2000
-----------------------------------------------------
Theodore D. Berns

/s/ EUGENE L. COLE Director July 14, 2000
-----------------------------------------------------
Eugene L. Cole

/s/ RICHARD A. LUMPKIN Director July 14, 2000
-----------------------------------------------------
Richard A. Lumpkin

/s/ JAMES W. STRAND Director July 14, 2000
-----------------------------------------------------
James W. Strand

/s/ GREGORY J. WILKINSON Director July 14, 2000
-----------------------------------------------------
Gregory J. Wilkinson
</TABLE>

II-4
<PAGE> 120

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ROGER H. MOORE Director, Chief Executive July 14, 2000
----------------------------------------------------- Officer
Roger H. Moore (Principal Executive Officer)

/s/ DANIEL E. WEISS Chief Financial Officer, July 14, 2000
----------------------------------------------------- Secretary and Treasurer
Daniel E. Weiss (Principal Financial and
Accounting Officer)
</TABLE>

II-5
<PAGE> 121

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON FINANCIAL STATEMENT SCHEDULE

We have audited the consolidated financial statements of Illuminet
Holdings, Inc. as of December 31, 1999 and 1998, and for each of the three years
in the period ended December 31, 1999, and have issued our report thereon dated
January 20, 2000 (included elsewhere in this Registration Statement). Our audits
also included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

Seattle, Washington ERNST & YOUNG LLP
January 20, 2000

S-1
<PAGE> 122

ILLUMINET HOLDINGS, INC.

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
----------------------------- ---------- -------------------------------------- ------------- -------------
ILLUMINET HOLDINGS, INC. ADDITIONS
----------------------------- --------------------------------------
BALANCE AT CHARGED TO
BEGINNING CHARGED TO OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT
DESCRIPTION OF PERIOD COSTS AND EXPENSES DESCRIBE DESCRIBE END OF PERIOD
----------- ---------- ------------------ ----------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1999
Allowance for doubtful
accounts................... $1,133 $1,316 $ -- $(505) $1,944

Year Ended December 31, 1998
Allowance for doubtful
accounts................... 1,282 300 -- (449) 1,133
Year Ended December 31, 1997
Allowance for doubtful
accounts................... $1,021 $ 300 $ -- $ (39) $1,282
</TABLE>

S-2
<PAGE> 123

REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
ON SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE

We have audited the supplemental consolidated financial statements of
Illuminet Holdings, Inc. (formed as a result of the merger of Illuminet
Holdings, Inc. and National Telemanagement Corporation) as of December 31, 1999
and 1998, and for each of the three years in the period ended December 31, 1999,
and have issued our report thereon dated June 30, 2000 (included elsewhere in
this Registration Statement). Our audits also included the supplemental
financial statement schedule listed in Item 16(b) of this Registration
Statement. This supplemental schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.

In our opinion, the supplemental financial statement schedule referred to
above, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.

ERNST & YOUNG LLP

Seattle, Washington
June 30, 2000

S-3
<PAGE> 124

ILLUMINET HOLDINGS, INC.

SUPPLEMENTAL SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

S-4
<PAGE> 125

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------
<C> <S>
1.1 Form of Underwriting Agreement*
2 Agreement and Plan of Merger dated as of June 12, 2000 among
Illuminet Holdings, Inc., Illuminet Telemanagement, Inc. and
National Telemanagement Corporation. (Incorporated by
reference from the Registrant's Current Report on Form 8-K,
filed July 14, 2000).
3.1 Certificate of Incorporation of Illuminet Holdings, Inc., as
amended (Incorporated by reference from the Registrant's
Annual Report on Form 10-K, filed March 14, 2000)
3.2 Amendment to Certificate of Incorporation, dated October 7,
1999 (Incorporated by reference from the Registrant's Annual
Report on Form 10-K, filed March 14, 2000).
3.3 Bylaws of Illuminet Holdings, Inc., as amended on August 20,
1999 (Incorporated by reference from the Registrant's Annual
Report on Form 10-K filed March 14, 2000).
4.1 Specimen Common Stock certificate of Illuminet Holdings,
Inc. (Incorporated by reference from Registrant's
Registration Statement on Form S-1, filed on August 23,
1999).
4.2 Rights Agreement dated as of November 20, 1998, by and
between Illuminet Holdings, Inc. and UMB Bank, N.A., as
Rights Agent, as amended on August 2, 1999 ("Rights
Agreement"). (Incorporated by reference from the
Registrant's Annual Report on Form 10-K, filed March 14,
2000).
4.3 Amendment No. 2 to Rights Agreement. (Incorporated by
reference from the Registrant's Annual Report on Form 10-K,
filed March 14, 2000).
5.1 Opinion of Blackwell Sanders Peper Martin LLP, counsel to
the Registrant.*
10.1 Illuminet Holdings, Inc. 1997 Equity Incentive Plan, as
amended. (Incorporated by reference from the Registrant's
Annual Report on Form 10-K, filed March 14, 2000).
10.3 Secured Revolving Line of Credit Application and Agreement
dated as of August 14, 1996, by and between Illuminet, Inc.
and Rural Telephone Finance Cooperative. (Incorporated by
reference from the Registrant's Annual Report on Form 10-K,
filed March 14, 2000).
10.4 Secured Intermediate-Term Equipment Financing Loan
Substitute Agreement dated as of August 14, 1996, by and
between Illuminet, Inc. and Rural Telephone Finance
Cooperative. (Incorporated by reference from the
Registrant's Annual Report on Form 10-K, filed March 14,
2000).
10.5 Employment Agreements with Messrs. Moore, Kremian, Johnson
and Nicol. (Incorporated by reference from the Registrant's
Annual Report on Form 10-K, filed March 14, 2000).
10.6 Loan Agreement dated as of August 14, 1996, by and between
Illuminet, Inc. and Rural Telephone Finance Cooperative.
(Incorporated from the Registrant's Annual Report on Form
10-K, filed March 14, 2000).
10.7 Employment Agreement with Mr. Lebus
10.8 Credit Agreement between Illuminet, Inc. and Bank of
America, N.A., dated May 9, 2000
10.9 Guaranty Agreement executed by Illuminet Holdings, Inc. in
favor of Bank of America, N.A., dated as of May 9, 2000.
21.1 Subsidiaries of Illuminet Holdings, Inc.
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of PricewaterhouseCoopers LLP, Independent
Accountants
23.3 Consent of Barry Morgan & Company, P.C., Independent
Auditors
23.4 Consent of Blackwell Sanders Peper Martin LLP (contained in
Exhibit 5)*
24 Powers of Attorney (contained in the signature page to this
Registration Statement).
27 Financial Data Schedule
</TABLE>

------------------------
* To be filed by amendment.