VERISIGN INC/CA, 424B4, 1999-01-27

VERISIGN INC/CA
424B4, 1999-01-27
COMPUTER PROGRAMMING SERVICES

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<PAGE>

Filed Pursuant to Rule 424(b)(4)
Registration No. 333-70121

PROSPECTUS

2,750,000 Shares

[LOGO OF VERISIGN]

COMMON STOCK

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VeriSign, Inc. is offering 1,185,000 shares and the selling stockholders are
offering 1,565,000 shares.

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VeriSign's common stock is listed on the Nasdaq National Market under the
symbol "VRSN." On January 26, 1999, the reported last sale price of the
common stock on the Nasdaq National Market was $81 1/2 per share.

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Investing in the common stock involves risks.
See "Risk Factors" beginning on page 6.

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PRICE $80 1/2 A SHARE

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<TABLE>
<CAPTION>
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions Company Stockholders
-------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Per Share............... $80.50 $4.025 $76.475 $76.475
Total................... $221,375,000 $11,068,750 $90,622,875 $119,683,375
</TABLE>

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.

VeriSign has granted the underwriters the right to purchase up to an
additional 412,500 shares of common stock to cover over-allotments. Morgan
Stanley & Co. Incorporated expects to deliver the shares to purchasers on
January 29, 1999.

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MORGAN STANLEY DEAN WITTER
HAMBRECHT & QUIST
DAIN RAUSCHER WESSELS
a division of Dain Rauscher Incorporated
BANCBOSTON ROBERTSON STEPHENS
January 26, 1999
<PAGE>

You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell shares of common stock
and 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 any sale of the common stock.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
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<S> <C>
Prospectus Summary.................. 3
VeriSign, Inc....................... 5
Risk Factors........................ 6
Use of Proceeds..................... 17
Dividend Policy..................... 17
Price Range of Common Stock......... 17
Capitalization...................... 18
Dilution............................ 19
Selected Consolidated Financial
Data............................... 20
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 21
</TABLE>
<TABLE>
<CAPTION>
Page
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<S> <C>
Business......................... 32
Management....................... 49
Certain Transactions............. 58
Principal and Selling
Stockholders.................... 62
Description of Capital Stock..... 65
Shares Eligible for Future Sale.. 68
Underwriters..................... 69
Legal Matters.................... 71
Experts.......................... 71
Additional Information........... 71
Available Information............ 71
Index to Consolidated Financial
Statements...................... F-1
</TABLE>

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VeriSign(TM) is a trademark exclusively licensed to VeriSign, and
SecureITSM, Digital IDSM, Digital ID CenterSM, EDI Server IDSM, Financial
Server IDSM, Global Server IDSM, NetSureSM, Secure Server IDSM, VeriSign
OnSiteSM, VeriSign SETSM, VeriSign Trust NetworkSM and WorldTrustSM are
service marks of VeriSign. This prospectus also includes trademarks of
companies other than VeriSign.

Unless the context otherwise requires, the term "VeriSign" refers to
VeriSign, Inc., a Delaware corporation, and its subsidiaries. On July 6, 1998,
VeriSign acquired SecureIT, Inc. in a transaction accounted for as a pooling-
of-interests. Accordingly, all financial information contained in this
prospectus has been restated to include the operating results, financial
position and cash flows of SecureIT as if it had always been a part of
VeriSign. Except as otherwise noted herein, information in this prospectus
assumes no exercise of the underwriters' over-allotment option.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and notes thereto
appearing elsewhere in this prospectus.

VERISIGN, INC.

VeriSign is the leading provider of Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over the Internet, intranets and extranets. We have
established strategic relationships with industry leaders, including AT&T,
British Telecommunications, or BT, Cisco, Microsoft, Netscape, Network
Associates, RSA, Security Dynamics and VISA, to enable widespread utilization
of our digital certificate services and to assure their interoperability with a
wide variety of applications and network equipment. We have used our secure
online infrastructure to issue over 100,000 of our website digital certificates
and over 3.5 million of our digital certificates for individuals. We believe
that we have issued more digital certificates than any other company in the
world. Our Website Digital Certificate services are used by over 400 of the
Fortune 500 companies. We also offer the VeriSign OnSite service, which allows
an organization to leverage our trusted service infrastructure to develop and
deploy customized digital certificate services for use by its employees,
customers and business partners. Over 300 enterprises have subscribed to the
OnSite service since its introduction in November 1997, including Bank of
America, Hewlett-Packard, the Internal Revenue Service, Kodak, Sumitomo Bank,
Texas Instruments and USWest. We market our Internet-based trust services
worldwide through multiple distribution channels, including the Internet,
direct sales, telesales, value-added resellers, or VARs, systems integrators
and our affiliates, and intend to expand these distribution channels.

VeriSign was incorporated in Delaware in April 1995. Our executive offices
are located at 1390 Shorebird Way, Mountain View, California 94043-1338. Our
telephone number at this location is (650) 961-7500. Our website is located at
http://www.verisign.com. Information contained in our website is not part of
this prospectus.

THE OFFERING

<TABLE>
<C> <S>
Common stock offered by VeriSign............. 1,185,000 shares
Common stock offered by the Selling
Stockholders................................ 1,565,000 shares
Common stock to be outstanding after the
offering.................................... 24,271,692 shares(1)
Over-allotment option........................ 412,500 shares
Use of proceeds.............................. For working capital and other
general corporate purposes. See
"Use of Proceeds."
Dividend policy.............................. We do not anticipate paying any
cash dividends in the
foreseeable future.
Nasdaq National Market symbol................ VRSN
</TABLE>
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(1) Based on the number of shares outstanding as of December 31, 1998. This
number does not include 4,129,094 shares issuable upon the exercise of
options then outstanding, with a weighted average exercise price of $19.17
per share, and 797,496 shares reserved for issuance under VeriSign's stock
plans. It also does not include 17,500 shares subject to a warrant that
would be issued in the event that VeriSign borrows funds under an equipment
loan agreement and 15,000 shares that would be issued to a service provider
if certain milestones are met. See "Capitalization," "Management--Director
Compensation," "--Employee Benefit Plans" and Notes 6 and 8 of Notes to
Consolidated Financial Statements.

3
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SUMMARY CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)

<TABLE>
<CAPTION>
September 30, 1998
----------------------
Actual As Adjusted(2)
------- --------------
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments....... $42,468 $132,441
Total assets............................................ 63,643 153,616
Stockholders' equity.................................... 42,356 132,329
</TABLE>

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Notes:
(1) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in the per share
computation.
(2) As adjusted to reflect the sale of the common stock offered by VeriSign
after deducting underwriting discounts and commissions and estimated
offering expenses payable by VeriSign. See "Use of Proceeds" and
"Capitalization."

RECENT DEVELOPMENT

On January 19, 1999, VeriSign announced selected consolidated results of
operations for the fourth quarter of 1998 and for the year ended December 31,
1998, as set forth in the following table.

<TABLE>
<CAPTION>
Three Months Ended Year Ended
December 31, December 31,
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Revenues............................ $ 4,996 $ 13,211 $ 13,356 $ 38,930
Net loss............................ (6,321) (2,534) (18,589) (19,743)
Basic and diluted net loss per
share.............................. $ (.82) $ (.11) $ (2.61) $ (.95)
Shares used in per share
computation........................ 7,690 22,393 7,121 20,873
</TABLE>

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VERISIGN, INC.

VeriSign is the leading provider of Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over the Internet, intranets and extranets, which
we refer to as IP networks. A digital certificate functions as an electronic
credential in the digital world. It identifies the certificate owner,
authenticates the certificate owner's membership in a given organization or
community or establishes the certificate owner's authority to engage in a
given transaction. By performing these functions, it creates a framework for
trusted interaction over IP networks. We have established strategic
relationships with industry leaders, including AT&T, BT, Cisco, Microsoft,
Netscape, Network Associates, RSA, Security Dynamics and VISA, to enable
widespread utilization of our digital certificate services and to assure their
interoperability with a wide variety of applications and network equipment. We
have used our secure online infrastructure to issue over 100,000 of our
website digital certificates and over 3.5 million of our digital certificates
for individuals. We believe that we have issued more digital certificates than
any other company in the world. Our Website Digital Certificate services are
used by over 400 of the Fortune 500 companies. We also offer the VeriSign
OnSite service, which allows an organization to leverage our trusted service
infrastructure to develop and deploy customized digital certificate services
for use by its employees, customers and business partners. Over 300
enterprises have subscribed to the OnSite service since its introduction in
November 1997, including Bank of America, Hewlett-Packard, the Internal
Revenue Service, Kodak, Sumitomo Bank, Texas Instruments and USWest.

Over the last three years, the Internet has become a widely-accepted
platform for many consumer-oriented transactions such as retail purchases,
auctions, online banking and brokerage for companies such as Amazon.com, Bank
of America, Cisco, Dell, eBay, E*Trade and Charles Schwab. International Data
Corporation (IDC) estimates that the number of Internet users will grow from
97 million in 1998 to 320 million by 2002 with commensurate growth in
electronic commerce from $32 billion to $426 billion over that same period. In
order for electronic commerce to continue this growth, the Internet needs a
cost-effective solution that can give consumers the same sense of trust that
they have in conducting commerce in the physical world. In a manner similar to
the use of physical credentials, this solution must irrefutably verify the
identity of a business over the Internet and ensure that the information being
transmitted between the consumer and the business is kept private. Digital
certificates can provide these authentication and privacy capabilities for
consumers and businesses conducting commerce over the Internet. Businesses
have also begun to use IP networks for advanced interactions with their
employees, business partners and customers. As a result, there is a need to
use digital certificates as electronic credentials to verify the identity,
authority and privileges of those individuals and entities before allowing
them to access confidential information or transact new business. Digital
certificates are issued and managed by entities known as Certification
Authorities, or CAs. The level of trust that can be associated with a digital
certificate is ultimately tied to the technology, infrastructure and practices
used by the CA to prepare, issue and manage the digital certificate over its
lifecycle. For organizations that need to support large quantities of digital
certificates, doing so themselves can be extremely expensive, requiring
substantial human resources and taking years and millions of dollars to
implement. The ideal solution would be a complete CA service offering that
could provide businesses with a scalable and reliable CA utility to support
all of their digital certificate needs including website, intranet, extranet,
virtual private network, or VPN, and electronic commerce authentication.

VeriSign has invested significant resources to develop a highly reliable and
secure operations infrastructure, a modular software platform and a
comprehensive set of security and trust practices to enable trusted and secure
electronic commerce and communications over IP networks using digital
certificates. Our modular WorldTrust software platform, which serves as the
foundation for our Internet-based trust services, automates many aspects of
digital certificate issuance and lifecycle management and provides the
scalability necessary to deploy and manage millions of digital certificates
for distinct communities ranging from individual corporations to the entire
population of Internet users.

VeriSign's objective is to enable secure electronic commerce and
communications through its online trust services infrastructure. Our strategy
to achieve this objective includes leveraging our leadership position to drive
market penetration, leveraging and expanding strategic relationships with
industry leaders, maintaining leadership in technology, infrastructure and
practices, continuing to build the VeriSign brand and expanding our global
marketing and distribution. We market our Internet-based trust services
worldwide through multiple distribution channels, including the Internet,
direct sales, telesales, VARs, systems integrators and our affiliates. We
intend to continue to expand these distribution channels.

5
<PAGE>

RISK FACTORS

You should carefully consider the risks and uncertainties described below
before making an investment decision. These risks and uncertainties are not
the only ones facing VeriSign. Additional risks and uncertainties not
presently known to us or that we currently deem immaterial may also impair our
business operations.

If any of the following risks actually occur, our business, financial
condition or operating results could be materially harmed. In such case, the
trading price of our common stock could decline and you may lose all or part
of your investment.

This prospectus also contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors
including the risks faced by us described below and elsewhere in this
prospectus.

We Have a Limited Operating History

VeriSign was incorporated in April 1995, and we began introducing our
Internet-based trust services in June 1995. Accordingly, we have only a
limited operating history on which to base an evaluation of our business and
prospects. Our prospects must be considered in light of the risks and
uncertainties encountered by companies in the early stages of development.
These risks and uncertainties are often worse for companies in new and rapidly
evolving markets. Our success will depend on many factors, including, but not
limited to, the following:

. the rate and timing of the growth and use of IP networks for electronic
commerce and communications;

. the extent to which digital certificates are used for such
communications and commerce;

. the continued evolution of electronic commerce as a viable means of
conducting business;

. the demand for our Internet-based trust services;

. competition levels;

. the perceived security of electronic commerce and communications over IP
networks;

. the perceived security of our services, technology, infrastructure and
practices; and

. our continued ability to maintain our current, and enter into
additional, strategic relationships.

To address these risks we must, among other things:

. successfully market our Internet-based trust services and our digital
certificates to our new and existing customers;

. attract, integrate, train, retain and motivate qualified personnel;

. respond to competitive developments;

. successfully introduce new Internet-based trust services; and

. successfully introduce enhancements to our existing Internet-based trust
services to address new technologies and standards.

We cannot be certain that we will successfully address any of these risks.

We Have a History of Losses and Anticipate Future Losses

We have experienced substantial net losses in each fiscal period since we
were formed. As of September 30, 1998, we had an accumulated deficit of
$48.3 million. VeriSign's limited operating history, the emerging nature

6
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of its market and the factors described under "--Our Business Depends on the
Adoption of IP Networks" and "--Our Quarterly Operating Results May Fluctuate;
Our Future Revenues and Profitability Are Uncertain," among other factors,
make prediction of our future operating results difficult. In addition, we
intend to increase our expenditures in all areas in order to execute our
business plan. As a result, we expect to incur substantial additional losses.
Although our revenues have grown in recent periods, we may be unable to
sustain such growth. Therefore, you should not consider our historical growth
indicative of future revenue levels or operating results. We may never achieve
profitability. Even if we do, we may not be able to sustain it. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Strategy."

Our Business Depends on the Adoption of IP Networks

In order for VeriSign to be successful, IP networks must be widely adopted,
in a timely manner, as a means of trusted and secure electronic commerce and
communications. Because electronic commerce and communications over IP
networks are new and evolving, it is difficult to predict the size of this
market and its sustainable growth rate. To date, many businesses and consumers
have been deterred from utilizing IP networks for a number of reasons,
including, but not limited to:

. potentially inadequate development of network infrastructure;

. security concerns including the potential for merchant or user
impersonation and fraud or theft of stored data and information
communicated over IP networks;

. inconsistent quality of service;

. lack of availability of cost-effective, high-speed service;

. limited numbers of local access points for corporate users;

. inability to integrate business applications on IP networks;

. the need to operate with multiple and frequently incompatible products;
and

. a lack of tools to simplify access to and use of IP networks.

The adoption of IP networks will require a broad acceptance of new methods
of conducting business and exchanging information. Companies and government
agencies that already have invested substantial resources in other methods of
conducting business may be reluctant to adopt new methods. Also, individuals
with established patterns of purchasing goods and services and effecting
payments may be reluctant to change.

The use of IP networks may not increase or may increase more slowly than we
expect because the infrastructure required to support widespread use may not
develop. The Internet may continue to experience significant growth both in
the number of users and the level of use. However, the Internet infrastructure
may not be able to continue to support the demands placed on it by continued
growth. Continued growth may also affect the Internet's performance and
reliability. In addition, the growth and reliability of IP networks could be
harmed by delays in development or adoption of new standards and protocols to
handle increased levels of activity or by increased governmental regulation.
Changes in, or insufficient availability of, communications services to
support IP networks could result in poor performance and also adversely affect
their usage. Any of these factors could materially harm our business. See "--
We Could Be Affected by Government Regulation" and "Business--Industry
Background" and "--Customers and Markets."

Our Market is New and Evolving

We target our Internet-based trust services at the market for trusted and
secure electronic commerce and communications over IP networks. This is a new
and rapidly evolving market that may not continue to grow. Accordingly, the
demand for our Internet-based trust services is very uncertain. Even if the
market for electronic commerce and communications over IP networks grows, our
Internet-based trust services may not be widely

7
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accepted. The factors that may affect the level of market acceptance of
digital certificates and, consequently, our Internet-based trust services,
include the following:

. market acceptance of products and services based upon authentication
technologies other than those we use;

. public perception of the security of digital certificates and IP
networks;

. the ability of the Internet infrastructure to accommodate increased
levels of usage; and

. government regulations affecting electronic commerce and communications
over IP networks.

Even if digital certificates achieve market acceptance, our Internet-based
trust services may fail to address the market's requirements adequately. If
digital certificates do not achieve market acceptance in a timely manner and
sustain such acceptance, or if our Internet-based trust services in particular
do not achieve or sustain market acceptance, our business would be materially
harmed. See "Business--Industry Background" and "--Customers and Markets."

Our Quarterly Operating Results May Fluctuate; Our Future Revenues and
Profitability Are Uncertain

Our quarterly operating results have varied and may fluctuate significantly
in the future as a result of a variety of factors, many of which are outside
our control. These factors include the following:

. continued market acceptance of our Internet-based trust services;

. the long sales and implementation cycles for, and potentially large
order sizes of, certain of our Internet-based trust services;

. the timing and execution of individual contracts;

. customer renewal rates for our Internet-based trust services;

. the timing of releases of new versions of Internet browsers or other
third-party software products and networking equipment which include our
digital certificate service interface technology;

. the mix of our services sold during a quarter;

. our success in marketing other Internet-based trust services to our
existing customers and to new customers;

. continued development of our direct and indirect distribution channels,
both in the U.S. and abroad;

. market acceptance of our Internet-based trust services or our
competitors' products and services;

. our ability to attract, integrate, train, retain and motivate a
substantial number of sales and marketing, research and development and
technical support personnel;

. our ability to expand our operations;

. our success in assimilating the operations and personnel of SecureIT and
any other acquired businesses;

. the amount and timing of expenditures related to expansion of our
operations;

. the impact of price changes in our Internet-based trust services or our
competitors' products and services; and

. general economic conditions and economic conditions specific to IP
network industries.

Our limited operating history and the emerging nature of our market make it
difficult to predict future revenues. Our expenses are based, in part, on our
expectations regarding future revenues, and are largely fixed in nature,
particularly in the short term. We may be unable to predict our future
revenues accurately or to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant

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shortfall of revenues in relation to our expectations could cause significant
declines in our quarterly operating results.

Due to all of the foregoing factors, our quarterly revenues and operating
results are difficult to forecast. Therefore, we believe that period-to-period
comparisons of our operating results will not necessarily be meaningful, and
you should not rely upon them as an indication of our future performance.
Also, it is likely that our operating results will fall below our expectations
and the expectations of securities analysts or investors in some future
quarter. In such event, the market price of our common stock could be
materially adversely affected. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

System Interruptions and Security Breaches Could Harm Our Business

We depend on the uninterrupted operation of our secure data centers and our
other computer and communications systems. We must protect these systems from
loss, damage or interruption caused by fire, earthquake, power loss,
telecommunications failure or other events beyond our control. Most of our
systems are located at, and most of our customer information is stored in, our
facilities in Mountain View, California and Kawasaki, Japan, areas susceptible
to earthquakes. Any damage or failure that causes interruptions in our secure
data centers and our other computer and communications systems could
materially harm our business. In addition, our ability to issue digital
certificates depends on the efficient operation of the Internet connections
from customers to our secure data centers. Such connections depend upon
efficient operation of web browsers, Internet service providers and Internet
backbone service providers, all of which have had periodic operational
problems or experienced outages in the past. Any of these problems or outages
could adversely affect customer satisfaction.

Our success also depends upon the scalability of our systems. Our systems
have not been tested at the volumes that may be required in the future. Thus,
it is possible that a substantial increase in demand for our Internet-based
trust services could cause interruptions in our systems. Any such
interruptions could adversely affect our ability to deliver our Internet-based
trust services and therefore could materially harm our business.

Although we periodically perform, and retain accredited third parties to
perform, audits of our operational practices and procedures, we may not be
able to remain in compliance with our internal standards or those set by
third-party auditors. If we fail to maintain these standards, we may have to
expend significant time and money to return to compliance and our business
could be materially harmed.

We retain certain confidential customer information in our secure data
centers. It is critical to our business strategy that our facilities and
infrastructure remain secure and are perceived by the marketplace to be
secure. Despite our security measures, our infrastructure may be vulnerable to
physical break-ins, computer viruses, attacks by hackers or similar disruptive
problems. It is possible that we may have to expend additional financial and
other resources to address such problems. Any physical or electronic break-ins
or other security breaches or compromises of the information stored at our
secure data centers may jeopardize the security of information stored on our
premises or in the computer systems and networks of our customers. In such an
event, we could face significant liability and customers could be reluctant to
use our Internet-based trust services. Such an occurrence could also result in
adverse publicity and therefore adversely affect the market's perception of
the security of electronic commerce and communications over IP networks as
well as of the security or reliability of our services. See "Business--The
VeriSign Solution," "--Strategy," "--Infrastructure," "--Security and Trust
Practices" and "--Facilities."

We Face Significant Competition

We anticipate that the market for services that enable trusted and secure
electronic commerce and communications over IP networks will remain intensely
competitive. We compete with larger and smaller companies that provide
products and services that are similar to certain aspects of our Internet-
based trust services. We expect that competition will increase in the near
term, and that our primary long-term competitors may not yet have entered the
market. Increased competition could result in pricing pressures, reduced
margins or

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the failure of our Internet-based trust services to achieve or maintain market
acceptance, any of which could materially harm our business. Several of our
current and potential competitors have longer operating histories and
significantly greater financial, technical, marketing and other resources. As
a result, we may not be able to compete effectively. For a more detailed
description of the competitive threats facing us, see "Business--Competition."

Technological Changes Will Affect Our Business

The emerging nature of the Internet and digital certificate markets and
their rapid evolution requires us to continually improve the performance,
features and reliability of our Internet-based trust services, particularly in
response to competitive offerings. We must also introduce any new Internet-
based trust services as quickly as possible. The success of new Internet-based
trust services depends on several factors, including proper new service
definition and timely completion, introduction and market acceptance of our
new Internet-based trust services. We may not succeed in developing and
marketing new Internet-based trust services that respond to competitive and
technological developments and changing customer needs. This could materially
harm our business.

If new Internet, networking or telecommunication technologies or standards
are widely adopted or if other technological changes occur, we may need to
expend significant resources to adapt our Internet-based trust services. See
"Business--Trust Services" and "--Research and Development."

We Must Manage Our Growth and Expansion

Our historical growth has placed, and any further growth is likely to
continue to place, a significant strain on our resources. VeriSign has grown
from 26 employees at December 31, 1995 to 315 employees at December 31, 1998.
We have also opened additional sales offices and have significantly expanded
our operations, both in the U.S. and abroad, during this time period. We
expanded our operations by acquiring SecureIT during 1998. To be successful,
we will need to implement additional management information systems, develop
further our operating, administrative, financial and accounting systems and
controls and maintain close coordination among our executive, engineering,
accounting, finance, marketing, sales and operations organizations. Any
failure to manage growth effectively could materially harm our business. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

We Depend on Key Personnel

We depend on the performance of our senior management team and other key
employees. Our success will depend on our ability to retain and motivate these
individuals. Our success will also depend on our ability to attract,
integrate, train, retain and motivate additional highly skilled technical and
sales and marketing personnel, both in the U.S. and abroad. There is intense
competition for these personnel. In addition, our stringent hiring practices
for some of our key personnel, which consist of background checks into
prospective employees' criminal and financial histories, further limit the
number of qualified persons for such positions. See "Business--Security and
Trust Practices." VeriSign has no employment agreements with any of its key
executives that prevent them from leaving VeriSign at any time. In addition,
we do not maintain key person life insurance for any of our officers or key
employees other than our President and Chief Executive Officer. The loss of
the services of any of our senior management team or other key employees or
our failure to attract, integrate, train, retain and motivate additional key
employees could materially harm our business. See "Business--Employees" and
"Management."

We Must Establish and Maintain Strategic Relationships

One of our significant business strategies has been to enter into strategic
or other similar collaborative relationships in order to reach a larger
customer base than we could reach through our direct sales and marketing
efforts. We may need to enter into additional relationships to execute our
business plan. We may not be able to

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enter into additional, or maintain our existing, strategic relationships on
commercially reasonable terms. If we failed, we would have to devote
substantially more resources to the distribution, sale and marketing of our
Internet-based trust services than we would otherwise. Furthermore, as a
result of our emphasis on these relationships, our success in such
relationships will depend both on the ultimate success of the other parties to
such relationships, particularly in the use and promotion of IP networks for
trusted and secure electronic commerce and communications, and on the ability
of certain of these parties to market our Internet-based trust services
successfully. Failure of one or more of our strategic relationships to result
in the development and maintenance of a market for our Internet-based trust
services could materially harm our business.

Our existing strategic relationships do not, and any future strategic
relationships may not, afford VeriSign any exclusive marketing or distribution
rights. In addition, the other parties may not view their relationships with
us as significant for their own businesses. Therefore, they could reduce their
commitment to VeriSign at any time in the future. These parties could also
pursue alternative technologies or develop alternative products and services
either on their own or in collaboration with others, including our
competitors. If we are unable to maintain our strategic relationships or to
enter into additional strategic relationships, our business could be
materially harmed. See "Business--Strategy," "--Strategic Relationships" and
"--Marketing, Sales and Distribution."

Certain of Our Internet-based Trust Services Have Lengthy Sales and
Implementation Cycles

We market many of our Internet-based trust services directly to large
companies and government agencies. The sale and implementation of our services
to these entities typically involves a lengthy education process and a
significant technical evaluation and commitment of capital and other
resources. This process is also subject to the risk of delays associated with
customers' internal budgeting and other procedures for approving large capital
expenditures, deploying new technologies within their networks and testing and
accepting new technologies that affect key operations. As a result, the sales
and implementation cycles associated with certain of our Internet-based trust
services can be lengthy, potentially lasting from three to six months. Our
quarterly and annual operating results could be materially harmed if orders
forecasted for a specific customer for a particular quarter are not realized.
See "--Our Quarterly Operating Results May Fluctuate; Our Future Revenues and
Profitability Are Uncertain" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Our Internet-based Trust Services Could Have Unknown Defects

Services as complex as those we offer or develop frequently contain
undetected defects or errors. Despite testing, defects or errors may occur in
existing or new Internet-based trust services, which could result in loss of
or delay in revenues, loss of market share, failure to achieve market
acceptance, diversion of development resources, injury to our reputation,
increased insurance costs or increased service and warranty costs, any of
which could materially harm our business. Furthermore, we often provide
implementation, customization, consulting and other technical services in
connection with the implementation and ongoing maintenance of our Internet-
based trust services and our digital certificate service agreements. The
performance of these Internet-based trust services typically involves working
with sophisticated software, computing and communications systems. Our failure
or inability to meet customer expectations or project milestones in a timely
manner could also result in loss of or delay in revenues, loss of market
share, failure to achieve market acceptance, injury to our reputation and
increased costs.

Because customers rely on our Internet-based trust services for critical
security applications, any significant defects or errors in our Internet-based
trust services might discourage customers from subscribing to our services.
Such defects or errors could also result in tort or warranty claims. Although
we attempt to reduce the risk of losses resulting from such claims through
warranty disclaimers and liability limitation clauses in our sales agreements,
these contractual provisions may not be enforceable in every instance.
Furthermore, although we maintain errors and omissions insurance, such
insurance coverage may not adequately cover us for claims. If a court refused
to enforce the liability-limiting provisions of our contracts for any reason,
or if liabilities arose that were not contractually limited or adequately
covered by insurance, our business could be materially harmed. See "Business--
Trust Services" and "--Research and Development."

11
<PAGE>

Public Key Cryptography Technology Is Subject to Certain Risks

Our Internet-based trust services depend on public key cryptography
technology. With public key cryptography technology, a user is given a public
key and a private key, both of which are required to encrypt and decode
messages. The security afforded by this technology depends on the integrity of
a user's private key and that it is not stolen or otherwise compromised. The
integrity of private keys also depends in part on the application of certain
mathematical principles known as "factoring." This integrity is predicated on
the assumption that the factoring of large numbers into their prime number
components is difficult. Should an easy factoring method be developed, then
the security of encryption products utilizing public key cryptography
technology would be reduced or eliminated. Furthermore, any significant
advance in techniques for attacking cryptographic systems could also render
some or all of our existing Internet-based trust services obsolete or
unmarketable. Even if no breakthroughs in factoring or other methods of
attacking cryptographic systems are made, factoring problems can theoretically
be solved by computer systems significantly faster and more powerful than
those presently available. Current or future governmental regulation regarding
the use, scope and strength of public key cryptography could also limit our
ability to develop and distribute digital certificates with encryption strong
enough to maintain the integrity of a user's private key against factoring by
more powerful computer systems. If such improved techniques for attacking
cryptographic systems are ever developed, we would likely have to reissue
digital certificates to some or all of our customers, which could damage our
reputation and brand or otherwise harm our business. In the past there have
been public announcements of the successful decoding of certain cryptographic
messages and of the potential misappropriation of private keys. Such publicity
could also adversely affect the public perception as to the safety of the
public key cryptography technology included in our digital certificates. Such
adverse public perception could harm our business. See "Business--Industry
Background" and "--Trust Services."

Our International Operations Are Subject to Certain Risks

Revenues of VeriSign Japan K.K., or VeriSign Japan, and revenues from other
international affiliates and customers accounted for approximately 9% of our
revenues in 1997 and approximately 11% of our revenues for the nine months
ended September 30, 1998. We intend to expand our international operations and
international sales and marketing activities. Expansion into these markets has
required and will continue to require significant management attention and
resources. We may also need to tailor our Internet-based trust services for a
particular market and to enter into international distribution and operating
relationships. We have limited experience in localizing our Internet-based
trust services and in developing international distribution or operating
relationships. We may not succeed in expanding our Internet-based trust
service offerings into international markets. Any such failure could harm our
business.

In addition, there are certain risks inherent in doing business on an
international basis, including, among others:

. regulatory requirements;

. legal uncertainty regarding liability;

. export and import restrictions on cryptographic technology and products
incorporating that technology;

. tariffs and other trade barriers;

. difficulties in staffing and managing foreign operations;

. longer sales and payment cycles;

. problems in collecting accounts receivable;

. difficulty of authenticating customer information;

. political instability;

. seasonal reductions in business activity; and

. potentially adverse tax consequences.

12
<PAGE>

We have licensed to certain international affiliates the VeriSign Processing
Center platform, which is designed to replicate our own secure data centers
and allows the affiliate to offer back-end processing of Internet-based trust
services. The VeriSign Processing Center platform provides an affiliate with
the knowledge and technology to offer Internet-based trust services similar to
those offered by VeriSign. It is critical to our business strategy that the
facilities and infrastructure used in issuing and marketing digital
certificates remain secure and be perceived by the marketplace to be secure.
Although we provide the affiliate with training in security and trust
practices, network management and customer service and support, these
practices are performed by the affiliate and are outside of our control. Any
failure of an affiliate to maintain the privacy of confidential customer
information could result in negative publicity and therefore adversely affect
the market's perception of the security of our services as well as the
security of electronic commerce and communication over IP networks generally.
See "--System Interruptions and Security Breaches Could Harm Our Business" and
"Business--Trust Services."

All of our international revenues from sources other than VeriSign Japan are
denominated in U.S. dollars. If additional portions of our international
revenues were to be denominated in foreign currencies, we could become subject
to increased risks relating to foreign currency exchange rate fluctuations.
See "--Industry Regulation," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Strategy" and
"--Marketing, Sales and Distribution."

We Depend on Authentication Information

We rely upon information provided by third-party sources to authenticate the
identity of customers requesting certain of our digital certificates. This
information is presently only available from a limited number of sources and
we currently procure such information from single sources. Reliance on single
sources involves certain risks and uncertainties, including the possibility of
delayed or discontinued availability. Any such delay or unavailability,
coupled with any inability to develop alternative sources quickly and cost-
effectively, could impair our ability to deliver certain digital certificates
on a timely basis and result in the cancellation of orders, increased costs
and injury to our reputation. This could harm our business. Reliance on third-
party information sources for authentication has also limited the distribution
of certain of our digital certificates outside of the U.S., where access to
such sources has been unavailable or limited.

Additionally, accurate authentication of the identity of the individuals and
entities to which we issue digital certificates is necessary for such digital
certificates to provide security and trust. Therefore, if any authentication
information that we rely upon is inaccurate, it could adversely affect our
reputation and result in tort or warranty claims from customers relying upon
our digital certificates for trusted and secure electronic commerce and
communications. This could materially harm our business. See "--Our Internet-
based Trust Services Could Have Unknown Defects" and "Business--Products and
Services."

We Could Be Affected By Government Regulation

Exports of software products utilizing encryption technology are generally
restricted by the U.S. and various non-U.S. governments. Although we have
obtained approval to export our Global Server digital certificate service and
none of our other Internet-based trust services are currently subject to
export controls under U.S. law, the list of products and countries for which
export approval is required could be revised in the future to include more
digital certificate products and related services. If we do not obtain
required approvals we may not be able to sell certain Internet-based trust
services in international markets. There are currently no federal laws or
regulations that specifically control CAs, but a limited number of states have
enacted legislation or regulations with respect to CAs. If the market for
digital certificates grows, the U.S. federal or state or non-U.S. governments
may choose to enact further regulations governing CAs or other providers of
digital certificate products and related services. Such regulations or the
costs of complying with such regulations could harm our business.

Many companies conducting electronic commerce over IP networks do not
collect sales or other similar taxes with respect to shipments of goods into
other states or foreign countries or with respect to other transactions

13
<PAGE>

conducted between parties in different states or countries. It is possible
that the U.S. federal or state or non-U.S. governments may seek to impose
sales taxes on companies that engage in electronic commerce over IP networks.
In the event that government bodies succeed in imposing sales or other taxes
on electronic commerce, the growth of the use of IP networks for electronic
commerce could slow substantially, which could materially harm our business.

Due to the increasing popularity of IP networks, it is possible that laws
and regulations may be enacted covering issues such as user privacy, pricing,
content and quality of products and services. The increased attention focused
upon these issues as a result of the adoption of other laws or regulations may
reduce the rate of growth of IP networks, which in turn could result in
decreased demand for our Internet-based trust services or could otherwise
materially harm our business. See "Business--Industry Background."

Acquisitions Could Harm Our Business

During 1998, we acquired SecureIT. If we are unable to successfully complete
the integration of SecureIT, our business could be materially harmed. We may
acquire additional businesses, technologies, product lines or service
offerings in the future. Acquisitions involve a number of risks including,
among others:

. the difficulty of assimilating the operations and personnel of the
acquired businesses;

. the potential disruption of our business;

. our inability to integrate, train, retain and motivate key personnel of
the acquired business;

. the diversion of our management from our day-to-day operations;

. our inability to incorporate acquired technologies successfully into our
Internet-based trust services;

. the additional expense associated with completing an acquisition and
amortizing any acquired intangible assets;

. the potential impairment of relationships with our employees, customers
and strategic partners; and

. the inability to maintain uniform standards, controls, procedures and
policies.

If we are unable to successfully address any of these risks, our business
could be materially harmed.

We Face Risks Related to Intellectual Property Rights

Our success depends on our internally developed technologies and other
intellectual property. Despite our precautions, it may be possible for a third
party to copy or otherwise obtain and use our intellectual property or trade
secrets without authorization. In addition, it is possible that others may
independently develop substantially equivalent intellectual property. If we do
not effectively protect our intellectual property, our business could be
materially harmed.

In the future we may have to resort to litigation to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation,
regardless of its outcome, could result in substantial costs and diversion of
management and technical resources.

We also license third-party technology, such as public key cryptography
technology licensed from RSA and other technology that is used in our
products, to perform key functions. These third-party technology licenses may
not continue to be available to us on commercially reasonable terms or at all.
Our business could be materially harmed if we lost the rights to use these
technologies. A third party could claim that the licensed software infringes
any patent or other proprietary right. Litigation between the licensor and a
third party or between us and a third party could lead to royalty obligations
for which we are not indemnified or for which such indemnification is
insufficient, or we may not be able to obtain any additional license on
commercially reasonable terms or at all.

14
<PAGE>

The loss of, or our inability to obtain or maintain, any of these technology
licenses could delay the introduction of our Internet-based trust services
until equivalent technology, if available, is identified, licensed and
integrated. This could harm our business.

From time to time, we have received, and may receive in the future, notice
of claims of infringement of other parties' proprietary rights. Infringement
or other claims could be made against us in the future. Any such claims, with
or without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product shipment delays
or require us to develop non-infringing technology or enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on acceptable terms or at all. If a successful claim of
product infringement were made against us and we could not develop non-
infringing technology or license the infringed or similar technology on a
timely and cost-effective basis, our business could be harmed. See "Business--
Intellectual Property."

Year 2000 Issues Could Affect Our Business

We are in the process of assessing and remediating any Year 2000 issues with
the computer communications, software and security systems that we use to
deliver and manage our Internet-based trust services and to manage our
internal operations. Despite our testing and remediating, our systems may
contain errors or faults with respect to the Year 2000. Our efforts to address
this issue are described in more detail in "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Issues."
If our systems do not operate properly with regard to the Year 2000 and
thereafter we could incur unanticipated expenses to remedy any problems, which
could adversely affect our business.

Customer's purchasing plans could be affected by Year 2000 issues as they
may need to expend significant resources to correct their existing systems.
This situation may result in reduced funds available to implement the
infrastructure needed to conduct trusted and secure electronic commerce and
communications over IP networks or to purchase our Internet-based trust
services. These factors could materially harm our business. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business--Industry Background."

We Have Implemented Certain Anti-Takeover Provisions

Certain provisions of our Amended and Restated Certificate of Incorporation
and Bylaws, as well as provisions of Delaware law could make it more difficult
for a third party to acquire us, even if doing so would be beneficial to our
stockholders. See "Description of Capital Stock."

Future Sales of Shares Could Affect Our Stock Price

If our stockholders sell substantial amounts of our common stock in the
public market following this offering, the market price of our common stock
could fall. Based on shares outstanding as of December 31, 1998, upon
completion of this offering we will have outstanding 24,271,692 shares of
common stock (assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options after December 31, 1998). Of these
shares 18,274,562 are currently eligible for sale in the public market. After
the lockup agreements with the underwriters of this offering expire 90 days
from the date of this prospectus, an additional 4,745,944 shares will be
eligible for sale in the public market. The remaining 1,251,186 shares will be
eligible for public sale after July 6, 1999, subject to the volume limitations
and other conditions of Rule 144.

In addition, the former shareholders of SecureIT have the right, after
January 30, 1999, to require us to file a registration statement to register
the resale of 418,093 shares.

These share numbers exclude 4,129,094 shares subject to outstanding stock
options and 797,496 shares reserved for future issuance under our stock plans
as of December 31, 1998. See "Management--Employee Benefit Plans," "Shares
Eligible for Future Sale" and "Underwriters."

15
<PAGE>

Our Stock Price May Be Volatile

The market price of our common stock has fluctuated in the past and is
likely to fluctuate in the future. In addition, the market prices of
securities of other technology companies, particularly Internet-related
companies, have been highly volatile. Factors that may have a significant
effect on the market price of our common stock include:

. fluctuations in our operating results;

. announcements of technological innovations or new Internet-based trust
services by us or new products or services by our competitors;

. analysts' reports and projections;

. regulatory actions; and

. general market, economic or political conditions in the U.S. or abroad.

Investors may not be able to resell their shares of our common stock at or
above the offering price. See "Price Range of Common Stock."

Existing Stockholders Will Maintain Significant Influence

The present executive officers, directors and their affiliates will
beneficially own approximately 25.1% of our outstanding common stock upon the
completion of this offering. As a result, these stockholders could
significantly influence our management and affairs and all matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions such as a merger, consolidation or sale of
substantially all of our assets. See "Principal and Selling Stockholders."

Use of Proceeds Is Unspecified

We plan to use the proceeds from this offering for general corporate
purposes. Therefore, we will have discretion as to how we will spend the
proceeds, which could be in ways with which the stockholders may not agree. We
cannot predict that the proceeds will be invested to yield a favorable return.
See "Use of Proceeds."

16
<PAGE>

USE OF PROCEEDS

We estimate that the net proceeds from the sale of the 1,185,000 shares we
are selling in this offering will be approximately $90.0 million, after
deducting underwriting discounts and commissions and deducting estimated
offering expenses of $650,000. If the Underwriters' over-allotment option is
exercised in full, we estimate that our net proceeds from this offering will
be $121.5 million. VeriSign will not receive any proceeds from the sale of the
shares being sold by the Selling Stockholders.

We intend to use our net proceeds from this offering primarily for working
capital and other general corporate purposes. We may also use a portion of the
net proceeds to acquire or invest in businesses, technologies, product lines
or service offerings that are complementary to our business. We have no
present plans or commitments and are not currently engaged in any negotiations
with respect to such transactions. As a result, we will have significant
discretion as to the use of the net proceeds. Pending such uses, we intend to
invest the net proceeds in short-term, interest-bearing, investment-grade
securities. See "Risk Factors--Acquisitions Could Harm Our Business" and "--
Use of Proceeds Is Unspecified."

DIVIDEND POLICY

We have never declared or paid any cash dividends on our common stock or
other securities and do not anticipate paying any cash dividends in the
foreseeable future. In addition, the terms of our equipment line of credit
agreement prohibit the payment of dividends on our capital stock.

PRICE RANGE OF COMMON STOCK

Our common stock has been traded on the Nasdaq National Market under the
symbol "VRSN" since January 29, 1998, the date of our initial public offering.
Prior to such time, there was no public market for our common stock. The
following table sets forth, for the periods indicated, the high and low sales
prices for our common stock as reported by the Nasdaq National Market.

<TABLE>
<CAPTION>
High Low
------- -------
<S> <C> <C>
Fiscal Year Ended December 31, 1998:
First Quarter................................................. $46 7/8 $20 1/2
Second Quarter................................................ 49 26
Third Quarter................................................. 44 7/8 21 7/8
Fourth Quarter................................................ 77 1/2 19 3/8
Fiscal Year Ending December 31, 1999:
First Quarter (through January 26, 1999)...................... 95 1/2 54
</TABLE>

On January 26, 1999, the last reported sale price for our common stock on
the Nasdaq National Market was $81.50 per share. As of December 31, 1998,
there were approximately 235 holders of record of our common stock, although
we estimate that there are in excess of 3,000 beneficial holders.

17
<PAGE>

CAPITALIZATION

The following table sets forth VeriSign's capitalization as of September 30,
1998 and as adjusted to reflect the receipt by VeriSign of the estimated net
proceeds from selling 1,185,000 shares in this offering after deducting
underwriting discounts and commissions and estimated offering expenses.

<TABLE>
<CAPTION>
September 30, 1998
---------------------
Actual As Adjusted
-------- -----------
(In thousands)
<S> <C> <C>
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000 shares
authorized, no shares issued and outstanding .......... $ -- $ --
Common stock, $.001 par value; 50,000,000 shares
authorized; actual--22,732,876 shares issued and
outstanding; As adjusted--23,917,876 shares issued and
outstanding(1)......................................... 23 24
Additional paid-in capital.............................. 91,496 181,468
Notes receivable from stockholders...................... (582) (582)
Deferred compensation................................... (302) (302)
Accumulated deficit..................................... (48,279) (48,279)
-------- --------
Total stockholders' equity............................. 42,356 132,329
-------- --------
Total capitalization................................. $ 42,356 $132,329
======== ========
</TABLE>
- --------
Note: (1)The number of shares of common stock issued and outstanding does not
include:

. 1,686,587 shares issuable upon the exercise of options outstanding
as of September 30, 1998, under the 1995 Stock Option Plan, with a
weighted average exercise price of $2.46 per share;

. 518,050 shares issuable upon the exercise of options outstanding as
of September 30, 1998, under the 1997 Stock Option Plan, with a
weighted average exercise price of $7.34 per share;

. 145,098 shares issuable upon the exercise of options outstanding as
of September 30, 1998, under the SecureIT 1997 Stock Option Plan,
which was assumed by VeriSign, with a weighted average exercise
price of $7.64 per share;

. 1,116,910 shares issuable upon the exercise of options outstanding
as of September 30, 1998, under our 1998 Equity Incentive Plan (the
"Equity Incentive Plan"), with a weighted average exercise price of
$29.09 per share, and 1,255,022 shares reserved for future issuance
thereunder;

. 441,775 shares reserved for issuance under our 1998 Employee Stock
Purchase Plan (the "Purchase Plan");

. 37,500 shares issuable upon the exercise of options outstanding as
of September 30, 1998 under our 1998 Directors Stock Option Plan
(the "Directors Plan"), with a weighted average exercise price of
$39.25 per share, and 87,500 shares reserved for future issuance
thereunder;

. 15,000 shares that would be issued to a service provider if certain
milestones are met; and

. 17,500 shares subject to a warrant that would be issued in the
event that VeriSign borrows funds under an equipment loan
agreement.

See "Management--Director Compensation," "--Employee Benefit Plans,"
"Description of Capital Stock" and Notes 6 and 8 of Notes to Consolidated
Financial Statements.

18
<PAGE>

DILUTION

The net tangible book value of VeriSign's common stock as of September 30,
1998 was $42.4 million, or $1.86 per share. Net tangible book value per share
is equal to our total tangible assets less our total liabilities, divided by
the shares of common stock outstanding as of September 30, 1998. After giving
effect to our issuance and sale of 1,185,000 shares of common stock in this
offering after deducting underwriting discounts and commissions and estimated
offering expenses payable by VeriSign, our net tangible book value as of
September 30, 1998 would have been $132.3 million, or $5.53 per share. This
amount represents an immediate increase in net tangible book value of $3.67
per share to existing stockholders and an immediate dilution of $74.97 per
share to new public investors. The following table illustrates the per share
dilution:

<TABLE>
<S> <C> <C>
Public offering price per share............................... $80.50
Net tangible book value per share at September 30, 1998..... $1.86
Increase in net tangible book value per share attributable
to new public investors.................................... 3.67
-----
Net tangible book value per share after offering.............. 5.53
------
Dilution per share to new public investors.................... $74.97
======
</TABLE>

The table above assumes no exercise of any stock options outstanding as of
September 30, 1998, no exercise of a warrant to purchase 17,500 shares of
common stock that would be issued in the event that VeriSign borrows funds
under an equipment loan agreement, and no issuance of 15,000 shares of common
stock that would be issued to a service provider if certain milestones are
met. As of September 30, 1998, there were options outstanding to purchase a
total of 3,504,145 shares of common stock with a weighted average exercise
price of $12.27 per share. To the extent that any of these options or the
warrant are exercised, there will be further dilution to new public investors.
See "Capitalization," "Management--Director Compensation," "--Employee Benefit
Plans" and Notes 6 and 8 of Notes to Consolidated Financial Statements.

19
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

The following selected consolidated financial data should be read in
conjunction with VeriSign's Consolidated Financial Statements and the notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" appearing elsewhere in this prospectus. The selected
consolidated statement of operations data presented below for the period from
April 12, 1995 (inception) to December 31, 1995 and for each of the years in
the two-year period ended December 31, 1997, and the selected consolidated
balance sheet data as of December 31, 1996 and 1997, are derived from
consolidated financial statements that have been audited by KPMG LLP,
independent auditors, and are included elsewhere in this prospectus. The
selected consolidated balance sheet data as of December 31, 1995 are derived
from consolidated financial statements that have been audited by KPMG LLP,
independent auditors, but that are not included elsewhere in this prospectus.
The selected consolidated statement of operations data for the nine months
ended September 30, 1997 and 1998 and the selected consolidated balance sheet
data as of September 30, 1998 are derived from consolidated financial
statements that have not been audited. The unaudited consolidated financial
statements reflect all normal recurring adjustments that, in the opinion of
management, are necessary for a fair presentation on the financial position of
VeriSign at September 30, 1998 and the results of operations for the interim
periods ended September 30, 1997 and 1998. The results of operations for any
interim period are not necessarily indicative of the results of our operations
for any future interim period or for a full fiscal year.

<TABLE>
<CAPTION>
Period from
April 12, 1995 Year Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, ------------------ -----------------------
1995 1996 1997 1997 1998
-------------- -------- -------- -------- -------------
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Revenues ............... $ 382 $ 1,356 $ 13,356 $ 8,360 $ 25,719
------- -------- -------- -------- --------
Costs and expenses:
Cost of revenues...... 412 2,791 9,689 6,172 13,467
Sales and marketing... 790 4,885 11,826 7,732 16,449
Research and
development.......... 642 2,058 5,303 3,643 6,242
General and
administrative....... 680 2,681 5,039 3,147 5,842
Special charges....... -- -- 2,800 2,000 3,555
------- -------- -------- -------- --------
Total costs and
expenses............ 2,524 12,415 34,657 22,694 45,555
------- -------- -------- -------- --------
Operating loss....... (2,142) (11,059) (21,301) (14,334) (19,836)
Other income (expense).. 148 (67) 1,174 872 1,677
------- -------- -------- -------- --------
Loss before minority
interest............ (1,994) (11,126) (20,127) (13,462) (18,159)
Minority interest in net
loss of subsidiary..... -- 838 1,538 1,194 950
------- -------- -------- -------- --------
Net loss............. $(1,994) $(10,288) $(18,589) $(12,268) $(17,209)
======= ======== ======== ======== ========
Basic and diluted net
loss per share(1)...... $ (.43) $ (2.07) $ (2.61) $ (1.54) $ (.82)
======= ======== ======== ======== ========
Shares used in per share
computation(1)......... 4,689 4,960 7,121 7,988 21,042
======= ======== ======== ======== ========
<CAPTION>
December 31,
---------------------------- September 30,
1995 1996 1997 1998
-------- -------- -------- -------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and short-term
investments............ $ 2,687 $ 30,006 $ 12,893 $ 42,468
Working capital......... 2,284 24,788 6,160 33,299
Total assets............ 4,052 36,537 26,904 63,643
Stockholders' equity.... 3,376 28,520 13,541 42,356
</TABLE>
- --------
Note: (1) See Note 1 of Notes to Consolidated Financial Statements for an
explanation of the determination of the number of shares used in per
share computation.

20
<PAGE>

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

You should read the following discussion in conjunction with the
Consolidated Financial Statements and notes thereto appearing elsewhere in
this prospectus. Except for historical information, the following discussion
contains forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such forward-looking statements involve risks and uncertainties, including,
among other things, statements regarding our anticipated costs and expenses,
revenue mix and plans for addressing Year 2000 issues. Such forward-looking
statements include, among others, those statements including the words,
"expects," "anticipates," "intends," "believes" and similar language. Our
actual results may differ significantly from those projected in the forward-
looking statements. Factors that might cause future results to differ
materially from those discussed in the forward-looking statements include, but
are not limited to, those discussed in "Risk Factors" and elsewhere in this
prospectus.

Overview

VeriSign is the leading provider of Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over IP networks. We have established strategic
relationships with industry leaders, including AT&T, BT, Cisco, Microsoft,
Netscape, Network Associates, RSA, Security Dynamics and VISA, to enable
widespread utilization of our digital certificate services and to assure their
interoperability with a wide variety of applications and network equipment. We
have used our secure online infrastructure to issue over 100,000 of our
website digital certificates and over 3.5 million of our digital certificates
for individuals. We believe that we have issued more digital certificates than
any other company in the world. Our Website Digital Certificate services are
used by over 400 of the Fortune 500 companies and all of the top 25 electronic
commerce websites as listed by Jupiter Communications, an independent market
research firm. We also offer the VeriSign OnSite service, which allows an
organization to leverage our trusted service infrastructure to develop and
deploy customized digital certificate services for use by its employees,
customers and business partners. Over 300 enterprises have subscribed to the
OnSite service since its introduction in November 1997, including Bank of
America, Hewlett-Packard, the Internal Revenue Service, Kodak, Sumitomo Bank,
Texas Instruments and USWest.

We have derived substantially all of our revenues to date from fees for
services rendered in connection with deploying Internet-based trust services.
Revenues from our Internet-based trust services consist of fees for the
issuance of digital certificates, fees for digital certificate software
modules and fees for consulting, training, support and maintenance services.
We defer revenues from the sale or renewal of digital certificates and
recognize this revenue ratably over the life of the digital certificate,
generally 12 months. We recognize revenues from the sale of digital
certificate software modules to distributors and affiliates upon delivery of
the software and signing of an agreement, provided the fee is fixed and
determinable, collectibility is probable and the arrangement does not require
significant production, modification or customization of the software. We
recognize revenues from consulting and training services using the percentage-
of-completion method for fixed-fee development arrangements, or as the
services are provided for time-and-materials arrangements. We recoginze
revenue ratably over the term of the agreement for support and maintenance
services.

We market our Internet-based trust services worldwide through multiple
distribution channels, including the Internet, direct sales, telesales, VARs,
systems integrators and our affiliates. A significant portion of our revenues
to date has been generated through sales from our website, but we intend to
continue increasing our direct sales force, both in the U.S. and abroad, and
to continue to expand our other distribution channels.

In connection with the formation of VeriSign Japan, we licensed certain
technology and contributed other assets to VeriSign Japan. Subsequent to its
formation, additional investors purchased minority interests in VeriSign
Japan. As of September 30, 1998, we owned 50.5% of the outstanding capital
stock of VeriSign Japan. Accordingly, our

21
<PAGE>

consolidated financial statements include the accounts of VeriSign Japan and
our consolidated statements of operations reflect the minority shareholders'
share of the net losses of VeriSign Japan.

In July 1998, we acquired SecureIT, a provider of Internet and enterprise
security solutions, including a range of products and services to help clients
assess, design and implement security solutions. In addition, SecureIT
provides training on related subjects. The acquisition added services and
technology complementary to our Internet-based trust services. We have
accounted for the acquisition as a pooling-of-interests. Accordingly, we have
restated all prior period consolidated financial statements to include the
results of operations, financial position and cash flows of SecureIT as though
it had always been a part of VeriSign.

We have experienced substantial net losses in each fiscal period since our
inception. As of September 30, 1998, we had an accumulated deficit of $48.3
million. These net losses and accumulated deficit resulted from our lack of
substantial revenues and the significant costs incurred in the development and
sale of our Internet-based trust services and in the establishment and
deployment of our technology, infrastructure and practices. We intend to
increase our expenditures in all areas in order to execute our business plan.
As a result, we expect to incur substantial additional losses. Although our
revenues have grown in recent periods, we may be unable to sustain such
growth. Therefore, you should not consider our historical growth indicative of
future revenue levels or operating results. We may never achieve profitability
or, if we do, we may not be able to sustain it. A more complete description of
these and other risks relating to our business is set forth under the caption
"Risk Factors."

Recent Development

On January 19, 1999, VeriSign announced selected consolidated results of
operations for the fourth quarter of 1998 and for the year ended December 31,
1998. Our revenues were $13.2 million for the fourth quarter of 1998, compared
to revenues of $5.0 million for the fourth quarter of 1997. Net loss for the
fourth quarter of 1998 was $2.5 million, or $0.11 per share, compared to a net
loss of $6.3 million, or $0.82 per share, for the fourth quarter of 1997. For
the full year of 1998, our revenues were $38.9 million, compared to revenues
of $13.4 million for 1997. Net loss for 1998 was $19.7 million, or $0.95 per
share, compared to a net loss in 1997 of $18.6 million, or $2.61 per share.
Net loss for the full year of 1998 included special charges of $3.6 million.
Net loss for the fourth quarter of 1997 included a special charge of $800,000,
and net loss for the full year of 1997 included special charges of $2.8
million. See "--Results of Operations for the Nine-Month Periods--Costs and
Expenses--Special Charges" and "--Annual Results of Operations--Costs and
Expenses--Special Charges."

Results of Operations for the Nine-Month Periods

Revenues

Revenues increased from $8.4 million in the first nine months of 1997 to
$25.7 million in the first nine months of 1998. The growth in revenues
resulted from increased sales of our Internet-based trust services,
particularly our website digital certificates and VeriSign OnSite services,
delivery of more training and services and higher sales of certain third-party
products. In the third quarter of 1997, we increased our per-unit prices for
digital certificate services by approximately 15%. During the first nine
months of 1998, we also completed certain work required under various
contracts and recognized the related portion of revenues.

We adopted the American Institute of Certified Public Accountants' Statement
of Position (SOP) No. 97-2, Software Revenue Recognition, for software
transactions entered into beginning January 1, 1998. SOP No. 97-2 generally
requires revenue earned on software arrangements involving multiple elements
to be allocated to each element based on its relative fair value. The fair
value of the element must be based on objective evidence that is specific to
the vendor. If a vendor does not have objective evidence of the fair value of
all elements in a multiple-element arrangement, all revenue from the
arrangement must be deferred until such evidence exists or until all elements
have been delivered. The adoption of SOP No. 97-2 did not have a material
effect on our operating results.

22
<PAGE>

No customer accounted for 10% or more of revenues during the first nine
months of 1998. VISA International accounted for 12% of revenues for the first
nine months of 1997. Revenues of VeriSign Japan together with revenues from
other international customers accounted for 10% of revenues in the first nine
months of 1997 and 11% of revenues in the first nine months of 1998.

Costs and Expenses

Cost of Revenues. Cost of revenues consists primarily of costs related to
providing digital certificate enrollment and issuance services, customer
support and training, consulting and development services and costs of
facilities and computer and communications equipment used in such activities.
Cost of revenues also includes fees paid to third parties to verify digital
certificate applicants' identities, insurance premiums for our service
warranty plans and errors and omissions insurance and the cost of software
resold to customers.

Cost of revenues increased from $6.2 million in the first nine months of
1997 to $13.5 million in the first nine months of 1998. The increase was due
to a number of factors. We hired more employees to support the additional
volume of digital certificates issued and to support SecureIT's security
consulting and training activities. The cost of our service warranty plan
increased partly because of greater volume and partly because this plan was
not in effect during a portion of the nine-month period of 1997. In addition,
we incurred increased expenses for access to third-party databases, higher
support charges for our external disaster recovery program and for the cost of
certain third-party software products resold to customers as part of network
security solution implementations.

Certain of our services require greater personnel involvement and therefore
have higher costs than other services. As a result, we anticipate that cost of
revenues will vary for the remainder of 1998 and in 1999 depending on the mix
of services sold during each period.

Sales and Marketing. Sales and marketing expenses consist primarily of costs
related to sales and marketing and practices and external affairs. These
expenses include salaries, sales commissions and other personnel-related
expenses, travel and related expenses, cost of computer and communications
equipment and support services, facilities costs, consulting fees and costs of
marketing programs.

Sales and marketing expenses increased from $7.7 million in the first nine
months of 1997 to $16.4 million in the first nine months of 1998. The increase
is a direct result of the continued growth of our direct sales force and the
expansion of our efforts, particularly in lead and demand generation
activities. The growth and expansion of the SecureIT sales and marketing
organization also contributed to the increase in these expenses.

We anticipate that sales and marketing expenses will continue to increase in
absolute dollars as we expand our direct sales force, hire additional
marketing personnel and increase our marketing and promotional activities both
in the U.S. and abroad.

Research and Development. Research and development expenses consist
primarily of costs related to research and development personnel, including
salaries and other personnel-related expenses, consulting fees and the cost of
facilities, computer and communications equipment and support services used in
service and technology development.

Research and development expenses increased from $3.6 million in the first
nine months of 1997 to $6.2 million in the first nine months of 1998 as a
result of our investments in the design, testing and deployment of, and
technical support for, our expanded Internet-based trust service offerings and
technology. The increase reflects the expansion of our engineering staff and
related costs required to support our continued emphasis on the development of
new services, as well as enhancing existing services. During 1998, we
continued to make significant investments in development of all of our
services, including those targeted for the service provider market.

23
<PAGE>

We believe that timely development of new and enhanced Internet-based trust
services and technology are necessary to remain competitive in the
marketplace. Accordingly, we intend to continue to recruit experienced
research and development personnel and to make other investments in research
and development. As a result, we expect that research and development expenses
will continue to increase in absolute dollars. To date, we have expensed all
research and development expenditures as incurred.

General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses for our
administrative, finance and human resources personnel, facilities and computer
and communications equipment, support services and professional services fees.

General and administrative expenses increased from $3.1 million in the first
nine months of 1997 to $5.8 million in the first nine months of 1998. The
increase was primarily due to increased staffing levels required to support
our expanded operations and to implement additional management information
systems and related procedures. In addition, in 1998 we incurred additional
costs related to being a public company, including investor relations programs
and professional services fees.

We expect to continue to invest in a more comprehensive executive and
administrative infrastructure and to add additional facilities as required. As
a result, we anticipate that general and administrative expenses will continue
to increase in absolute dollars.

Special Charges. In September 1996, VeriFone, Inc., which subsequently
became a wholly-owned subsidiary of Hewlett-Packard, filed a lawsuit against
VeriSign alleging, among other things, trademark infringement. In November
1997, VeriSign, Hewlett-Packard and VeriFone reached an agreement, under
which, among other things, we issued 250,000 shares of our common stock, which
were transferred to Hewlett-Packard, and VeriSign and VeriFone settled all
claims. The settlement amount was recorded in the third quarter of 1997 as a
$2.0 million charge to operations.

In connection with our acquisition of SecureIT, we recorded a special charge
of $3.6 million to operating expenses in the third quarter of 1998. The
expenses included $2.4 million for direct and other merger-related costs
pertaining to the merger transaction. Merger transaction costs consisted
primarily of fees for investment bankers, attorneys, accountants, filing fees
and other related charges. The remaining $1.2 million related to stock-based
compensation charges in connection with the acceleration of certain
performance stock options held by SecureIT employees.

Other Income

Other income consists primarily of interest earned on our cash, cash
equivalents and short-term investments, less interest expense on bank
borrowings of VeriSign Japan and the effect of foreign currency transaction
gains and losses.

Other income increased from $872,000 in the first nine months of 1997 to
$1.7 million in the first nine months of 1998. This increase is primarily due
to a higher cash and short-term investment base as a result of the proceeds
from our initial public offering on January 29, 1998.

Provision for Income Taxes

We have not recorded any provision for federal and California income taxes
for either of the nine-month periods because we have experienced net losses
since inception. See "--Annual Results of Operations--Provision for Income
Taxes."

Minority Interest in Net Loss of Subsidiary

Minority interest in the net losses of VeriSign Japan was $1.2 million in
the first nine months of 1997 and $950,000 in the first nine months of 1998.
The decrease was primarily due to increased revenues from VeriSign

24
<PAGE>

Japan in the 1998 period as compared to the same period of the prior year.
VeriSign Japan is still in the early stage of operations and, therefore, we
expect that the minority interest in net loss of subsidiary will continue to
fluctuate in future periods.

Annual Results of Operations

We began operations on April 12, 1995, which is also referred to as
"inception." The discussion below compares the period from April 12, 1995 to
December 31, 1995 (which is also referred to as "the inception period" or
"1995"), 1996 and 1997.

Revenues

Revenues were $382,000 in 1995, $1.4 million in 1996 and $13.4 million in
1997. Revenues from inception through 1996 were primarily derived from sales
of our Secure Server digital certificate services. The increase in revenues
from 1995 to 1996 was due primarily to increased market acceptance of Secure
Server digital certificate services and, to a lesser extent, SET digital
certificate services. The increase in revenues from 1996 to 1997 was due to
increased sales of Secure Server digital certificate services, increased
services revenues, including revenues from digital certificate service
agreements, and sales of certain third-party products. Revenues from
Individual digital certificates were nominal because substantially all
individual digital certificates were issued free of charge on a promotional
basis.

VISA accounted for approximately 21% of our revenues in 1996 and 10% of
revenues in 1997. No other customer accounted for 10% or more of our revenues
during 1995, 1996 or 1997. Revenues of VeriSign Japan and from other
international customers accounted for less than 10% of revenues in the
inception period, 1996 and 1997.

Costs and Expenses

VeriSign's costs and expenses increased in 1996 compared to 1995 and again
in 1997 compared to 1996, primarily due to our overall growth. The total
number of our employees increased from 26 at December 31, 1995 to 210 at
December 31, 1997. In addition, we opened several new offices, increased our
sales and marketing and research and development efforts and expanded our
headquarters and secure data centers during these time periods.

Cost of Revenues. Cost of revenues was $412,000 in 1995, $2.8 million in
1996 and $9.7 million in 1997. Cost of revenues was not material in 1995
because of our minimal revenues in that period. The increases in 1996 and 1997
were due to a number of factors. Facilities costs and related overhead costs
increased as we built our operations infrastructure. We hired more full-time
and temporary employees to support the additional volume of digital
certificates issued and to support SecureIT's security consulting and training
activities. We also incurred costs related to the introduction of new services
as well as the costs related to certain third-party software products that
were resold to our customers as part of network security solution
implementations. Expenses related to our errors and omissions insurance and
access to third-party databases also increased. In addition, during 1997, we
implemented our service warranty program and our disaster recovery program.

Sales and Marketing. Sales and marketing expenses were $790,000 in 1995,
$4.9 million in 1996 and $11.8 million in 1997. The increase in sales and
marketing expenses from 1995 through 1996 and 1997 was primarily due to
increased headcount and increased expenditures for marketing programs. The
increase in 1997 also reflects the growth and expansion of the SecureIT sales
and marketing organization.

Research and Development. Research and development expenses were $642,000 in
1995, $2.1 million in 1996 and $5.3 million in 1997. Our continued investment
in the design, testing and deployment of, and technical support for, our
expanded services and technology caused research and development expenses to
increase in each period from 1995 to 1996 and 1997. The increase reflects the
expansion of our engineering staff and related costs required to support our
continued emphasis on developing new, and enhancing existing, services and
technology.

25
<PAGE>

General and Administrative. General and administrative expenses were
$680,000 in 1995, $2.7 million in 1996 and $5.0 million in 1997. The increase
in general and administrative expenses from 1995 through 1996 and 1997 was
primarily a result of hiring additional staff to manage and support our
expanding operations.

Special Charges. The settlement amount for the VeriFone litigation was
recorded in 1997 as a $2.0 million charge to operations.

In November 1997 we entered into a preferred provider agreement with
Microsoft whereby we agreed to jointly develop, promote and distribute a
variety of client-based and server-based digital certificate solutions. Under
this agreement, we have been designated as the premier provider of digital
certificates for Microsoft customers. In connection with the agreement, we
issued 100,000 shares of our common stock to Microsoft and recorded an
$800,000 charge to operations.

Other Income (Expense)

We had other income of $148,000 in 1995, other expense of $67,000 in 1996
and other income of $1.2 million in 1997. The increase in other income in 1997
was due to interest earned on the cash proceeds of our November 1996 Series C
preferred stock financing.

Provision for Income Taxes

We have not recorded any provision for federal and state income taxes
because we have experienced net losses since inception. As of December 31,
1997, we had federal net operating loss carryforwards of approximately $26.9
million and state net operating loss carryforwards of approximately $27.1
million. If we are not able to use them, the federal net operating loss
carryforwards will expire in 2010 through 2014 and the state net operating
loss carryforwards will expire in 2003. The Tax Reform Act of 1986 imposes
substantial restrictions on the utilization of net operating losses and tax
credits in the event of a corporation's ownership change, as defined in the
Internal Revenue Code. Our ability to utilize net operating loss carryforwards
may be limited as a result of such an ownership change. We do not anticipate
that a material limitation on our ability to use our carryforwards and credits
will result from this offering.

We have provided a full valuation allowance on our deferred tax asset
because of the uncertainty regarding its realization. Our accounting for
deferred taxes under Statement of Financial Accounting Standards No. 109
involves the evaluation of a number of factors concerning the realizability of
our deferred tax assets. In concluding that a full valuation allowance was
required, we considered such factors as our history of operating losses and
expected future losses and the nature of our deferred tax assets. Although our
operating plans assume taxable and operating income in future periods, our
evaluation of all the available evidence in assessing the realizability of the
deferred tax assets indicates that such plans were not considered sufficient
to overcome the available negative evidence. See Note 9 of Notes to
Consolidated Financial Statements.

Minority Interest in Net Loss of Subsidiary

Minority interest in the net losses of VeriSign Japan was $838,000 in 1996
and $1.5 million in 1997. The increase was due to the increased expenses
incurred in establishing and expanding the operations of VeriSign Japan prior
to the generation of significant revenues as well as to an increasing
percentage of VeriSign Japan's capital stock being held by minority
shareholders.

26
<PAGE>

Selected Quarterly Operating Results

The following table sets forth certain consolidated statement of operations
data for each quarter of 1997 and the first three quarters of 1998. This
information has been derived from our unaudited consolidated financial
statements, which, in management's opinion, have been prepared on the same
basis as the annual consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the Consolidated Financial
Statements and notes thereto included elsewhere in this prospectus. The
operating results for any quarter are not necessarily indicative of the
results for any future period.

<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------
Mar. 31, June 30, Sept. 30, Dec. 31, Mar. 31, June 30, Sept. 30,
1997 1997 1997 1997 1998 1998 1998
-------- -------- --------- -------- -------- -------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $ 1,590 $ 2,931 $ 3,839 $ 4,996 $ 6,662 $ 8,552 $10,505
------- ------- ------- ------- ------- ------- -------
Costs and expenses:
Cost of revenues....... 1,517 2,081 2,574 3,517 4,020 4,257 5,190
Sales and marketing.... 2,344 2,805 2,583 4,094 4,720 5,612 6,117
Research and
development........... 1,029 1,260 1,354 1,660 1,671 2,019 2,552
General and
administrative........ 1,020 942 1,185 1,892 1,735 2,434 1,673
Special charges........ -- -- 2,000 800 -- -- 3,555
------- ------- ------- ------- ------- ------- -------
Total costs and
expenses............ 5,910 7,088 9,696 11,963 12,146 14,322 19,087
------- ------- ------- ------- ------- ------- -------
Operating loss....... (4,320) (4,157) (5,857) (6,967) (5,484) (5,770) (8,582)
Other income ........... 469 167 236 302 392 657 628
------- ------- ------- ------- ------- ------- -------
Loss before minority
interest............ (3,851) (3,990) (5,621) (6,665) (5,092) (5,113) (7,954)
Minority interest in net
loss of subsidiary..... 305 482 407 344 389 324 237
------- ------- ------- ------- ------- ------- -------
Net loss............. $(3,546) $(3,508) $(5,214) $(6,321) $(4,703) $(4,789) $(7,717)
======= ======= ======= ======= ======= ======= =======
</TABLE>

Revenues

We have experienced quarter-to-quarter sequential growth in revenues since
our inception. These quarterly increases were due to increases in all revenue
areas, including our Internet-based trust services and certain third-party
software products sold to our customers as part of network security solution
implementations. The increase in revenues related to digital certificate
services has been primarily due to the increased number of digital
certificates sold. However, in the third quarter of 1997, we increased our
per-unit prices for digital certificate services by approximately 15%.
Revenues from contracts for our services have increased each quarter because
the number of contracts has increased. Revenues related to our own and certain
third-party software products have increased as the number and size of network
security implementations has increased.

Costs and Expenses

Cost of Revenues. Cost of revenues has increased each quarter as revenues
have increased. Certain of our services require greater personnel involvement
and therefore have higher costs than other services. As a result, cost of
revenues will fluctuate each quarter depending on the mix of services sold in
each quarter. The primary reasons for the increased cost of revenues on a
quarterly basis, other than increased revenues, are:

. hiring additional employees, particularly for customer support and
information systems and to support SecureIT's security consulting and
training activities;

. increased expenses for access to third-party databases to verify digital
certificate applicants' identities; and

. costs related to certain third-party software products that were resold
to our customers as part of network security solution implementations.

27
<PAGE>

In addition, we implemented our service warranty program and began the
implementation of our disaster recovery program in the second quarter of 1997.

Sales and Marketing. The quarterly increases in sales and marketing expenses
resulted primarily from building our sales and marketing organization. The
addition of sales and marketing personnel resulted in higher recruiting,
benefits, travel and facilities costs. In addition, during the second quarter
of 1997, additional expenses were incurred as we pursued strategic
relationships in the U.S. and abroad, increased our public relations
activities and channel development activities. The fourth quarter of 1997
reflects expenses related to the continued development and expansion of our
direct sales force and increased spending for new marketing programs.

Research and Development. The quarterly increases in research and
development expenses were due primarily to increased personnel and related
costs to support the design, testing and deployment of, and technical support
for, our expanded Internet-based trust service offerings and technology.

General and Administrative. In addition to building an administrative
infrastructure in the fourth quarter of 1997, we increased our allowance for
doubtful accounts commensurate with the growth in accounts receivable. The
1998 quarters reflect costs related to increased staffing levels required to
support our expanded operations in the U.S. and abroad, costs to implement
additional management information systems and related procedures and the costs
of being a public company.

Special Charges. Charges in the third and fourth quarters of 1997 and the
third quarter of 1998 are discussed above under "--Results of Operations--
Costs and Expenses--Special Charges."

Our operating results have varied on a quarterly basis and may fluctuate
significantly in the future as a result of many factors outside of our
control. Period-to-period comparisons of our operating results should not be
relied upon as an indication of future performance. A more complete
description of factors affecting quarterly operating results is set forth in
"Risk Factors--Our Quarterly Operating Results May Fluctuate; Our Future
Revenue and Profitability Are Uncertain."

Year 2000 Issues

Background of Year 2000 Issues

Many currently-installed computer and communications systems and software
products are unable to distinguish between twentieth century dates and twenty-
first century dates. This situation could result in system failures or
miscalculations causing disruptions in the operations of any business,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities. As a result,
many companies' software and computer and communications systems may need to
be upgraded or replaced to comply with such "Year 2000" requirements.

Our State of Readiness

Our business depends on the operation of numerous systems that could
potentially be impacted by Year 2000 related problems. The systems include:
computer and communications hardware and software systems used to deliver our
Internet-based trust services (including our proprietary software systems as
well as software supplied by third parties); communications networks such as
the Internet and private intranets; the internal systems of our customers and
suppliers; digital certificate services sold to customers; the computer and
communications hardware and software systems we use internally in the
management of our business; and non-information technology systems and
services we use to manage our business, such as telephone, security and
building management systems.

Based on an analysis of all systems potentially impacted by conducting
business in the year 2000 and beyond, we are pursuing a phased approach to
making such systems, and accordingly our operations, ready for the year 2000.
Beyond awareness of the issues and scope of systems involved, the phases of
activities in progress

28
<PAGE>

include: an assessment of specific underlying computer and communications
systems, programs and/or hardware; remediation or replacement of Year 2000
non-compliant technology; validation and testing of technologically-compliant
Year 2000 solutions; and implementation of Year 2000 compliant systems. The
table below provides the status and timing of such phased activities.

<TABLE>
<CAPTION>
Targeted
Impacted Systems Status Implementation
---------------- ------ --------------
<S> <C> <C>
Internet-based trust
services sold to Digital certificates tested and available for customer
customers.............. trial, testing and implementation completed........... Completed
Non-information
technology systems and Systems upgraded or replaced as appropriate,
services............... testing and implementation completed.................. Completed
Hardware and software
systems used to deliver Assessment completed, remediation underway,
services............... conducting validation and testing..................... Q1 1999
Communication networks
used to provide Assessment completed, conducting validation
services............... and testing........................................... Q1 1999
Operability with
internal systems of
customers and Assessment completed, conducting validation
suppliers.............. and testing........................................... Q1 1999
Hardware and software
systems used to manage Assessment completed, remediation underway,
VeriSign's business.... conducting validation and testing..................... Q1 1999
</TABLE>

As a trusted third-party CA providing, among other services, digital
certificates and related lifecycle services, we depend on the hardware and
software products from third parties used to deliver such Internet-based trust
services. Inoperability of such services due to Year 2000 issues could harm
our business. We have completed our assessment of the underlying systems and
hardware. Certain components have been replaced and we are conducting
validation and testing.

Costs to Address Year 2000 Issues

We expect that costs directly related to Year 2000 issues will not exceed
approximately $500,000 for both costs incurred to date and future costs,
including cases where non-compliant information technology systems have been
or need to be replaced. We would have incurred the replacement cost of non-
information technology systems regardless of the Year 2000 issue due to
technology obsolescence and/or our growth. We have and will continue to
expense all costs arising from Year 2000 issues, funding them from working
capital.

We do not believe that future expenditures to upgrade internal systems and
applications will materially harm our business. In addition, while we do not
know the potential costs of redeployment of personnel and any delays in
implementing other projects, we anticipate the costs to be immaterial and we
expect minimal adverse impact to the business.

Risks of the Year 2000 Issues

We believe our digital certificates and Internet-based trust services are
Year 2000 compliant; however, success of our Year 2000 compliance efforts may
depend on the success of our customers in dealing with Year 2000 issues. We
sell our Internet-based trust services to companies in a variety of industries
each with different issues and Year 2000 compliance challenges. Customer
difficulties with Year 2000 issues could interfere with the use of Year 2000
compliant digital certificates which might require us to devote additional
resources to resolve underlying problems. If problems exists within our
digital certificate technology as it relates to customers' management systems
and applications, our business, financial condition and results of operations
could be materially harmed. This risk is minimized by our current offering of
Year 2000 compliant test digital certificates which can validate the Year 2000
operation of customer applications and systems. However, there is no method to
determine which customers will validate their applications and systems for
Year 2000 compliance with our technology.

29
<PAGE>

Furthermore, the purchasing patterns of these customers or potential
customers may be affected by Year 2000 issues as companies expend significant
resources to become Year 2000 compliant. The costs of becoming Year 2000
compliant for current or potential customers may result in fewer funds being
available to purchase and implement our Internet-based trust services.

Contingency Plans

With the assistance of an independent consulting firm, we developed a Year
2000 project plan template. Of the template's Year 2000 recommendations,
beyond those already identified through our internal review, no additional
work was required. We have not yet developed a contingency plan for handling
Year 2000 problems that are not detected and corrected prior to their
occurrence. However, we have a comprehensive business resumption plan in the
event of a failure of our digital certificate services delivered from our
secure data centers. Upon completion of testing and implementation activities,
we will be able to assess additional areas requiring contingency planning and
we expect to institute appropriate contingency planning at that time. Any
failure to address any unforeseen Year 2000 issue could harm our business.

Liquidity and Capital Resources

Prior to our initial public offering, we financed our operations primarily
through private sales of equity securities, raising approximately $46.1
million. Our initial public offering, which closed in February 1998, yielded
net proceeds of approximately $43.7 million. At September 30, 1998, our
principal source of liquidity was $42.5 million of cash, cash equivalents and
short-term investments, consisting principally of commercial paper, medium
term notes, foreign government bonds, corporate bonds and money market funds.
We also have an equipment loan agreement under which we may borrow up to $3.0
million for purchases of equipment. This equipment loan agreement expires on
March 31, 1999. Any amounts borrowed under this equipment loan agreement would
bear interest at the rate of 7.5% per annum and would be secured by the
equipment purchased with the loan proceeds. In the event that we borrow under
this loan agreement, we would be obligated to issue to the lender a warrant to
purchase 17,500 shares of our common stock. We have no current plans to borrow
any amounts under this loan agreement.

We have had significant negative cash flows from operating activities in
each period to date. Net cash used in operating activities was $1.5 million in
1995, $6.0 million in 1996, $12.8 million in 1997 and $11.6 million in the
first nine months of 1998. Net cash used in operating activities in each of
these periods was primarily the result of net losses and increases in accounts
receivable. These amounts were partially offset in all periods by non-cash
charges and increases in accounts payable, accrued liabilities and deferred
revenue.

On July 6, 1998, we issued approximately 1,666,000 shares of our common
stock in exchange for all of the outstanding common stock of SecureIT, a
provider of Internet security products and services. The business combination
was accounted for as a pooling-of-interests, and we incurred approximately
$3.6 million for direct and other merger-related costs pertaining to the
merger transaction and certain stock-based compensation charges.

Net cash used in investing activities was $1.0 million in 1995, $4.4 million
in 1996, $15.3 million in 1997 and $20.0 million in the first nine months of
1998. Net cash used in investing activities in these periods was primarily the
result of capital expenditures for computer and communications equipment,
purchased software, office equipment, furniture, fixtures and leasehold
improvements. In addition, cash used in investing activities included net
purchases of short-term investments of $8.0 million in 1997 and $16.4 million
in the first nine months of 1998. Capital expenditures for property and
equipment totaled $1.0 million in 1995, $4.2 million in 1996, $6.8 million in
1997 and $3.5 million in the first nine months of 1998. Our planned capital
expenditures for the final three months of 1998 are approximately $1.5 million
and for 1999 are approximately $5 million to $7 million, primarily for
computer and communications equipment and leasehold improvements. As of
September 30, 1998, we also had commitments under noncancelable operating
leases for our facilities for various terms through 2005. See Note 10 of Notes
to Consolidated Financial Statements.

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<PAGE>

Net cash provided by financing activities was $5.3 million in 1995,
$37.8 million in 1996, $3.1 million in 1997 and $44.8 million in the first
nine months of 1998. In 1995 and 1996, cash was provided primarily from net
proceeds from the sale of preferred stock. In addition, net cash provided by
financing activities of VeriSign Japan was $4.2 million in 1996 and $2.5
million in 1997, resulting from the sale of capital stock to minority
investors and from the proceeds of bank borrowings. In the first nine months
of 1998, net cash provided by financing activities included $43.7 million from
our initial public offering.

We believe that the net proceeds from this offering, together with existing
cash, cash equivalents and short-term investments, will be sufficient to meet
our working capital and capital expenditure requirements for the foreseeable
future. However, at some time, we may need to raise additional funds through
public or private financing, strategic relationships or other arrangements.
Such additional funding, if needed, might not be available on terms attractive
to us, or at all. If we have to enter into strategic relationships to raise
additional funds we might be required to relinquish rights to certain of our
technologies. Our failure to raise capital when needed could materially harm
our business. If additional funds are raised through the issuance of equity
securities, the percentage of our stock owned by our then-current stockholders
would be reduced. Furthermore, such equity securities might have rights,
preferences or privileges senior to those of our common stock.

Recent Accounting Pronouncements

In March 1998, the AICPA issued SOP No. 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires entities to capitalize certain costs related to internal-use software
once certain criteria have been met. We expect that the adoption of
SOP No. 98-1 will not have a material impact on our financial position,
results of operations or cash flows. We will be required to implement SOP No.
98-1 for the year ending December 31, 1999.

In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expensed as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. We expect that the adoption of SOP No. 98-5 will not have a material
impact on our financial position, results of operations or cash flows. We will
be required to implement SOP No. 98-5 for the year ending December 31, 1999.

In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes methods for derivative financial instruments and hedging
activities related to those instruments, as well as other hedging activities.
Because we do not currently hold any derivative instruments and do not engage
in hedging activities, we expect that the adoption of SFAS No. 133 will not
have a material impact on our financial position, results of operations or
cash flows. We will be required to implement SFAS No 133 for the year ending
December 31, 2000.

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<PAGE>

BUSINESS

VeriSign is the leading provider of Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over IP networks. We have established strategic
relationships with industry leaders, including AT&T, BT, Cisco, Microsoft,
Netscape, Network Associates, RSA, Security Dynamics and VISA, to enable
widespread utilization of our digital certificate services and to assure their
interoperability with a wide variety of applications and network equipment. We
have used our secure online infrastructure to issue over 100,000 of our
website digital certificates and over 3.5 million of our digital certificates
for individuals. We believe that we have issued more digital certificates than
any other company in the world. Our Website Digital Certificate services are
used by over 400 of the Fortune 500 companies and all of the top 25 electronic
commerce websites as listed by Jupiter Communications. We also offer the
VeriSign OnSite service, which allows an organization to leverage our trusted
service infrastructure to develop and deploy customized digital certificate
services for use by its employees, customers and business partners. Over 300
enterprises have subscribed to the OnSite service since its introduction in
November 1997, including Bank of America, Hewlett-Packard, the Internal
Revenue Service, Kodak, Sumitomo Bank, Texas Instruments and USWest. We market
our Internet-based trust services worldwide through multiple distribution
channels, including the Internet, direct sales, telesales, VARs, systems
integrators and our affiliates.

Industry Background

Consumer concerns about the trustworthiness and security of the Internet
have been one of the main impediments to even faster growth of electronic
commerce and communications. Many of these concerns are caused by the
Internet's lack of physical signposts that have traditionally created trust in
everyday commerce such as face-to-face interaction, the brick and mortar of
commercial buildings and officially recognized credentials such as a business
license or a credit card. Without these signposts, consumers have worried
about the potential for merchant impersonation and fraud or the theft of
personal data, such as credit card or bank account information, as it is
transmitted over the Internet. In order for electronic commerce to overcome
these concerns, the Internet needs a cost-effective solution that can give
consumers the same sense of trust that they have when conducting commerce in
the physical world. In a manner similar to the use of physical credentials,
this solution must irrefutably verify the identity of a business over the
Internet and ensure that the information being transmitted between the
consumer and the business is kept private.

Digital certificates can provide these authentication and privacy
capabilities for consumers and businesses conducting commerce over the
Internet. Based on the principles of public key cryptography, digital
certificates are specially prepared software files that act as electronic
credentials and are unique to an individual or entity. When installed on a
website's server, a digital certificate can work with the industry standard
Secure Sockets Layer, or SSL, protocol now supported in virtually all web
browser and server applications, to confirm the identity of the business that
operates the website and to enable encryption of all information transmitted
between the website and the consumer. Website digital certificates have
already become the standard for establishing trust in retail transactions over
the Internet with more than 100,000 issued to merchants, banks and other
organizations over the last three years. There are now more than 3 million web
addresses registered in Network Solutions' "dot-com" domain name system, with
more than 1.3 million new addresses added in the first nine months of 1998.
Therefore, we believe that the need for digital certificates for website
authentication is vast.

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<PAGE>

Businesses have also begun to use IP networks for advanced interactions with
their employees, business partners and customers. As a result, there is a need
to use digital certificates as electronic credentials to verify the identity,
authority and privileges of those individuals and entities before allowing
them to access confidential information or transact new business. For example,
enterprises can issue digital certificates to individuals in order to enable
(1) employees to access privileged information on an intranet or a virtual
private network, or VPN, (2) trading partners to access an extranet for
business-to-business electronic commerce transactions or (3) customers to
access confidential account information. In addition to authentication and
privacy, many of these commercial applications also require a verifiable way
to prove that a given transaction or communication occurred. Digital
certificates are becoming the preferred solution for this need through their
capability to support the creation and use of "digital signatures." These
digital signatures are analogous to physical signatures and are viewed as a
mechanism for supporting non-repudiation in electronic commerce and
communications. This capability further strengthens the value of digital
certificates in supporting electronic commerce and communications over IP
networks.

Digital certificates provide the technological foundation of trust for
electronic commerce and communications on the Internet. There are now hundreds
of software applications and network management devices that support digital
certificates for authentication, privacy and non-repudiation. Digital
certificates are also enabled in e-mail applications, electronic payment
applications, security products and hardware devices such as routers, switches
and smart cards. Some of the industry leaders that have enabled digital
certificates in their products include 3Com, CheckPoint, Cisco, GemPlus, IBM,
Lotus, Microsoft, Netscape, Network Associates, Security Dynamics and
VeriFone. Given the cost-effective, convenient and robust nature of digital
certificates and the wide variety of software applications and network
equipment that support digital certificates, many individuals and
organizations may have multiple digital certificates issued to them. Each
digital certificate would validate their identity and authority for each of
the digital relationships they maintain (e.g. employee, customer, citizen,
account holder, etc.). As a result, there could be a need over time for
hundreds of millions of digital certificates to be issued and managed for
individuals and business entities.

Digital certificates are issued and managed by CAs. The level of trust that
can be associated with a digital certificate is ultimately tied to the
technology, infrastructure and practices used by the CA to prepare, issue and
manage the digital certificate over its lifecycle. CAs generally are divided
into two categories--public and private. Public CAs are independent third
parties that perform the appropriate due diligence to ensure that a digital
certificate subscriber's identity is valid. For example, a public CA may issue
digital certificates for website authentication after validating the
authenticity of the business and the ownership of its Internet domain name.
Private CAs generally issue digital certificates to closed communities of
users. For example, an enterprise may issue, or have issued on its behalf,
digital certificates which authenticate the authority and privilege of its
employees, business partners or customers for use in intranet, extranet and
electronic commerce applications.

In order to become a CA, an entity must have a combination of technology,
infrastructure and digital certificate management practices. Technology
requirements include knowledge and applied use of public key cryptography,
digital signatures, relational database technology, electronic messaging and
web-based programming techniques. In addition, a CA must provide full support
for the lifecycle of digital certificate services, including subscriber
enrollment, renewal, revocation and directory services. Infrastructure
requirements include computer systems, networking equipment,
telecommunications and Internet access services, 24 hour, 7 days per week
availability, customer support and substantial physical and network security
protections. Depending on the volume of digital certificates needed and the
critical nature of their use, the CA infrastructure may also need to support
high levels of scalability and redundancy, as well as disaster recovery. A
CA's requirements for the policies and practices that it uses are highly
dependent on the intended use of the digital certificates that it issues and
may include personnel screening, published operating and security policies,
periodic external and internal audits, data archiving and conformance to one
or more industry-recognized operating standards.

For organizations that need to support large quantities of digital
certificates, doing so themselves can be extremely expensive, requiring
substantial human resources and taking years and millions of dollars to

33
<PAGE>

implement. As a result, enterprises and other organizations need a better
solution for digital certificate deployment. The ideal solution would be a
complete CA service offering that could provide businesses with a scalable and
reliable CA utility to support all of their digital certificate needs
including website, intranet, extranet, VPN and electronic commerce
authentication. Such a service would provide significant advantages over an
enterprise developing and implementing its own CA service. These advantages
include faster time-to-market for digital certificate-protected services,
lower start-up and on-going costs of ownership of the CA solution, fewer
internal personnel requirements and higher overall reliability of the CA
service. In order to support the hundreds of millions of digital certificates
that may be issued globally by the many enterprises it would need to support,
the CA service provider would need to deploy and operate a robust
infrastructure, with extremely high availability, scalability, security and
performance. Given the mission critical nature of the technology and its
complexity, the service provider would also need to offer comprehensive design
and customization services, as well as training and ongoing support.

The VeriSign Solution

VeriSign is the leading provider of Internet-based trust services needed by
websites, enterprises and individuals to conduct trusted and secure electronic
commerce and communications over IP networks. VeriSign provides both public
and private CA services to organizations needing digital certificates for
website authentication, intranet and extranet access control, electronic
commerce services and VPN connections. These services are delivered over the
Internet from secure data centers that are operated by VeriSign and its
network of global affiliates, which includes as BT, CertPlus (a joint venture
among France Telecom, Gemplus and Matra Hautes Technologies) and Acer HiTrust
in Taiwan. We have used our secure online infrastructure to issue over 100,000
of our website digital certificates and over 3.5 million of our digital
certificates for individuals. We believe that we have issued more digital
certificates than any other company in the world. Our Website Digital
Certificate services are used by over 400 of the Fortune 500 companies and all
of the top 25 electronic commerce websites as listed by Jupiter
Communications. We also offer the VeriSign OnSite service, which allows an
organization to leverage our trusted service infrastructure to develop and
deploy customized digital certificate services for use by its employees,
customers and business partners. Over 300 enterprises have subscribed to the
OnSite service since its introduction in November 1997, including Bank of
America, Hewlett-Packard, the Internal Revenue Service, Kodak, Sumitomo Bank,
Texas Instruments and US West.

As the leading provider of Internet-based trust services, we have
established strategic relationships with industry leaders, including AT&T, BT,
Cisco, Microsoft, Netscape, Network Associates, RSA, Security Dynamics and
VISA, to enable the widespread utilization of our digital certificate services
and to assure their interoperability with a wide variety of applications and
network equipment. As a result, VeriSign services can be utilized with a wide
variety of software applications and network devices including millions of
deployed copies of Microsoft and Netscape browsers and tens of thousands of
copies of popular web servers, as well as network management devices such as
Cisco routers and 3Com switches. In addition, both Microsoft and Netscape have
integrated enrollment for our digital certificates into the registration
process for their web browsers and prominently feature VeriSign and our
digital certificate services in certain of their products and online service
offerings.

VeriSign has developed and deployed proprietary software, a scalable systems
infrastructure and trusted operating practices that have enabled us to provide
a CA service platform designed for the rapid deployment of large volumes of
digital certificates and the ongoing management of such digital certificates
throughout their lifecycles. These components include:

. Our Modular Software Platform. We have designed our proprietary
WorldTrust platform to provide the scalability necessary to support the
issuance and management of millions of digital certificates for distinct
communities ranging from individual corporations to the entire population
of Internet users. The WorldTrust platform automates many of the
processes for digital certificate issuance and lifecycle

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<PAGE>

management, including subscriber enrollment, authentication and
administration services. This software platform is also distributable over
one or many computer systems to enhance scalability and redundancy while
allowing certain functions of digital certificate issuance and lifecycle
management to be deployed at customer or affiliate locations. In all
configurations, the WorldTrust platform maintains a secure and reliable
link to VeriSign's data centers for digital certificate processing.

. Our Highly Reliable and Secure Operations. Our secure data centers, which
are located in Mountain View, California and Kawasaki, Japan, as well as
our international affiliates located in the U.K., France, Taiwan and
South Africa, operate on a 24 hour, 7 days per week basis and support all
aspects of issuance and management of our digital certificate services.
Through the use of state-of-the-art computer, telecommunications,
networking and security equipment, our data centers are designed to
provide the high levels of availability, security and scalability
necessary to meet the needs of customers for high volume digital
certificate issuance and lifecycle management.

. Our Comprehensive Security and Trust Practices. We have been instrumental
in defining comprehensive, industry-endorsed practices and procedures for
the legal and business frameworks in which digital certificate
relationships are established, as well as the physical security and
controls that are essential to operate secure, large-scale digital
certificate management operations. We believe that these practices and
procedures are a critical component to the creation of a digital
certificate services infrastructure.

Strategy

As the leading provider of Internet-based trust services, VeriSign's
objective is to enable secure electronic commerce and communications through a
global trusted online services infrastructure. Our strategy to achieve this
objective includes the following key elements:

. Leverage Our Leadership Position to Drive Market Penetration. We believe
that VeriSign has become the leading provider of Internet-based trust
services by being the first to market with a variety of digital
certificate services for consumers, websites, enterprises and Internet-
based service providers. We have built key strategic relationships with
industry leaders, issued more digital certificates to a broader base of
customers than any other company and enabled the interoperability of our
digital certificates in a broad variety of Internet software applications
and networking and security hardware. We have invested significant
resources in developing our comprehensive trust infrastructure. We intend
to leverage this leadership position to drive further adoption and
deployment of our digital certificate services across industries such as
telecommunications, financial services, healthcare, government and
manufacturing. In addition, we intend to maintain our first-to-market
position by applying our knowledge and experience to new services that
will leverage our trusted infrastructure and which we believe will have
significant market potential.

. Leverage and Expand Our Strategic Relationships with Industry Leaders. We
have established strategic relationships with industry leaders. We
believe that these relationships, as well as others that we intend to
pursue, will enable the widespread deployment of our Internet-based trust
services by allowing us to capitalize on the brand recognition and broad
customer bases of such strategic partners. For example, most Microsoft
and Netscape browsers and certain Cisco routers are enabled to operate
with our digital certificate services and each company prominently
features VeriSign and our digital certificate services in their sales and
marketing efforts. We believe that these types of relationships
significantly enhance market awareness of VeriSign and provide a powerful
endorsement of our digital certificate services. Certain of our strategic
relationships also involve joint marketing activities which enhance our
ability to target large customers and expand overall brand awareness. We
intend to pursue additional strategic relationships that we believe will
enhance the marketing and distribution of our digital certificate
services.

. Maintain Our Leadership in Technology, Infrastructure and Practices. We
have developed technical, operational and procedural expertise for the
widespread implementation of secure digital certificate solutions. We
intend to continue to enhance our technology, infrastructure and
distributed product architecture to provide digital certificate solutions
for a variety of industries. This includes our recently

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<PAGE>

released solutions targeted at major electronic commerce and communication
service providers with extremely high volume digital certificate issuance
requirements. In order to ensure the alignment of our technology with
emerging trends, we actively participate in industry consortia, standards-
setting organizations and other trade groups. In addition, we are
continually enhancing our internal "best practices" and controls to
maintain the physical security of our facilities, ensure quality in the
execution of our operations, verify the quality and consistency of our
services and promote the global acceptance of our digital certificate
solutions.

. Continue to Build the VeriSign Brand. We will continue to promote the
VeriSign brand as synonymous with trusted and secure electronic commerce
and communications over IP networks. In order to accelerate the
acceptance and penetration of our Internet-based trust services, we have
developed joint marketing relationships with brand leaders and intend to
pursue additional relationships with entities whose brands are well known
and widely respected. We also utilize a variety of marketing programs to
promote market awareness of VeriSign and the VeriSign brand.

. Expand Our Global Marketing and Distribution. We will continue to expand
our global marketing and distribution efforts to address the range of
markets and applications for Internet-based trust services. We intend to
add direct sales personnel and expand indirect channels, both in the U.S.
and abroad. We have leveraged our technology infrastructure to establish
digital certificate processing or service centers to date in France,
Japan, South Africa, Taiwan and the U.K. We have recently entered into an
agreement to establish an additional center in Germany. We are
aggressively pursuing additional international opportunities throughout
Europe, Asia and Latin America. We believe that this strategy affords the
opportunity to create a global VeriSign Trust Network of digital
certificate service providers operating under common technology,
operations and legal practices to provide the standard for global
interoperability.

Trust Services

VeriSign's Internet-based trust services are built upon its proprietary
WorldTrust software platform, scalable operations infrastructure and
comprehensive security and trust practices. Our secure data centers, designed
to provide carrier-class reliability with advanced security procedures, allow
the issuance and management of millions of digital certificates. Furthermore,
because we have worked with industry leaders to embed our digital certificate
interface technology into a wide range of software applications and network
equipment, such as Netscape and Microsoft browsers and servers and Cisco
routers, our services are interoperable with a wide range of IP-based
applications. By providing a trusted platform for commerce and communications,
we are able to offer services to customers with a wide range of needs. Our
service offerings are targeted towards three primary areas: Website Digital
Certificate services, Enterprise Digital Certificate services and VeriSign
Affiliate Certificate services.

Website Digital Certificate Services

VeriSign's family of Website Digital Certificate services allows
organizations to implement and operate secure websites that utilize the SSL
protocol to establish their identity to customers and other websites during
electronic commerce transactions and communications over the Internet. Prior
to issuing a digital certificate for a website's server, we establish the
authenticity of the website through a series of background checks, including
corroborating an organization's authority to do business under a given name
and their authority to operate a server with a specific domain name or URL.
These practices protect organizations against another entity impersonating
their identity and allow online visitors and customers to conduct private
transactions and communications. Without a digital certificate installed on
the website server the SSL protocol cannot be utilized.

Our Website Digital Certificate services are utilized by a broad range of
merchant, financial and government websites as well as for intranet
applications. We currently offer several distinct versions of our website
digital certificate services, each differentiated by the target application of
the server that hosts the digital certificate.

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<PAGE>

. Secure Server digital certificates constitute the core service offering
and enable websites to implement basic SSL security features between
their sites and individual end-user browsers.

. Global Server digital certificates allow U.S. corporations and certain
global financial services enterprises to offer stronger 128-bit
encrypted SSL sessions between their websites and specially configured
end-user browsers from Netscape and Microsoft.

. Financial Server digital certificates are used by financial institutions
for authentication of their websites and to enable the secure exchange
of data between these organizations and home banking, brokerage or
insurance customers.

. EDI Server digital certificates are designed for organizations or
individuals who participate in large online trading networks, support a
variety of Electronic Data Interchange (EDI) standards and potentially
require each transaction to be digitally signed to ensure non-
repudiation.

. Content Signing digital certificates enable content providers,
publishers and vendors to digitally sign their content or Internet
subscription "channels" in order to ensure authenticity and integrity of
the content delivered to end-users.

Our Website Digital Certificate services are offered on an annual
subscription basis for prices between $250 and $1,200 per server per year,
depending on the version of digital certificate requested and the overall
volume of website digital certificates used by the customer. Customers can
subscribe to the Website Digital Certificate services through the VeriSign
website, through selected international service providers or through
VeriSign's Enterprise Digital Certificate services.

Enterprise Digital Certificate Services

VeriSign's Enterprise Digital Certificate services, sold predominantly under
the VeriSign OnSite brand, are tailored to meet the specific needs of
corporations, financial institutions, government agencies and other
organizations that wish to issue digital certificates to employees, customers,
citizens or trading partners. Our OnSite service is designed to support a wide
range of digital certificate needs for both small and large user communities.
OnSite can be used by customers to provide digital certificates for a variety
of applications, including: controlling access to sensitive data and account
information, enabling digitally-signed e-mail, creating an online electronic
trading community, managing supply chain interaction or facilitating and
protecting online credit card transactions. The OnSite service is designed to
offer customers ease of use at a low initial investment combined with broad
flexibility and scalability. OnSite services vary based on the nature and
complexity of the application and the degree of control customers desire to
maintain.

To expand and complement OnSite, VeriSign's professional services group
employs experts in digital certificate architecture and application
integration. Our professional services group provides a variety of design,
development and implementation services. These services include integration
with existing applications and databases, consulting on policies and
procedures related to the management and deployment of digital certificates,
training classes on the latest developments in security technology and the
selection of enabled software and hardware to complement a digital certificate
solution.

The OnSite service is offered as an annual subscription service with pricing
dependent upon the number of users to be supported, the complexity of the
applications and the number of additional services provided. Pricing typically
ranges from $10,000 to $500,000 per year. Customers can subscribe to the
OnSite service through the VeriSign website, the direct sales force, selected
international service providers or system integrators.

VeriSign Affiliate Certificate Services

VeriSign Affiliate Certificate Services are targeted at a wide variety of
organizations that provide large-scale electronic commerce and communications
services over IP networks. Examples include telecommunications companies,
Internet Service Providers, or ISPs, financial and other professional services
firms and businesses

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<PAGE>

that operate Internet-based "communities of interest," such as a web portal.
These companies typically desire to offer digital certificate services to
their customers under either the VeriSign brand or a co-branding relationship.
In many cases, these digital certificate services are integrated with other
value-added services offered by the organization. For example, an ISP may
offer website digital certificates in conjunction with its website hosting
services for small and medium size businesses, while a community of interest
operator may offer digital certificates to each member of the community in
order to support user authentication and secure messaging services. VeriSign
designates these types of organizations "VeriSign Affiliates" and provides
them with a combination of technology, support and marketing services to
facilitate their initial deployment and on-going delivery of digital
certificate services.

VeriSign Affiliate Certificate Services are delivered through either the
VeriSign Service Center or VeriSign Processing Center offerings. Both
offerings are based on the WorldTrust software platform and enable a licensed
VeriSign Affiliate to offer one or more types of digital certificate services.

VeriSign Service Center. The VeriSign Service Center provides a VeriSign
Affiliate with all of the capabilities needed to perform subscriber
enrollment and authentication, digital certificate issuance, directory
hosting, customer support, billing integration and report generation from
within their facilities while leveraging VeriSign's secure data centers for
back-end processing.

VeriSign Processing Center. The VeriSign Processing Center provides a
VeriSign Affiliate with all of the capabilities of the Service Center plus
the WorldTrust modules required to perform all certificate processing
functions from within their own secure data center.

VeriSign also provides each VeriSign Affiliate with the appropriate business
readiness services to facilitate the efficient and timely roll-out of their
digital certificate offerings. These readiness services may include Service or
Processing Center installation and integration services, facility and network
design consulting, technical and customer support documentation and training,
sales and marketing support, operating practice templates and local market
customization.

VeriSign Affiliates that agree to conform to certain standards are also
offered membership in the global VeriSign Trust Network, an international
network of digital certificate service providers that operate with common
technology, infrastructure and practices to enable digital certificate
interoperability on a worldwide basis. Current VeriSign Trust Network members
include BT in the U.K., CertPlus in France, Acer HiTrust in Taiwan, VeriSign
Japan in Japan, and the South African Certification Authority (SACA) in South
Africa. VeriSign has also recently entered into a similar agreement with an
organization in Germany.

VeriSign Affiliates typically enter into a technology licensing and revenue
sharing agreement with VeriSign whereby VeriSign receives up-front licensing
fees for the Service Center or Processing Center technology, as well as
ongoing royalties for each digital certificate issued by the VeriSign
Affiliate. Initial licensing fees typically range from $250,000 to $2 million,
and royalties can range from 20% to 50% of the net revenue received by the
VeriSign Affiliate for each digital certificate.

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<PAGE>

Customers and Markets

VeriSign has a broad customer base from a variety of industry groups that
require trusted and secure electronic commerce and communications over IP
networks. Following is a representative list of customers that have purchased
VeriSign's services:

<TABLE>
<S> <C> <C>
Financial Services Telecommunications Manufacturing/Transportation
American Skandia AT&T CSX
Insurance BellSouth Eastman Kodak
Barclay's Bank British Ford Motor Company
Bank of America Telecommunications Gillette
Deutsche Bank Japan Communication Miller Brewing
First Union Bank MCI--Worldcom Company
First USA Paymentech NTT Communications United Parcel
Merrill Lynch US West Service
Morgan Stanley Dean
Witter
Royal Bank of Canada Technology Government
Sumitomo Bank EDS Department of
TransUnion Hewlett-Packard Agriculture
VISA Intuit Department of
Netscape Justice
NEC Federal Bureau of
NTT Data Investigation
Texas Instruments Internal Revenue
Service
National Security
Agency
Patent & Trademark
Office
Social Security
Administration
U.S. Army
Veteran's
</TABLE> Administration

VISA accounted for approximately 21% of our revenues in 1996 and 10% of our
revenues in 1997. No other customer accounted for 10% or more of our revenues
during 1995, 1996 or 1997. No customer accounted for 10% or more of our
revenues during the first nine months of 1998. VISA accounted for 12% of our
revenues for the first nine months of 1997.

The following examples illustrate how certain organizations use our
Internet-based trust services to enable trusted and secure electronic commerce
and communications. These customers have purchased VeriSign OnSite,
integration modules and professional services from VeriSign and are able to
issue digital certificates to their clients, customers or employees to
communicate and conduct transactions over IP networks.

Banking. A large U.S.-based bank provides a variety of services for
consumers, corporations and governments. The bank is utilizing IP networks and
digital certificates to provide its services to existing customers as well as
reaching new customers where physical branch locations do not exist. These
services include cash management and treasury applications for its corporate
clients, consumer-based home banking services for its customers and secure e-
mail for its employees over the Internet. We believe that providing such
services securely over IP networks will allow the bank to generate additional
revenue, reduce operating costs and improve customer service.

Global Automobile Manufacturer. A global automobile manufacturer intends to
use IP networks and digital certificates for a variety of applications
including: automating its requisition systems to eliminate paperwork;
providing single sign-on capabilities to employees for all its disparate
computer systems; participation in the Automotive Network Exchange enabling
electronic transactions with global automotive parts suppliers; and connecting
its retail dealer network to a centralized information system providing order
information and inventory status.

Global Semiconductor Manufacturer. A global semiconductor manufacturer
intends to use IP networks and digital certificates for a variety of
applications including: enabling customers to check order status; providing

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customers and design consultants secure remote access to its proprietary
design tools for the design of application specific integrated circuits; the
integration of its logistics management software with a web-based interface
enabling centralized monitoring of its global manufacturing operations; and
the implementation of secure e-mail for all of that company's global
employees.

Technology

VeriSign employs a modular set of software applications and toolkits, which
collectively make up its proprietary WorldTrust platform, as the core platform
for all of its Internet-based trust services. The modular design of the
WorldTrust platform enables our trust services to be distributed over one or
many co-located or dispersed computer systems, allowing certain functions of
the certification process, such as registration, authentication, issuance,
revocation, renewal or replacement, to be deployed at customer or affiliate
locations while maintaining a secure and reliable link to one of our secure
data centers for back-end processing. These modules can also be replicated in
order to handle increased volumes of digital certificates. Digital certificate
service modules incorporated in the WorldTrust platform include:

Subscriber Services Module. Our subscriber services module supports requests
for digital certificate issuance, revocation, renewal and replacement.
Software toolkits are provided to permit rapid customization and integration
of digital certificate services with a customer's business-specific web-based
solutions.

Authentication Services Module. Our authentication services module supports
manual, automated and delegated authentication of subscribers by designated
sources prior to digital certificate issuance. We provide software toolkits
and programming interfaces to allow for integration with various process
models and database systems.

Administration and Support Modules. Our administration and support modules
provide lifecycle services such as digital certificate revocation, renewal and
reissuance, as well as a customer support knowledge base to facilitate general
reporting of CA activity, and web-based and e-mail-based support for customers
and end users.

Directory Services Module. Our directory services module utilizes database
applications typically hosted at one of our secure data centers to support the
storage of and access to digital certificates and associated information for a
particular customer. VeriSign OnSite customers and our affiliates can also
download updated copies of their directory information to their systems.

Service Control Module. Our service control module is hosted at one of our
secure data centers and acts as a gatekeeper, decoding and routing all digital
certificate service requests based on customer type, application type,
security protocol, authentication policies, certificate content and billing
rules. This module utilizes a proprietary, data-driven programming model to
define each service and dispatch the appropriate control and error commands to
other modules.

Digital Certificate Processing Module. Our digital certificate processing
module is hosted at one of our secure data centers and creates digital
certificates with digital signatures on each certificate, delivers digital
certificates to subscribers and stores a copy of each digital certificate for
archive, audit and directory purposes.

Infrastructure

VeriSign believes that its highly reliable and scalable operations
infrastructure represents a strategic advantage in providing Internet-based
trust services. Our secure data centers are located in Mountain View,
California and Kawasaki, Japan. Our international affiliates also operate
secure data centers in their geographic areas. These centers operate on a 24
hour, 7 days per week basis and support all aspects of our Internet-based
trust services. VeriSign guarantees that a customer's services are operational
on a 24 hour, 7 days per week basis, except for scheduled downtime. By
leveraging our WorldTrust platform, we can distribute certain functionality

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of our secure data centers in optimum configurations based on customer
requirements for availability and capacity. Key features of our infrastructure
include:

Distributed Servers. We deploy a large number of high-speed servers to
support capacity and availability demands. We can add additional servers to
support increases in digital certificate volumes, new services introductions,
new customers and higher levels of redundancy without service interruptions or
response time degradation. The WorldTrust platform provides automatic fail-
over, load balancing and threshold monitoring on critical servers.

Advanced Telecommunications. We deploy and maintain redundant
telecommunications and routing hardware and maintain high-speed connections to
multiple ISPs and throughout our internal network to ensure that our mission
critical services are readily accessible to customers at all times.

Network Security. We incorporate advanced architectural concepts such as
protected domains, restricted nodes and distributed access control in our
system architecture. We have also developed proprietary communications
protocols within and between the WorldTrust platform modules that we believe
can prevent most known forms of electronic attacks. In addition, we employ the
latest network security technologies including firewalls and intrusion
detection software, and contract with security consultants who perform
periodic attacks and security risk assessments. We will continue to evaluate
and deploy new technological defenses as they become available. See "Risk
Factors--System Interruptions and Security Breaches Could Harm Our Business."

Call Center and Help Desk. We provide a wide range of customer support
services through a phone-based call center, e-mail help desk and web-based
self-help system. Our call center is staffed from 5 a.m. to 6 p.m. PST and
employs an automated call director system. The web-based support services are
available on a 24 hour, 7 days per week basis, utilizing customized auto
response systems to provide self-help recommendations and a staff of trained
customer support agents.

Disaster Recovery Plans. Although we believe our operations facilities are
highly resistant to systems failure and sabotage, we have developed a disaster
recovery and contingency operation plan. We also have an agreement with
Comdisco Corporation to provide replication of customer data, facilities and
systems at another site so that all of our services can be re-instated within
24 hours of a failure. In addition, all of our digital certificate services
are linked to advanced storage systems that provide data protection through
techniques such as mirroring and replication. See "Risk Factors--System
Interruption and Security Breaches Could Harm Our Business."

International Affiliates. VeriSign's international affiliates are required
to build, implement and maintain their infrastructure according to VeriSign's
requirements. VeriSign currently has affiliates located in France (CertPlus),
Japan (VeriSign Japan), South Africa (SACA), Taiwan (Acer HiTrust) and the
United Kingdom (BT). We have also recently entered into an agreement with an
affiliate in Germany.

Security and Trust Practices

VeriSign believes that its perceived level of trustworthiness will continue
to be a significant determining factor in the acceptance of its Internet-based
trust services. We believe that our reputation as a trusted party is based, to
a large extent, on both the security of our physical infrastructure and the
special practices used in our operations, which include our secure data
centers incorporating state-of-the-art physical and network security. We
believe we have established a leadership role in defining and adhering to
industry-endorsed trust practices and policies, a role we believe enhances our
perceived trustworthiness as a provider of Internet-based trust services. Over
the past three years, we have invested, and continue to invest, capital and
human resources in the following key areas:

Employees. We use stringent hiring and personnel management practices for
all operations and certain engineering personnel as well as all executive
management. We utilize a licensed private investigation firm to

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conduct background checks into potential employees' criminal and financial
histories and conduct periodic investigations of such personnel on an ongoing
basis.

Security Monitoring Systems. We have sophisticated access control and
monitoring systems that help prevent unauthorized access to secure areas and
provide 24 hour, 7 days per week monitoring and logging of activities within
our facilities. These systems include electronic key and biometric access
control devices, video monitoring and recording devices, deployment and
automatic arming of motion detectors, glass breakage detectors and remote
alarm system monitoring.

Site Construction. Our secure data centers have been built using
construction techniques modeled after U.S. Army specifications for facilities
accredited to handle classified information and contain a robust set of
physical and environmental defenses. These defenses include double layer,
slab-to-slab wall design, self-closing and locking metal doors at all secure
entrances, man traps, tamper proof enclosures for cryptographic materials and
fire prevention systems.

Back-up Power Systems. We have invested in back-up power systems that
automatically activate in the event of a failure in our primary power sources.
These include uninterruptible power supply systems and a diesel generator and
fuel supply. To ensure reliability, these systems are tested on a periodic
basis.

Audits. Our Practices and External Affairs Department periodically performs,
and retains accredited third parties to perform, audits of our operational
procedures under both internally-developed procedures and externally-
recognized standards.

Practices. Our Practices and External Affairs Department is responsible for
the development of VeriSign's practices for issuing and managing digital
certificates. These practices are set forth in our Certification Practice
Statement, which we provide in order to assure potential customers and
strategic partners as to the trustworthiness of our Internet-based trust
services. The Practices and External Affairs Department is also responsible
for our accountability and security controls and regularly monitors all
aspects of our secure data centers.

Policy Making Activities. The Practices and External Affairs Department also
takes a leading role in a variety of organizations that are defining standards
for trusted and secure electronic commerce and communications over IP
networks. For example, we actively participate in the United Nations
Commission on International Trade Law, which created the United Nations Model
Law on Electronic Commerce, the American Bar Association's Information
Security Committee, Section of Science and Technology, which has drafted
digital signature guidelines, the International Chamber of Commerce ETERM
Working Party, which is chaired by VeriSign's Vice President of Practices and
External Affairs, and the U.S. State Department Advisory Committee on
Electronic Commerce.

Strategic Relationships

VeriSign has established strategic relationships with leading companies
across a number of industry segments. We currently maintain strategic
relationships with AT&T, BT, Cisco, Microsoft, Netscape, Network Associates,
Security Dynamics and VISA.

AT&T. We have an agreement with AT&T in which AT&T offers our digital
certificates in conjunction with AT&T's Internet services. AT&T acts as a CA
and issues digital certificates on a co-branded basis.

British Telecommunications. BT is a member of our international affiliate
program. BT issues digital certificates and provides a range of services for
secure Internet access and electronic commerce on a co-branded basis. With our
support, BT has established CA infrastructure in the U.K., including the
creation of a secure data center that adheres to our site construction
specifications. We have agreed to collaborate to develop legal practices and
policies to maintain compliance with U.K. and European-based regulations and
standards as they emerge.

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Cisco. Our technology is incorporated in Cisco's Internetwork Operating
System through the use of the jointly developed Certificate Request Syntax
(CRS) protocol, which enables digital certificate functionality in a variety
of Cisco's networking products. As a result, IP networks utilizing Cisco
network devices such as routers and firewalls support applications that rely
on VeriSign digital certificates for authentication and network management. We
also engage in a variety of joint marketing efforts with Cisco. Cisco is one
of our stockholders.

Microsoft. We work with Microsoft to develop, promote and distribute a
variety of client-based and server-based digital certificate services and we
have been designated as the preferred provider of digital certificates for
Microsoft customers. Our technology has been embedded in Microsoft's Internet
Explorer since version 2.0, allowing users to uniquely identify themselves to
web servers and securely access information over the Internet. In addition,
users can easily obtain their own digital certificate for use with Explorer by
registering on our website for our digital certificates. We also provide
Secure Server digital certificates for Microsoft's Internet Information Server
product. VeriSign's services can be used in conjunction with Microsoft Outlook
98 to enable the delivery of secure email in extranet applications. In
addition, in September 1998, VeriSign and Microsoft announced plans for
enhanced integration of our digital certificate services with Microsoft
Exchange Server 5.5. The new capability offers a secure email extranet
"gateway" service which will allow Exchange Server customers to issue and
manage digital certificates within the global VeriSign Trust Network. VeriSign
and Microsoft also jointly promote a set of technologies and security policies
for the secure authentication and distribution of software over the Internet
and engage in other joint marketing activities. Microsoft is one of our
stockholders.

Netscape. We work with Netscape on a variety of technology projects and
joint marketing activities. Our technology has been embedded in Netscape's
Navigator since version 1.1 and in Netscape's Communicator since version 4.0.
We also have an agreement with Netscape that provides that Netscape feature us
as a premier provider of digital certificates on the Netscape website and also
provides for VeriSign to have a first right of participation for any new
Netscape products incorporating digital certificate technology. Users of
Netscape browsers can easily enroll for standard VeriSign digital certificates
using Netscape products. Netscape's SuiteSpot product, including versions with
128-bit encryption capabilities, can also utilize our Secure Server and Global
Server digital certificates. We also support Netscape's object-signing
technology, enabling software developers to digitally sign Java and JavaScript
objects in order to authenticate the developer's identity and assure end users
that the downloaded objects have not been tampered with or modified.

Network Associates. We have a strategic relationship with Network Associates
with the goal of enabling cross product support and promotion of each
company's digital certificate-based enterprise security solutions. Network
Associates' Net Tools Secure products will be able to communicate securely
with each other using our Internet-based trust services and will be enabled to
automatically administer the essential functions of running a digital
certificate infrastructure. Our digital certificate services will be used with
Network Associates' applications to allow customers to deploy and manage a
security solution in which their firewalls, security vulnerability scanners,
encryption applications and virtual private network products are integrated to
more effectively prevent security breaches. Customers utilizing this joint
product integration will be able to use our services to manage digital
certificates for Network Associates' Net Tools Secure product suite, thereby
allowing enterprise customers to establish themselves as a CA. We also engage
in a variety of joint marketing efforts with Network Associates. We currently
have no written agreement with Network Associates.

Security Dynamics. We have an agreement with Security Dynamics under which
Security Dynamics will incorporate custom digital certificate technology
developed by VeriSign into Security Dynamics' future products. Security
Dynamics has also agreed to be a reseller of certain VeriSign OEM technology.
We believe Security Dynamics is a market leader in enterprise security and
that, by including our technology in Security Dynamics' products, we will have
a broader potential market for our digital certificate services. Security
Dynamics, through a controlled entity, holds more than 5% of our common stock.
See "Certain Transactions" and "Principal and Selling Stockholders."

VISA. We have an agreement with VISA under which we provide SET digital
certificate services to VISA on behalf of its member banks, enabling them to
offer branded SET-compliant digital certificates to their cardholders and
merchants. VISA is a stockholder of VeriSign.

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Marketing, Sales and Distribution

Marketing

VeriSign utilizes a variety of marketing programs to increase brand
awareness. In addition to joint marketing arrangements, we also engage in a
variety of direct marketing programs focused on owners of web servers, home
and business PC users and enterprise professionals in mid-sized and large
organizations. We address these customers through outbound e-mail,
telemarketing and printed mail campaigns to stimulate product trial, purchase
and usage. We also use banner ads that link to our website and participate in
industry-specific events, trade shows, executive seminars, industry
association activities and various national and international standards
bodies.

Sales and Distribution

VeriSign markets its Internet-based trust services worldwide through
multiple distribution channels. These sales and service groups are based in
our headquarters in Mountain View, California, and in several field offices in
the United States. We also market our Internet-based trust services through
other distribution channels, including telesales, VARs, systems integrators
and our affiliates.

Outside the United States, VeriSign markets its Internet-based trust
services directly over the Internet and through reseller and affiliate
relationships--the global VeriSign Trust Network. Except for VeriSign Japan,
the members of the global VeriSign Trust Network sell and support VeriSign
Internet-based trust services both within their local countries and certain
other foreign countries where we do not operate through a direct sales
subsidiary. In Japan, we market our Internet-based trust services through
VeriSign Japan, which maintains a secure data center in Kawasaki, Japan, and
employed 27 persons as of September 30, 1998. Revenues from VeriSign Japan and
other international customers were 4% in 1996, 9% in 1997 and 11% for the
first nine months of 1998, respectively. See Note 12 of the Notes to the
Consolidated Financial Statements of this prospectus for a summary of
operations by geographic region.

Internet Sales. VeriSign distributes many of its Internet-based trust
services through its website. We believe that Internet distribution is
particularly well-suited for sales of certain of our website authentication
products and Internet-based trust services. We also use our website to assist
in disseminating services information and in generating services trials.

Direct Sales. VeriSign's direct sales force targets mid-sized and large
corporations, financial institutions, commercial Web sites and federal and
state government agencies. We believe that these organizations have a
substantial installed base of PCs, web servers, IP networks and high-speed
access to the Internet and are most likely to be able to benefit quickly from
the use of digital certificates. The direct sales force also targets
international organizations that we believe are the most suitable to act as
VeriSign affiliates. As of September 30, 1998, we had 90 direct sales and
sales support employees in the United States, while the international direct
sales and sales support groups consisted of 14 employees.

Telesales. During 1998 we commenced our own internal telemarketing operation
that is responsible for customer prospecting, lead generation and lead follow-
up. This marketing activity qualifies leads for further follow up by the
direct sales force or inside sales team or leads the prospect to our website
so that the prospect can access information and enroll for our Internet-based
trust services.

VARs and Systems Integrators. VeriSign works with VARs and systems
integrators to package and sell its Internet-based trust services. We also
have a VeriSign Business Partner Program that allows ISPs to offer Secure
Server digital certificates as an integral part of their secure web hosting
services.

Research and Development

We believe that our future success will depend in large part on our ability
to continue to maintain and enhance our current technologies and Internet-
based trust services. To this end, we leverage the modular nature

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of our WorldTrust platform to enable us to develop enhancements rapidly and to
deliver complementary new Internet-based trust services. In the past, we have
developed Internet-based trust services both independently and through efforts
with leading application developers and major customers. We have also, in
certain circumstances, acquired or licensed technology from third parties,
including public key cryptography technology from RSA. Although we will
continue to work closely with developers and major customers in our
development efforts, we expect that most of our future enhancements to
existing services and new Internet-based trust services will be developed
internally.

As of September 30, 1998, VeriSign had 66 employees dedicated to research
and development. We also employ independent contractors for documentation,
usability, artistic design and editorial review. Research and development
expenses were $642,000 in the period from our inception to December 31, 1995,
$2.1 million in 1996, $5.3 million in 1997 and $6.2 million in the first nine
months of 1998. To date, all development costs have been expensed as incurred.
We believe that timely development of new and enhanced Internet-based trust
services and technology are necessary to remain competitive in the
marketplace. Accordingly, VeriSign intends to continue recruiting and hiring
experienced research and development personnel and to make other investments
in research and development.

The market for digital certificate products and related services is an
emerging market characterized by rapid technological developments, frequent
new product introductions and evolving industry standards. The emerging nature
of this market and its rapid evolution will require that we continually
improve the performance, features and reliability of our Internet-based trust
services, particularly in response to competitive offerings and that we
introduce new Internet-based trust services or enhancements to existing
Internet-based trust services as quickly as possible and prior to our
competitors. The success of new introductions is dependent on several factors,
including proper new definition, timely completion and introduction of new
services, differentiation of new services from those of our competitors and
market acceptance of our new Internet-based trust services. There can be no
assurance that we will be successful in developing and marketing new Internet-
based trust services that respond to competitive and technological
developments and changing customer needs.

Our failure to develop and introduce new Internet-based trust services
successfully on a timely basis and to achieve market acceptance for such
Internet-based trust services could have a material adverse effect on our
business, operating results and financial condition. In addition, the
widespread adoption of new Internet, networking or telecommunication
technologies or standards or other technological changes could require that we
make substantial expenditures to modify or adapt our Internet-based trust
services. To the extent that a specific method other than digital certificates
is adopted to enable trusted and secure electronic commerce and communications
over IP networks, sales of VeriSign's existing and planned Internet-based
trust services would be adversely affected and our Internet-based trust
services could be rendered unmarketable or obsolete, which would have a
material adverse effect on our business, operating results and financial
condition. We believe that there is a time-limited opportunity to achieve
market share. We may not be successful in achieving widespread acceptance of
our Internet-based trust services or in achieving market share before
competitors offer products and services with features similar to our current
offerings. Any such failure by us could materially harm our business. See
"Risk Factors--Technological Changes Will Affect Our Business."

Customer Support

We believe that a high level of customer support for customers as well as
end users of digital certificates is necessary to achieve acceptance of our
Internet-based trust services. We provide a wide range of customer support
services through a staff of customer service personnel, call center, e-mail
help desk and a web-based self-help system. Since we first introduced our
Internet-based trust services over three years ago, we have developed a
substantial knowledge base of customer support information based on our
customer interactions and we believe that this offers us a competitive
advantage. Our call center is staffed from 5 a.m. to 6 p.m. PST and employs an
automated call director system to provide self-help services and, if
necessary, to route support calls to available support personnel. We also
offer web-based support services that are available on a 24 hour, 7 days

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per week basis and that are frequently updated to improve existing information
and to support new services. Our e-mail customer support service utilizes
customized auto response systems to provide self-help recommendations and also
utilizes a staff of trained customer support agents who typically respond to
customer inquiries within 24 hours. As of September 30, 1998, we had 79
employees in our customer support organization.

We also employ technical support personnel who work directly with our direct
sales force, distributors and customers of our electronic commerce and
enterprise solutions. Our annual maintenance agreements for our electronic
commerce and enterprise solutions include technical support and upgrades. We
also provide training programs for enterprise customers of our Internet-based
trust services.

Competition

Our Internet-based trust services are targeted at the new and rapidly
evolving market for trusted and secure electronic commerce and communications
over IP networks. Although the competitive environment in this market has yet
to develop fully, we anticipate that it will be intensely competitive, subject
to rapid change and significantly affected by new product and service
introductions and other market activities of industry participants.

Our principal competitors generally fall within one of three categories: (1)
companies such as Entrust Technologies which offer software applications and
related digital certificate products that customers operate themselves; (2)
companies such as Digital Signature Trust Company (a subsidiary of Zions
Bancorporation) that primarily offer digital certificate and CA related
services; and (3) companies focused on providing a bundled offering of
products and services such as GTE CyberTrust and IBM (working jointly with
Equifax). We also experience competition from a number of smaller companies,
and we believe that our primary long-term competitors may not yet have entered
the market. Netscape has introduced software products that enable the issuance
and management of digital certificates, and we believe that other companies
could introduce such products. Additional companies could offer digital
certificate solutions that are competitive with ours.

Several of our current and potential competitors have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we do and therefore may be able to respond more quickly than we
can to new or changing opportunities, technologies, standards and customer
requirements. Many of these competitors also have broader and more established
distribution channels that may be used to deliver competing products or
services directly to customers through bundling or other means. If such
competitors were to bundle competing products or services for their customers,
the demand for our products and services might be substantially reduced and
our ability to distribute our products successfully and the utilization of our
services would be substantially diminished. In addition, browser companies
that embed our interface technologies or otherwise feature VeriSign as a
provider of digital certificate solutions in their web browsers or on their
websites could also promote our competitors or charge VeriSign substantial
fees for such promotions in the future. New technologies and the expansion of
existing technologies may increase the competitive pressures on us. There can
be no assurance that competing technologies developed by others or the
emergence of new industry standards will not adversely affect our competitive
position or render our Internet-based trust services or technologies
noncompetitive or obsolete. In addition, the market for digital certificates
is nascent and is characterized by announcements of collaborative
relationships involving our competitors. The existence or announcement of such
relationships could adversely affect our ability to attract and retain
customers. As a result of the foregoing and other factors, we may not be able
to compete effectively with current or future competitors and competitive
pressures that we face could materially harm our business.

In connection with our first round of financing, RSA contributed certain
technology to us and entered into a noncompetition agreement with us pursuant
to which RSA agreed that it would not compete with our CA business for a
period of five years. This noncompetition agreement will expire in April 2000.
We believe that, because RSA, which is now a wholly-owned subsidiary of
Security Dynamics, has already developed expertise in the area of
cryptography, its barriers to entry would be lower than those that would be
encountered by our

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other potential competitors should it choose to enter any of our markets. If
RSA were to enter into the digital certificate market, our business could be
materially harmed.

Intellectual Property

We rely primarily on a combination of copyrights, trademarks, trade secret
laws, restrictions on disclosure and other methods to protect our intellectual
property and trade secrets. We also enter into confidentiality agreements with
our employees and consultants, and generally control access to and
distribution of our documentation and other proprietary information. Despite
these precautions, it may be possible for a third party to copy or otherwise
obtain and use our intellectual property or trade secrets without
authorization. In addition, there can be no assurance that others will not
independently develop substantially equivalent intellectual property. There
can be no assurance that the precautions we take will prevent misappropriation
or infringement of our technology. We have also filed five applications for
patents with respect to certain of our technology. However, the U.S. Patent
and Trademark Office may not award any patents with respect to these
applications. Even if patents are issued, they may not adequately protect this
technology from infringement or prevent others from claiming our technology
infringes that of third parties. Our failure to protect our intellectual
property in a meaningful manner could materially harm our business. In
addition, litigation may be necessary in the future to enforce our
intellectual property rights, to protect our trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of management and technical
resources, either of which could materially harm our business.

We also rely on certain licensed third-party technology, such as public key
cryptography technology licensed from RSA and other technology that is used in
our Internet-based trust services to perform key functions. In particular, RSA
has granted VeriSign a perpetual, royalty free, nonexclusive, worldwide
license to distribute Internet-based trust services we develop that contain or
incorporate the RSA BSAFE and TIPEM products and that relate to digital
certificate issuing software, software for the management of private keys and
for digitally signing computer files on behalf of others, software for
customers to preview and forward digital certificate requests to us, or such
other services that, in RSA's reasonable discretion, are reasonably necessary
for the implementation of a digital certificate business. Our agreement with
RSA also requires RSA to provide us maintenance and technical support for
these services. RSA's BSAFE product is a software tool kit that allows for the
integration of encryption and authentication features into software
applications. TIPEM is a secure e-mail development tool kit that allows for
secure e-mail messages to be sent using one vendor's e-mail product and read
by another vendor's e-mail product. These third-party technology licenses may
not continue to be available to VeriSign on commercially reasonable terms or
at all. The loss of any of these technologies could materially harm our
business. Moreover, in our current license agreements, the licensor has agreed
to defend, indemnify and hold VeriSign harmless with respect to any claim by a
third party that the licensed software infringes any patent or other
proprietary right. Although these licenses are fully paid, there can be no
assurance that the outcome of any litigation between the licensor and a third
party or between VeriSign and a third party will not lead to obligations for
us to pay royalties for which we are not indemnified or for which such
indemnification is insufficient, or that we will be able to obtain any
additional license on commercially reasonable terms or at all. In the future,
we may seek to license additional technology to incorporate in our Internet-
based trust services. Third party technology licenses that we may need to
obtain in the future may not be available to us on commercially reasonable
terms or at all. The loss of or inability to obtain or maintain any of these
technology licenses could result in delays in introduction of our Internet-
based trust services until equivalent technology, if available, is identified,
licensed and integrated. This could materially harm our business.

From time to time, we have received, and may receive in the future, notice
of claims of infringement of other parties' proprietary rights. Infringement
or other claims could be asserted or prosecuted against us in the future, and
it is possible that past or future assertions or prosecutions could harm our
business. Any such claims, with or without merit, could be time-consuming,
result in costly litigation and diversion of technical and management
personnel, cause delays in the release of new Internet-based trust services or
require us to develop non-infringing technology or enter into royalty or
licensing agreements. Such royalty or licensing agreements, if

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required, may not be available on terms acceptable to us, or at all. In the
event of a successful claim of infringement against VeriSign and our failure
or inability to develop non-infringing technology or license the infringed or
similar technology on a timely basis, our business could be materially harmed.
See "Risk Factors--There are Risks Related to Intellectual Property Rights."

Employees

As of September 30, 1998, VeriSign had 301 full-time employees. Of the
total, 101 were employed in sales and marketing, 66 in research and
development, 79 in customer support, five in practices and external affairs,
four in federal markets and 46 in finance and administration, including
information services personnel. We have never had a work stoppage, and no
employees are represented under collective bargaining agreements. We consider
our relations with our employees to be good. Our ability to achieve our
financial and operational objectives depends in large part upon our continued
ability to attract, integrate, train, retain and motivate highly qualified
sales, technical and managerial personnel, and upon the continued service of
our senior management and key sales and technical personnel, none of whom is
bound by an employment agreement. Competition for such qualified personnel in
our industry and geographical location in the San Francisco Bay Area is
intense, particularly in software development and product management
personnel. See "Risk Factors--We Depend on Key Personnel."

Facilities

VeriSign's principal administrative, sales, marketing, research and
development and operations facilities are located in two adjacent buildings in
Mountain View, California, where we occupy approximately 44,000 square feet
under leases expiring in 2001. We have leased through June 30, 2005,
additional office space contiguous to our headquarters that will be available
for occupancy in the first quarter of 1999. We believe that with this
additional space of approximately 52,000 square feet, our office space will be
adequate to meet our needs for the foreseeable future.

VeriSign also leases space for sales and support offices in Norcross,
Georgia; Rosemont, Illinois; Linthicum, Maryland; Wakefield, Massachusetts;
Novi, Michigan; Uniondale, New York; and Irving, Texas. In addition, we lease
space in Kawasaki, Japan for our offices and secure data center and we lease
space for sales and support in Upplands Vasby, Sweden. VeriSign's success is
largely dependent on the uninterrupted operation of its secure data centers
and computer and communication systems. See "Risk Factors--System
Interruptions and Security Breaches Could Harm Our Business."

48
<PAGE>

MANAGEMENT

Executive Officers and Directors

The following table sets forth certain information regarding the executive
officers and directors of VeriSign as of December 31, 1998.

<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <C> <S>
D. James Bidzos (1).............. 43 Chairman of the Board
Stratton D. Sclavos.............. 37 President, Chief Executive Officer and
Director
Jagtar S. Chaudhry............... 40 Vice President and General Manager of
Security Services
Dana L. Evan..................... 39 Vice President of Finance and
Administration
and Chief Financial Officer
Quentin P. Gallivan.............. 41 Vice President of Worldwide Sales
Arnold Schaeffer................. 35 Vice President of Engineering
Richard A. Yanowitch............. 42 Vice President of Marketing
Timothy Tomlinson (2)............ 48 Secretary and Director
William Chenevich (1)(2)......... 55 Director
Kevin R. Compton (2)............. 40 Director
David J. Cowan (1)............... 33 Director
</TABLE>
- --------
Notes: (1) Member of the Compensation Committee
(2) Member of the Audit Committee

D. James Bidzos has served as Chairman of the Board of VeriSign since its
founding in April 1995 and served as Chief Executive Officer of VeriSign from
April 1995 to July 1995. He has also served as President and Chief Executive
Officer of RSA since 1986. RSA was acquired by Security Dynamics in July 1996
and has been a wholly-owned subsidiary of Security Dynamics since that time.
Mr. Bidzos has been an Executive Vice President and a director of Security
Dynamics since its acquisition of RSA.

Stratton D. Sclavos has served as President and Chief Executive Officer and
as a director of VeriSign since he joined VeriSign in July 1995. From October
1993 to June 1995, he was Vice President, Worldwide Marketing and Sales of
Taligent, Inc., a software development company that was a joint venture among
Apple Computer, Inc., IBM and Hewlett-Packard. From May 1992 to September
1993, Mr. Sclavos was Vice President of Worldwide Sales and Business
Development of GO Corporation, a pen-based computer company. Prior to that
time, he served in various sales and marketing capacities for MIPS Computer
Systems, Inc. and Megatest Corporation. Mr. Sclavos is also a director and a
member of the compensation committee of Network Solutions, Inc. Mr. Sclavos
holds a B.S. degree in Electrical and Computer Engineering from the University
of California at Davis.

Jagtar S. Chaudhry has served as Vice President and General Manager of
Security Services of VeriSign since VeriSign acquired SecureIT in July 1998.
Mr. Chaudhry founded SecureIT in January 1997 and served as its President and
Chief Executive Officer until it was acquired by VeriSign. Prior to founding
SecureIT, from January 1995, Mr. Chaudhry served as Vice President of
Worldwide Marketing at IQ Software, a database reporting tools company. Mr.
Chaudhry was the Vice President of Sales and Marketing--Software Products
Group at Unisys from March 1993 to January 1995. Mr. Chaudhry holds a B.S.
degree in Electrical Engineering from Institute of Technology, Varanasi, India
and two M.S. degrees in Computer Engineering and Industrial Engineering, and
an M.B.A. from the University of Cincinnati.

Dana L. Evan has served as Vice President of Finance and Administration and
Chief Financial Officer of VeriSign since she joined VeriSign in June 1996.
From 1988 to June 1996, she worked as a financial consultant in the capacity
of chief financial officer, vice president of finance or corporate controller
for various public and private companies and partnerships, including VeriSign
from November 1995 to June 1996, Delphi Bioventures, a venture capital firm,
from 1988 to June 1995, and Identix Incorporated, a manufacturer of biometric
identity

49
<PAGE>

verification and imaging products, from 1991 to August 1993. Prior to 1988,
she was employed by KPMG LLP, most recently as a senior manager. Ms. Evan is a
certified public accountant and holds a B.S. degree in Commerce with a
concentration in Accounting and Finance from the University of Santa Clara.

Quentin P. Gallivan has served as Vice President of Worldwide Sales of
VeriSign since he joined VeriSign in October 1997. From April 1996 to October
1997, he was Vice President for Asia Pacific and Latin America of Netscape, a
software company. Prior to that time, Mr. Gallivan was with General Electric
Information Services, an electronic commerce services company, most recently
as Vice President, Sales and Services for the Americas.

Arnold Schaeffer has served as Vice President of Engineering of VeriSign
since he joined VeriSign in January 1996. From March 1992 to December 1995, he
was employed by Taligent, most recently as Vice President of Engineering,
CommonPoint Products. Prior to working at Taligent, he served as a software
engineer for Apple, Intellicorp and Hewlett-Packard. Mr. Schaeffer holds a
B.S. degree in Information and Computer Science from the Georgia Institute of
Technology and an M.B.A. degree from the University of California at Berkeley.

Richard A. Yanowitch has served as Vice President of Marketing of VeriSign
since he joined VeriSign in May 1996. From July 1995 to May 1996, he was a
management consultant to private software companies. From 1989 to June 1995,
he held a series of marketing positions with Sybase, Inc., a software company,
most recently as Vice President of Corporate Marketing. Prior to that time, he
held various sales, marketing and operating positions with The Santa Cruz
Operation, Inc., Digital Equipment Corporation, Lanier Harris Corporation and
Brooks International Corporation. Mr. Yanowitch holds a B.A. degree in History
from Swarthmore College and an M.B.A. degree in Entrepreneurial Management and
Marketing from Harvard Business School.

Timothy Tomlinson has been Secretary and a director of VeriSign since its
founding in April 1995. He has been a partner of Tomlinson Zisko Morosoli &
Maser LLP, a law firm, since 1983. Mr. Tomlinson is also a director of Portola
Packaging, Inc. and Oak Technology, Inc. Mr. Tomlinson holds a B.A. degree in
Economics, an M.B.A. degree and a J.D. degree from Stanford University.

William Chenevich has been a director of VeriSign since its founding in
April 1995. He has been the Group Executive Vice President, Data Processing
Systems of VISA, a financial services company, since October 1993. From May
1992 to October 1993, he was Executive Vice President and Chief Information
Officer of Ahmanson Corporation, a financial services company. Mr. Chenevich
holds a B.B.A. degree in Business and an M.B.A. degree in Management from the
City College of New York.

Kevin R. Compton has been a director of VeriSign since February 1996. He has
been a general partner of Kleiner Perkins Caufield & Byers, a venture capital
firm, since January 1990. Mr. Compton is also a director of Citrix Systems,
Inc., Corsair Communications, Inc., Digital Generation Systems, Inc. and One
World Systems, Inc. (formerly Global Village Communication, Inc.). Mr. Compton
holds a B.S. degree in Business Management from the University of Missouri.

David J. Cowan has been a director of VeriSign since its founding in April
1995. He has been a general partner of Bessemer Venture Partners, a venture
capital investment firm, since August 1996. Mr. Cowan has also been a manager
of Deer IV & Co. LLC, a venture capital investment firm, since August 1996.
Previously he was an associate with Bessemer Venture Partners from August 1992
to August 1996. Mr. Cowan also served as President and Chief Executive Officer
of Visto Corporation, a computer software and service firm, from August 1996
to April 1997, and as Chief Financial Officer of VeriSign from April 1995 to
June 1996. Mr. Cowan is also a director of Worldtalk Communications
Corporation. Mr. Cowan holds an A.B. degree in Mathematics and Computer
Science and an M.B.A. degree from Harvard University.

VeriSign's Amended and Restated Bylaws currently authorize no fewer than
five and no more than seven directors. VeriSign's Board of Directors (the
"Board") is currently comprised of six directors. One class of directors is
elected by the stockholders at each annual meeting of stockholders to serve a
three-year term or until

50
<PAGE>

their successors are duly elected and qualified. The existing directors were
elected pursuant to the provisions of the Stockholders' Agreement which has
terminated. VeriSign's Amended and Restated Bylaws divide the Board into three
classes, Class I, Class II and Class III, with members of each class serving
staggered three-year terms. The Class I directors, Messrs. Sclavos and
Tomlinson, will stand for reelection or election at the 1999 annual meeting of
stockholders. The Class II directors, Messrs. Compton and Cowan will stand for
reelection or election at the 2000 annual meeting of stockholders and the
Class III directors, Messrs. Bidzos and Chenevich will stand for reelection or
election at the 2001 annual meeting of stockholders. Executive officers are
elected by, and serve at the discretion of, the Board.

Board Committees

The Board has established an Audit Committee to meet with and consider
suggestions from members of management, as well as VeriSign's independent
accountants, concerning the financial operations of VeriSign. The Audit
Committee also has the responsibility to review audited financial statements
of VeriSign and consider and recommend the employment of, and approve the fee
arrangements with, independent accountants for both audit functions and for
advisory and other consulting services. The Audit Committee is currently
comprised of Messrs. Chenevich, Compton and Tomlinson. The Board has also
established a Compensation Committee to review and approve the compensation
and benefits for VeriSign's key executive officers, administer VeriSign's
stock purchase, equity incentive and stock option plans and make
recommendations to the Board regarding such matters. The Compensation
Committee is currently comprised of Messrs. Bidzos, Chenevich and Cowan.

Director Compensation

Directors do not receive any cash fees for their service on the Board or any
Board committee, but they are entitled to reimbursement of all reasonable out-
of-pocket expenses incurred in connection with their attendance at Board and
Board committee meetings. All Board members are eligible to receive stock
options under VeriSign's stock option plans, and outside directors receive
stock options pursuant to automatic grants of stock options under the 1998
Directors Stock Option Plan, or the Directors Plan.

In October 1997, the Board adopted, and in January 1998 the stockholders
approved, the Directors Stock Option Plan and reserved a total of 125,000
shares of VeriSign's common stock for issuance thereunder. As of December 31,
1998, options to purchase 37,500 shares of common stock had been granted under
the Directors' Plan and 87,500 shares remained available for future grant.
Members of the Board who are not employees of VeriSign, or any parent,
subsidiary or affiliate of VeriSign, are eligible to participate in the
Directors Plan. The option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of the options is 100% of the fair
market value of the common stock on the date of grant. Each new director who
is eligible to participate will initially be granted an option to purchase
15,000 shares on the date such director first becomes a director. These grants
are referred to as "Initial Grants." On each anniversary of a director's
Initial Grant or most recent grant if such director did not receive an Initial
Grant, each eligible director will automatically be granted an additional
option to purchase 7,500 shares if such director has served continuously as a
member of the Board since the date of such director's Initial Grant or most
recent grant if such director did not receive an Initial Grant. The term of
such options is ten years. They will terminate seven months following the date
the director ceases to be a director or, if VeriSign so specifies in the
grant, a consultant of VeriSign (twelve months if the termination is due to
death or disability). All options granted under the Directors Plan will vest
as to 6.25% of the shares each quarter after the date of grant, provided the
optionee continues as a director or, if VeriSign so specifies in the grant, as
a consultant of VeriSign. Additionally, immediately prior to the dissolution
or liquidation of VeriSign or a "change in control" transaction, all options
granted pursuant to the Directors Plan will accelerate and will be exercisable
for a period of up to six months following the transaction, after which period
any unexercised options will expire. In July 1998, VeriSign granted to each of
Messrs. Bidzos, Chenevich, Compton, Cowan and Tomlinson an option to purchase
7,500 shares of its common stock under the Directors Plan with an exercise
price of $39.25 per share.

Prior to the adoption of the Directors Plan, outside directors received
stock options pursuant to automatic grants under the 1995 Stock Option Plan.
In June 1997, VeriSign granted to each of Messrs. Bidzos, Compton, Cowan and
Tomlinson an option to purchase 3,500 shares of common stock under VeriSign's
1995 Stock Option

51
<PAGE>

Plan with an exercise price of $8.00 per share. In July 1996, VeriSign granted
to each of Messrs. Bidzos, Chenevich, Compton, Cowan and Tomlinson an option
to purchase 10,000 shares of common stock under VeriSign's 1995 Stock Option
Plan with an exercise price of $8.00 per share.

Compensation Committee Interlocks and Insider Participation

Mr. Bidzos, a member of the Compensation Committee, is an Executive Vice
President and a director of Security Dynamics. Mr. Bidzos and Security
Dynamics, with its wholly-owned subsidiaries, together beneficially own
approximately 16.5% of VeriSign's common stock. Mr. Bidzos also served as
VeriSign's Chief Executive Officer from April to July 1995. See "Certain
Transactions." No interlocking relationship exists between the Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has any such interlocking relationship existed in the
past.

Executive Compensation

The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to VeriSign
in all capacities during 1997 and 1998 by VeriSign's Chief Executive Officer
and the four most highly compensated executive officers, other than the Chief
Executive Officer, who were serving as executive officers at the end of 1998
(collectively, the "Named Executive Officers").

Summary Compensation Table

<TABLE>
<CAPTION>
Long-Term
Compensation
------------
Annual Compensation Awards
--------------------------------- ------------
Securities
Other Annual Underlying
Name and Principal Position Year Salary Bonus Compensation Options(#)
--------------------------- ---- -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Stratton D. Sclavos......... 1998 $250,000 $122,813(1) -- 400,000
President and Chief
Executive Officer 1997 200,000 183,022 -- 100,000
Quentin P. Gallivan......... 1998 150,000 150,000 -- 45,000
Vice President of Worldwide
Sales 1997 40,866 -- -- 115,000
Richard A. Yanowitch........ 1998 166,667 67,070(1) -- 45,000
Vice President of Marketing 1997 140,000 59,084 -- --
Dana L. Evan................ 1998 167,708 65,046(1) -- 60,000
Vice President of Finance 1997 145,000 46,349 -- 45,000
and Administration and
Chief Financial Officer
Arnold Schaeffer............ 1998 167,708 41,611(1) -- 90,000
Vice President of
Engineering 1997 145,000 30,226 -- 58,000
</TABLE>
- --------
Note: (1) Reflects actual bonuses earned and paid for the first three quarters
of 1998 and an estimate of the bonus earned for the fourth quarter
of 1998.

52
<PAGE>

Option Grants in Fiscal 1998

The following table sets forth certain information regarding stock options
granted to each of the Named Executive Officers during the year ended December
31, 1998.

<TABLE>
<CAPTION>
Individual Grants(1)
----------------------------------------------------
Potential Realizable
Value at Assumed
Number of Percent of Annual Rates of
Securities Total Options Stock Price Appreciation
Underlying Granted to Exercise For Option Terms(2)
Options Employees in Price Expiration -------------------------
Name Granted Fiscal Year(%)(3) Per Share(4) Date 5% 10%
- ---- ---------- ----------------- ------------ ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Stratton D. Sclavos..... 100,000 4.1% $30.69 10/30/05 $ 1,249,390 $ 2,911,376
100,000 4.1 49.25 12/15/05 2,004,970 4,672,432
200,000 8.2 51.13 12/18/05 5,363,008 9,701,582
Quentin P. Gallivan..... 45,000 1.8 30.69 10/30/05 562,180 1,310,119
Richard A. Yanowitch.... 45,000 1.8 30.69 10/30/05 562,180 1,310,119
Dana L. Evan............ 60,000 2.5 30.69 10/30/05 749,574 1,746,825
Arnold Schaeffer........ 90,000 3.7 30.69 10/30/05 1,124,360 2,620,238
</TABLE>
- --------
Notes: (1) Options granted in 1998 were granted under VeriSign's 1998 Equity
Incentive Plan. These options become exercisable with respect to
25% of the shares covered by the option on the first anniversary of
the date of grant and with respect to an additional 6.25% of these
shares each quarter thereafter. These options have a term of seven
years. Upon certain changes in control of VeriSign, this vesting
schedule will accelerate as to 50% of any shares that are then
unvested. See "--Employee Benefit Plans" and "--Compensation
Arrangements" for a description of the material terms of these
options.
(2) Potential realizable values are net of exercise price but before
taxes, and are based on the assumption that the common stock of
VeriSign appreciates at the annual rate shown (compounded annually)
from the date of grant until the expiration of the seven-year term.
These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect VeriSign's projection or
estimate of future stock price growth.
(3) VeriSign granted options to purchase 2,433,756 shares of common
stock to employees during 1998.
(4) Options were granted at an exercise price equal to the fair market
value per share of VeriSign common stock, as quoted on the Nasdaq
National Market System.

53
<PAGE>

Aggregate Option Exercises in Fiscal 1998 and Fiscal Year-End Option Values

The following table sets forth for each of the Named Executive Officers the
shares acquired and the value realized on each exercise of stock options
during the year ended December 31, 1998 and the year-end number and value of
exercisable and unexercisable options:

<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Options at 12/31/98(1) at 12/31/98(2)
on Value ------------------------- -------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stratton D. Sclavos..... -- $ -- 25,000 475,000 $1,303,125 $9,340,625
Quentin P. Gallivan..... 28,744 745,184 6 131,250 319 5,861,719
Richard A. Yanowitch.... -- -- -- 45,000 -- 1,279,688
Dana L. Evan............ -- -- 11,250 93,750 597,656 3,499,219
Arnold Schaeffer........ 7,000 202,988 7,500 133,500 398,438 4,870,313
</TABLE>
- --------
Notes: (1) Options shown were granted under VeriSign's 1995 Stock Option
Plan, 1997 Stock Option Plan and 1998 Equity Incentive Plan, and
are subject to vesting as described in footnote (1) to the option
grant table above. See "--Employee Benefit Plans" and "--
Compensation Arrangements" for a description of the material terms
of these options.
(2) Based on a value of $59.13, the closing price per share of
VeriSign's common stock on The Nasdaq National Market on December
31, 1998, net of the option exercise price.

No compensation intended to serve as incentive for performance to occur over
a period longer than one year was paid pursuant to a long-term incentive plan
during 1998 to any Named Executive Officer. VeriSign does not have any defined
benefit or actuarial plan under which benefits are determined primarily by
final compensation and years of service with any of the Named Executive
Officers.

Employee Benefit Plans

1995 Stock Option Plan. At December 31, 1998, options to purchase 1,420,984
shares of common stock were outstanding under the 1995 Stock Option Plan. The
1995 Stock Option Plan was terminated on January 29, 1998, the effective date
of VeriSign's initial public offering, at which time the 1998 Equity Incentive
Plan became effective. As a result, no options have been granted under the
1995 Stock Option Plan since VeriSign's initial public offering. However,
termination did not affect any outstanding options, all of which will remain
outstanding until exercised or until they terminate or expire in accordance
with their terms. Options granted under the 1995 Stock Option Plan are subject
to terms substantially similar to those described below with respect to
options to be granted under the 1998 Equity Incentive Plan.

1997 Stock Option Plan. At December 31, 1998, options to purchase 467,751
shares of common stock were outstanding under the 1997 Stock Option Plan. The
1997 Stock Option Plan was terminated on January 29, 1998, the effective date
of VeriSign's initial public offering, at which time VeriSign's 1998 Equity
Incentive Plan became effective. As a result, no options have been granted
under the 1997 Stock Option Plan since VeriSign's initial public offering.
However, termination did not affect any outstanding options, all of which will
remain outstanding until exercised or until they terminate or expire in
accordance with their terms. Options granted under the 1997 Stock Option Plan
are subject to terms substantially similar to those described below with
respect to options granted under the Equity Incentive Plan.

1998 Equity Incentive Plan. In October 1997, the Board adopted, and in
January 1998 the stockholders approved, the Equity Incentive Plan. In addition
to the 2,000,000 shares reserved for issuance under the Equity Incentive Plan,
all shares remaining available under the 1995 Stock Option Plan and the 1997
Stock Option Plan were transferred to the Equity Incentive Plan. As of
December 31, 1998, options to purchase 2,187,456 shares of common stock had
been granted under the 1998 Equity Incentive Plan and 268,221 shares remained
available for future grant. The Equity Incentive Plan will terminate in
October 2007, unless sooner terminated in

54
<PAGE>

accordance with the terms of the Equity Incentive Plan. The Equity Incentive
Plan authorizes the award of options, restricted stock awards and stock
bonuses (each an "Award"). No person will be eligible to receive more than
400,000 shares in any calendar year pursuant to Awards under the Equity
Incentive Plan other than a new employee of VeriSign who will be eligible to
receive no more than 1,000,000 shares in the calendar year in which such
employee commences employment. The Equity Incentive Plan is administered by
the Compensation Committee. The Compensation Committee has the authority to
construe and interpret the Equity Incentive Plan and any agreement made
thereunder, grant Awards and make all other determinations necessary or
advisable for the administration of the Equity Incentive Plan.

The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code,
and nonqualified stock options ("NQSOs"). ISOs may be granted only to
employees of VeriSign or of a parent or subsidiary of VeriSign. All Awards
other than ISOs may be granted to employees, officers, directors and
consultants. The exercise price of ISOs must be at least equal to the fair
market value of the common stock on the date of grant. The exercise price of
NQSOs must be at least equal to 85% of the fair market value of the common
stock on the date of grant. The maximum term of options granted under the
Equity Incentive Plan is ten years. Awards granted under the Equity Incentive
Plan generally vest as to 25% of the shares on the first anniversary of the
date of grant and as to 6.25% of the shares each of the next 12 quarters.

Options granted under the Equity Incentive Plan generally expire three
months after the termination of the optionee's service, except in the case of
death or disability, in which case the options generally may be exercised for
up to 12 months following the date of death or termination of service due to
disability. Options will generally terminate immediately upon termination for
cause. In the event of the dissolution or liquidation of VeriSign or a "change
in control" transaction, outstanding Awards may be assumed or substituted by
the successor corporation (if any). If a successor corporation does not assume
or substitute the Awards, they will expire upon the effectiveness of the
transaction. The Committee, in its discretion, may provide that the vesting of
any or all Awards will accelerate prior to the effectiveness of the
transaction.

1998 Employee Stock Purchase Plan. In December 1997, the Board adopted, and
in January 1998 the stockholders approved, the Purchase Plan and reserved
500,000 shares of common stock for issuance thereunder. As of December 31,
1998, 58,225 shares had been issued under the Purchase Plan and 441,775 shares
remained available for future issuance under the Purchase Plan. The Purchase
Plan is administered by the Compensation Committee of the Board. The
Compensation Committee has the authority to construe and interpret the
Purchase Plan. Employees generally will be eligible to participate in the
Purchase Plan if they are customarily employed by VeriSign for more than 20
hours per week and more than five months in a calendar year and are not 5%
stockholders of VeriSign. These employees may select a rate of payroll
deduction between 2% and 10% of their compensation and are subject to certain
maximum purchase limitations. Participation in the Purchase Plan will end
automatically upon termination of employment for any reason. Except for the
first offering, each offering under the Purchase Plan will be for a period of
24 months (the "Offering Period") and will consist of six-month purchase
periods (each a "Purchase Period"). The first Offering Period began on January
29, 1998 and will last until January 31, 2000. Offering Periods thereafter
will begin on February 1 and August 1. Each participant will be granted an
option on the first day of the Offering Period and such option will be
automatically exercised on the last day of each Purchase Period during the
Offering Period. The purchase price for the common stock purchased under the
Purchase Plan is 85% of the lesser of the fair market value of the common
stock on the first day of the applicable Offering Period and on the last day
of the applicable Purchase Period. The Committee will have the power to change
the duration of Offering Periods and Purchase Periods without stockholder
approval, if such change is announced at least 15 days prior to the beginning
of the Offering or Purchase Period to be affected.

The Purchase Plan is intended to qualify as an "employee stock purchase
plan" under Section 423 of the Internal Revenue Code. Rights granted under the
Purchase Plan are not transferable by a participant other than by will or the
laws of descent and distribution. The Purchase Plan provides that, in the
event of the proposed dissolution or liquidation of VeriSign, the Offering
Period will terminate immediately prior to the consummation of such proposed
action, provided that the Compensation Committee may fix a different date for
termination of

55
<PAGE>

the Purchase Plan and may give each participant the opportunity to purchase
shares under the Purchase Plan prior to such termination. The Purchase Plan
provides that, in the event of certain "change of control" transactions, the
Purchase Plan will continue for all Offering Periods that began prior to the
transaction and shares will be purchased based on the fair market value of the
surviving corporation's stock on each Purchase Date.

The Purchase Plan will terminate in December 2007, unless earlier terminated
pursuant to the terms of the Purchase Plan. The Board has the authority to
amend, terminate or extend the term of the Purchase Plan, except that no such
action may adversely affect any outstanding options previously granted under
the Purchase Plan and stockholder approval is required to increase the number
of shares that may be issued or change the terms of eligibility under the
Purchase Plan.

401(k) Plan. The Board maintains the VeriSign, Inc. 401(k) Plan (the "401(k)
Plan"), a defined contribution plan intended to qualify under Section 401 of
the Internal Revenue Code. All eligible employees who are at least 18 years
old and have been employed by VeriSign for one month may participate in the
401(k) Plan. An eligible employee of VeriSign may begin to participate in the
401(k) Plan on the first day of January, April, July or October of the plan
year coinciding with or following the date on which such employee meets the
eligibility requirements. In connection with the acquisition of SecureIT,
VeriSign added an additional enrollment date in August 1998. A participating
employee may make pre-tax contributions of a whole percentage (not more than
15%) of his or her eligible compensation and up to 100% of any cash bonus,
subject to limitations under the federal tax laws ($10,000 in 1998). Employee
contributions and the investment earnings thereon are fully vested at all
times. The 401(k) Plan permits, but does not require, additional matching and
profit-sharing contributions by VeriSign on behalf of the participants.
VeriSign has not made matching or profit-sharing contributions. Contributions
by employees or VeriSign to the 401(k) Plan, and income earned on plan
contributions, are generally not taxable to employees until withdrawn, and
contributions by VeriSign, if any, should be deductible by VeriSign when made.
The trustee under the 401(k) Plan, at the direction of each participant,
invests the assets of the 401(k) Plan in selected investment options.

Executive Loan Program of 1996. In November 1996, the Compensation Committee
adopted VeriSign's Executive Loan Program of 1996 (the "Executive Loan
Program"). Pursuant to the Executive Loan Program, VeriSign's Chief Executive
Officer and each Vice President (each a "Qualified Borrower") are each
entitled to borrow an aggregate of up to $250,000 from VeriSign. Each loan
made under the Executive Loan Program is a full recourse loan and bears
interest at the then-minimum interest rate to avoid imputation of income under
federal, state and local tax laws. Interest on any loan made under the
Executive Loan Program is due and payable on December 31 of each year in which
such loan is outstanding. Principal and accrued interest are payable in full
on any such loan upon the earlier of December 31, 2005 or 90 days after the
termination of the Qualified Borrower's employment, unless extended by a
separate written agreement approved by the Board. Each loan made under the
Executive Loan Program must be secured by collateral represented by common
stock or other marketable securities acceptable to the Board having a fair
market value equaling or exceeding the principal amount of the loan.

Compensation Arrangements

Mr. Sclavos's employment offer letter of June 1995, as amended in October
1995, provided for an initial annual salary of $175,000 and an initial annual
bonus of up to $50,000 per year. In addition, it provided for a loan to Mr.
Sclavos of $48,000 which was to be forgiven after the first anniversary of Mr.
Sclavos's employment with VeriSign. This loan was forgiven by the Board in
October 1996. Mr. Sclavos was also granted an option to purchase 616,000
shares of common stock with an exercise price of $.12 per share. In October
1996, this option was amended such that it became immediately exercisable. Mr.
Sclavos exercised this option in full in November 1996. In connection with
this exercise, VeriSign loaned Mr. Sclavos $73,920 pursuant to the terms of
the Executive Loan Program, representing the full exercise price of such
option. Mr. Sclavos has repaid in full his loan under the Executive Loan
Program. As of December 31, 1998, 115,500 of the shares Mr. Sclavos received
upon exercise of the option were subject to a right of repurchase on behalf of
VeriSign. This right lapses as to 38,500 shares per quarter. Mr. Sclavos's
employment is "at will" and thus can be terminated at any time, with or
without cause.

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<PAGE>

Dana L. Evan, Arnold Schaeffer and Richard A. Yanowitch were granted options
to purchase 170,000, 200,000 and 290,000 shares, respectively, of common stock
under the 1995 Stock Option Plan, at exercise prices ranging from $.12 to
$6.00. Each of these options is subject to the standard four-year vesting
schedule under the 1995 Stock Option Plan or, in certain circumstances, is
immediately exercisable, subject to VeriSign's right to repurchase shares
subject to such options, which repurchase right lapses on a schedule similar
to the vesting schedule for options granted under the 1995 Stock Option Plan.
However, upon the occurrence of certain change-in-control transactions, 50% of
each such Named Executive Officer's then-unvested options will become vested
or, if applicable, the right of repurchase will lapse as to 50% of the shares
covered by such right of repurchase.

Indemnification of Directors and Executive Officers and Limitation of
Liability

As permitted by the Delaware General Corporation Law (the "DGCL"),
VeriSign's Certificate of Incorporation, includes a provision that eliminates
the personal liability of its directors for monetary damages for breach of
fiduciary duty as a director, except for liability:

. for any breach of the director's duty of loyalty to VeriSign or its
stockholders;

. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;

. under section 174 of the DGCL (regarding unlawful dividends and stock
purchases); or

. for any transaction from which the director derived an improper personal
benefit.

As permitted by the DGCL, VeriSign's Amended and Restated Bylaws provide
that:

. VeriSign must indemnify its directors and officers to the fullest extent
permitted by the DGCL, subject to certain very limited exceptions;

. VeriSign may indemnify its other employees and agents to the extent that
it indemnifies its officers and directors, unless otherwise required by
law, its Certificate of Incorporation, its Amended and Restated Bylaws,
or agreement;

. VeriSign is required to advance expenses, as incurred, to its directors
and executive officers in connection with a legal proceeding to the
fullest extent permitted by the DGCL, subject to certain very limited
exceptions; and

. the rights conferred in the Amended and Restated Bylaws are not
exclusive.

VeriSign has entered into Indemnification Agreements with each of its
current directors and certain of its executive officers and intends to enter
into such Indemnification Agreements with each of its other executive officers
to give such directors and executive officers additional contractual
assurances regarding the scope of the indemnification set forth in the
Certificate of Incorporation and Amended and Restated Bylaws and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of VeriSign regarding
which indemnification is sought, nor is VeriSign aware of any threatened
litigation that may result in claims for indemnification.

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<PAGE>

CERTAIN TRANSACTIONS

In April 1995, VeriSign sold an aggregate of 4,688,333 shares of common
stock at a purchase price of $.12 per share to certain individuals and
entities. Among the purchasers was RSA, which acquired 4,000,000 shares. In
consideration for these shares, RSA assigned and transferred to VeriSign
equipment, assets and technology, which assets and technology included certain
specified software developed or under development by RSA relating to digital
certificate issuance and management, certain tangible personal property,
consisting mostly of computer and communications equipment, and all of RSA's
right, title and interest in certain specified agreements to provide digital
certificate services.

In connection with the contribution of these assets to VeriSign, RSA entered
into a BSAFE/TIPEM OEM Master License Agreement with VeriSign. VeriSign was
granted a perpetual, royalty free, nonexclusive, worldwide license to other
services that VeriSign develops that contain or incorporate the RSA BSAFE and
TIPEM products and that relate to digital certificate issuing software,
software for the management of private keys and for digitally signing computer
files on behalf of others, software for customers to preview and forward
digital certificate requests to VeriSign, or such other products that, in
RSA's reasonable discretion, are reasonably necessary for the implementation
of a digital certificate business. RSA is also required to provide VeriSign
with maintenance and technical support for these products. RSA's BSAFE product
is a software tool kit that allows for the integration of encryption and
authentication features into software applications and TIPEM is a secure
e-mail development tool kit that allows for secure e-mail messages to be sent
using one vendor's e-mail product and read by another vendor's e-mail product.
In December 1998, VeriSign and RSA amended the BSAFE/TIPEM OEM Master License
Agreement to provide that VeriSign will subscribe to RSA's maintenance program
and pay to RSA a yearly maintenance fee equal to 50% of RSA's standard
published maintenance fees. In addition, RSA will have the right to include
root keys other than VeriSign's in products manufactured by third parties that
include RSA products which process digital certificates.

Also in connection with this contribution of assets, RSA entered into a Non-
Compete and Non-Solicitation Agreement pursuant to which RSA agreed, for a
five-year period, not to compete with VeriSign's CA business.

Since January 1, 1996, there has not been nor is there currently proposed,
any transaction or series of similar transactions to which VeriSign or any of
its subsidiaries was or is to be a party in which the amount involved exceeded
or will exceed $60,000 and in which any director, executive officer, holder of
more than 5% of the common stock of VeriSign or any member of the immediate
family of any of the foregoing persons had or will have a direct or indirect
material interest other than (1) compensation agreements and other
arrangements, which are described where required in "Management," and (2) the
transactions described below.

Transactions with Directors, Executive Officers and 5% Stockholders

Prior to its initial public offering, VeriSign financed operations through a
series of private common stock and preferred stock financings. All shares of
preferred stock converted into shares of common stock at a conversion rate of
one share of common stock for each share of preferred stock upon the closing
of VeriSign's initial public offering in February 1998.

Series B Preferred Stock. In February 1996, VeriSign sold an aggregate of
2,099,123 shares of Series B Preferred Stock at a cash purchase price of $2.45
per share to 12 entities. Among the purchasers were the following 5%
stockholders and entities affiliated with directors of VeriSign, who purchased
the number of shares set forth opposite their respective names: Kleiner
Perkins Caufield & Byers VII--1,153,207 shares; Bessemer Venture Partners
DCI--187,819 shares; KPCB VII Founders Fund--125,947 shares; Security
Dynamics-- 72,026 shares; KPCB Information Science Zaibatsu Fund II--32,799
shares; and First TZMM Investment Partnership--17,554 shares. Mr. Compton, a
director of VeriSign, is a general partner of the general partner of Kleiner
Perkins Caufield & Byers VII, KPCB VII Founders Fund and KPCB Information
Science Zaibatsu Fund II.

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<PAGE>

Co-Sale Agreement. In February 1996, VeriSign, each of the purchasers of
Series B Preferred Stock and RSA entered into a Co-Sale Agreement, pursuant to
which the holders of Series B Preferred Stock were granted rights to
participate in certain sales of capital stock of VeriSign owned by RSA. Such
co-sale rights terminated upon the closing of VeriSign's initial public
offering.

Investors' Rights Agreement. In November 1996, VeriSign, all of the current
holders of preferred stock and the purchasers of common stock in April 1995
entered into an Amended and Restated Investors' Rights Agreement (the
"Investors' Rights Agreement") pursuant to which the holders of all such
preferred or common stock (the "Investors") have certain registration rights
with respect to their shares of common stock following this offering. See
"Description of Capital Stock--Registration Rights." Pursuant to the terms of
the Investors' Rights Agreement, each of the Investors and Stratton Sclavos,
VeriSign's President and Chief Executive Officer and a director of VeriSign,
were granted a right of first offer with respect to certain future sales of
securities by VeriSign.

Officer Loans. In November 1996, in connection with the exercise of stock
options granted under the 1995 Stock Option Plan, VeriSign permitted three
executive officers, Richard A. Yanowitch, Dana L. Evan and Stratton D. Sclavos
to purchase shares of common stock in exchange for promissory notes issued
under its Executive Loan Program in the amounts of $217,500, $93,750 and
$73,920, respectively. See "Management--Employee Benefit Plans--Executive Loan
Program of 1996." Each note is a recourse note that is secured by the shares
purchased with that note. The notes bear interest at the rate of 6.95% per
annum, payable on December 31 of each year, and are due and payable on the
earlier of December 31, 2005 or the date the borrowers' employment
relationship with VeriSign is terminated, unless otherwise extended by a
separate written agreement approved by the Board. During 1997 and 1998,
VeriSign paid bonuses in the amount of the interest accrued under each such
executive officer's promissory note. Mr. Yanowitch received bonuses of $23,603
in 1997 and $19,857 in 1998. Ms. Evan received bonuses of $10,174 in 1997 and
$6,904 in 1998. Mr. Sclavos received bonuses of $8,022 in 1997 and $5,625 in
1998. Mr. Sclavos and Ms. Evan have repaid their loans in full.

Development Agreement. In September 1997, VeriSign and Security Dynamics,
the parent company of RSA, entered into a Master Development and License
Agreement (the "Development Agreement"). Mr. Bidzos, the Chairman of the Board
of VeriSign, is also a director of Security Dynamics. Pursuant to the
Development Agreement, VeriSign will develop a customized CA service based
upon VeriSign's WorldTrust platform in order to enable Security Dynamics to
offer a product with encryption and digital certificate functionality.
VeriSign has retained the ownership rights to the technology developed under
this agreement, except to the extent such technology constitutes derivatives
of Security Dynamics's pre-existing technology or such technology is solely
created by Security Dynamics. However, VeriSign granted Security Dynamics a
non-exclusive, royalty-free, perpetual, worldwide license to VeriSign's
intellectual property rights in VeriSign technology to the extent that the
technology is incorporated in the customized product being developed for
Security Dynamics, for the purpose of facilitating Security Dynamics'
derivative works or distributing the customized product to end users.

In December 1998, VeriSign and Security Dynamics amended the Development
Agreement to grant Security Dynamics an exclusive license to incorporate the
developed technology into original equipment manufacturers', or OEMs, products
in order to create products incorporating the technology and to sublicense the
technology to licensees of the OEMs. In addition, VeriSign will use its best
efforts to transfer customer support services to Security Dynamics and to
assist in transferring its sales prospects to Security Dynamics.

The Development Agreement provides that Security Dynamics will pay VeriSign
an aggregate of $2.7 million as an initial license fee, $900,000 of which was
paid in October 1997 and $1.4 million of which was paid during 1998. The
remaining $360,000 is scheduled to be paid upon completion of a milestone
during early 1999. At the time of the execution of the amendment in December
1998, Security Dynamics paid VeriSign $500,000. Once Security Dynamics has
received net revenues of $2.8 million from OEMs, it will pay VeriSign a
royalty equal to 18% of net revenues from the sale to OEMs or, if it is
greater, 18% of 60% of the current list price for the product. Security
Dynamics will not be obligated to pay any royalties to VeriSign with respect
to sales to VARs.

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<PAGE>

In order for Security Dynamics to maintain its exclusivity rights, it must
make aggregate annual payments, which will be paid on a quarterly basis, of:
(1) $1.1 million during the first year of the agreement; (2) $2.3 million
during the second year of the agreement; (3) $3.0 million during the third
year of the agreement; and (4) $4.0 million during each of the fourth and
fifth years of the agreement.

Security Dynamics may also elect not to maintain the exclusivity so long as
it gives 90 days notice prior to the end of a year and also pays to VeriSign
an amount equal to the remaining pre-payments to be made during that year as
well as an amount equal to the first two quarterly payments due for the
subsequent year.

In addition VeriSign will be obligated to pay Security Dynamics an amount
equal to 8% of net revenue recognized by VeriSign during a VeriSign OnSite
customer's first year using VeriSign OnSite if the new VeriSign OnSite
customer had previously purchased products from Security Dynamics which
incorporate the developed technology.

Commencing in March 1998, Security Dynamics is also required to pay VeriSign
a monthly product support fee for a three-year period, and thereafter for
successive annual terms. Either of the parties may elect to terminate such
product support within 60 days prior to the end of the term. Security Dynamics
may terminate support services at any time on 60 days prior written notice to
VeriSign. For a yearly fee, Security Dynamics can purchase product maintenance
services. During 1998 Security Dynamics paid both support and maintenance
fees, which were $105,000 in the aggregate. If Security Dynamics pays both
support and maintenance fees in future periods, such fees would aggregate
approximately $195,000 for a one-year period. For so long as Security Dynamics
is paying such maintenance fees, VeriSign will be obligated, at no additional
cost, to provide Security Dynamics with updates and enhancements that VeriSign
develops to the customized product and with non-exclusive first-to-market
access to new technologies developed by VeriSign that are relevant to the
business of providing enterprise security solutions or solutions for secure
business communications. VeriSign is also obligated, upon the request of
Security Dynamics, to make VeriSign's other technology available to Security
Dynamics and to offer maintenance after the term of the agreement on certain
"most favored pricing" terms.

VeriSign believes that the terms of the Development Agreement, taken as a
whole, were no less favorable to VeriSign than VeriSign could have obtained
from unaffiliated third parties.

Sublease with Security Dynamics. Since September 1996, VeriSign has sublet
approximately 12,700 square feet of space for its offices in Cambridge,
Massachusetts. This space is subleased from Security Dynamics pursuant to a
sublease that expired in March 1998. VeriSign made lease payments to Security
Dynamics of $17,646 during 1996, $179,000 during 1997 and $4,825 during 1998.
VeriSign also paid all electricity, heating, ventilation and air conditioning
costs for the subleased premises.

Acquisition of SecureIT, Inc. In July 1998, VeriSign acquired SecureIT. In
connection with this acquisition, VeriSign issued approximately 1,666,000
shares of its common stock in exchange for all of the issued and outstanding
capital stock of SecureIT. Jagtar S. Chaudhry, the Vice President and General
Manager of Security Services of VeriSign, received 210,951 shares of
VeriSign's common stock in exchange for his shares of SecureIT stock. P. Jyoti
Chaudhry, his wife, received 1,071,239 shares of VeriSign common stock in
exchange for her shares of SecureIT stock. Three Chaudhry Family Trusts
received 65,922 shares of VeriSign common stock in exchange for their SecureIT
stock and a fourth Chaudhry Family Trust received 3,296 shares of VeriSign
common stock in exchange for its shares of SecureIT stock. In addition,
VeriSign granted the former shareholders of SecureIT certain registration
rights with respect to the VeriSign common stock they received in the
transaction. See "Description of Capital Stock--Registration Rights."

Of the 1,666,186 shares issued in the SecureIT acquisition, 176,619 shares
are being held in escrow to secure the indemnification obligations under the
Agreement and Plan of Reorganization relating to the acquisition of SecureIT.
Of these shares, 10,000 are being held to secure an indemnification obligation
with respect to income taxation, which we refer to as the "Tax Escrow." These
escrow shares were withheld from the shares distributed to the former SecureIT
shareholders on a pro-rata basis based on their ownership of SecureIT

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<PAGE>

shares. This escrow will terminate on May 1, 1999. However, the escrow will
terminate with respect to the Tax Escrow when the applicable statute of
limitations pertaining to any taxes due expires.

VeriSign also entered into an Employment and Non-Competition Agreement with
Mr. Chaudhry. This employment agreement, which became effective on July 6,
1998, has a term of one-year and provides for a minimum annual base salary of
$125,000. In addition, Mr. Chaudhry will be eligible to receive an annual
bonus in an amount up to 30% of his base salary. Mr. Chaudhry was also granted
an option to purchase 100,000 shares of common stock at an exercise price of
$27.50 per share. In the event Mr. Chaudhry's employment is terminated without
cause or upon a "constructive termination" of his employment, he will be
entitled to receive the base salary remaining to be paid to him for the term
of the employment agreement. Once the initial term of this employment
agreement expires, Mr. Chaudhry's employment will be on an "at-will" basis.

Certain Business Relationships

Legal Fees. During 1996, 1997 and 1998, the law firm of Tomlinson Zisko
Morosoli & Maser LLP, of which Mr. Tomlinson is a partner, provided legal
services to VeriSign on a variety of matters. VeriSign paid to or accrued for
Tomlinson Zisko Morosoli & Maser LLP an aggregate of $344,120 in 1996,
$239,051 in 1997 and approximately $617,000 in 1998.

VeriSign believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable to VeriSign than VeriSign
could have obtained from unaffiliated third parties.

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PRINCIPAL AND SELLING STOCKHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of VeriSign's common stock as of December 31, 1998 and as
adjusted to reflect the sale of the shares of common stock offered hereby by:
(i) each person who is known by VeriSign to own beneficially more than 5% of
VeriSign's common stock, (ii) each director of VeriSign, (iii) each of the
Named Executive Officers, (iv) all directors and executive officers of
VeriSign as a group and (v) each Selling Stockholder.

<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Number of Owned After Offering
---------------------------- Shares --------------------
Name of Beneficial Owner Number Percent(1) Being Offered Number Percent(2)
- ------------------------ -------------- ------------- ------------- --------- ----------
Named Executive Officers, Directors and 5%
Stockholders
- ------------------------------------------
<S> <C> <C> <C> <C> <C>
D. James Bidzos (3)....................... 3,811,674 16.5% 20,000 2,791,674 11.5%
Security Dynamics Technologies, Inc. (3).. 3,611,591 15.6 1,000,000 2,611,591 10.8
Jagtar Chaudhry (4)....................... 1,483,252 6.4 269,436 1,113,816 4.6
William Chenevich (5)..................... 604,115 2.6 -- 604,115 2.5
Stratton D. Sclavos (6)................... 502,250 2.2 53,153 449,097 1.8
Kevin R. Compton (7)...................... 462,360 2.0 -- 462,360 1.9
David J. Cowan (8)........................ 284,189 1.2 -- 284,189 1.2
Richard A. Yanowitch (9).................. 229,997 1.0 23,153 206,844 *
Arnold Schaeffer (10)..................... 115,625 * 23,153 92,472 *
Dana L. Evan (11)......................... 107,963 * 23,153 84,810 *
Quentin P. Gallivan (12).................. 13,438 * 7,388 6,050 *
Timothy Tomlinson (13).................... 23,269 * -- 23,269 *
All officers and directors as a group
(11 persons) (14)........................ 7,638,132 32.9 1,419,436 6,118,696 25.1
<CAPTION>
Other Selling Stockholders
- --------------------------
<S> <C> <C> <C> <C> <C>
P. Jyoti Chaudhry (4)..................... 1,483,252 6.4 100,000 1,113,816 4.6
Jay W. Johnson ........................... 97,531 * 22,040 75,491 *
George and Lana Valente Foundation ....... 82,403 * 20,524 61,879 *
Messiah Lutheran Church................... 3,000 * 3,000 -- *
</TABLE>
- --------
* Less than 1% of VeriSign's outstanding common stock

Notes: (1) Percentage ownership is based on 23,086,692 outstanding as of
December 31, 1998, and 24,271,692 shares outstanding after the
offering. Shares of common stock subject to options currently
exercisable or exercisable within 60 days of December 31, 1998, are
deemed outstanding for the purpose of computing the percentage
ownership of the person holding such options but are not deemed
outstanding for computing the percentage ownership of any other
person. Unless otherwise indicated below, the persons and entities
named in the table have sole voting and sole investment power with
respect to all shares beneficially owned, subject to community
property laws where applicable.

(2) Assumes the underwriters' over-allotment option to purchase 412,500
shares of common stock is not exercised.

(3) Represents 3,611,591 shares held of record by Security Dynamics or
by wholly-owned subsidiaries thereof, 93,000 shares held of record
by D. James Bidzos, 83,750 shares held of record by Kairdos L.L.C.
and 23,333 shares subject to options held of record by D. James
Bidzos that are exercisable within 60 days of December 31, 1998.
The number of shares being offered represents 10,000 shares offered
for the account of Mr. Bidzos and 10,000 shares offered for the
account of Kairdos L.L.C. Mr. Bidzos, the Chairman of the Board of
VeriSign, is the President of RSA, an Executive Vice President and
a director of Security Dynamics and the General Manager and a
member of Kairdos L.L.C. Mr. Bidzos disclaims beneficial ownership
of the shares held by Kairdos L.L.C. except for

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<PAGE>

his proportional interest therein, and disclaims beneficial ownership
of the shares held by Security Dynamics or its wholly-owned
subsidiaries. The address for Mr. Bidzos and Security Dynamics is
20 Crosby Drive, Bedford, Massachusetts 01730.

(4) Represents 60,951 shares held by Jagtar Chaudhry, 921,239 shares
held by P. Jyoti Chaudhry, his wife, 300,000 shares held by
Chaudhry Enterprises and 65,922, 65,922, 65,922 and 3,296 shares
held by four Chaudhry Family Trusts for the benefit of Simran D.
Chaudhry, Yash P. Chaudhry, Samir R. Chaudhry and Manpreet Bains,
respectively. Jagtar Chaudhry is the Vice President of and General
Manager of Security Services of VeriSign.

Includes an aggregate of 519,000 shares subject to the "zero-cost
collar" arrangements described below. Mr. Chaudhry's wife and the
trusts for the benefit of Simran Chaudhry, Yash P. Chaudhry and
Samir R. Chaudhry entered into "zero-cost collar" arrangements
pursuant to which such person wrote a call option and purchased a
put option. These options become exercisable on January 5, 2000 and
also expire on that date. Only one of the options can be "in the
money" on the expiration date, at which time, the "in the money"
option will be exercised and settled for cash and the other option
will expire. If neither option is "in the money," both options will
expire. Mr. Chaudhry's wife entered into such an arrangement with
respect to 342,198 shares and each of the trusts entered into an
arrangement with respect to 58,934 shares.

Also includes 143,238 shares held by Mr. and Mrs. Chaudhry, the
Chaudhry Family Trusts and Chaudhry Enterprises which are subject
to the escrow to secure the indemnification obligations contained
in the Agreement and Plan of Reorganization relating to the
acquisition of SecureIT. The escrow is described under "Certain
Transactions." The address for P. Jyoti and Jagtar Chaudhry,
Chaudhry Enterprises and the Chaudhry Family Trusts is c/o
SecureIT, 5550 Triangle Parkway Suite 100, Norcross, Georgia 30092.

The number of shares being offered represents 100,000 shares
offered for the account of Mrs. Chaudhry, 266,489 shares offered
for the account of Chaudhry Enterprises and 2,947 shares offered
for the account of the Chaudhry Family Trust for the benefit of
Manpreet Bains.

(5) Represents 594,052 shares held by VISA International Service
Association, 7,563 shares subject to options held of record by VISA
International Service Association that are exercisable with 60 days
of December 31, 1998, and 2,500 shares held of record by William
Chenovich, director of VeriSign. Mr. Chenevich is the Group
Executive Vice President, Data Processing Systems of VISA.

(6) Includes 5,000 shares held of record by Stratton or Jody Sclavos as
Custodians under UTMA for Nicholas L. Sclavos, 5,000 shares held of
record by Stratton or Jody Sclavos as Custodians under UTMA for
Alexandra C. Sclavos and an aggregated 2,010 shares held in trust
for the six nieces and nephews of Stratton Sclavos. Also includes
31,250 shares subject to options held of record by Stratton D.
Sclavos that are exercisable within 60 days of December 31, 1998.
Mr. Sclavos is President, Chief Executive Officer and a director of
VeriSign. Of the shares shown in the table, as of December 31,
1998, 115,500 were subject to a repurchase right that lapses as to
38,500 of the shares each quarter.

The number of shares being offered represents 43,143 shares offered
for the account of Mr. Sclavos, 4,000 shares offered for the
account of Stratton or Jody Sclavos as Custodians under UTMA for
Alexandra C. Sclavos, 4,000 shares offered for the account of
Stratton or Jody Sclavos as Custodians under UTMA for Nicholas L.
Sclavos and an additional 2,010 shares, representing 335 shares
offered for the accounts of each of the six nieces and nephews of
Mr. Sclavos.

(7) Represents 437,318 shares held of record by Kleiner Perkins
Caufield & Byers VII L.P., 16,541 shares held of record by Kevin
Compton, 6,250 shares subject to options held of record by Kevin
Compton that are exercisable within 60 days of December 31, 1998,
and 2,251 shares subject to options held of record by Kleiner
Perkins Caufield & Byers VII L.P. that are exercisable within 60
days of December 31, 1998. Mr. Compton, a director of VeriSign, is
a general partner of the general partner of each of these entities.
Mr. Compton disclaims beneficial ownership of shares held by such

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<PAGE>

entities except for his proportional interest therein. The address
for Mr. Compton and these entities is c/o Kleiner Perkins Caufield
& Byers, 2750 Sand Hill Road, Menlo Park, California 94025.

(8) Represents 247,966 shares held of record by Bessemer Venture
Partners DCI, 3,750 shares held by Deer III & Co. and 7,563 shares
subject to options held of record by Deer III & Co. LLC that are
exercisable within 60 days of December 31, 1998. Mr. Cowan, a
director of VeriSign, is a general partner of the general partner
of Bessemer Venture Partners DCI and is a manager of Deer III & Co.
LLC. Mr. Cowan disclaims beneficial ownership of shares held by
Bessemer Venture Partners DCI except for his proportional interest
therein. The address for Mr. Cowan and Bessemer Venture Partners
DCI is 535 Middlefield Road, Menlo Park, California 94025.

(9) Mr. Yanowitch is Vice President of Marketing of VeriSign. Of the
shares shown in the table, as of December 31, 1998, 108,750 were
subject to a repurchase right that lapses as to 18,125 of the
shares each quarter.

(10) Includes 11,125 shares subject to options held of record by Arnold
Schaeffer that are exercisable within 60 days of December 31, 1998.
Mr. Schaeffer is Vice President of Engineering of VeriSign. Of the
shares shown in the table, as of December 31, 1998, 45,000 were
subject to a repurchase right that lapses as to 8,875 of the shares
each quarter.

(11) Includes 5,000 shares held of record by Ms. Evan as Custodian under
UTMA for Christopher Thomas Evan, 5,000 shares held of record by
Ms. Evan as Custodian under UTMA for Ryan Joseph Evan and 14,063
shares subject to options held of record by Dana Evan that are
exercisable within 60 days of December 31, 1998. Ms. Evan is Vice
President of Finance and Administration and Chief Financial Officer
of VeriSign. Of the shares shown in the table, as of December 31,
1998, 46,875 were subject to a repurchase right that lapses as to
7,812 of the shares each quarter.

(12) Includes 7,194 shares subject to options held of record by Quentin
Gallivan that are exercisable within 60 days of December 31, 1998.
Mr. Gallivan is Vice President of Worldwide Sales of VeriSign.

(13) Includes 500 shares held of record by the Joy E. Tomlinson 1996
Trust, 500 shares held of record by the Tucker Tomlinson 1996 Trust
and 3,813 shares subject to options held of record by TZM
Investment Fund that are exercisable within 60 days of December 31,
1998. Mr. Tomlinson is a general partner of TZM Investment Fund and
a trustee of each trust.

(14) Includes the shares described in footnotes (3)-(13).

64
<PAGE>

DESCRIPTION OF CAPITAL STOCK

As of December 31, 1998, there were outstanding 23,086,692 shares of common
stock, each with a par value of $.001, held of record by approximately 235
stockholders, and outstanding options to purchase 4,129,094 shares of common
stock.

The following summary of certain provisions of the common stock and
preferred stock does not purport to be complete and is subject to, and
qualified in its entirety by, the provisions of VeriSign's Certificate of
Incorporation, which is included as an exhibit to the registration statement,
of which this prospectus forms a part, and by the provisions of applicable
law.

Common Stock

VeriSign is authorized to issue 50,000,000 shares of common stock. Subject
to preferences that may be applicable to any preferred stock outstanding at
the time, the holders of outstanding shares of common stock are entitled to
receive dividends out of assets legally available therefor at such times and
in such amounts as the Board from time to time may determine. Holders of
common stock are entitled to one vote for each share held on all matters
submitted to a vote of stockholders. Cumulative voting for the election of
directors is authorized by the Certificate of Incorporation, which means that
the holders of a majority of the shares voted can elect all of the directors
then standing for election. The common stock is not entitled to preemptive
rights and is not subject to conversion or redemption. Upon liquidation,
dissolution or winding-up of VeriSign, the assets legally available for
distribution to stockholders are distributable ratably among the holders of
the common stock and any participating preferred stock outstanding at that
time after payment of liquidation preferences, if any, on any outstanding
preferred stock and payment of other claims of creditors. Each outstanding
share of common stock is, and all shares of common stock to be outstanding
upon completion of this offering will be upon payment therefor, duly and
validly issued, fully paid and nonassessable.

Preferred Stock

VeriSign is authorized to issue up to 5,000,000 shares of "blank check"
preferred stock. The Board is authorized, subject to any limitations
prescribed by Delaware law, to provide for the issuance of preferred stock in
one or more series, to establish from time to time the number of shares to be
included in each such series, to fix the rights, preferences and privileges of
the shares of each wholly unissued series and any qualifications, limitations
or restrictions thereon, and to increase or decrease the number of shares of
any such series (but not below the number of shares of such series then
outstanding), without any further vote or action by the stockholders. The
Board may authorize the issuance of preferred stock with voting or conversion
rights that could adversely affect the voting power or other rights of the
holders of common stock. The issuance of preferred stock may have the effect
of delaying, deferring or preventing a change in control of VeriSign and may
adversely affect the market price of the common stock, and the voting and
other rights of the holders of common stock. VeriSign has no current plan to
issue any shares of preferred stock.

Registration Rights

The holders of approximately 5,132,218 shares of common stock (the
"Holders") have certain rights to cause VeriSign to register those shares (the
"Registrable Securities") under the Securities Act. The holders of at least a
majority of the Registrable Securities may require that VeriSign use best
efforts to effect up to two registrations. Holders not part of the initial
registration demand are entitled to notice of such registration and are
entitled to include shares of Registrable Securities therein. These
registration rights are subject to certain conditions and limitations,
including the right, under certain circumstances, of the underwriters of an
offering to limit the number of shares included in such registration and the
right of VeriSign to delay the filing of a registration statement for not more
than 120 days after receiving the registration demand. VeriSign is obligated
to pay all registration expenses incurred in connection with such
registration, other than underwriters' discounts and commissions, and the
reasonable fees and expenses of a single counsel to the selling Holders.

65
<PAGE>

In addition, if VeriSign proposes to register any securities under the
Securities Act in connection with the sale of such securities solely for cash,
the Holders are entitled to notice of such registration and are entitled to
include Registrable Securities therein. These rights do not apply to a
registration relating to securities to be sold under one of VeriSign's stock
plans or common stock issuable upon conversion of debt securities. These
rights are subject to certain conditions and limitations, including the right
of the underwriters of an offering to limit the number of shares included in
such registration under certain circumstances. VeriSign is obligated to pay
all registration expenses incurred in connection with such registration other
than underwriters' discounts and commissions.

The Holders may also require VeriSign, on no more than two occasions in any
twelve-month period, to register all or a portion of their Registrable
Securities on Form S-3 under the Securities Act when such form becomes
available for use by VeriSign, if the securities to be so registered represent
an aggregate selling price to the public of not less than $1.0 million. The
Holders who are not part of the initial registration demand are entitled to
notice of such registration and are entitled to include shares of Registrable
Securities therein. These registration rights are subject to certain
conditions and limitations, including the right of VeriSign to delay the
filing of a registration statement on Form S-3 for a period of not more than
60 days after receiving the registration demand. VeriSign is obligated to pay
all registration expenses incurred in connection with such registration, other
than underwriters' discounts and commissions.

Each stockholder's registration rights will expire upon the earlier of
February 4, 2003, or at such time as the stockholder can sell all of its
securities under Rule 144(k).

The former shareholders of SecureIT have certain registration rights with
respect to the approximately 1,666,000 shares of VeriSign common stock issued
to them in connection with the acquisition of SecureIT. These stockholders
have "piggy back registration rights" which require VeriSign to use its best
efforts to include up to 416,547 shares in any registration statement filed
prior to January 30, 1999. In addition, anytime after January 30, 1999, these
stockholders may require VeriSign to file a registration statement on Form S-3
and keep such registration statement continuously effective until July 6,
1999. This registration statement could cover up to 833,094 shares of VeriSign
common stock, less any shares for which these holders have exercised piggyback
registration rights. Since these holders have elected to exercise their
piggyback registration rights with respect to 415,000 shares in this offering,
VeriSign would be required to include 418,094 shares, plus any shares included
in the registration statement of which this prospectus is a part which remain
unsold.

Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions

VeriSign is subject to the provisions of Section 203 of the Delaware General
Corporation Law (the "Anti-Takeover Law") regulating corporate takeovers. The
Anti-Takeover Law prevents certain Delaware corporations 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." 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 any such persons. This restriction applies for three years
following the date that such stockholder became an "interested stockholder"
unless:

. the transaction is approved by the Board of Directors prior to the date
the "interested stockholder" attained such status;

. upon consummation 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 commenced (excluding those shares owned by (1)
persons who are directors and also officers and (2) employee stock 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

66
<PAGE>

. if on or subsequent to that date 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 the Anti-Takeover Law with the
approval of a majority of the corporation's outstanding shares, however
VeriSign has not done so. The statute could prohibit or delay mergers or other
takeover or change-in-control attempts with respect to VeriSign and,
accordingly, may discourage attempts to acquire VeriSign.

VeriSign's Certificate of Incorporation and Amended Restated Bylaws provide
for the division of the Board into three classes as nearly equal in size as
possible with staggered three-year terms. The classification of the Board
could have the effect of making VeriSign more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of VeriSign.
In addition, the Amended and Restated Bylaws provide that any action required
or permitted to be taken by the stockholders at an annual meeting or special
meeting of stockholders may only be taken if it is properly brought before
such meeting and may not be taken by written action in lieu of a meeting. The
Amended and Restated Bylaws provide that special meetings of the stockholders
may only be called by the Chairman of the Board, the Chief Executive Officer
or, if none, VeriSign's President or by the Board.

VeriSign's Certificate of Incorporation and Amended and Restated Bylaws
provide that VeriSign will indemnify officers and directors against losses
that they may incur in investigations and legal proceedings resulting from
their services to VeriSign, which may include services in connection with
takeover defense measures. Such provisions may have the effect of preventing
changes in the management of VeriSign.

Transfer Agent and Registrar

The Transfer Agent and Registrar for VeriSign's common stock is ChaseMellon
Shareholder Services, L.L.C.

67
<PAGE>

SHARES ELIGIBLE FOR FUTURE SALE

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

Upon completion of this offering, VeriSign will have outstanding an
aggregate of 24,271,692 shares of common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, 18,274,562 shares, including all of the shares sold in the
offering, are freely tradeable without restriction or further registration
under the Securities Act, unless such shares are purchased by "affiliates" of
VeriSign as that term is defined in Rule 144 under the Securities Act (the
"Affiliates"). As a result of certain contractual restrictions described
below, 4,745,944 additional shares will be eligible for sale 90 days after the
date of this prospectus, with all of such shares subject to the volume
limitations and other conditions of Rule 144 described below; and the
remaining 1,251,186 of the shares will become eligible for sale in July 1999,
subject to the volume limitations and other conditions of Rule 144.

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

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for
at least one year including the holding period of any prior owner except an
Affiliate would be entitled to sell within any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
common stock then outstanding (which will equal approximately 242,717 shares
immediately after this offering); or (ii) the average weekly trading volume of
the common stock on the Nasdaq National Market during the four calendar weeks
preceding the filing of a notice on Form 144 with respect to such sale. Sales
under Rule 144 are also subject to certain manner of sale provisions and
notice requirements and to the availability of current public information
about VeriSign.

Upon completion of this offering, the holders of approximately 5,132,218
shares of common stock will be entitled to certain rights with respect to the
registration of such shares under the Securities Act. Of these holders, the
former shareholders of SecureIT have the right to require VeriSign to file a
registration statement on Form S-3 to register for resale an aggregate of
approximately 418,000 shares of common stock held by them. See "Description of
Capital Stock--Registration Rights." Registration of such shares under the
Securities Act would result in such shares becoming freely tradable without
restriction under the Securities Act immediately upon the effectiveness of
such registration.

VeriSign filed registration statements under the Securities Act covering
5,461,389 shares of common stock subject to outstanding options or reserved
for future issuance under its stock plans. See "Management--Employee Benefit
Plans." VeriSign also filed a registration statement on Form S-8 with respect
to the 208,809 shares of common stock subject to stock options assumed in
connection with the acquisition of SecureIT. As of December 31, 1998, options
to purchase a total of 4,129,094 shares were outstanding and 797,496 shares
were reserved for future issuance under VeriSign's stock plans. Accordingly,
shares registered under such registration statements will, subject to Rule 144
volume limitations applicable to Affiliates, be available for sale in the open
market, beginning 90 days after the date of the prospectus, unless such shares
are subject to vesting restrictions.

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<PAGE>

UNDERWRITERS

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the
underwriters named below, for whom Morgan Stanley & Co. Incorporated,
Hambrecht & Quist LLC, Dain Rauscher Wessels, a division of Dain Rauscher
Incorporated ("Dain Rauscher Wessels") and BancBoston Robertson Stephens Inc.
are acting as representatives, have severally agreed to purchase, and VeriSign
and the Selling Stockholders have agreed to sell to them, severally, the
respective number of shares of common stock set forth opposite the names of
such underwriters below:

<TABLE>
<CAPTION>
Number of
Name Shares
---- ---------
<S> <C>
Morgan Stanley & Co. Incorporated..................................... 943,000
Hambrecht & Quist LLC................................................. 451,000
Dain Rauscher Wessels ................................................ 451,000
BancBoston Robertson Stephens Inc. ................................... 205,000
Donaldson, Lufkin & Jenrette Securities Corporation................... 100,000
A.G. Edwards & Sons, Inc. ............................................ 100,000
Edward D. Jones & Co., L.P. .......................................... 100,000
Nationsbanc Montgomery Securities LLC................................. 100,000
SoundView Technology Group, Inc. ..................................... 100,000
Warburg Dillon Read LLC............................................... 100,000
Thomas Weisel Partners LLC............................................ 100,000
---------
Total............................................................. 2,750,000
=========
</TABLE>

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

The underwriters initially propose to offer part of the shares of common
stock directly to the public at the public offering price set forth on the
cover page hereof and part to certain dealers at a price that represents a
concession not in excess of $2.42 a share under the public offering price. Any
underwriter may allow, and such dealers may reallow, a concession not in
excess of $.10 a share to other underwriters or to certain dealers. After the
initial offering of the shares of common stock, the offering price and other
selling terms may from time to time be varied by the representatives.

VeriSign has granted to the underwriters an option, exercisable for 30 days
from the date of this prospectus, to purchase up to an aggregate of 412,500
additional shares of common stock at the public offering price set forth on
the cover page hereof, less underwriting discounts and commissions. The
underwriters may exercise such option solely for the purpose of covering over-
allotments, if any, made in connection with the offering of the shares of
common stock offered hereby. To the extent such option is exercised, each
underwriter will become obligated, subject to certain conditions, to purchase
approximately the same percentage of such additional shares of common stock as
the number set forth next to such underwriter's name in the preceding table
bears to the total number of shares of common stock set forth next to the
names of all underwriters in the preceding table.

Each of VeriSign and the directors, executive officers and certain other
stockholders of VeriSign has agreed that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the underwriters, it will not
during the period ending 90 days after the date of this prospectus (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer, lend or dispose of, directly or indirectly,
any shares of common stock or any securities convertible into or exercisable
or exchangeable for common stock or (ii) enter into any swap or other

69
<PAGE>

arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the common stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of common
stock or such other securities, in cash or otherwise, except under certain
limited circumstances. The restrictions described in this paragraph to not
apply to (a) the sale of shares to the underwriters, (b) the issuance by
VeriSign of shares of common stock upon exercise of an option or a warrant
outstanding on the date of this prospectus and described as such in the
prospectus, (c) the issuance by VeriSign of shares of common stock under the
Equity Incentive Plan, the Directors Plan and the Purchase Plan or (d)
transactions by any person other than VeriSign relating to shares of common
stock or other securities acquired in open market 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 over-allot in
connection with the offering, creating a short position in the common stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the common stock, the underwriters may bid for, and purchase, shares
of common stock in the open market. Finally, the 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 in transactions to cover syndicate short
positions, in stabilization transactions or otherwise. Any of these activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities, and may end any of these activities at any time.

The underwriters and dealers may engage in passive market making transactions
in the common stock in accordance with Rule 103 of Regulation M promulgated by
the Securities and Exchange Commission. In general, a passive market maker may
not bid for, or purchase, the common stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive
market maker generally may not exceed 30% of its average daily trading volume
in the common stock during a specified two month period, or 200 shares,
whichever is greater. A passive market maker must identify passive market
making bids as such or maintain the market price of the common stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.

VeriSign, the Selling Stockholders and the underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

70
<PAGE>

LEGAL MATTERS

Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the shares of common stock offered by VeriSign in this prospectus. Wilson
Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto, California
will pass upon certain legal matters in connection with this offering for the
underwriters.

EXPERTS

VeriSign has included the consolidated financial statements of VeriSign,
Inc. and subsidiaries as of December 31, 1996 and 1997, and for the period
from April 12, 1995 (inception) to December 31, 1995, and for each of the
years in the two-year period ended December 31, 1997 in the prospectus and the
Registration Statement in reliance upon the report of KPMG LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

ADDITIONAL INFORMATION

VeriSign has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of common stock offered by
this prospectus. This prospectus, which constitutes a part of the Registration
Statement, does not contain all of the information set forth in the
Registration Statement and the exhibits thereto. VeriSign has omitted certain
items in accordance with the rules and regulations of the Commission. For
further information with respect to VeriSign and the common stock offered by
this prospectus, reference is made to the Registration Statement and the
exhibits thereto. Statements contained in this prospectus regarding the
contents of any contract or any other document to which the prospectus makes
reference are not necessarily complete. In each instance, we advise you to
refer to the copy of the contract or other document filed as an exhibit to the
Registration Statement. Each such statement is qualified in all respects by
such reference. You may inspect a copy of the Registration Statement, and the
exhibits and schedule thereto, without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048. You may obtain copies of all or any part of the Registration Statement
from any of those offices by paying the fees prescribed by the Commission. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.

AVAILABLE INFORMATION

VeriSign is subject to the informational requirements of the Exchange Act
and, in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information filed by VeriSign can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York 10048 and 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates. The Commission also makes electronic filings publicly available on the
Internet within 24 hours of acceptance. The Commission's Internet address is
http://www.sec.gov. The Commission website also contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission.

71
<PAGE>

VERISIGN, INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity............................ F-5
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
VeriSign, Inc.:

We have audited the accompanying consolidated balance sheets of VeriSign,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for the period from April 12, 1995 (inception) to December 31, 1995, and for
each of the years in the two-year period ended December 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform 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.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of VeriSign,
Inc. and subsidiaries as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for the period from April 12, 1995
(inception) to December 31, 1995, and for each of the years in the two-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.

KPMG LLP

Mountain View, California
December 18, 1998

F-2
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)

<TABLE>
<CAPTION>
December 31,
------------------ September 30,
1996 1997 1998
-------- -------- -------------
(Unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................. $ 30,006 $ 4,942 $ 18,102
Short-term investments..................... -- 7,951 24,366
Accounts receivable, net of allowance for
doubtful accounts of $35, $286 and $455,
respectively.............................. 762 3,390 8,470
Prepaid expenses and other current assets.. 786 994 2,351
-------- -------- --------
Total current assets..................... 31,554 17,277 53,289
Property and equipment, net.................. 4,617 8,756 9,378
Other assets, net............................ 366 871 976
-------- -------- --------
$ 36,537 $ 26,904 $ 63,643
======== ======== ========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable.............................. $ 258 $ -- $ --
Accounts payable........................... 2,468 3,504 5,505
Accrued liabilities........................ 2,096 2,346 4,024
Deferred revenue........................... 1,944 5,267 10,461
-------- -------- --------
Total current liabilities................ 6,766 11,117 19,990
-------- -------- --------
Minority interest in subsidiary.............. 1,251 2,246 1,297
-------- -------- --------
Commitments
Stockholders' equity:
Preferred stock, $.001 par value; 5,000,000
shares authorized in 1998; no shares
issued.................................... -- -- --
Convertible preferred stock, $.001 par
value;
10,282,883 shares authorized in 1996 and
1997;
10,031,006 shares issued and outstanding
in 1996 and 1997.......................... 10 10 --
Common stock, $.001 par value; 21,592,117
shares authorized in 1996 and 1997,
50,000,000 shares authorized in 1998;
7,859,962, 8,786,426 and 22,732,876 shares
issued and outstanding, respectively...... 8 9 23
Additional paid-in capital................. 41,327 45,417 91,496
Notes receivable from stockholders......... (543) (644) (582)
Deferred compensation...................... -- (380) (302)
Accumulated deficit........................ (12,282) (30,871) (48,279)
-------- -------- --------
Total stockholders' equity............... 28,520 13,541 42,356
-------- -------- --------
$ 36,537 $ 26,904 $ 63,643
======== ======== ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands, except share data)

<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Accumu- Total
----------------- ----------------- Paid-in from Compen- lated Stockholders'
Shares Amount Shares Amount Capital Stockholders sation Deficit Equity
---------- ------ --------- ------ ---------- ------------ -------- ------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ -- $ -- 688,333 $ 1 $ 82 $ -- $ -- $ -- $ 83
Issuance of common stock
to a founder in
exchange for equipment,
other assets and
technology............. -- -- 4,000,000 4 115 -- -- -- 119
Issuance of common
stock.................. -- -- 4,500 -- -- -- -- -- --
Issuance of Series A
convertible preferred
stock.................. 4,306,883 4 -- -- 5,164 -- -- -- 5,168
Net loss................ -- -- -- -- -- -- -- (1,994) (1,994)
---------- ---- --------- --- ------ ---- ---- ------- -------
Balances as of December
31, 1995............... 4,306,883 4 4,692,833 5 5,361 -- -- (1,994) 3,376
Issuance of Series B
convertible preferred
stock.................. .2,099,123 2 -- -- 5,141 -- -- -- 5,143
Issuance of Series C
convertible preferred
stock.................. 3,625,000 4 -- -- 28,192 -- -- -- 28,196
Exercise of common stock
options................ -- -- 1,637,375 2 559 (543) -- -- 18
Issuance of common
stock.................. -- -- 1,529,754 1 11 -- -- -- 12
Issuance of capital
stock by subsidiary to
minority interest...... -- -- -- -- 2,063 -- -- -- 2,063
Net loss................ -- -- -- -- -- -- -- (10,288) (10,288)
---------- ---- --------- --- ------ ---- ---- ------- -------
Balances as of December
31, 1996............... 10,031,006 10 7,859,962 8 41,327 (543) -- (12,282) 28,520
Deferred compensation
related to common stock
options, net of
amortization of $34.... -- -- -- -- 414 -- (380) -- 34
Exercise of common stock
options and advance to
stockholder............ -- -- 532,781 1 244 (116) -- -- 129
Issuance of common
stock.................. -- -- 121,808 -- 642 -- -- -- 642
Issuance of common stock
for litigation
settlement............. -- -- 250,000 -- 2,000 -- -- -- 2,000
Issuance of common stock
for preferred provider
agreement.............. -- -- 100,000 -- 800 -- -- -- 800
Repurchase of common
stock.................. -- -- (78,125) -- (10) 10 -- -- --
Payments on notes
receivable from
stockholders........... -- -- -- -- -- 5 -- -- 5
Net loss................ -- -- -- -- -- -- -- (18,589) (18,589)
---------- ---- --------- --- ------ ---- ---- ------- -------
Balances as of December
31, 1997............... 10,031,006 10 8,786,426 9 45,417 (644) (380) (30,871) 13,541
</TABLE>
(Continued)

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY--(Continued)
(In thousands, except share data)

<TABLE>
<CAPTION>
Convertible Notes
Preferred Stock Common Stock Additional Receivable Deferred Accumu- Total
------------------- ----------------- Paid-in from Compen- lated Stockholders'
Shares Amount Shares Amount Capital Stockholders sation Deficit Equity
----------- ------ ---------- ------ ---------- ------------ -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of
December 31, 1997...... 10,031,006 $10 8,786,426 $ 9 $45,417 $(644) $(380) $(30,871) $13,541
Amortization of deferred
compensation related to
common stock options
(unaudited)............ -- -- -- -- -- -- 78 -- 78
Compensation charge
related to acceleration
of performance-based
stock options
(unaudited)............ -- -- -- -- 1,176 -- -- 1,176
Exercise of common stock
options (unaudited).... -- -- 385,569 -- 392 -- -- -- 392
Issuance of common stock
(unaudited)............ -- -- 21,650 -- 79 -- -- -- 79
Issuance of common stock
for initial public
offering, net of
expenses of $4,561
(unaudited)............ -- 3,450,000 4 43,739 -- -- -- 43,743
Issuance of common stock
under employee stock
purchase plan
(unaudited)............ -- -- 58,225 -- 693 -- -- -- 693
Conversion of preferred
stock to common stock
(unaudited)............ (10,031,006) (10) 10,031,006 10 -- -- -- -- --
Subchapter S
distributions of
SecureIT, Inc.
(unaudited)............ -- -- -- -- -- -- -- (199) (199)
Payments on notes
receivable from
stockholders
(unaudited)............ -- -- -- -- -- 62 -- -- 62
Net loss (unaudited).... -- -- -- -- -- -- -- (17,209) (17,209)
----------- --- ---------- --- ------- ----- ----- -------- -------
Balances as of
September 30, 1998
(unaudited)............ -- $-- 22,732,876 $23 $91,496 $(582) $(302) $(48,279) $42,356
=========== === ========== === ======= ===== ===== ======== =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<TABLE>
<CAPTION>
Period from
April 12, 1995 Year Ended Nine Months Ended
(Inception) to December 31, September 30,
December 31, ------------------ ------------------
1995 1996 1997 1997 1998
-------------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss.............. $(1,994) $(10,288) $(18,589) $(12,268) $(17,209)
Adjustments to
reconcile net loss to
net cash provided by
operating activities:
Special charges..... -- -- 2,800 2,000 --
Depreciation and
amortization....... 52 559 2,621 1,546 2,862
Minority interest in
net loss of
subsidiary......... -- (838) (1,538) (1,194) (950)
Stock-based
compensation....... -- -- 34 13 1,254
Loss on disposal of
property and
equipment.......... -- -- 63 156 40
Changes in operating
assets and
liabilities:
Accounts
receivable....... (195) (567) (2,628) (2,261) (5,080)
Prepaid expenses
and other current
assets........... (79) (708) (208) 59 (1,357)
Accounts payable.. 437 2,054 1,036 (810) 2,001
Accrued
liabilities...... 216 1,880 250 83 1,678
Deferred revenue.. 42 1,898 3,323 1,386 5,194
------- -------- -------- -------- --------
Net cash used in
operating activities... (1,521) (6,010) (12,836) (11,290) (11,567)
------- -------- -------- -------- --------
Cash flows from
investing activities:
Purchases of short-
term investments..... -- -- (11,209) (11,208) (48,500)
Maturities and sales
of short-term
investments.......... -- -- 3,258 3,498 32,085
Purchases of property
and equipment........ (1,008) (4,168) (6,823) (5,655) (3,506)
Other assets.......... (35) (281) (505) (480) (122)
------- -------- -------- -------- --------
Net cash used for
investing activities... (1,043) (4,449) (15,279) (13,845) (20,043)
------- -------- -------- -------- --------
Cash flows from
financing activities:
Proceeds from bank
borrowings........... -- 258 2,420 1,167 --
Repayment of bank
borrowings........... -- -- (2,678) -- --
Proceeds from issuance
of convertible
preferred stock...... 5,168 33,339 -- -- --
Proceeds from issuance
of common stock, net
of repurchases....... 83 30 771 636 44,907
Collections on notes
receivable from
stockholders -- -- 5 -- 62
Subchapter S
distributions by
SecureIT, Inc. ...... -- -- -- -- (199)
Issuance of capital
stock by subsidiary
to minority
interest............. -- 4,151 2,533 -- --
------- -------- -------- -------- --------
Net cash provided by
financing activities... 5,251 37,778 3,051 1,803 44,770
------- -------- -------- -------- --------
Net increase (decrease)
in cash and cash
equivalents............ 2,687 27,319 (25,064) (23,332) 13,160
Cash and cash
equivalents at
beginning of period.... -- 2,687 30,006 30,006 4,942
------- -------- -------- -------- --------
Cash and cash
equivalents at end of
period................. $ 2,687 $ 30,006 $ 4,942 $ 6,674 $ 18,102
======= ======== ======== ======== ========
Noncash investing and
financing activities:
Issuance of common
stock to a founder
for equipment, other
assets and
technology........... $ 119 $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
Conversion of
convertible preferred
stock to common stock $ -- $ -- $ -- $ -- $ --
======= ======== ======== ======== ========
Issuance of notes
receivable
collateralized by
common stock......... $ -- $ 543 $ 116 $ 116 $ --
======= ======== ======== ======== ========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-7
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

(1) Description of Business and Summary of Significant Accounting Policies

VeriSign, Inc. (the "Company") was incorporated in Delaware in April 1995
when RSA Data Security, Inc. ("RSA") contributed equipment, other assets, and
technology for common stock. This transfer of nonmonetary assets was recorded
at the founder's historical cost basis. The Company provides Internet-based
trust services needed by websites, enterprises and individuals to conduct
trusted and secure electronic commerce and communications over the Internet,
intranets and extranets ("IP Networks"). The Company provides both public and
private certificate authority services to organizations needing digital
certificates for website authentication, intranet and extranet access control,
electronic commerce services and virtual private network connections.

Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of intercompany accounts
and transactions. As of December 31, 1997 and September 30, 1998, the Company
owned approximately 50.5% of the outstanding shares of capital stock of its
subsidiary, VeriSign Japan. The Company accounts for changes in its
proportionate share of the net assets of VeriSign Japan resulting from sales
of capital stock by the subsidiary as equity transactions.

Interim Financial Information

The financial information as of September 30, 1998 and for the nine months
ended September 30, 1997 and 1998 is unaudited but includes all adjustments,
consisting only of normal recurring adjustments, that the Company considers
necessary for the fair presentation of the Company's operating results and
cash flows for such periods. Results for the nine months ended September 30,
1998 are not necessarily indicative of the results to be expected for the full
fiscal year of 1998 or for any future period.

Foreign Currency Translation

The functional currency for the Company's international subsidiaries is the
U.S. dollar; however, the subsidiaries' books of record are maintained in
local currency. As a result, the subsidiaries' financial statements are
remeasured into U.S. dollars using a combination of current and historical
exchange rates and any remeasurement adjustments are included in net loss,
along with all transaction gains and losses for the period.

Cash, Cash Equivalents and Short-Term Investments

The Company considers all highly liquid investments with maturities of three
months or less at the date of acquisition to be cash equivalents. Cash and
cash equivalents include money market funds, commercial paper and various
deposit accounts.

Investments held by the Company are classified as "available-for-sale" and
are carried at fair value based on quoted market prices. Such investments
consist of commercial paper, medium term notes, foreign government bonds and
corporate bonds with original maturities beyond 3 months and less than 12
months. Unrealized gains and losses as of December 31, 1996 and 1997 and
September 30, 1998, and realized gains and losses for the periods presented
were not material.

F-8
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation.
Depreciation is calculated using the straight-line method over the estimated
useful lives of the assets, generally three to five years.

Revenue Recognition

Revenues from the sale or renewal of digital certificates are deferred and
recognized ratably over the life of the digital certificate, generally 12
months. Revenues from the sale of digital certificate software modules to
distributors and affiliates are recognized upon delivery of the software and
signing of an agreement, provided the fee is fixed and determinable,
collectibility is probable and the arrangement does not require significant
production, modification or customization of the software. Revenues from
consulting and training services are recognized using the percentage-of-
completion method, based on the ratio of costs incurred to total estimated
costs for fixed-fee development arrangements or as the services are provided
for time-and-materials arrangements. Revenues are recognized ratably over the
term of the agreement for support and maintenance services. To the extent
costs incurred and anticipated costs to complete fixed-fee contracts in
progress exceed anticipated billings, a loss is accrued for the excess. To
date, the Company has not experienced such losses. Deferred revenue
principally consists of payments for unexpired digital certificates.

For software transactions entered into after January 1, 1998, the Company
adopted the American Institute of Certified Public Accountants' ("AICPA")
Statement of Position ("SOP") No. 97-2, Software Revenue Recognition. SOP No.
97-2 generally requires revenue earned on software arrangements involving
multiple elements to be allocated to each element based on its relative fair
value. The fair value of the element must be based on objective evidence that
is specific to the vendor. If a vendor does not have objective evidence of the
fair value of all elements in a multiple-element arrangement, all revenue from
the arrangement must be deferred until such evidence exists or until all
elements have been delivered. The adoption of SOP No. 97-2 did not have a
material effect on the Company's operating results.

Research and Development Costs

Research and development costs are expensed as incurred. Costs incurred
subsequent to establishing technological feasibility, in the form of a working
model, are capitalized and amortized over their estimated useful lives. To
date, software development costs incurred after technological feasibility has
been established have not been material.

Income Taxes

The Company uses the asset and liability method to account for income taxes.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. A valuation allowance
is recorded for deferred tax assets whose realization is not sufficiently
likely.

Stock-Based Compensation

The Company accounts for its equity-based compensation plan using the
intrinsic value method.

F-9
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

Net Loss Per Share

Basic and diluted net loss per share has been computed using the weighted-
average number of common shares outstanding during the period. The Company has
excluded all convertible preferred stock and outstanding stock options from
the calculation of diluted net loss per share because such securities would
have been anti-dilutive for all periods presented. For the year ended December
31, 1995, 4,306,883 shares of convertible preferred stock and for each of the
years ended December 31, 1996 and 1997 and the nine months ended September 30,
1997, 10,031,006 shares of convertible preferred stock were excluded from the
calculation of diluted net loss per share in each period. There were no shares
of convertible preferred stock outstanding at September 30, 1998. For the
years ended December 31, 1995, 1996 and 1997 and the nine months ended
September 30, 1997 and 1998, 1,274,750 shares, 1,608,075 shares, 2,592,789
shares, 2,164,956 shares and 3,504,145 shares, respectively, related to
outstanding stock options were excluded from the calculation of diluted net
loss per share.

Other Comprehensive Income (Loss)

The Company has no material components of other comprehensive income (loss).

Concentration of Credit Risk, Related Party Transactions and Significant
Customers

Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash, cash equivalents,
short-term investments, and accounts receivable. The Company maintains its
cash, cash equivalents, and short-term investments with high quality financial
institutions and, as part of its cash management process, performs periodic
evaluations of the relative credit standing of these financial institutions.
The Company also performs ongoing credit evaluations of its customers and,
generally, requires no collateral from its customers. The Company maintains an
allowance for potential credit losses, but to date has not experienced
significant write-offs. For the years ended December 31, 1995, 1996 and 1997
the Company added approximately $30,000, $22,000 and $387,000, respectively,
to its allowance for doubtful accounts through charges to bad debt expense.
Write-offs of uncollectible amounts totaled zero, $17,000 and $136,000 in
these periods, respectively.

The Company provided services to VISA International Services Association
("VISA"), a 4% stockholder of the Company, under an agreement that included
development and ongoing operations of a digital certificate system for VISA's
member banks. VISA accounted for approximately 21%, 10%, 12% and 4% of the
Company's revenues for the years ended December 31, 1996 and 1997 and the nine
months ended September 30, 1997 and 1998, respectively, and 13%, 7% and 8% of
accounts receivable as of December 31, 1996 and 1997 and September 30, 1998,
respectively.

The Company entered into a development agreement in September 1997 with
Security Dynamics Technologies, Inc. ("Security Dynamics"), the parent company
of RSA, a 19% stockholder of the Company, to develop a customized certificate
authority product in order to enable Security Dynamics to offer a product with
encryption and digital certificate authority functionality. The development
agreement provided that Security Dynamics pay the Company an aggregate of $2.7
million as an initial license fee, $900,000 of which was paid in October 1997
and the remainder of which is payable upon the achievement of certain
milestones. The Company records revenue related to the development agreement
using the percentage-of-completion method. Revenue from the development
agreement accounted for approximately 4%, 3% and 6% of the Company's revenues
for the year ended December 31, 1997 and the nine months ended September 30,
1997 and 1998, respectively. Security Dynamics accounted for approximately 9%
of accounts receivable at September 30, 1998.

F-10
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

At December 31, 1996, the Company had two customers, a South African systems
integrator and a financial services provider, that accounted for approximately
28% and 13%, respectively, of accounts receivable. The Company had no other
customers that accounted for more than 10% of accounts receivable or more than
10% of revenues for any of the dates or periods presented.

Impairment of Long-Lived Assets

The Company reviews property and equipment for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of property and equipment is measured by
comparison of its carrying amount to future net cash flows the property and
equipment are expected to generate. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the property and equipment exceeds its fair market
value. To date, no adjustments to the carrying value of the Company's long-
lived assets have been required.

Use of Estimates

The preparation of consolidated 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
consolidated financial statements and reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

Recent Accounting Pronouncements

In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP No. 98-
1 requires that entities capitalize certain costs related to internal-use
software once certain criteria have been met. The Company expects that the
adoption of SOP No. 98-1 will have no material impact on its financial
position, results of operations or cash flows. The Company will be required to
implement SOP No. 98-1 for the year ending December 31, 1999.

In April 1998, the AICPA issued SOP No. 98-5, Reporting on the Costs of
Start-Up Activities. SOP No. 98-5 requires that all start-up costs related to
new operations must be expenses as incurred. In addition, all start-up costs
that were capitalized in the past must be written off when SOP No. 98-5 is
adopted. The Company expects that the adoption of SOP No. 98-5 will have no
material impact on its financial position, results of operations or cash
flows. The Company will be required to implement SOP No. 98-5 for the year
ending December 31, 1999.

In June 1998 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 established methods of
accounting for derivative financial instruments and hedging activities related
to those instruments as well as other hedging activities. Because the Company
currently holds no derivative instruments and does not engage in hedging
activities, the Company expects that the adoption of SFAS No. 133 will have no
material impact on its financial position, results of operations or cash
flows. The Company will be required to implement SFAS No. 133 for the year
ending December 31, 2000.

F-11
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

(2) Business Combination

In July 1998, VeriSign completed a merger with SecureIT, Inc. ("SecureIT")
(hereafter collectively referred to as the "Company"). SecureIT is a provider
of Internet and enterprise security solutions comprising a full range of
products and services to assist clients with assessing, designing and
implementing security solutions. The merger was effected by exchanging
approximately 1,666,000 shares of VeriSign common stock for all of the
outstanding common stock of SecureIT. Each share of SecureIT was exchanged for
0.164806 of one share of VeriSign common stock. In addition, outstanding
SecureIT employee stock options were converted at the same exchange ratio into
options to purchase approximately 190,000 shares of VeriSign common stock.

The merger constituted a tax-free reorganization and has been accounted for
as a pooling-of-interests under Accounting Principles Board Opinion No. 16,
"Business Combinations." Accordingly, all prior period financial statements
have been restated to include the combined results of operations, financial
position and cash flows of SecureIT as if it had always been a part of
VeriSign. There were no intercompany transactions between VeriSign and
SecureIT prior to the combination that required elimination and there were no
material adjustments required to conform SecureIT's accounting policies to
those of VeriSign. The Company recognized special charges of approximately
$3.6 million in connection with the acquisition (see Note 11).

The results of operations previously reported by the separate companies and
the combined amounts presented in the consolidated financial statements are
summarized below.

<TABLE>
<CAPTION>
Year Ended Six Months
December 31, Ended
------------------ June 30,
1996 1997 1998
-------- -------- -----------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Revenues:
VeriSign, Inc.............................. $ 1,351 $ 9,382 $ 9,303
SecureIT, Inc.............................. 5 3,974 5,911
-------- -------- --------
Combined................................. $ 1,356 $ 13,356 $ 15,214
======== ======== ========
Net income (loss):
VeriSign, Inc.............................. $(10,243) $(19,195) $(10,092)
SecureIT, Inc.............................. (45) 606 600
-------- -------- --------
Combined................................. $(10,288) $(18,589) $ (9,492)
======== ======== ========
</TABLE>

F-12
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

(3) Cash, Cash Equivalents and Short-Term Investments

Available-for-sale securities included in cash, cash equivalents and short-
term investments are as follows:

<TABLE>
<CAPTION>
December
31,
----------- September 30,
1996 1997 1998
---- ------ -------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Corporate bonds.................................... $ -- $3,244 $ 1,999
Money market funds................................. 521 4,300 1,644
U.S. government and agency securities.............. 84 1,000 --
Commercial paper................................... -- 1,060 23,479
Foreign government bonds........................... -- -- 4,028
Medium term notes.................................. -- -- 8,306
---- ------ -------
$605 $9,604 $39,456
==== ====== =======
Included in cash and cash equivalents.............. $605 $1,653 $15,090
==== ====== =======
Included in short-term investments................. $ -- $7,951 $24,366
==== ====== =======
</TABLE>

(4) Property and Equipment

Property and equipment are summarized as follows:

<TABLE>
<CAPTION>
December 31,
-------------- September 30,
1996 1997 1998
------ ------- -------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Computer equipment and purchased software..... $3,501 $ 8,107 $10,565
Office equipment, furniture and fixtures...... 792 1,444 1,714
Leasehold improvements........................ 934 2,425 3,128
------ ------- -------
5,227 11,976 15,407
Less accumulated depreciation and
amortization................................. 610 3,220 6,029
------ ------- -------
$4,617 $ 8,756 $ 9,378
====== ======= =======
</TABLE>

(5) Accrued Liabilities

A summary of accrued liabilities follows:

<TABLE>
<CAPTION>
December 31,
------------- September 30,
1996 1997 1998
------ ------ -------------
(Unaudited)
(In thousands)
<S> <C> <C> <C>
Employee compensation........................... $ 566 $1,443 $1,994
Professional fees............................... 354 95 381
Financing charges............................... 732 -- --
Other........................................... 444 808 1,649
------ ------ ------
$2,096 $2,346 $4,024
====== ====== ======
</TABLE>

F-13
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

(6) Notes Payable

The Company's Japanese subsidiary had an available credit facility of
250,000,000 yen with a bank, which bore interest at a rate of 1.625% per annum
and expired in December 1997. Borrowings were secured by certain assets of the
subsidiary. As of December 31, 1996, borrowings under this facility aggregated
$258,000.

The Company's Japanese subsidiary had available a revolving line of credit
with a bank that provided up to $500,000, bore interest at 1.625% per annum
and expired in May 1998. The line of credit was secured by a letter of credit
in the same amount from the Company. There were no borrowings under this
arrangement as of December 31, 1997.

In January 1997, the Company entered into an agreement for a non-revolving
equipment line of credit with a financing company that provides up to
$3,000,000, bears interest at 7.50% per annum and expires in March 1999. The
line of credit is secured by the Company's fixed assets. The Company is
obligated to grant a warrant to purchase up to 17,500 shares of common stock
at $8.00 per share in the event the Company borrows funds under the equipment
line of credit. There were no borrowings under this arrangement as of December
31, 1997.

(7) Stockholders' Equity

Initial Public Offering

On January 30, 1998, the Company completed its initial public offering (the
"IPO"), issuing 3,450,000 shares of its common stock (including 450,000 shares
issued upon the exercise of the underwriters' over-allotment option) at an
initial public offering price of $14 per share. The net proceeds to the
Company from the offering, after deducting underwriting discounts and
commissions and offering expenses incurred by the Company, were approximately
$43.7 million. Concurrently with the IPO, each outstanding share of the
Company's convertible preferred stock was automatically converted into one
share of common stock.

Preferred Stock

The Company is authorized to issue up to 5,000,000 shares of preferred
stock. As of September 30, 1998, no shares of preferred stock had been issued.

Convertible Preferred Stock

In April 1995, the Company issued 4,306,883 shares of Series A convertible
preferred stock to previously unrelated third parties, except for 425,000
shares issued to Security Dynamics. In February 1996, the Company issued
2,099,123 shares of Series B convertible preferred stock. A majority of the
shares were issued to a previously unrelated third party venture capitalist
and the remainder were issued to existing investors, including Security
Dynamics and VISA. In November and December 1996, the Company issued 3,625,000
shares of Series C convertible preferred stock to previously unrelated third
parties.

F-14
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

As of December 31, 1997, convertible preferred stock consisted of the
following:

<TABLE>
<CAPTION>
Shares
Shares Issued and Liquidation
Series Authorized Outstanding Preference
------ ---------- ----------- -----------
<S> <C> <C> <C>
A........................................ 4,306,883 4,306,883 $ 5,168,260
B........................................ 2,101,000 2,099,123 $ 5,037,895
C........................................ 3,875,000 3,625,000 $29,000,000
---------- ---------- -----------
10,282,883 10,031,006 $39,206,155
========== ========== ===========
</TABLE>

The rights preferences and privileges of the holders of convertible
preferred stock were as follows:

. The holders of Series A, B and C preferred stock were entitled to
noncumulative dividends, if and when declared by the Board of Directors,
of $.10, $.20 and $.64 per share, respectively.

. Shares of preferred stock were convertible to common stock at any time
at the rate of one share of common stock for each share of convertible
preferred stock. The convertible preferred stock automatically converted
to common stock upon the closing of the IPO.

. The holders of convertible preferred stock were protected by certain
antidilutive provisions.

. The shares of Series A, B and C convertible preferred stock had a
liquidation preference of $1.20, $2.40 and $8.00 per share,
respectively, plus any declared and unpaid dividends.

. The convertible preferred stock generally voted equally with shares of
common stock on an "as if converted" basis.

No dividends have been declared or paid on the convertible preferred stock
or common stock since inception of the Company. SecureIT paid a Subchapter S
distribution of $199,000 to its stockholders for minimum tax obligations
during the nine months ended September 30, 1998.

Notes Receivable From Stockholders

In November 1996, the Company loaned several officers an aggregate of
$543,000, due December 31, 2005, bearing interest at a rate per annum of
6.95%, payable quarterly. In August 1997, the Company loaned an officer an
aggregate of $116,000, due December 31, 2006, bearing interest at a rate per
annum of 6.87%, payable quarterly. The loans are full recourse, are
collateralized by pledges of shares of common stock of the Company that were
purchased and may be prepaid in part or in full without notice or penalty.

(8) Stock Compensation Plans

Stock Option Plans

As of December 31, 1997, a total of 7,278,809 shares of common stock were
reserved for issuance under the Company's equity incentive plans (the
"Plans"), including 4,145,000 shares authorized under the 1995 Stock Option
Plan, 800,000 shares authorized under the 1997 Stock Option Plan, an
additional 2,000,000 shares authorized under the 1998 Equity Incentive Plan,
125,000 shares authorized under the 1998 Directors Plan and 208,809 shares
authorized under SecureIT's 1997 Stock Option Plan.

F-15
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

Concurrent with the Company's IPO, the 1995 Stock Option Plan and the 1997
Stock Option Plan (the "1995 and 1997 Plans") were terminated. Options to
purchase common stock granted under the 1995 and 1997 Plans remain outstanding
and subject to the vesting and exercise terms of the original grant. All
shares that remained available for future issuance under the 1995 and 1997
Plans at the time of their termination were transferred to the 1998 Equity
Incentive Plan. No further options can be granted under the 1995 and 1997
Plans. Options granted under the 1995 and 1997 Plans are subject to terms
substantially similar to those described below with respect to options granted
under the 1998 Equity Incentive Plan.

In October 1997 the Board of Directors (the "Board") adopted, and in January
1998 the stockholders approved, the 1998 Equity Incentive Plan (the "1998
Plan"). The 1998 Plan authorizes the award of options, restricted stock awards
and stock bonuses.

Options may be granted at an exercise price not less than 100% of the fair
market value of the Company's common stock on the date of grant for incentive
stock options and 85% of such fair market value for nonqualified stock
options. All options are granted at the discretion of the Company's Board and
have a term not greater than 7 years from the date of grant. Options issued
generally vest 25% on the first anniversary date and ratably over the
following 12 quarters.

In October 1997 the Board adopted, and in January 1998 the stockholders
approved the 1998 Directors Stock Options Plan (the "Directors Plan"). Members
of the Board who are not employees of the Company, or any parent, subsidiary
of affiliate of the Company, are eligible to participate in the Directors
Plan. The option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of the options is 100% of the fair
market value of the common stock on the date of the grant. Each eligible
director who becomes a director on or after January 28, 1998 will initially be
granted an option to purchase 15,000 shares on the date such director first
becomes a director (the "Initial Grant"). On each anniversary of a director's
Initial Grant or most recent grant if such director was ineligible to receive
an Initial Grant, each eligible director will automatically be granted an
additional option to purchase 7,500 shares of common stock if the director has
served continuously as a director since the date of his Initial Grant or most
recent grant. The term of the options under the Directors Plan is ten years
and options vest as to 6.25% of the shares each quarter after the date of the
grant, provided the optionee remains a director of the Company.

In connection with the acquisition of SecureIT, the Company assumed
SecureIT's 1997 Stock Option Plan (the "SecureIT Plan"). The SecureIT Plan
provided for the grant of both fixed and performance-based stock options.
Options granted under the SecureIT Plan generally have a term of 7 years and
vest over a four-year period, 25% on each anniversary of the grant date. No
further options can be granted under the SecureIT Plan.

F-16
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

A summary of stock option activity under the Plans follows:

<TABLE>
<CAPTION>
Period from April
12, 1995 Year Ended December 31,
(Inception) to ----------------------------------------
December 31, 1995 1996 1997
------------------- -------------------- -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- -------- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of period.............. -- $ -- 1,274,750 $.12 1,608,075 $ .80
Granted................. 1,398,750 .12 2,022,700 .83 1,601,652 4.23
Exercised............... -- -- (1,637,375) .34 (532,781) .46
Canceled................ (124,000) .12 (52,000) .13 (84,157) .93
--------- ---------- ---------
Outstanding at end of
period................. 1,274,750 .12 1,608,075 .80 2,592,789 3.00
========= ========== =========
Exercisable at end of
period................. 86,457 .12 152,167 .12 258,088 .80
========= ========== =========
Weighted average fair
value of options
granted during the
period................. .03 .17 1.03
==== ==== =====
</TABLE>

The following table summarizes information about stock options outstanding
as of December 31, 1997:

<TABLE>
<CAPTION>
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Shares Contractual Exercise Shares Exercise
Outstanding Life Price Exercisable Price
----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ .01--$ .25...... 389,500 5.2 years $ .14 116,159 $ .13
$ .61--$ .75 ..... 612,258 5.7 years .75 118,304 .75
$1.50--$2.75...... 678,925 6.3 years 2.13 14,250 1.50
$4.00--$6.00...... 530,800 6.8 years 5.62 -- --
$6.06--$8.00...... 381,306 6.7 years 7.34 9,375 8.00
--------- -------
$ .01--$8.00...... 2,592,789 6.1 years 3.00 258,088 .80
========= =======
</TABLE>

1998 Employee Stock Purchase Plan

In December 1997, the Board adopted, and in January 1998, the stockholders
approved, the 1998 Employee Stock Purchase Plan ("Purchase Plan"), for which
500,000 shares of the Company's common stock have been reserved. Eligible
employees may purchase the Company's common stock through payroll deductions
by electing to have between 2% and 10% of their compensation withheld. Each
participant is granted an option to purchase the Company's common stock on the
first day of each 24 month offering period and such option is automatically
exercised on the last day of each six month purchase period during the
offering period. The purchase price for the Company's common stock under the
Purchase Plan is 85% of the lesser of the fair market value of the Company's
common stock on the first day of the applicable offering period and the last
day of the applicable purchase period. The first offering period began on
January 30, 1998. Offering periods thereafter will begin on February 1 and
August 1 of each year.

F-17
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

Pro Forma Information

The Company applies the intrinsic value method in accounting for its equity-
based compensation plan. Had compensation cost for the Company's equity-based
compensation plans been determined consistent with the fair value approach set
forth in SFAS No. 123, Accounting for Stock-Based Compensation, the Company's
net loss would have been as follows:

<TABLE>
<CAPTION>
Period from
April 12, 1995 Year Ended December 31,
(inception) to ------------------------
December 31, 1995 1996 1997
----------------- ----------- -----------
(In thousands, except per share data)
<S> <C> <C> <C>
Net loss as reported............ $(1,994) $ (10,288) $ (18,589)
Pro forma net loss under SFAS
No. 123........................ (1,999) (10,332) (18,904)
Basic and diluted net loss per
share as reported.............. (.43) (2.07) (2.61)
Pro forma basic and diluted net
loss per share under
SFAS No. 123................... (.43) (2.08) (2.65)
</TABLE>

The fair value of options granted during the period from April 12, 1995
(inception) to December 31, 1995 and the years ended December 31, 1996 and
1997 was estimated on the date of grant using the minimum value method using
the following weighted-average assumptions for options granted under all plans
except the SecureIT Plan: no dividend yield; risk-free interest rates of
6.11%, 6.21% and 6.14%, respectively; and an expected life of 5 years. Options
granted under the SecureIT Plan during the year ended December 31, 1997 were
valued using the minimum value method and weighted-average assumptions of no
dividend yield, risk-free interest rate of 6.34% and an expected life of 4
years.

(9) Income Taxes

The tax effects of temporary differences that give rise to significant
portions of the Company's deferred tax assets are as follows:

<TABLE>
<CAPTION>
December 31,
-----------------
1996 1997
------- --------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards and deferred start-up
costs................................................ $ 4,016 $ 11,579
Tax credit carryforwards.............................. 177 839
Other................................................. 162 507
------- --------
4,335 12,925
Valuation allowance..................................... (4,355) (12,925)
------- --------
Net deferred tax assets............................. $ -- $ --
======= ========
</TABLE>

As of December 31, 1997, the Company has available net operating loss
carryforwards for federal and California income tax purposes of approximately
$26,900,000 and $27,100,000, respectively. The federal net operating loss
carryforwards will expire, if not utilized, in 2010 through 2014. The
California net operating loss carryforwards will expire, if not utilized, in
2003.

As of December 31, 1997, the Company has available for carryover research
and experimental tax credits for federal and California income tax purposes of
approximately $411,000 and $248,000, respectively. The federal research and
experimental tax credits will expire, if not utilized, in 2010 through 2014.
California

F-18
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

research and experimental tax credits carry forward indefinitely until
utilized. The Company also has federal foreign tax credits of approximately
$180,000, which expire, if not utilized, in 2001 and 2002.

The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. Accordingly, the Company's ability to
utilize net operating loss and credit carryforwards may be limited as a result
of such an "ownership change" as defined in the Internal Revenue Code.

(10) Commitments

Leases

The Company leases its facilities under operating leases that extend through
2002. Future minimum lease payments under the Company's noncancelable
operating leases as of December 31, 1997, are as follows:

<TABLE>
<CAPTION>
(In thousands)
<S> <C>
1998....................................................... $1,645
1999....................................................... 1,667
2000....................................................... 1,679
2001....................................................... 1,293
2002....................................................... 9
------
Total minimum lease payments............................... $6,293
======
</TABLE>

In April 1998, the Company entered into a five-year operating lease for
facilities for its SecureIT subsidiary in Norcross, Georgia. The annual
minimum commitment for this lease is $156,000. In September 1998, the Company
entered into a 6 1/2-year operating lease agreement for additional space
contiguous to its headquarters facility. The annual minimum commitment related
to this lease, which begins in January 1999, is $1.8 million.

Net rental expense under operating leases for the period from April 12, 1995
(inception) to December 31, 1995 and the years ended December 31, 1996 and
1997 was $141,000, $621,000 and $1,722,000, respectively.

(11) Special Charges

Merger-related expenses

In connection with the acquisition of SecureIT in July 1998 (see Note 2),
the Company recorded a special charge of $3.6 million for direct and other
merger-related costs pertaining to the merger transaction and certain stock-
based compensation charges. Merger transaction costs totaled $2.4 million and
consisted primarily of fees for investment bankers, attorneys and accountants,
filing fees and other related charges. The stock-based compensation charges of
$1.2 million related to certain performance stock options held by SecureIT
employees whose vesting either automatically accelerated upon change of
control or were accelerated by VeriSign's Board of Directors subsequent to the
merger.

VeriFone

In September 1996, VeriFone, Inc., which subsequently became a wholly-owned
subsidiary of Hewlett-Packard Company, filed a lawsuit against the Company
alleging, among other things, trademark infringement. In

F-19
<PAGE>

VERISIGN, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

December 31, 1995, 1996 and 1997 and September 30, 1998
(Information as of September 30, 1998 and for the nine months ended
September 30, 1997 and 1998 is unaudited.)

November 1997, both parties executed a definitive agreement under which, among
other things, the Company issued an aggregate of 250,000 shares of common
stock, which were transferred to Hewlett-Packard, and the Company and VeriFone
settled such claims. The settlement amount was recorded during the year ended
December 31, 1997 as a $2.0 million charge to operations.

Microsoft

In November 1997, the Company entered into a preferred provider agreement
with Microsoft Corporation ("Microsoft") whereby the companies will develop,
promote and distribute a variety of client-based and server-based digital
certificate solutions and the Company will be designated as the premier
provider of digital certificates for Microsoft customers. In connection with
the agreement, the Company issued 100,000 shares of common stock to Microsoft
resulting in an $800,000 charge to operations.

(12) Geographic Information

Financial information by geographic area for the years ended December 31 was
as follows:

<TABLE>
<CAPTION>
United
1996 States Japan Consolidated
---- -------- ------- ------------
(In thousands)
<S> <C> <C> <C>
Revenues................................... $ 1,301 $ 55 $ 1,356
Operating loss............................. (9,326) (1,733) (11,059)
Total assets, excluding cash and cash
equivalents............................... 5,933 598 6,531
1997
----
Revenues................................... 12,983 373 13,356
Operating loss............................. (18,166) (3,135) (21,301)
Total assets, excluding cash and cash
equivalents............................... 18,202 3,760 21,962
</TABLE>

Intergeographic transactions have not been significant to date. Other
revenues derived from international customers aggregated $861,000 for the year
ended December 31, 1997.

F-20
<PAGE>

[LOGO OF VERISIGN]