AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 17, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTERNATIONAL NETWORK SERVICES
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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CALIFORNIA 77-0289509
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)

1213 INNSBRUCK DRIVE
SUNNYVALE, CA 94089
(408) 542-0100
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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KEVIN J. LAUGHLIN
CHIEF FINANCIAL OFFICER
INTERNATIONAL NETWORK SERVICES
1213 INNSBRUCK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 542-0100
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
ELIZABETH R. FLINT
JAMES C. CREIGH
WILSON SONSINI GOODRICH & ROSATI
PROFESSIONAL CORPORATION
650 PAGE MILL ROAD
PALO ALTO, CALIFORNIA 94304-1050
(650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of the Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------

PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------

Common Stock, no par
value.................. 3,559,238 shares $52.84 $188,070,136 $52,283

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(1) Estimated solely for purposes of calculation of the registration fee based
on the average of the high and low prices of the Common Stock on the
Nasdaq National Market on December 11, 1998.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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- -------------------------------------------------------------------------------

PROSPECTUS

3,559,238 SHARES

COMMON STOCK

INTERNATIONAL NETWORK SERVICES
----------------

The INS Common Stock offered hereby will be sold from time to time by the
Selling Shareholders. See "Selling Shareholders." We will pay certain of the
expenses of this offering; however, the Selling Shareholders will bear the
cost of all brokerage commissions and discounts incurred with the sale of
shares to which this Prospectus relates. We will not receive any proceeds from
the sale of shares by the Selling Shareholders.

The Selling Shareholders may offer and sell all the shares in the over-the-
counter market or on one or more exchanges, or otherwise at prices and at
terms then prevailing or at prices related to the then current market price,
or in negotiated transactions, or to one or more underwriters for resale to
the public.

INS Common Stock is traded on the Nasdaq National Market under the symbol
"INSS." The last reported sale price of the Common Stock on the Nasdaq
National Market on December 16, 1998 was $53.00 per share.
----------------

INVESTING IN INS COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
----------------

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.
----------------

The date of this Prospectus is December 16, 1998.

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. THE SELLING SHAREHOLDERS ARE OFFERING TO SELL,
AND SEEKING OFFERS TO BUY, SHARES OF INS COMMON STOCK ONLY IN JURISDICTIONS
WHERE OFFERS AND SALES ARE PERMITTED. THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF
THE TIME OF DELIVERY OF THIS PROSPECTUS OR OF ANY SALE OF THE COMMON STOCK. IN
THIS PROSPECTUS, REFERENCES TO THE "COMPANY," "INS," "WE," "US," AND "OUR"
REFER TO INTERNATIONAL NETWORK SERVICES AND ITS SUBSIDIARIES.

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TABLE OF CONTENTS

PAGE
----

The Company............. 3
Risk Factors............ 4
Use of Proceeds......... 10
Selling Shareholders.... 10

PAGE
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Plan of Distribution................ 13
Where You Can Find More Information. 14
Legal Matters....................... 14
Experts............................. 14

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We have made forward-looking statements in this Prospectus and in documents
that we have incorporated by reference into this Prospectus. These forward-
looking statements are subject to risks and uncertainties. Actual results may
differ materially from those expressed in these forward-looking statements.

Forward-looking statements include information concerning our possible or
assumed future results of operations as well as statements that include the
words "believes," "expects," "anticipates," "intends" or similar expressions.
You should understand that certain important factors, including those set
forth in "Risk Factors" below and elsewhere in this Prospectus and the
documents that we have incorporated by reference into this Prospectus, could
affect our future results of operations and could cause those results to
differ materially from those expressed in our forward-looking statements. In
connection with these forward-looking statements, you should carefully review
the risks set forth in this Prospectus and the documents incorporated into
this Prospectus under "Risk Factors."

THE COMPANY

INS is a worldwide provider of services for complex enterprise networks. We
provide services for the full life cycle of a network, including planning,
design, implementation, operations and optimization, and maintain expertise in
the most complex network technologies and multivendor environments. Our areas
of expertise include wide area networks ("WANs"), network management, network
and host security and high performance local area networks ("LANs"), and
virtual LANSs ("VLANs"). We believe that we are able to provide unbiased
assessments and optimal solutions for our clients. We offer our services on a
long or short term basis in any or all phases of the network life cycle. Our
services are particularly well suited to clients who out-task a portion of
their information technology infrastructure. We have developed an on-line
solutions resource, Knowledge Network, through which our network systems
engineers communicate and collaborate to provide solutions to clients' complex
enterprise network needs. We are leveraging our expertise in complex networks
to develop electronic services for certain repetitive network management
tasks, such as network monitoring and network performance reporting. Our
current electronic service, EnterprisePROSM, is designed to collect data,
generate reports and compile network information for use in the optimization
of networks. We serve our clients, many of which have multi-location
enterprise networks, through our network of 40 offices. As of September 30,
1998, we employed 1,562 persons, including 1,210 network systems engineers and
managers.

Our principal executive offices are located at 1213 Innsbruck Drive,
Sunnyvale, CA 94089. The Company's telephone number at that location is (408)
542-0100.

RECENT EVENTS

On November 20, 1998, we completed our acquisition of VitalSigns Software,
Inc. ("VitalSigns") pursuant to the terms of the Agreement and Plan of
Reorganization, as amended and restated as of October 30, 1998, among INS,
VitalSigns and Valiant Acquisition Corp., a wholly-owned subsidiary of INS
("Merger Sub"). Pursuant to the terms of the Reorganization Agreement, Merger
Sub merged with and into VitalSigns and VitalSigns became a wholly-owned
subsidiary of INS. In addition, each issued and outstanding share of
VitalSigns common stock was converted into the right to receive 0.3160826
shares of INS Common Stock and each outstanding option to acquire VitalSigns
common stock was assumed by INS and became an equivalent option with respect
to INS common stock, on the same terms as the original option adjusted to
reflect the exchange ratio. INS issued approximately 3.955 million shares of
INS common stock in the merger and assumed options that can be exercised for
approximately 280,000 shares of INS common stock.

RISK FACTORS

This Prospectus contains forward-looking statements that involve risks and
uncertainties. The following risk factors could materially and adversely
affect our future operating results and could cause actual events to differ
materially from those predicted in our forward-looking statements related to
our business. In evaluating our business, prospective investors should
consider carefully the following risk factors in addition to the other
information set forth in this Prospectus.

Variability of Quarterly Operating Results. We derive substantially all of
our revenue from professional services, which are generally provided on a
"time and expenses" basis. We recognize professional services revenue only
when network systems engineers are engaged on client projects. In addition, a
majority of our operating expenses, particularly personnel and related costs,
depreciation and rent, are relatively fixed in advance of any particular
quarter. As a result, any underutilization of network systems engineers may
cause significant variations in our operating results in any particular
quarter and could result in losses for such quarter. Factors, which could
cause such underutilization, include:

. the reduction in size, delay in commencement, interruption or
termination of one or more significant projects;

. the completion during a quarter of one or more significant projects;

. the inability to obtain new projects;

. the overestimation of resources required to complete new or ongoing
projects; and

. the timing and extent of training, weather related shut-downs, vacation
days and holidays.

Our revenue and earnings may also fluctuate from quarter to quarter based on
a variety of factors including:

. the loss of key employees;

. an inability to hire and retain sufficient numbers of employees,
including network systems engineers, account managers and software
engineers;

. reductions in billing rates or product pricing;

. write-offs of billings or services performed at no charge as a result of
our failure to meet client expectations;

. product returns and undetected product errors or failures;

. the timing of new product announcements and changes in pricing policies
by INS and our competitors;

. claims by our clients for the actions of our employees arising from
damages to our clients' business or otherwise;

. competition;

. the development and introduction of new services and products;

. corporate acquisitions;

. decrease or slowdown in the growth of the networking industry as a
whole;

. general economic conditions;

. ongoing market acceptance; and

. the timing and size of orders for software solutions.

We recently acquired VitalSigns, a company that manufactures and develops
software products that monitor and measure network and application
performance. As a result, our revenues will include a greater percentage of
sales from software solutions. See "Risks Associated With Software Solutions."

In addition, we plan to continue to expand our operations based on sales
forecasts by hiring additional network systems engineers, account managers and
other employees, investing in new product development and adding new offices,
systems and other infrastructure. The resulting increase in operating expenses
would materially adversely affect our operating results if revenue does not
increase as much as forecasted.

We believe that quarterly revenue and operating results are likely to vary
significantly in the future and that period-to-period comparisons of our
operating results are not necessarily meaningful. You should not rely on
period-to-period comparisons as indications of future performance. In some
future quarter, our revenue or operating results will likely be below the
expectations of public market analysts or investors. In such event, the price
of INS Common Stock would likely be materially adversely affected.

Risks Associated with Client Concentration; Absence of Long-Term
Agreements. We have historically derived a significant portion of our revenue
from a limited number of clients and expect this concentration to continue. In
the quarter ended September 30, 1998, one client accounted for approximately
12% of revenue and ten clients accounted for approximately 44% of revenue. No
one client accounted for more than 10% of revenue for the fiscal year ended
June 30, 1998. There can be no assurance that revenue from clients that have
accounted for significant revenue in past periods, individually or as a group,
will continue, or if continued will reach or exceed historical levels in any
future period. We have, in the past, experienced declines in revenue from
clients that have accounted for significant revenue.

In addition, we generally do not have a long-term services contract with any
of our clients. Our clients are generally able to reduce or cancel their use
of our professional services without penalty and with little or no notice. As
a result, we believe that the number and size of our existing projects are not
reliable indicators or measures of future revenue. When a client defers,
modifies or cancels a project, we must be able to rapidly redeploy network
systems engineers to other projects in order to minimize the underutilization
of employees and the resulting adverse impact on our operating results. In
addition, our operating expenses are relatively fixed and cannot be reduced on
short notice to compensate for unanticipated variations in the number or size
of projects in progress. As a result, the following could have a material
adverse effect on our business, operating results and financial conditions:

. any significant reduction in the scope of the work performed for any
significant client or a number of smaller clients; or

. the failure of anticipated projects to materialize.

Need to Attract and Retain Qualified Network Systems Engineers. Our future
success will depend in large part on our ability to hire, train and retain
network systems engineers who together have expertise in a wide array of
network and computer systems and a broad understanding of the industries we
serve. Competition for network systems engineers is intense, and there can be
no assurance that we will be successful in attracting and retaining such
personnel. In particular, competition is intense for the limited number of
qualified managers and senior network systems engineers. We have experienced,
and may in the future experience, high rates of turnover among our network
systems engineers. Our inability to hire, train and retain a sufficient number
of qualified network systems engineers could impair our ability to adequately
manage and complete our existing projects or to obtain new projects, which, in
turn, could have a material adverse effect on our business, operating results
and financial condition.

We have experienced, and may in the future experience, increasing
compensation costs for our network systems engineers. Our inability to recover
increases in compensation of network systems engineers through higher billing
rates or to reduce other expenses to offset such increases, could have a
material adverse effect on our business, operating results and financial
condition. In addition, our inability to attract and retain a sufficient
number of qualified network systems engineers in the future could impair our
planned expansion of our business.

Dependence on New Business Development. Our future success will also depend
in large part on the development of new business by our account managers, who
solicit new business and manage relationships with

existing clients. As a result, our success will depend on our ability to
attract and retain qualified account managers who have an understanding of our
business and the industry it serves. Competition for account managers is
intense and we have experienced, and may in the future experience, high rates
of turnover among our account managers. In addition, integration of new
account managers into our business can be lengthy. Our inability to attract
and retain a sufficient number of account managers or to integrate new account
managers into our operations on a timely basis could have a material adverse
effect on our business, operating results and financial condition.

Risks Associated with Software Solutions. Our long-term strategy is to
derive a significant portion of our revenue from the sale of software
solutions. We have devoted, and expect to continue to devote, substantial
amounts of money and employees in the development and marketing of our
software solutions. The introduction of software solutions is subject to risks
generally associated with new product and service introductions, including
delays in development, testing or introduction, or the failure to satisfy
clients' requirements.

If we introduce products embodying new technologies or if new industry
standards emerge, our existing software products could become obsolete and
unmarketable. The life cycles of our software products are difficult to
estimate. Our future success depends upon our ability to enhance our current
products and to develop and introduce new products on a timely basis that keep
pace with technological developments and emerging industry standards and
address the increasingly sophisticated needs of our customers. We may not be
successful in developing and marketing product enhancements or new products
that respond to technological change or evolving industry standards. We could
experience difficulties that could delay or prevent the successful
development, introduction and marketing of these products. Our new products
and product enhancements may not adequately meet the requirements of our
current or potential customers or achieve market acceptance. If we cannot, for
technological or other reasons, develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, our business, operating results
and financial condition could be materially adversely affected. If these
products are not accepted in the marketplace, our operating results and
financial condition will be adversely affected.

Dependence on Growth in an Emerging Market. We currently expect our
VitalAnalysis and VitalHelp application performance management software
products to account for a significant part of our future software product
revenue. Although demand for VitalHelp and VitalAnalysis has grown recently,
the application performance management market is still an emerging market. Our
future software product financial performance will largely depend on continued
growth in the number of organizations adopting application performance
management environments from the end user's perspective. If the application
performance management market fails to grow or grows more slowly than we
currently anticipate, our operating results could be adversely affected.

Dependence on Proprietary Technology; Risks of Infringement. Our success
depends in part on our information technology, only some of which is
proprietary to us, and other intellectual property rights. We rely on a
combination of nondisclosure and other contractual arrangements, technical
measures, copyrights and trade secret and trademark laws to protect our
proprietary rights. We also try to protect our software, documentation and
other written materials under trade secret and copyright laws. In addition, we
presently have eight patent applications pending, seven applications for
federal trademark rights pending and one federal trademark issued. There can
be no assurance that such patent and trademarks applications will be granted.
We have in the past entered into services contracts with clients that assign
rights to certain of the work performed under such contracts to such clients.
We do not believe that these contracts will limit our ability to render
services to other clients, although we can not assure you that this will be
the case. In selling certain products, we rely on "end user" licenses that are
not signed by licensees and, therefore, such licenses may be unenforceable
under the laws of certain jurisdictions. The laws of some foreign countries do
not protect our proprietary rights to the same extent as the laws of the
United States. There can be no assurance that the steps we have taken to
protect our proprietary rights will be adequate or that third parties will not
infringe or misappropriate our patents, copyrights, trademarks, trade dress
and similar proprietary rights.

We enter into confidentiality arrangements with our employees and attempt to
limit access to and distribution of proprietary information. There can be no
assurance that the steps we have taken in this regard will be adequate to
deter misappropriation of proprietary information and that we will be able to
detect unauthorized use or take appropriate steps to enforce intellectual
property rights.

We expect software piracy to be a persistent problem. Policing unauthorized
use of our products is difficult, and we cannot determine the extent to which
piracy of our software exists.

We may receive communication in the future from third parties or clients
asserting that we have infringed or misappropriated the proprietary rights of
such parties. We expect that software developers will increasingly be subject
to infringement claims as the number of products and the number of competitors
in our industry segment grows and the functionality of products in other
industry segments overlap. Any such claims, with or without merit, could be
time consuming, result in costly litigation and divert technical and
management personnel, result in delays of product shipments, require us to
develop non-infringing technology or require us to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to us or at all. If a claim of
infringement or misappropriation against us is successful and we fails to or
cannot develop non-infringing technology or license the infringed,
misappropriated, or similar technology, our business, operating results and
financial condition could be materially adversely affected.

Management of Growth. We have experienced a period of rapid revenue and
client growth and an increase in the number of employees and offices and in
the scope of our supporting infrastructure. We do not believe this rate of
growth is sustainable over the long term. This growth has resulted in new and
increased responsibilities for management personnel and has placed and
continues to place a significant strain on our management and operating and
financial systems. We will be required to continue to hire management
personnel and improve our systems on a timely basis and in such a manner as is
necessary to accommodate any increase in the number of transactions and
clients, any increase in the size of our operations and any introduction of
new products and services. There can be no assurance that our management or
systems will be adequate to support our existing or future operations. Any
failure to implement and improve our systems or to hire and retain appropriate
personnel to manage our operations would have a material adverse effect on our
business, operating results and financial condition.

Intense Competition. The network industry is comprised of a large number of
participants and is subject to rapid change and intense competition. With
respect to professional services, we face competition from system integrators,
VARs, local and regional network services firms, telecommunications providers,
network equipment vendors, and computer systems vendors, many of which have
significantly greater financial, technical and marketing resources and greater
name recognition, and generate greater service revenue than we do. With
respect to software solutions, we face competition from companies such as
Hewlett Packard, Tivoli, Computer Associates, Network Associates, Concord
Communications, Desktalk Systems and Compuware, some of which have
significantly greater financial, technical and marketing resources and greater
name recognition, and generate greater service revenue than we do. We have
faced, and expect to continue to face, additional competition from new
entrants into our markets.

Increased competition could result in price reductions, fewer client
projects, underutilization of employees, reduced operating margins and loss of
market share, any of which could have a material adverse effect on our
business, operating results and financial condition. There can be no assurance
that we will be able to compete successfully against current or future
competitors. Our failure to compete successfully would have a material adverse
effect on our business, operating results and financial condition.

Risks Associated with Acquisitions. We may make acquisitions of, or
significant investments in, complementary companies, products or technologies.
We recently completed the acquisition of VitalSigns. This acquisition, as well
as any future acquisitions, will be accompanied by the risks commonly
encountered in making acquisitions of companies, products and technologies.
Such risks include, among others:

. the difficulty associated with assimilating the personnel and operations
of acquired companies,

. the potential disruption of our ongoing business,

. the distraction of management and other resources,

. the inability of management to maximize our financial and strategic
position through the successful integration of acquired personnel,
technology and rights,

. the maintenance of uniform standards, controls, procedures and policies,
and

. the impairment of relationships with employees, partners and clients as
a result of the acquisition.

There can be no assurance that we will be successful in overcoming these
risks or any other problems encountered in connection with the acquisition of
VitalSigns or any future acquisitions. Any such problems encountered in the
transition and integration process could have a material adverse effect on our
business, operating results and financial condition.

Risks Associated With International Expansion. A component of our long-term
strategy is to expand into international markets. We provide professional
services to certain of our United States clients in foreign locations, and
have opened offices in the United Kingdom, the Netherlands, Germany and
Canada. To date, revenue generated from international operations has not been
significant. There is no assurance that the revenue generated from
international operations will be adequate to offset the expense of
establishing and maintaining these foreign operations, and if revenue does not
materialize as anticipated, our business, operating results and financial
condition could be materially adversely affected. There can be no assurance
that we will be able to successfully market, sell and deliver our services in
international markets.

In addition to the uncertainty as to our ability to expand into
international markets, there are certain risks inherent in conducting business
on an international level, any one of which could adversely impact the success
of our international operations. These risks include:

. unexpected changes in regulatory requirements, export restrictions,
tariffs and other trade barriers;

. difficulties in staffing and managing foreign operations;

. employment laws and practices in foreign countries;

. longer payment cycles and problems in collecting accounts receivable;

. political instability;

. fluctuations in currency exchange rates;

. imposition of currency exchange controls;

. seasonal reductions in business activity during the summer months in
Europe and certain other parts of the world; and

. potentially adverse tax consequences.

There can be no assurance that one or more of these factors will not have a
material adverse effect on our future international operations and,
consequently, on our business, operating results and financial condition.
There can be no assurance that we will be able to compete effectively in these
markets.

Relationship with Cisco Systems. Although we are a vendor independent
provider of network services, we have a significant relationship with Cisco
and believe that maintaining and enhancing this relationship is important to
our business due to Cisco's leading position in the large scale enterprise
internetworking market. Cisco develops, manufactures, markets and supports
high-performance, multiprotocol internetworking systems that link
geographically dispersed LANs and WANs. We have entered into direct
relationships with clients as a result of referrals from Cisco and provide
services directly to Cisco, primarily as a subcontractor.

Cisco is a shareholder of ours, and an officer of Cisco is a member of our
Board of Directors. Although we believe that our relationship with Cisco is
good, there can be no assurance that we will be able to maintain or enhance
our relationship with Cisco. Any deterioration in our relationship with Cisco
could have a material adverse effect on our business, operating results and
financial condition. In addition, should our relationship with Cisco be
perceived as compromising our ability to provide unbiased solutions, our
relationship with existing or potential clients could be materially adversely
affected.

Risk of Product "Bugs." Software products as complex as ours may contain
undetected errors or failures when first introduced or when new versions are
released. Although we have not experienced material adverse effects resulting
from any such errors to date, errors could be found in new products or
releases after they have been sold, despite testing by us and by current and
potential customers, which would result in loss of or delay in market
acceptance.

Product Liability. Our software product license agreements with customers
typically contain provisions designed to limit our exposure to potential
product liability claims. In selling certain products, we rely on "end user"
licenses that are not signed by licensees and, therefore, it is possible that
such licenses may be unenforceable under the laws of certain jurisdictions.
For these and other reasons, the limitation of liability provisions contained
in our license agreements may not be effective. Although we have not had any
product liability claims to date, the sale and support of products may result
in such claims in the future. A successful product liability claim brought
against us could have an adverse effect upon our operating results.

Year 2000. The year 2000 issue is the result of computer programs having
been written using two digits, rather than four, to define the applicable
year. Any of our computers, computer programs, and administration equipment or
products that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. If any of our systems that have date-
sensitive software use only two digits, system failures or miscalculations may
result causing disruptions of operations, including, among other things, a
temporary inability to process transactions or send and receive electronic
data with third parties or engage in similar normal business activities.

We believe that our current software products are year 2000 compliant.
However, there can be no assurance that our current products do not contain
undetected errors or defects associated with year 2000 date functions that may
result in material cost to us.

With respect to our internal information technology systems (including
information technology-based office facilities such as data and voice
communications, building management and security systems), we have formed an
ongoing internal review team to address the Year 2000. A team of professionals
has been engaged in a process to identify and resolve significant Year 2000
issues in a timely manner. The process includes an assessment of issues,
testing of systems and development of remediation plans, where necessary, as
they relate to internally used software, computer hardware and use of computer
applications in our products. Further, based on the exposures found as a
result of this review, the team will assess the need to develop a contingency
planning effort necessary to support critical business operations. Executive
management regularly monitors the status of our Year 2000 remediation plans.

We are in the process of contacting our key suppliers and other key third
parties to certify their year 2000 readiness and conducting ongoing risk
analysis. To the extent such third parties are materially adversely affected
by the Year 2000 issue, this could disrupt our operations. There can be no
assurance that our key contractors will have successful conversion programs,
and that any such Year 2000 compliance failures will not have a material
adverse effect on our business, results of operation or financial condition.

Based on information available to date, we plan to substantially complete
our Year 2000 assessment and remediation in the summer of 1999. To date, we
have not incurred any material costs related to the assessment

of, and preliminary efforts in connection with, our Year 2000 issues. We
further believe that such review and modification, if any, will not require
material charge to operating expenses over the next several years. The costs
of the project and the date on which we plan to complete our Year 2000
assessment and remediation are based on our estimates, which were derived
utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ significantly from those plans.
Specific factors that might cause differences from our estimates include, but
are not limited to, the availability and cost of personnel trained in this
area, and similar uncertainties. We believe that we are devoting the necessary
resources to identify and resolve significant Year 2000 issues in a timely
manner.

USE OF PROCEEDS

The Company will not receive any of the proceeds from the sale of shares of
Common Stock. See "Selling Shareholders" and "Plan of Distribution."

SELLING SHAREHOLDERS

The following table sets forth the names of the Selling Shareholders and the
number of shares being offered by each Selling Shareholder or his, her or its
transferees, distributees, pledgees, donees or other successors in interest
from time to time. See "Plan of Distribution."

The shares being offered by the Selling Shareholders were acquired from the
Company in a transaction exempt from the registration requirements of the
Securities Act by Section 4(2) and Rule 506 thereunder pursuant to the
Agreement and Plan of Reorganization, as amended and restated as of October
30, 1998, among the Company, VitalSigns and Valiant Acquisition Corp., a
wholly-owned subsidiary of the Company.

The Selling Shareholders represented to the Company that such Selling
Shareholders were acquiring the shares for investment and not with the present
intention of distributing such shares. The Company has filed with the
Commission, under the Securities Act, a Registration Statement on Form S-3, of
which this Prospectus forms a part, with respect to the resale of the shares
from time to time in transactions on one or more exchanges, including the
Nasdaq National Market or in the over-the-counter market or otherwise or in
negotiated transactions, and has agreed to use its reasonable best efforts to
keep such registration statement effective until the earlier of (i) November
20, 1999, and (ii) the date all shares offered hereby have been resold.

INS SHARES
BENEFICIALLY INS SHARES
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES ---------------------
NAME SHARES PERCENT OFFERED(1) SHARES PERCENT
- ---- ---------- ------------------- --------- ---------

Entities Affiliated with
Austin Ventures(2)..... 392,793(3) 1.1 353,514 -- --
Donna M. Baily(4)....... 6,321 * 5,689 -- --
Cynthia Barber.......... 632 * 569 -- --
Cynthia Barber as
Trustee of the Kersten-
Heckman Family 1997
Trust.................. 71,118 * 64,006 -- --
Rajiv Batra(4).......... 94,824 * 85,342 -- --
Bay Networks, Inc....... 116,179 * 104,561 -- --
Gordon Bell(4).......... 3,160 * 2,844 -- --
Anupam Bharali(4)....... 32,499(5) * 26,669 -- --
Blanc & Otus(4)......... 3,318 * 2,986 -- --
Lenny Bonsall(4)........ 11,062 * 9,956 -- --
Andrew Byrne(4)......... 6,321 * 5,689 -- --
Nicholas William Carl-
son(4)................. 8,534 * 7,681 -- --
Shelby H. Carter,
Jr.(6)................. 127,084 * 114,376 -- --

Tony Yau Kit Chan(4).... 5,531 * 4,978 -- --
Asheem Chandna(4)....... 9,482 * 8,534 -- --
Brian Cox(4)............ 14,539 * 13,085 -- --
Peter Cross............. 37,929 * 34,136 -- --
Paula Delay(4).......... 17,147 * 15,432 -- --
Mordechai Fester(4)..... 3,792 * 3,413 -- --
William S. Finkel-
stein(4)............... 1,580 * 1,422 -- --
First TZMM Investment
Partnership............ 33,205 * 29,885 -- --
Paul Flores............. 4,741 * 4,267 -- --
Frank Quattrone and De-
nise A. Foderaro,
Trustees of the
Quattrone Family Trust. 4,751 * 4,276 -- --
GCWF Investment Part-
ners................... 13,284 * 11,956 -- --
General Electric Capital
Corporation............ 96,957 * 87,261 -- --
James Goetz(7).......... 517,585 1.4 465,827 -- --
Thomas & MaryAnne Goetz. 5,926 * 5,333 -- --
Michael L. Goguen....... 12,643 * 11,379 -- --
Thiagarajan
Hariharan(4)........... 34,769 * 31,292 -- --
Scott Harmon(4)......... 4,578 * 4,120 -- --
Paul & Leonna Heckmann.. 2,212 * 1,991 -- --
Robert Heckmann......... 632 * 569 -- --
Janet Heckmann-
Hiesterman............. 632 * 569 -- --
James G. Herman, Jr.(4). 3,160 * 2,844 -- --
Roger Heule(4).......... 16,436 * 14,792 -- --
Chuck Hewitt............ 2,963 * 2,667 -- --
Thomas P. Hogan(4)...... 74,964(5) * 59,739 -- --
George C. Hoyem(4)...... 2,370 * 2,133 -- --
Amy T. Johnson(4)....... 9,798 * 8,818 -- --
The Jona Group.......... 1,896 * 1,706 -- --
The Joy E. Tomlinson
1996 Trust............. 474 * 427 -- --
Carol J. Kersten........ 632 * 569 -- --
J. Montgomery Kers-
ten(7)................. 511,421 1.4 460,279 -- --
Jeanne M. & John R.
Kersten................ 2,212 * 1,991 -- --
Katherine Kersten....... 632 * 569 -- --
Laurie C. Kersten....... 632 * 569 -- --
Robert C. Kersten....... 632 * 569 -- --
Teresa E. Kersten....... 632 * 569 -- --
Elizabeth A. Koch as
Trustee of the Goetz
1998 Irrevocable
Children's Trust....... 63,216 * 56,894 -- --
Pierre Lamond(6)........ 21,196 * 19,076 -- --
William Lanfri(6)....... 237,061 * 213,355 -- --
Daniel Leary(4)......... 28,447 * 25,602 -- --
Cynthia M. Loe.......... 2,070 * 1,863 -- --
Joyce Maas.............. 2,963 * 2,667 -- --
Stacy Martin(4)......... 7,902 * 7,112 -- --
Michelle McComb(4)...... 22,441 * 20,197 -- --
Robert Mey(4)........... 8,218 * 7,396 -- --
Beth Ann Moore(4)....... 158 * 142 -- --
Roy Nakashima(4)........ 20,229 * 18,206 -- --

INS SHARES
BENEFICIALLY INS SHARES
OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER OF AFTER OFFERING
----------------------- SHARES --------------------
NAME SHARES PERCENT OFFERED(1) SHARES PERCENT
- ---- ---------- ------------------- ---------- ---------

Lisa M. Nielsen(4)...... 2,133 * 1,920 -- --
James Pante(4).......... 113,789 * 102,410 -- --
Kristine A. Peterson(4). 987 * 213 750 *
Richard R. Pierce....... 15,902 * 4,551 10,845 *
Ramesh Polisetty(4)..... 9,640 * 8,676 -- --
James Pollard(4)........ 10,921(5) * 6,843 -- --
Venkat Rangan(4)........ 71,308(5) * 43,951 -- --
Paulette Reddel......... 632 * 569 -- --
Srinivas Reddy(4)....... 55,314 * 49,783 -- --
Mohan Rijhwani(4)....... 17,782(5) * 15,361 -- --
Matthew Russell(6)...... 94,824 * 85,342 -- --
Tim A. Sawyer(4)........ 948 * 853 -- --
Entities Associated with
Sequoia Capital(8)..... 633,716(3) 1.7 570,339 -- --
Wing C. Siu(4).......... 9,482 * 8,534 -- --
George H. Skillman(4)... 39,889 * 35,900 -- --
Tower C. Snow, Jr....... 9,486 * 8,537 -- --
Kelly Stasukaitis(4).... 8,692 * 7,823 -- --
Walter Stauss(4)........ 1,390 * 1,251 -- --
Jeff Stevenson(4)....... 23,706 * 21,335 -- --
Timothy J. Straight(4).. 13,879 * 12,491 -- --
Scott Taggart(4)........ 474 * 427 -- --
Donald S. Templeton(4).. 15,804 * 14,224 -- --
Steven Tepper(4)........ 23,074 * 20,767 -- --
Ling Thio(4)............ 16,436 * 14,792 -- --
The Tucker Tomlinson
1996 Trust............. 474 * 427 -- --
TZM Investment Fund..... 2,844 * 2,560 -- --
Madan Valluri(4)........ 27,657 * 24,891 -- --
Suresh Viswanathan(4)... 17,222(5) * 17,068 -- --
Maynard G.(4) and Irene
C. Webb as Trustees of
the Webb Family Trust.. 12,801 * 11,521 -- --
Angela Word(4).......... 12,801 * 11,521 -- --

- --------
* Less than 1%.
(1) The Selling Shareholders and their transferees, distributees, pledgees,
donees or other successors in interest may sell from time to time all or a
portion of the shares being offered. The amounts shown assume the sale of
all the shares being offered by each Selling Shareholder or his, her or
its transferees, distributees, pledgees, donees or other successors in
interest.
(2) Joseph Aragona, a former director of VitalSigns, is a general partner of
Austin Venture V Affiliates Fund, L.P; Austin Ventures V, LP; and AV
Partners V, LP.
(3) Shares may be sold by certain distributees or transferees of listed
entity.
(4) A current or former employee, independent contractor, consultant or vendor
of VitalSigns.
(5) Shares beneficially owned prior to offering includes shares underlying
options assumed by INS in the VitalSigns acquisition that will vest within
60 days of December 20, 1998, all of which have been registered under a
separate registration statement under the Securities Act.
(6) A former director of VitalSigns.
(7) A former director and officer of VitalSigns.
(8) Pierre Lamond, a former director of VitalSigns, is an affiliate of Sequoia
1997 LLC, Sequoia Capital VII, Sequoia International Partners and Sequoia
Technology Partners VII.

PLAN OF DISTRIBUTION

The Company has been advised by the Selling Shareholders that they intend to
sell all or a portion of the shares offered hereby from time to time in
transactions on one or more exchanges, including the Nasdaq National Market,
or in the over-the-counter market or otherwise, at prices and at terms then
prevailing or at prices related to the then current market prices, or in
negotiated transactions. The shares may be sold by one or more of the
following: (a) a block trade in which the broker or dealer engaged will
attempt to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction; (b) purchases by a
broker or dealer as principal and resale by such broker or dealer for its
account pursuant to this Prospectus; (c) an exchange distribution in
accordance with the rules of such exchange; and (d) ordinary brokerage
transactions and transactions in which the broker solicits purchasers. In
effecting sales, brokers or dealers engaged by a Selling Shareholder may
arrange for other brokers or dealers to participate in the resales. The shares
may be sold from time to time by a Selling Shareholder, or by his, her or its
transferees, distributees, pledgees, donees or other successors in interest.

In connection with distributions of the shares or otherwise, a Selling
Shareholder may enter into hedging transactions with broker-dealers. In
connection with such transactions, broker-dealers may engage in short sales of
the shares registered hereunder in the course of hedging the positions they
assume with a Selling Shareholder. A Selling Shareholder may also sell shares
short and redeliver the shares to close out such short positions. A Selling
Shareholder may also enter into option or other transactions with broker-
dealers which require the delivery to the broker-dealer of the shares
registered hereunder. A Selling Shareholder may also pledge the shares offered
hereby to a broker or dealer and upon a default the broker or dealer may
effect sales of the shares pursuant to this Prospectus.

Brokers, dealers or agents may receive compensation in the form of
commissions, discounts or concessions from a Selling Shareholder in amounts to
be negotiated in connection with the sale. Such brokers or dealers and any
other participating brokers or dealers may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such sales, and
any such commission, discount or concession may be deemed to be underwriting
discounts or commissions under the Securities Act. In addition, any securities
covered by this Prospectus which qualify for sale pursuant to Rule 144 may be
sold under Rule 144 rather than pursuant to this Prospectus.

There can be no assurance that any Selling Shareholder will sell any or all
of the shares offered hereunder.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, NW, Washington, D.C. 20549.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference room. Our SEC filings are also available to the public from the
SEC's Website at "http://www.sec.gov."

The SEC allows us to "incorporate by reference" the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this Prospectus, and information that we file later
with the SEC will automatically update and supersede this information. We
incorporate by reference the documents listed below and any future filings we
will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Securities Exchange Act of 1934:

1. Our Annual Report on Form 10-K for the fiscal year ended June 30, 1998;

2. Our Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1998;

3. Our Current Report on Form 8-K dated November 20, 1998;

4. Our Current Report on Form 8-K dated December 17, 1998; and

5. The description of the Common Stock set forth in our Registration
Statement on Form 8-A filed on August 2, 1996.

You may request a copy of these filings, at no cost, by writing or
telephoning our Chief Financial Officer at the following address:

International Network Services
1213 Innsbruck Drive
Sunnyvale, California 94089
(408) 542-0100

This Prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information or representations provided in this
Prospectus. We have authorized no one to provide you with different
information. We are not making an offer of these securities in any state where
the offer is not permitted. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front of the
document.

LEGAL MATTERS

The validity of the shares of Common Stock to which this Prospectus relates
will be passed upon for the Company by Wilson Sonsini Goodrich & Rosati, Palo
Alto, California.

EXPERTS

The consolidated financial statements of the Company incorporated in this
Prospectus by reference to the Annual Report on Form 10-K of International
Network Services for the year ended June 30, 1998 and the audited supplemental
consolidated financial statements included in Exhibit 99 of International
Network Services' Current Report on Form 8-K dated December 17, 1998 have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.*

SEC Registration Fee................................................ $52,283
Accountant's fees and expenses...................................... $ 2,000
Legal fees and expenses............................................. $25,000
Miscellaneous....................................................... $ 6,000
-------
Total............................................................... $85,283
=======

* Represents expenses relating to the distribution by the Selling
Shareholders pursuant to the Prospectus prepared in accordance with the
requirements of Form S-3. These expenses will be borne by the Company on
behalf of the Selling Shareholders. All amounts are estimates except for
the SEC Registration Fee.

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The Registrant's Amended and Restated Articles of Incorporation limit the
liability of the Registrant's directors for monetary damages to the maximum
extent permitted by California law. Such limitation of liability has no effect
on the availability of equitable remedies, such as injunctive relief or
rescission.

The Registrant's Amended and Restated Bylaws provide that the Registrant
will indemnify its directors and officers and may indemnify its employees and
agents (other than officers and directors) against certain liabilities to the
maximum extent permitted by California law. The Registrant has entered into
indemnification agreements with each of its current directors and officers and
certain of its key employees that provide for indemnification of, and
advancement of expenses to, such persons to the maximum extent permitted by
California law, including by reason of action or inaction occurring in the
past and circumstances in which indemnification and advancement of expenses
are discretionary under California law.

At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Registrant in which
indemnification would be required or permitted. The Registrant is not aware of
any threatened litigation or proceeding that may result in a claim for such
indemnification.

ITEM 16. EXHIBITS.

EXHIBIT
NUMBER
-------

2.1 Agreement and Plan of Reorganization, as amended and restated as of
October 30, 1998, among International Network Services, Valiant
Acquisition Corp. and VitalSigns Software, Inc. (incorporated by
reference to exhibit 2.1 to the Registrant's Current Report on Form
8-K dated November 20, 1998)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit
5.1)
24.1 Power of Attorney (See signature page)

ITEM 17. UNDERTAKINGS.

The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to include any
material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement.

II-1

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

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.

(4) That, for purposes of determining any liability under the Securities
Act, each filing of the registrant's annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.

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

II-2

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF SUNNYVALE, STATE OF CALIFORNIA, ON DECEMBER 17,
1998.

International Network Services

By: /s/ Kevin J. Laughlin
------------------------------------
Kevin J. Laughlin
Vice President, Finance and
Chief Financial officer

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that the person whose signature appears
below constitutes and appoints Kevin J. Laughlin, his attorney-in-fact, with
the power of substitution, for him in any and all capacities, to sign any
amendments to this Registration Statement on Form S-3, and to file the same,
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
each of said attorneys-in-fact, or his substitute or substitutes, may do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Donald M. McKinney Chairman of the Board December 17, 1998
- -------------------------------
Donald M. McKinney

/s/ John L. Drew President, Chief Executive December 17, 1998
- ------------------------------- Officer and Director
John L. Drew (Principal Executive
Officer)

/s/ Kevin J. Laughlin Vice President, Finance, December 17, 1998
- ------------------------------- Chief Financial Officer and
Kevin J. Laughlin Secretary (Principal
Accounting Officer and
Principal Financial
Officer)

/s/ Douglas C. Allred Director December 17, 1998
- -------------------------------
Douglas C. Allred

/s/ Vernon R. Anderson Director December 17, 1998
- -------------------------------
Vernon R. Anderson

/s/ David Carlick Director December 17, 1998
- -------------------------------
David Carlick

/s/ Lawrence G. Finch Director December 17, 1998
- -------------------------------
Lawrence G. Finch

II-3

INDEX TO EXHIBITS

EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----

2.1 Agreement and Plan of Reorganization, as amended and restated
as of October 30, 1998, among International Network Services,
Valiant Acquisition Corp. and VitalSigns Software, Inc.
(incorporated by reference to exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated November 20, 1998)
5.1 Opinion of Wilson Sonsini Goodrich & Rosati
23.1 Consent of PricewaterhouseCoopers LLP, Independent Accountants
23.2 Consent of Wilson Sonsini Goodrich & Rosati (included in
Exhibit 5.1)
24.1 Power of Attorney (See signature page)